-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O9vR1Mr1T08DgfiLypyBi9rn0kumhh8Akh63x1U4cvIrnGmmpp5tY502cFEZfUlV EmvgXF9VMQ1GPwqb3zAhpA== 0001012870-98-003251.txt : 19981228 0001012870-98-003251.hdr.sgml : 19981228 ACCESSION NUMBER: 0001012870-98-003251 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981221 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: P COM INC CENTRAL INDEX KEY: 0000935493 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 770289371 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-25356 FILM NUMBER: 98775501 BUSINESS ADDRESS: STREET 1: 3175 S WINCHESTER BLVD CITY: CAMPBELL STATE: CA ZIP: 95008 BUSINESS PHONE: 4088663666 MAIL ADDRESS: STREET 1: 3175 S WINCHESTER BLVD STREET 2: P-COM INC CITY: CAMPBELL STATE: CA ZIP: 95008 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) DECEMBER 21, 1998 ----------------- P-COM, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) DELAWARE 0-25356 77-0289371 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 3175 S. WINCHESTER BOULEVARD, CAMPBELL, CALIFORNIA 95008 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (408) 866-3666 ----------------------------- NONE - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report.) Item 5. Other Events. ------------ Private Placement - ----------------- On December 22, 1998, P-Com, Inc. (the "Company") received a $15 million investment from funds affiliated with three investors, Castle Creek Technology Partners LLC, Marshall Capital Management, and Heights Capital Management, (the "Purchasers"). A copy of the press release dated December 22, 1998 announcing the signing of a definitive agreement in connection with such investment is attached hereto and incorporated by reference herein. In the investment, the Company sold 15,000 shares of newly issued Series B Convertible Preferred Stock, having a face value of $1,000 per share (the "Series B Preferred"), and warrants to purchase 1,242,257 shares of the Company's Common Stock (the "Warrants") for an aggregate of $15 million. The offer and sale of these securities in the United States was completed pursuant to the exemption from registration provided by Regulation D under the Securities Act of 1933, as amended (the "Act"). The rights, preferences and privileges of the Series B Preferred are as described in a certificate of designation filed with the Delaware Secretary of State on December 21, 1998 and the Certificate of Correction thereto, filed with the Delaware Secretary of State on December 23, 1998 (together the "Series B Certificate of Designation"). In addition to the Series B Certificate of Designation and the Warrants, in connection with the investment, the Company and the Purchasers have entered into a Stock Purchase Agreement and a Registration Rights Agreement, these documents being referred to collectively herein as the "Transaction Documents." In general, the Series B Preferred is convertible at the election of the holder into shares of Common Stock beginning immediately after issuance until May 14, 1999, at 200% of the average closing bid prices of the Company's Common Stock for the 15 consecutive trading days ending on the date of the Series B investment; provided that from March 25, 1999 through May 14, 1999, if the Company has not achieved $10 million of bona fide, third-party, unaffiliated written contractual commitments for sales of its point to multipoint products and services prior to March 24, 1999, then 7,500 shares of the Series B Preferred shall be convertible at the lower of (i) 200% or (ii) 101% of the lowest average closing bid prices of the Company's Common Stock over any 3 consecutive days during the 15 consecutive day period ending prior to the applicable conversion date (the "Variable Conversion Price"). From and after May 15, 1999, the Series B Preferred is convertible at the lower of (i) 200% or (ii) 105% of the average closing bid prices of the Company's Common Stock for the 15 consecutive trading days immediately prior to and ending on May 14, 1999 or (iii) the Variable Conversion Price. The foregoing conversion rates are subject to adjustment upon the occurrence of certain other events, including but not limited to the Company's failure to obtain stockholder approval to exceed the 20% Limit (as defined below) prior to a predetermined date; the Company's failure to have declared effective a registration statement (as described below) for the Common Stock underlying the Series B Preferred and the Warrants prior to the 180th day after the Series B investment; failure to timely deliver Common Stock upon a Holder's submission of a notice of conversion; failure to redeem the Series B Preferred after providing to the Holders a notice of redemption at the Company's option; the Company's or any subsidiary's public announcement of a merger or consolidation; the 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. Assuming certain conditions are met, the Series B Preferred will automatically convert into Common Stock three years after the date of its issuance by the Company. The Series B Preferred accrues a 6% per year premium, payable in cash or Common Stock at the Company's option. From and after 181 days after the Series B Preferred investment and upon sufficient notice, if the then-effective conversion price is less than 75% of the closing price for the Company's Common Stock on the date of the Series B Preferred investment, instead of converting the Series B Preferred into Common Stock upon a Holder's request, the Company may elect to pay such Holder the equivalent value of the Common Stock in cash. Upon the occurrence of certain events deemed within the Company's control, the Series B Preferred is redeemable at a Holder's option at the greater of 133% of the original issue price of the Series B Preferred, plus the 6% premium and any default amounts, or a predetermined redemption formula based on the average of the closing bid prices for the Company's Common Stock during the period beginning on the date of the Company's redemption notice and ending on the date of redemption (the "Redemption Formula Amount"). In certain circumstances, the Company may be able to avoid redemption if the Company cures such events prior to the redemption election by a Holder. If the Company is unable to avoid redemption and unable to redeem the Series B Preferred upon request, the Company must redeem that portion which is permitted and, thereafter, use its best efforts to remedy the impairment preventing redemption. In addition, certain of the foregoing events may also cause the Company to 1 become subject to additional penalties, some of which are payable in cash only and some of which are payable in cash or additional shares of Common Stock, at the Company's option. Upon the occurrence of certain other events deemed outside of the Company's control ("Override Election Events"), the Company is subject to significant cash penalties. All cash penalties payable as a result of an Override Election Event, together with all cash penalties payable under the other Transaction Documents, are capped at an aggregate of 33% of original issue price of the Series B Preferred investment plus a default interest rate, if applicable. In addition to the foregoing cash penalties, upon the occurrence of an Override Election Event, the Holders can require the Company to list its Common Stock on the over-the-counter electronic bulletin board which, as of the date hereof, has no 20% Limit or similar restriction and, thereafter, require the Company to honor all requested conversions. So long as an event pursuant to which the Holders are entitled to redeem or an Override Election Event has not occurred (or if such event has occurred in the past, it has been cured for at least the six immediately preceding consecutive months without the occurrence of any other such event); the Series B Preferred is redeemable at the Company's option in certain limited circumstances at premiums varying from 115% to 160% of the original issue price of the Series B Preferred, plus the 6% premium and a default interest rate, if applicable. The Company must redeem all of the Series B Preferred unless in excess of $5,000,000 of Series B Preferred (in $1 million increments) will be redeemed. If the Company fails to redeem the Series B Preferred after providing a notice of redemption at the Company's option to the Holders of the Series B Preferred, the Company forfeits all future redemptions at the Company's option and the conversion rate of the Series B Preferred will be adjusted. The Series B Preferred is senior to the Company's Series A Convertible Preferred Stock and Common Stock in respect of the right to receive dividend payments and liquidation preferences. The Series B Preferred has no voting power, except as otherwise provided by applicable law. In connection with the issuance of the Series B Preferred, the Company has agreed, for a period of 365 days following the Series B Preferred investment, not to issue or agree to issue any equity securities at a price less than fair market value or at a variable or re-settable price, subject to limited exceptions. In addition, the Company is prohibited from, among other things, altering, changing or otherwise adversely affecting the terms of the Series B Preferred; 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 the Company's assets without prior approval by the Purchasers. In cases where the Company merges or consolidates with a public company meeting certain threshold criteria, the Holders will be entitled to receive, following consummation of such merger or consolidation, the consideration that such Holder would have received if such Holder had converted its Series B Preferred on the trading day immediately preceding the public announcement of such merger or consolidation. In cases where the Company merges or consolidates with a private company or a public company not meeting the threshold criteria (unless such merger or consolidation is an acquisition by the Company of another entity where the Company issues less than 20% of its Common Stock in consideration therefor), the Holders will be entitled, at their option, following consummation of such merger or consolidation, (i) to retain their preferred stock which will thereafter convert into the Common Stock of the surviving company or (ii) receive either (x) the consideration that such Holder would have received if such Holder had converted its Series B Preferred on the trading day immediately preceding the public announcement of such merger or consolidation or (y) cash equal to 125% of the original issue price of the Series B Preferred, plus the 6% premium and a default interest rate, if applicable. The Warrants are immediately exercisable until the earlier of: (i) December 21, 2003 and (ii) the date on which the closing of a consolidation, merger or other business combination with or into another entity pursuant to which the Company does not survive. The exercise price for the Common Stock underlying the Warrant is $3.47 (subject to adjustment). In the event the Company merges or consolidates with any other company, the warrantholders are entitled to similar choices as to the consideration they will receive in such merger or consolidation as are provided to the Holders of the Series B Preferred. In addition, the number of shares issuable upon exercise of the Warrants is subject to anti-dilution adjustment if the Company sells Common Stock or securities convertible into or exercisable for Common Stock (excluding certain issuances such as Common Stock issued under employee, director or consultant benefit plans) at a price per share less than the exercise price of the Warrants. 2 Pursuant to the Registration Rights Agreement, the Company is obligated to file, within 20 business days of the Series B Preferred investment, with the Securities and Exchange Commission (the "Commission") a "shelf" registration statement covering the resale of all shares of Common Stock issuable upon conversion of the Series B Preferred and exercise of the Warrants. Such registration statement must be declared effective by the Commission by the 90th day following the Series B Preferred investment (with a 30 day extension if Commission comments cause delay despite the Company's best efforts to cause the registration statement to become effective). If the registration statement is not effective within the prescribed time frame, or if, once effective, the registration statement cannot be used for more then a predetermined period, the Company is subject to a variable penalty depending upon the amount of time the registration statement is unusable. In addition to the foregoing, the Company is obligated to allow the Purchasers to inspect Company records, to maintain the listing of its Common Stock on Nasdaq or another market acceptable to the Purchasers, and to indemnify the Holders for all claims arising out of the Transaction Documents or the registration statement(s). The rules of Nasdaq, on which the Company's Common Stock is currently listed, require that, prior to the sale or issuance at a price less than the greater of book or market value, of Common Stock (or securities convertible into or exercisable for Common Stock) equal to 20% or more of the Common Stock of the Company outstanding before such issuance, the Company obtain stockholder approval of such issuance (the "20% Limit"). As the number of shares that may be required to be issued pursuant to the Transaction Documents may, at some future time, require the Company to issue at a discounted price (based on conversion rate adjustments) more than 20% of the Common Stock outstanding prior to the Purchasers' investment in the Series B Preferred and Warrants, the Company will be required to solicit a stockholder vote approving such issuance(s). In addition, the sale of the Series B Preferred and Warrants may trigger, based on certain events, the anti-dilution provisions of the Company's 4 1/4% convertible notes (the "Notes"), which additional issuances upon conversion of the Notes would be aggregated with the issuances pursuant to the Transaction Documents for purposes of the 20% Limit. In this regard, the Company will be soliciting stockholder approval relating to the 20% Limit. Prior to obtaining such approval, the Purchasers will be prohibited from converting the Series B Preferred Stock and/or exercising the Warrants to the extent that such conversion and/or exercise would exceed the 20% Limit. In addition, each Purchaser and any transferree thereof is prohibited by the terms of the Transaction Documents from owning at any one time more than 4.9% of the Company's then outstanding Common Stock, unless the Company's stockholders approve an increase in such limitation. The foregoing description is only a summary and is qualified in its entirety by reference to the Securities Purchase Agreement dated as of December 21, 1998 by and among the Company and the purchasers listed therein, the Registration Rights Agreement dated as of December 21, 1998 by and among the Company and the purchasers listed therein, the Warrants issued by the Company to the purchasers and the Series B Certificate of Designation attached to this Current Report as Exhibits 10.38, 10.39, 10.40, and 3.2D and 3.2E, respectively, and incorporated herein by reference. The proceeds from the equity investment will be used for working capital and general corporate purposes. If the Company does not comply with the terms of these agreements, the convertibility and other terms of the Series B Preferred and Warrants could result in substantial dilution, without any cap, to the holders of the Company's Common Stock. The redemption rights, liquidated damages provisions, cross default provisions to the Company's debt instruments and other terms of the Series B Preferred, under certain circumstances, could lead to a significant accounting charge to earnings and could materially adversely affect the Company's business, results of operations and condition. The Series B Preferred will be classified as mandatorily redeemable preferred stock. The Company will be required to recognize in its earnings (loss) per share calculation any accretion of the Series B Preferred to its fair value, the fair value of Warrants issued and the value of the conversion discount as a dividend to the holders of the Series B Preferred during the period of conversion. As a result, the Company will be required to take a substantial charge to its accumulated deficit for the fourth quarter of fiscal 1998 as a result of the accounting treatment for issuance of the Warrants. 3 Such charge and potential other future charges relating to the provisions of the Transaction Documents may materially adversely affect the Company's earnings (loss) per share and market price of the Company's Common Stock both currently and in future periods. The convertibility feature of such Series B Preferred and subsequent sales by the Purchasers could materially adversely affect the Company's valuation and market trading price. In addition, the existence of the Series B Preferred and the terms thereof could render future financings and loans and merger and acquisition activities more difficult. Amendments to the Stockholders' Rights Agreement - ------------------------------------------------ The Board of Directors of the Company recently approved an amendment to the Stockholders' Rights Agreement between the Company and BankBoston, N.A., as Rights Agent dated as of October 1, 1997, as amended October 5, 1998. The Amended and Restated Stockholders' Rights Agreement (the "Amended Rights Agreement"), dated as of December 18, 1998, between the Company and BankBoston, N.A., is attached hereto as Exhibit 4.7 and is incorporated herein by reference. The Amended Rights Agreement amends several provisions of the prior Rights Agreement, including but not limited to the elimination of the need to reserve Common Stock under the prior Rights Agreement, and removes shares beneficially owned as a result of the issuance and sale of the Series B Preferred and Warrants, and respectively, upon the conversion and exercise thereof, from the determination of "Acquiring Person" under the Amended Rights Agreement. On December 21, 1998, the Company again amended and restated the Amended and Restated Rights Agreement to these sections of the documents relating to the Series B Purchasers. Such amended and restated Amended and Restated Rights Agreement is incorporated by reference herein. Amendments to Bank Credit Agreement - ----------------------------------- In October 1998, the Company amended its Credit Agreement and Security Agreement with Bank of America National Trust and Savings Association and Union Bank, N.A. to amend certain financial, compliance and reporting covenants and interest rates. In December 1998, in connection with the sale and issuance of the Series B Preferred and the Warrants, the Company amended its Credit Agreement to amend certain financial and other covenants, to affirm consent to the execution and performance of the Transaction Documents and to permit, without default under the Credit Agreement, the payment of certain amounts to the Purchasers pursuant to the terms of the Transaction Documents for, among other things, penalties, override elections, redemption payments and interest accruing thereon. Legal Proceedings - ----------------- On December 3, 1998, the Superior Court of California, County of Santa Clara, entered an order consolidating five putative class actions filed in such court against the Company. On November 13, 1998, a putative class action complaint was filed in the United States District Court, Northern District of California, by Robert Schmidt on behalf of himself and other stockholders of the Company who purchased or otherwise acquired the Company's Common Stock between April 15, 1997 and September 11, 1998. The plaintiff alleges violations of the Securities Exchange Act of 1934 by the Company and certain of its officers and directors based on substantially the same facts as the aforementioned state court actions. The complaint seeks unquantified compensatory damages, attorneys' fees and injunctive and/or equitable relief. On December 3, 1998, a putative class action complaint was filed in the United States District Court, Northern District of California, by Robert Dwyer on behalf of himself and other stockholders of the Company who purchased or otherwise acquired the Company's Common Stock between April 15, 1997 and September 11, 1998. The plaintiff alleges violations of the Securities Exchange Act of 1934 by the Company and certain of its officers and directors based on substantially the same facts as the aforementioned state court actions. The complaint seeks unquantified compensatory damages, attorneys' fees and injunctive and/or equitable relief. Employee Departure - ------------------ In November 1998, Steve Goldberg, former Executive Vice President and General Manager of the Wireless Communications Group, left his employment with the Company to pursue other opportunities. 4 Item 7. Exhibits. ---------
Exhibit No. Description ----------- ----------- 3.2C Certificate of Designation for the Series A Junior Participating Preferred Stock, as filed with the Delaware Secretary of State on December 21, 1998/1/ 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 4.7 Amended and Restated Rights Agreement, dated as of December 18, 1998, between the Company and BankBoston, N.A./2/ 4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998, between the Company and BankBoston, N.A./3/ 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 10.40 Form of Warrant to purchase shares of Common Stock, dated as of December 21, 1998, issued by the Company to the Purchasers 10.41 Second Amendment to Credit Agreement and First Amendment to Security Agreement by and among the Registrant, as the Borrower, Union Bank of California, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as Syndication Agent, and the lenders party thereto dated as of October 21, 1998 10.42 Third Amendment to Credit Agreement by and among the Registrant, as the Borrower, Union Bank of California, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as Syndication Agent, and the lenders party thereto dated as of December 17, 1998 99.1 Press Release of the Company dated December 22, 1998
- ------------------------ /1/ Incorporated by reference to the Registrant's Amended Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on December 22, 1998 (File No. 0-25356). /2/ Incorporated by reference to the Registrant's Amended Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on December 22, 1998 (File No. 0-25356). /3/ Incorporated by reference to the Registrant's Amended Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on December 24, 1998 (File No. 0-25356). 5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. P-COM, INC. /s/ Michael J. Sophie DATE: December 22, 1998 By: _______________________ Name: Michael J. Sophie Title: Chief Financial Officer 6 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 3.2C Certificate of Designation for the Series A Junior Participating Preferred Stock, as filed with the Delaware Secretary of State on December 21, 1998/1/ 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 4.7 Amended and Restated Rights Agreement, dated as of December 18, 1998, between the Company and BankBoston, N.A./2/ 4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998, between the Company and BankBoston, N.A./3/ 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 10.40 Form of Warrant to purchase shares of Common Stock, dated as of December 21, 1998, issued by the Company to the Purchasers 10.41 Second Amendment to Credit Agreement and First Amendment to Security Agreement by and among the Registrant, as the Borrower, Union Bank of California, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as Syndication Agent, and the lenders party thereto dated as of October 21, 1998 10.42 Third Amendment to Credit Agreement by and among the Registrant, as the Borrower, Union Bank of California, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as Syndication Agent, and the lenders party thereto dated as of December 17, 1998 99.1 Press Release of the Company dated December 22, 1998
- ------------------------ /1/ Incorporated by reference to the Registrant's Amended Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on December 22, 1998 (File No. 0-25356). /2/ Incorporated by reference to the Registrant's Amended Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on December 22, 1998 (File No. 0-25356). /3/ Incorporated by reference to the Registrant's Amended Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on December 24, 1998 (File No. 0-25356). 7 EX-3.2(D) 2 CERTIFICATE OF DESIGNATION - SERIES B CONV. Exhibit 3.2D CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK OF P-COM, INC. The undersigned, Michael J. Sophie hereby certifies that: (a) he is the duly elected and acting Vice President of Finance and Administration and Chief Financial Officer of P-Com, Inc., a Delaware corporation (the "Company"); (b) pursuant to the authority conferred upon the Board of Directors of the Company by the Company Certificate of Incorporation (the "Certificate"), the Board of Directors on November 28, 1998, adopted the following resolutions creating a series of preferred stock designated as Series B Convertible Participating Preferred Stock; WHEREAS, the Certificate provides for a class of shares of Preferred Stock, issuable from time to time in one or more series without stockholder approval, and WHEREAS, the Board of Directors of the Company is authorized by the Certificate to determine the powers, rights, preferences, qualifications, limitations and restrictions granted to or imposed upon any such series of Preferred Stock, to fix the number of shares constituting any such series, and to determine the designation thereof; WHEREAS, the Board of Directors desires, pursuant to its authority as aforesaid to determine and fix the powers, rights, preferences, qualification, limitations and restrictions relating to series of Preferred Stock and the number of shares constituting, and the designation of, each such series; NOW THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Certificate, a series of Preferred Stock is hereby created, and the Board of Directors hereby fixes and determines the designation of, the number of shares constituting, and the rights, privileges and restrictions relating to Series B Convertible Participating Preferred Stock as follows: I. DESIGNATION AND AMOUNT The designation (this "Certificate of Designation") of this series, which consists of 20,000 shares of Preferred Stock of P-Com, Inc. a Delaware corporation (the "Company"), is the Series B Convertible Participating ------- Preferred Stock (the "Preferred Stock") and the stated value shall be One --------------- Thousand Dollars ($1,000.00) per share (the "Face Amount"). ----------- II. DIVIDENDS The Preferred Stock will bear no dividends. III. CERTAIN DEFINITIONS For purposes of this Certificate of Designation, the following terms shall have the following meanings: A. "Bankruptcy Event" shall mean any one or more of the following: (i) the ---------------- commencement of any voluntary proceeding by the Company seeking entry of an order for relief under Title 11 of the United States Code or seeking any similar or equivalent relief under any other applicable federal or state law concerning bankruptcy, insolvency, creditors' rights or any similar law; (ii) the making by the Company of a general assignment for the benefit of its creditors; (iii) the commencement of any involuntary proceeding respecting the Company seeking entry of an order for relief against the Company in a case under Title 11 of the United States Code or seeking any similar or equivalent relief under any other applicable federal or state law concerning bankruptcy, insolvency, creditors' rights or any similar law; (iv) entry of a decree or order respecting the Company by a court having competent jurisdiction, which decree or order (x) results in the appointment of a receiver, liquidator, assignee, examiner, custodian, trustee, sequestrator (or other similar official) for the Company or for any substantial part of its property or (y) orders the winding up, liquidation, dissolution, reorganization, arrangement, adjustment, or composition of the Company or any of its debts; (v) the appointment, whether or not voluntarily by the Company, of a receiver, liquidator, assignee, examiner, custodian, trustee, sequestrator (or other similar official) for the Company or for any substantial part of its property; (vi) the failure by the Company to pay, or its admission in writing of its inability to pay, its debts generally as they become due; (vii) the exercise by any creditor of any right in connection with an interest of such creditor in any substantial part of the Company's property, including, without limitation, foreclosure upon all or any such part of the Company's property, replevin, or the exercise of any rights or remedies provided under the Uniform Commercial Code with regard thereto; (viii) the making of, or the sending of a notice of, a bulk transfer by the Company; (ix) the calling by the Company of a general meeting of its creditors; (x) the failure by the Company to file an answer or other pleading denying the material allegations of any proceeding described herein that is filed against it; and (xi) the consent by the Company to any of the actions, appointments, or proceedings described herein or the failure of the Company to contest in good faith any such actions, appointments, or proceedings. B. "Closing Date" shall have the meaning set forth in the Securities ------------ Purchase Agreement, dated as of December 18, 1998, by and among the Company and the other signatories thereto (the "Securities Purchase Agreement"). ----------------------------- C. "Closing Bid Price" means, for any security as of any date, the closing ----------------- bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to each initial holder of the Preferred Stock and the holders of the Preferred Stock (each, a "Holder") then ------ holding a majority of the then outstanding shares of Preferred Stock ("Majority Holders") if Bloomberg Financial Markets is not then reporting ---------------- closing bid prices of such security (collectively, "Bloomberg"), or if the --------- foregoing does not apply, the last reported sale price of such security in the over-the-counter market on the electronic bulletin board of such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to each initial holder of the Preferred Stock and the Majority Holders, with the costs of such appraisal to be borne by the Company. D. "Conversion Date" means the date on which the notice of conversion --------------- attached hereto as Exhibit A (the "Notice of Conversion") is faxed (or --------- -------------------- delivered by other means) to and received by the Company; provided, however, that if such time of receipt is after 7:00 p.m., Eastern time, on a business day, or at any time on a day which is not a business day, the Conversion Date shall be the first business day following the date on which the Notice of Conversion is so delivered; provided, further that the Conversion Date shall be any future business day after the date of receipt of the Notice of Conversion as so specified by a Holder in the Notice of Conversion. The Conversion Date for the Required Conversion at Maturity shall be the Maturity Date (as such terms are defined herein). A Holder's facsimile machine- generated confirmation of receipt at the Company's facsimile number is definitive proof of receipt by the Company. -2- E. "Conversion Price" means, (i) the Fixed Conversion Price with respect ---------------- to any Conversion Date that occurs up to and including May 14, 1999 and (ii) the lower of the Fixed Conversion Price and the Variable Conversion Price with respect to any Conversion Date that occurs on or after May 15, 1999, each as in effect as of any such date and subject to adjustment as provided elsewhere herein; provided however, that if the Company does not achieve Ten Million ---------------- Dollars ($10,000,000) of bona fide, third-party, unaffiliated written contractual commitments for sales of its Point to Multipoint products and services (which are commercial systems that include central locations with various remote units sharing the capacity in the central location, and related installation and maintenance services) (the "Milestone") during the period beginning on the Closing Date and ending on March 24, 1999, then, as to fifty percent (50%) of the Preferred Stock originally held by each Holder, the Conversion Price with respect to any Conversion Date from and after March 25, 1999 through May 14, 1999 shall be the lower of the Fixed Conversion Price and the Variable Conversion Price, each as in effect as of any such date and subject to adjustment as provided elsewhere herein; provided further that if any material covenant of the Company's convertible bond indenture or bank agreement is breached and uncured (it being understood that any waiver (except for any waiver specified in the amendments contemplated by Section 7.1(x) of the Securities Purchase Agreement) shall not constitute cure) and which breach (without giving effect to any waiver) (except for any waiver specified in the amendments contemplated by Section 7.1(x) of the Securities Purchase Agreement)) would or could result in an acceleration (or which, with the passage of time or the giving of notice, would or could result in an acceleration) or which would give the counterparty to such agreement a right to accelerate the maturity of the debt owed by the Company to such counterparty, the Conversion Price on 100% of the Preferred Stock on any Conversion Date thereafter and prior to May 15, 1999 shall, until cure of such breach, be the lower of the Fixed Conversion Price and the Variable Conversion Price, each as in effect as of any such date and subject to adjustment as provided elsewhere herein. If the Company has not publicly announced by the close of business on March 26, 1999 that it has achieved the Milestone, then it is definitively presumed under this Certificate of Designation that the Company has not achieved the Milestone. If the Milestone has not been achieved by March 24, 1999, upon each conversion of Preferred Stock by a Holder prior to May 15, 1999, that Holder may elect whether that conversion will be counted against that Holder's 50% limit for variable priced conversions under this Section. The Conversion Price is also subject to adjustment as provided elsewhere herein. F. "Fixed Conversion Price" means: (i) up to and including May 14, 1999 ---------------------- two hundred percent (200%) of the average of the Closing Bid Prices of the common stock, $0.0001 par value per share, of the Company (the "Common Stock") ------------ for the fifteen (15) consecutive trading days ending on the day prior to the Closing Date (the "Closing Price"); (ii) beginning on May 15, 1999 the lesser of ------------- the Fixed Conversion Price as defined in (i) of this section and one hundred and five percent (105%) of the average of the Closing Bid Prices of the Common Stock for the fifteen (15) consecutive trading days immediately prior to and ending on May 14, 1999; (iii) if the Company has not obtained Stockholder Approval (as herein defined) by the Approval Date (as defined herein), then on each day thereafter until the Company obtains Stockholder Approval, the lesser of the Fixed Conversion Price in effect on such day and the Average Closing Bid Price (as herein defined) for the period beginning on, and including, such Approval Date through and including such day; (iv) if the Company has not obtained Stockholder Approval (as herein defined) by the Approval Date, then beginning on the date on which the Company obtains Stockholder Approval, the lesser of the Fixed -3- Conversion Price then in effect and the Average Closing Bid Price for the period beginning on, and including, such Approval Date through and including the date on which the Company obtained Stockholder Approval; (v) if the Registration Statement (as such term is defined in the Registration Rights Agreement, dated as of December 18, 1998, by and among the Company and the other signatories thereto (the "Registration Rights Agreement")) required to be filed by the ----------------------------- Company pursuant to Section 2.1 of the Registration Rights Agreement has not been declared effective by the SEC by the one hundred eightieth (180th) day following the Closing Date, then on each day thereafter until such Registration Statement is declared effective, the lesser of the Fixed Conversion Price in effect on any such day and the Average Closing Bid Price for the period beginning on, and including, the 180th day following the Closing Date through and including such day; and (vi) if the Registration Statement required to be filed by the Company pursuant to the Registration Rights Agreement has not been declared effective by the SEC by the 180th day following the Closing Date, beginning on the date on which such Registration Statement is declared effective, the lesser of the Fixed Conversion Price then in effect and the Average Closing Bid Price for the period beginning on, and including, the 180th day following the Closing Date through and including the date on which such Registration Statement is declared effective; in each case subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such period and in each case subject to further adjustment as provided elsewhere herein. For purposes of this Section F, "Average Closing Bid ------------------- Price" shall mean the average of the five (5) lowest Closing Bid Prices during - ----- the applicable period (including the last day of the period); provided, however, that (x) in clauses (iii) and (iv), if fewer than five (5) trading days have elapsed between the Approval Date and the last day of the applicable period, Average Closing Bid Price shall mean the average of the Closing Bid Prices on each trading day during the period from and including the Approval Date through and including the last day of the applicable period, and; (y) in clauses (v) and (vi), if fewer than five (5) trading days have elapsed between the 180th day following the Closing Date and the last day of the applicable period, Average Closing Bid Price shall mean the average of the Closing Bid Prices on each trading day during the period from and including the 180th day following the Closing Date through and including the last day of the applicable period. G. "Lowest Trade Price" means, for any security as of any date, the lowest ------------------ trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing does not apply, the lowest reported sale price of such security in the over-the-counter market on the electronic bulletin board of such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the lowest trade prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Lowest Trade Price cannot be calculated for such security on such date on any of the foregoing bases, the Lowest Trade Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to the Majority Holders, with the costs of such appraisal to be borne by the Company. H. "Premium" means $1000 x (N/365) x (.06). ------- -4- N = the number of days from the Closing Date to, and including, the Conversion Date. I. "Variable Conversion Price" means, as of any Conversion Date, 101% of ------------------------- the lowest average of the Closing Bid Prices of the Common Stock occurring over any three (3) consecutive trading days during the fifteen (15) consecutive trading day period ending the day prior to the applicable Conversion Date (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during the such fifteen (15) trading day period) subject to adjustment as provided elsewhere herein. IV. CONVERSION A. Conversion at the Option of the Holder. Subject to the limitations -------------------------------------- on conversions contained in Section IV.G., each Holder may, at any time and from time to time convert (an "Optional Conversion") any or all of its shares of Preferred Stock into a number of fully paid and non-assessable shares of Common Stock determined, for each share of Preferred Stock so to be converted, in accordance with the following formula: (Premium (accrued but unpaid) + $1000) --------------------- Conversion Price B. Mechanics of Conversion. In order to effect an Optional ----------------------- Conversion, a Holder shall fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Company (substantially in the form attached hereto) (the "Notice of Conversion"). As soon as possible following receipt by the Company of the fax copy of a Notice of Conversion from a Holder, the Company shall send, via fax, a confirmation to such Holder stating that the Notice of Conversion has been received, the date upon which the Company expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Company regarding the conversion. No later than one (1) business day after receipt of such confirmation of receipt to Notice of Conversion the Holder shall surrender or cause to be surrendered to a reputable overnight courier for next business day delivery (two (2) business day delivery if from outside the United States) to the Company or its designee (provided such designee is located in the continental United States and provided that the Company must deliver to each Holder notice including the name, address, and facsimile number of such designee; such designee will not be considered designated for the purpose of this Section until ten (10) days after receipt of such notice by each Holder), the certificates representing the Preferred Stock being converted (the "Preferred Stock Certificates") and a copy of the Notice of ---------------------------- Conversion (or, in lieu thereof, materials contemplated by Section XIV.B, if applicable). C. Delivery of Common Stock Upon Conversion. Upon the delivery of a ---------------------------------------- Notice of Conversion, the Company shall, no later than the later of (a) the third (3rd) business day following the Conversion Date (provided the recipient is a U.S. addressee and the Company has received -5- delivery of the Preferred Stock Certificates (or satisfaction of the provisions of Section XIV.B, if applicable) and (b) the day that is the first business day following the date of delivery of the Preferred Stock Certificates (or satisfaction of the provisions of Section XIV.B, if applicable) (the "Delivery -------- Period"), deliver to the Holder (or at its direction) (x) that number of shares - ------ of Common Stock issuable upon conversion of such shares of Preferred Stock being converted