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As filed with the Securities and Exchange Commission on March 18, 1999
Registration No. 333-70937
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933, as amended
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P-COM, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 77-0289371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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3175 S. Winchester Boulevard, Campbell, CA 95008
(408) 866-3666
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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George P. Roberts
Chairman of the Board and Chief Executive Officer
P-Com, Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
(408) 866-3666
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
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Copy to:
Warren T. Lazarow, Esq.
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
(650) 424-0160
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Approximate date of commencement of proposed sale to the public:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the
following box and list the Securities Act of 1933, as amended, registration
statement number of the earlier effective registration statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, as amended, check the following box and list the
Securities Act of 1933, as amended, registration statement number of the earlier
effective registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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PRELIMINARY PROSPECTUS
(SUBJECT TO COMPLETION, DATED MARCH 18, 1999)
13,000,000 Shares
P-COM, INC.
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COMMON STOCK
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Certain stockholders of P-COM, Inc. are offering for resale and
selling under this prospectus up to 13,000,000 shares of our common stock.
The selling stockholders may offer and sell some, all or none of the
common stock under this prospectus. The selling stockholders may determine the
prices at which they will sell their shares, which may be the prevailing market
price for the shares or negotiated prices. We will not receive any of the
proceeds from sales of the shares. The selling stockholders may use brokers or
dealers, who may receive commissions, in connection with such sales.
Our common stock is traded on the Nasdaq National Market (Nasdaq
Symbol: PCMS). On March 16, 1999, the closing price of the common stock was
$8.625 per share.
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You should carefully consider the risk factors commencing on page 3
before purchasing any of the common stock offered by the selling stockholders.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
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The date of this prospectus is _____________, 1999.
The information in this prospectus is not complete and may be changed.
The selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
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SUMMARY
In December 1998, P-Com, Inc. raised gross proceeds of $15 million
through issuance and sale of 15,000 shares of a newly designated Series B
preferred stock and warrants to purchase 1,242,257 shares of common stock. The
Series B preferred stock converts into shares of common stock at variable rates
based on future events and future trading prices. The warrants are subject to
anti-dilution protections which may require additional issuances. The Series B
preferred stock accrues a 6% premium per year, payable in cash or common stock
at P-Com's option.
The purchasers of the Series B preferred stock are the selling
shareholders under the registration statement of which this prospectus is a
part.
<TABLE>
<CAPTION>
Estimated Amount of Common Stock Approximate Percentage
Selling Shareholder Beneficially Owned/1/ of Beneficial Ownership/2/
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marshall Capital Management, Inc. 1,118,030 2.3%
- --------------------------------------------------------------------------------------------------------
Castle Creek Technology Partners LLC 1,366,482 2.8%
- --------------------------------------------------------------------------------------------------------
Capital Ventures International 1,242,257 2.6%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Issuable upon conversion of the Series B preferred stock and exercise of
the warrants.
(2) Based on the current market price of the shares as of March __ 1999.
Subject to certain limitations, due to the variable conversion ratio, there
is no limitation on the number of shares of common stock into which the Series B
preferred stock can be converted. See "Description of Capital Stock--Series B
preferred stock" and "Certain Factors Affecting the Company--Series B Preferred
Stock Financing." As the market price of the common stock decreases, the number
of shares issuable upon conversion of the Series B preferred stock increases.
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RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below may not be
the only ones facing P-Com. Additional risks and uncertainties not presently
known to us may also impair our business operations. Further details with
respect to the risks described below are found in a section of this document
entitled "Certain Factors Affecting the Company." In order to fully appreciate
the risks described below, you should read the entire prospectus including the
sections each risk references. These risk factors supplement and do not
supercede the risk factors contained in our Annual Report on Form 10-K for the
year ended December 31, 1997, as amended, or any other filings with the SEC.
If any of the following risks actually occur, our business, financial
condition and results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
This prospectus also contains "forward-looking" statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in this
prospectus.
We cannot predict our success because of our short period of operation
Due to our limited operating history and limited resources, among
other factors, profitability or significant revenues on a quarterly or annual
basis may not occur in the future. We were founded in August 1991 and remained
in the development stage until October 1993 when commercial shipments of our
first product began. We are subject to all of the risks inherent in the
operation of a new business enterprise, and may not be able to successfully
address these risks, which would adversely affect our results and, ultimately,
our stock price.
We may continue to experience losses, which would depress our stock price
From our beginning to the end of the third quarter of fiscal 1998, we
generated a cumulative net loss of approximately $40.6 million. During 1997 and
1998, operating expenses increased more rapidly than we had anticipated and
these increases also contributed to net losses. We plan to continue investments
in operations, particularly to support product development and the marketing and
sales of recently introduced products. We have also undertaken cost-cutting
efforts in other areas. However, if sales do not increase, we may not achieve
profitability, and our business and financial condition, and ultimately our
stock price, may be materially adversely affected. See "Certain Factors
Affecting the Company--History of Losses."
A substantial amount of our products and services are purchased by a limited
number of customers, and the deterioration of any of these customer
relationships would have an immediate and adverse effect on us
If any of our important customers significantly reduce their purchases
from us or our subsidiaries for whatever reason, then this may materially
adversely affect the profitability our business. To date, approximately four
hundred customers have accounted for substantially all of our sales. However,
in 1997, two customers, Orange Personal Communications Ltd. and Winstar
Communications Corp., accounted for 16% and 11% of our 1997 sales, respectively.
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During the first three quarters of 1998, four customers accounted for
approximately 45% of sales and as of September 30, 1998, seven customers
accounted for approximately 46% of the backlog scheduled for shipment in the
subsequent twelve months. Similarly, several of our subsidiaries are dependent
on a few customers. See "Certain Factors Affecting the Company--Fluctuations in
Operating Results" and "Certain Factors Affecting the Company--Customer
Concentration."
When our large fixed costs combine with significant fluctuations in our
sales, large fluctuations in our results of operations may occur
A material portion of our expenses are fixed and difficult to reduce,
which magnifies the effects of any revenue shortfall. We experience significant
fluctuations in sales, gross margins and operating results. Our results of
operations have also been and will continue to be influenced by competitive
factors, including pricing, availability and demand for other competitive
products and services, which are difficult for us to forecast, and could
materially adversely affect our results of operations.
Because of our inability to predict customer orders, delays, deferrals
and cancellations, we may not be able to achieve or maintain our current sales
levels. We believe that period-to-period comparisons are thus not necessarily
meaningful and should not be relied upon as indications of future performance.
Because of all of the foregoing factors, in some future quarter or quarters our
operating results may continue to be below those projected by public market
analysts, and the price of our common stock may be materially adversely affected
by such discrepancy. See "Certain Factors Affecting the Company--Fluctuations
in Operating Results."
We may be forced incur costs to restructure our business to reflect decreased
value of our assets
We reported an operating and net loss for the quarter ending December
31, 1998. Should current market conditions continue to deteriorate, we may also
incur operating and net losses in subsequent periods. Additionally, management
continues to evaluate market conditions to assess the need to take further
action to more closely align our cost structure with anticipated revenues. Any
subsequent actions could result in restructuring charges, reductions of
inventory valuations and provisions for the impairment of long-lived assets,
which could materially adversely affect our financial condition. See "Certain
Factors Affecting the Company--Fluctuations in Operating Results."
We may have difficulty integrating and managing the businesses we have
acquired, increasing our costs and diverting resources from our business
Since April 1996, we have acquired nine complementary companies and
businesses. We have encountered or expect to encounter the following problems
relating to integration and management of these companies:
. difficulty of assimilating operations and personnel of combined companies;
. potential disruption of ongoing business;
. inability to retain key technical and managerial personnel;
. inability of management to maximize financial and strategic position through
integration of acquired businesses;
. additional expenses associated with amortization of acquired intangible
assets;
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. dilution to existing stockholders;
. maintenance of uniform standards, controls, procedures and policies;
. impairment of relationships with employees and customers as result of
integration of new personnel;
. risks of entering markets in which we have no or limited direct prior
experience; and
. operation of companies in different geographical locations with different
cultures.
We may not be successful in overcoming any or all of these risks or
any other problems encountered in connection with such acquisitions.
Overcoming potential problems may entail increased costs, additional
investment and diversion of management attention and other resources, or
require divestment of one or more business units. See "Certain Factors
Affecting the Company--Management of Growth" and "Certain Factors Affecting
the Company--Acquisition Related Risks."
We may be unable to successfully acquire new businesses needed to effectively
compete, or to make such businesses pay off once acquired
As part of our overall strategy, we plan to continue acquisitions of
or investments in complementary companies, products or technologies and to
continue entering into joint ventures and strategic alliances with other
companies. We compete for acquisition and expansion opportunities against many
entities that have substantially greater resources. Our success in future
acquisition transactions may, therefore, be limited. We also may not be able to
successfully identify suitable candidates, pay for or complete acquisitions, or
expand into new markets. Once integrated, acquired businesses may not achieve
levels of revenues, profitability, or productivity comparable our existing
business, or the stand alone acquired company, or otherwise perform as expected.
Also, as commonly occurs with mergers of technology companies during
the pre-merger and integration phases, aggressive competitors may also try to
attract our customers and to recruit key employees. If we proceed with cash
acquisitions, a substantial portion of our available cash could be used to
consummate our acquisitions, as was the case with the acquisition of the Cylink
Wireless Group. The occurrence of any of these events could impact our customer
base or workforce and hurt our business. See "Certain Factors Affecting the
Company--Management of Growth."
Accounting charges related to acquisitions may decrease future earnings
Many business acquisitions must be accounted for under the purchase
method of accounting for financial reporting purposes. Attractive acquisition
candidates are high technology companies which tend to have small amounts of
tangible assets and generate significant goodwill upon acquisition. If
acquired, these businesses would typically result in substantial charges related
to the amortization of such goodwill. All of our past acquisitions to date,
except the acquisitions of Control Resources Corporation, RT Masts Limited and
Telematics, Inc., have been accounted for under the purchase method of
accounting, resulting in a significant amount of goodwill being amortized. This
amortization expense would affect our financial results.
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Although we believe the accounting for past acquisitions has been
appropriate, the SEC has recently been more closely reviewing acquisition
accounting and resulting charges for "in-process" research and development
costs. Any potential restatement of such charges recognized in any of our
acquisitions, including the Cylink Wireless Group, could result in a lesser
charge to income for "acquired "in-process" technology" and the creation of a
higher recorded value of goodwill or other intangible assets. The allocation of
the purchase price to such additional intangible assets would have the effect of
increasing amortization expense, impacting our financial results. See "Certain
Factors Affecting the Company--Management of Growth" and "Certain Factors
Affecting the Company--Changes in Financial Accounting Standards."
We depend on contract manufacturers and limited sources of supply and, if they
fail us, production delays could damage our customer relationships
Our internal manufacturing capacity is very limited, and certain
components, subassemblies and services necessary for the manufacture and
production of our systems are obtained from a sole supplier or a limited group
of suppliers. We expect to rely increasingly on these contract manufacturers
and outside vendors in the future. Our internal manufacturing capacity and that
of our contract manufacturers may also be insufficient to fulfill our orders,
and we may be unable to obtain timely deliveries of components and subassemblies
of acceptable quality. Our failure to manufacture, assemble and ship systems
and meet customer demands on a timely and cost-effective basis could damage
relationships with customers and our business. See "Certain Factors Affecting
the Company--Contract Manufacturers and Limited Sources of Supply."
We continue to invest in our business, increasing costs in the near term, and
perhaps not increasing revenues
To prepare for the future, we must continue to heavily invest
resources in our acquired and new businesses. We also continue to devote
significant resources to the development of new products and technologies and
the evaluation of these products. Such investments include additional resources
in plant and equipment, inventory, personnel and other items, in order to
efficiently produce these products and to provide necessary marketing and
administrative service and support. Accordingly, in addition to the effect of
recent financial performance on gross profit margin and inventory levels, gross
profit margin and inventory levels may be further adversely impacted in the
future by start-up costs associated with the initial production and installation
of these new products. If our sales do not increase, profitability problems
will continue to diminish our financial performance and results. See "Certain
Factors Affecting the Company--Acquisition Related Risks"; "Certain Factors
Affecting the Company--Management of Growth."
We may be unable to manage and integrate the expanded operations associated
with revenue growth, which may increase costs and hurt profitability
Expansion has caused and continues to strain our management,
financial, manufacturing and other resources and has disrupted our normal
business operations. Our ability to manage any possible future growth may
depend upon significant expansion of our manufacturing, accounting and other
internal management systems and the implementation of a variety of systems,
procedures and controls. In particular, we must successfully manage overhead
expenses and inventories, develop, introduce and market new products, manage
and
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train our employee base, integrate and coordinate a geographically and
ethnically diverse workforce and the monitor third party manufacturers and
suppliers.
Any failure to efficiently coordinate and improve systems, procedures
and controls, including improved inventory control and coordination with our
subsidiaries, could cause continued inefficiencies, additional operational
complexities and expenses, greater risk of billing delays, inventory write-downs
and financial reporting difficulties. Such problems could impact our
profitability and our ability to effectively manage our business. See "Certain
Factors Affecting the Company--Acquisition Related Risks;" "Certain Factors
Affecting the Company--Management of Growth."
We may be unable to become profitable if the selling prices of our products
and services decline over time
We believe that average selling prices and possibly gross margins for
our systems and services will decline in the long term. Reasons for such
decline may include the maturation of such systems, the effect of volume price
discounts in existing and future contracts and the intensification of
competition. To offset declining average selling prices, we believe we must
take a number of steps, including:
. successfully introducing and selling new systems on a timely basis;
. developing new products that incorporate advanced software and other features
that can be sold at higher average selling prices; and
. reducing the costs of our systems through contract manufacturing, design
improvements and component cost reduction, among other actions.
If we cannot develop new products in a timely manner, or if our new
products fail to achieve customer acceptance or do not generate higher average
selling prices, then we would be unable to offset declining average selling
prices. In we are unable to offset declining average selling prices, our gross
margins will decline. See "Certain Factors Affecting the Company--Fluctuation
of Operating Results."
We may experience problems with product quality, performance and reliability,
damaging customer relationships
We have limited experience in producing and manufacturing systems and
contracting for such manufacture. Our customers also require very demanding
specifications for quality, performance and reliability. As a consequence,
problems may occur with respect to such specifications for our systems or
related software tools. If such problems occur, we could experience increased
costs, delays, cancellations or reschedulings of orders or shipments, delays in
collections of accounts receivable and product returns and discounts. If any of
these events occur, it might erode customer confidence and eventually impact our
financial results. See "Certain Factors Affecting the Company--Product Quality,
Performance and Reliability."
The market for our products and may not grow fast enough to support our level
of investment, adversely affecting revenues and profitability
Our future operating results depend upon the continued growth and
increased availability and acceptance of microcellular, PCN/PCS and wireless
local loop access
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telecommunications services in the United States and internationally. The volume
and variety of and the markets for and acceptance of wireless telecommunications
services may not continue to grow as anticipated. Because these markets are
relatively new, predicting which market segments will develop and at what rate
they will grow is difficult. We have recently invested additional significant
time and resources in the development of point-to-multipoint radio systems. If
the licensed millimeter wave, spread spectrum microwave radio or point-to-
multipoint microwave radio market and related services for our systems fails to
grow, or grows more slowly than anticipated, revenue will also fail to grow. See
"Certain Factors Affecting the Company--Market Acceptance."
We may be unable to compete successfully for customers
Our wireless-based radio systems compete with other wireless
telecommunications products and alternative telecommunications transmission
media, including copper and fiber optic cable. We are experiencing intense
competition worldwide from a number of leading telecommunications companies.
Such companies offer a variety of competitive products and services and broader
telecommunications product lines. Many of these companies have greater
installed bases, financial resources and production, marketing, manufacturing,
engineering and other capabilities than we do. We face actual and potential
competition not only from these established companies, but also from start-up
companies that are developing and marketing new commercial products and
services. If we are unable to successfully compete for customers, future
growth, revenues and profitability would be adversely affected. See "Certain
Factors Affecting the Company--Intensely Competitive Industry."
Failure to respond to rapid technological change or introduce new products in
a timely manner may limit growth
Rapid technological change, frequent new product introductions and
enhancements, product obsolescence, changes in end-user requirements and
evolving industry standards characterize the communications market. Our ability
to compete in this market will depend upon successful development, introduction
and sale of new systems and enhancements and related software tools, on a timely
and cost-effective basis, in response to changing customer requirements. Any
inability to rapidly introduce, in a timely manner, new systems, enhancements or
related software tools could have a material adverse effect on our financial
results and limit future growth. See "Certain Factors Affecting the Company--
Rapid Technological Change."
We have extensive international operations, in more volatile markets than the
U.S., and changes in these markets may undermine our business there
In doing business in international markets, we face economic,
political and foreign currency fluctuations that are more volatile than those
commonly experienced in the United States. Most of our sales to date have been
made to customers located outside of the United States. We anticipate that
international sales will continue to account for a majority of our sales for the
foreseeable future. Because of the more volatile nature of these markets, the
basis for our business in these markets may be frequently jeopardized,
materially and adversely affecting on our operations in these countries and our
overall profitability, revenues and growth. See "Certain Factors Affecting the
Company--Uncertainty in International Operations."
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We are subject to extensive government regulation, which may change and harm
our business
We operate in a constantly changing regulatory environment. Radio
communications are extensively regulated by the United States, foreign laws and
international treaties. Our systems must conform to a variety of domestic and
international requirements established to, among other things, avoid
interference among users of radio frequencies and to permit interconnection of
equipment. Regulatory changes, which are affected by political, economic and
technical factors, could significantly impact our operations by restricting our
development efforts and those of our customers. Such changes could make current
systems obsolete or increase competition. Any such regulatory changes,
including changes in the allocation of available spectrum or changes that
require us to modify our systems and services, could prove costly and thus
affect profitability and performance. See "Certain Factors Affecting the
Company--Extensive Government Regulation."
We may be unable to obtain additional capital needed to operate and grow our
business
Future capital requirements will depend upon many factors, including
development of new products and related software tools, potential acquisitions,
maintenance of adequate manufacturing facilities and contract manufacturing
agreements, progress of research and development efforts, expansion of marketing
and sales efforts, and status of competitive products. Additional financing may
not be available in the future on acceptable terms, or at all. The continued
existence of a substantial amount of debt could also severely limit our ability
to raise additional financing. Given the recent price for our common stock, if
additional funds are raised by issuing equity securities, significant dilution
to our stockholders could result. Our inability to obtain capital, or our
ability to obtain additional capital only upon onerous terms, could damage our
financial condition and further erode our stock price. See "Certain Factors
Affecting the Company--Additional Capital Requirements," "Certain Factors
Affecting the Company--Substantial Amount of Debt" and "Certain Factors
Affecting the Company--Series B Preferred Stock Financing."
We have been sued in class action litigation and may be the subject of
additional suits, diverting significant resources away from our business
We are a defendant in a consolidated class action lawsuit in state
court. This proceeding is at a very early stage and we are unable to speculate
as to its ultimate outcome. However, we believe the claims in the complaint are
without merit and intend to defend against them vigorously. An unfavorable
outcome could have a material adverse effect on our prospects and financial
condition. Even if the litigation is resolved in our favor, the defense of such
litigation will entail considerable cost and diversion of efforts of management,
either of which are likely to affect our operations and results. See "Certain
Factors Affecting the Company--Class Action Litigation."
We may be unable to protect our proprietary rights, permitting competitors to
duplicate our products and services
We rely on a combination of patents, trademarks, trade secrets,
copyrights and other measures to protect our intellectual property rights.
However, such measures may not provide adequate protection for our trade secrets
or other proprietary information. Any of our patents could be invalidated,
circumvented or challenged, or may not provide competitive
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advantages to us. In addition, foreign intellectual property laws may not
adequately protect our intellectual property rights abroad. A failure or
inability to protect proprietary rights could have a material adverse effect on
our competitive market position and business.
Even if our intellectual property rights are adequately protected,
litigation may also be necessary to enforce such rights, to protect our trade
secrets, to determine the validity and scope of proprietary rights of others or
to defend against claims of infringement. Any such intellectual property
litigation could result in substantial costs and diversion of management
attention and resources. See "Certain Factors Affecting the Company--Protection
of Proprietary Rights."
Our results may suffer if we are unable to attract and retain qualified
management and technical personnel
Our highly technical business depends upon the continued contributions
of key technical and senior management personnel, many of whom would be
difficult to replace. Competition for qualified management, manufacturing,
quality assurance, engineering, marketing, sales and support personnel is
intense in our industry and geographic areas, and we may not be successful in
attracting or retaining such personnel. We experience high employee turnover
which is disruptive and could adversely impact our business. The loss, or
failure to perform of any key employee, could materially adversely affect our
performance, customer relations and profitability. See "Certain Factors
Affecting the Company--Dependence on Key Personnel."
Our operations and business could be disrupted or damaged if our systems and
products are not Year 2000 compliant
Many computer programs were written using just two digits, rather than
four, to define dates, posing a problem at the turn of the century. The problem
is commonly referred to as "Year 2000" or "Y2K." We have embarked on a global
program to address Y2K readiness. Our program involves the assessment of
products, services, internal systems and critical suppliers and, if required,
development of plans for upgrades to or replacement of products, business
systems, suppliers and services that impact our Y2K readiness and/or development
of contingency plans. We have not yet established a comprehensive contingency
plan with respect to the Y2K problem, but intend to establish such a plan by the
end of the second quarter of 1999 as part of our ongoing Y2K compliance effort.
Based on evaluation performed to date, we believe that all "mission critical"
internal systems are stable and current, in terms of Y2K readiness. However,
the failure of any internal system to achieve Y2K readiness could disrupt our
operations. Similarly, the inability of any of our products to properly manage
and manipulate data in the year 2000 could result in increased warranty costs,
customer satisfaction issues, potential lawsuits and other material costs and
liabilities. See "Certain Factors Affecting the Company--Year 2000."
Our stock price is volatile
The stock market in general, and the market for shares of small
capitalization and technology stocks in particular, have experienced extreme
price fluctuations in recent years. Such fluctuations have often been unrelated
to the operating performance of affected companies. The market price of our
common stock may continue to decline substantially, or otherwise
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continue to experience significant fluctuations in the future, including
fluctuations that are unrelated to our performance. Such fluctuations may mean
that investors may not be able to sell at a favorable price at any given time.
See "Certain Factors Affecting the Company--Volatility of Stock Price."
If our results are inadequate, we may have difficulty servicing our debt
As of December 31, 1998, our total indebtedness including current
liabilities was approximately $201.6 million and our stockholder's equity was
approximately $92.8 million. At various times since June 30, 1998, we have
amended our existing bank line of credit to prevent defaults with respect to
several financial covenants. Had these amendments not been made, we would have
defaulted on those covenants in our bank line, triggering cross defaults in
outstanding 4 1/4% convertible promissory notes and other debt instruments. Our
ability to make scheduled payments of the principal and interest on indebtedness
will depend on future performance, which is subject in part to economic,
financial, competitive and other factors beyond our control. We may be unable
to make payments on or restructure or refinance our debt in the future, if
necessary. See "Certain Factors Affecting the Company--Substantial Amount of
Debt" and "Certain Factors Affecting the Company--Accounts Receivable."
Return on an investment in common stock may be limited to stock price
increases as we may not declare dividends
Any payment of cash dividends in the future will be at the discretion
of our board of directors and will depend upon, among other things, our
earnings, financial condition, capital requirements, extent of indebtedness and
contractual restrictions with respect to the payment of dividends. However, we
are required to pay a 6% per year premium on the Series B preferred stock,
payable in cash or common stock at our option. Since our incorporation in
1991, we have not declared or paid cash dividends on our common stock, and we
anticipate that any future earnings will be retained for investment in the
business.
Effecting a change of control of P-Com would be difficult, which may
discourage certain offers for shares of our common stock
Members of our board of directors and executive officers, together
with their affiliates, beneficially own approximately 6% of the outstanding
shares of common stock. These stockholders can influence board of directors'
elections and corporate actions requiring stockholder approval. This level of
ownership, together with a stockholder rights agreement, certificate of
incorporation, newly issued shares Series B preferred stock, equity incentive
plans, bylaws and Delaware law, could significantly delay, defer or prevent a
change in control of P-Com and may adversely affect the voting and other rights
of other holders of common stock. See "Certain Factors Affecting the Company--
Change of Control," "Certain Factors Affecting the Company--Series B Preferred
Stock Financing" and "Description of Our Capital Stock-Rights Agreement."
The common stock sold in this offering may significantly increase the supply
of our common stock on the public market, causing our stock price to decline
The conversion of the Series B preferred stock and sale of the common
stock into the public market could materially adversely affect the market price
of the common stock. Substantially all of the shares of our common stock are
eligible for immediate and unrestricted
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sale in the public market at any time, including the approximately 5.3 million
shares of common stock issued in exchange for approximately $40 million of our 4
1/4% of convertible promissory notes. Once the registration statement of which
this prospectus forms a part is declared effective, all shares of common stock
issuable conversion of the Series B preferred stock and exercise of the warrants
and additional shares of our common stock are eligible for immediate and
unrestricted sale in the public market. The presence of these additional shares
of common stock in the public market may further depress the stock price.
Our preferred stock financing may result in substantial dilution to holders of
our common stock, may require the payment of significant cash amounts, and may
result in other adverse events
In December 1998, we raised gross proceeds of $15 million through the
issuance of 15,000 shares of a newly designated Series B convertible
participating preferred stock and warrants to purchase up to 1,242,257 shares of
common stock. The issuance of the Series B preferred stock and warrants
provided us with additional working capital required to fund continuing
operations. However, the agreements with the purchasers of the Series B
preferred stock and warrants contain terms and covenants that could result in
substantial dilution to our stockholders. Such agreements could also render
future financings and loans and merger and acquisition activities more difficult
and could require us to expend substantial amounts of cash, even if unavailable
at the time such expenditure was required.
The Series B preferred stock is convertible into shares of our common
stock at variable rates based on future trading prices of the common stock and
events that may occur in the future. The number of shares of common stock that
may ultimately be issued upon conversion is therefore presently indeterminable
and could fluctuate significantly. Also, the warrants are subject to anti-
dilution protection and thus may require the issuance of more shares than
originally anticipated. These factors may result in substantial future dilution
to the holders of our common stock. In addition, the redemption rights,
liquidated damages provisions, cross default provisions to our debt instruments
and other terms of the Series B preferred stock, under certain circumstances,
could lead to a significant accounting charge to earnings and could then
materially adversely affect our financial condition and results. Such potential
charge and other future charges relating to the provisions of the financing
agreements may materially adversely affect our earnings (loss) per share and the
market price of our common stock both currently and in future periods. The
convertibility features of such Series B preferred stock and the warrants and
subsequent sales of the underlying common stock could materially adversely
affect our valuation and the market trading price of our shares of common stock.
See "Description of Our Capital Stock" and "Certain Factors Affecting the
Company--Series B Preferred Stock Financing."
12
<PAGE>
THE COMPANY
P-Com, Inc. develops, manufactures and markets network access systems
for the worldwide wireless telecommunications market. The point-to-point,
spread spectrum and point-to-multipoint radio links provided by P-Com are
designed to satisfy the network requirements of cellular and personal
communications services, corporate communications, public utilities and local
governments. P-Com also provides comprehensive network services including
system and program planning and management, path design, installation and
network performance monitoring devices.
Our radio systems are sold internationally through strategic partners,
system providers, original equipment manufacturers and distributors as well as
directly to end-users. Our customers include AT&T Corp., Bell Atlantic Corp.,
BellSouth Corp., Bank of China, Bosch Telecom GmbH, Embratel Particiacoes S.A.,
Far Eastone Telecommunications Co., Ltd., Lucent Technologies, Inc., Mercury
one2one, Orange PLC Group, Siemens A.G., Fujitsu Limited, Telekom S.A. Ltd.,
Tellabs Inc., TransAsia Telecomm, Inc., U.S. West Inc., WinStar Communications
Corp., MCI Worldcom Inc., and Post & Telecomm Corp. of Zimbabwe.
In December 1993, we received our initial ISO 9001 registration, a
standard established by the International Organization for Standardization that
provides quality certification for design and manufacturing processes. We also
completed ISO 9001 registration for our United Kingdom sales and customer
support facility in 1996, our Geritel facility in Italy in 1996 and our
Technosystem facility in Italy in 1997 and are in the process of obtaining ISO
9001 registration for our other facilities outside of the United States.
P-Com, Inc. was incorporated in the State of Delaware on August 23,
1991. Our executive offices are located at 3175 S. Winchester Boulevard,
Campbell, California 95008, and our telephone number is (408) 866-3666.
13
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from our web site at http://ittinfo.com or at the SEC's web site
at http://www.sec.gov.
This prospectus is part of a registration statement (Registration No.
333-70937) we filed with the SEC. The SEC allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information filed with the SEC will update and supersede
this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Section 13a, 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, until the selling stockholders sell
all of the shares of common stock being registered or until such shares can be
sold without being registered:
(1) our Annual Report on Form 10-K for the year ended December 31, 1997,
filed as of March 31, 1998;
(2) our amended Annual Report on Form 10-K/A for the year ended December
31, 1997, filed as of May 6, 1998;
(3) our quarterly reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998, filed as of May 15, 1998, August 14,
1998 and November 13, 1998, respectively;
(4) our current reports on Form 8-K filed as of January 23, 1998, March
16, 1998, April 9, 1998, April 17, 1998, July 17, 1998, September 11, 1998,
September 25, 1998, October 15, 1998, October 23, 1998, December 23, 1998,
December 24, 1998, December 31, 1998, January 4, 1999 (two separate filings),
January 29, 1999 and February 3, 1999, and Form 8-K/A dated as of April 17,
1998, June 12, 1998, September 11, 1998 and January 6, 1999;
(5) the description of our common stock and Series A preferred stock
contained in our registration statements on Form 8-A filed as of January 12,
1995 and Form 8-A/A filed as of February 16, 1995, October 9, 1997, December 22,
1998 and December 24, 1998; and
(6) all future reports and other documents filed by us pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act shall be deemed to be
incorporated by reference herein and to be a part of this prospectus from the
date of filing of such reports and documents. Any statement incorporated herein
may modify or supersede information or statements in this prospectus.
Upon request, we will provide without charge a copy of this
prospectus, and a copy of any and all of the information that has been or may be
incorporated by reference in this prospectus. Requests for such copies should be
directed to Corporate Secretary, P-Com, Inc., 3175 S. Winchester Boulevard,
Campbell, California 95008 (telephone (408) 866-3666).
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have authorized no
one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any
14
<PAGE>
prospectus supplement is accurate as of any date other than the date on the
front of this document.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common
stock by the selling stockholders.
DIVIDEND POLICY
To date, we have not paid any cash dividends on shares of our common
stock. We currently anticipate that we will retain any available funds for use
in the operation of its business, and we do not anticipate paying any cash
dividends in the foreseeable future.