and (y) a certificate representing the number of shares of Preferred Stock not being converted, if any. The person or persons entitled to receive shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares at the close of business on the Conversion Date and such shares shall be issued and outstanding as of such date. D. Taxes. The Company shall pay any and all taxes (other than transfer ----- taxes) which may be imposed with respect to the issuance and delivery of the shares of Common Stock pursuant to conversion of the Preferred Stock. E. No Fractional Shares. No fractional shares of Common Stock are to be -------------------- issued upon the conversion of Preferred Stock, but the Company shall instead round up to the next whole number the number of shares of Common Stock to be issued upon such conversion. F. Conversion Disputes. In the case of any dispute with respect to a ------------------- conversion, the Company shall promptly issue such number of shares of Common Stock as are not disputed in accordance with Sections IV.A and IV.C hereof. If such dispute involves the calculation of the Conversion Price, the Company shall submit the disputed calculations to an independent accounting firm of national standing, reasonably acceptable to Holder, via facsimile within five (5) business days of receipt of the Notice of Conversion. The accounting firm shall audit the calculations and notify the Company and the Holder of the results no later than five (5) business days from the date it receives the disputed calculations. The accounting firm's calculation shall be deemed conclusive, absent manifest error. As soon as possible thereafter, the Company shall then issue the appropriate number of shares of Common Stock in accordance with Sections IV.A and IV.C hereof. G. Limitation on Conversions. The conversion of shares of Preferred ------------------------- Stock shall be subject to the following limitations (each of which limitations shall be applied independently): (i) Cap Amount. Prior to Stockholder Approval, unless otherwise ---------- permitted by the Nasdaq National Market System or unless such rules are no longer applicable to the Company, in no event shall the total number of shares of Common Stock issued upon conversion of the Preferred Stock and exercise of the Warrants (as defined in the Securities Purchase Agreement) exceed the maximum number of shares of Common Stock that the Company can without stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor rule) (the "Cap Amount") upon the conversion of the Preferred Stock and the exercise of the Warrants, which, as of the date of initial issuance of shares of Preferred Stock and Warrants, shall be eight million, seven hundred six thousand, four hundred and eighty three (8,706,483) shares. The Cap Amount shall be allocated pro-rata to the Holders as provided in Section XIV.C. A Holder's allocable portion of the Cap Amount shall be applicable to both shares of Preferred Stock and Warrants held by it and shall be applied to -6- such Preferred Stock and Warrants on the basis of the time of conversion or exercise, as the case may be, thereof. In the event the Company is prohibited from issuing shares of Common Stock as a result of the operation of this subparagraph (i), the Company shall comply with Article VIII. (ii) Five Percent Holdings. Notwithstanding anything to the contrary --------------------- contained herein, the Preferred Stock shall not be convertible by a Holder to the extent (but only to the extent) that, if convertible by such Holder, such Holder would beneficially own in excess of 4.9% of the shares of Common Stock. To the extent the foregoing limitation applies, the determination of whether Preferred Stock shall be convertible (vis-a-vis other securities owned by such Holder) and of which Preferred Stock shall be convertible (as among shares of Preferred Stock) shall be made by the Holder and submission of the Preferred Stock for conversion shall be deemed to be the Holder's determination of whether such Preferred Stock is convertible (vis-a-vis other securities owned by such Holder) and of which shares of Preferred Stock are convertible (as among shares of Preferred Stock), subject to such aggregate percentage limitation. No prior inability to convert Preferred Stock pursuant to this Section shall have any effect on the applicability of the provisions of this Section with respect to any subsequent determination of convertibility. For the purposes of this Section, beneficial ownership and all determinations and calculations, including without limitation, with respect to calculations of percentage ownership, shall be made in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D and G thereunder. The provisions of this Section may be implemented in a manner otherwise than in strict conformity with the terms of this Section with the approval of the Board of Directors of the Company and a Holder: (i) with respect to any matter to cure any ambiguity herein, to correct this subsection (or any portion thereof) which may be defective or inconsistent with the intended 4.9% beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such 4.9% limitation; and (ii) with respect to any other matter, only with the further consent of the holders of majority of the then outstanding shares of Common Stock. For clarification, it is expressly a term of this security that the limitations contained in this Section shall apply to each successor Holder of Preferred Stock. H. Required Conversion at Maturity. Subject to the limitations set ------------------------------- forth in Section IV.G. and provided all shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock and exercise of all outstanding Warrants (in each case, without giving effect to any limitation on conversion or exercise) are then (collectively, the "Liquidity Conditions") (i) -------------------- authorized and reserved for issuance, (ii) registered under the Securities Act of 1933, as amended (the "Securities Act") for resale by all Holders of such -------------- shares of Preferred Stock and Warrants, (iii) listed for trading on any of the Nasdaq National Market System, the Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock Exchange, each share of Preferred Stock outstanding on the third (3rd) anniversary of the Closing Date (the "Maturity -------- Date") (and any accrued and unpaid Conversion Default Payments), automatically - ---- shall be converted into shares of Common Stock on such date in accordance with the conversion formula set forth in Section IV.A (the "Required Conversion at ---------------------- Maturity"), except as to any Holder who elects otherwise in the event that a - -------- Bankruptcy Event or Event Within Company Control (as defined herein) or Override Election Event (as defined herein) has occurred and is continuing (or any facts and circumstances exist which, if -7- continued, would give rise to a Event Within Company Control or Override Election Event). If a Required Conversion at Maturity occurs, the Company and the Holders shall follow the applicable conversion procedures set forth in this Article IV; provided, however, that a Notice of Conversion shall be deemed to be delivered to the Company on the Maturity Date. In the event that the limitations set forth above or in Section IV.G prevent the conversion of all of the Preferred Stock on the Maturity Date, any unconverted Preferred Stock shall continue to be subject to Required Conversion at Maturity as set forth in this Section IV.H at such time as the limitations set forth above and in Section IV.G no longer prevent such conversion. Each share of Preferred Stock which, as a result of the limitations above or in Section IV.G (except the limitations of Section IV.G(ii)), remains unconverted at the Maturity Date, shall remain fully convertible in accordance with this Certificate of Designation until such time as the limitations set forth above and in Section IV.G (except those of Section IV.G(ii)) no longer prevent such conversion and such limitations have not prevented such conversion for a period of sixty (60) days, and such share is in fact converted pursuant to this Section. Each share of Preferred Stock which as a result of the limitations of Section IV.G(ii) remains unconverted at the Maturity Date, shall remain fully convertible in accordance with the Certificate of Designation until such time as the limitations of Section IV.G(ii) no longer prevent such conversion and such share is in fact converted pursuant to this Section. I. Electronic Transmission. In lieu of delivering physical certificates ----------------------- representing the Common Stock issuable upon conversion, upon request of a Holder, the Company shall use its reasonable best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system or other electronic delivery system selected by Holder upon reasonable notice. V. RESERVATION OF AUTHORIZED SHARES OF COMMON STOCK A. Reserved Amount. The Company shall have authorized and reserved --------------- and keep available for issuance not less than seventeen million (17,000,000) shares of Common Stock (subject to equitable adjustment for any stock splits, stock dividends, reclassification or similar events) (the "Reserved Amount") --------------- solely for the purpose of effecting the conversion of the Preferred Stock and the Warrants. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock a sufficient number of shares of Common Stock to provide for the full conversion of all outstanding Preferred Stock and exercise of the Warrants and issuance of the shares of Common Stock in connection therewith (in each case without giving effect to any limitation on conversion or exercise thereof). The Reserved Amount shall be allocated among the Holders as provided in Section XIV.C. B. Increases to Reserved Amount. Without limiting any other provision ---------------------------- of this Article V, if the Reserved Amount for any five (5) consecutive trading days (the last of such five (5) trading days being the "Authorization Trigger --------------------- Date") is less than one hundred fifty percent (150%) of the number of shares of - ---- Common Stock issuable on such trading days upon conversion of the then outstanding Preferred Stock and exercise of the then outstanding Warrants (in each case without -8- giving effect to any limitation on conversion or exercise thereof) then the Company shall promptly (but in any event within three (3) business days) notify the Holders of such occurrence and shall use its best efforts (including solicitation of stockholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to two hundred percent (200%) of the number of shares of Common Stock issuable upon conversion of the then outstanding Preferred Stock and exercise of all outstanding Warrants (in each case, without giving effect to any limitation on conversion or exercise thereof). VI. COMPLIANCE WITH CAP AMOUNT RESTRICTIONS A. Share Authorization. The Company shall, unless otherwise consented ------------------- to by each initial Holder, use its best efforts to obtain the Stockholder Approval (as defined below) no later than the Approval Date (as defined below). For purposes hereof, the "Approval Date" means the earliest to occur of (i) ------------- sixty (60) days (one hundred and five (105) days in the event of SEC review of the Company's proxy statement with respect to Stockholder Approval) following the earlier of a Trading Market Trigger Event (as herein defined) or the issuance to any Holder upon conversion of the Preferred Stock and/or exercise of the Warrants of a number of shares of the Company's Common Stock equal to 3.3% of the Company's outstanding Common Stock as of the Closing Date, (ii) six (6) months from the Closing Date, or (iii) the Company's next annual meeting of stockholders. For purposes hereof, "Stockholder Approval" means authorization by -------------------- the stockholders of the Company of the issuance of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to the terms hereof and the exercise of the Warrants pursuant to the terms thereof in the aggregate in excess of twenty percent (20%) of the outstanding shares of Common Stock and, if necessary, the elimination of any prohibitions under the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities on the Company's ability to issue shares of Common Stock in excess of the Cap Amount. In addition, the Company shall, unless otherwise consented to by each initial Holder, have a definitive proxy statement mailed to each of stockholder of the Company at least twenty (20) days prior to the Approval Date. The Company shall deliver any SEC comments it receives with respect to its proxy statement to each Holder and will not file such proxy statement, (or any revisions thereto) whether such proxy statement is in preliminary or definitive form, without the approval of each initial Holder, which approval shall not be unreasonably withheld or delayed. B. Obligation to Notify. If at any date following the Closing Date -------------------- the then unissued portion of any Holder's Cap Amount is less than one hundred and seventy-five percent (175%) of the number of shares of Common Stock then issuable upon conversion of such Holder's shares of Preferred Stock and exercise of such Holder's Warrants (in each case without giving effect to any limitation on conversion or exercise thereof) (a "Trading Market Trigger Event"), the ---------------------------- the Company shall within three (3) business days notify the Holders of such occurrence. VII. FAILURE TO SATISFY CONVERSIONS -9- A. Conversion Default Payments. If, at any time, (x) a Holder submits --------------------------- a Notice of Conversion (or is deemed to submit such notice pursuant to Section IV.H) and the Company fails for any reason (other than because such issuance would exceed such Holder's allocated portion of the Cap Amount, for which failure the Holders shall have the remedies set forth in Article VIII) to deliver, on or prior to the expiration of the Delivery Period for such conversion, such number of shares of Common Stock to which such Holder is entitled upon such conversion, or (y) the Company provides notice (including by way of public announcement) to any Holder at any time of its intention not to issue shares of Common Stock upon exercise by any Holder of its conversion rights in accordance with the terms of this Certificate of Designation (other than because such issuance would exceed such Holder's allocated portion of the Cap Amount) (each of (x) and (y) being a "Conversion Default"), then if, in the ------------------ case of (x), following the tenth (10th) business day following the Conversion Date, or in the case of (y), the tenth (10th) day following receipt by the Holder of notice of the Company's intention not to issue shares, the Company continues to fail for any reason, in the case of clause (x) above, to deliver such shares of Common Stock to which such Holder is entitled upon such conversion, or in the case of clause (y) above, to retract such public notice, then the Company shall pay to the affected Holder, in the case of a Conversion Default described in clause (x) above, and to each Holder, in the case of a Conversion Default described in clause (y) above, an amount equal to one percent (1%) of the Face Amount of the Preferred Stock with respect to which the Conversion Default exists (which amount shall be deemed to be the aggregate Face Amount of all then outstanding Preferred Stock in the case of a Conversion Default described in clause (y) above) for each subsequent day such Conversion Default exists, up to a maximum of the theretofore unpaid portion of the Total Amount. The "Total Amount" shall be the limitation on aggregate payments under ------------ Sections VII.A and VIII.C of this Certificate of Designation and Section 2.3 of the Registration Rights Agreement and shall be equal to thirty three percent (33%) of the aggregate Face Amount of Preferred Stock originally outstanding pursuant to the Securities Purchase Agreement. In the event of a Conversion Default, the applicable Holder shall not be entitled to receive more than its previously unpaid allocable portion of the Total Amount (as provided in Section XIV.C hereof). The payments to which a Holder shall be entitled pursuant to this Section VII.A are referred to herein as "Conversion Default Payments." --------------------------- Conversion Default Payments shall be made the fifth (5th) business day following written demand by a Holder for payment therefor and otherwise in accordance with and subject to the provisions of Section XIV.E. "Cure Date" means (i) with respect to a Conversion Default described in clause (x) of its definition, the date the Company effects the conversion of the portion of the Preferred Stock submitted for conversion and (ii) with respect to a Conversion Default described in clause (y) of its definition, the date the Company undertakes in writing to issue Common Stock in satisfaction of all conversions of Preferred Stock in accordance with the terms of this Certificate of Designation (provided the Company in fact thereafter so satisfies such conversions). B. Adjustment to Conversion Price. If a Holder has not received ------------------------------ certificates for all shares of Common Stock prior to the tenth (10th) day after the expiration of the Delivery Period with respect to a conversion of Preferred Stock for any reason (other than because such issuance would exceed such Holder's allocated portion of the Cap Amount, for which failure the Holders shall have -10- the remedies set forth in Article VIII), then the Holder, upon written notice to the Company, may void its Notice of Conversion with respect to, and retain or have returned, as the case may be, any shares of Preferred Stock that have not been converted pursuant to such Holder's Notice of Conversion; provided that the voiding of a Holder's Notice of Conversion shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to Section VII.A or otherwise, and the Fixed Conversion Price in respect of any shares of Preferred Stock held by such Holder (including any shares as to which the Notice of Conversion has been so voided) shall thereafter be the lesser of (i) the Fixed Conversion Price on the Conversion Date specified in the Notice of Conversion which resulted in the Conversion Default and (ii) the average of the three (3) lowest Closing Bid Prices occurring during the fifteen (15) consecutive trading day period ending on the earlier of the Cure Date and the date such Holder voided the Notice of Conversion, or a shorter period if the Company cures such failure or such Holder voids such shares prior to the fifteenth (15th) trading day after the Conversion Date specified in the Notice of Conversion which resulted in the Conversion Default. If there shall occur a Conversion Default of the type described in clause (y) of Section VII.A, then the Fixed Conversion Price with respect to any conversion thereafter shall be the lower of the Fixed Conversion Price and the average of the three (3) lowest Closing Bid Prices occurring during the fifteen (15) consecutive trading day period ending on the Cure Date, or a shorter period if the Company retracts such statement prior to the fifteenth (15th) trading day after the Holder's receipt of the notice which resulted in the Conversion Default. The Fixed Conversion Price shall thereafter be subject to further adjustment under this Certificate of Designation to the extent such adjustments result in a lower Fixed Conversion Price. VIII. CONSEQUENCES OF CERTAIN EVENTS A. Events Within Company Control. An "Event Within Company Control" means ----------------------------- ---------------------------- any one of the following events, provided such event is Within the Company's Control (as herein defined): (i) (A) the Company does not file the Registration Statement required to be filed by the Company pursuant to Section 2.1 of the Registration Rights Agreement, within thirty (30) days of the Closing Date; (B) the Company fails to use its best efforts to obtain effectiveness of the Registration Statement or to have solicited by proxy, and to obtain, the Stockholder Approval prior to the Approval Date; (C) the Company does not respond to written or oral comments from the SEC or its staff regarding such Registration Statement or such proxy statement, as applicable, as soon as practicable (it is understood that the Company has an obligation to provide all such SEC comments to all Holders and to offer the Holders the opportunity to review and comment on such SEC comments; it is further understood that each Holder has only a limited time to respond to the Company under the Registration Rights Agreement and hereunder and that, failing such response, a Holder is deemed to accept the Company's response to the SEC's comments); or (D) the Company fails to request acceleration of effectiveness of such registration statement from the SEC as soon as practicable, but in any case within three (3) business days of the actual knowledge of a senior officer or the Company's outside counsel that the SEC and the staff of the SEC have no comments (or further comments, as the case may be) concerning such Registration Statement; except if any such failure under this clause (i) was caused by an Act of God or was required by injunction or court or -11- SEC order, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction; (ii) upon a valid conversion of Preferred Stock or valid exercise of Warrants by any Holder, the Company fails for any reason to issue shares of Common Stock within ten (10) business days after the expiration of the Delivery Period with respect to any such conversion of Preferred Stock or exercise of Warrants (other than because such issuance would exceed such Holder's allocated portion of the Cap Amount or other than to the extent the Company does not have sufficient shares of Common Stock which are authorized but not outstanding with which to honor such conversion or exercise), except if such failure was caused by an Act of God or was otherwise Outside the Company's Control (as defined below) or was required by injunction or court or SEC order, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction; (iii) the Company fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the Holders of Preferred Stock or Warrants upon conversion of the Preferred Stock or exercise of the Warrants (as the case may be) as and when required by Section 5.1 and 5.2 of the Securities Purchase Agreement, except if such failure was caused by an Act of God or was otherwise Outside the Company's Control or was required by injunction or court or SEC order, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction; (iv) the Company provides notice to any Holder, including by way of public announcement, at any time, of its intention not to issue shares of Common Stock to any Holder upon conversion in accordance with the terms of this Certificate of Designation (other than because such issuance would exceed such Holder's allocated portion of the Cap Amount, or other than to the extent the Company does not have sufficient shares of Common Stock which are authorized but not outstanding with which to honor such conversion or exercise), except if such notice was required by injunction or court or SEC order or was otherwise Outside the Company's Control, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction; (v) the Company knowingly commits any act or omission which constitutes a breach of any material covenant or other material term of this Certificate of Designation, the Warrants, the Securities Purchase Agreement or the Registration Rights Agreement, except if the facts underlying such breach are the subject matter under another clause of this Section VIII.A or under Section VIII.C, and except if such breach was caused by an Act of God or was required by injunction or court or SEC order or was otherwise Outside the Company's Control, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction; (vi) subject to clause (ii) of Section VIII.H the Company's execution or performance of its obligations under this Certificate of Designation, the Warrants, the Securities Purchase Agreement or the Registration Rights Agreement (the "Documents") constitutes an actual breach under any --------- existing agreement of the Company (or would cause a default or acceleration (or right of acceleration) -12- under such existing agreement), or the Company enters into any new agreement under which performance of any material obligation under the Documents would be a breach or cause a default or acceleration (or right of acceleration) under such new agreement, unless the entry into such new agreement was required by injunction or court or SEC order, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction or unless such breach (and the consequences thereof, including any cross-defaults) are not material to the Company; (vii) the Company knowingly commits any act or omission which constitutes a breach of any representation or warranty (at the time made) contained in any of the Securities Purchase Agreement, the Registration Rights Agreement, the Certificate of Designation, the Warrant, or any officer's certificate given in writing in connection with the issuance of the Preferred Stock if the facts underlying such breach would have a Material Adverse Effect or such breach would have a material adverse effect on a Holder with respect to its investment in the Securities (as defined in the Securities Purchase Agreement); (viii) the Company fails to increase the Reserved Amount as required hereby within ten (10) days following an Authorization Trigger Date if such increase requires solely approval of the Company's Board of Directors, unless such failure was required by injunction or court or SEC order, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction or was caused by an Act of God; (ix) the Company knowingly and materially breaches any agreement involving indebtedness for borrowed money or purchase price, other than as set forth in the Schedule of Exceptions to the Securities Purchase Agreement, the breach of which results in the acceleration or right of acceleration (or with the passage of time or the giving of notice or both would result in the acceleration or right of acceleration) of the maturity of such debt owed by the Company, or which would (or, with the passage of time or the giving of notice or both, would) give rise to a right to accelerate the maturity of such debt, unless such breach was caused by an Act of God or was otherwise Outside the Company's Control or was required by injunction or court or SEC order, provided that the Company shall have used its best efforts to oppose, remove or appeal such order or injunction or unless such breach (and the consequences thereof, including any cross-defaults) are not material to the Company (taking into account the Company's good faith contesting off its rights and obligations thereunder); or (x) without the consent of each initial Holder and the Majority Holders, (A) the Company fails to use its best efforts to avoid the occurrence of an Override Election Event, or (B) if an Override Election Event occurs and is continuing and the Company fails to make an Override Election for a period of ten (10) business days, or (C) the Company makes an Override Election under Section VIII.D hereof and fails to pay to the Holders, without having first made a voluntary filing under Chapter 11 of the United States Bankruptcy Code, the amounts required under that Section at the times required under that Section, unless any such failure was caused by an Act of God or was required by injunction or court or SEC order, provided that the Company shall have used its best efforts to oppose, remove and appeal such order or injunction; or -13- An event shall be "Outside the Company's Control" if the event shall be caused by factors beyond the Company's control (notwithstanding the Company having used its best efforts to avoid the occurrence of such event). An event shall be "Within the Company's Control" if such event was a voluntary choice by the Company or was otherwise within the Company's control. B. Consequences of Events Within Company Control. Upon the occurrence of --------------------------------------------- an Event Within Company Control, each Holder shall have the right to elect at any time and from time to time by delivery of a Redemption Notice (as defined herein) to the Company to require the Company to purchase for cash for an amount per share equal to the Redemption Amount (as defined herein), any or all of the then outstanding shares of Preferred Stock held by such Holder; provided, however, that if the Company has used its best efforts to avoid such Event Within Company Control, and not more than five (5) prior Events Within Company Control and/or Override Election Events have occurred, such election must be made prior to the cure (if possible) of such Event Within Company Control; provided further that no inability to make an election pursuant to the immediately foregoing proviso shall relieve the Company of any of its obligations under this Certificate of Designation or the other Transaction Documents (as defined in the Securities Purchase Agreement) or limit any rights or remedies of the Holder hereunder or thereunder, in each case with respect to the facts and circumstances giving rise to such Event Within Company Control. If a Holder asserts by service of a Redemption Notice that an Event Within Company Control has occurred, the service of such a Redemption Notice shall be a definitive determination of the occurrence of such an Event within Company Control unless the Company within five (5) business days provides a detailed written statement to each Holder explaining why such purported Event Within Company Control was not an Event Within Company Control. C. Override Election Events. An "Override Election Event" means any one ------------------------ ----------------------- of the following: (i) any event which, but for the fact that it was not knowingly committed by the Company or was required by injunction, court or SEC order, or was caused by an Act of God or was otherwise Outside the Company's Control or was not Within the Company's Control, would be an Event Within Company Control; (ii) the Common Stock (or any portion thereof) is suspended from trading on any of, or de-listed (or unauthorized) for trading on any of, the Nasdaq National Market System, the Nasdaq SmallCap Market, the American Stock Exchange, or the New York Stock Exchange for an aggregate of five (5) trading days in any nine (9) month period; (iii) the Registration Statement required to be filed by the Company pursuant to Section 2.1 of the Registration Rights Agreement is not declared effective by the one hundred and eightieth (180th) day following the Closing Date; -14- (iv) a Registration Statement required to be filed by the Company pursuant to the Registration Rights Agreement, after being declared effective, cannot be utilized by the holders of Registrable Securities (as defined in the Registration Rights Agreement) for the re-sale of all Registrable Securities for a period of ten (10) consecutive business days or for an aggregate of more than twenty (20) days in any twelve month period (not including any Permitted Blackouts) (as defined in the Registration Rights Agreement)); (v) if shareholder approval is required for the Company to increase the Reserved Amount as required hereby, the Reserved Amount is not so increased within sixty (60) days (or one hundred and five (105) days in the event of SEC review) following an Authorization Trigger Date; (vi) the Company fails to obtain the effectiveness of any amendment to an existing registration statement or of any new registration statement within five (5) business days (in the case of an amendment) or within ten (10) days following a Registration Trigger Date (as defined in the Registration Rights Agreement) (in the case of a new registration statement), in each case as required by Section 2.3 of the Registration Rights Agreement; (vii) the Company fails to obtain the Stockholder Approval on or before the Approval Date; (viii) the Company at any time fails to fully honor a valid conversion of Preferred Stock or a valid exercise of Warrants because the Company does not have sufficient shares of Common Stock which are authorized but not outstanding with which to honor such conversion or exercise; or (ix) a Bankruptcy Event occurs. D. Consequences of Override Election Events. Upon the occurrence of an ---------------------------------------- Override Election Event, the Company may elect (an "Override Election"), within ----------------- five business days following notice to the Company of the occurrence of such an event, to pay each Holder its pro rata portion, in cash, three percent (3%) the first week, and five percent (5%) per week thereafter, of the sum of the aggregate Face Amount of the Preferred Stock originally issued by the Company plus any accrued and unpaid Premium with respect thereto, until such event no longer exists, but in no event shall the Company be required to pay more than the Total Amount, and in no event shall the Company pay any Holder more than such Holder's theretofore unpaid allocable portion of the Total Amount (as determined pursuant to Section XIV.C hereof). Any Override Election by the Company shall be made by written notice to each Holder (via facsimile with a copy by reputable overnight courier). Regardless of the number of Override Elections, the Company shall not be required to pay more than the theretofore unpaid portion of the Total Amount. E. Definition of Redemption Amount. The "Redemption Amount" with respect ------------------------------- ----------------- to a share of Preferred Stock means an amount equal to the greater of (i) 1.33 times the aggregate Face -15- Amount of the Preferred Stock for which a demand is being made and (ii) an amount determined by the following formula: ( Face Amount + Premium + other applicable amounts due ) x M -------------------------------------------------------- C P where: "CP" means the Conversion Price in effect on the date of the Redemption -- Notice; and "M" means the highest Closing Bid Price of the Company's Common Stock - during the period beginning on the date of the Redemption Notice and ending on the date of the redemption, as reported on the principal securities exchange or trading market on which the Common Stock is traded. F. Redemption Defaults. The Company shall pay a Holder the Redemption ------------------- Amount, in cash, with respect to each share of Preferred Stock which is subject to a written notice electing such redemption (a "Redemption Notice") within five ----------------- (5) business days of the Company's receipt of such Redemption Notice. In the event the Company is not able to purchase all of the shares of Preferred Stock subject to Redemption Notices, the Company shall redeem shares of Preferred Stock from each Holder pro rata, based on the total number of shares of Preferred Stock included by such Holder in the Redemption Notice relative to the total number of shares of Preferred Stock in all of the Redemption Notices; provided the foregoing shall not be deemed to limit the Company's obligation to purchase shares of Preferred Stock hereunder. In addition, and notwithstanding anything to the contrary contained in this Section VIII.F, so long as the Company is prevented from redeeming shares of Preferred Stock pursuant to this Section VIII.F, the Company shall be (and shall be deemed to be) in breach of the redemption obligations set forth in this Article VIII and each Holder shall have all rights and remedies under this Certificate of Designation or otherwise at law for damages, with respect to such breach. In addition, during any such period, without the prior written consent of each initial Holder, the Company shall not enter into any agreement, consummate any transaction or otherwise operate its business in any way outside of the ordinary course of the Company's business. Furthermore, in this event, each Holder, upon written notice to the Company, may void its Redemption Notice with respect to, and retain or have returned, as the case may be, any shares of Preferred Stock that have not been redeemed pursuant to such Holder's Redemption Notice; provided that the voiding of a Holder's Redemption Notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice of voiding pursuant to this Section. G. Additional Cap Amount Remedies. Upon the occurrence of an Override ------------------------------ Election Event described in clause (vii) of Section VIII.C, any Holder who is at any time thereafter prohibited from converting its Preferred Stock or exercising its Warrants as a result of the Cap Amount may, notwithstanding the Cap Amount or restrictions with respect thereto, in addition to its other rights under this Article VIII or otherwise, provided at least one hundred thousand dollars ($100,000) aggregate Face Amount of the Preferred Stock remains outstanding or Warrants to purchase one -16- hundred thousand (100,000) shares of Common Stock (appropriately adjusted for stock splits, combinations and the like) remain outstanding, elect to require the Company to use its best efforts to list its Common Stock on the over-the- counter electronic bulletin board and to honor all valid conversions and exercises, notwithstanding and without giving effect to the Cap Amount restrictions. After any such election, the Company shall so use its best efforts and so honor all conversions and exercises and the Cap Amount shall no longer apply to the Preferred Stock or Warrants for all purposes. H. Capital Impairment and Bank Document Limitation. ----------------------------------------------- (i) In the event that Section 160 of the Delaware General Corporation Law ("GCL"), would be violated by the redemption of any shares of Preferred --- Stock that are otherwise subject to redemption pursuant to this Article VIII, the Company: (I) will redeem the greatest number of shares of Preferred Stock possible without violation of said Section; (II) the Company thereafter shall use its best efforts to take all necessary steps permitted pursuant to this Certificate of Designation and the agreements entered into in connection with the issuance of Preferred Stock pursuant thereto in order to remedy its capital structure in order to allow further redemptions without violation of said Section (and not take any action inconsistent with so remedying such capital structure); and (III) from time to time thereafter as promptly as possible the Company shall redeem shares of Preferred Stock at the request of a Holder to the greatest extent possible without causing a violation of Section 160 of the GCL (such redemption to be at the greater of the redemption price in effect at the time of the original Event Within Company Control giving rise to such violation and the redemption price which would be applicable for an Event Within Company Control at the time of such later election under this clause (III)). In the event the Company is not able to redeem all the shares of Preferred Stock subject to Redemption Notices, the Company shall redeem shares of Preferred Stock from each Holder pro rata, based on the total number of shares of Preferred Stock included by such Holder in the Redemption Notice relative to the total number of Preferred Stock in all Redemption Notices. In addition, and notwithstanding anything to the contrary contained in this Section VIII.H, so long as the Company is prevented from redeeming shares of Preferred Stock pursuant to this Section VIII.H, the Company shall be (and shall be deemed to be) in breach of the redemption obligations set forth in this Article VIII and each Holder shall have all rights and remedies under this Certificate of Designation or otherwise at law for damages, with respect to such breach. In addition, during any such period, without the prior written consent of each initial Holder, the Company shall not enter into any agreement, consummate any transaction or otherwise operate its business in any way outside of the ordinary course of the Company's business. (ii) In the event that the certain Credit Agreement dated as of May 15, 1998 among the Company and certain lenders, amended as of December 17, 1998 (the "Credit Agreement"), or any extension thereof or replacement facility which ---------------- does not adversely affect the rights, privileges or preferences of the Preferred the Stock or the Holders thereof in any manner and to any extent materially greater than such rights, privileges and preferences and such Holders are, as of the initial issuance of the Preferred Stock, already adversely affected as a result of the terms of the Credit Agreement (collectively, the "Loan ---- Documents"), would be violated by the redemption of, or Override Election - --------- -18- payments with respect to, any shares of Preferred Stock that are otherwise subject to redemption or Override Election payments pursuant to this Article VIII, the Company: (I) will redeem the greatest number of shares of Preferred Stock possible and make the greatest Override Election payments possible, in each case, without violation of the Loan Documents; (II) the Company thereafter shall use its reasonable best efforts to take all reasonably necessary steps permitted pursuant to this Certificate of Designation and the agreements entered into in connection with the issuance of Preferred Stock would not result in a violation or breach hereunder or thereunder) in order to allow further redemptions and Override Election payments without violation of the Loan Documents (including, without limitation replacement of or repayments under under such Loan Documents); and (III) from time to time thereafter as promptly as possible the Company shall redeem shares of Preferred Stock at the request of a Holder to the greatest extent possible without causing a violation of the Loan Documents. In the event the Company is not able to redeem all the shares of Preferred Stock subject to Redemption Notices due to limitations in the Loan Documents, the Company shall redeem shares of Preferred Stock from each Holder pro rata, based on the total number of shares of Preferred Stock included by such Holder in the Redemption Notice relative to the total number of Preferred Stock in all Redemption Notices. In addition, and notwithstanding anything to the contrary contained in this Article VIII, so long as the Company is prevented from redeeming shares of Preferred Stock or from making Override Election payments pursuant to this Section VIII.H, the Company shall not be (and shall not be deemed to be) in breach of such obligations set forth in this Article