PREMIUM
We are required to pay, upon conversion, a 6% per year premium on the
Series B preferred stock, payable in cash or common stock at our option.
RATIO (DEFICIENCY) OF EARNINGS (LOSS) TO FIXED CHARGES
The following table shows our ratio (deficiency) of earnings (loss) to
fixed charges for each of the periods indicated. For purposes of calculating
the ratio (deficiency) of earnings to fixed charges, "earnings" consist of
income (loss) before income taxes plus fixed charges, and "fixed charges"
consist of interest expense incurred including with respect to capital leases,
amortization of interest costs and the portion of rental expense under operating
leases deemed by us to be representative of the interest factor. Earnings did
not cover fixed charges by $4.8 million, $5.4 million and $74.2 million in 1993,
1994 and for the three quarters ended September 30, 1998, respectively.
<TABLE>
<CAPTION>
Year Ended December 31, September 30,
1993 1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio (deficiency) of earnings <14.3x> <7.9x> 5.9x 9.6x 13.4x <12.0x>
(loss) to fixed charges
</TABLE>
15
<PAGE>
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 95 million shares of common
stock and two million shares of preferred stock. We have designated 500,000
shares of our preferred stock as Series A junior participating preferred stock
and 20,000 shares of our preferred stock as Series B convertible participating
preferred stock. There are no shares of our Series A preferred stock issued and
outstanding and 15,000 shares of our Series B preferred stock issued and
outstanding.
Common stock
As of January 8, 1999, there were 47,258,691 shares of common stock
outstanding which were held of record by approximately 479 stockholders. The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
any outstanding preferred stock, the holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
our board of directors out of funds legally available therefor. See "Dividend
Policy."
In the event of our liquidation, dissolution or winding up, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of preferred
stock then outstanding. The common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable.
Preferred stock
Our board of directors has the authority to issue the preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the holders of common stock.
Our board may not create or issue any additional shares of Series B
preferred stock or of the remaining authorized but unissued shares of
preferred stock without the consent of the initial purchasers of the Series B
preferred stock. The issuance of the Series A preferred stock or any newly
created preferred stock may delay, defer or prevent a change in control of P-
Com without further action by the stockholders and may adversely affect the
voting and other rights of the holders of common stock. The issuance of Series
A preferred stock or any newly created preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of
common stock, including the loss of voting control to others. At present we
have no plans to issue any additional preferred stock, other than Series A
Preferred and the Series B preferred stock.
Series A preferred stock
The Series A preferred stock is not redeemable. Each share of Series
A preferred stock will be entitled to an aggregate dividend of 10,000 times any
dividend declared per share of common stock. In the event of liquidation, the
holders of the Series A preferred stock will be
16
<PAGE>
entitled to the greater of a $10,000 per share payment, plus any accrued and
unpaid dividends, or an aggregate payment of 10,000 times any payment to be made
per share of common stock, prior to any payment to any holder of common stock.
Each share of Series A preferred stock will have 10,000 votes, voting together
with the common stock. In the event of any merger, consolidation or other
transaction in which our common stock is exchanged, each share of Series A
preferred stock will be entitled to receive 10,000 times the amount received per
share of common stock. Each of these rights are protected by customary
antidilution provisions. Because of the nature of the dividend, liquidation and
voting rights of the shares of Series A preferred stock, the value of the one-
ten-thousandth interest in a share of Series A preferred stock purchasable upon
exercise of each right to purchase Series A preferred stock should approximate
the value of one share of common stock. See "--Rights Agreement."
Series B preferred stock
Premium. The Series B preferred stock accrues a 6% per year premium,
-------
payable in cash or common stock at our 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, we 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. Thereafter, the Series B preferred
stock is convertible at the lower of
. $6.0374 per share;
. 105% of the average closing bid prices of our common stock for the 15
consecutive trading days ending on May 14, 1999; and
. 101% of the lowest average closing bid prices our common stock over
any 3 consecutive days during the 15 consecutive day period ending on
the day prior to the applicable conversion date.
The following table sets forth the number of shares of common stock
issuable upon conversion of the outstanding Series B preferred stock and
percentage ownership that each represents assuming:
. the market price of the common stock is 25%, 50%, 75% and 100% of the
market price of the common stock on March 16, 1999, which was $8.625
per share;
. the variable conversion price feature of the preferred stock is in
effect;
. the maximum conversion prices of the preferred stock is not adjusted as
provided in our certificate of incorporation or the amount of shares
limited by the other transaction agreements;
. that the P-Com does not elect to pay holders equivalent value of common
stock in cash, if the conversion value is less than $2.264025;
17
<PAGE>
<TABLE>
<CAPTION>
Percent of Series B
Market Price Preferred Stock(1)
- ----------------------------------------------------------
s Underlying(2) (%)
- ----------------------------------------------------------
<S> <C> <C>
25% ($2.16) [6,979,177] [15%]
- ----------------------------------------------------------
50% ($4.31) [3,497,565] [7%]
- ----------------------------------------------------------
75% ($6.47) [2,329,950] [5%]
- ----------------------------------------------------------
100% (8.625) [1,746,763] [4%]
- ----------------------------------------------------------
</TABLE>
(1) On March ____, 1999, there were _____ shares of common stock and 15,000 of
Series B preferred stock outstanding.
(2) If converted on March 17, 1999.
(3) Limitations in the transaction agreements might preclude these percentage
of beneficial ownership from being achieved.
The conversion price is subject to adjustment if we have not achieved
$10 million of written contractual commitments for sales of our point to
multipoint products and services prior to March 24, 1999. In the event we do
not obtain such commitments, the conversion price of 7,500 shares of the Series
B preferred stock shall adjust to the lower of $6.0374 and 101% of the lowest
average closing bid prices our common stock over any 3 consecutive days during
the 15 consecutive day period ending prior to the applicable conversion date
during the period from March 24, 1999 through May 14, 1999. In addition, the
foregoing conversion price of the Series B preferred stock is subject to
adjustment upon the occurrence of certain other events, including:
. our failure to obtain in a timely manner stockholder approval to issue
more than 20% of our common stock on conversion of the Series B preferred
stock and exercise of the warrants issued in connection with the Series B
preferred stock;
. our failure to timely deliver common stock upon submission of a notice of
conversion for the Series B preferred stock;
. our failure to redeem the Series B preferred stock after providing to the
holders of the Series B preferred stock a notice of redemption at our
option;
. our or any of our subsidiaries' public announcement of a merger or
consolidation;
. our issuance of common stock or securities convertible or exchangeable
into common stock at a variable price per share or at a price per share
less than a predetermined amount; and
. the sale by George Roberts, Chief Executive Officer of the Company, or
Michael Sophie, Chief Financial Officer of the Company, of securities at
less than a predetermined per share price.
Registration. We are required by the Series B preferred stock
------------
financing agreements to register and keep registered at least 150%, and in some
instances 200%, of the aggregate number of shares of common stock into which the
Series B preferred stock is convertible and for which the warrants are
exercisable. To help ensure our compliance at all times, we have chosen to
register initially 13 million shares of our common stock.
18
<PAGE>
Notwithstanding the registration of such number of shares, the terms of the
Series B preferred stock financing agreements prohibit us from issuing shares of
common stock upon conversion of the shares of Series B preferred stock or
exercise of the warrants if such issuance would result in any holder's
beneficially owning in excess of 4.9% of our then outstanding common stock. In
addition, until stockholder approval is obtained, we are subject to the 20%
limit imposed by Nasdaq. See "Risks associated with our preferred stock
financing."
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, each then outstanding share of the Series B
preferred stock is redeemable at a holder's option at the greater of $1,330 per
share, plus a 6% per year premium and any default amounts, or a predetermined
redemption formula based on the average of the closing bid prices for our common
stock during the period beginning on the date of the holder's redemption notice
and ending on the date of redemption. Such events include:
. our failure to obtain in a timely manner stockholder approval to issue
more than 20% of our common stock on conversion of the Series B preferred
stock and exercise of the warrants issued in connection with the Series B
preferred stock;
. our failure to deliver in a timely manner common stock upon submission of
a notice of conversion;
. our failure to remove restrictive legends on our common stock when
required under the Series B preferred stock financing agreements;
. our announcement of our intention not to issue common stock upon
conversion of the Series B preferred stock or exercise of the warrants;
. our knowing breach of any material covenant or term in the Series B
preferred stock financing agreements;
. our material breach, as a result of performance under the Series B
preferred stock financing agreements, of any agreement to which we are or
become a party;
. our knowing commission of any act or omission that constitutes a breach of
any representation or warranty in any of the Series B preferred stock
financing agreements;
. our failure to maintain sufficient common stock reserved for conversion of
the Series B preferred stock or exercise of the warrants (to the extent no
additional stockholder approval is required to obtain an increase in
authorized shares, if required);
. our knowing and material breach of any agreement involving indebtedness
for borrowed money or purchase price which results in or which would
result in acceleration of the maturity of such debt; and
. our failure to use best efforts to avoid the occurrence of certain events
that could result in cash payments to holders of the Series B preferred
stock as described below.
In certain circumstances, we may be able to avoid redemption if we
cure such events prior to the redemption election by a holder. If we are unable
to avoid redemption and are
19
<PAGE>
unable to redeem the Series B preferred stock upon request, we must redeem that
portion that is permitted and, thereafter, use our best efforts to remedy the
impairment preventing redemption. In addition, certain of the foregoing events
may also require us make additional payments, either in cash or additional
shares of common stock or Series B preferred stock.
Cash Payments. Upon the occurrence of certain other events deemed
-------------
outside of the Company's control, we are required to make significant cash
payments to the holders of the Series B preferred stock. Such events include:
. the suspension or de-listing of our common stock from trading on the
Nasdaq National Market System or certain other markets acceptable to the
initial purchasers of the Series B preferred stock;
. the suspension of the registration statement of which this prospectus is a
part after its effective date for more than a predetermined period of
time;
. failure to maintain sufficient common stock reserved for conversion of the
Series B preferred stock or exercise of the warrants (to the extent
additional stockholder approval is required to obtain an increase in
authorized shares, if required);
. failure to have declared effective additional registration statements that
may be required under 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;
. failure to obtain in a timely manner stockholder approval to issue more
than 20% of our common stock on conversion of the Series B preferred stock
and exercise of the warrants issued in connection with the Series B
preferred stock; and
. declaration of or being put into bankruptcy or receivership or failure to
pay our debts generally as and when due.
All cash payments required to be made as a result of 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 $1,333 per
share plus a default interest rate, if applicable. In addition to the foregoing
cash payments, in the event of failure to obtain timely stockholder approval of
the issuance of more than 20% of our common stock issuable upon conversion of
the Series B preferred stock, the holders of Series B preferred stock can
require us to list our common stock on the over-the-counter electronic bulletin
board which, as of the date hereof, has no limitation relating to issuance of
more than 20% of our common stock or similar restriction and, thereafter,
require us to honor all requested conversions.
Redemption at Our Option. So long as an event pursuant to which the
------------------------
holders of Series B preferred stock are entitled to redemption or an event
requiring us to make a cash payment as described above has not occurred (or if
such event has occurred in the past, it has been cured for at least the six
immediately preceding consecutive months without the occurrence of any other
such event), the Series B preferred stock is redeemable at our option in certain
limited circumstances 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:
20
<PAGE>
. on three dates between December 22, 1998 and December 22, 1999 at premiums
varying between 130% and 120% of the original issue price of the Series B
preferred stock, plus a 6% premium per year and any default amounts,
provided our common stock is then trading at less than $2.264025;
. after December 22, 1999 and prior to December 22, 2000, the Company may
redeem the Series B preferred stock at the greater of 160% of the original
issue price of the Series B preferred stock, plus a 6% premium per year
and any default amounts, or the Redemption Formula Amount; and
. after December 22, 2000, if (1) the closing bid price for our common stock
exceeds a predetermined substantial threshold, we may redeem the Series B
preferred stock at 115% of the original issue price of the Series B
preferred stock, plus a 6% premium per year and any default amounts, or
(2) we simultaneously close a firm commitment underwriting with a minimum
$8.00 per share price and a minimum aggregate amount of $30 million, we
may redeem the Series B preferred stock at the greater of 120% of the
original issue price of the Series B preferred stock plus a 6% premium per
year and any default amounts, or predetermined redemption formula based on
the average of the closing bid prices for our common stock during the
period beginning on the date of the holder's redemption notice and ending
on the date of redemption.
We must redeem all of the Series B preferred stock unless in excess of
$5 million of Series B preferred stock (in $1 million increments) will be
redeemed. If we fail to redeem the Series B preferred stock after providing a
notice of redemption, we forfeit all future redemptions at our option and the
conversion rate of the Series B preferred stock will be adjusted.
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, we have agreed, until December 22,
1999, not to issue or agree to issue any equity securities at a price less than
fair market value or at a variable or re-settable price, subject to limited
exceptions. In addition, we are prohibited from, among other things, altering,
changing or otherwise adversely affecting the terms of the Series B preferred
stock; creating or issuing any senior or pari passu securities; redeeming or
paying any dividend on any junior securities; acting so as to generate taxation
under Section 305 of the Internal Revenue Code of 1986, as amended; and selling
or transferring all or substantially all of our assets without prior approval by
the purchasers of the Series B preferred stock.
Change of Control. If we merge with a public company meeting certain
-----------------
threshold criteria, the holders of the Series B preferred stock will be entitled
to receive in the merger the consideration they would have received had they
converted their stock the day before the public announcement of the merger. If
we merge with a private company or a public company not meeting the threshold
criteria, the holders of the Series B preferred stock will be entitled, at their
option, (1) to retain their preferred stock, which will thereafter convert into
common stock of the surviving company, or (2) receive either the consideration
they would have received had they converted their stock the day before the
public announcement of the merger or receive $1,250 per share of Series B
preferred stock then outstanding, up to an aggregate of $18,750,000, in cash,
plus any accrued and unpaid premium and a default interest rate, if applicable.
Notwithstanding the foregoing, we are permitted to acquire other companies
without having to
21
<PAGE>
provide special consideration to the holders of the Series B preferred stock so
long as we do not issue more than 20% of our common stock as merger
consideration. The holders of the Warrants are entitled to similar protections
in the event of our merger or consolidation with another company. We are also
prohibited from selling or transferring all or substantially all of our assets
without prior approval by the purchasers of the Series B preferred stock.
Warrants. The Warrants are immediately exercisable until the earlier
--------
of: (1) December 22, 2003 and (2) the date on which the closing of a
consolidation, merger or other business combination with or into another entity
pursuant to which we do not survive. The exercise price for the common stock
underlying the Warrant is $3.47 (subject to adjustment). In the event we merge
or consolidate with any other company, the warrantholders are entitled to
similar choices as to the consideration they will receive in such merger or
consolidation as are provided to the holders of the Series B preferred stock.
In addition, the number of shares issuable upon exercise of the Warrants is
subject to anti-dilution adjustment if we sell common stock or securities
convertible into or exercisable for common stock (excluding certain issuances
such as common stock issued under employee, director or consultant benefit
plans) at a price per share less than $3.47 (subject to adjustment).
The foregoing description is only a summary and is qualified in its
entirety by reference to the Securities Purchase Agreement dated as of December
21, 1998 by and among the Company and the purchasers listed therein, the
Registration Rights Agreement dated as of December 21, 1998 by and among the
Company and the purchasers listed therein, the warrants issued by us to the
purchasers and the Series B Certificate of Designation attached to the Current
Report on Form 8-K dated as of December 24, 1998 as Exhibits 10.38, 10.39,
10.40A, 10.40B, and 10.40C, and 3.2D and 3.2E, respectively, and incorporated
herein by reference.
Delaware anti-takeover law and certain charter provisions
We are subject to Section 203 of the Delaware General Corporation Law.
Section 203, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
. prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (for the purposes of determining the number of
shares outstanding, under Delaware law, those shares owned (1) by persons
who are directors and also officers and (2) by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in
a tender or exchange offer are excluded from the calculation); or
. on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
22
<PAGE>
Section 203 defines a business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
. any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certain provisions of our stockholders' rights agreement, certificate
of incorporation, equity incentive plans, Bylaws and Delaware law may delay,
defer or prevent a change in control of the Company and may adversely affect the
voting and other rights of other holders of common stock. In particular, we
have a classified Board of Directors and the Board of Directors has the ability
(subject to approval by the initial holders of the Series B preferred stock) to
issue blank check preferred stock without further stockholder approval, as was
the case with the Series B preferred stock.
Rights Agreement
On September 26, 1997, the board of directors approved a Stockholder
Rights Agreement that was executed by the Company and BankBoston, N.A., the
Rights Agent, on October 1, 1997 and amended and restated on December 21, 1998.
Pursuant to the stockholder rights agreement, rights to purchase Series A
preferred stock were distributed as a dividend at the rate of one preferred
share purchase right on each outstanding share of its common stock held by
stockholders of record as of the close of business on November 3, 1997, and will
be distributed at the same rate for each share of common stock issued
thereafter. Each right to purchase Series A preferred stock entitles its holder
to buy one ten-thousandth of one share of Series A preferred stock at an
exercise price of $125.00, but only once the rights to purchase Series A
preferred stock become exercisable upon the occurrence of certain triggering
events. The rights to purchase Series A preferred stock will expire on November
1, 2007.
The rights to purchase Series A preferred stock become exercisable
only if a person or group acquires 15% or more of our common stock or announces
a tender offer, the consummation of which would result in ownership by a person
or group of 15% or more of our common stock, such person or group to be known as
an acquiring person. If,
(1) subject to limited exceptions, any acquiring person:
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<PAGE>
. merges into P-Com and P-Com survives;
. transfers assets to P-Com or its subsidiaries in exchange for our
common stock or otherwise acquires additional shares of our common
stock;
. sells or purchases or otherwise acquires or disposes of assets to,
from or with P-Com or any subsidiary on terms less favorable than in
an arm's length negotiated transaction;
. sells or purchases or otherwise acquires or disposes of assets to,
from or with P-Com or any subsidiary having a fair market value of
more than $5 million;
. receives compensation from P-Com or any subsidiary, except for
standard compensation for full time employment; or
. receives the benefit of any financial assistance or tax advantages
from P-Com or any subsidiary;
(2) subject to limited exceptions, any person becomes an acquiring person;
or
(3) subject to limited exceptions, while there is an acquiring person, we
reclassify or recapitalize our capital stock (including a reverse
stock split) or we merge or consolidate with any subsidiary causing
more than a 1% increase in any class of our then outstanding equity
securities which is owned by an acquiring person,
then each unexercised right to purchase Series A preferred stock will entitle
its holder to purchase, at the rights to purchase Series A preferred stock's
then-current exercise price, a number of one ten-thousandths of a share of our
Series A preferred stock having a market value of twice the then-current
exercise price of a right to purchase Series A preferred stock on the date any
of the foregoing events occurred. The holders of the Series B preferred stock
and warrants and their transferees have been excluded from the definition of
acquiring person and therefore also from triggering the provisions of the
stockholder rights agreement. Consequently, even if such a holder acquires 15%
or more of our common stock, the rights to purchase Series A preferred stock
will not become exercisable.
In addition, if after a person or group becomes an acquiring person,
. we consolidate with or merge with and into any other person (other than a
subsidiary) and we do not survive;
. any person (other than a subsidiary) consolidates or merges with us in a
transaction in which we survive and any of our common stock is exchanged
for cash, property or stock of any other person; or
. we or any subsidiary sells or otherwise transfers to any person (other
than a subsidiary) assets or earning power in excess of 50% of our assets
or earning power and our subsidiaries;
then each unexercised right to purchase Series A preferred stock will entitle
its holder to receive, at the right to purchase Series A preferred stock's then-
current exercise price, shares of common stock of the principal party involved
in such transaction with us equal in value to twice the then-current exercise
price of a right on the date of any of the foregoing events.
At any time after any person or group becomes an acquiring person, but
before such acquiring person becomes the beneficial owner of more than 50% of
our common stock, our
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<PAGE>
board of directors, in its sole discretion, may exchange all or part of the
unexercised rights to purchase Series A preferred stock for a number of one ten-
thousandths of a share of our Series A preferred stock equal to the then current
exercise price of a right to purchase Series A preferred stock divided by the
fair market value of one ten-thousandth of a share of our Series A preferred
stock on the earlier of the date the acquiring person became an acquiring person
or, if applicable, the date on which a tender or exchange offer was first made
pursuant to which the offeror became an acquiring person. At any time prior to
the date an acquiring person becomes an acquiring person, the board of
directors, in its sole discretion, may redeem all of the rights to purchase
Series A preferred stock for $0.001 per such right, payable at our board of
director's option in cash or property, including our common stock.
Transfer agent and registrar
The transfer agent and registrar for the common stock is Boston
EquiServe LLP, 289 San Antonio Road, Suite 100, Los Altos, California 94022.
Its telephone number is (650) 947-3226.
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<PAGE>
SELLING STOCKHOLDERS
The selling stockholders, Marshall Capital Management, Inc., Castle
Creek Technology Partners LLC and Capital Ventures International acquired shares
of Series B preferred stock and warrants on December 21, 1998 pursuant to set of
financing agreements. None of the selling stockholders own any other shares of
preferred stock of P-Com.
To help ensure our compliance with the Series B preferred stock
financing agreements, we have chosen to register 13 million shares of common
stock on behalf of the selling stockholders. We cannot determine the number of
shares of common stock that we will ultimately issue in connection with the
Series B preferred stock financing because:
. the conversion price of the Series B preferred stock may vary with the
market price of our common stock;
. we may choose to pay dividends on the Series B preferred stock in shares
of common stock;
. we may be required to issue common stock upon our failure to satisfy
certain obligations; and
. the number of shares that we may issue upon conversion of the Series B
preferred stock and exercise of the warrants is subject to certain anti-
dilution protections. "See "Description of Our Capital Stock-Preferred
stock-Series B preferred stock."
Because of these factors, we may not issue the entire 13 million
shares of common stock covered by this prospectus. In fact, we may issue
materially more or materially less than 13 million shares of common stock.
The 13 million shares covered by this prospectus represent
approximately 27.5% of our outstanding shares of common stock as of January 8,
1999. Notwithstanding the registration of the 13 million shares of common stock
covered by this prospectus, the terms of the Series B preferred stock financing
agreements prohibit us from issuing to any selling shareholder shares of common
stock upon conversion of the Series B preferred stock or exercise of the
warrants if such issuance would result in us issuing more than 20% of our
outstanding common stock without shareholder approval or such selling
shareholder beneficially owning in excess of 4.9% of our outstanding common
stock.
The following table sets forth the aggregate number of shares of
common stock beneficially owned by each selling shareholder as of January 8,
1999 and the percentage of all shares of common stock held by such selling
shareholder before and after giving effect to the offering based on 47,258,691
shares of common stock outstanding as of January 8, 1999. We considered the
following factors and made the following assumptions regarding the table:
. beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities and including any securities that grant the selling
securityholders the right to acquire common stock within 60 days of
January 8, 1999;
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<PAGE>
. the conversion price of the Series B preferred stock in effect as of the
date of this prospectus, which is $6.0374;
. the exercise price of the warrants in effect as of the date of this
prospectus, which is $3.47;
. the selling stockholders will sell all of the securities offered by this
prospectus; and
. the selling securityholders will not sell any other of our securities than
they may own.
Notwithstanding these assumptions, the selling stockholders may sell
less than all of the shares listed on the table. Each selling stockholders will
determine the number of shares of common stock that they will sell. In addition,
the shares listed below may be sold pursuant to this prospectus or in privately
negotiated transactions. Accordingly, we cannot estimate the number of shares of
common stock that the selling stockholders will sell under this prospectus. See
"Description of Capital Stock--Series B preferred stock" and "Certain Factors
Affecting the Company--Series B Preferred Stock Financing" for more detailed
information and discussion of the conversion features of the Series B preferred
stock.
<TABLE>
<CAPTION>
Number of Shares Percent of Outstanding Number of Shares Percent of Outstanding
Beneficially Owned Shares Beneficially Owned Beneficially Owned Shares Beneficially
Name of Selling Stockholder Prior to Offering Before the Offering After the Offering Owned After the Offering
- --------------------------- ------------------ ------------------------- ------------------ ------------------------
<S> <C> <C> <C> <C>
Marshall Capital Management, Inc.. 1,118,030 (1) 2.3% 0 0%
Castle Creek Technology Partners
LLC.............................. 1,366,482 (2) 2.8% 0 0%
Capital Ventures International.... 1,242,257 (3) 2.6% 0 0%
- -------------------
</TABLE>
1. Consists of 745,353 shares of common stock issuable upon the conversion of
Series B preferred stock and 372,677 shares of common stock issuable upon
the exercise of warrants.
2. Consists of 910,988 shares of common stock issuable upon the conversion of
Series B preferred stock and 455,494 shares of common stock issuable upon
the exercise of warrants. As investment manager pursuant to a management
agreement with Castle Creek Technology Partners, Castle Creek Partners LLC
may be deemed to beneficially own the securities held by Castle Creek
Technology Partners LLC. Castle Creek Partners LLC disclaims such
beneficial ownership. John Ziegelman and Daniel Asher, as managing members
of Castle Creek Partners LLC, may be deemed to be beneficial owners of such
securities. Messrs. Asher and Ziegelman disclaim such beneficial ownership.
3. Consists of 828,171 shares of common stock issuable upon the conversion of
Series B preferred stock and 414,086 shares of common stock issuable upon
the exercise of warrants. Heights Capital Management, Inc., a Delaware
corporation, the investment manager for Capital Ventures International, has
voting control and investment discretion over transactions by Capital
Ventures International.
The shares of common stock underlying the Series B preferred stock and
warrants presented in the table is based on the conversion prices in effect on
the date of this prospectus. The actual number of shares of common stock will
we issue is indeterminable as of the date of this prospectus and is subject to
future adjustments. The number of shares offered in this prospectus represents
the maximum number of shares into which the Series B preferred stock and
warrants can be converted.
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<PAGE>
RECENT DEVELOPMENTS
In December 1998 and January 1999, we exchanged an aggregate of
$39,889,000 of our 4 1/4% convertible subordinated notes due 2002 for an
aggregate of 5,279,257 shares of unrestricted common stock. We may engage in
similar transactions in the future.
CERTAIN FACTORS AFFECTING THE COMPANY
History of Losses
From our beginning to the end of the third quarter of fiscal 1998, we
generated a cumulative net loss of approximately $40.6 million. From the end of
1997 through the third quarter of 1998, our net loss was due primarily to (i) an
acquired in-process research and development charge of approximately $33.9
million recorded in the first quarter of 1998 related to the acquisition of the
assets of the Wireless Communications Group of Cylink Corporation, referred to
herein as the "Cylink Wireless Group," and (ii) a net loss of $42.1 million in
the third quarter of 1998, which included restructuring and other one-time
charges of $26.6 million (comprising a $16.9 million charge to cost of goods
sold (including $14.5 million in inventory write downs related to our existing
core business and $2.4 million in other one-time charges to inventory relating
to the elimination of product lines), a $5.4 million charge to general and
administrative expenses and a $4.3 million charge (including severance benefits,
facilities and fixed assets impairments and goodwill impairments) to
restructuring and other one-time charges).
From October 1993 through September 30, 1998, we generated sales of
approximately $607.2 million, of which 61.4% was generated in the year ended
December 31, 1997 and the first three quarters of 1998. However, we do not
believe such growth rates are indicative of future operating results. Revenues
may not remain at or increase from the levels experienced in 1997 or in the
first three quarters of 1998 and sales have and may continue to decline. In
fact, during the first nine months of 1998, we experienced our lowest rates of
sequential sales growth since we became a public company. In addition, during
the third quarter of 1998, we experienced a decrease in revenue as compared to
the first two quarters of 1998. This decrease in revenue was principally the
result of the market slowdown for our Tel Link product line and for the industry
segment in general. Net sales for the third quarter of 1998 (which included
sales from many newly acquired businesses that did not contribute to revenues in
the comparable period of 1997) were approximately 50% less than our sales for
the comparable period in 1997. We expect our sales growth in the near future to
be significantly below recent comparable periods of growth. In recent quarters,
we also experienced higher than historical product price declines. The decline
in prices, along with one-time inventory write-downs, has had a significant
downward impact on our gross margin. We expect pricing pressures to continue
for the next several quarters. We also expect gross margins as a percentage of
revenues to continue to be below comparable periods for the next several
quarters.
During 1997 and the first three quarters of 1998, operating expenses
increased more rapidly than we had anticipated and these increases also
contributed to net losses. We plan to continue our investments in operations,
particularly to support product development and the marketing and sales of
recently introduced products. In parallel, we have undertaken cost-cutting
efforts in other areas. However, if sales do not increase, our results of
operations, business and financial condition may be materially adversely
affected. Accordingly, we may not
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<PAGE>
achieve profitability for the next several quarters. We believe we will likely
report an operating loss during the fourth quarter of fiscal year 1998 and could
report a net loss for such quarter.
Customer Concentration
To date, approximately four hundred customers have accounted for
substantially all of our sales. However, in 1997, two customers, Orange
Personal Communications Ltd. and Winstar Communications Corp., accounted for 16%
and 11% of our 1997 sales, respectively. During the first three quarters of
1998, four customers accounted for approximately 45% of sales and as of
September 30, 1998, seven customers accounted for approximately 46% of the
backlog scheduled for shipment in the twelve months subsequent to September 30,
1998. Many of our major customers are located in foreign countries, primarily
in the United Kingdom and Europe. We anticipate continuing to sell products and
services to existing customers and adding new customers, most of which we expect
to continue to be located outside of the United States.
Similarly, several of our subsidiaries are dependent on a few
customers. Some of these customers are implementing new networks and are
themselves in the early stages of development. They may require additional
capital to fully implement their planned networks, which may be unavailable to
them on an as-needed basis.
If our customers cannot finance their purchases of our or our
subsidiaries' products or services, then this may materially adversely affect
our business, operations and financial condition. Financial difficulties of
existing or potential customers may also limit the overall demand for our
products and services. Specifically, both current customers and potential future
customers in the telecommunications industry have reportedly undergone financial
difficulties and may therefore limit their future orders. Our ability to
achieve sales in the future will depend in significant part upon our ability to:
. obtain and fulfill orders from, maintain relationships with and provide
support to existing and new customers;
. manufacture systems in volume on a timely and cost-effective basis; and
. meet stringent customer performance and other requirements and shipment
delivery dates.
Our success will also depend in part on the financial condition,
working capital availability and success of our customers. As a result, any
cancellation, reduction or delay in orders by or shipments, for example, as a
result of manufacturing or supply difficulties or a customer's inability to
finance it purchases of our products or services, may adversely affect our
business. Some difficulties of this nature have occurred in the past and we
believe they will occur in the future.
Finally, acquisitions in the communications industry are common, which
further concentrates the customer base and may cause some orders to be delayed
or cancelled. No assurance can be given that our sales will increase in the
future or that we will be able to support or attract customers. See "--
Fluctuations in Operating Results."
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Fluctuations in Operating Results
We have experienced and will continue to experience significant
fluctuations in sales, gross margins and operating results. The procurement
process for most of our current and potential customers is complex and lengthy.