VIII. I. Redemption at Company's Option. ------------------------------ (i) (A) So long as no Override Election Event and no Event Within Company Control shall have occurred and remain uncured (such cure to have been effective for at least the six (6) immediately preceding consecutive months), and provided the Company is not then (and has not for the immediately preceding six (6) consecutive months been) in violation of any of its material obligations under the Securities Purchase Agreement, the Warrants, the Registration Rights Agreement or this Certificate of Designation, then the Company shall have the right to redeem for cash ("Redemption at Company's Election") all the then -------------------------------- outstanding Preferred Stock (or a Partial Redemption as set forth below) for the Optional Redemption Amount (as herein defined), which right shall be exercisable by delivery of an Optional Redemption Notice (as defined herein) in accordance with the procedures set forth below. The Company shall have the right to redeem for cash (a "Partial Redemption", also a Redemption at Company's Election) less ------------------ than all the then outstanding Preferred Stock for the Optional Redemption Amount upon delivery of an Optional Redemption notice in accordance with the procedures set forth below, provided that (x) such Partial Redemption is allocated pro rata among the Holders, based upon the number of shares of Preferred Stock held by each Holder, and (y) such Partial Redemption is of at least five million dollars ($5,000,000) and, if more than $5,000,000, equal to an integer multiple of one million dollars ($1,000,000) greater than $5,000,000. If the aggregate Optional Redemption Amount for all outstanding shares of Preferred Stock is less than $5,000,000, no Partial Redemption is permitted. Notwithstanding the delivery of an Optional Redemption Notice, the Holders shall have the right to convert up to and including the Effective Time of Redemption (as defined herein). -18- (B) The Company may, subject to the other provisions of this Article VIII (including of this clause (i)), effect a Redemption at Company's Election in the following circumstances: (1) on the dates set forth below, if the Closing Bid Price of the Common Stock as of the tenth (10th) day immediately preceding both the Optional Redemption Notice and the redemption itself is less than seventy-five percent (75%) of the Closing Price. The "Optional Redemption Amount" with -------------------------- respect to each share of Preferred Stock under this clause (1) means X% of the sum of the Face Amount plus accrued but unpaid Premium plus any other amounts due with respect thereto, where "X" is determined according to the following schedule. Redemption Dates (from the Closing Date) "X" ---------------------------------------- --- 180 days 130% 270 days 125% 360 days 120% If a Redemption Date as set forth in the table above falls on a weekend or on a national holiday, the Redemption Date shall be the next business day following the day set forth in the table. (2) at any time after the second anniversary of the Closing Date if the Closing Bid Price of the Common Stock for ten (10) consecutive trading days immediately prior to the deliver of an Optional Redemption Notice and on the date of redemption exceeds two hundred percent (200%) of the applicable Fixed Conversion Price. The "Optional Redemption Amount" with respect -------------------------- to each share of Preferred Stock under this clause (2) means one hundred and fifteen percent (115%) of the sum of the Face Amount plus accrued but unpaid Premium plus any other amounts due with respect thereto. (3) at any time after the second (2nd) anniversary of the Closing Date and simultaneously with the closing of a firm commitment underwriting for at least a minimum of eight dollars ($8.00) per share (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events) for a minimum aggregate amount of thirty million dollars ($30,000,000). The Company may not effect a redemption pursuant to this clause (3) unless, simultaneously with the service of the Optional Redemption Notice, the Company provides to the Holders a letter from a nationally recognized underwriting firm advising the Holders that such firm is highly confident that it can effect such underwriting. The "Optional Redemption Amount" with respect to each share of Preferred Stock under this clause (3) means the greater of (x) one hundred and twenty percent (120%) of the sum of the Face Amount plus the accrued and unpaid Premium plus any other amounts due with respect thereto, and (y) an amount determined by the following formula: ( Face Amount + Premium + other applicable amounts due ) x M -------------------------------------------------------- C P -19- where: "CP" means the Conversion Price in effect on the date of the Redemption -- Notice; and "M" means the highest Closing Bid Price of the Company's Common Stock - during the period beginning on the date of the Redemption Notice and ending on the date of the redemption, as reported on the principal securities exchange or trading market on which the Common Stock is traded. (4) at any time after the first (1st) anniversary of the Closing Date and before the second (2nd) anniversary of the Closing Date. The "Optional Redemption Amount" with respect to each share of Preferred Stock under this clause (4) means the greater of (x) one hundred and sixty percent (160%) (annualized from the Closing Date to the date of redemption pursuant to this clause (4)) of the sum of the Face Amount plus the accrued and unpaid Premium plus other amounts due with respect thereto, and (y) an amount determined by the formula contained in clause (3)(y) hereof. (ii) The Company may not deliver an Optional Redemption Notice for a redemption for cash unless such redemption is with respect to all then- outstanding shares of Preferred Stock (or as otherwise contemplated in clause (i)(A) above) and unless the Company has ("Funding Availability"): (a) the full -------------------- amount of the Optional Redemption Amount in cash, available in a demand or other immediately available account in a bank or similar financial institution; or (b) immediately available credit facilities, in the full amount of the Optional Redemption Amount in cash with a bank or similar financial institution (or binding commitment letters with respect thereto which commitment letters shall be subject only to commercially reasonable conditions to closing as to which the Company's Board of Directors has made a good faith business judgment will be fulfilled to permit consummation of the redemption hereunder); or (c) an agreement with a standby underwriter or qualified buyer ready, willing and able to purchase from the Company a sufficient face amount or number of shares or any debt or equity securities, subject to the limitations contained in the Securities Purchase Agreement and herein, to provide net proceeds in the full amount of the Optional Redemption Amount; or (d) a combination of the items set forth in the preceding clauses (a), (b) and (c), aggregating the full amount of the Optional Redemption Amount in cash. The Company may not deliver an Optional Redemption Notice and the Company may not effect a Redemption at Company's Election unless all of the Common Stock issuable upon conversion of the Preferred Stock (at the time of delivery of the Optional Redemption Notice and for each day thereafter through the Effective Time of Redemption) is covered by an effective Registration Statement and all such Common Stock can be sold pursuant thereto at all times during such period and all other Liquidity Conditions (as defined in Section III.H hereof) are then met. Any Optional Redemption Notice delivered in accordance with the foregoing shall be accompanied by a statement executed by a duly authorized officer of the Company certifying that the Company has Funding Availability and by other appropriate documentation as evidence of the other provisions of this Section. -20- (iii) The Company shall effect the Redemption at Company's Election under this Section VIII.I by delivering written notice thereof (the "Optional -------- Redemption Notice") on a business day that is at least 30 days, and not more - ----------------- than 60 days, prior to the date on which such redemption is to become effective (the "Effective Time of Redemption") to each Holder at the facsimile number of ---------------------------- each Holder appearing in the Company's register for the Preferred Stock. Once the Company has made such an Election, it is irrevocable and binding. The Optional Redemption Notice shall be deemed to have been delivered to a Holder: (i) if such fax is received by such Holder on or prior to 3:00 p.m. New York time, on the date of transmission of the Company's fax; and (ii) if such fax is received by Holder after 3:00 p.m. New York time, on the next business day following the date of transmission provided that, for any notice required under this subsection to be valid, a copy of such notice must be sent to the Holders on the same day by overnight courier. (iv) The Optional Redemption Amount shall be paid to each Holder on the third (3rd) day following the Effective Time of Redemption. (v) If the Company fails to pay, when due and owing, any Optional Redemption Amount, then each Holder entitled to receive such Optional Redemption Amount shall have the right, at any time and from time to time, to require the Company, upon written notice, to immediately convert (in accordance with the terms of and subject to the limitations contained in Article IV) any or all of the shares of Preferred Stock which are the subject of Redemption at Company's Election into shares of Common Stock at the lower of the Fixed Conversion Price and the lowest Conversion Price in effect following the Effective Time of Redemption. In the event of such a default, (a) any future right to effect a Redemption at Company's Election would be forfeited, and (b) if the average of the lowest Closing Bid Prices of the Common Stock for any three (3) trading days (the "Lowest Trade Average") during the during the period (the "Trade Period") -------------------- ------------ beginning on the date of the Optional Redemption Notice and ending on the Effective Time of Redemption is lower than the Fixed Conversion Price, then the Fixed Conversion Price shall be adjusted to the Lowest Trade Average. (vi) Commencing upon the date that is 181 days from the Closing Date the Company may, upon advance notice by the Company as provided below and upon receipt from a Holder of a Notice of Conversion with a Conversion Price that is less than seventy-five percent (75%) of the Closing Price, elect to pay to such Holder the "Equivalent Value" of the conversion in cash. In order for the ---------------- Company to elect to pay Equivalent Value with respect to conversions as aforesaid during any given calendar month, the Company must give written notice to the Holders at least ten (10) days prior to the first day of that calendar month. Once the Company makes such an election, it is irrevocable and binding for the entire following calender month. Any such notice shall be effective for conversions for no more than one calendar month. If the Company sets a maximum amount on the total Equivalent Value payments for a given calendar month, such amount shall be allocated pro rata among the Holders. In the event of a default in payment of Equivalent Value following such a notice, any right to effect additional conversions for Equivalent Value shall be forfeited. The Equivalent Value with respect to each share of Preferred Stock is computed according to the following formula: -21- Closing Bid Price on the Conversion Date x A -------------------------- Conversion Price on the Conversion Date A = $1000 + Premium (accrued but unpaid) + other amounts owing in respect of such shares Payment of Equivalent Value shall be made within three (3) business days of the receipt of a Notice of Conversion. (vii) If the Company redeems all outstanding shares of Preferred Stock pursuant to this Article VIII and simultaneously issues securities for the purpose of creating proceeds to effect such redemption, such issuance shall not of itself constitute a breach of any obligations of, or limitations imposed on, the Company under Sections IX.A, XIII.C or XIII.D hereof. IX. RANK; PARTICIPATION A. Rank. All outstanding shares of the Preferred Stock shall rank (i) ---- prior to the Common Stock; (ii) prior to any other class of capital stock of the Company now outstanding and prior to any class or series of capital stock of the Company hereafter created (unless, with the consent of the Holders obtained in accordance with Article XIII hereof, such class or series of capital stock specifically, by its terms, ranks senior to or pari passu with the Preferred ---- ----- Stock) (collectively, with the Common Stock, "Junior Securities"); (iii) pari ----------------- ---- passu with any class or series of capital stock of the Company hereafter created - ----- (with the consent of the Holders obtained in accordance with Article XIII hereof) specifically ranking, by its terms, on parity with the Preferred Stock (the "Pari Passu Securities"); and (iv) junior to any class or series of capital ---- ----- ---------- stock of the Company hereafter created (with the consent of the Holders obtained in accordance with Article XIII hereof) specifically ranking, by its terms, senior to the Preferred Stock (the "Senior Securities"); in each case as to ----------------- dividends or as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. B. Participation. Subject to the rights of the holders (if any) of Pari ------------- ---- Passu Securities and Senior Securities, each Holder shall, as a Holder of - ----- Preferred Stock, be entitled to dividends paid and distributions made to the holders of Common Stock to the same extent as if such Holder had converted all of the Preferred Stock held by such Holder on the record date for such dividends or distributions into Common Stock (without regard to any limitations on conversion herein or elsewhere contained) at the Conversion Price applicable on such record date and such Common Stock had been issued on the day before such record date. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. -22- X. LIQUIDATION PREFERENCE A. Liquidation of the Company. If a Bankruptcy Event shall occur and, on -------------------------- account of any such event, the Company shall liquidate, dissolve or wind up, or if the Company shall otherwise liquidate, dissolve or wind up (a "Liquidation ----------- Event"), no distribution shall be made to the Holders of any shares of capital - ----- stock of the Company (other than Senior Securities) upon liquidation, dissolution or winding up unless prior thereto the Holders shall have received the Liquidation Preference (as herein defined) with respect to each share. If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the Holders and holders of Pari Passu Securities shall be ---- ----- insufficient to permit the payment to such Holders of the preferential amounts payable thereon, then the entire assets and funds of the Company legally available for distribution to the Preferred Stock and the Pari Passu Securities ---- ----- shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. B. Certain Acts Not a Liquidation. The purchase or redemption by the ------------------------------ Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation or merger of the Company with or into any other entity nor the sale or transfer by the Company of less than substantially all of its assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. C. Definition of Liquidation Preference. The "Liquidation Preference" ------------------------------------ ---------------------- with respect to a share of Preferred Stock means an amount equal to the Face Amount thereof plus the accrued but unpaid Premium and other amounts unpaid hereunder, including without limitation Redemption Amounts and Override Election Amounts, with respect thereto plus any other amounts that may be due from the Company with respect thereto through the date of final distribution. The Liquidation Preference with respect to any Pari Passu Securities shall be as set ---- ----- forth in the charter of the Company. XI. ADJUSTMENTS TO THE CONVERSION PRICE; CERTAIN PROTECTIONS The Conversion Price shall be subject to adjustment from time to time as follows: A. Stock Splits, Stock Dividends, Etc. If at any time on or after the ---------------------------------- Closing Date, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, combination, reclassification or other similar event, the Fixed Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or other similar event, the Fixed Conversion Price shall be proportionately increased. B. Certain Public Announcements. In the event that (i) the Company makes ---------------------------- a public announcement that it intends to consolidate or merge with any other entity (other than a merger in -23- which the Company is the surviving or continuing entity and its capital stock is unchanged and there is no issuance thereof) (or that any subsidiary of the Company will merge or consolidate with any other person (other than a merger in which the Company issues no securities)) or to sell or transfer all or substantially all of the assets of the Company or (ii) any person, group or entity (including the Company) publicly announces a tender offer in connection with which such person, group or entity seeks to purchase 50% or more of the Common Stock (the date of the announcement referred to in clause (i) or (ii) of this paragraph is hereinafter referred to as the "Announcement Date"), then the ----------------- Conversion Price shall, effective upon the Announcement Date and continuing through the consummation of the proposed tender offer or transaction or the Abandonment Date (as defined below), be equal to the lesser of (x) the Conversion Price calculated as provided in Article IV and (y) the Conversion Price which would have been applicable for a conversion occurring on the Announcement Date (and in each case of (x) and (y), the Conversion Price shall be deemed to be the lesser of the Fixed Conversion Price and the Variable Conversion Price prior to May 15, 1999). From and after the Abandonment Date, as the case may be, the Conversion Price shall be determined as set forth in Article IV. The "Abandonment Date" means with respect to any proposed ----------------- transaction or tender offer for which a public announcement as contemplated by this paragraph has been made, the date which is sixteen (16) trading days after the date upon which the Company (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) publicly announces the termination or abandonment of the proposed transaction or tender offer which causes this paragraph to become operative. C. Major Transactions. Except in the case of a Common Stock Major ------------------ Transaction (as defined below), if the Company shall consolidate or merge with any other corporation or entity (other than a merger in which the Company is the surviving or continuing entity and its capital stock is unchanged and unissued in such transaction (except for Common Stock constituting less than twenty percent (20%) of the Company's Common Stock then outstanding)) or there shall occur any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property or any reclassification or change of the outstanding shares of Common Stock (each of the foregoing being a "Major Transaction"), then each Holder shall thereafter be entitled to (a) in the event that the Common Stock remains outstanding or holders of Common Stock receive any common stock or substantially similar equity interest, in each of the foregoing cases which is publicly traded, retain its Preferred Stock and such Preferred Stock shall continue to apply to such Common Stock or shall apply, as nearly as practicable, to such other common stock or equity interest, as the case may be, or (b) regardless or whether (a) applies, receive consideration, in exchange for each share of Preferred Stock held by it, equal to the greater of, as determined in the sole discretion of such Holder: (i) the number of shares of stock or securities or property of the Company, or of the entity resulting from such Major Transaction (the "Major Transaction Consideration"), to which a holder of the number of ------------------------------- shares of Common Stock delivered upon conversion of such shares of Preferred Stock would have been entitled upon such Major Transaction had the Holder exercised its right of conversion (without regard to any limitations on conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) on the trading date immediately preceding the public announcement of the transaction resulting in such Major Transaction and had such Common Stock been issued and outstanding and had such Holder been the holder of record of such Common Stock at the time of the consummation of such Major Transaction, and (ii) one hundred twenty five percent (125%) of the Face Amount plus accrued and unpaid premiums of such shares of Preferred Stock in cash; and the Company shall make lawful provision for the forgoing as a part of such Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under the Registration Rights Agreement to assume all of the Company's obligations under the Registration Rights Agreement. In the event that the Company shall consolidate or merge with any -24- corporation in a transaction in which common stock of the surviving corporation or parent thereof (the "Exchange Securities") is issued to the holders of Common Stock in such transaction in exchange for all such Common Stock, and (a) the Exchange Securities are publicly traded, (b) the average daily trading volume of the Exchange Securities reported by Bloomberg during the ninety (90) day period ending on the date on which such transaction is publicly disclosed is greater than two million dollars ($2,000,000) per day, (c) the historical one hundred (100) day volatility of the Exchange Securities reported by Bloomberg during the period ending on the date on which such transaction is publicly disclosed is greater than fifty percent (50%) and (d) the last sale price of the Exchange Securities on the date immediately before the date on which such transaction is publicly disclosed is not less than sixty five percent (65%) of the last sale price of the Exchange Securities on any day during the twenty (20) trading day period ending on such date (in each case as reported by Bloomberg) (a "Common Stock Major Transaction"), then each Holder shall following consummation of such transaction have the right to receive solely, in exchange for each share of Preferred Stock held by it, consideration equal to the number of shares of stock or securities or property issued or paid in such Common Stock Major Transaction to which a holder of the number of shares of Common Stock which would have been delivered upon conversion of a share of Preferred Stock would have been entitled upon such Common Stock Major Transaction had the Holder of such share of Preferred Stock exercised its right of conversion (without regard to any limitations on conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) with respect to such share of Preferred Stock on the trading date immediately preceding the public announcement of the transaction resulting in such Common Stock Major Transaction and had such Common Stock been issued and outstanding and had such Holder been the holder of record of such Common Stock at the time of the consummation of such Common Stock Major Transaction; and the Company shall make lawful provision for the foregoing as a part of such Common Stock Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under the Registration Rights Agreement to assume all of the Company's obligations under the Registration Rights Agreement. No sooner than ten (10) business days nor later than five (5) business days prior to the consummation of the Major Transaction or Common Stock Major Transaction, as the case may be, (each, a "Transaction") but not prior to the public announcement of such Transaction, the Company shall deliver written notice ("Notice of Transaction") to each Holder, which Notice of Transaction shall --------------------- be deemed to have been delivered one (1) business day after the Company's sending such notice by telecopy (provided that the Company sends a confirming copy of such notice on the same day by overnight courier) of such Notice of Transaction. Such Notice of Transaction shall indicate the amount and type of the Transaction consideration which such Holder would receive under this Section. If the Major Transaction consideration does not consist entirely of United States currency, such Holder may elect to receive United States currency in an amount equal to the value of the Major Transaction Consideration in lieu of the Major Transaction Consideration by delivering notice of such election to the Company within five (5) business days of the Holder's receipt of the Notice of Transaction. D. If George Roberts or Michael Sophie, during the period from December 1, 1998 until the date which is three hundred and sixty five (365) days from the Closing Date, and while an officer or director, directly or indirectly, offer, sell, transfer, assign, pledge, or otherwise dispose of any shares of Common Stock, or any securities directly or indirectly convertible into or exercisable or exchangeable for, or warrants, options or rights to purchase or acquire shares of Common Stock (all such securities, "Options") or enter into any agreement, contract, arrangement or understanding with respect to any such offer, sale, transfer, assignment, pledge or other disposition of any Common Stock or Options, in each case based upon a price of the Common Stock less than the Fixed Conversion Price on the Closing Date (as adjusted for stock splits, stock dividends, reclassifications or similar events during such period), then, if the Lowest Trade Price during the period beginning on such date and ending on the date twenty (20) days following public announcement of such event is -25- less than the Fixed Conversion Price, then the Fixed Conversion Price shall be adjusted to such Lowest Trade Price. The adjustments of this Section XI.D shall not apply if and after the Company is sold or with respect to transfers made for bona fide estate planning (for creation of trusts for spouses and relatives) and/or charitable purposes (provided any transfers by such a transferee shall be treated as a transfer by the transferor). E. Issuance of Other Securities. If, at any time after the Closing Date ---------------------------- the Company shall issue any securities which are convertible into or exchangeable or exercisable for Common Stock ("Convertible Securities") either ---------------------- (i) at a conversion, exercise or exchange rate based on a specified percentage discount from the market price of the Common Stock at the time of conversion, exercise or exchange or based upon a market-based rate (for clarification, a discount would not include standard price-based anti-dilution protection provisions) or (ii) with a fixed conversion, exchange or exercise price less than the Fixed Conversion Price, then, at the Holder's option: (x) in the case of clause (i), the Variable Conversion Price in respect of any conversion of Preferred Stock after such issuance shall be calculated utilizing the greatest discount applicable to any such Convertible Securities or, as applicable, such market-based rate, and (y) in the case of clause (ii), the Fixed Conversion Price shall be reduced to such lesser conversion, exchange or exercise price (in each case of (x) and (y), subject to further adjustments as provided in this Certificate of Designation (including pursuant to this Section E)). This prohibition shall not apply to issuances (1) in connection with the issuance to or grant and/or exercise by employees, consultants or directors of stock or options, (2) pursuant to the Stockholders Rights Plan and the Series A Preferred Stock, as amended as of the Closing Date (or thereafter with the consent of each initial Holder and each initial Holder and the Majority Holders), or (3) in connection with acquisitions of other companies, material technologies or business entities. F. [Intentionally Deleted]. G. [Intentionally Deleted]. H. Notice of Adjustments. Upon the occurrence of each adjustment or --------------------- readjustment pursuant to this Article XI, the Company, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to each Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Preferred Stock. XII. VOTING RIGHTS The holders of Preferred Stock shall have no voting power whatsoever, except as otherwise provided by applicable law. -26- Notwithstanding the above, the Company shall provide each Holder with prior notification of any meeting of the stockholders (and copies of proxy materials and all other information sent to stockholders). If the Company takes a record of its stockholders for the purpose of determining stockholders entitled to (a) receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or (b) to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Company, or any proposed merger, consolidation, liquidation, dissolution or winding up of the Company, the Company shall fax a notice to each Holder, at least ten (10) days prior to the record date specified therein (or ten (10) days prior to the consummation of the transaction or event, whichever is earlier, but in no event earlier than public announcement of such proposed transaction), of the date on which any such record is to be taken for the purpose of such vote, dividend, distribution, right or other event, and a brief statement regarding the amount and character of such vote, dividend, distribution, right or other event to the extent known at such time. To the extent that under applicable law the vote of the holders of the Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the Holders of at least a majority of the shares of the Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of the Majority Holders (except as otherwise may be required by applicable law) shall constitute the approval of such action by the class or series. To the extent that under applicable law Holders are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible (without giving effect to any limitation on conversion with respect thereto) using the record date for the taking of such vote of stockholders as the date as of which the Conversion Price is calculated. XIII. PROTECTION PROVISIONS The Company shall not, without first obtaining the approval of each initial Holder of Preferred Stock (but with respect to (c) and (d) and (h) hereof, such approval is necessary only so long as one hundred thousand dollars ($100,000) Face Amount of Preferred Stock remains outstanding) : (a) alter or change the terms of the Preferred Stock; (b) alter or change the terms of any capital stock of the Company so as to affect adversely the Preferred Stock; (c) create or issue any Senior Securities; (d) create or issue any Pari Passu Securities; (e) ---- ----- increase the authorized number of shares of Preferred Stock; (f) redeem, or declare or pay any dividend or distribution on, any Junior Securities, except repurchases of stock held by service providers to the Company upon termination of service, and except redemptions effected with Junior Securities (subject to the limitations contained herein and in the Securities Purchase Agreement); (g) do any act or thing not authorized or contemplated by this Certificate of Designations which would result in any taxation with respect to the Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable provision of the Internal Revenue Code as hereafter from time to time amended (or otherwise suffer to exist any taxation as a result of such section or provision); or (h) sell or otherwise transfer all or -27- substantially all of the assets of the Company (other than in the ordinary course of business). The Company shall not issue additional shares of Preferred Stock except to effect the purchase and sale to the Purchasers (as defined in the Securities Purchase Agreement) in accordance with the Securities Purchase Agreement and as contemplated by the Registration Rights Agreement. XIV. MISCELLANEOUS A. Cancellation of Preferred Stock. If any shares of Preferred Stock are ------------------------------- converted or redeemed pursuant to Article IV, the shares so converted shall be canceled, shall return to the status of authorized but unissued preferred stock of no designated series, and shall not be issuable by the Company as Preferred Stock. B. Lost or Stolen Certificates. Upon receipt by the Company of (i) --------------------------- evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date. However, the Company shall not be obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the Holder contemporaneously requests the Company to convert all of such Preferred Stock. C. Allocation of Cap Amount, Reserved Amount and Total Amount. The ---------------------------------------------------------- initial Cap Amount, initial Reserved Amount and the Total Amount shall be allocated to the Holders in the same proportion as the number of shares of Common Stock to which such each Holder would be entitled if all Preferred Stock held by such Holder were converted and all Warrants held by such Holder were exercised bears to the aggregate number of shares of Common Stock to which all Holders would be entitled if all Preferred Stock held by the Holders were converted and all Warrants held by the Holders were exercised (without giving effect to any limitation on conversion or exercise). Each increase to the Cap Amount or Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Common Stock to which each Holder would be entitled if all Preferred Stock held by such Holder were converted and all Warrants held by such Holder were exercised (in each case of the foregoing, without giving effect to any limitation on conversion or exercise) at the time of the increase in the Cap Amount or Reserved Amount, as the case may be (in each case of the foregoing, without giving effect to any limitation on conversion or exercise). In the event a Holder shall sell or otherwise transfer any of such Holder's shares of Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor's Cap Amount, Reserved Amount and Total Amount. Any portion of the Cap Amount, Reserved Amount or Total Amount which remains allocated to any person or entity which does not hold any Preferred Stock or Warrants (in the case of the Cap Amount and the Reserved Amount) or Preferred Stock or Warrants or Registrable Securities (as defined in the Registration Rights Agreement) (in the case of the Total Amount) shall be allocated to the remaining Holders, holders of Warrants and, in the case of the Total Amount, holders of Registrable Securities pro rata based on (x) the number of shares of Common Stock to which they would be entitled if all Preferred Stock then held by such Holders were converted and all Warrants then held by such holders were exercised (in each case of the foregoing, without giving 28 effect to any limitation on conversion or exercise) and, in the case of the Total Amount, (y) any additional shares of Common Stock constituting Registrable Securities held by such holders. D. Statements of Available Shares. Upon request, the Company shall ------------------------------ deliver to each Holder a written report notifying the Holders of any occurrence which prohibits the Company from issuing Common Stock upon any such conversion. The report shall also specify (i) the total number of shares of Preferred Stock outstanding as of the date of the request, (ii) the total number of shares of Common Stock issued upon all conversions of Preferred Stock through the date of the request, (iii) the total number of shares of Common Stock which are reserved for issuance upon conversion of the Preferred Stock as of the date of the request, and (iv) the total number of shares of Common Stock which may thereafter be issued by the Company upon conversion of the Preferred Stock before the Company would exceed the Cap Amount and Reserved Amount. The Company shall, within five (5) days after delivery to the Company of a written request by any Holder, provide all of the information enumerated in clauses (i) - (v) of this Section XIV.D and, to the extent that any such information constitutes material non-public information, at the request of a Holder, make simultaneous public disclosure thereof. E. Payment of Cash; Defaults. Whenever the Company is required to make ------------------------- any cash payment to a Holder under this Certificate of Designation (as a Conversion Default Payment, Redemption Amount, Override Election Amount or otherwise), such cash payment shall be made to the Holder by the method ( by certified or cashier's check or wire transfer of immediately available funds) elected by such Holder. If such payment is not delivered when due (any such amount not paid when due being a "Default Amount") such Holder shall thereafter -------------- be entitled to interest on the unpaid amount at a per annum rate equal to the lower of eighteen percent (18%) and the highest interest rate permitted by applicable law until such amount is paid in full to the Holder. F. Status as Stockholder. Upon submission of a Notice of Conversion by a --------------------- Holder of Preferred Stock and the occurrence of the Conversion Date with respect thereto, the shares covered thereby shall be deemed converted into shares of Common Stock and the Holder's rights as a Holder of such converted shares of Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Company to comply with the terms of this Certificate of Designation. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of Preferred Stock for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock) the Holder shall regain the rights of a holder of Preferred Stock with respect to such unconverted shares of Preferred Stock and the Company shall, as soon as practicable, return such unconverted shares to the Holder. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section VII.A to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right with respect to conversions in accordance with Section XIV.E, to the extent applicable) for the Company's failure to convert Preferred Stock. -29- G. Remedies, Characterizations, Other Obligations, Breaches and ------------------------------------------------------------ Injunctive Relief. The remedies provided in this Certificate of Designation - ----------------- shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder's right to actual damages for any failure by the Company to comply with the terms of this Certificate of Designation (including, without limitation, damages incurred to effect "cover" of shares of Common Stock anticipated to be received upon a conversion hereunder but not received in accordance with the terms hereof). The Company covenants to each Holder that there shall be no characterization concerning this instrument other than as fully consistent with the express terms hereof. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder hereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. H. Specific Shall Not Limit General; Construction. No specific provision ---------------------------------------------- contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all Purchasers and shall not be construed against any person as the drafter hereof. I. Failure or Indulgence Not Waiver. No failure or delay on the part of -------------------------------- a Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, not shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. RESOLVED FURTHER, that the officers of the Company be and they hereby are, each authorized to execute, verify and file a Certificate of Designation in accordance with Delaware law. IN WITNESS WHEREOF, the undersigned has executed this certificate on December 21, 1998. P-COM, INC. /s/ Michael J. Sophie ------------------------------------------ By: Michael J. Sophie Title: Chief Financial Officer -30- EXHIBIT A --------- NOTICE OF CONVERSION The undersigned hereby irrevocably elects to convert (the "Conversion") the Face ---------- Amount of the Series B Convertible Participating Preferred Stock (the "Preferred Stock") set forth below, plus all accrued and unpaid Premium relating thereto (each defined term used but not defined in this notice shall have the meaning assigned to it in the Designation, Preferences and Rights of Series B Convertible Participating Preferred Stock of P-Com, Inc. (the "Certificate of Designation")), into shares of common stock ("Common Stock") of P-Com, Inc. ------------ (the "Company") according to the conditions of the Certificate of Designation, ------- as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holder for any conversion except as provided herein. The undersigned covenants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of this Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from --- registration under the Act. In the event of partial exercise, please reissue an appropriate certificate for the balance of shares of Preferred Stock which shall not have been converted. Date of Conversion:_______________________________ Applicable Conversion Price:______________________ Face Amount of Preferred Stock:___________________ Number of Shares of Common Stock to be Issued:________________________ Signature:________________________________________ Name:_____________________________________________ Address:__________________________________________ Fax Number (for confirmation): cc: [As a matter of courtesy, holders intend to send a carbon copy to Brobeck, Phleger & Harrison, LLP, but it shall not be a requirement.] EX-3.2(E) 3 CERTIFICATE OF CORRECTION EXHIBIT 3.2E CERTIFICATE OF CORRECTION OF CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK OF P-COM, INC. P-Com, Inc., a corporation organized under and by virtue of the General Corporation law of the State of Delaware, does hereby certify: FIRST: The Certificate of Designations, Preferences and Rights of Series B Convertible Participating Preferred Stock of the corporation was filed in the office of the Secretary of State of Delaware on December 21, 1998. SECOND: The Certificate of Designations as so filed was incorrect in that there was an error in Article III.B as follows: "B. Closing Date" shall have the meaning set forth in the Securities ------------ Purchase Agreement, dated as of December 18, 1998, by and among the Company and the other signatories thereto (the "Securities Purchase Agreement")." ----------------------------- THIRD: Article III.B of the Certificate of Designations in corrected form is as follows: "B. Closing Date" shall have the meaning set forth in the Securities ------------ Purchase Agreement, dated as of December 21, 1998, by and among the Company and the other signatories thereto (the "Securities Purchase Agreement")." ----------------------------- FOURTH: The Certificate of Designations as so filed was incorrect in that there was an error in Article III.F as follows: "F. "Fixed Conversion Price" means: (i) up to and including May 14, ---------------------- 1999 two hundred percent (200%) of the average of the Closing Bid Prices of the common stock, $0.0001 par value per share, of the Company (the "Common ------ Stock") for the fifteen (15) consecutive trading days ending on the day ----- prior to the Closing Date (the "Closing Price"); (ii) beginning on May 15, ------------- 1999 the lesser of the Fixed Conversion Price as defined in (i) of this section and one hundred and five percent (105%) of the average of the Closing Bid Prices of the Common Stock for the fifteen (15) consecutive trading days immediately prior to and ending on May 14, 1999; (iii) if the Company has not obtained Stockholder Approval (as herein defined) by the Approval Date (as defined herein), then on each day thereafter until the Company obtains Stockholder Approval, the lesser of the Fixed Conversion Price in effect on such day and the Average Closing Bid Price (as herein defined) for the period beginning on, and including, such Approval Date through and including such day; (iv) if the Company has not obtained Stockholder Approval (as herein defined) by the Approval Date, then beginning on the date on which the Company obtains Stockholder Approval, the lesser of the Fixed Conversion Price then in effect and the Average Closing Bid Price for the period beginning on, and including, such Approval Date through and including the date on which the Company obtained Stockholder Approval; (v) if the Registration Statement (as such term is defined in the Registration Rights Agreement, dated as of December 18, 1998, by and among the Company and the other signatories thereto (the "Registration Rights Agreement")) required ----------------------------- to be filed by the Company pursuant to Section 2.1 of the Registration Rights Agreement has not been declared effective by the SEC by the one hundred eightieth (180th) day following the Closing Date, then on each day thereafter until such Registration Statement is declared effective, the lesser of the Fixed Conversion Price in effect on any such day and the Average Closing Bid Price for the period beginning on, and including, the 180th day following the Closing Date through and including such day; and (vi) if the Registration Statement required to be filed by the Company pursuant to the Registration Rights Agreement has not been declared effective by the SEC by the 180th day following the Closing Date, beginning on the date on which such Registration Statement is declared effective, the lesser of the Fixed Conversion Price then in effect and the Average Closing Bid Price for the period beginning on, and including, the 180th day following the Closing Date through and including the date on which such Registration Statement is declared effective; in each case subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such period and in each case subject to further adjustment as provided elsewhere herein. For purposes of this Section F, "Average Closing Bid Price" shall mean the average of the ------------------------- five (5) lowest Closing Bid Prices during the applicable period (including the last day of the period); provided, however, that (x) in clauses (iii) and (iv), if fewer than five (5) trading days have elapsed between the Approval Date and the last day of the applicable period, Average Closing Bid Price shall mean the average of the Closing Bid Prices on each trading day during the period from and including the Approval Date through and including the last day of the applicable period, and; (y) in clauses (v) and (vi), if fewer than five (5) trading days have elapsed between the 180th day following the Closing Date and the last day of the applicable period, Average Closing Bid Price shall mean the average of the Closing Bid Prices on each trading day during the period from and including the 180th day following the Closing Date through and including the last day of the applicable period." FIFTH: Article III.F of the Certificate of Designations in corrected form is as follows: "F. "Fixed Conversion Price" means: (i) up to and including May 14, ---------------------- 1999 two hundred percent (200%) of the average of the Closing Bid Prices of the common stock, $0.0001 par value per share, of the Company (the "Common ------ Stock") for the fifteen ----- (15) consecutive trading days ending on the day prior to the Closing Date (the "Closing Price"); (ii) beginning on May 15, 1999 the lesser of the ------------- Fixed Conversion Price as defined in (i) of this section and one hundred and five percent (105%) of the average of the Closing Bid Prices of the Common Stock for the fifteen (15) consecutive trading days immediately prior to and ending on May 14, 1999; (iii) if the Company has not obtained Stockholder Approval (as herein defined) by the Approval Date (as defined herein), then on each day thereafter until the Company obtains Stockholder Approval, the lesser of the Fixed Conversion Price in effect on such day and the Average Closing Bid Price (as herein defined) for the period beginning on, and including, such Approval Date through and including such day; (iv) if the Company has not obtained Stockholder Approval (as herein defined) by the Approval Date, then beginning on the date on which the Company obtains Stockholder Approval, the lesser of the Fixed Conversion Price then in effect and the Average Closing Bid Price for the period beginning on, and including, such Approval Date through and including the date on which the Company obtained Stockholder Approval; (v) if the Registration Statement (as such term is defined in the Registration Rights Agreement, dated as of December 21, 1998, by and among the Company and the other signatories thereto (the "Registration Rights Agreement")) required ----------------------------- to be filed by the Company pursuant to Section 2.1 of the Registration Rights Agreement has not been declared effective by the SEC by the one hundred eightieth (180th) day following the Closing Date, then on each day thereafter until such Registration Statement is declared effective, the lesser of the Fixed Conversion Price in effect on any such day and the Average Closing Bid Price for the period beginning on, and including, the 180th day following the Closing Date through and including such day; and (vi) if the Registration Statement required to be filed by the Company pursuant to the Registration Rights Agreement has not been declared effective by the SEC by the 180th day following the Closing Date, beginning on the date on which such Registration Statement is declared effective, the lesser of the Fixed Conversion Price then in effect and the Average Closing Bid Price for the period beginning on, and including, the 180th day following the Closing Date through and including the date on which such Registration Statement is declared effective; in each case subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such period and in each case subject to further adjustment as provided elsewhere herein. For purposes of this Section F, "Average Closing Bid Price" shall mean the average of the ------------------------- five (5) lowest Closing Bid Prices during the applicable period (including the last day of the period); provided, however, that (x) in clauses (iii) and (iv), if fewer than five (5) trading days have elapsed between the Approval Date and the last day of the applicable period, Average Closing Bid Price shall mean the average of the Closing Bid Prices on each trading day during the period from and including the Approval Date through and including the last day of the applicable period, and; (y) in clauses (v) and (vi), if fewer than five (5) trading days have elapsed between the 180th day following the Closing Date and the last day of the applicable period, Average Closing Bid Price shall mean the average of the Closing Bid Prices on each trading day during the period from and including the 180th day following the Closing Date through and including the last day of the applicable period." SIXTH: The Certificate of Designations as so filed was incorrect in that there was an error in Article IV.A as follows: "A. Conversion at the Option of the Holder. Subject to the -------------------------------------- limitations on conversions contained in Section IV.G., each Holder may, at any time and from time to time convert (an "Optional Conversion") any or ------------------- all of its shares of Preferred Stock into a number of fully paid and non- assessable shares of Common Stock determined, for each share of Preferred Stock so to be converted, in accordance with the following formula: (Premium (accrued but unpaid) + $1000) ----------------------------------- Conversion Price" SEVENTH: Article IV.A of the Certificate of Designations in corrected form is as follows: "A. Conversion at the Option of the Holder. Subject to the -------------------------------------- limitations on conversions contained in Section IV.G., each Holder may, at any time and from time to time convert (an "Optional Conversion") any or ------------------- all of its shares of Preferred Stock into a number of fully paid and non- assessable shares of Common Stock determined, for each share of Preferred Stock so to be converted, in accordance with the following formula: (Premium (accrued but unpaid) + $1000) ----------------------------------- Conversion Price Notwithstanding the foregoing, the Premium may be paid in cash, and if so paid in cash, shall be due at the expiration of the Delivery Period." EIGHTH: The Certificate of Designations as so filed was incorrect in that there was an error in Article XI.C as follows: "C. Major Transactions. Except in the case of a Common Stock Major ------------------ Transaction (as defined below), if the Company shall consolidate or merge with any other corporation or entity (other than a merger in which the Company is the surviving or continuing entity and its capital stock is unchanged and unissued in such transaction (except for Common Stock constituting less than twenty percent (20%) of the Company's Common Stock then outstanding)) or there shall occur any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property or any reclassification or change of the outstanding shares of Common Stock (each of the foregoing being a "Major ----- Transaction"), then each Holder shall thereafter be entitled to (a) in the ----------- event that the Common Stock remains outstanding or holders of Common Stock receive any common stock or substantially similar equity interest, in each of the foregoing cases which is publicly traded, retain its Preferred Stock and such Preferred Stock shall continue to apply to such Common Stock or shall apply, as nearly as practicable, to such other common stock or equity interest, as the case may be, or (b) regardless of whether (a) applies, receive consideration, in exchange for each share of Preferred Stock held by it, equal to the greater of, as determined in the sole discretion of such Holder: (i) the number of shares of stock or securities or property of the Company, or of the entity resulting from such Major Transaction (the "Major Transaction ----------------- Consideration"), to which a holder of the number of shares of Common Stock ------------- delivered upon conversion of such shares of Preferred Stock would have been entitled upon such Major Transaction had the Holder exercised its right of conversion (without regard to any limitations on conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) on the trading date immediately preceding the public announcement of the transaction resulting in such Major Transaction and had such Common Stock been issued and outstanding and had such Holder been the holder of record of such Common Stock at the time of the consummation of such Major Transaction, and (ii) one hundred twenty five percent (125%) of the Face Amount plus accrued and unpaid premiums of such shares of Preferred Stock in cash; and the Company shall make lawful provision therefor as a part of such Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under the Registration Rights Agreement to assume all of the Company's obligations under the Registration Rights Agreement. In the event that the Company shall consolidate or merge with any corporation in a transaction in which common stock of the surviving corporation or the parent thereof (the "Exchange Securities") is issued to the holders of Common Stock in such transaction in exchange for all such Common Stock, and (a) the Exchange Securities are publicly traded, (b) the average daily trading volume of the Exchange Securities reported by Bloomberg during the ninety (90) day period ending on the date on which such transaction is publicly disclosed is greater than two million dollars ($2,000,000) per day, (c) the historical one hundred (100) day volatility of the Exchange Securities reported by Bloomberg during the period ending on the date on which such transaction is publicly disclosed is greater than fifty percent (50%) and (d) the last sale price of the Exchange Securities on the date immediately before the date on which such transaction is publicly disclosed is not less than sixty five percent (65%) of the last sale price of the Exchange Securities on any day during the twenty (20) trading day period ending on such date (in each case as reported by Bloomberg) (a "Common Stock Major Transaction"), then each ------------------------------ Holder shall following consummation of such transaction have the right to receive solely, in exchange for each share of Preferred Stock held by it, consideration equal to the number of shares of stock or securities or property issued or paid in such Common Stock Major Transaction to which a holder of the number of shares of Common Stock which would have been delivered upon conversion of a share of Preferred Stock would have been entitled upon such Common Stock Major Transaction had the Holder of such share of Preferred Stock exercised its right of conversion (without regard to any limitations on conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) with respect to such share of Preferred Stock on the trading date immediately preceding the public announcement of the transaction resulting in such Common Stock Major Transaction and had such Common Stock been issued and outstanding and had such Holder been the holder of record of such Common Stock at the time of the consummation of such Common Stock Major Transaction; and the Company shall make lawful provision therefor as a part of such Common Stock Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under the Registration Rights Agreement to assume all of the Company's obligations under the Registration Rights Agreement. No sooner than ten (10) business days nor later than five (5) business days prior to the consummation of the Major Transaction or Common Stock Major Transaction, as the case may be, (each, a "Transaction") but not prior to ----------- the public announcement of such Transaction, the Company shall deliver written notice ("Notice of Transaction") to each Holder, which Notice of --------------------- Transaction shall be deemed to have been delivered one (1) business day after the Company's sending such notice by telecopy (provided that the Company sends a confirming copy of such notice on the same day by overnight courier) of such Notice of Transaction. Such Notice of Transaction shall indicate the amount and type of the Transaction consideration which such Holder would receive under this Section. If the Major Transaction Consideration does not consist entirely of United States currency, such Holder may elect to receive United States currency in an amount equal to the value of the Major Transaction Consideration in lieu of the Major Transaction Consideration by delivering notice of such election to the Company within five (5) business days of the Holder's receipt of the Notice of Transaction." NINTH: Article XI.C of the Certificate of Designations in corrected form is as follows: "C. Major Transactions. Except in the case of a Common Stock Major ------------------ Transaction (as defined below), if the Company shall consolidate or merge with any other corporation or entity (other than a merger in which the Company is the surviving or continuing entity and its capital stock is unchanged and unissued in such transaction (except for Common Stock constituting less than twenty percent (20%) of the Company's Common Stock then outstanding)) or there shall occur any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property or any reclassification or change of the outstanding shares of Common Stock (each of the foregoing being a "Major Transaction"), then each Holder shall thereafter be entitled to (a) in the event that the Common Stock remains outstanding or holders of Common Stock receive any common stock or substantially similar equity interest, in each of the foregoing cases which is publicly traded, retain its Preferred Stock and such Preferred Stock shall continue to apply to such Common Stock or shall apply, as nearly as practicable, to such other common stock or equity interest, as the case may be, or (b) regardless of whether (a) applies, receive consideration, in exchange for each share of Preferred Stock held by it, equal to the greater of, as determined in the sole discretion of such Holder: (i) the number of shares of stock or securities or property of the Company, or of the entity resulting from such Major Transaction (the "Major Transaction Consideration"), to which a holder of the number of -------------------------------- shares of Common Stock delivered upon conversion of such shares of Preferred Stock would have been entitled upon such Major Transaction had the Holder exercised its right of conversion (without regard to any limitations on conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) on the trading date immediately preceding the public announcement of the transaction resulting in such Major Transaction and had such Common Stock been issued and outstanding and had such Holder been the holder of record of such Common Stock at the time of the consummation of such Major Transaction, and (ii) one hundred twenty five percent (125%) of the Face Amount plus accrued and unpaid premiums of such shares of Preferred Stock in cash; and the Company shall make lawful provision for the foregoing as a part of such Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under the Registration Rights Agreement to assume all of the Company's obligations under the Registration Rights Agreement. In the event that the Company shall consolidate or merge with any corporation in a transaction in which common stock of the surviving corporation or the parent thereof (the "Exchange Securities") is issued to the holders of Common Stock in such transaction in exchange for all such Common Stock, and (a) the Exchange Securities are publicly traded, (b) the average daily trading volume of the Exchange Securities reported by Bloomberg during the ninety (90) day period ending on the date on which such transaction is publicly disclosed is greater than two million dollars ($2,000,000) per day, (c) the historical one hundred (100) day volatility of the Exchange Securities reported by Bloomberg during the period ending on the date on which such transaction is publicly disclosed is greater than fifty percent (50%) and (d) the last sale price of the Exchange Securities on the date immediately before the date on which such transaction is publicly disclosed is not less than sixty five percent (65%) of the last sale price of the Exchange Securities on any day during the twenty (20) trading day period ending on such date (in each case as reported by Bloomberg) (a "Common Stock Major Transaction"), then each Holder shall following consummation of such transaction have the right to receive solely, in exchange for each share of Preferred Stock held by it, consideration equal to the number of shares of stock or securities or property issued or paid in such Common Stock Major Transaction to which a holder of the number of shares of Common Stock which would have been delivered upon conversion of a share of Preferred Stock would have been entitled upon such Common Stock Major Transaction had the Holder of such share of Preferred Stock exercised its right of conversion (without regard to any limitations on conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) with respect to such share of Preferred Stock on the trading date immediately preceding the public announcement of the transaction resulting in such Common Stock Major Transaction and had such Common Stock been issued and outstanding and had such Holder been the holder of record of such Common Stock at the time of the consummation of such Common Stock Major Transaction; and the Company shall make lawful provision for the foregoing as a part of such Common Stock Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under the Registration Rights Agreement to assume all of the Company's obligations under the Registration Rights Agreement. No sooner than ten (10) business days nor later than five (5) business days prior to the consummation of the Major Transaction or Common Stock Major Transaction, as the case may be, (each, a "Transaction") but not prior to the public announcement of such Transaction, the Company shall deliver written notice ("Notice of --------- Transaction") to each Holder, which Notice of Transaction shall be deemed ----------- to have been delivered one (1) business day after the Company's sending such notice by telecopy (provided that the Company sends a confirming copy of such notice on the same day by overnight courier) of such Notice of Transaction. Such Notice of Transaction shall indicate the amount and type of the Transaction consideration which such Holder would receive under this Section. If the Major Transaction Consideration does not consist entirely of United States currency, such Holder may elect to receive United States currency in an amount equal to the value of the Major Transaction Consideration in lieu of the Major Transaction Consideration by delivering notice of such election to the Company within five (5) business days of the Holder's receipt of the Notice of Transaction." IN WITNESS WHEREOF, P-Com, Inc. has caused this Certificate to be executed by the Chief Financial Officer of P-Com, Inc. this 23rd day of December, 1998. /s/ Michael J. Sophie ------------------------------------ Michael J. Sophie Chief Financial Officer of P-Com, Inc. EX-10.38 4 SECURITIES PURCHASE AGREEMENT EXHIBIT 10.38 ------------- SECURITIES PURCHASE AGREEMENT ----------------------------- THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of --------- December 21, 1998, by and among P-Com, Inc., a Delaware corporation (the "Company"), with headquarters located at 3175 South Winchester Boulevard, - -------- Campbell, California 95008 and the purchasers (each a "Purchaser" and together --------- the "Purchasers") set forth on the execution pages hereof, with regard to the ---------- following: RECITALS -------- A. The Company and Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, --- as amended (the "Securities Act"). -------------- B. Purchasers desire to purchase, upon the terms and conditions stated in this Agreement (and, as applicable, the Registration Rights Agreement (as defined below)), (i) Series B Convertible Participating Preferred Stock of the Company having the rights set forth in the Certificate of Designations, Preferences and Rights (the "Certificate of Designation") attached hereto as -------------------------- Exhibit A (the "Preferred Stock"), which shall be convertible into shares of the - --------- --------------- Company's Common Stock, par value $0.0001 per share (the "Common Stock") and ------------ (ii) a Warrant in the form of Exhibit B hereto (a "Warrant" and, when taken --------- ------- together with all of the warrants issued hereunder, the "Warrants") entitling -------- the holder thereof to purchase the number of shares (the "Warrant Shares") of -------------- Common Stock as set forth below. The Preferred Stock and the Warrants are sometimes collectively referred to herein as the "Convertible Securities." The shares of Common Stock issuable upon conversion of or otherwise pursuant to the Preferred Stock are referred to herein as the "Conversion Shares." The ----------------- Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares are collectively referred to herein as the "Securities." ---------- C. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement in the form attached hereto as Exhibit C (the "Registration Rights Agreement"), --------- ----------------------------- pursuant to which the Company has agreed to provide certain registration rights under the Securities Act, the rules and regulations promulgated thereunder and applicable state securities laws. The Certificate of Designation, the Warrants and the Registration Rights Agreement, together with any other agreements, documents and instruments to be delivered in connection with the transactions contemplated hereby, are collectively referred to as the "Ancillary Documents". ------------------- AGREEMENTS ---------- NOW, THEREFORE, in consideration of their respective promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Purchaser hereby agree as follows: ARTICLE I PURCHASE AND SALE OF SECURITIES 1.1 Purchase of Preferred Stock and Warrants. The purchase price (the ---------------------------------------- "Purchase Price") to be paid by each Purchaser for the Preferred Stock and -------------- Warrant being purchased by such Purchaser shall be equal to $1,000 times the ----- number of shares of Preferred Stock so purchased. Each Purchaser shall purchase the number of shares of Preferred Stock set forth on the signature page executed by such Purchaser. On the date of the Closing (as defined herein), subject to the terms and the satisfaction (or waiver) of the conditions set forth in Articles VI and VII, the Company shall issue and sell to each Purchaser, and each Purchaser shall purchase from the Company (i) the number of shares of Preferred Stock set forth below such Purchaser's name on the signature pages hereof and (ii) a Warrant entitling the holder thereof to purchase the number of Warrant Shares as set forth in such Warrant. The aggregate purchase price for the Securities purchased at the Closing shall be fifteen million dollars ($15,000,000). 1.2 Form of Payment. At the Closing, each Purchaser shall pay the --------------- aggregate Purchase Price for the Preferred Stock and Warrant being purchased by such Purchaser by wire transfer to the Company, in accordance with the Company's written wiring instructions, against delivery of duly executed certificates for the same, and the Company shall deliver such Preferred Stock and certificates representing the Warrants against delivery of such aggregate Purchase Price. The obligations in this Agreement of each Purchaser shall be separate from the obligations of each other Purchaser and shall relate solely to the number of shares to be purchased by such Purchaser. The obligations of the Company with respect to each Purchaser shall be separate from the obligations of each other Purchaser and shall not be conditioned as to any Purchaser upon the performance of the obligations of any other Purchaser. 1.3 Closing Date. Subject to the satisfaction (or waiver) of the ------------ conditions set forth in Articles VI and VII below, the date and time of the issuance, sale and purchase of the Securities pursuant to this Agreement shall be as soon as practicable after execution of this Agreement, but in any event within two (2) business days of the execution of this Agreement (the "Closing"). The Closing shall occur at 11:00 a.m. Chicago time, at the offices of Altheimer & Gray, 10 S. Wacker Drive, Chicago, IL 60606. The date of the Closing is hereinafter referred to as the "Closing Date." 2 ARTICLE II PURCHASER'S REPRESENTATIONS AND WARRANTIES Each Purchaser represents and warrants, solely with respect to itself and its purchase hereunder and not with respect to any other Purchaser or the purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to make or have any liability for any representation or warranty made by any other Purchaser), to the Company as set forth in this Article II. No Purchaser makes any other representations or warranties, express or implied, to the Company in connection with the transactions contemplated hereby and any and all prior representations and warranties, if any, which may have been made by a Purchaser to the Company in connection with the transactions contemplated hereby shall be deemed to have been merged in this Agreement and any such prior representations and warranties, if any, shall not survive the execution and delivery of this Agreement. 2.1 Purchase for Own Account. Purchaser is purchasing the Convertible ------------------------ Securities for investment and for Purchaser's own account and not with a view toward or in connection with the public sale or distribution thereof. Purchaser will not resell the Convertible Securities or any securities which may be issued upon conversion thereof except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Purchaser understands that Purchaser must bear the economic risk of this investment until such time as the Convertible Securities and/or the Conversion Shares are registered for resale pursuant to the Securities Act or an exemption from such registration is available (and such securities are sold), and that the Company has no present intention of registering the Convertible Securities or the Conversion Shares other than as contemplated by the Registration Rights Agreement. By making the representations in this Section 2.1, Purchaser does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of any of the Securities at any time pursuant to a registration statement or an exemption from registration under the Securities Act. 2.2 Accredited Investor Status. Purchaser is an "accredited investor" as -------------------------- that term is defined in Rule 501(a) of Regulation D. 2.3 Reliance on Exemptions. Purchaser understands that the Convertible ---------------------- Securities are being offered and sold to Purchaser in reliance upon specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of Purchaser to acquire the Convertible Securities. 2.4 Information. Purchaser and its counsel have been furnished or given ----------- access to all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Convertible Securities which have been specifically requested by Purchaser. Purchaser has been afforded the opportunity to ask questions of the Company and has received what Purchaser believes to be complete and satisfactory answers to any such inquiries. Neither such 3 inquiries nor any other due diligence investigation conducted by Purchaser or any of its representatives shall modify, amend or affect Purchaser's right to rely on the Company's representations and warranties contained in Article III. Purchaser understands that Purchaser's investment in the Securities involves a high degree of risk. Purchaser acknowledges that the Company's filings available via the SEC's EDGAR document retrieval system as of November 20, 1998 shall be deemed available to the Purchasers. 2.5 Governmental Review. Purchaser understands that no United States ------------------- federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities or an investment therein. 2.6 Transfer or Resale. Purchaser understands that (i) except as provided ------------------ in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be transferred unless subsequently registered thereunder or an exemption from such registration is available (which exemption the Company expressly agrees may be established as contemplated in clauses (b) and (c) of Section 5.1 hereof); (ii) any sale of such Securities made in reliance on Rule 144 under the Securities Act (or a successor rule) ("Rule 144") may be made only in accordance -------- with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities without registration under the Securities Act may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to this Agreement or the Registration Rights Agreement). The Company may issue stop transfer instructions in the event that a Purchaser does not comply with the provisions in this Section 2.6. 2.7 Legends. Purchaser understands that, subject to Article V hereof, the ------- certificates for the Convertible Securities, and until such time as the Conversion Shares or Warrant Shares (as the case may be) have been registered under the Securities Act as contemplated by the Registration Rights Agreement or may be sold by Purchaser pursuant to Rule 144 or otherwise without registration, the certificates for the Conversion Shares or Warrant Shares (as the case may be) will bear a restrictive legend (the "Legend") in the following form: ------ THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. 4 2.8 Authorization; Enforcement. This Agreement and the Registration -------------------------- Rights Agreement have been duly and validly authorized, executed and delivered on behalf of Purchaser and are valid and binding agreements of Purchaser enforceable against Purchaser in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally. 2.9 Residency. Purchaser is a resident of the jurisdiction set forth --------- under Purchaser's name on the signature page hereto executed by Purchaser. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to each Purchaser as of the date hereof as set forth in this Article III. The Company makes no other representations or warranties, express or implied, to any Purchaser in connection with the transactions contemplated hereby and any and all prior representations and warranties, if any, which may have been made by the Company to any Purchaser in connection with the transactions contemplated hereby shall be deemed to have been merged in this Agreement and any such prior representations and warranties, if any, shall not survive the execution and delivery of this Agreement (provided the foregoing shall not limit the scope of the Company's representation and warranty in Section 3.9 hereof or any officer certification of the Company delivered at the Closing). 3.1 Organization and Qualification. The Company and each of its ------------------------------ subsidiaries is a corporation duly organized, validity existing and in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power and authority to own its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction where the failure to so qualify would have a Material Adverse Effect. "Material Adverse Effect" means any material adverse ----------------------- effect on either (i) the business, operations, properties, financial condition, operating results or publicly-announced prospects (which prospects have not been publicly modified prior to November 20, 1998) of the Company and its subsidiaries, taken as a whole on a consolidated basis or (ii) the transactions contemplated hereby or the validity or enforceability of, or the authority or ability of the Company to perform its obligations under this Agreement or any Ancillary Document. 3.2 Authorization; Enforcement. (a) The Company has the requisite -------------------------- corporate power and authority to enter into and perform its obligations under this Agreement, the Warrants and the Registration Rights Agreement, and to issue and sell and perform its obligations with respect to, the Convertible Securities in accordance with the terms hereof and to issue the Conversion Shares in accordance with the terms and conditions of the Certificate of Designation and the Warrant Shares in accordance with the terms and conditions of the Warrant; (b) the execution, delivery and performance of this Agreement and the Registration Rights Agreement by the Company, the 5 execution and filing of the Certificate of Designations and the execution and delivery of the Warrant, and the consummation by it of the transactions contemplated hereby and thereby (including without limitation the issuance of the Convertible Securities and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) have been duly authorized by all necessary corporate action and, except as set forth on Schedule 3.2 hereof, no ------------ further consent or authorization of the Company, its board of directors, or its stockholders or any other person, body or agency is required with respect to any of the transactions contemplated hereby or thereby (whether under rules of the Nasdaq National Market System ("Nasdaq"), the National Association of -------- Securities Dealers or otherwise); (c) this Agreement, the Registration Rights Agreement and the Convertible Securities have been (or will be when executed and delivered) duly executed and delivered by the Company; and (d) this Agreement, the Registration Rights Agreement and the Convertible Securities constitute (or will, when issued, constitute) legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally. 3.3 Capitalization. The capitalization of the Company, including the -------------- authorized capital stock, the number of shares issued and outstanding, the number of shares reserved for issuance pursuant to the Company's stock option and stock issuance plans, the number of shares reserved for issuance pursuant to securities (other than the Convertible Securities and those shares reserved under the Company's stock option and stock issuance plans) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares to be initially reserved for issuance upon conversion of the Convertible Securities and the exercise of the Warrants is set forth on Schedule -------- 3.3. All of such outstanding shares of capital stock have been, or upon - --- issuance will be, validly issued, fully paid and non-assessable. No shares of capital stock of the Company (including the Preferred Stock, the Conversion Shares and the Warrant Shares) are subject to preemptive rights or to the Company's knowledge after reasonable investigation any other similar rights of the stockholders of the Company or any liens or encumbrances (other than as caused by the Company's stockholders or the Purchasers). There are no antidilution or any similar provisions triggered (either alone or together with other action and either currently or after passage of time) by this Agreement or the issuance of the Convertible Securities or any securities which may be issued upon conversion or exercise thereof in accordance with the terms thereof. Except as disclosed in Schedule 3.3, (i) there are no outstanding options, ------------ warrants, scrip, legally binding rights to subscribe for, legally binding calls or legally binding commitments of any character whatsoever relating to, or securities or legally binding rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries (or any securities exercisable or exchangeable therefor or convertible thereto), or contracts, legally binding commitments, legally binding understandings or legally binding arrangements by which the Company or any of its subsidiaries is or may become (as a result of any of the foregoing in existence as of the date hereof) legally bound to issue additional shares of capital stock of the Company or any of its subsidiaries (or any such securities), and (ii) there are no legally binding agreements or legally binding arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except the Registration Rights Agreement). The Company has furnished to Purchaser true and 6 correct copies of the Company's Certificate of Incorporation as currently in effect ("Certificate of Incorporation"), and the Company's By-laws as currently ---------------------------- in effect (the "By-laws"). The Company has set forth on Schedule 3.3 all ------- ------------ instruments and agreements (other than the Certificate of Incorporation and By- laws) governing securities convertible into or exercisable or exchangeable for Common Stock of the Company (or any such securities) (and the Company shall provide to Purchaser copies thereof upon the request of Purchaser). The Company shall provide Purchaser with a written update of this representation signed by the Company's Chief Executive Officer or Chief Financial Officer on behalf of the Company as of the date of the Closing. 3.4 Issuance of Shares. The Conversion Shares and Warrant Shares are duly ------------------ authorized and reserved for issuance, and, upon conversion or exercise (as the case may be) of the Convertible Securities in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances, except as created by the Purchasers, and will not be subject to preemptive rights, except as created by the Purchasers, or to the Company's knowledge after reasonable investigation other similar rights of stockholders of the Company. The Convertible Securities are duly authorized and reserved for issuance, and are validly issued, fully paid and non-assessable, and free from all taxes, liens claims and encumbrances (except as granted by the Purchasers) and are not and will not be subject to preemptive rights (except as granted by the Purchasers) or to the Company's knowledge after reasonable investigation other similar rights of stockholders of the Company (other than as created by the Purchasers). The Certificate of Designations has been duly filed (or will be) as of the Closing Date with the Secretary of State of the State of Delaware, and the Preferred Stock is (or shall be upon such filing) entitled to all of the rights, preferences and privileges set forth therein. The Board of Directors of the Company (the "Board") has unanimously approved the issuance of shares of Common Stock upon conversion of shares of Preferred Stock and upon the exercise of the Warrants pursuant to the terms hereof and thereof, including the circumstance where such conversion would, in the aggregate, require issuance in excess of twenty percent (20%) of the outstanding shares of Common Stock (the "Rule 4460(i) Authorization") and has unanimously recommended to the - --------------------------- stockholders of the Company the approval of the Rule 4460(i) Authorization. Accordingly, no further corporate authorization or approval (other than the Stockholder Approval (as defined in Section 4.13)) is required under the rules of Nasdaq with respect to the transaction contemplated by this Agreement, including, without limitation, the issuance of the Conversion Shares and the Warrant Shares and the inclusion thereof on Nasdaq. 