As a result, the timing and amount of sales is often difficult to predict
reliably. The sale and implementation of our products and services generally
involves a significant commitment of senior management, as well as our sales
force and other resources. The sales cycle for our products and services
typically involves technical evaluation and commitment of cash and other
resources and delays often occur. Delays are frequently associated with, among
other things:
. customers' seasonal purchasing and budgetary cycles;
. education of customers as to the potential applications of our products
and services, as well as product-life cost savings associated therewith;
. compliance with customers' internal procedures for approving large
expenditures and evaluating and accepting new technologies;
. compliance with governmental or other regulatory standards;
. difficulties associated with customers' ability to secure financing;
. negotiation of purchase and service terms for each sale; and
. price decreases required to secure purchase orders.
Seasonality
Orders for products have typically been strongest towards the end of
the calendar year, with a reduction in shipments occurring during the summer
months, as evidenced in the third quarter of fiscal years 1997 and 1998. This
slow down is primarily related to inactivity in the European market, currently
our major customer base, during such period. To the extent such seasonality
continues, the results of operations will fluctuate from quarter to quarter.
Customer concentration
A single customer's order scheduled for shipment in a quarter can
represent a large portion of our potential sales for such quarter. We have at
times failed to receive expected orders, and delivery schedules have been
deferred as a result of changes in customer requirements and commitments, among
other factors. As a result, our operating results for a particular period have
been and could in the future be materially adversely affected by a delay,
rescheduling or cancellation of even one purchase order. In addition, our
operating results may be affected by an inability to obtain such large orders
from single customers in the future. See "--Customer Concentration."
Uncertainty in Telecommunications Industry
Although much of the anticipated growth in the telecommunications
infrastructure is expected to result from the entrance of new service providers,
many new providers do not have the financial resources of existing service
providers. If these new service providers are unable to adequately finance
their operations, they may cancel or delay orders. Moreover, purchase orders
are often received and accepted far in advance of shipment and, as a result, we
typically permit
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<PAGE>
orders to be modified or canceled with limited or no penalties. Indeed, most of
the backlog scheduled for shipment in the twelve months subsequent to September
30, 1998 can be cancelled. As a result, backlog does not necessarily indicate
future sales for any particular period. In addition, any failure to reduce
actual costs to the extent anticipated when an order is received substantially
in advance of shipment or an increase in anticipated costs before shipment could
materially adversely affect our gross margin for such orders.
Inventory
Our customers have also increasingly been requiring product shipment
upon ordering rather than submitting purchase orders far in advance of expected
shipment dates. This practice requires us to keep inventory on hand for
immediate shipment. Given the variability of customer need and purchasing
power, it is hard to predict the amount of inventory needed to satisfy customer
demand. If we over- or under-estimate inventory requirements our results of
operations could continue to be adversely affected. In particular, increases in
inventory could materially adversely affect operations if such inventory is not
used or becomes obsolete.
Shipment delays
Most of our sales in recent quarters have been realized near the end
of each quarter. Accordingly, a delay in a shipment near the end of a
particular quarter for any reason may cause sales in a particular quarter to
fall significantly below our expectations. Such delays have occurred in the
past due to, for example, unanticipated shipment rescheduling, pricing
concessions to customers, cancellations or deferrals by customers, competitive
and economic factors, unexpected manufacturing or other difficulties, delays in
deliveries of components, subassemblies or services by suppliers and failure to
receive anticipated orders. We cannot determine whether similar or other delays
might occur in the future, but expect that some or all of such problems might
recur.
Expenses
Magnifying the effects of any revenue shortfall, a material portion of
our expenses are fixed and difficult to reduce should revenues not meet
expectations. The failure to reduce actual costs to the extent anticipated, or
an increase in anticipated costs before shipment of an order or orders could
affect the gross margins for such orders. If we or our competitors announce new
products, services and technologies, it could cause customers to defer or cancel
purchases of our systems and services. Additional factors have caused and will
continue to cause our performance to vary significantly from period to period.
These factors include:
. new product introductions and enhancements and related costs;
. weakness in Asia and Latin America, resulting in overcapacity;
. ability to manufacture and produce sufficient volumes of systems and meet
customer requirements;
. manufacturing efficiencies and costs;
. customer confusion due to impact of actions of competitors;
. variations in mix of sales through direct efforts or through distributors
or other third parties;
. variations in mix of systems and related software tools sold and services
provided;
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<PAGE>
. operating and new product development expenses;
. product discounts;
. accounts receivable collection, in particular those acquired in recent
acquisitions;
. changes in our pricing or customers' or suppliers' pricing;
. inventory write-downs and obsolescence;
. market acceptance by customers and timing of availability of new products
and services provided by us or our competitors;
. acquisitions, including costs and expenses;
. use of different distribution and sales channels;
. fluctuations in foreign currency exchange rates;
. delays or changes in regulatory approval of systems and services;
. warranty and customer support expenses;
. severance costs;
. consolidation and other restructuring costs;
. the pending stockholder consolidated class action lawsuit;
. need for additional financing;
. customization of systems;
. general economic and political conditions; and
. natural disasters.
Our results of operations have been and will continue to be influenced
by competitive factors, including pricing, availability and demand for other
competitive products and services. All of the above factors are difficult for us
to forecast, and could materially adversely affect our business, condition and
results of operations. We believe that period-to-period comparisons are thus
not necessarily meaningful and should not be relied upon as indications of
future performance.
Because of all of the foregoing factors, in some future quarter or
quarters our operating results may continue to be below those projected by
public market analysts, and the price of our common stock may be materially
adversely affected. Net sales for the three month period ending December 31,
1998 were significantly lower than net sales in the comparable period in 1997.
Because of lack of order visibility and the current trend of order delays,
deferrals and cancellations, we cannot assure you that we will be able to
achieve or maintain our current sales levels.
We reported an operating and net loss for the quarter ending December
31, 1998. Should current market conditions continue to deteriorate, we may also
incur operating and net losses in subsequent periods. Additionally, management
continues to evaluate market conditions in order to assess the need to take
further action to more closely align our cost structure with anticipated
revenues. Any subsequent actions could result in restructuring charges,
inventory write-downs and provisions for the impairment of long-lived assets,
which could materially adversely affect our business, financial condition and
results of operations.
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Acquisition Related Risks
We may be unable to realize the full value of our past or any future
acquisitions
Since April 1996, we have acquired nine complementary companies and
businesses. Integration and management of these companies into our business is
ongoing. We have encountered or expect to encounter the following problems
relating to such transactions:
. difficulty of assimilating operations and personnel of combined companies;
. potential disruption of ongoing business;
. inability to retain key technical and managerial personnel;
. inability of management to maximize financial and strategic position
through integration of acquired businesses;
. additional expenses associated with amortization of acquired intangible
assets;
. dilution to existing stockholders;
. maintenance of uniform standards, controls, procedures and policies;
. impairment of relationships with employees and customers as result of
integration of new personnel;
. risks of entering markets in which we have no or limited direct prior
experience; and
. operation of companies in different geographical locations with different
cultures.
We may not be successful in overcoming any or all of these risks or
any other problems encountered in connection with such acquisitions, and such
transactions may materially adversely affect our business, condition and results
of operations or require divestment of one or more business units.
Future success may depend in part on new acquisitions, joint ventures or
strategic alliances
As part of our overall strategy, we plan to continue acquisitions of
or investments in complementary companies, products or technologies and to
continue entering into joint ventures and strategic alliances with other
companies. Our success in future acquisition transactions may, however, be
limited. We compete for acquisition and expansion opportunities against many
entities that have substantially greater resources. We may not be able to
successfully identify suitable candidates, pay for or complete acquisitions, or
expand into new markets. Once integrated, acquired businesses may not achieve
comparable levels of revenues, profitability, or productivity to our existing
business, or the stand alone acquired company, or otherwise perform as expected.
Also, as commonly occurs with mergers of technology companies during the pre-
merger and integration phases, aggressive competitors may also undertake formal
initiatives to attract customers and to recruit key employees through various
incentives. Moreover, if we proceed with acquisitions in which the consideration
consists of cash, a substantial portion of our available cash could be used to
consummate our acquisitions, as was the case with the acquisition of the Cylink
Wireless Group. The occurrence of any of these events could have a material
adverse effect on our workforce, business, financial condition and results of
operations. See "-Management of Growth."
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Accounting issues related to acquisitions
In addition, many business acquisitions must be accounted for under
the purchase method of accounting for financial reporting purposes. Many of the
attractive acquisition candidates us are high technology companies which tend to
have insignificant amounts of tangible assets and significant goodwill or
acquisition of these businesses, would typically result in substantial charges
related to the amortization of goodwill. For example, all of our past
acquisitions to date, except the acquisitions of Control Resources Corporation,
RT Masts Limited and Telematics, Inc. have been accounted for under the purchase
method of accounting, and as a result, a significant amount of goodwill is being
amortized. This amortization expense may have a significant effect on our
financial results.
Although we believe the accounting for past acquisitions has been
appropriate, in general the Securities and Exchange Commission has recently been
reviewing more closely the accounting for acquisitions and the resulting charges
for "in-process" research and development costs. Any resulting restatement of
the "in-process" research and development charge we recognized in conjunction
with any of our acquisitions, including the Cylink Wireless Group acquisition,
could result in a lesser charge to income for "in-process" technology and the
creation of a higher recorded value of goodwill or other intangible assets. The
allocation of the purchase price to such additional intangible assets would have
the effect of increasing amortization expense, which could have a material
adverse effect on results of operations, business and financial condition.
Contract Manufacturers and Limited Sources of Supply
Our internal manufacturing capacity is very limited. We use contract
manufacturers such as Celeritek, Inc., GSS Array Technology, Remec, Inc.,
Sanmina Corporation, Senior Systems Technology, Inc. and SPC Electronics Corp.
to produce our systems, components and subassemblies and expect to rely
increasingly on these and other manufacturers in the future. We also rely on
outside vendors to manufacture certain other components and subassemblies. Our
internal manufacturing capacity and that of our contract manufacturers may not
be sufficient to fulfill our orders. Our failure to manufacture, assemble and
ship systems and meet customer demands on a timely and cost-effective basis
could damage relationships with customers and have a material adverse effect on
our business, condition and results of operations.
In addition, certain components, subassemblies and services necessary
for the manufacture of our systems are obtained from a sole supplier or a
limited group of suppliers. In particular, Eltel Engineering S.r.L. and
Associates and Xilinx, Inc. are sole source or limited source suppliers for
critical components used in our radio systems.
Our reliance on contract manufacturers and on sole suppliers or a
limited group of suppliers and increasing reliance on contract manufacturers and
suppliers involves risks. We have experienced an inability to obtain an
adequate supply of finished products and required components and subassemblies.
As a result, we have reduced control over the price, timely delivery,
reliability and quality of finished products, components and subassemblies. We
do not have long-term supply agreements with most of our manufacturers or
suppliers. We have
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experienced problems in the timely delivery and quality of products and certain
components and subassemblies from vendors. Some suppliers have relatively
limited financial and other resources. Any inability to obtain timely deliveries
of components and subassemblies of acceptable quality or any other circumstance
would require us to seek alternative sources of supply, or to manufacture
finished products or components and subassemblies internally. As manufacture of
our products and certain of our components and subassemblies is an extremely
complex process, finding and educating new vendors could delay our ability to
ship our systems, which could damage relationships with current or prospective
customers and materially adversely affect our business, condition and results of
operations.
Management of Growth
Recently, in response to market declines and poor performance in our
sector generally and our lower than expected performance over the last several
quarters, we introduced measures to reduce operating expenses, including
reductions in our workforce in July, September and November 1998. However,
prior to such measures, we had significantly expanded the scale of our
operations to support then anticipated continuing increased sales and to address
critical infrastructure and other requirements. This expansion included leasing
additional space, opening branch offices and subsidiaries in the United Kingdom,
Italy, Germany, Mexico, Dubai and Singapore, opening design centers in the
United Kingdom and the United States, acquiring a large amount of inventory and
accounts receivable, and acquiring nine businesses. We had also invested
significantly in research and development to support product development and
services. Further, we had hired additional personnel in all functional areas,
including in sales and marketing, manufacturing and operations and finance. We
experienced significantly higher operating expenses than in prior years as a
result of this expansion. A material portion of these expenses remain
significant fixed costs.
In addition, to prepare for the future, we are required to continue to
invest resources in our acquired and new businesses. Currently, we are devoting
significant resources to the development of new products and technologies and
are conducting evaluations of these products. We will continue to invest
additional resources in plant and equipment, inventory, personnel and other
items, to begin production of these products and to provide any necessary
marketing and administration to service and support these new products.
Accordingly, in addition to the effect our recent performance has had on gross
profit margin and inventory levels, our gross profit margin and inventory levels
may be further adversely impacted in the future by start-up costs associated
with the initial production and installation of these new products. Start-up
costs may include additional manufacturing overhead, additional allowance for
doubtful accounts, inventory and warranty reserve requirements and the creation
of service and support organizations. Additional inventory on hand for new
product development and customer service requirements also increases the risk of
inventory write-downs. Based on the foregoing, if our sales do not increase,
our results of operations will continue to be materially adversely affected.
See "-History of Losses."
Expansion of our operations and acquisitions have caused and continue
to impose a significant strain on our management, financial, manufacturing and
other resources and have disrupted our normal business operations. Our ability
to manage any possible future growth may depend upon significant expansion of
our manufacturing, accounting and other internal
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management systems and the implementation of a variety of systems, procedures
and controls, including improvements relating to inventory control. In
particular, we must successfully manage the control of overhead expenses and
inventories, the development, introduction, marketing and sales of new products,
the management and training of our employee base, the integration and
coordination of a geographically and ethnically diverse group of employees and
the monitoring of third party manufacturers and suppliers. We cannot be certain
that attempts to manage or expand our marketing, sales, manufacturing and
customer support efforts will be successful or result in future additional sales
or profitability. We must also more efficiently coordinate activities in our
companies and facilities in Rome and Milan, Italy, France, Poland, the United
Kingdom, Mexico, Dubai, New Jersey, Florida, Virginia, Washington and elsewhere.
For a number of reasons, we have in the past and may continue to experience
significant problems in these areas. As a result of the foregoing, as well as
difficulty in forecasting revenue levels, we will continue to experience
fluctuations in revenues, costs, and gross margins.
Any failure to implement efficiently, coordinate and improve systems,
procedures and controls, including improvements relating to inventory control
and coordination with our subsidiaries, at a pace consistent with our business,
could cause continued inefficiencies, additional operational complexities and
expenses, greater risk of billing delays, inventory write-downs and financial
reporting difficulties. Such problems could have a material adverse effect on
our business, condition and results of operations.
A significant ramp-up production of products and services could
require us to make substantial capital investments in equipment and inventory,
in recruitment and training additional personnel and possibly in investment in
additional manufacturing facilities. If under-taken, we anticipate these
expenditures would be made in advance of increased sales. In such event, gross
margins would be adversely affected from time-to-time due to short-term
inefficiencies associated with the addition of equipment and inventory,
personnel or facilities, and cost categories may periodically increase as a
percentage of revenues.
Decline in Selling Prices
We believe that average selling prices and possibly gross margins for
our systems and services will decline in the long term. Reasons for such
decline may include the maturation of such systems, the effect of volume price
discounts in existing and future contracts and the intensification of
competition. To offset declining average selling prices, we believe we must take
a number of steps, including:
. successfully introducing and selling new systems on a timely basis;
. developing new products that incorporate advanced software and other
features that can be sold at higher average selling prices; and
. reducing the costs of our systems through contract manufacturing, design
improvements and component cost reduction, among other actions.