3.5 No Conflicts. The execution, delivery and performance of this ------------ Agreement and the Registration Rights Agreement by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance, as applicable, of the Convertible Securities, Conversion Shares and the Warrant Shares) does not and will not (a) result in a violation of the Certificate of Incorporation or By-laws, (b) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party (except for such conflicts, defaults, terminations, amendments, accelerations, and cancellations as would not, individually or in the aggregate, have a Material 7 Adverse Effect), or (c) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, U.S. federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries, or by which any property or asset of the Company or any of its subsidiaries, is bound or affected. Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation, by-laws or other organizational documents, and neither the Company nor any of its subsidiaries is in default (and no event has occurred which, with notice or lapse of time or both, would put the Company or any of its subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for possible defaults or rights as would not, individually or in the aggregate, have a Material Adverse Effect. The business of the Company and its subsidiaries is not being conducted, in violation of any law, ordinance, rule, regulation, order, judgment or decree of any governmental entity, court or arbitration tribunal except for possible violations the sanctions for which either singly or in the aggregate would not have a Material Adverse Effect. Except as set forth on Schedule 3.5, the ------------ Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement or the Registration Rights Agreement or the Convertible Securities or to perform its obligations in accordance with the terms hereof or thereof. The Company is not in violation of the listing requirements of Nasdaq and does not reasonably anticipate that the Common Stock will be de-listed by Nasdaq for the foreseeable future. 3.6 Registration and SEC Documents. The Common Stock is registered under ------------------------------ Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and has been so registered since March 2, 1995. Except as disclosed in Schedule 3.6, since March 2, 1995, the Company has timely filed all reports, - ------------ schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed after March 2, 1995 and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being referred to herein as the "SEC Documents"). The ------------- Company has delivered or made available to each Purchaser true and complete copies of the SEC Documents, except for exhibits, schedules and incorporated documents (the SEC Documents filed prior to November 20, 1998, collectively, the "Filed SEC Documents"). As of their respective dates, the SEC Documents complied ------------------- in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is currently required to be updated or amended under applicable law and has not been updated or amended in a subsequent filing with the SEC by November 20, 1998. The financial statements of the Company included in the SEC Documents have been prepared in accordance with U.S. generally accepted accounting principles, consistently applied, and the rules and regulations of the SEC during the periods involved (except (i) as may be otherwise indicated in such financial 8 statements or the notes thereto, or (ii) in the case of unaudited interim financial statements, to the extent they do not include footnotes or are condensed or summary statements) and present accurately and completely the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, immaterial year-end audit adjustments). Except as clearly set forth as an actual or potential liability of the Company in the Filed SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred subsequent to the date of such financial statements in the ordinary course of business consistent with past practice and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, in each case of clause (i) and (ii) next above which, individually or in the aggregate, are not material to the financial condition, business, operations, properties, operating results or publicly- announced prospects (which prospects have not been publicly modified prior to November 20, 1998) of the Company and its subsidiaries taken on a whole. Except as otherwise permitted by the rules and regulations of the SEC, the Filed SEC Documents contain a complete and accurate list or description of all material undischarged written or oral contracts, agreements, leases or other instruments to which the Company or any subsidiary is a party or by which the Company or any subsidiary is bound or to which any of the properties or assets of the Company or any subsidiary is subject (each a "Contract"). None of the Company, its -------- subsidiaries or, to the knowledge of the Company, any of the other parties thereto, is in breach or violation (or breach or violation alleged in writing) of any Contract, which breach or violation (or breach or violation alleged in writing) would have a Material Adverse Effect. Except as clearly set forth as such in the Filed SEC Documents, no event, occurrence or condition exists which, with the lapse of time, the giving of notice, or both, or the happening of any further event or condition, would become a breach or default by the Company or its subsidiaries under any Contract which breach or default would have a Material Adverse Effect. 3.7 Absence of Certain Changes. Since December 31, 1997, there has been -------------------------- no material adverse change and no material adverse development in the business, properties, operations, financial condition or results of operations or publicly-announced prospects (which prospects have not been publicly modified prior to November 20, 1998) of the Company, except as disclosed in Schedule 3.7 ------------ or as clearly disclosed as such in the Filed SEC Documents filed with the SEC since December 31, 1997. 3.8 Absence of Litigation. Except as disclosed in Schedule 3.8, there is --------------------- ------------ no action, suit, proceeding, inquiry or investigation before or by any court, public board, governmental agency or authority, or self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against the Company, any of its subsidiaries, or any of their respective directors or officers in their capacities as such, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect. To the knowledge of the Company, there are no facts which, if known by a potential claimant or governmental agency or authority, would reasonably be expected to have a Material Adverse Effect. 9 3.9 Disclosure. No information (written or oral) relating to or concerning ---------- the Company and set forth in this Agreement or provided to Purchaser in connection with the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No material adverse fact (within the meaning of the federal securities laws of the United States) exists with respect to the Company or any of its subsidiaries which has not been publicly disclosed. The Company has not provided any Purchaser with any material non-public information. In making the foregoing representation and warranty, it is understood and agreed to that the Company has not provided any Purchaser with any projections prepared by or on behalf of the Company or any assurances concerning future stock prices. 3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The --------------------------------------------------------------- Company acknowledges and agrees that Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, that this Agreement and the transaction contemplated hereby, and the relationship between each Purchaser and the Company, are "arms-length", and that any statement made by Purchaser, or any of its representatives or agents, in connection with this Agreement or the transactions contemplated hereby is not advice or a recommendation, is merely incidental to Purchaser's purchase of the Securities and has not been relied upon in any way by the Company, its officers, directors or other representatives. The Company further represents to Purchaser that the Company's decision to enter into this Agreement and the transactions contemplated hereby has been based solely on an independent evaluation by the Company and its representatives. 3.11 Current Public Information. The Company is currently eligible to --------------------------- register the resale of the Conversion Shares for the account of the Purchasers on a registration statement on Form S-3 under the Securities Act. 3.12 No General Solicitation. Neither the Company, nor to the Company's ----------------------- knowledge after reasonable investigation any person acting on behalf of the Company, has conducted any "general solicitation," as described in Rule 502(c) under Regulation D, with respect to any of the Securities being offered hereby. 3.13 No Integrated Offering. Neither the Company, nor to the Company's ---------------------- knowledge after reasonable investigation any of its affiliates, nor to the Company's knowledge after reasonable investigation any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would prevent the parties hereto from consummating the transactions contemplated hereby pursuant to an exemption from registration under the Securities Act pursuant to the provisions of Regulation D. The transactions contemplated hereby are exempt from the registration requirements of the Securities Act, assuming the accuracy of the representations and warranties herein contained of each Purchaser to the extent relevant for such determination. 10 3.14 No Brokers. The Company has taken no action which would give rise to ---------- any claim by any person for brokerage commissions, finder's fees or similar payments by Purchaser relating to this Agreement or the transactions contemplated hereby, except for dealings with PaineWebber Incorporated (the fees of which shall be paid in full by the Company). 3.15 Acknowledgment of Dilution. The number of Conversion Shares issuable -------------------------- upon conversion of the Convertible Securities may increase substantially in certain circumstances, including the circumstance wherein the trading price of the Common Stock declines. The Company's executive officers and directors understand the nature of the securities being issued and sold hereunder and recognize that they have a potential dilutive effect. The board of directors of the Company has unanimously concluded in its good faith business judgment that such issuance is in the best interests of the Company. The Company acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Stock and the Warrant Shares upon exercise of the Warrants is binding upon it and enforceable regardless of the dilution that such issuance may have on the ownership interests of other stockholders. 3.16 Intellectual Property. Each of the Company and its subsidiaries owns --------------------- or possesses adequate and enforceable rights to use all material patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar material rights and proprietary knowledge (collectively, "Intangibles") used or necessary for the ----------- conduct of its business as now being conducted and as previously described in the Company's Annual Report on Form 10-K for its most recently ended fiscal year. Except as clearly specified in the Filed SEC Documents, to the Company's knowledge after reasonable investigation, neither the Company nor any subsidiary of the Company infringes on or is in conflict with any right of any other person with respect to any Intangibles nor is there any claim of infringement made by a third party against or involving the Company or any of its subsidiaries, which infringement, conflict or claim, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. 3.17 Foreign Corrupt Practices. To the Company's knowledge after ------------------------- reasonable investigation, neither the Company, nor any of its subsidiaries, nor to the Company's knowledge after reasonable investigation, any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or, to the Company's knowledge after reasonable investigation, is currently in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. Without limiting the generality of the foregoing, to the Company's knowledge after reasonable investigation, the Company and its subsidiaries have not directly or indirectly made or agreed to make (whether or not said payment is lawful) any payment to obtain, or with respect to, sales other than 11 usual and regular compensation to its or their employees and sales representatives with respect to such sales. 3.18 Inapplicability of Rights Agreement. The Company and the Board have ----------------------------------- heretofore taken all necessary action and the Rights Agreement (as defined below) has heretofore been amended so that (a) no Purchaser (or any transferee, other than a Competitor (as herein defined), of Convertible Securities approved by the Company's Board of Directors, which approval shall not be unreasonably withheld) has ever been or will ever be included in the definition of "Acquiring Person" under the Company's Amended and Restated Rights Agreement dated as of December 18, 1998 between the Company and BankBoston, N.A. (the "Rights Agreement") by virtue of entry into this Agreement, any of the transactions contemplated hereby or the acquisition by such Purchaser (or such transferee) of any or all of the Securities and (b) none of the entry into this Agreement, any of the transactions contemplated hereby or the acquisition of Securities by the Purchaser (or any transferee, other than a Competitor, of Convertible Securities approved by the Company's Board of Directors, which approval shall not be unreasonably withheld) has ever caused or will ever cause under any circumstances whatsoever any adverse consequence to any of the Purchasers (or any of such transferees) or the Company pursuant to the Rights Agreement, including, without limitation, the occurrence of a Distribution Date (as defined in the Rights Agreement) or any adjustment to the Purchase Price (as defined in the Rights Agreement). ARTICLE IV COVENANTS 4.1 Best Efforts. The Company and each Purchaser shall use their best ------------ efforts to timely cause to be satisfied (consistent with the terms of the Transaction Documents (as defined herein)) each of the conditions described in Articles VI and VII of this Agreement. 4.2 Securities Laws. The Company agrees to file a Form D with respect to --------------- the Securities with the SEC as required under Regulation D and to provide a copy thereof to each Purchaser or its counsel on or within twenty (20) days of the date of the Closing. The Company shall, on or prior to the date of the Closing, take such action as is necessary to sell the Securities to each Purchaser in accordance with applicable securities laws of the states of the United States, and shall provide evidence of any such action so taken to each Purchaser on or prior to the date of the Closing. Without limiting any of the Company's obligations under this Agreement, the Registration Rights Agreement or the Certificate of Designation or the Convertible Securities, from and after the date of the Closing, neither the Company nor any person acting on its behalf shall take any action which would adversely affect any exemptions from registration under the Securities Act with respect to the transactions contemplated hereby. 4.3 Reporting Status. So long as any Purchaser beneficially owns any of ---------------- the Securities, the Company shall timely file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. 12 4.4 Use of Proceeds. The Company shall use the proceeds from the sale of --------------- the Preferred Stock and the Warrants for working capital and general corporate purposes. 4.5 Restriction on Issuance of Securities. For a period of three hundred ------------------------------------- and sixty five (365) days following the date of the Closing, the Company shall not issue or agree to issue (except (i) to Purchasers and their assignees pursuant to this Agreement and the Ancillary Agreements, (ii) to an industry partner(s) as part of "strategic investments" in the Company, (iii) in connection with the grant and/or exercise of options by employees, consultants or directors, (iv) in connection with direct stock issuances to employees, consultants or directors, (v) in exchange solely for existing securities, (vi) in exchange for the Securities, (vii) pursuant to the Stockholders Rights Plan and the Series A Preferred Stock, as amended, (viii) in connection with acquisitions of other companies, material technologies or business entities, (ix) to equipment lessors or banks as an incentive in connection with an ordinary course of business equipment financings or commercial loans which is primarily for non-equity financing purposes, and (x) shares of Common Stock in accordance with Article V of the Company's indenture dated November 1, 1997 and Paragraph Nine of the notes thereunder) any equity securities at a price less than the fair market value thereof or any variably or re-set priced equity securities or equity like securities of the Company (or any security convertible into or exercisable or exchangeable, directly or indirectly, for equity or equity like securities of the Company) (each of the foregoing being a "Restricted Security"). ------------------- 4.6 Expenses. The Company shall pay to each Purchaser, or at its -------- direction, at the Closing, reimbursement for the expenses reasonably incurred by it and its affiliates and advisors in connection with the negotiation, preparation, execution, and delivery of this Agreement and the other agreements to be executed in connection herewith, including, without limitation, such Purchaser's and its affiliates' and advisors' due diligence and attorneys' fees and expenses (including the review and/or preparation of this Agreement, the Certificate of Designation, the Warrant and the Registration Rights Agreement (collectively, the "Transaction Documents"), the associated Registration --------------------- Statement and all related due diligence and other documents) (the "Expenses"); -------- provided, however, that such reimbursement of Expenses for all Purchasers shall not exceed $75,000 in the aggregate. In addition, from time to time thereafter, upon any Purchaser's written request, subject to such $75,000 aggregate limit, the Company shall pay to such Purchaser such Expenses, if any, not so paid at the Closing and/or covered by such payment, in each case to the extent reasonably incurred by such Purchaser. 4.7 Information. The Company agrees to send the following reports to each ----------- Purchaser until such Purchaser transfers, assigns or sells all of its Securities: (a) within five (5) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy statements and any Current Reports on Form 8-K; and (b) within one (1) day after release, copies of all material press releases issued by the Company or any of its subsidiaries. The Company further agrees to promptly provide to any Purchaser any information with respect to the Company, its properties, or its business or Purchaser's investment as such Purchaser may reasonably request in writing; provided, however, that the Company shall not be required to give any Purchaser any material non-public information. If any information requested by a Purchaser from the Company 13 contains material non-public information, the Company shall inform the Purchaser in writing that the information requested contains material non-public information and shall in no event provide such information to Purchaser without the express prior written consent of such Purchaser after being so informed; provided, however, that the Company shall not be required to give any Purchaser information subject to the attorney-client privilege or attorney work product privileges. To the extent any such information is confidential, Purchaser agrees to execute a customary confidentiality agreement prior to receipt of such information. 4.8 [Intentionally Deleted] 4.9 Listing. For so long as any Purchaser owns any of the Securities, the ------- Company shall use its best efforts to continue the listing and trading of its Common Stock on The Nasdaq SmallCap Market, Nasdaq, the New York Stock Exchange, the American Stock Exchange, or, in accordance with the Certificate of Designation, on the over-the-counter electronic bulletin board, secure and maintain listing and trading of the Conversion Shares and Warrant Shares on such exchange, and comply in all material respects with the Company's reporting, filing and other obligations under the by-laws or rules of such exchange. 4.10 Prospectus Delivery Requirement. Each Purchaser understands that the ------------------------------- Securities Act may require delivery of a prospectus relating to the Common Stock in connection with any sale thereof pursuant to a registration statement under the Securities Act covering the resale by such Purchaser of the Common Stock being sold, and each Purchaser shall comply with the applicable prospectus delivery requirements of the Securities Act in connection with any such sale. 4.11 [Intentionally Deleted] 4.12 Corporate Existence. Without limiting any rights of the holders of ------------------- Preferred Stock or Warrants, so long as any Purchaser beneficially owns any Preferred Stock or Warrants, the Company shall maintain its corporate existence, except in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, as long as the surviving or successor entity in such transaction assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to effect the conversion of all Preferred Stock outstanding as of the date of such transaction. 4.13 Share Authorization. The Company shall, unless otherwise consented to ------------------- by each initial Holder (as defined in the Certificate of Designation), use its best efforts to obtain the Stockholder Approval (as defined below) no later than the Approval Date (as defined below). For purposes hereof, the "Approval -------- Date" means the earliest to occur of (i) sixty (60) days (one hundred and five - ---- (105) days in the event of SEC review of the Company's proxy statement with respect to Stockholder Approval) following the earlier of a Trading Market Trigger Event (as herein defined) or the issuance to any Holder upon conversion of the Preferred Stock and/or exercise of the Warrants of a number of shares of the Company's Common Stock equal to 3.3% of the Company's outstanding 14 Common Stock as of the Closing Date, (ii) six (6) months from the Closing Date, or (iii) the Company's next annual meeting of stockholders. For purposes hereof, "Stockholder Approval" means authorization by the stockholders of the Company of -------------------- the issuance of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to the terms hereof and the exercise of the Warrants pursuant to the terms thereof in the aggregate in excess of twenty percent (20%) of the outstanding shares of Common Stock and, if necessary, the elimination of any prohibitions under the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities on the Company's ability to issue shares of Common Stock in excess of the Cap Amount (as defined in the Certificate of Designation). In addition, the Company shall, unless otherwise consented to by each initial Holder, have a definitive proxy statement mailed to each stockholder of the Company at least twenty (20) days prior to the Approval Date. The Company shall deliver any SEC comments it receives with respect to its proxy statement to each Holder and will not file such proxy statement (or any revisions thereto), whether such proxy statement is in preliminary or definitive form, without the approval of each initial Holder (as defined in the Certificate of Designation), which approval shall not be unreasonably withheld or delayed. 4.14 Conduct of Business. So long as any Purchaser beneficially owns any ------------------- Securities, the business of the Company and its subsidiaries shall not be conducted in violation of any law, ordinance, rule, regulation, order, judgement or decree of any governmental entity, court or arbitration tribunal except for possible violations the sanctions for which either singularly or in the aggregate, would not have a Material Adverse Effect. 4.15 Indemnification. The Company will indemnify each Purchaser from and --------------- against any fees and expenses sought or other claims made by PaineWebber Incorporated relating to this Agreement and the transactions contemplated hereby. ARTICLE V LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES 5.1 Removal of Legend. The Legend shall be removed and the Company shall ----------------- issue a certificate without any legend to the holder of any Security upon which such Legend is stamped, and a certificate for a Security shall be originally issued without the Legend, unless otherwise required by applicable state securities laws if (a) the sale of such Security is registered under the Securities Act, (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary or otherwise reasonable for opinions of counsel (with the expense of such opinion paid by such holder) in comparable transactions to the effect that a sale or transfer of such Security may be made without registration under the Securities Act and without the inclusion of the Legend on the certificate for such Security or (c) such Security can be sold pursuant to Rule 144. Each Purchaser agrees to sell all Securities, including those represented by a certificate(s) from which the Legend has been removed, or which were originally issued without the Legend, pursuant to an effective registration statement and to deliver a prospectus in connection with such sale or in compliance with an exemption from the registration requirements of the Securities Act. In the event the Legend is 15 removed from any Security or any Security is issued without the Legend and thereafter such Security may not be sold pursuant to an effective registration statement under the applicable securities laws, then upon reasonable advance notice to Purchaser holding such Security, the Company may require that the Legend be placed on any such Security that cannot then be sold pursuant to an effective registration statement or Rule 144 or with respect to which the opinion referred to in clause (b) next above has not been rendered, which Legend shall be removed when such Security may be sold pursuant to an effective registration statement or Rule 144 or such holder provides the opinion with respect thereto described in clause (b) next above. 5.2 Transfer Agent Instructions. The Company shall instruct its transfer --------------------------- agent to issue certificates, registered in the name of each Purchaser or its nominee, for the Conversion Shares and the Warrant Shares in such amounts as specified from time to time by such Purchaser to the Company upon, and in accordance with, the conversion of the Preferred Stock and the exercise of the Warrants. Such certificates shall bear a legend only in the form of the Legend and only to the extent permitted by Section 5.1 above. The Company warrants that no instruction other than such instructions referred to in this Article V, and no stop transfer instructions other than stop transfer instructions (i) to give effect to Section 2.6 hereof in the case of the Conversion Shares prior to registration of the Conversion Shares under the Securities Act, (ii) to comply with SEC or court order and (iii) to suspend the use of the Company's then effective Registration Statement(s) in the event an amendment or supplement thereto must be filed in order to make a statement therein not misleading or to correct the omission of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, but, in the case of this clause (iii), only with respect to transfers under such Registration Statement and only during the pendency of a "Permitted Blackout" (as defined in the Registration Rights Agreement), will be ------------------ given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company. Nothing in this Section shall affect in any way a Purchaser's obligations and agreement set forth in Section 5.1 hereof to re-sell the Securities pursuant to an effective registration statement and to deliver a prospectus in connection with such sale or in compliance with an exemption from the registration requirements of applicable securities laws. In addition, if (a) a Purchaser provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions and reasonably satisfactory to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from registration or (b) a Purchaser transfers Securities to an affiliate or pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares and Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denomination as specified by such Purchaser in order to effect such a transfer or sale. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Purchaser by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Article V will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Article V, that a Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss 16 and without any bond or other security being required. Purchasers shall not knowingly transfer or otherwise dispose of, in any private off-market offering, any Convertible Securities to any Competitor of the Company (or any of its subsidiaries). For purposes of this section, "Competitor" shall mean any person ---------- or entity engaged in the manufacture, sale, distribution, installation, relocation, engineering, commissioning or program management of microwave radio equipment that directly competes with the Company. ARTICLE VI CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL 6.1 Conditions to the Company's Obligation to Sell. The obligation of the ---------------------------------------------- Company hereunder to issue and sell the Convertible Securities to a Purchaser at the Closing is subject to the satisfaction, as of the date of the Closing and with respect to such Purchaser, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: (i) Such Purchaser shall have executed the signature page to this Agreement and the Registration Rights Agreement and delivered the same to the Company. (ii) Such Purchaser shall deliver the applicable Purchase Price for the Convertible Securities purchased at the Closing. (iii) The representations and warranties of such Purchaser shall be true and correct as of the date when made and as of the Closing as though made at that time, and such Purchaser shall have performed, satisfied and complied in all material respects with the covenants and agreements required by this Agreement to be performed or complied with by such Purchaser at or prior to the Closing. (iv) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self- regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement. ARTICLE VII CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE 7.1 Conditions to the Closing. The obligation of each Purchaser ------------------------- hereunder to purchase the Convertible Securities to be purchased by it on the date of the Closing is subject to the satisfaction of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by such Purchaser (with respect to it) at any time in such Purchaser's sole discretion: 17 (i) The Company shall have executed the signature page to this Agreement, the Warrant and the Registration Rights Agreement and delivered the same to Purchaser. (ii) The Company shall have delivered duly executed certificates for the Preferred Stock (in such denominations as Purchaser shall reasonably request) and the Warrant being so purchased by Purchaser at the Closing. (iii) The Common Stock shall be listed on Nasdaq, the New York Stock Exchange or the American Stock Exchange and trading in the Common Stock shall not have been suspended by Nasdaq, the New York Stock Exchange or the American Stock Exchange, the SEC or other regulatory authority and no de- listing or suspension shall be reasonably likely for the foreseeable future. (iv) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing as though made at that time and the Company shall have performed, satisfied and complied in all material respects with the covenants and agreements required by any of this Agreement or the Ancillary Documents to be performed or complied with by the Company at or prior to the Closing. Purchaser shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the Closing to the foregoing effect and as to such other matters as may be reasonably requested by Purchaser. (v) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self- regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. (vi) Purchaser shall have received the officer's certificate described in Section 3.3, dated as of the Closing. (vii) Purchaser shall have received an opinion of the Company's outside legal counsel, dated as of the Closing from Brobeck, Phleger & Harrison LLP and in form and substance reasonably acceptable to Purchasers. (viii) The Company's transfer agent has agreed to act in accordance with irrevocable instructions in the form attached hereto as Exhibit D. --------- (ix) The Certificate of Designation shall have been accepted for filing with the Secretary of State of the State of Delaware and a copy thereof certified by the Secretary of State of Delaware shall have been delivered to Purchaser and the Certificate of Designation shall not have been amended, modified or rescinded. 18 (x) The Company shall have received and delivered to Purchaser the third amendment under its existing credit facility with Union Bank, N.A. and Bank of America (the "Credit Agreement") and the Security Agreement thereunder, in each case satisfactory to Purchaser in its sole discretion. ARTICLE VIII GOVERNING LAW; MISCELLANEOUS 8.1 Governing Law; Jurisdiction. This Agreement shall be governed by and --------------------------- construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts located in the State of Delaware and the state courts located in the County of New Castle in the State of Delaware in any suit or proceeding based on or arising under this Agreement or the transactions contemplated hereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by the first class mail shall be deemed in every respect effective service of process upon the Company in any suit or proceeding arising hereunder. Nothing herein shall affect Purchaser's right to serve process in any other manner permitted by law. The parties hereto agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 8.2 Counterparts. This Agreement may be executed in two or more ------------ counterparts, including, without limitation, by facsimile transmission, all of which counterparts shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause additional original executed signature pages to be delivered to the other parties. 8.3 Headings. The headings of this Agreement are for convenience of -------- reference and shall not form part of, or affect the interpretation of, this Agreement. 8.4 Severability. If any provision of this Agreement shall be invalid or ------------ unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. 8.5 Scope of Agreement; Amendments. Except as specifically set forth ------------------------------ herein, no Purchaser makes any representation, warranty, covenant or undertaking with respect to the transactions contemplated hereby. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this 19 Agreement may be amended other than by an instrument in writing signed by the Company, each initial Purchaser and Purchasers holding a majority in interest of the Convertible Securities. 8.6 Notice. Any notice herein required or permitted to be given shall be ------ in writing and may be personally served or delivered by courier or by facsimile- machine confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). The addresses for such communications shall be: If to the Company: P-Com, Inc. 3175 S. Winchester Blvd. Campbell, California 95008 Telecopy: (408) 866-3678 Attention: Chief Financial Officer and Chief Executive Officer with a copy to: Brobeck, Phleger & Harrison LLP 2200 Geng Road Palo Alto, California 94303-0913 Telecopy: (650) 496-2733 Attention: Warren T. Lazarow, Esq. If to any Purchaser, to such address set forth under such Purchaser's name on the signature page hereto executed by such Purchaser. Each party shall provide notice to the other parties of any change in address. 8.7 Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, each Purchaser may assign its rights and obligations hereunder to any of its "affiliates," as that term is defined under the Exchange Act, and to any permitted purchaser of Convertible Securities (in connection with a permitted transfer) without the consent of the Company so long as such affiliate or purchaser is an accredited investor and signs an assumption agreement. This provision shall not limit each Purchaser's right to transfer the Securities pursuant to the terms of this Agreement. In addition, and notwithstanding anything to the contrary contained in this Agreement, the Certificate of Designation, the Warrants or the Registration Rights Agreement, the Securities may be pledged, and all rights of Purchaser under this Agreement or any other agreement or document related to the transaction contemplated hereby may be assigned, without further consent of the Company, to a bona fide pledgee in connection with a Purchaser's margin or brokerage accounts. 20 8.8 Third Party Beneficiaries. This Agreement is intended for the benefit ------------------------- of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 8.9 Survival. The representations and warranties and the agreements and -------- covenants set forth in Articles II, III, IV, V and VIII shall survive the Closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of Purchaser. Notwithstanding such survival, no party shall bring any claim or action after the second (2nd) anniversary of the Closing Date based upon a breach of such representations and warranties. The Company agrees to indemnify and hold harmless each Purchaser and each of each Purchaser's officers, directors, employees, partners, agents and affiliates for actual loss or damage to the extent arising as a result of (a) any breach by the Company of any of its representations or covenants set forth herein or (b) any cause of action, suit or claim brought or made against such indemnitee, other than by the Company solely for breach of this Agreement or any of the other Transaction Documents by the indemnitee or by governmental or regulatory authorities, and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto or contemplated hereby, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Preferred Stock or the status of any Purchaser as an investor in the Company, except to the extent that such actual loss or damage directly results from a breach by such indemnitee of this Agreement or any of the Other Transaction Documents or from a violation of law. The right to indemnification shall include the right to advancement of expenses as they are incurred. 8.10 Public Filings; Publicity. Immediately following execution of this ------------------------- Agreement, the Company shall issue a press release with respect to the transactions contemplated hereby. Prior to the expiration of three (3) days following the date of the Closing, the Company shall file a Form 8-K regarding the transaction contemplated by this Agreement; such Form 8-K shall have as exhibits thereto this Agreement, the Certificate of Designation, the Warrant and the Registration Rights Agreement. The Company and each Purchaser shall have the right to review before issuance any press releases (including the foregoing press release), SEC or other filings, or any other public statements, with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or SEC, Nasdaq, NASD or exchange filings with respect to such transactions as is required by applicable law and regulations (although each Purchaser shall (to the extent time permits) be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof). Notwithstanding the foregoing, without further review or approval by the Purchasers or the consent of the Purchasers (provided such filing or press release was originally reviewed and consented to by the Purchasers, such filing or press release is not misleading, such filing or press release has not been subsequently determined to be incorrect in any material respect and the Purchasers do not otherwise reasonably request changes to or restrictions on use of such descriptions) the Company may continue to use the descriptions in the initial press release, the Form 8-K filing (if such filing has been previously reviewed and approved by the Purchasers), or any other press release or SEC filing previously reviewed by the Purchasers to describe the transactions contemplated hereby in future public SEC filings as required by law. 21 8.11 Further Assurances. Each party shall do and perform, or cause to be ------------------ done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 8.12 Remedies. No provision of this Agreement providing for any remedy to -------- a Purchaser or the Company shall limit any remedy which would otherwise be available to such Purchaser or the Company at law or in equity. Nothing in this Agreement shall limit any rights a Purchaser or the Company may have under any applicable federal or state securities laws with respect to the investment contemplated hereby. 8.13 Termination. In the event that the Closing shall not have occurred ----------- within two (2) business days of the execution of this Agreement, unless the parties agree otherwise, this Agreement shall terminate. No such termination shall relieve a party of its breach of this Agreement prior to such termination. 