If we cannot develop new products in a timely manner, fail to achieve
customer acceptance or do not generate higher average selling prices, then we
would be unable to offset
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declining average selling prices. In we are unable to offset declining average
selling prices, our gross margins will decline. See "-Fluctuations in Operating
Results."
Account Receivables
We are subject to credit risk in the form of trade account
receivables. We may in certain circumstances be unable to enforce a policy of
receiving payment within a limited number of days of issuing bills, especially
for customers in the early phases of business development. In addition, many of
our foreign customers are granted longer payment terms than those typically
existing in the United States. We typically do not require collateral or other
security to support customer receivables, but in some instances we have required
down payments or letters of credit from a customer before booking their order.
We have had difficulties in the past in receiving payment in accordance with our
policies, particularly from customers awaiting financing to fund their expansion
and from customers outside of the United States. The days sales outstanding of
receivables have also recently increased. Such difficulties may continue in the
future, which could have a material adverse effect on our business, financial
condition and results of operations.
Our bank line of credit currently permits us to sell up to $25 million
of our receivables at any one time to a limited group of purchasers on a non-
recourse basis. We have in the past utilized such sales and may continue from
time to time to sell our receivables, as part of an overall customer financing
program. However, we may not be able to locate parties to purchase such
receivables on acceptable terms or at all. See"--Fluctuations in Operating
Results" and "Uncertainty in International Operations."
Product Quality, Performance and Reliability
We have limited experience in producing and manufacturing systems and
contracting for such manufacture. Our customers require very demanding
specifications for quality, performance and reliability. As a consequence,
problems may occur with respect to the quality, performance and reliability of
our systems or related software tools. If such problems occur, we could
experience increased costs, delays or cancellations or reschedulings of orders
or shipments, delays in collecting accounts receivable and product returns and
discounts. If any of these events occur, it would have a material adverse
effect on our business, condition and results of operations.
In addition, to maintain our ISO 9001 registration, we must
periodically undergo certification assessment. Failure to maintain such
registration could materially adversely affect our business. We completed ISO
9001 registration for our United Kingdom sales and customer support facility in
1996, our Geritel facility in Italy in 1996, and its Technosystem facility in
Italy in 1997. Other of our facilities are also attempting to obtain ISO 9001
registration. Such registrations may not be achieved and we may be unable to
maintain those registrations we have already completed. Any such failure could
have a material adverse effect on our business, condition and results of
operations.
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Changes in Financial Accounting Standards
We prepare our financial statements in conformity with generally
accepted accounting principles ("GAAP"). GAAP is subject to interpretation by
the American Institute of Certified Public Accountants, the Securities and
Exchange Commission and various bodies formed to interpret and create
appropriate accounting policies. A change in these policies can have a
significant effect on our reported results, and may even affect our reporting of
transactions completed before a change is announced. Accounting policies
affecting many other aspects of our business, including rules relating to
software and license revenue recognition, purchase and pooling-of-interests
accounting for business combinations, employee stock purchase plans and stock
option grants have recently been revised or are under review by one or more
groups. Changes to these rules, or the questioning of current practices, may
have a material adverse effect on our reported financial results or in the way
we conduct our business.
In addition, the preparation of financial statements in conformity
with GAAP requires us to make estimates and assumptions that affect the recorded
amounts of assets and liabilities, disclosure of those assets and liabilities at
the date of the financial statements and the recorded amounts of expenses during
the reporting period. A change in the facts and circumstances surrounding these
estimates could result in a change to the estimates and impact future operating
results.
Market Acceptance
Our future operating results depend upon the continued growth and
increased availability and acceptance of microcellular, PCN/PCS and wireless
local loop access telecommunications services in the United States and
internationally. The volume and variety of wireless telecommunications services
or the markets for and acceptance of such services may not continue to grow as
expected. The growth of such services may also fail to create anticipated
demand for our systems. Because these markets are relatively new, predicting
which segments of these markets will develop and at what rate these markets will
grow is difficult. In addition to our other products, we have recently invested
significant time and resources in the development of point-to-multipoint radio
systems. If the licensed millimeter wave, spread spectrum microwave radio or
point-to-multipoint microwave radio market and related services for our systems
fails to grow, or grows more slowly than anticipated, our business, condition
and results of operations will be materially adversely affected.
Certain sectors of the communications market will require the
development and deployment of an extensive and expensive communications
infrastructure. In particular, the establishment of PCN/PCS networks will
require very large capital expenditures. Communications providers may not make
the necessary investment in such infrastructure, and the creation of this
infrastructure may not occur in a timely manner. Moreover, one potential
application of our technology -- use of our systems in conjunction with the
provision of alternative wireless access in competition with the existing
wireline local exchange providers -- depends on the pricing of wireless
telecommunications services at rates competitive with those charged by wireline
telephone companies. Rates for wireless access must become competitive with
rates charged by wireline companies for this approach to be successful. If
wireless access rates are not competitive, consumer demand for wireless access
will be materially adversely
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affected. If we allocate resources to any market segment that does not grow, we
may be unable to reallocate resources to other market segments in a timely
manner, ultimately curtailing or eliminating our ability to enter such segments.
Certain current and prospective customers are delivering services and
features that use competing transmission media such as fiber optic and copper
cable, particularly in the local loop access market. To successfully compete
with existing products and technologies, we must offer systems with superior
price/performance characteristics and extensive customer service and support.
Additionally, we must supply such systems on a timely and cost-effective basis,
in sufficient volume to satisfy such prospective customers' requirements and
otherwise overcome any reluctance on the part of such customers to transition to
new technologies. Any delay in the adoption of our systems may result in
prospective customers using alternative technologies in their next generation of
systems and networks.
Prospective customers may not design their systems or networks to
include our systems. Existing customers may not continue to include our systems
in their products, systems or networks in the future. Our technology may not
replace existing technologies and achieve widespread acceptance in the wireless
telecommunications market. Failure to achieve or sustain commercial acceptance
of our currently available radio systems or to develop other commercially
acceptable radio systems would materially adversely affect us. Also, industry
technical standards may change or, if emerging standards become established, we
may not be able to conform to these new standards in a timely and cost-effective
manner.
Intensely Competitive Industry
The wireless communications market is intensely competitive. Our
wireless-based radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission media, including copper
and fiber optic cable. We are experiencing intense competition worldwide from a
number of leading telecommunications companies. Such companies offer a variety
of competitive products and services and broader telecommunications product
lines, and include Adtran, Inc., Alcatel Network Systems, California Microwave,
Inc., Digital Microwave Corporation (which has recently acquired other
competitors, including Innova International Corp. and MAS Technology, Ltd.),
Ericsson Limited, Harris Corporation-Farinon Division, Larus Corporation, Nokia
Telecommunications, Lucent T.R.T., Utilicom and Western Multiplex Corporation.
Many of these companies have greater installed bases, financial
resources and production, marketing, manufacturing, engineering and other
capabilities than we do. In early 1998, we acquired the Cylink Wireless Group
which competes with a large number of companies in the wireless communications
markets, including U.S. local exchange carriers and foreign telephone companies.
The most significant competition for Cylink Wireless Group's products in the
wireless market is from telephone companies that offer leased line data
services. We face actual and potential competition not only from these
established companies, but also from start-up companies that are developing and
marketing new commercial products and services.
We may also compete in the future with other market entrants offering
competing technologies. Some of our current and prospective customers and
partners have developed, are
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currently developing or could manufacture products competitive with ours. Nokia
and Ericsson have recently developed new competitive radio systems.
The principal elements of competition in our market and the basis upon
which customers may select our systems include price, performance, software
functionality, ability to meet delivery requirements and customer service and
support. Recently, certain competitors have announced the introduction of new
competitive products, including related software tools and services, and the
acquisition of other competitors and competitive technologies. We expect
competitors to continue to improve the performance and lower the price of their
current products and services and to introduce new products and services or new
technologies that provide added functionality and other features. New product
and service offerings and enhancements by our competitors could cause a decline
in sales or loss of market acceptance of our systems. New offerings could also
make our systems, services or technologies obsolete or non-competitive. In
addition, we are experiencing significant price competition and expect such
competition to intensify.
We believe that to be competitive, we will need to expend significant
resources on, among other items, new product development and enhancements. In
marketing our systems and services, we will compete with vendors employing other
technologies and services that may extend the capabilities of their competitive
products beyond their current limits, increase their productivity or add other
features. We may not be able to compete successfully in the future.
Rapid Technological Change
Rapid technological change, frequent new product introductions and
enhancements, product obsolescence, changes in end-user requirements and
evolving industry standards characterize the communications market. Our ability
to compete in this market will depend upon successful development, introduction
and sale of new systems and enhancements and related software tools, on a timely
and cost-effective basis, in response to changing customer requirements.
Recently, we have been developing point-to-multipoint radio systems. Any
success in developing new and enhanced systems, including point-to-multipoint
systems, and related software tools will depend upon a variety of factors. Such
factors include:
. new product selection;
. integration of various elements of complex technology;
. timely and efficient implementation of manufacturing and assembly
processes and cost reduction programs;
. development and completion of related software tools, system performance,
quality and reliability of systems;
. development and introduction of competitive systems; and
. timely and efficient completion of system design.
We have experienced and continue to experience delays in customer
procurement and in completing development and introduction of new systems and
related software tools, including products acquired in acquisitions. Moreover,
we may not be successful in selecting, developing, manufacturing and marketing
new systems or enhancements or related software tools. Also, errors could be
found in our systems after commencement of commercial shipments.
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Such errors could result in the loss of or delay in market acceptance, as well
as expenses associated with re-work of previously delivered equipment. Our
inability to introduce in a timely manner new systems or enhancements or related
software tools that contribute to sales could have a material adverse effect on
our business, condition and results of operations.
Uncertainty in International Operations
In doing business in international markets, we face economic,
political and foreign currency fluctuations that are more volatile than those
commonly experienced in the United States and other areas. Most of our sales to
date have been made to customers located outside of the United States. We have
also acquired three Italy-based companies, two United Kingdom-based companies
and four U.S. companies with substantial international operations. These
companies sell their products and services primarily to customers in Europe, the
Middle East and Africa. We anticipate that international sales will continue to
account for a majority of our sales for the foreseeable future.
Historically, our international sales have been denominated in British
pounds sterling or United States dollars. With recent acquisitions of foreign
companies, certain of our international sales are denominated in other foreign
currencies, including Italian Lira. A decrease in the value of foreign
currencies relative to the United States dollar could result in decreased
margins from those transactions. For international sales that are United States
dollar-denominated, such a decrease could make our systems less price-
competitive and could have a material adverse effect upon our financial
condition. We have in the past mitigated currency exposure to the British pound
sterling through hedging measures. However, any future hedging measures may be
limited in their effectiveness with respect to the British pound sterling and
other foreign currencies. Additional risks are inherent in our international
business activities. Such risks include:
. changes in regulatory requirements;
. costs and risks of localizing systems in foreign countries;
. delays in receiving components and materials;
. availability of suitable export financing;
. timing and availability of export licenses, tariffs and other trade
barriers;
. difficulties in staffing and managing foreign operations, branches
and subsidiaries;
. difficulties in managing distributors;
. potentially adverse tax consequences;
. foreign currency exchange fluctuations;
. the burden of complying with a wide variety of complex foreign laws and
treaties;
. the difficulty in accounts receivable collections; and
. political and economic instability.
In addition, many of our customer purchase and other agreements are
governed by foreign laws, which may differ significantly from U.S. laws.
Therefore, we may be limited in our ability to enforce our rights under such
agreements and to collect damages, if awarded.
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In many cases, local regulatory authorities own or strictly regulate
international telephone companies. Established relationships between government
owned or controlled telephone companies and their traditional indigenous
suppliers of telecommunications often limit access to such markets. The
successful expansion of our international operations in certain markets will
depend on our ability to locate, form and maintain strong relationships with
established companies providing communication services and equipment in targeted
regions. The failure to establish regional or local relationships or to
successfully market or sell our products in international markets could limit
our ability to expand operations. Our inability to identify suitable parties for
such relationships, or even if identified, to form and maintain strong
relationships could prevent us from generating sales of products and services in
targeted markets or industries. Moreover, even if such relationships are
established, we may be unable to increase sales of products and services through
such relationships.
Some of our potential markets include developing countries that may
deploy wireless communications networks as an alternative to the construction of
a limited wired infrastructure. These countries may decline to construct
wireless telecommunications systems or construction of such systems may be
delayed for a variety of reasons. If such events occur, any demand for our
systems in these countries will be similarly limited or delayed. Also, in
developing markets, economic, political and foreign currency fluctuations may be
even more volatile than conditions in other developed areas. Such volatility
could have a material adverse effect on our ability to develop or continue to do
business in such countries.
Countries in the Asia/Pacific and Latin American regions have recently
experienced weaknesses in their currency, banking and equity markets. These
weaknesses have adversely affected and could continue to adversely affect demand
for products, the availability and supply of product components to us and,
ultimately, our consolidated results of operations.
Extensive Government Regulation
Radio communications are extensively regulated by the United States,
foreign laws and international treaties. Our systems must conform to a variety
of domestic and international requirements established to, among other things,
avoid interference among users of radio frequencies and to permit
interconnection of equipment. Historically, in many developed countries, the
limited availability of radio frequency spectrum has inhibited the growth of
wireless telecommunications networks.
Each country's regulatory process differs. To operate in a
jurisdiction, we must obtain regulatory approval for our systems and comply with
differing regulations. Regulatory bodies worldwide continue to adopt new
standards for wireless communications products. The delays inherent in this
governmental approval process may cause the cancellation, postponement or
rescheduling of the installation of communications systems by us and our
customers. The failure to comply with current or future regulations or changes
in the interpretation of existing regulations could result in the suspension or
cessation of operations. Such regulations or such changes in interpretation
could require us to modify products and services and incur substantial costs to
comply with such regulations and changes.
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In addition, we are also affected by domestic and international
authorities' regulation of the allocation and auction of the radio frequency
spectrum. Equipment to support new systems and services can be marketed only if
permitted by governmental regulations and if suitable frequency allocations are
auctioned to service providers. Establishing new regulations and obtaining
frequency allocation at auction is a complex and lengthy process. If PCS
operators and others are delayed in deploying new systems and services, we could
experience delays in orders. Similarly, failure by regulatory authorities to
allocate suitable frequency spectrum could have a material adverse effect on our
results. In addition, delays in the radio frequency spectrum auction process in
the United States could delay our ability to develop and market equipment to
support new services.
We operate in a regulatory environment subject to significant change.
Regulatory changes, which are affected by political, economic and technical
factors, could significantly impact our operations by restricting our
development efforts and those of our customers, making current systems obsolete
or increasing competition. Any such regulatory changes, including changes in
the allocation of available spectrum, could have a material adverse effect on
our business, financial condition and results of operations. We may also find
it necessary or advisable to modify our systems and services to operate in
compliance with such regulations. Such modifications could be extremely
expensive and time-consuming.
Additional Capital Requirements
Future capital requirements will depend upon many factors, including
the development of new products and related software tools, potential
acquisitions, maintenance of adequate manufacturing facilities and contract
manufacturing agreements, progress of research and development efforts,
expansion of marketing and sales efforts, and the status of competitive
products. Additional financing may not be available in the future on acceptable
terms, or at all. The continued existence of a substantial amount of
indebtedness incurred through the issuance of our 4 1/4% convertible promissory
notes due 2002 and the incurrence of debt under our bank line of credit could
severely limit our ability to raise additional financing. Given the recent
price for our common stock, if additional funds are raised by issuing equity
securities, significant dilution to our stockholders could result.
We have, however, recently retired approximately $40 million of our 4
1/4% convertible promissory notes in exchange for approximately 5.3 million
shares of our common stock. We may exchange additional 4 1/4% convertible
promissory notes for shares of common stock or, alternatively, refinance or
exchange the remainder of the 4 1/4% convertible promissory notes and/or the
bank debt. We have also recently issued 15,000 shares of Series B preferred
stock and warrants to purchase up to 1,242,257 shares of our common stock in
exchange for a $15 million investment. These transactions have had and may
continue to have a substantial dilutive effect on our stockholders and may make
it difficult for us to obtain additional future financing, if needed. See
"Series B Preferred Stock Financing."
If adequate funds are not available, we may be required to restructure
or refinance our debt or delay, scale back or eliminate research and
development, acquisition or manufacturing programs. We may also need to obtain
funds through arrangements with partners
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or others that may require us to relinquish rights to certain of our
technologies or potential products or other assets.
Class Action Litigation
State Actions
On September 23, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Leonard Vernon and
Gayle M. Wing on behalf of themselves and other P-Com stockholders who purchased
or otherwise acquired our common stock between April 15, 1997 and September 11,
1998. The plaintiffs allege various state securities laws violations by P-Com
and certain of its officers and directors. The complaint seeks unquantified
compensatory, punitive and other damages, attorneys' fees and injunctive and/or
equitable relief.
On October 16, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Terry Sommer on
behalf of herself and other P-Com stockholders who purchased or otherwise
acquired our common stock between April 1, 1998 and September 11, 1998. The
plaintiff alleges various state securities laws violations P-Com and certain of
its officers. The complaint seeks unquantified compensatory and other damages,
attorneys' fees and injunctive and/or equitable relief.
On October 20, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Leo Rubin on behalf
of himself and other stockholders who purchased or otherwise acquired our common
stock between April 15, 1997 and September 11, 1998. This complaint is
identical in all relevant respects to that filed on September 23, 1998, which is
described above, other than the fact that the plaintiffs are different.
On October 26, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Betty B. Hoigaard
and Steve Pomex on behalf of themselves and other P-Com stockholders who
purchased or otherwise acquired our common stock between April 15, 1997 and
September 11, 1998. This complaint is identical in all relevant respects to
that filed on September 23, 1998, which is described above, other than the fact
that the plaintiffs are different.
On October 27, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Judith Thurman on
behalf of herself and other P-Com stockholders who purchased or otherwise
acquired our common stock between April 15, 1997 and September 11, 1998. This
complaint is identical in all relevant respects to that filed on September 23,
1998, which is described above, other than the fact that the plaintiffs are
different.
On December 3, 1998, the Superior Court of California, County of Santa
Clara, entered an order consolidating all of the above complaints. On January
15, 1999, the plaintiffs filed a consolidated amended class action complaint
superceding all of the foregoing complaints. On March 1, 1999, defendants filed
a demurrer to the consolidated amended complaint and each cause of action stated
therein. The demurrer is set for hearing by the court on May 13, 1999.
Federal Actions
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On November 13, 1998, a putative class action complaint was filed in
the United States District Court, Northern District of California, by Robert
Schmidt on behalf of himself and other P-Com stockholders who purchased or
otherwise acquired our common stock between April 15, 1997 and September 11,
1998. The plaintiff alleged violations of the Securities Exchange Act of 1934
by us and certain of our officers and directors. The complaint sought
unquantified compensatory damages, attorneys' fees and injunctive and/or
equitable relief. On January 26, 1999, the plaintiff voluntarily dismissed the
Schmidt action. The court entered an order dismissing the action without
prejudice on January 29, 1999.
On December 3, 1998, a putative class action complaint was filed in
the United States District Court, Northern District of California, by Robert
Dwyer on behalf of himself and other P-Com stockholders who purchased or
otherwise acquired our common stock between April 15, 1997 and September 11,
1998. The plaintiff alleged violations of the Securities Exchange Act of 1934
by P-Com and certain of its officers and directors. The complaint sought
unquantified compensatory damages, attorneys' fees and injunctive and/or
equitable relief. On December 22, 1998 and February 2, 1999, the plaintiff
sought to voluntarily dismiss this action. On February 11, 1999, the court
entered an order dismissing the action without prejudice.
All of these proceedings are at a very early stage and we are unable
to speculate as to their ultimate outcomes. However, we believe the claims in
the complaints are without merit and intend to defend against them vigorously.
An unfavorable outcome in any or all of them could have a material adverse
effect on our business, prospects, financial condition and results of
operations. Even if all of the litigation is resolved in our favor, the defense
of such litigation will entail considerable cost and the significant diversion
of efforts of management, either of which are likely to have a material adverse
effect on our business, prospects, financial condition and results of
operations.
Protection of Proprietary Rights
We rely on a combination of patents, trademarks, trade secrets,
copyrights and other measures to protect our intellectual property rights. We
generally enter into confidentiality and nondisclosure agreements with service
providers, customers and others to limit access to and distribution of
proprietary rights. We also enter into software license agreements with
customers and others. However, such measures may not provide adequate
protection for our trade secrets or other proprietary information for a number
of reasons. For example, our trade secrets or proprietary technology may
otherwise become known or be independently developed by competitors, and we may
not be able to otherwise meaningfully protect intellectual property rights.
Any of our patents could be invalidated, circumvented or challenged,
or the rights granted thereunder may not provide competitive advantages to us.
Any of our pending or future patent applications might not be issued with the
scope of the claims sought, if at all. Furthermore, others may develop similar
products or software or duplicate our products or software. Similarly, others
might design around the patents owned by us, or third parties may assert
intellectual property infringement claims against us. In addition, foreign
intellectual property laws may not adequately protect our intellectual property
rights abroad. A failure or
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inability to protect proprietary rights could have a material adverse effect on
our business, financial condition and results of operations.
Even if our intellectual property rights are adequately protected,
litigation may also be necessary to enforce patents, copyrights and other
intellectual property rights, to protect our trade secrets, to determine the
validity of and scope of proprietary rights of others or to defend against
claims of infringement or invalidity. We have, through our acquisition of the
Cylink Wireless Group, been put on notice from a variety of third parties that
the Group's products may be infringing the intellectual property rights of other
parties. Any such intellectual property litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on our
business, financial condition and results of operations. Litigation, even if
wholly without merit, could result in substantial costs and diversion of
resources, regardless of the outcome. Infringement, invalidity, right to use or
ownership claims by third parties or claims for indemnification resulting from
infringement claims could be asserted in the future and such assertions may
materially adversely affect us. If any claims or actions are asserted against
us, we may seek a license under a third party's intellectual property rights.
However, such a license may not be available under reasonable terms or at all.
Dependence on Key Personnel
Our future operating results depend in significant part upon the
continued contributions of key technical and senior management personnel, many
of whom would be difficult to replace. Future operating results also depend
upon ability to attract and retain such specially qualified management,
manufacturing, quality assurance, engineering, marketing, sales and support
personnel. Competition for such personnel is intense, and we may not be
successful in attracting or retaining such personnel. Only a limited number of
persons with the requisite skills to serve in these positions may exist and it
may be increasingly difficult for us to hire such personnel.
We have experienced and may continue to experience employee turnover
due to several factors, including an expanding economy within the geographic
area in which we maintain our principal business offices. Such turnover could
adversely impact our business. We are presently addressing these issues and
intend to pursue solutions designed to provide performance incentives and
thereby retain employees. The loss of any key employee, the failure of any key
employee to perform in his or her position, our inability to attract and retain
skilled employees as needed or the inability of our officers and key employees
to expand, train and manage our employee base could all materially adversely
affect our business.
Year 2000
Numerous currently installed computer systems and software products
are coded to accept only two digit entries in the date code field. Beginning in
the year 2000, these date code fields may fail to distinguish 21st century dates
from 20th century dates. This failure could result in major system disruptions
or miscalculations and is referred to as the "Year 2000" problem or the "Y2K"
issues. As a result, many companies' software and computer systems and/or
software used by many companies may need to be upgraded or replaced. We have
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embarked on a global program to address our Y2K readiness. Our program involves
the assessment of products, services, internal systems and critical suppliers
and, if required, development of plans for upgrades to or replacement of
products, business systems, suppliers and services that impact our Y2K readiness
and/or development of contingency plans. We have not yet established a
comprehensive contingency plan with respect to the Y2K problem, but intend to
establish such a plan by the end of the second quarter of 1999 as part of our
ongoing Y2K compliance effort.
In November of 1998, we initiated a new Y2K-ready internal business
system at our corporate headquarters. The cost of the upgrade was approximately
$250,000. Further business system upgrades will occur in our Control Resources
Corporation, Technosystem and Geritel subsidiaries by the end of the third
quarter of 1999. Based on evaluation performed to date, we believe that all
"mission critical" internal systems are stable and current, in terms of Y2K
readiness. However, the failure of any internal system to achieve Year 2000
readiness could result in material disruption to our operations. Test and
assessment of all of our current radio products has been completed, with the
exception of Technosystem and Control Resources Corporation products, and Y2K
certification has been achieved. However, the inability of any of our products
to properly manage and manipulate data in the year 2000 could result in
increased warranty costs, customer satisfaction issues, potential lawsuits and
other material costs and liabilities. All Technosystem and Control Resources
Corporation products are expected to complete their Y2K assessment and testing
by the end of the first quarter of 1999.
In November of 1998, we requested a Y2K readiness statement and
progress report from critical suppliers. These suppliers will undergo Y2K site
evaluations between January 1 and the end of June 1999. We expect to obtain all
Y2K readiness statements by the end of the third quarter 1999, and intend to
emphasize obtaining an early response from those suppliers which cannot be
easily replaced. We are aware of the risk posed by single source or large
volume suppliers that may not be addressing their Y2K readiness. To the extent
responses to our Y2K inquiries are inadequate, we may try to change suppliers,
service providers or contractors to those demonstrating Y2K readiness. We
cannot be assured that reasonable alternative suppliers or contractors will be
available. Even where assurances are received from third parties, a risk
remains that failure of systems and products of other companies on which we rely
could have a material adverse effect on our results.
Our budget for the Y2K Program is expected to be an aggregate of
approximately $2 million. Of this amount, we have incurred approximately
$400,000 to date, including the $250,000 disclosed above. The foregoing
statements are based upon management's best estimates at the present time, which
were derived using numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. These estimates may be incorrect and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to:
. the availability and cost of personnel trained in this area;
. the rate and magnitude of related labor and consulting costs;
47
<PAGE>
. the nature and amount of programming required to upgrade or replace each
of the affected programs;
. success of external customers and suppliers in addressing the Year 2000
issue; and
. the ability to locate and correct all relevant computer codes.
Our evaluation is on-going and we expect that new and different
information will become available to us as that evaluation continues.
Consequently, we cannot guarantee that all material elements will be Y2K ready
in time.
Volatility of Stock Price
In recent years, the stock market in general, and the market for
shares of small capitalization and technology stocks in particular, have
experienced extreme price fluctuations. Such fluctuations have often been
unrelated to the operating performance of affected companies. We believe that
factors such as announcements of developments related to our business,
announcements of technological innovations or new products or enhancements by us
or our competitors, developments in the Asia/Pacific region, sales by
competitors, including sales to our customers, sales of our common stock into
the public market, including by members of management, developments in our
relationships with customers, partners, lenders, distributors and suppliers,
shortfalls or changes in revenues, gross margins, earnings or losses or other
financial results that differ from analysts' expectations (as recently
experienced), regulatory developments, fluctuations in results of operations and
general conditions in our market or markets served by our customers or the
economy, could cause the price of our common stock to fluctuate, sometimes
reaching extreme and unexpected lows. The market price of our common stock may
continue to decline substantially, or otherwise continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to our performance. Such fluctuations could continue to materially
adversely affect the market price of our common stock.
Substantial Amount of Debt
In November 1997, through a private placement of our 4 1/4%
convertible promissory notes, we incurred $100 million of indebtedness. In
December 1998 and January 1999, we retired approximately $40 million of such
indebtedness in exchange for approximately 5.3 million shares of our common
stock. As of September 30, 1998, our total indebtedness including current
liabilities was approximately $201.6 million and our stockholder's equity was
approximately $92.8 million.
Our bank line of credit provides for borrowings of approximately $50
million, which as of December 31, 1998 had been almost fully utilized. The line
of credit requires us to comply with several financial covenants, including the
maintenance of specific minimum ratios. At periods in time since June 30, 1998,
we have amended our existing bank line of credit to prevent defaults with
respect to several financial covenants. Had these amendments not been made, we
would have defaulted on those covenants in our bank line, which would have
triggered cross defaults in the convertible promissory notes and other debt
instruments.
48
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Our ability to make scheduled payments of the principal and interest
on indebtedness will depend on future performance, which is subject in part to
economic, financial, competitive and other factors beyond our control. There
can be no assurance that we will be able to make payments on or restructure or
refinance our debt in the future, if necessary. See "Series B Preferred Stock
Financing" and "--Accounts Receivable."
Dividends
Since our incorporation in 1991, we have not declared or paid cash
dividends on our common stock, and we anticipate that any future earnings will
be retained for investment in the business. We are, however, required to pay a
6% per year premium on the Series B preferred stock, payable in cash or common
stock at our option. Any payment of cash dividends in the future will be at the
discretion of our board of directors and will depend upon, among other things,
our earnings, financial condition, capital requirements, extent of indebtedness
and contractual restrictions with respect to the payment of dividends.
Change of Control
Members of our board of directors and executive officers, together
with members of their families and entities that may be deemed affiliates of or
related to such persons or entities, beneficially own approximately 6% of the
outstanding shares of common stock. Accordingly, these stockholders are able to
influence the election of the members of our board of directors and influence
the outcome of corporate actions requiring stockholder approval, such as mergers
and acquisitions.
This level of ownership, together with the stockholder rights
agreement, certificate of incorporation, newly issued shares Series B preferred
stock, equity incentive plans, bylaws and Delaware law, may have a significant
effect in delaying, deferring or preventing a change in control of P-Com and may
adversely affect the voting and other rights of other holders of common stock.
The rights of the holders of common stock will be subject to, and may
be adversely affected by, the rights of the holders of the Series B preferred
stock and any other preferred stock that may be issued in the future, including
the Series A junior participating preferred stock that may be issued pursuant to
the stockholder rights agreement upon the occurrence of certain triggering
events. In general, the stockholder rights agreement provides a mechanism by
which our board of directors and stockholders may act to substantially dilute
the share position of any takeover bidder that acquires 15% or more of the
common stock. The holders of the Series B preferred stock and warrants and
their transferees have been excluded from triggering the provisions of the
stockholder rights agreement. The issuance of the Series B preferred stock or
the future issuance of the Series A preferred stock or any additional preferred
stock could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock. See "--Series B Preferred
Stock Financing" and "Description of Our Capital Stock--Rights Agreement."
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Series B Preferred Stock Financing
In December 1998, we raised gross proceeds of $15 million through the
issuance of 15,000 shares of a newly designated Series B convertible
participating preferred stock and warrants to purchase up to 1,242,257 shares of
common stock. The issuance of the Series B preferred stock and warrants
provided us with additional working capital required to fund continuing
operations. However, the agreements with the purchasers of the Series B
preferred stock and warrants contain terms and covenants that could result in
substantial dilution to our stockholders, could render future financings and
loans and merger and acquisition activities more difficult and could require us
to expend substantial amounts of cash, even if unavailable at the time such
expenditure was required. See "Description of Our Capital Stock."