8.14 No Reliance. Each party acknowledges, without limiting any ----------- representations or warranties or rights or obligations under this Agreement or the Ancillary Documents, that (i) it has such knowledge in business and financial matters as to be fully capable of evaluating the Transaction Documents and the transactions contemplated hereby and thereby, (ii) it is not relying on any advice or representation or warranty of the other party in connection with entering into the Transaction Documents or such transactions (other than the representations made in this Agreement or the Registration Rights Agreement or certificates delivered at closing), and (iii) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary. 8.15 Integration. This Agreement, the Certificate of Designation, Warrants ----------- and the Registration Rights Agreement (including all schedules and exhibits thereto and all certificates and opinions and other documents required thereby) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Certificate of Designation, the Warrants and the Registration Rights Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. * * * 22 IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this Agreement to be duly executed as of the date first above written. PURCHASER: CASTLE CREEK TECHNOLOGY PARTNERS LLC BY: Castle Creek Partners LLC ITS: Managing Member BY: /s/ John D. Ziegelman ---------------------- NAME: John D. Ziegelman TITLE: Managing Member ADDRESS: COPY TO: ----------------------- -------------------- AGGREGATE NUMBER OF PREFERRED SHARES: ------ PURCHASER: MARSHALL CAPITAL MANAGEMENT, INC. BY: /s/ Allan Weine --------------- NAME: Allan Weine Title: President ADDRESS: COPY TO: ----------------------- -------------------- AGGREGATE NUMBER OF PREFERRED SHARES: ------ PURCHASER: CAPITAL VENTURES INTERNATIONAL BY: Heights Capital Management, Inc. ITS: Authorized Agent BY: /s/ Michael L. Spolan ---------------------- NAME: Michael L. Spolan TITLE: General Counsel and Secretary ADDRESS: COPY TO: ----------------------- -------------------- AGGREGATE NUMBER OF PREFERRED SHARES: ------ COMPANY: BY: /s/ George P. Roberts ---------------------- NAME: George P. Roberts TITLE: Chairman and Chief Executive Officer 23 EX-10.39 5 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.39 ------------- REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of --------- December 21, 1998, by and among P-Com, Inc. a Delaware corporation (the - -------- "Company"), with headquarters located at 3175 South Winchester Boulevard, Campbell, California, 95008 and the undersigned (the "Initial Purchasers"). ------------------ RECITALS -------- A. In connection with the Securities Purchase Agreement dated of even date herewith by and among the Company and the Initial Purchasers (the "Securities ---------- Purchase Agreement"), the Company has agreed, upon the terms and subject to the - ------------------ conditions contained therein, to issue and sell to the Initial Purchasers (i) shares of Series B Convertible Participating Preferred Stock of the Company (the "Preferred Stock") that is convertible into shares (the "Conversion Shares") of --------------- ----------------- the Company's common stock, par value $0.0001 per share (the "Common Stock") ------------ upon the terms and subject to the limitations and conditions set forth in the Certificate of Designations, Preferences and Rights with respect to such Preferred Stock (the "Certificate of Designation"), in the form attached as -------------------------- Exhibit A to the Securities Purchase Agreement, and (ii) a Warrant (a "Warrant" ------- and, when take together with all of the warrants issuable under the Securities Purchase Agreement, the "Warrants") entitling the holder thereof to purchase the -------- number of shares of Common Stock set forth in the Warrant (the "Warrant ------- Shares"). - ------ B. To induce the Initial Purchasers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws. -------------- AGREEMENTS ---------- NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, and the Initial Purchasers hereby agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Definitions. As used in this Agreement, the following terms shall ----------- have the following meanings: (a) "Purchasers" means the Initial Purchasers and any transferees ---------- or assignees who agree to become bound by the provisions of this Agreement in accordance with Article IX hereof or who otherwise take rights under this Agreement in accordance with the terms hereof. (b) "register," "registered," and "registration" refer to a -------- ---------- ------------ registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness -------- of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). --- (c) "Registrable Securities" means the Conversion Shares issued ---------------------- or issuable with respect to the Preferred Stock, Warrant Shares issued or issuable with respect to the Warrants (in each case without regard to any limitations on conversion or exercise), any Common Stock issued upon conversion of Preferred Stock issued pursuant to Section 2.3 hereof, and any shares of capital stock issued or issuable, from time to time (with any adjustments) on or in exchange for or otherwise with respect to the Common Stock or any other Registrable Securities (including, without limitation, in the event of a Major Transaction or a Common Stock Major Transaction (in each case as defined in the Certificate of Designation and the Warrant). (d) "Registration Statement" means any registration statement of ---------------------- the Company under the Securities Act subject to or pursuant to Article II or another provision of this Agreement, as applicable. 1.2 Capitalized Terms. Capitalized terms used herein and not otherwise ----------------- defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. ARTICLE II REGISTRATION ------------ 2.1 Initial Registration. The Company shall prepare, and, on or prior to -------------------- twenty (20) business days after the date of the Closing (the "Filing Date"), ----------- file with the SEC a Registration Statement on Form S-3 covering the resale of all of the Registrable Securities. The Registration Statement shall include at least 11 million shares of Common Stock. The Registrable Securities included in the Registration Statement shall be allocated among the Purchasers as set forth in Section 11.11 hereof. The Registration Statement (and each amendment or material supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided to (and subject to the approval of (which approval shall not be unreasonably withheld or denied)) the Initial Purchasers and their counsel prior to its filing. After receiving the Registration Statement, each Initial Purchaser shall provide the Company with either its approval of the Registration Statement or its comments or corrections to the Registration Statement within five (5) business days of receipt of the draft Registration Statement. Any Initial Purchaser who does not respond with approval or comments 2 within five business days shall be deemed to approve the Registration Statement. Without limiting the Company's obligations under this Section, if Form S-3 is not available to the Company in connection with re-sales, the Company shall file a Registration Statement on such form as is then available to effect a registration, subject to the consent of each Initial Purchaser (as determined pursuant to Section 11.10 hereof) as to the form used for such filing. 2.2 Underwritten Offering. If any offering pursuant to a Registration --------------------- Statement pursuant to Section 2.1 hereof involves an underwritten offering, the Purchasers who hold a majority in interest of the Registrable Securities subject to such underwritten offering, with the consent of each Initial Purchaser, shall have the right to select a total of one legal counsel to represent the Purchasers and an investment banker or bankers and manager or managers to administer the offering, which counsel and investment banker or bankers or manager or managers shall be reasonably satisfactory to the Company. 2.3 Payments by the Company. The Company shall use its best efforts to ----------------------- cause the registration statement to become effective as soon as practicable, but in no event later than the ninetieth (90th) day following the date of the Closing; provided, however, that if, notwithstanding such best efforts, the registration statement is not declared effective on or prior to the 90th day following the date of the Closing as a result of the SEC review process, the Company shall, so long as it continues to use such best efforts, have an additional thirty (30) days to cause the registration statement to become effective prior to the imposition of any penalty or amount described in this Section 2.3 (the "Registration Deadline"). The Company shall respond to each --------------------- item of correspondence from the SEC or the staff of the SEC relating to such registration statement as soon as practicable. If to the actual knowledge of a senior officer of the Company or the Company's outside counsel the SEC and the staff of the SEC have no comments (or no further comments) concerning such registration statement, the Company shall as soon as practicable, but in any case within three (3) business days request acceleration of effectiveness of the registration statement from the SEC. If (i) the registration statement(s) covering the Registrable Securities required to be filed by the Company pursuant to Section 2.1 hereof is not declared effective by the SEC on or before the Registration Deadline (a "Registration Failure"), or (ii) except pursuant to a Permitted Blackout (as defined below) herein, after the registration statement has been declared effective by the SEC, sales of all the Registrable Securities (including any Registrable Securities required to be registered pursuant to Section 3.2 hereof) cannot be made pursuant to the registration statement (by reason of a stop order or the Company's failure to update the registration statement or any other reason outside the control of the Purchasers) (a "Registration Suspension"), then the Company will make payments to the Purchasers in such amounts and at such times as shall be determined pursuant to this Section 2.3 as partial relief for the damages to the Purchasers by reason of any such delay in or reduction of their ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity). In the event of a Registration Failure, the Company shall pay to each Purchaser an amount equal to (x) (A) the applicable Registration Failure Multiplier (as defined below) times (B) the aggregate purchase price of ----- the Preferred Stock then held by such Purchaser which are not at that time immediately saleable under an effective registration statement or pursuant to Rule 144 promulgated under the Securities Act or any other similar rule or regulation 3 of the SEC that may at any time permit the Purchasers to sell securities of the Company to the public without registration ("Rule 144") (including, for this -------- purpose shares of Preferred Stock that have been converted into Conversion Shares which have not been sold pursuant to the Registration Statement or Rule 144) times (y) the number of months (prorated per day for partial months) ----- following the Registration Deadline but prior to the date the Registration Statement filed pursuant to Section 2.1 is declared effective by the SEC (the "Effective Date"). The Registration Failure Multiplier shall be equal to: (i) ------------------------------- for the first thirty (30) days after the Registration Deadline, 0.01; (ii) for the second thirty (30) days after the Registration Deadline, 0.015; (iii) for all days thereafter, 0.02. In the event of a Registration Suspension, the Company shall pay to each Purchaser an amount equal to (x)(A) the applicable Registration Failure Multiplier times (B) the aggregate purchase price of the Preferred Stock then held by such Purchaser which are not at that time immediately saleable under an effective registration statement or pursuant to Rule 144 (including, for this purpose, shares of Preferred Stock that have then been converted into Conversion Shares and which have not been sold pursuant to the Registration Statement or Rule 144) times (y) the number of months (prorated ----- for partial months) following the Effective Date but prior to the termination of the Registration Period (as herein defined) that sales cannot be made pursuant to the Registration Statement after the Effective Date. Any such amounts shall be paid in cash or, at the Company's option, in additional shares of Preferred Stock. Notwithstanding the foregoing, a Registration Suspension effected by the Company pursuant to a Permitted Blackout (as defined below) shall not give rise to an obligation to make such payments. For purposes of this Agreement, "Permitted Blackout" shall mean the suspension of the Registration Statement ------------------ after the Effective Date for up to six (6) business days upon the good faith determination by the Company's Board of Directors that (A) a material financing, acquisition or other extraordinary corporate transaction is in the best interest of the Company and the holders of its outstanding Common Stock, and that disclosure thereof to the public would have a material adverse effect on the ability of the Company to consummate such material financing, acquisition or other extraordinary corporate transaction, all after receiving advice to such effect from a nationally recognized investment banking firm which has been engaged by the Company in connection with such financing, acquisition or other extraordinary corporate transaction, or (B) facts with respect to a material lawsuit or governmental investigation exist which, if disclosed, would have a material adverse effect on the Company, provided, however, that no more than -------- ------- three (3) such Permitted Blackouts may be imposed during any period of twelve (12) consecutive months. Payments pursuant hereto shall be made within five (5) business days after the end of each period that gives rise to such obligation, provided that, if any such period extends for more than thirty (30) days, payments shall be made for each such thirty (30) day period within five (5) business days after the end of such thirty (30) day period. The payments described herein, as applied to the new Registration Statement or amendment, in each case, as required by Section 3.2, shall not commence until after the expiration of ten (10) days after the Registration Trigger Date. Payments under this Section 2.3 shall not exceed the previously unpaid portion of the Total Amount (as defined in the Certificate of Designation) and no Purchaser shall receive payments in excess of its theretofore unpaid allocated portion of the Total Amount (as determined pursuant to the Certificate of Designation). In addition, the damages payable in Preferred Stock pursuant to this Section 2.3 shall, without implication that the contrary would otherwise be true, be subject to the Cap Amount (as defined in the Certificate of Designation) restrictions of Section IV.G(i) of the Certificate of Designation. 4 2.4 [Intentionally Deleted]. 2.5 Eligibility for Form S-3. The Company represents and warrants that it ------------------------ currently meets the requirements for the use of Form S-3 for registration of the re-sale by the Initial Purchasers and any other Purchaser of the Registrable Securities and that the Company shall use its best efforts to continue to meet such requirements, and that such re-sales may currently be effected pursuant to Form S-3; the Company shall file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-3 and shall use its best efforts in all other respects to maintain such eligibility. ARTICLE III OBLIGATIONS OF THE COMPANY -------------------------- In connection with the registration of the Registrable Securities, the Company shall have the following obligations: 3.1 The Company shall prepare promptly and file with the SEC the Registration Statement required by Section 2.1, and use its best efforts to cause such Registration Statement relating to Registrable Securities to become effective as soon as practicable after such filing, and keep the Registration Statement continuously effective pursuant to Rule 415 and available for use at all times, except as set forth herein, until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold (and no further Registrable Securities may be issued in the future) and (ii) the date on which all of the Registrable Securities (in the reasonable opinion of counsel to the Initial Purchasers) may be immediately sold to the public without registration and without restriction as to the number of Registrable Securities to be sold, whether pursuant to Rule 144 or otherwise, provided that if after such date this clause (ii), as a result of a Common Stock Major Transaction, any Registrable Securities (including, without limitation, any Registrable Securities received as a result of such transaction) may not be so sold, then the Registration Statement must be kept continuously effective from the date of such Common Stock Major Transaction until the condition in either clause (i) or clause (ii) is again satisfied (the "Registration Period"). ------------------- 3.2 The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective and available for use at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until the termination of the Registration Period or, if earlier, such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement. In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is, for any five (5) consecutive trading days (the last of such five (5) trading days being the "Registration Trigger Date"), insufficient to cover one hundred ------------------------- fifty percent (150%) of the Registrable Securities issued or issuable upon conversion of the Preferred Stock and exercise of Warrants (in each case without giving effect to any limitations on conversion or exercise thereof) then held by any Purchaser, the Company shall, if permissible, amend the Registration Statement, or file a new Registration Statement (on the shortest form available therefor), or both, so as to cover two hundred percent (200%) of the Registrable Securities so issued or issuable 5 to such Purchaser (in each case without giving effect to any limitation on conversion or exercise thereof), in each case, as soon as practicable, but in any event within five (5) days in the case of an amendment and ten (10) business days in the case of a new Registration Statement after the Registration Trigger Date (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company shall cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. 3.3 The Company shall furnish to each Purchaser upon its written request whose Registrable Securities are included in the Registration Statement and its legal counsel promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of the Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of the Registration Statement referred to in Section 2.1, each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion, if any, thereof which contains information for which the Company has sought confidential treatment), and such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Purchaser may reasonably request in order to facilitate the disposition of the Registrable Securities owned (or to be owned) by such Purchaser. 3.4 The Company shall (a) register and qualify the Registrable Securities covered by the Registration Statement under securities laws of such jurisdictions in the United States as each Purchaser who holds (or has the right to hold) Registrable Securities being offered reasonably requests, (b) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof and availability for use during the Registration Period, (c) take such other actions as may be reasonably necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (d) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3.4, (ii) subject itself to general taxation in any such jurisdiction, (iii) file a general consent to service of process in any such jurisdiction, (iv) provide any undertakings that cause the Company material expense or burden, or (v) make any change in its charter or by-laws, which in each case the board of directors of the Company determines to be contrary to the best interests of the Company and its stockholders. 3.5 In the event the Purchasers who hold a majority in interest of the Registrable Securities being offered in an offering pursuant to a Registration Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary 6 form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering. 3.6 As soon as practicable after becoming aware of such event, the Company shall publicly announce or notify by facsimile each Purchaser (at the facsimile number for such Purchaser set forth on the signature page hereto) of the happening of any event, of which the Company has actual knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and use its best efforts as soon as possible to (but in any event it shall within five (5) business days) prepare a supplement or amendment to the Registration Statement (and make all required filings with the SEC) to correct such untrue statement or omission if not otherwise satisfied through the filing of a report to the SEC or otherwise pursuant to applicable securities laws (but such a supplement or amendment or other filing shall not be required if, notwithstanding the Company's best efforts to so prepare and file such supplement, amendment or other filing, such a supplement, amendment or other filing is no longer required by applicable law to correct such untrue statement or omission because such untrue statement or omission no longer exists) and the Company shall simultaneously (and thereafter as requested) deliver such number of copies of such supplement or amendment to each Purchaser (or other applicable document) as such Purchaser may request in writing. Unless such an event is publicly announced, the Company shall not, without the consent of a Purchaser, give such Purchaser any material non-public information, but shall inform the Purchasers that the such prospectus includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 3.7 The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest practicable time, and the Company shall immediately notify by facsimile each Purchaser (at the facsimile number for such Purchaser set forth on the signature page hereto) who holds Registrable Securities (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof. 3.8 The Company shall permit counsel designated by the Initial Purchasers in writing to review the Registration Statement and all amendments and supplements thereto a reasonable period of time prior to their filing with the SEC, and not file any document in a form to which any such counsel reasonably objects in writing. Any such review shall be conducted as soon as practicable. 3.9 The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. 7 3.10 If reasonably requested by a Purchaser in writing (taking into account any applicable legal precedent and any SEC staff positions), the Company shall use its reasonable efforts to furnish, on the date of effectiveness of the Registration Statement and thereafter from time to time on such dates as a Purchaser may reasonably request (a) an opinion, dated as of such applicable date, from counsel representing the Company addressed to the Purchasers and in form, scope and substances as is customarily given in an underwritten public offering and reasonably satisfactory to such counsel and (b) a letter, dated as of such applicable date, from the Company's independent certified public accountants addressed to the Purchasers and in form, scope and substance as customarily given to underwriters in an underwritten public offering; provided, however, that a Purchaser shall only be entitled to the foregoing to the extent it is reasonably requested by such Purchaser and consented to by the Company after consultation with its counsel (which consent will not be unreasonably withheld based upon all relevant facts and circumstances and taking into account the advice of such counsel) and in any event no more than one time in any three- month period (unless a shorter period would otherwise be reasonable under the applicable circumstances). 3.11 The Company shall provide each Purchaser and its representatives the opportunity to conduct a reasonable inquiry of the Company's financial and other records during normal business hours and make available its officers, directors and employees for questions regarding information which such Purchaser may reasonably request in connection with the Registration Statement; provided, however, each inspector shall hold in confidence and shall not make any disclosure (except to a Purchaser) of any record or other information which the Company determines in good faith to be confidential, and of which determination the inspectors are so notified in writing, unless (a) the disclosure of such records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (b) the release of such records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or is otherwise required by applicable law or legal process or (c) the information in such records has been made generally available to the public other than by disclosure in violation of this or any other agreement (to the knowledge of the relevant inspector); provided further, that the Company is not required to waive the attorney-client privilege and the Company shall not provide the Purchaser with material non-public information in connection with such inquiry except to a Purchaser who specifically requests such information in writing (it being understood and agreed that, notwithstanding the foregoing, the Company is required to disclose all material information pursuant to the Registration Statements required to be filed under this Agreement). 3.12 The Company shall hold in confidence and not make any disclosure of non-public information concerning a Purchaser provided to the Company by a Purchaser unless (a) disclosure of such information is necessary to comply with federal or state securities laws, rules, statutes or regulations, (b) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement or other public filing by the Company, (c) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction or is otherwise required by applicable law or legal process, (d) such information has been made generally available to the public other than by disclosure in violation, to the knowledge of the Company, of this or any other agreement, or (e) such Purchaser consents to the 8 form and content of any such disclosure, which consent shall not be unreasonably withheld. The Company agrees that it shall, upon learning that disclosure of such information concerning a Purchaser is sought in or by a court or governmental body of competent jurisdiction in or through other means, give prompt notice to such Purchaser prior to making such disclosure, and allow the Purchaser, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. 3.13 The Company shall use its best efforts to cause the listing and the continuation of listing of all the Registrable Securities covered by the Registration Statement on The Nasdaq National Market System, The Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock Exchange, and cause the Registrable Securities to be quoted or listed on each additional national securities exchange or quotation system upon which the Common Stock is then listed or quoted. 3.14 The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. 3.15 The Company shall cooperate with the Purchasers who hold Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or a Purchaser may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or a Purchaser may request, and, within two (2) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Purchasers whose Registrable Securities are included in such Registration Statement) an opinion of such counsel in the form attached hereto as Exhibit 1. --------- 3.16 At the written request of any Purchaser, the Company shall promptly prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement. 3.17 The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities covered by the Registration Statement and all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission). 3.18 The Company shall take all such other actions as any Purchaser or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities. 9 3.19 From and after the date of this Agreement, the Company shall not, and shall not agree to, allow the holders of any securities of the Company (other than Purchasers with respect to Registrable Securities) to include any of their securities in any Registration Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof without the consent of each initial Holder of the Registrable Securities. 3.20 The Registration Statement shall state that it covers such indeterminate number of additional shares as may be issuable upon conversion of the Preferred Stock or exercise of the Warrants to prevent dilution resulting from stock splits, stock dividends, and other similar transactions. ARTICLE IV OBLIGATIONS OF THE PURCHASERS ----------------------------- In connection with the registration of the Registrable Securities, each Purchaser shall have the following obligations: 4.1 Purchaser shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be required to effect the registration of such Registrable Securities. At least five (5) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Purchaser of the information the Company so requires from each such Purchaser. 4.2 Purchaser, by such Purchaser's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statements hereunder, unless such Purchaser has notified the Company in writing of such Purchaser's election to exclude all of such Purchaser's Registrable Securities from the Registration Statement. 4.3 Each Purchaser whose Registrable Securities are included in a Registration Statement understands that the Securities Act may require delivery of a prospectus relating thereto in connection with any sale thereof pursuant to such Registration Statement, and each such Purchaser shall comply with any applicable prospectus delivery requirements of the Securities Act in connection with any such sale. 4.4 [Intentionally Deleted]. 4.5 Each Purchaser agrees that, upon receipt of written notice from the Company of the happening of any event of the kind described in Section 3.6, such Purchaser will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Purchaser's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.6 or advice that a supplement or amendment is not required and, if so directed by the Company, such Purchaser shall deliver to the Company (at the expense of 10 the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Purchaser's possession (other than a limited number of permanent file copies), of the prospectus covering such Registrable Securities current at the time of receipt of such notice. Purchaser's obligations under this paragraph shall in no way limit the Company's obligations under this Agreement or Purchaser's rights or remedies against the Company with respect to any breach or threatened breach by the Company of any such obligations. 4.6 Without limiting a Purchaser's rights under Section 2.1 or 3.2 hereof, no Purchaser may participate in any underwritten distribution hereunder unless such Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the basis provided in any underwriting agreements in usual and customary form entered into by the Company pursuant to Section 3.5 hereof, (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (c) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Article V. 4.7 Each Purchaser agrees to use reasonable efforts to cooperate with the Company (at the Company's expense) in responding to comments of the staff of the SEC, provided nothing in this Section 4.7 shall affect the Registration Deadline or any obligations of the Company under this Agreement or otherwise create any liability on the part of any Purchaser or require any change to the terms and conditions of this Agreement, the Certificate of Designation, the Preferred Stock, the Warrants or the Securities Purchase Agreement. ARTICLE V EXPENSES OF REGISTRATION ------------------------ All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Articles II and III, including, without limitation, the reasonable fees and disbursements of one counsel of all of the Purchasers (up to $5,000), all registration, listing and qualification fees, printers and accounting fees, and the fees and disbursements of counsel for the Company, shall be borne by the Company. ARTICLE VI INDEMNIFICATION --------------- In the event any Registrable Securities are included in a Registration Statement under this Agreement: 6.1 To the extent permitted by law, the Company will indemnify, hold harmless and defend (a) each Purchaser who holds such Registrable Securities, (b) each underwriter of Registrable Securities and (c) the directors, officers, partners, members, employees, agents and persons who control any Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any (each, ------------ an "Indemnified ----------- 11 Person"), against any losses, claims, damages, liabilities or expenses - ------ (collectively, together with actions, proceedings or inquiries whether or not in any court, before any administrative body or by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, "Claims") to which any of them may become subject insofar as such ------ Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). The Company shall reimburse each such Indemnified ---------- Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.1: (x) shall not apply to an Indemnified Person with respect to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (z) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, if such corrected prospectus was timely made available by the Company pursuant to Section 3.3 hereof, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Indemnified Person, notwithstanding such advice, used it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by a Purchaser pursuant to Article IX. 6.2 To the extent permitted by law, each such Purchaser agrees to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 6.1, the Company, each of its directors, each of its officers who signs the Registration Statement, its employees, agents and persons, if any, who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and any other stockholder selling securities pursuant to the Registration Statement, together with its directors, officers and members, and any person who controls such stockholder or underwriter within the meaning of the Securities Act or the Exchange Act (such an "Indemnified Party"), against any Claim to which any of them may become ----------------- 12 subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Purchaser expressly for use in connection with such Registration Statement; and such Purchaser will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6.2 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Purchaser, which consent shall not be unreasonably withheld; provided, further, however, that a Purchaser shall be liable under this Agreement (including this Section 6.2 and Article VII) for only that amount as does not exceed the net proceeds actually received by such Purchaser as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by a Purchaser pursuant to Article IX. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.2 with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, and the Indemnified Party failed to utilize such corrected prospectus. 6.3 Promptly after receipt by an Indemnified Person or Indemnified Party under this Article VI of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Article VI, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right (at its expense) to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume and continue control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that such indemnifying party shall diligently pursue such defense and an indemnifying party shall not be entitled to assume (or continue) such defense if the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential conflicts of interest between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action include both the Indemnified Person or the Indemnified Party and the indemnifying party, and any such Indemnified Person or Indemnified Party reasonably determines that there may be legal defenses available to such Indemnified Person or Indemnified Party which are different from or in addition to those available to such indemnifying party. Notwithstanding any assumption of such defense and without limiting any indemnification obligation provided for in Section 6.1 or 6.2, the Indemnified Party or Indemnified Person, as the case may be, shall be entitled to be represented by counsel (at its own expense if the indemnifying party is permitted to assume and continue control of the defense and otherwise at the expense of the indemnifying party) and such counsel shall be entitled to participate in such defense. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or 13 Indemnified Party under this Article VI, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Article VI shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. ARTICLE VII CONTRIBUTION ------------ To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Article VI to the fullest extent permitted by law; provided, however, that (i) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation, and (ii) contribution (together with any indemnification or other obligations under this Agreement) by any Purchaser of Registrable Securities shall be limited in amount to the net amount of proceeds received by such Purchaser from the sale of its Registrable Securities. ARTICLE VIII REPORTS UNDER THE EXCHANGE ACT ------------------------------ With a view to making available to each Purchaser the benefits of Rule 144, the Company agrees that so long as a Purchaser holds Preferred Stock, Warrants or any Registrable Securities, the Company shall use its best efforts to: 8.1(a) Not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. 8.1(b) File with the SEC in a timely manner and make and keep available all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the filing and availability of such reports and other documents is required for the applicable provisions of Rule 144; and 8.2 Furnish to each Purchaser promptly upon written request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Purchaser to sell such securities pursuant to Rule 144 without registration. 14 ARTICLE IX ASSIGNMENT OF REGISTRATION RIGHTS --------------------------------- The rights of the Purchasers hereunder as to Registrable Securities transferred by a Purchaser (or represented by Preferred Stock or Warrants transferred by a Purchaser), including the right to have the Company register Registrable Securities pursuant to this Agreement, shall be automatically assigned by each Purchaser to any transferee of all or any portion of the Preferred Stock or Warrants or the Registrable Securities, whether such transfer occurs before or after the Registration Statement becomes effective, if: (a) the Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee, and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act or applicable state securities laws, and (d) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing for the benefit of the Company to be bound by all of the provisions contained herein. The rights of a Purchaser hereunder with respect to any Registrable Securities not transferred (and not represented by Preferred Stock or Warrants transferred) shall not be assigned by virtue of the transfer of other Registrable Securities or transferred Preferred Stock or Warrants representing other Registrable Securities. Purchasers shall not knowingly transfer or otherwise dispose of, in any private off-market offering, any Convertible Securities to any Competitor (as defined in the Securities Purchase Agreement) of the Company (or any of its subsidiaries). ARTICLE X AMENDMENT OF REGISTRATION RIGHTS -------------------------------- Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company and Initial Purchasers who hold a majority in interest of the Registrable Securities which are then held by Initial Purchasers (but not an Initial Purchaser who no longer owns any Preferred Stock or Registrable Securities and who is not affected by such amendment or waiver) and Purchasers (other than Initial Purchasers) who hold a majority interest of the Registrable Securities held by Purchasers other than Initial Purchasers. Any amendment or waiver effected in accordance with this Article X shall be binding upon each Purchaser and the Company. Notwithstanding the foregoing, no amendment or waiver shall retroactively affect any Purchaser without its consent or prospectively adversely affect any Purchaser who no longer owns any Preferred Stock, Warrants or Registrable Securities without its consent. No amendment or waiver may adversely affect one or more Purchasers or group of Purchasers vis-a-vis any other Purchaser or group of Purchasers. Neither Article VI nor Article VII hereof may be amended or waived in a manner adverse to a Purchaser without its consent. Notwithstanding anything to the contrary contained in this Article X, no amendment or waiver shall be applicable to an Initial Purchaser who does not consent in writing thereto. 15 ARTICLE XI MISCELLANEOUS ------------- 11.1 A person or entity is deemed to be a holder (or a holder in interest) of Registrable Securities whenever such person or entity owns of record such Registrable Securities (or the Preferred Stock or Warrants which may be converted into or exercised for Registrable Securities). If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities (or Preferred Stock or Warrants, as the case may be). 11.2 Any notices herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or by machine generated confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). The addresses for such communications shall be: If to the Company: P-Com, Inc. 3175 S. Winchester Blvd. Campbell, California 95008 Telecopy: (408) 866-3678 Attention: Chief Financial Officer and Chief Executive Officer with a copy to: Brobeck, Phleger & Harrison LLP 2200 Geng Road Palo Alto, California 94303-0913 Telecopy: (650) 496-2733 Attention: Warren T. Lazarow, Esq. If to any Initial Purchaser, as shown on the signature page hereto and if to any other Purchaser, at such address as such Purchaser, shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 11.2. 11.3 Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. 