In particular, if we merge with a public company meeting certain
threshold criteria, the holders of the Series B preferred stock will be entitled
to receive in the merger the consideration they would have received had they
converted their stock the day before the public announcement of the merger. If
we merge with a private company or a public company not meeting defined
threshold criteria, the holders of the Series B preferred stock will be
entitled, at their option, (1) to retain their preferred stock, which will then
convert into common stock of the surviving company, or (2) receive either the
consideration they would have received had they converted their stock the day
before the public announcement of the merger or receive $1,250 per share of
Series B preferred stock then outstanding, up to an aggregate of $18,750,000, in
cash, plus any accrued and unpaid premium and a default interest rate, if
applicable. Notwithstanding the foregoing, we are permitted to acquire other
companies without having to provide special consideration to the holders of the
Series B preferred stock so long as we do not issue more than 20% of our common
stock as merger consideration. The holders of the warrants are entitled to
similar protections in the event of our merger or consolidation with another
company. We are also prohibited from selling or transferring all or
substantially all of our assets without prior approval by the purchasers of the
Series B preferred stock. These provisions may make our acquisition or asset
sale more difficult and expensive and could discourage some potential
purchasers.
Certain covenants that we made in connection with the issuance of the
Series B preferred stock may also have the effect of limiting our ability to
obtain additional financing and issue other securities. We have agreed, until
December 22, 1999, not to issue or agree to issue any equity securities at a
price less than fair market value or any variably priced securities, subject to
limited exceptions. In addition, the terms of the Series B preferred stock
financing agreements prohibit us from, among other things, altering, changing or
otherwise adversely affecting the terms of the Series B preferred stock;
creating or issuing any senior or pari passu securities; or redeeming or paying
any dividend on any junior securities.
The terms of the Series B preferred stock financing agreements also
include mandatory redemption features and payment provisions that are triggered
in the event we fail to satisfy certain obligations. Holders of the Series B
preferred stock may require redemption of their shares at a substantial premium,
plus a default interest rate, if applicable, upon the occurrence of certain
events deemed within our control. Upon the occurrence of certain other events
deemed outside of our control, including among others, our failure to obtain
stockholder approval (which we must solicit at our expense) of the potential
issuance of more than 20% of
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<PAGE>
the common stock outstanding on December 22, 1998, or 8,707,488 shares, at a
price less than the greater of book value or fair market value may be required
to make significant payments to the holders of Series B preferred stock and
warrants. All such payments are capped at $4,950,000 plus a default interest
rate, if applicable, and are in lieu of redemption for these provisions. If the
holders of Series B preferred stock demand redemption or if we are required to
make significant payments to such stockholders, we may not be able to fund such
redemption or payments, and even if funding is available, the expenditures
required to fund such redemption or payments could have a material adverse
effect on our financial condition.
The Series B preferred stock is convertible into shares of our common
stock at variable rates based on future trading prices of our common stock and
events that may occur in the future. The number of shares of common stock that
may ultimately be issued upon conversion is therefore presently indeterminable
and could fluctuate significantly based on the issuance by us of other
securities. Also, the warrants are subject to anti-dilution protection and thus
may require the issuance of more shares than originally anticipated. These
factors may result in substantial future dilution to the holders of our common
stock.
In addition to the foregoing, the redemption rights, liquidated
damages provisions, cross default provisions to our debt instruments and other
terms of the Series B preferred stock, under certain circumstances, could lead
to a significant accounting charge to earnings and could materially adversely
affect our business, results of operations and condition. The Series B
preferred stock will be classified as mandatorily redeemable preferred stock.
As a result, on December 22, 1998, we recognized in our earnings (loss) per
share calculation the fair value of warrants issued and the accretion of the
Series B preferred stock to its fair value. During the period of conversion of
the Series B preferred stock, we will be required to recognize in our earnings
(loss) per share calculation any accretion of the Series B preferred stock to
its redemption value as a dividend to the holders of the Series B preferred
stock. Consequently, we will be required to take a charge of approximately $1.5
million to our accumulated deficit for the fourth quarter of fiscal 1998 as a
result of the accounting treatment for issuance of the related warrants. Such
charge and potential other future charges relating to the provisions of the
Series B preferred stock financing agreements may materially adversely affect
our earnings (loss) per share and the market price of our common stock both
currently and in future periods. The convertibility features of such Series B
preferred stock and subsequent sales of the common stock underlying both it and
the warrants could materially adversely affect our valuation and the market
trading price of our shares of common stock.
PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of the common stock
through this prospectus. We have agreed to pay the expenses of registration of
the common stock offered hereby, including legal and accounting fees, but
excluding underwriter's discounts and commissions, if any.
The offered shares may be sold from time to time at negotiated prices,
at fixed prices which may be changed, at market prices prevailing at the time of
sale or at prices related to prevailing market prices. The selling stockholders
may effect such transactions in privately negotiated sales in the over-the-
counter market or any exchange on which the securities are
51
<PAGE>
listed, by selling the shares to or through broker-dealers, including block
trades in which brokers or dealers will attempt to sell the shares as agent but
may position and resell the block as principal, or in one or more underwritten
offerings on a firm commitment or best effort basis. Sales of selling
stockholders' shares may also be made pursuant to Rule 144 under the Securities
Act, where applicable.
To the extent required under the Securities Act, the aggregate amount
of selling stockholders' shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers, transferees or underwriters and any
applicable fee or commission with respect to a particular offer will be set
forth in an accompanying prospectus supplement. Any underwriters, dealers,
brokers or agents participating in the distribution of the shares may receive
compensation in the form of underwriting discounts, concessions, commission or
fees from the selling stockholders and/or purchasers of selling stockholders'
shares for whom they may act (which compensation as to a particular broker-
dealer might be in excess of customary commissions). Each selling stockholder
will be responsible for any such payments. The aggregate proceeds to a selling
stockholder from the sale of its shares offered by this prospectus will be the
purchase price of such shares less discounts or commissions, if any.
From time to time, the selling stockholders may pledge, hypothecate or
grant a security interest in some or all of the shares, and the pledgees,
secured parties or persons to whom such securities have been hypothecated shall,
upon foreclosure in the event of default, be deemed to be selling stockholders
under this prospectus. From time to time, the selling stockholders may also
transfer, pledge, donate or assign shares to lenders or others and each of such
persons will be deemed to be a selling stockholder for purposes of this
prospectus. The number of the selling stockholders' shares beneficially owned
by a selling stockholder who transfers, pledges, donates or assigns shares will
decrease as and when they take such actions. The plan of distribution for
selling stockholders' shares sold by this prospectus will otherwise remain
unchanged, except that the transferees, pledgees, donees or other successors
will be a selling stockholder under this prospectus. There is, however, no
assurance that any selling stockholder will sell any or all of the shares
described in this prospectus, and any selling stockholder may transfer, devise
or gift such securities by other means not described in this prospectus.
In addition, the selling stockholders may, from time to time, sell
short the shares of P-Com, and in such instances, this prospectus may be
delivered in connection with such short sales and the shares offered hereby may
be used to cover such short sales. A selling stockholder may enter into hedging
transactions with broker-dealers, and the broker-dealers may engage in short
sales of the shares in the course of holding the positions they assume with such
selling stockholder, including, without limitation, in connection with
distribution of the shares by such broker-dealers. The selling stockholders may
also enter into option or other transactions with broker-dealers that involve
the delivery of the shares to the broker-dealers, who may then resell or
otherwise transfer such shares. The selling stockholders may also loan or
pledge the shares to a broker-dealer and the broker-dealer may sell the shares
as loaned or upon a default may sell or otherwise transfer the pledge shares.
The selling stockholders, any underwriter, any broker-dealer or any
agent that participates with the selling stockholders in the distribution of the
shares may be deemed to be
52
<PAGE>
"underwriter" within the meaning of the Securities Act, and any discounts,
commissions or concessions received by them and any profit on the resales of the
shares purchased by them may be deemed to be underwriting commissions under the
Securities Act.
To comply with securities laws of certain states, if applicable, the
shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available.
Pursuant to a Registration Rights Agreement entered into in connection
with the Series B preferred stock financing, we have agreed to keep the
registration statement of which this prospectus is a part continuously effective
until the earlier of the date that all of the shares issued or issuable upon
conversion of the Series B preferred stock or exercise of the warrants have been
sold or until all such shares are immediately freely saleable under Rule 144.
In this regard, we are required to supplement and/or amend the registration
statement of which this prospectus is a part if more shares than are registered
hereby are issued or issuable upon conversion of the Series B preferred stock
and exercise of the warrants or to supplement or change the selling stockholders
hereunder. The Registration Rights Agreement requires P-Com to indemnify the
selling stockholders, any underwriter and the respective directors, officers,
partners, members, employees, agents and controlling persons of each selling
stockholder against certain liabilities in connection with the offer and sale of
the shares hereunder, including under the Securities Act. Similarly, each
selling stockholder is required to indemnify P-Com and its directors, the
officers who sign the registration statement of which this prospectus is a part,
it employees, agents and controlling persons against certain liabilities in
connection with the offer and sale of the shares hereunder, including the
Securities Act, to the extent that liability occurs as a result of reliance with
written information furnished to P-Com by such selling stockholder expressly for
use in connection with the registration statement of which this prospectus is a
part. To the extent indemnification is prohibited, the selling stockholders and
P-Com are required to contribute to payments the parties may be required to make
in respect of otherwise indemnifiable claims.
LEGAL MATTERS
The validity of the common stock offered in this prospectus and
certain other legal matters will be passed upon for the Company by Brobeck,
Phleger & Harrison LLP, Palo Alto, California. As of the date of this
prospectus, attorneys of Brobeck, Phleger & Harrison LLP and family members
thereof beneficially owned an aggregate of approximately 64,000 shares of the
Company's common stock.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-K of P-Com, Inc. for the year ended December 31,
1997 have been so incorporated by reference in the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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================================================================================
TABLE OF CONTENTS
Page
----
Risk Factors................................................. 3
The Company.................................................. 13
Where You Can Find More Information.......................... 14
Use of Proceeds.............................................. 15
Dividend Policy.............................................. 15
Premium...................................................... 15
Ratio (Deficiency) Of Earnings (Loss) To Fixed Charges....... 15
Description of Our Capital Stock............................. 16
Selling Stockholders......................................... 26
Recent Developments.......................................... 28
Certain Factors Affecting the Company........................ 28
Plan of Distribution......................................... 51
Legal Matters................................................ 53
Experts...................................................... 53
================================================================================
13,000,000 Shares
P-COM, INC.
common stock
--------------------------------
PROSPECTUS
--------------------------------
___________, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14 Other Expenses of Issuance and Distribution.
All expenses incurred in connection with the issuance and distribution
of the securities being registered will be paid by the Registrant. The
following is an itemized statement of these expenses. All amounts except
Securities and Exchange Commission and Nasdaq Stock Market listing fees and the
placement agent fee to PaineWebber Incorporated are estimates.
Registration Statement - SEC........................ $ 25,806.31
Nasdaq listing fee.................................. $ 17,500
Printing and engraving.............................. $ 15,000
Legal fees.......................................... $ 325,000
Accounting fees and expenses........................ $ 100,000
Placement agent fee to PaineWebber Incorporated..... $ 657,754
Miscellaneous....................................... $ 300,000.69
--------------
Total.......................................... $ 1,441,061
==============
Item 15 Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("Section 145")
authorizes a court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Article
VII of the Registrant's Bylaws provides for mandatory indemnification of its
directors and permissible indemnification of its officers, employees and other
agents to the maximum extent permitted by the Delaware General Corporation Law.
The Registrant has entered into Indemnification Agreements with its officers and
directors which are intended to provide the Registrant's officers and directors
with further indemnification to the maximum extent permitted by the Delaware
General Corporation Law. Reference is also made to the underwriting agreements,
the purchase agreements and registration rights agreements entered into in
connection with the Company's three public offerings, the Company's nine
acquisitions, the sale of the 4 1/4% convertible promissory notes and the sale
of the Series B preferred stock, each of which contains provisions indemnifying
officers and directors of the Company and other persons against certain
liabilities, including, in some cases, those arising under the Securities Act.
Item 16 Exhibits.
Exhibit
No. Description
- ------- -----------
3.2 Restated Certificate of Incorporation, as filed with the Delaware
Secretary of State filed on March 9, 1995*
3.2A Certificate of Amendment of Restated Certificate of Incorporation, as
II-1
<PAGE>
filed with the Delaware Secretary of State on June 16, 1997*
3.2C Certificate of Designation for the Series A Junior Participating
preferred stock, as filed with the Delaware Secretary of State on
December 21, 1998*
3.2D Certificate of Designation for the Series B Convertible Participating
preferred stock, as filed with the Delaware Secretary of State on
December 21, 1998*
3.2E Certificate of Correction of Certificate of Designations for the
Series B Convertible Participating preferred stock, as filed with the
Delaware Secretary of State on December 23, 1998*
4.1 Specimen of common stock Certificate*
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998,
between the Company and BankBoston, N.A.*
5.1 Opinion of Brobeck, Phleger & Harrison LLP*
10.22B Low Capacity Digital Radio Agreement dated February 13, 1995 by and
between the Company and Siemens*
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein*
10.39 Registration Rights Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein*
10.40A Warrant to purchase shares of common stock, dated as of December 21,
1998, issued by the Company to Castle Creek Technology Partners LLC*
10.40B Warrant to purchase shares of common stock, dated as of December 21,
1998, issued by the Company to Capital Ventures International*
10.40C Warrant to purchase shares of common stock, dated as of December 21,
1998, issued by the Company to Marshall Capital Management, Inc.*
12.2 Ratio of Earnings to Fixed Charges*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)*
24.1 Powers of Attorney (including in the signature page of this
registration statement)*
- --------------
* Previously filed.
II-2
<PAGE>
Item 17 Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of
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<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant, P-Com, Inc., a corporation organized and existing under
the laws of the State of Delaware, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this amendment no. 2 to this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Campbell, State of California, on the 17th day of March, 1999.
P-COM, INC.
By: /s/ George P. Roberts
_______________________________________________
George P. Roberts, Chairman of the Board
and Chief Executive Officer
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
3.2 Restated Certificate of Incorporation, as filed with the Delaware
Secretary of State filed on March 9, 1995*
3.2A Certificate of Amendment of Restated Certificate of Incorporation, as
filed with the Delaware Secretary of State on June 16, 1997*
3.2C Certificate of Designation for the Series A Junior Participating
preferred stock, as filed with the Delaware Secretary of State on
December 21, 1998*
3.2D Certificate of Designation for the Series B Convertible Participating
preferred stock, as filed with the Delaware Secretary of State on
December 21, 1998*
3.2E Certificate of Correction of Certificate of Designations for the
Series B Convertible Participating preferred stock, as filed with the
Delaware Secretary of State on December 23, 1998*
4.1 Specimen of common stock Certificate*
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998,
between the Company and BankBoston, N.A.*
5.1 Opinion of Brobeck, Phleger & Harrison LLP*
10.22B Low Capacity Digital Radio Agreement dated February 13, 1995 by and
between the Company and Siemens*
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein*
10.39 Registration Rights Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein*
10.40A Warrant to purchase shares of common stock, dated as of December 21,
1998, issued by the Company to Castle Creek Technology Partners LLC*
10.40B Warrant to purchase shares of common stock, dated as of December 21,
1998, issued by the Company to Capital Ventures International*
10.40C Warrant to purchase shares of common stock, dated as of December 21,
1998, issued by the Company to Marshall Capital Management, Inc.*
12.2 Ratio of Earnings to Fixed Charges*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)*
24.1 Powers of Attorney (including in the signature page of this
registration statement)*
- --------------
* Previously filed.