11.4 This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the federal courts located in the State of Delaware and the state courts of the State of Delaware located in the County of New Castle in the 16 State of Delaware in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The parties hereto further agree that service of process upon the parties hereto mailed by first class mail shall be deemed in every respect effective service of process upon each such party in any such suit or proceeding. Nothing herein shall affect either party's right to serve process in any other manner permitted by law. The parties hereto agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 11.5 This Agreement, the Preferred Stock, Warrants and the Securities Purchase Agreement (including all schedules and exhibits thereto and all certificates and opinions and other documents required thereby) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Preferred Stock, the Warrants and the Securities Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. 11.6 Subject to the requirements of Article IX hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. Notwithstanding anything to the contrary contained herein, including, without limitation, Article IX (and without compliance therewith), the rights of a Purchaser hereunder shall be assignable to and exercisable by a bona fide pledgee of the Registrable Securities in connection with a Purchaser's margin or brokerage accounts. 11.7 The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 11.8 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto, by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. 11.9 Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 11.10 Unless otherwise provided herein, all consents and other determinations to be made pursuant to this Agreement shall be made on the basis of a majority in interest with respect to the Registrable Securities (determined as if all Preferred Stock and Warrants then outstanding had been converted into or exercised for 17 Registrable Securities (without giving effect to any limitation on exercise or conversion)) held by all Purchasers or Initial Purchasers, as the case may be. 11.11 The number of Registrable Securities included on any Registration Statement shall be allocated pro rata among the Purchasers based on the number of Registrable Securities held by each Purchaser at the time of establishment of such number. In the event a Purchaser shall sell or otherwise transfer any of such holder's Registrable Securities, each transferee shall be allocated a pro rata portion of the number of Registrable Securities included on a Registration Statement for such transferor. Any shares of Common Stock included on a Registration Statement and which remain allocated to any person or entity which does not hold any Registrable Securities shall be allocated to the remaining Purchasers, pro rata based on the number of shares of Registrable Securities then held by such Purchasers. Without implication that the contrary would otherwise be true, for purposes of this paragraph, all Preferred Stock and Warrants then outstanding shall be assumed converted into and exercised for Registrable Securities (without giving effect to any limitations on conversion or exercise). 11.12 If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement. * * * 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. P-COM, INC. BY: /s/ George P. Roberts with a copy to: ---------------------- -------------------- Name: George P. Roberts -------------------- Title: Chairman and Chief Executive Officer ---------------------- Address: ----------------------- ----------------------- ----------------------- Facsimile Number: --------------- Initial Purchasers: PURCHASER: CASTLE CREEK TECHNOLOGY PARTNERS LLC By: Castle Creek Partners LLC Its: Managing Member By: /s/ John D. Ziegelman ----------------------------------- Name: John D. Ziegelman Title: Managing Member Address: 333 W. Wacker Drive, Suite 1410 Chicago, Illinois 60606 Facsimile Number: (312) 435-2636 with a copy to: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- PURCHASER: MARSHALL CAPITAL MANAGEMENT, INC. By: /s/ Allan Weine ----------------------------------- Name: Allan Weine Title: President Address: ------------------------------------- ------------------------------------- ------------------------------------- Facsimile Number: ( ) ---- ------------------------ with a copy to: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- PURCHASER: CAPITAL VENTURES INTERNATIONAL By: Heights Capital Management, Inc. Its: Authorized Agent By: /s/ Michael L. Spolan ----------------------------------- Name: Michael L. Spolan Title: General Counsel and Secretary Address: ------------------------------------- ------------------------------------- ------------------------------------- Facsimile Number: ( ) ---- ------------------------ with a copy to: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- EXHIBIT 1 TO REGISTRATION RIGHTS AGREEMENT [Date] [Name and address of transfer agent] RE: P-COM, INC. Ladies and Gentlemen: We are counsel to P-Com, Inc., a Delaware corporation (the "Company"), and ------- we understand the [Name of Purchaser] (the "Holder") has purchased from the ------ Company Series B Convertible Participating Preferred Stock of the Company (the "Preferred Stock"), convertible into shares of the Company's common stock, par --------------- value $.0001 per share (the "Common Stock"). The Preferred Stock was purchased ------------ by the Holder pursuant to a Securities Purchase Agreement, dated as of December 21, 1998, by and among the Company and the signatories thereto (the "Agreement"). Pursuant to a Registration Rights Agreement, dated as of December --------- 21, 1998, by and among the Company and the signatories thereto (the "Registration Rights Agreement"), the Company agreed with the Holder, among ----------------------------- other things, to register the Registrable Securities (as that term is defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the ("Securities Act"), upon the terms provided in the Registration Rights -------------- Agreement. In connection with the Company's obligations under the Registration Rights Agreement, on December __, 1998, the Company filed a Registration Statement on Form S-3 (File No. 333-_______________) (the "Registration ------------ Statement") with the Securities and Exchange Commission (the "SEC") relating to - --------- --- the Registrable Securities, which names the Holder as a selling stockholder thereunder. [Other customary introductory and scope of examination language to be inserted, in each case as acceptable to Holders.] Based on the foregoing, we are of the opinion that the Registrable Securities have been registered under the Securities Act. [Other appropriate customary language to be included, in each case as acceptable to Holders.] Very truly yours, cc: [Name of Purchaser] 19 EX-10.40 6 FORM OF WARRANT AGREEMENT EXHIBIT 10.40 VOID AFTER 5:00 P.M. EASTERN STANDARD TIME ON DECEMBER 21, 2003 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase Shares of Common Stock, par value $0.0001 per share Date: December 21, 1998 FORM OF P-COM, INC. STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, _________________ or its registered assigns, is entitled to purchase from P-Com, Inc., a Delaware corporation (the "Company"), at any time or from time to time during the period ------- specified in Section 2 hereof, ___________ fully paid and nonassessable shares of the Company's common stock, par value $0.0001 per share (the "Common Stock"), ------------ which number of shares was calculated as follows: Dollar Amount of Holder's The average Closing x .25 Investment Pursuant to the / Bid Price (as defined Securities Purchase Agreement herein) over the (as defined below) fifteen (15) trading day period immediately preceding December 22, 1998 (the "Closing Date" under the Securities Purchase Agreement) The Warrant exercise price per share of Common Stock (the "Exercise Price") -------------- shall be equal to $3.47, which exercise price was calculated as 115% of the average Closing Bid Price (as defined herein) over the fifteen (15) trading day period immediately preceding December 22, 1998 (the "Closing Date" under that ------------ certain Securities Purchase Agreement (as defined below)). This Warrant is being issued pursuant to that certain Securities Purchase Agreement dated December 21, 1998 among the Company and the signatories thereto (the "Securities Purchase ------------------- Agreement"). The number of shares of Common Stock purchasable hereunder (the - --------- "Warrant Shares") and the Exercise Price are subject to adjustment as provided -------------- in Section 4 hereof. The term "Warrants" means this Warrant and the other -------- warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement. The term "Closing Bid Price" means, for any security as of any date, the ----------------- closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the holder hereof (the "Holder") if Bloomberg Financial Markets is not then reporting closing bid - ------- prices of such security (collectively, "Bloomberg"), or if the foregoing does --------- not apply, the last reported sale price of such security in the over-the-counter market on the electronic bulletin board of such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to the Holder with the costs of such appraisal to be borne by the Company. This Warrant is subject to the following terms, provisions, and conditions: 1. Mechanics of Exercise. Subject to the provisions hereof, including, --------------------- without limitation, the limitations contained in Section 8(f) hereof, this Warrant may be exercised as follows: (a) Manner of Exercise. This Warrant may be exercised by the Holder, in ------------------ whole or in part, by the surrender of this Warrant (or evidence of loss, theft, destruction or mutilation thereof in accordance with Section 12(e) hereof), together with a completed exercise agreement in the form of Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the ------------------ Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), and upon (i) payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company, of the Exercise Price for the Warrant Shares specified in the Exercise Agreement or (ii) if the Holder elects to effect a Cashless Exercise (as defined in Section 12(c) below), delivery to the principal executive office of the Company ("Attention: Corporate Secretary") of a written notice of an election to effect a Cashless Exercise for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the Holder or Holder's designees, as the record owner of such shares, as of the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment (or notice of an election to effect a Cashless Exercise) shall have been made for such shares as set forth above. (b) Issuance of Certificates. Subject to Section 1(c), certificates for ------------------------ the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall 2 be delivered to the Holder within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised (the "Delivery -------- Period"). The certificates so delivered shall be in such denominations as may be - ------ requested by the Holder upon exercise and shall be registered in the name of Holder or such other name as shall be designated by such Holder upon exercise. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the Holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. (c) Exercise Disputes. In the case of any dispute with respect to an ----------------- exercise, the Company shall promptly issue such number of shares of Common Stock as are not disputed in accordance with this Section. If such dispute involves the calculation of the Exercise Price, the Company shall submit the disputed calculations to a nationally recognized independent accounting firm (selected by the Company) via facsimile within three (3) business days of receipt of the Exercise Agreement. The accounting firm shall audit the calculations and notify the Company and the converting Holder of the results no later than ten (10) business days from the date it receives the disputed calculations. The accounting firm's calculation shall be deemed conclusive, absent manifest error. The Company shall then issue the appropriate number of shares of Common Stock in accordance with this Section. (d) Fractional Shares. No fractional shares of Common Stock are to be ----------------- issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Exercise Price of a share of Common Stock (as determined for exercise of this Warrant into whole shares of Common Stock); provided that in the event that sufficient funds are not legally available for the payment of such cash adjustment any fractional shares of Common Stock shall be rounded up to the next whole number. 2. Period of Exercise. This Warrant is exercisable at any time or from ------------------ time to time on or after the date hereof and before 5:00 P.M., Eastern Standard time on the fifth (5th) anniversary of the date hereof (the "Exercise Period"). --------------- 3. Certain Agreements of the Company. The Company hereby covenants and --------------------------------- agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance ----------------------- in accordance with the terms of this Warrant, be validly issued, fully paid, and non-assessable and free from all taxes, liens, claims and encumbrances, except such as are caused by the Holder. (b) Reservation of Shares. During the Exercise Period, the Company --------------------- shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. 3 (c) Listing. The Company shall use its best efforts to secure the ------- listing of the shares of Common Stock issuable upon exercise of this Warrant upon The Nasdaq National Market System, the New York Stock Exchange or the American Stock Exchange and upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or become listed and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall use its best efforts to so list on each national securities exchange or automated quotation system, as the case may be, and shall use its best efforts to maintain such listing of any other shares of capital stock of the Company issuable upon the exercise of this Warrant so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of -------------------------- its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such actions as may reasonably be requested by the Holder of this Warrant in order to protect the exercise privilege of the Holder of this Warrant, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. 4. Antidilution Provisions. During the Exercise Period, the Exercise ----------------------- Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price or number of Warrant Shares as required herein results in a fraction of a cent or fraction of a share, as applicable, such Exercise Price or number of Warrant Shares shall be rounded up or down to the nearest cent or share, as applicable. (a) Adjustment of Exercise Price and Number of Shares upon Issuance of ------------------------------------------------------------------ Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if - ------------ and whenever after the initial issuance of this Warrant, the Company issues or sells, or in accordance with Section 4(b) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share less than the Exercise Price (as then in effect) (a "Dilutive Issuance"), ----------------- then effective immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in accordance with the following formula: E' = (E) (O+P/M) / (CSDO) where: 4 E' = the adjusted Exercise Price E = the then current Exercise Price; M = the greater of the then current Market Price and the then Current Exercise Price; O = the number of shares of Common Stock outstanding immediately prior to the Dilutive Issuance; P = the aggregate consideration, calculated as set forth in Section 4(b) hereof, received by the Company upon such Dilutive Issuance; and CSDO = the total number of shares of Common Stock Deemed Outstanding (as herein defined) immediately after the Dilutive Issuance. (b) Effect on Exercise Price of Certain Events. For purposes of ------------------------------------------ determining the adjusted Exercise Price under Section 4(a) hereof, the following will be applicable: (i) Issuance of Rights or Options. If, after the date hereof, ----------------------------- the Company in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities"), but not to include the issuance, grant ---------------------- or exercise of any stock or options which may hereafter be issued, granted or exercised under any service provider benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non- employee directors established for such purpose (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options"), and the price per share for which Common Stock is purchasable or issuable upon the exercise of such Options is less than the Exercise Price (as then in effect) on the date of issuance of such Option or direct stock grant ("Below Market Options"), then the maximum total number of -------------------- shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full exercise, conversion or exchange of Convertible Securities, if applicable) will, as of the date of the issuance or grant of such Below Market Options, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of the preceding sentence, the price per share for which Common Stock is issuable upon the exercise of such Below Market Options is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of such Below Market Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Below Market Options, plus, in the case of Convertible Securities issuable upon the exercise of such Below Market Options, the minimum aggregate amount of additional consideration payable upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon the exercise of such Below Market Options or upon the exercise, 5 conversion or exchange of Convertible Securities issuable upon exercise of such Below Market Options. (ii) Issuance of Convertible Securities. ---------------------------------- (A) If the Company in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the price per share for which Common Stock is issuable upon such exercise, conversion or exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the Exercise Price (as then in effect) on the date of issuance of such Convertible Security, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities will, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For the purposes of the preceding sentence, the price per share for which Common Stock is issuable upon such exercise, conversion or exchange is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities. No further adjustment to the Exercise Price will be made upon the actual issuances of such Common Stock upon exercise, conversion or exchange of such Convertible Securities. (B) If the Company in any manner issues or sells any Convertible Securities with a fluctuating or re-setting conversion or exercise price or exchange ratio (a "Variable Rate Convertible Security"), then the price ---------------------------------- per share for which Common Stock is issuable upon such exercise, conversion or exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A) shall be deemed to be the lowest price per share which would be applicable assuming that (1) all holding period and other conditions to any discounts contained in such Convertible Security have been satisfied, and (2) the Market Price on the date of exercise, conversion or exchange of such Convertible Security was 80% of the Market Price on the date of issuance of such Convertible Security (the "Assumed Variable Market Price"). ----------------------------- (iii) Change in Option Price or Conversion Rate. Except for the ----------------------------------------- issuance, grant or exercise of any stock or options which may hereafter be granted or exercised under any service provider benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, if there is a change at any time in (i) the amount of additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange or any Convertible Securities; or (iii) the rate at which any Convertible Securities are convertible into or 6 exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change will be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible -------------------------------------------------------- Securities. If, in any case, the total number of shares of Common Stock issuable - ---------- upon exercise of any Options or upon exercise, conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to exercise, convert or exchange such Convertible Securities shall have expired or terminated, the Exercise Price then in effect will be readjusted to the Exercise Price which would have been in effect at the time of such expiration or termination had such Options or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), never been issued. (v) Calculation of Consideration Received. If any Common ------------------------------------- Stock, Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Company will be the fair market value of such consideration except where such consideration consists of freely-tradeable securities, in which case the amount of consideration received by the Company will be the Market Price thereof as of the date of receipt. In case any Common Stock, Options or Convertible Securities are issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the non- surviving corporation as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair market value of any consideration other than cash or securities will be determined in the good faith reasonable business judgment of the Board of Directors. (vi) Exceptions to Adjustment of Exercise Price. No adjustment ------------------------------------------ to the Exercise Price will be made (i) upon the exercise of any warrants, options or convertible securities issued and outstanding on the date hereof in accordance with the terms of such securities as of such date; (ii) upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee, consultant or director benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (iii) upon the issuance of the Common Shares (as defined in the Securities Purchase Agreement) in accordance with terms of the Certificate of Designations with respect to the Company's shares of Series B Preferred 7 Stock (the "Preferred Stock"); (iv) upon the exercise of the Warrants; or (v) issuances of any equity securities pursuant to the Stockholders Rights Plan and the Series A Preferred Stock, as amended. (c) Subdivision or Combination of Common Stock. If the Company, at ------------------------------------------ any time after the initial issuance of this Warrant, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time after the initial issuance of this Warrant, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased. (d) Adjustment in Number of Shares. Upon each adjustment of the ------------------------------ Exercise Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Major Transactions. Except in the case of a Common Stock Major ------------------ Transaction (as defined below), if the Company shall consolidate or merger with any other corporation or entity (other than a merger in which the Company is the surviving or continuing entity and its capital stock is unchanged and unissued in such transaction (except for Common Stock constituting less than twenty percent (20%) of the Company's Common Stock then outstanding)) or there shall occur any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property or any reclassification or change of the outstanding shares of Common Stock (each of the foregoing being a "Major Transaction"), then each holder of a Warrant shall thereafter be entitled to (a) in the event that the Common Stock remains outstanding or holders of Common Stock receive any common stock or substantially similar equity interest, in each of the foregoing cases which is publicly traded, retain its Warrant and such Warrant shall continue to apply to such Common Stock or shall apply, as nearly as practicable, to such other common stock or equity interest, as the case may be, or (b) regardless or whether (a) applies, receive consideration, in exchange for such Warrant, equal to the greater of, as determined in the sole discretion of such holder, (i) the number of shares of stock or securities or property of the Company, or of the entity resulting from such Major Transaction (the "Major Transaction Consideration"), to which the holder of the number of shares of Common Stock delivered upon the exercise of such Warrant would have been entitled upon such Major Transaction had such holder exercised the Warrant (without regard to any limitations on conversion or elsewhere contained) on the trading date immediately preceding the public announcement of the transaction resulting in such Major Transaction and had such Common Stock been issued and outstanding and had such Holder been the holder of record of such Common Stock at the time of the consummation of such Major Transaction, and (ii) cash paid by the Company in immediately available funds, in an amount equal to one hundred and twenty five percent (125%) of the Black-Scholes Amount (as defined herein) times the number of shares of Common Stock for which this Warrant was exercisable (without regard to any limitations on exercise herein contained); and the Company shall make lawful provision for the foregoing as a part of such Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under that certain Registration Rights Agreement dated December 21, 1998 among the Company and the signatories thereto (the "Registration Rights Agreement") to assume all of the Company's obligations under the Registration Rights Agreement. In the event that the Company shall consolidate or merge with any corporation in a transaction in which common stock of the surviving corporation or the parent thereof (the "Exchange Securities") is issued to the holders of Common Stock in such transaction in exchange for all such Common Stock, and (a) the Exchange Securities are publicly traded, (b) the average daily trading volume of the Exchange Securities reported by Bloomberg during the ninety (90) day period ending on the date on which such transaction is publicly disclosed is greater than two million dollars ($2,000,000) per day, (c) the historical one hundred (100) day volatility of the Exchange Securities reported by Bloomberg during the period ending on the date on which such transaction is publicly disclosed is greater than fifty percent (50%) and (d) the last sale price of the Exchange Securities on the date immediately before the date on which such transaction is publicly disclosed is not less than sixty five percent (65%) of the last sale price of the Exchange 8 Securities on any day during the twenty (20) trading day period ending on such date (in each case as reported by Bloomberg) (a "Common Stock Major Transaction"), then each holder of a Warrant shall following consummation of such transaction have the right to receive solely, in exchange for such Warrant, consideration equal to the number of shares of stock or securities or property issued or paid in such Common Stock Major Transaction to which a holder of the number of shares of Common Stock which would have been delivered upon exercise of such Warrant would have been entitled upon such Common Stock Major Transaction had the holder of such Warrant exercised (without regard to any limitations on conversion herein or elsewhere contained) the Warrant on the trading date immediately preceding the public announcement of the transaction resulting in such Common Stock Major Transaction and had such Common Stock been issued and outstanding and had such holder been the holder of record of such Common Stock at the time of the consummation of such Common Stock Major Transaction; and the Company shall make lawful provision for the foregoing as a part of such Common Stock Major Transaction and shall cause the issuer of any security in such transaction which constitutes Registrable Securities under that certain Registration Rights Agreement dated December 21, 1998 among the Company and the signatories thereto (the "Registration Rights Agreement") to assume all of the Company's obligations under the Registration Rights Agreement. No sooner than ten (10) business days nor later than five (5) business days prior to the consummation of the Major Transaction or Common Stock Major Transaction, as the case may be, (each, a "Transaction") but not prior to the public announcement of such Transaction, the Company shall deliver written notice ("Notice of Transaction") to each holder of a Warrant, --------------------- which Notice of Transaction shall be deemed to have been delivered one (1) business day after the Company's sending such notice by telecopy (provided that the Company sends a confirming copy of such notice on the same day by overnight courier) of such Notice of Transaction. Such Notice of Transaction shall indicate the amount and type of the Transaction consideration which such holder of a Warrant would receive under this Section. If the Transaction consideration does not consist entirely of United States currency, such holder may elect to receive United States currency in an amount equal to the value of the Major Transaction Consideration in lieu of the Major Transaction Consideration by delivering notice of such election to the Company within five (5) business days of such holder's receipt of the Notice of Transaction. The "Black-Scholes Amount" shall be an amount determined by calculating the -------------------- "Black-Scholes" value of an option to purchase one share of Common Stock on the applicable page on the Bloomberg online page, using the following variable values: (i) the current market price of the Common Stock equal to the closing trade price on the last trading day before the date of the Notice of the Major Transaction; (ii) volatility of the Common Stock equal to the volatility of the common Stock during the 100 trading day period preceding the date of the Notice of the Major Transaction; (iii) a risk free rate equal to the interest rate on the United States treasury bill or treasury note with a maturity corresponding to the remaining term of this Warrant on the date of the Notice of the Major Transaction; and (iv) an exercise price equal to the Exercise Price on the date of the Notice of the Major Transaction. In the event such calculation function is no longer available utilizing the Bloomberg online page, the Holder shall calculate such amount in its sole discretion using the closest available alternative mechanism and variable values to those available utilizing the Bloomberg online page for such calculation function. 9 (f) Distribution of Assets. In case the Company shall declare or make ---------------------- any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or like events (including any dividend or distribution to the Company's shareholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "Distribution"), at any time after the initial issuance of this ------------ Warrant, then the Holder shall be entitled upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets (or rights) which would have been payable to the Holder had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (g) Notices of Adjustment. Upon the occurrence of any event which --------------------- requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the Holder, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such price upon exercise, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (h) Minimum Adjustment of Exercise Price. No adjustment of the ------------------------------------ Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. (i) No Fractional Shares. No fractional shares of Common Stock are to -------------------- be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock; provided that in the event that sufficient funds are not legally available for the payment of such cash adjustment any fractional shares of Common Stock shall be rounded up to the next whole number. (j) Other Notices. In case at any time: ------------- (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution to all (or substantially all) of the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or 10 (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the Holder (a) notice of the date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least 30 days prior to the record date or the date on which the Company's books are closed in respect thereto, but in no event earlier than public announcement of such proposed transaction or event. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. (k) Certain Definitions. ------------------- (i) "Common Stock Deemed Outstanding" shall mean the number of ------------------------------- shares of Common Stock actually outstanding (not including shares of Common Stock held in the treasury of the Company), plus (x) in case of any adjustment required by Section 4(a) resulting from the issuance of any Options, the maximum total number of shares of Common Stock issuable upon the exercise of the Options for which the adjustment is required (including any Common Stock issuable upon the conversion of Convertible Securities issuable upon the exercise of such Options), and (y) in the case of any adjustment required by Section 4(a) resulting from the issuance of any Convertible Securities, the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of the Convertible Securities for which the adjustment is required, as of the date of issuance of such Convertible Securities, if any. (ii) "Market Price," as of any date, (i) means the Closing Bid ------------ Price for the shares of Common Stock as reported to Nasdaq National Market System for the trading day immediately preceding such date, or (ii) if the Nasdaq National Market System is not the principal trading market for the Common Stock, the last reported bid price on the principal trading market for the Common Stock during the same period, or, if there is no bid price for such period, the last reported sales price for such period, or (iii) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to each initial holder and the Holders of a majority in interest of the Warrants, with the costs of the appraisal to be borne by the Company. The manner of determining the Market Price of the Common Stock set forth in the foregoing 11 definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder. (iii) "Common Stock," for purposes of this Section 4, includes ------------ the Common Stock and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only Common Stock in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(e) hereof, the stock or other securities or property provided for in such Section. 5. Cap Amount. Prior to Stockholder Approval (as defined in the ---------- Securities Purchase Agreement), unless otherwise permitted by the Nasdaq National Market System or unless the rules thereof do not apply to the Warrants, in no event shall the total number of shares of Common Stock issued upon exercise of the Warrants exceed the maximum number of shares of Common Stock that the Company can without stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor rule) (the "Cap Amount") upon exercise of the ---------- Warrants and conversion of the Preferred Stock, which, as of the date of initial issuance of the shares of Preferred Stock and Warrants, shall be eight million seven hundred and six thousand four hundred and eighty three (8,706,483) shares (or such higher number as such rules permit). The Cap Amount shall be allocated pro-rata to the Holders. A Holder's allocable portion of the Cap Amount shall be applicable to both shares of Preferred Stock and Warrants held by it and shall be applied to such Preferred Stock and Warrants on the basis of the time of conversion or exercise, as the case may be, thereof. 6. Issue Tax. The issuance of certificates for Warrant Shares upon the --------- exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder. 7. No Rights or Liabilities as a Stockholder. This Warrant shall not ----------------------------------------- entitle the Holder to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 8. Transfer, Exchange, Redemption and Replacement of Warrant. --------------------------------------------------------- a. Restriction on Transfer. This Warrant and the rights granted to ----------------------- the Holder are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the Form of Assignment attached hereto as Exhibit 2, at the office or agency of the Company referred to in Section 8(e) below, provided, however, that any transfer or assignment 12 shall be subject to the provisions of Sections 5.1 and 5.2 of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 9 hereof are assignable only in accordance with the provisions of that certain Registration Rights Agreement, dated as of December 21, 1998, by and among the Company and the other signatories thereto (the "Registration Rights Agreement"). Holders ----------------------------- shall not knowingly transfer or otherwise dispose of, in any private off-market offering, any Warrants (or shares of Common Stock issuable upon exercise of any Warrant) to any Competitor (as defined in the Securities Purchase Agreement) of the Company (or any of its subsidiaries). b. Warrant Exchangeable for Different Denominations. This Warrant ------------------------------------------------ is exchangeable, upon the surrender hereof by the Holder at the office or agency of the Company referred to in Section 8(e) below, for new Warrants, in the form hereof, of different denominations representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by the Holder of at the time of such surrender. c. Replacement of Warrant. Upon receipt of evidence reasonably ---------------------- satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or, in the case of any such loss, theft, or destruction, upon delivery, of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrants, in the form hereof, in such denominations as Holder may request. d. Cancellation; Payment of Expenses. Upon the surrender of this --------------------------------- Warrant in connection with any transfer, exchange, or replacement as provided in this Section 8, this Warrant shall be promptly canceled by the Company. The Company shall pay all issuance taxes (other than securities transfer taxes) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 8. e. Warrant Register. The Company shall maintain, at its principal ---------------- executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. f. Additional Restriction on Exercise or Transfer. Notwithstanding ---------------------------------------------- anything to the contrary contained herein, the Warrants shall not be exercisable by the Holder to the extent (but only to the extent) that, if exercisable by Holder, Holder would beneficially own in excess of 4.9% (the "Applicable ---------- Percentage") of the shares of Common Stock. To the extent the above limitation - ---------- applies, the determination of whether the Warrants shall be exercisable (vis-a- vis other securities owned by Holder) and of which Warrants shall be exercisable (as among Warrants) shall be made by 13 Holder and submission of the Warrants for exercise shall be deemed to be the Holder's determination of whether such Warrants are exercisable (vis-a-vis other securities owned by Holder) and of which Warrants are exercisable (among Warrants), in each case subject to such aggregate percentage limitation. No prior inability to exercise Warrants pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations, including without limitation, with respect to calculations of percentage ownership, shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D and G thereunder. The provisions of this paragraph may be implemented in a manner otherwise than in strict conformity with the terms this Section (f) with the approval of the Board of Directors of the Company and the Holder: (i) with respect to any matter to cure any ambiguity herein, to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Applicable Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Applicable Percentage limitation; and (ii) with respect to any other matter only with the further consent of the holders of a majority of the then outstanding shares of Common Stock. For clarification, it is expressly a term of this security that the limitations contained in this paragraph shall apply to each successor holder of Warrants. 9. Registration Rights. The initial holder of this Warrant (and certain ------------------- assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Registration Rights Agreement. 10. Notices. Any notice herein required or permitted to be given shall ------- be in writing and may be personally served or delivered by courier or by confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). The addresses for such communications shall be: If to the Company: P-Com, Inc. 3175 S. Winchester Blvd. Campbell, California 95008 Telecopy: (408) 866-3678 Attention: Chief Financial Officer and Chief Executive Officer with a copy to: Brobeck, Phleger & Harrison LLP 2200 Geng Road Palo Alto, California 94303-0913 Telecopy: (650) 496-2733 Attention: Warren T. Lazarow, Esq. 14 and if to the Holder, at such address as Holder shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 10. 11. Governing Law; Jurisdiction. This Warrant shall be governed by and --------------------------- construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts located in the County of New Castle in the State of Delaware in any suit or proceeding based on or arising under this Warrant and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company agrees that a final nonappealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 12. Miscellaneous. ------------- a. Amendments. This Warrant and any provision hereof may only be ---------- amended by an instrument in writing signed by the Company and the Holders of a majority of the Warrant Shares remaining subject to the Warrants. b. Descriptive Headings. The descriptive headings of the several -------------------- Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. c. Cashless Exercise. Notwithstanding anything to the contrary ----------------- contained in this Warrant, this Warrant may be exercised by presentation and surrender of this Warrant to the Company at its principal executive offices with a written notice of the Holder's intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a "Cashless Exercise"). ----------------- In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the Holder shall surrender this Warrant for the number of shares of Common Stock determined by multiplying the number of Warrant Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price per share of the Common Stock and the Exercise Price, and the denominator of which shall be such then current Market Price per share of Common Stock. d. Assignability. This Warrant shall be binding upon the Company and ------------- its successors and assigns and shall inure to the benefit of Holder and its successors and assigns. The Holder shall notify the Company upon the assignment of this Warrant. e. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt ------------------------------------------------- by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. 15 * * * 16 IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to be signed by their duly authorized officers. P-Com, Inc. By: /s/ George P. Roberts ----------------------------------- Name: George P. Roberts --------------------------------- Title: Chairman and Chief Executive -------------------------------- Officer -------------------------------- 17 FORM OF EXERCISE AGREEMENT (To be Executed by the Holder in order to Exercise the Warrant) The undersigned hereby irrevocably exercises the right to purchase ____________ of the shares of common stock of P-Com, Inc., a Delaware corporation (the "Company"), evidenced by the attached Warrant, and [herewith ------- makes payment of the Exercise Price with respect to such shares in full/ elects to effect a Cashless Exercise pursuant to the terms of the Warrant], all in accordance with the conditions and provisions of said Warrant. (i) [If a cash exercise -- The undersigned makes the representations and warranties contained in Sections 2.1 through 2.7 of the Securities Purchase Agreement as of the date of the exercise.] The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (ii) The undersigned requests that stock certificates for such shares be issued, and a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the Holder (or such other person or persons indicated below) and delivered to the undersigned (or designee(s) at the address (or addresses) set forth below: Date:___________________ ___________________________________ Signature of Holder ___________________________________ Name of Holder (Print) Address: ___________________________________ ___________________________________ FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No. of Shares - ---------------- ------- ------------- and hereby irrevocably constitutes and appoints ______________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Date:____________, _____, In the presence of _________________________ Name:_______________________________________ Signature:__________________________________ Title of Signing Officer or Agent (if any): _______________________________________ Address: __________________________________ __________________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. EX-10.41 7 SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.41 SECOND AMENDMENT TO CREDIT AGREEMENT AND FIRST AMENDMENT TO SECURITY AGREEMENT This SECOND AMENDMENT TO CREDIT AGREEMENT AND FIRST AMENDMENT TO SECURITY AGREEMENT (this "Amendment") is entered into as of October 21, 1998, by and among P-Com, Inc., a Delaware corporation ("Borrower"), the financial institutions named on the signature pages hereof (each, a "Lender" and collectively the "Lenders"), Union Bank of California, N.A., as administrative agent for the Lenders ("Agent"), and Bank of America National Trust and Savings Association, as syndication agent ("Syndication Agent"), with reference to the following facts: A. Borrower, Agent, Syndication Agent and Lenders are parties to that certain Credit Agreement dated as of May 15, 1998, as amended (the "Credit Agreement"). The Borrower and the Agent are parties to that certain Security Agreement dated as of May 15, 1998 (the "Security Agreement"). The Credit Agreement and all related and supporting documents collectively are referred to in this Amendment as the "Loan Documents." B. The parties desire to amend the Loan Documents in accordance with the terms of this Amendment. NOW, THEREFORE, in consideration of the promises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms not otherwise defined herein shall ------------- have the same meanings as set forth in the Credit Agreement and the other Loan Documents. 2. Amendments to Credit Agreement. The Credit Agreement is hereby ------------------------------ amended as follows: (a) The following defined term in Section 1.1 is amended to read as follows: "Interest Payment Date:" As to any Base Rate Loan or LIBO Rate ---------------------- Loan until payment in full, the first Business Day of each month and the Maturity Date. (b) The following defined terms are added to Section 1.1 in their proper alphabetical order: "Consolidated Adjusted EBITDA": For any period of determination, ----------------------------- the sum of net income, depreciation, amortization, interest expense and income tax expense of the Borrower and its consolidated Subsidiaries for the most recently ended fiscal quarter, minus any increases in accounts ----- receivable or inventory during such fiscal quarter, minus any decreases ----- payable during such fiscal quarter, plus any increases in accounts payable ---- in accounts during such fiscal quarter, plus any decreases in accounts ---- -1- receivable or inventory during such fiscal quarter, in each case of the Borrower and its consolidated Subsidiaries for such period determined and consolidated in accordance with GAAP; provided, that any decreases in inventory or accounts receivable resulting from write-downs shall be excluded from this calculation. "Consolidated Annualized Adjusted EBITDA:" For any period of --------------------------------------- determination, the sum of net income, depreciation, amortization, interest expense and income tax expense of the Borrower and its consolidated Subsidiaries for the most recently ended fiscal quarter, multiplied by four, minus any increases in accounts receivable or inventory during such ----- fiscal quarter, minus any decreases in accounts payable during such fiscal ----- quarter, plus any increases in accounts payable during such fiscal quarter, ---- plus any decreases in accounts receivable or inventory during such fiscal ---- quarter, in each case of the Borrower and its consolidated Subsidiaries for such period determined and consolidated in accordance with GAAP; provided, that any decreases in inventory or accounts receivable resulting from write-downs shall be excluded from this calculation. (c) From the Effective Date until five (5) Business Days after Agent's receipt of the Borrower's financial statements and Compliance Certificate for the fiscal quarter ended September 30, 1998, the Applicable Margin for Base Rate Loans, and the Commitment Fee Rate, shall be as set forth in Level I in Exhibit E hereto. Notwithstanding any provision of the Credit --------- Agreement to the contrary, from the Effective Date and for so long as Borrower's ratio of Consolidated Funded Debt to Consolidated Annualized Adjusted EBITDA as specified in Section 6.2(b) is equal to or greater than 4.00 to 1.00, (i) Borrower shall not be permitted to request or receive LIBO Rate Loans, (ii) no Loan may be converted to a Loan other than a Base Rate Loan, and (iii) any LIBO Rate Loans shall bear interest on the unpaid principal amount thereof at a per annum rate equal to the Base Rate plus the Applicable Margin for Base Rate Loans. (d) Section 2.5(f)(i) is amended to read as follows: (i) with respect to each Letter of Credit, a Letter of Credit fee for the period from and including the date of issuance of the Letter of Credit to and including the date such Letter of Credit is drawn in full, expires or is terminated for the ratable benefit of the Lenders at a rate per annum equal to the Applicable Margin for LIBO Rate Loans (or, for any period during which Borrower is not eligible to request or receive LIBO Rate Loans, a rate per annum equal to 2.50%) multiplied by the stated amount of the Letter of Credit, payable on the date of issuance of the Letter of Credit for the period from the date of issuance to the first Business Day of the next calendar month, and thereafter payable monthly in arrears on the first Business Day of each month; -2- (e) Section 6.1(a)(iii)(B) is amended to read as follows: (B) a Compliance Certificate in the form of Exhibit D --------- hereto demonstrating in reasonable detail compliance during and at the end of such accounting periods with the restrictions contained in Sections 6.2(a), (b), (c), (d), (e), (h), (w), and (x). (f) Section 6.1(a) is amended by adding the following new clause (v) in its proper alphanumeric order: (v) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a copy of the unaudited consolidated and consolidating balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such period and the related unaudited consolidated and consolidating statements of income and retained earnings (or comparable statement) and changes in financial position and cash flow for such period and year to date, setting forth in each case in comparative form the figures as at the end of the previous fiscal year as to the balance sheet and the figures for the previous corresponding period as to the other statements, certified by a duly authorized officer of the Borrower as being fairly stated in all material respects subject to year end and audit adjustments, all such financial statements to be complete and correct in all material respects and in accordance with GAAP subject to normal year end and audit adjustments and the absence of footnotes, applied consistently throughout the period reflected therein (except as approved by such accountants and disclosed therein); (g) Section 6.1(a) is amended by adding the following new clause (vi) in its proper alphanumeric order: (vi) as soon as available, but in any event within fifteen (15) days after the end of each calendar month, aged listings of accounts receivable and accounts payable, a summary of inventory, and an eight (8) week rolling cash flow forecast, each in form and substance satisfactory to the Agent; (h) Section 6.1(b)(v) is amended to read as follows: (v) promptly, but in any event within ten (10) days after request, such budgets, sales projections, operating plans or other information and data with respect to the Borrower or any of its Subsidiaries as from time to time may be reasonably requested by the Agent or any Lender. (i) Agent shall have a right from time to time hereafter to audit the Collateral (as such term is defined in the Security Agreement) at Borrower's expense, provided that such audits will be conducted no more often than once in any period of twelve (12) consecutive months unless an Event of Default or Potential Event of Default has occurred and is continuing. -3- (j) Section 6.2(a) is amended to read as follows: (a) Quick Ratio. Permit the ratio of Consolidated Quick ----------- to Consolidated Current Liabilities as of the last day of each of the fiscal quarters of Borrower listed below to be less than the correlative Assets amount indicated below:
Quarter Ending: Ratio: -------------- ----- September 30, 1998 0.70 : 1.00 December 31, 1998 0.80 : 1.00 March 31, 1999 0.90 : 1.00 June 30, 1999, and thereafter 1.00 : 1.00
(k) Section 6.2(b) is amended to read as follows: (b) Leverage Ratio. As at the end of any fiscal quarter of -------------- the Borrower commencing with the fiscal quarter ending March 31, 1999, permit the ratio of Consolidated Funded Debt as at the end of such fiscal quarter, to Consolidated Annualized Adjusted EBITDA for such fiscal quarter, to be greater than the correlative amount indicated below:
Quarter Ending: Ratio: -------------- ----- March 31, 1999 8.50 : 1.00 June 30, 1999 5.00 : 1.00 September 30, 1999 5.00 : 1.00 December 31, 1999, and thereafter 4.00 : 1.00
For purposes of determining the ratio set forth in this Section 6.2(b), and for purposes of determining the "Applicable Margin" and "Commitment Fee Rate" as set forth in Exhibit E, for any period of --------- determination in which Consolidated Annualized Adjusted EBITDA is a sum less than Zero Dollars ($0), such sum shall be deemed to be One Dollar ($1). (l) Section 6.2(c) is amended to read as follows: (c) Consolidated Tangible Net Worth. Commencing with the ------------------------------- fiscal quarter ended September 30, 1998, permit Consolidated Tangible Net Worth as of the last day of any fiscal quarter of Borrower to be less than Thirty-Eight Million Dollars ($38,000,000) plus (i) 75% of Consolidated Net Income (but not loss) for each fiscal quarter of the Borrower commencing with the quarter ending September 30, 1998, plus (ii) 100% of the Net Proceeds of any Equity Issuance by the Borrower after September 30, 1998. -4- (m) Section 6.2(d) is amended to read as follows: (d) Profitability. Permit (i) net income before taxes of ------------- the Borrower and its consolidated Subsidiaries to reflect a loss exceeding $82,000,000 on a fiscal year-to-date basis, calculated as of the last day of each of the fiscal quarters ended September 30, 1998, and December 31, 1998, or (ii) commencing with the fiscal quarter ended March 31, 1999, permit (a) net income before taxes of the Borrower and its consolidated Subsidiaries or (b) Consolidated Net Income to be less than Zero Dollars ($0) for any fiscal quarter of Borrower. (n) Section 6.2(e) is amended to read as follows: (e) Interest Coverage Ratio. As at the end of any fiscal ----------------------- quarter of Borrower commencing with the fiscal quarter ended March 31, 1999, permit the ratio of Consolidated Annualized Adjusted EBITDA for such quarter, to Consolidated Interest Expense for the four fiscal quarters ending on the last day of such fiscal quarter, to be less than the correlative amount indicated below:
Quarter Ending: Ratio: -------------- ----- March 31, 1999 2.00 : 1.00 June 30, 1999, and thereafter 3.00 : 1.00
(o) Clause (v) of Section 6.2(f) and clauses (iii) and (vi) of Section 6.2(g) are deleted in their entirety; provided, however, that any Debt in an aggregate amount of up to $5,000,000 incurred prior to September 30, 1998 that was permitted under clauses (iii) and (vi) of Section 6.2(g), and any Liens created prior to September 30, 1998 that were permitted under clause (v) of Section 6.2(f) shall be permitted notwithstanding this Clause (o); provided that such Debt and Liens shall be listed on the Schedules delivered under clause (iii) of Section 5(b) of this Amendment. (p) Section 6.2(i) is amended in its entirety to read as follows: (i) Consolidation, Merger. Consolidate or merge with any --------------------- other Person, liquidate, wind-up or dissolve itself or acquire by purchase or otherwise all or substantially all of the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, or permit any of its Subsidiaries to do any of the foregoing, except that any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower or any wholly-owned Subsidiary of the Borrower, or be liquidated, wound up or dissolved, or all or any substantial part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Borrower or any wholly-owned Subsidiary of the Borrower; provided -------- that, in the case of such a merger or consolidation, the Borrower or such wholly-owned Subsidiary shall be the continuing or surviving corporation. -5- (q) A new Section 6.2(w) is added to the agreement, which shall read as follows: (w) Minimum Consolidated EBITDA; Minimum Consolidated ------------------------------------------------- Adjusted EBITDA. Permit (i) Consolidated EBITDA to reflect a loss of --------------- more than $15,500,000 for the fiscal quarter ended September 30, 1998, or (ii) Consolidated Adjusted EBITDA to reflect a loss of more than $2,000,000 for the fiscal quarter ended December 31, 1998. For purposes of calculating Consolidated EBITDA for the fiscal quarter ended September 30, 1998, such calculation may include, without duplication, one-time charges not exceeding $27,000,000. (r) A new Section 6.2(x) is added to the agreement, which shall read as follows: (x) Consolidated Capital Expenditures. Make, or permit any --------------------------------- Subsidiary to make, Consolidated Capital Expenditures, other than: (i) Consolidated Capital Expenditures for the Borrower's fiscal quarter ending September 30, 1998, not in excess of $7,500,000; (ii) Consolidated Capital Expenditures for the Borrower's fiscal quarter ending December 31, 1998, not in excess of $7,500,000; and (iii) Consolidated Capital Expenditures for the Borrower's fiscal quarter ending March 31, 1999, and for each fiscal quarter thereafter, not in excess of $5,000,000. (s) Section 7.1(c) is amended to read as follows: (c) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 3.1, 6.1(a), (b) or (c), 6.2(a), (b), (c), (d), (e), (g), (h), (i), (j), (l), (p), (q), (r), (s), (t), (u), (v), (w) or (x) on its part to be performed or observed; or (t) Section 7.1(d) is amended to read as follows: (d) The Borrower shall fail to perform or observe any term, covenant or agreement contained in this Agreement or any other Loan Document other than those referred to in Sections 7.1(a), (b), and (c) above on its part to be performed or observed and any such failure shall remain unremedied or uncured for fifteen (15) days after the Borrower knows of such failure or, in the event such failure cannot by its nature be cured within such fifteen (15) day period or cannot after diligent attempts by Borrower be cured within such fifteen (15) day period, and the Borrower determines and so notifies the Agent within such fifteen (15) day period that such a remedy or cure is practicable within an additional fifteen (15) days, such failure shall remain unremedied or uncured for thirty -6- (30) days after the Borrower knows of such failure, provided, however, that the cure period provided in this Section 7.1(d) shall not be in addition to any grace period provided in Section 7.1(g) or (h), and no grace period or cure period shall be given for Events of Default under Section 7.1(f), (i), (j), (k), (l) or (m); or (u) Section 7.1(e) is amended to read as follows: (e) Any Loan Party shall default in the performance of or compliance with any term contained in any Loan Document other than this Agreement and such default shall not have been remedied or waived (A) within any applicable grace period or (B) if not specified in the applicable Loan Document, within fifteen (15) days after such Loan Party knows of such default or, in the event that such a remedy or cure is not practicable within such fifteen (15) day period but the Borrower determines and so notifies the Agent within such fifteen (15) day period that such a remedy or cure is practicable within an additional fifteen (15) days, such default shall remain unremedied or uncured for thirty (30) days after the Borrower knows of such default; or (v) A new subsection (j) is added to Section 7.1, Events of Default, immediately following subsection (i), which shall read as follows: (j) an "event of repurchase" or similar event shall occur under any agreement to which any Loan Party is a party with a third party or parties relating to the purchase of any Loan Party's accounts receivable, other than one receivable due from Telkom S.A. Limited in an amount not to exceed $5,500,000, which event results in a right by the purchaser of such receivables, whether or not exercised, to require such Loan Party to repurchase and pay for purchased accounts receivable in an aggregate amount in excess of $1,000,000 for any fiscal year; or (w) A new subsection (k) is added to Section 7.1, Events of Default, immediately following subsection (j), which shall read as follows: (k) A "Change of Control," as such term is defined in the Indenture dated as of November 1, 1997, between the Borrower and State Street Bank and Trust Company of California, N.A., as Trustee, relating to the Borrower's 4 1/4% Convertible Subordinated Notes due 2002, shall occur; or (x) A new subsection (l) is added to Section 7.1, Events of Default, immediately following subsection (k), which shall read as follows: (l) Any event or series of events occurs that creates or results in a material adverse effect on (i) the business, assets, operations, prospects or financial or other condition of the Borrower, individually, or the Loan Parties, taken as a whole, (ii) the Borrower's ability to pay any of the obligations to Lenders in accordance with the terms thereof, or (iii) the collateral or Lenders' security interests therein or the priority of -7- such security interests, or (iv) Agent's or any Lender's rights and remedies under this Agreement and the other Loan Documents; or (y) A new subsection (m) is added to Section 7.1, Events of Default, immediately following subsection (l), which shall read as follows: (m) The Borrower shall fail to receive, on or prior to November 15, 1998, Net Proceeds of at least $10,000,000 from an Equity Issuance after September 30, 1998, on terms satisfactory to Lenders; (z) Exhibit D is deleted and replaced with Exhibit D hereto. --------- --------- (aa) Exhibit E is deleted and replaced with Exhibit E hereto. --------- --------- (bb) A new Section 9.17 is added to the Credit Agreement, which shall read as follows: 9.17 Designated Senior Indebtedness. The indebtedness of ------------------------------ the Borrower under the Credit Agreement and the other Loan Documents shall be "Designated Senior Indebtedness" for purposes of the Indenture dated as of November 1, 1997, between the Borrower and State Street Bank and Trust Company of California, N.A., as Trustee, relating to Borrower's 4 1/4% Convertible Subordinated Notes due 2002. 3. Amendments to Security Agreement. The Security Agreement is hereby -------------------------------- amended as follows: (a) Section 2 is amended by adding the following sentence at the end thereof: The term "Secured Obligations" shall also be deemed to include all obligations and liabilities of every nature owed by Borrower to any Lender, under or arising out of or in connection with the Credit Agreement or otherwise. 4. Consent to Equity Issuance. Lenders hereby consent, pursuant to -------------------------- Section 6.2(r) of the Credit Agreement, to an Equity Issuance by Borrower after the Effective Date, on terms substantially the same as those set forth in the term sheet dated October 10, 1998 presented to Lenders on the date of this Amendment, subject in any case to Section 6.2(h) of the Credit Agreement. 5. Conditions to Effectiveness. --------------------------- This Amendment shall become effective as of October 21, 1998 (the "Effective Date"), only upon: (a) receipt by the Agent from the Borrower of an amendment fee as set forth separately in a letter agreement by and among the Borrower, the Agent and the Lenders; -8- (b) receipt by the Agent of the following (each of which shall be in form and substance satisfactory to the Agent and its counsel): (i) counterparts of this Amendment duly executed on behalf of the Borrower and the Lenders; (ii) copies of resolutions of the Board of Directors or other authorizing documents of the Borrower, authorizing the execution and delivery of this Amendment; (iii) within 15 days after the date hereof, updated copies of Schedules 6.2(f) (Liens), 6.2(g) (Debt), and 6.2(k) (Contingent Obligations), and Exhibits A, B and C to the Intellectual Property Security Agreement and each of the Subsidiary Intellectual Property Security Agreements; (c) affirmations of the Guaranty, duly executed on behalf of each Guarantor; (d) copies of the Borrower's 1998 and 1999 fiscal plan, certified by an officer of Borrower as having been prepared in accordance with GAAP. 6. Representations and Warranties. In order to induce the Lenders to ------------------------------ enter into this Amendment, the Borrower represents and warrants to the Lenders that the following statements are true, correct and complete as of the effective date of this Amendment: (a) Corporate Power and Authority. The Borrower has all requisite ----------------------------- corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). The Certificate of Incorporation and Bylaws of the Borrower have not been amended since the copies previously delivered to the Lenders. (b) Authorization of Agreements. The execution and delivery of this --------------------------- Amendment and the performance by the Borrower of the Amended Agreement have been duly authorized by all necessary corporate action on the part of the Borrower. (c) No Conflict. The execution and delivery by the Borrower of this ----------- Amendment do not and will not contravene (i) any law or any governmental rule or regulation applicable to the Borrower, except to the extent not resulting in a Material Adverse Effect, (ii) the Certificate of Incorporation or Bylaws of the Borrower, (iii) any order, judgment or decree of any court or other agency of government binding on the Borrower, or (iv) any material agreement or instrument binding on the Borrower, except to the extent not resulting in a Material Adverse Effect. (d) Governmental Consents. The execution and delivery by the --------------------- Borrower of this Amendment and the performance by the Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body (except routine -9- reports required pursuant to the Securities and Exchange Act of 1934, as amended (as such act is applicable to any Loan Party), which reports will be made in the ordinary course of business). (e) Binding Obligation. This Amendment and the Amended Agreement ------------------ have been duly executed and delivered by the Borrower and are the binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except in each case as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws and equitable principles relating to or affecting creditors' rights. (f) Incorporation of Representations and Warranties From Credit ----------------------------------------------------------- Agreement. The representations and warranties contained in Section 5.1 of the - ---------- Credit Agreement are correct on and as of the effective date of this Amendment as though made on and as of such date. Without limiting the generality of the foregoing, Borrower represents and warrants that all of Borrower's Copyrights, Patents, and Trademarks, in connection with the Material Products, including any such property acquired from Cylink Corporation, are set forth in Exhibits A, B and C to the Intellectual Property Security Agreement, and that all such Copyrights, Patents, and Trademarks have been registered with the U.S. Copyright Office, or the U.S. Patent and Trademark Office, as applicable. (g) Absence of Default. After giving effect to this Amendment, no ------------------ event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. 7. Release. ------- (a) Each Loan Party acknowledges that Lenders would not enter into this Amendment without the Loan Parties' assurance that each Loan Party has no claims against any Lender, the Agent, Syndication Agent, or any of such parties' officers, directors, employees or agents, arising out of or related to the Loan Documents or any other agreement between any Loan Party and any Lender. Except for the obligations arising hereafter under the Amended Agreement, each Loan Party releases each Lender, the Agent, Syndication Agent, and each of such parties' officers, directors and employees from any known or unknown claims which any Loan Party now has against any Lender, the Agent, or Syndication Agent of any nature, arising out of or related to the Loan Documents or any other agreement between any Loan Party and any Lender, including any claims that any Loan Party, or any Loan Party's successors, counsel, and advisors may in the future discover they would have had now if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability. Each Loan Party waives the provisions of California Civil Code section1542, which states: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. -10- (b) The provisions, waivers and releases set forth in this section are binding upon each Loan Party and each Loan Party's shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of each Lender, the Agent, Syndication Agent, and each such party's agents, employees, officers, directors, assigns and successors in interest as parties to the Credit Agreement. (c) The provisions of this section shall survive payment in full of the obligations, full performance of all the terms of this Amendment and the Loan Documents, and/or the Agent's or any Lender's actions to exercise any remedy available under the Loan Documents or otherwise. (d) Each Loan Party warrants and represents that each such Loan Party is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and each such Loan Party has not heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. Each Loan Party shall indemnify and hold harmless each Lender, the Agent, and Syndication Agent, from and against any claim, demand, damage, debt, liability (including payment of reasonable attorneys' fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer. 8. Miscellaneous. ------------- (a) Reference to and Effect on the Credit Agreement and the Other Loan ------------------------------------------------------------------ Documents. - --------- (i) On and after the Effective Date, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement," "thereunder," "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Agent or Lenders under the Credit Agreement or any of the other Loan Documents. (b) Fees and Expenses. All costs and expenses of the Agent and ----------------- Lenders, including, but not limited to, reasonable attorneys' fees and the reasonable estimate of the allocated cost of in-house counsel and staff, incurred by the Agent and Lenders in the preparation and negotiation of this Amendment constitute costs and expenses in connection with the amendment and restructuring of the Loan Documents, and as such are payable by the Borrower in accordance with Section 9.5 of the Credit Agreement. -11- (c) Headings. Section and subsection headings in this Amendment are -------- included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (d) Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE -------------- CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. (e) Counterparts. This Amendment may be executed in any number of ------------ counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [REMAINDER INTENTIONALLY LEFT BLANK] -12- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: P-COM, INC. BY: /s/ Michael J. Sophie ________________________________ TITLE: CFO/VP Finance _____________________________ AGENT: UNION BANK OF CALIFORNIA, N.A. BY: John Noble ________________________________ TITLE: Vice President _____________________________ LENDERS: UNION BANK OF CALIFORNIA, N.A. BY: John Noble ________________________________ TITLE: Vice President _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION BY: /s/ Fred L. Thome ________________________________ TITLE: Vice President _____________________________ -13- EXHIBIT D [FORM OF COMPLIANCE CERTIFICATE] 1. This Compliance Certificate ("Compliance Certificate") is executed and delivered by P-Com, Inc., a Delaware corporation (the "Borrower"), to Union Bank of California, N.A. (the "Agent"), pursuant to Section 6.1(a)(iii)(B) of the Credit Agreement dated as of May 15, 1998, among the Borrower, the financial institutions named therein and the Agent. Any terms used herein and not defined herein shall have the meanings defined in the Credit Agreement. This Compliance Certificate covers the Borrower's: Fiscal quarter ended _________, 19__ Fiscal year ended _________, 19__ 2. The following paragraphs set forth calculations in compliance with obligations pursuant to Section 6.2(a), (b), (c), (d), (e), and (h) of the Credit Agreement, as of the end of the fiscal period set forth in paragraph 1 hereof.
A. Quick Ratio (Sec. 6.2(a)): -------------------------- (a) Consolidated Quick Assets $_________ (b) Consolidated Current Liabilities $_________ Ratio (a) : (b) __________ Minimum Permitted Ratio Quarter Ending: Ratio: --------------- ----- September 30, 1998 0.70 : 1.00 December 31, 1998 0.80 : 1.00 March 31, 1999 0.90 : 1.00 June 30, 1999, and thereafter 1.00 : 1.00
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B. Leverage Ratio (Sec 6.2(b)): --------------------------- (a) Consolidated Funded Debt as at the end of the most recent fiscal quarter $_________ (b) Consolidated Annualized Adjusted EBITDA for the most recently ended fiscal quarter $__________ Ratio (a) to (b) __________ Maximum Permitted Ratio
Quarter Ending: Ratio: -------------- ----- March 31, 1999 8.50 : 1.00 June 30, 1999 5.00 : 1.00 September 30, 1999 5.00 : 1.00 December 31, 1999, and thereafter 4.00 : 1.00
C. Consolidated Tangible Net Worth (Sec. 6.2(c)): --------------------------------------------- (a) $38,000,000 (b) plus 75% of Consolidated Net Income (but not loss) for each fiscal quarter of the Borrower commencing with the fiscal quarter ending September 30, 1998 $_________ (c) plus 100% of Net Proceeds of any Equity Issuance after September 30, 1998 $_________ Minimum Required Consolidated Tangible Net Worth: (a) + (b) + (c): $_________ Actual Consolidated Tangible Net Worth: $_________
-15-
D. Profitability (Sec 6.2(d)): -------------------------- 1. (a) Net income before taxes of Borrower and its consolidated Subsidiaries on $_________ a fiscal year-to-date basis as of the last day of the most recent fiscal quarter, for the fiscal quarters ended September 30, 1998,and December 31, 1998 Required: No loss exceeding $82,000,000 2. (a) Net income before taxes of Borrower and its consolidated Subsidiaries $_________ for the most recent fiscal quarter, commencing with the quarter ended March 31, 1999 (b) Consolidated Net Income for the most recent fiscal quarter, commencing $_________ with the quarter ended March 31, 1999 Required: (a) and (b): > $0 E. Interest Coverage Ratio (Sec. 6.2(e)): ------------------------------------- (a) Consolidated Annualized Adjusted EBITDA $_________ for the most recent fiscal quarter (b) Consolidated Interest Expense for the $_________ four fiscal quarters ending on the last day of the most recent fiscal quarter Ratio (a) to (b) ____ : 1.00 Minimum Permitted Ratio Quarter Ending: Ratio: -------------- ----- March 31, 1999 2.00 : 1.00 June 30, 1999, and thereafter 3.00 : 1.00
-16-
F. Dividends (Sec. 6.2(h)): ----------------------- Dividends declared or paid in current fiscal year $_________ Permitted: $0 G. Minimum Consolidated EBITDA; Minimum Consolidated ------------------------------------------------- Adjusted EBITDA (Sec. 6.2(w)): ----------------------------- Consolidated EBITDA for the fiscal quarter ended $_________ September 30, 1998 Required: No loss exceeding $15,500,000 Consolidated Adjusted EBITDA for the fiscal quarter $_________ ended December 31, 1998 Required: No loss exceeding $2,000,000 H. Consolidated Capital Expenditures (Sec. 6.2(x)): ----------------------------------------------- Consolidated Capital Expenditures of the Borrower and $_________ its Subsidiaries for the current fiscal quarter Permitted: --------- Quarter Ending: Not more than: -------------- ------------- September 30, 1998 $7,500,000 December 31, 1998 $7,500,000 March 31, 1999, and thereafter $5,000,000
3. The undersigned has reviewed the terms of the Credit Agreement and has made, or caused to be made under his/her supervision, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the fiscal period covered by this Compliance Certificate. The undersigned does not (either as a result of such review or otherwise) have any -17- knowledge of the existence as of the date of this Compliance Certificate of any condition or event that constitutes an Event of Default or a Potential Event of Default, with the exception set forth below in response to which the Borrower is taking or proposes to take the following actions (if none, so state): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 4. This Compliance Certificate is executed on _______________, ___, by the Chief Executive Officer or Chief Financial Officer of the Borrower. The undersigned hereby certifies that each and every matter contained herein is derived from the Borrower's books and records and is, to the best knowledge of the undersigned, true and correct. P-Com, Inc. A DELAWARE CORPORATION BY: ------------------------------ TITLE: --------------------------- -18- EXHIBIT E PRICING GRID The "Applicable Margin" and the "Commitment Fee Rate" shall mean the variable number of percentage points determined in accordance with the grid set forth below, based upon the Borrower's ratio of Consolidated Funded Debt as at the end of each fiscal quarter to Consolidated Annualized Adjusted EBITDA as specified in Section 6.2(b) (the "Leverage Ratio"), as determined by the Agent with reference to the Borrower's most recently delivered financial statements and Compliance Certificate. The effective date of any change in the Applicable Margin and/or the Commitment Fee Rate shall be five (5) Business Days following Agent's receipt of Borrower's financial statements and Compliance Certificate; provided that if Borrower shall not have timely delivered its financial statements and Compliance Certificate in accordance with Section 6.1(a), then commencing five (5) Business Days following the date upon which such financial statements should have been delivered and continuing until such financial statements are actually delivered, it shall be assumed for purposes of determining said rates that Borrower's Leverage Ratio is equal to or greater than 7.00 to 1.00.
Applicable Applicable Margin for Margin for Leverage Commitment LIBO Rate Base Rate Level Ratio Fee Rate Loans Loans - --------- ------------------------ ---------------- ---------------- ---------------- I. Equal to or greater than 0.50% N/A 1.00% 7.00 : 1.00 II. Equal to or greater than 0.50% N/A .50% 4.00 : 1.00 but less than 7.00 : 1.00 III. Equal to or greater than 0.30% 2.50% 0.00% 3.00 : 1.00 but less than 4.00 : 1.00 IV. Equal to or greater than 0.25% 1.50% 0.00% 2.00 : 1.00 but less than 3.00 : 1.00 V. Less than 2.00 : 1.00 0.20% 1.00% 0.00%
-19- AFFIRMATION OF GUARANTY ----------------------- The undersigned Guarantors hereby acknowledge and agree to the terms of the foregoing Second Amendment to Credit Agreement (the "Amendment"), and further acknowledge and agree that nothing contained in the Amendment in any way affects the validity and enforceability of that certain Subsidiary Guaranty (the "Guaranty") dated as of May 15, 1998, executed by each of the undersigned Guarantors in favor of Lenders, the validity and effectiveness of which Guaranty is hereby reaffirmed as of the Effective Date of the Amendment. CONTROL RESOURCES CORPORATION BY: /s/ Warren T. Lazarow ---------------------------- NAME: TITLE: P-COM NETWORK SERVICES, INC. BY: /s/ Warren T. Lazarow ---------------------------- NAME: TITLE: P-COM FINANCE CORPORATION BY: /s/ Warren T. Lazarow ---------------------------- NAME: TITLE: P-COM UNITED KINGDOM, INC. BY: /s/ Warren T. Lazarow ---------------------------- NAME: TITLE: TELEMATICS, INC. BY: /s/ Warren T. Lazarow ---------------------------- NAME: TITLE: -20- EX-10.42 8 THIRD AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.42 THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER ------------------------------------------------------ This THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this "Amendment") is entered into as of December 17, 1998, by and among P-Com, Inc., a Delaware corporation ("Borrower"), the financial institutions named on the signature pages hereof (each, a "Lender" and collectively the "Lenders"), Union Bank of California, N.A., as administrative agent for the Lenders ("Agent"), and Bank of America National Trust and Savings Association, as syndication agent ("Syndication Agent"), with reference to the following facts: A. Borrower, Agent, Syndication Agent and Lenders are parties to that certain Credit Agreement dated as of May 15, 1998, as amended (the "Credit Agreement"). The Credit Agreement and all related and supporting documents collectively are referred to in this Amendment as the "Loan Documents." B. The parties desire to amend and waive certain provisions of the Credit Agreement in accordance with the terms of this Amendment. NOW, THEREFORE, in consideration of the promises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms not otherwise defined herein shall ------------- have the same meanings as set forth in the Credit Agreement and the other Loan Documents. 2. Waiver. At the request of the Borrower, subject to the terms and ------ conditions contained herein and performance by the Borrower of all of the terms of this Amendment and the Loan Documents after the date hereof, and in reliance on the representations and warranties of the Borrower set forth herein, the undersigned Lenders hereby waive the Borrower's obligation to comply with Sections 6.2(a) and (d) of the Credit Agreement through June 30, 1999. Without limiting the generality of the provisions of Section 9.1 of the Credit Agreement, the waiver set forth herein shall be limited precisely as written and relates solely to the waiver of compliance by the Borrower with Sections 6.2(a) and (d) in the manner and to the extent described above, and nothing in this Amendment shall be deemed to (i) constitute a waiver of compliance by the Borrower with Sections 6.2(a) or (d) in any other instance, or (ii) constitute a waiver of any other Event of Default or other failure by the Borrower to perform in accordance with the Loan Documents or this Amendment, or (iii) prejudice any right or remedy that the Agent or any Lender may now have or may have in the future under or in connection with the Credit Agreement or the Loan Documents. 3. Amendments to Credit Agreement. The Credit Agreement is hereby ------------------------------ amended as follows: (a) The defined term "Receivables Facilities" in Section 1.1 is amended to read as follows: "Receivables Facilities": Any agreement(s), approved in advance ---------------------- by all Lenders, by and between Borrower and no more than three (3) Qualified Financial Institutions providing for the purchase by such financial institution(s) of Borrower's accounts receivable, as the same may from time to time be modified, supplemented, amended, restated, extended, renewed, or replaced in a manner no less favorable to Lenders or with the prior written consent of all Lenders. (b) Clause (iii) of the proviso in Section 2.5(a) is amended to read as follows: (iii) Borrower shall not request any Letter of Credit, if after giving effect to such issuance, the Letter of Credit Usage exceeds Five Million Dollars ($5,000,000) or any regulatory, legal or internal limit on the Issuing Bank's ability to issue the requested Letter of Credit. (c) Section 6.2(b) is amended to read as follows: (b) Leverage Ratio. As at the end of any fiscal quarter of the -------------- Borrower commencing with the fiscal quarter ending March 31, 1999, permit the ratio of Consolidated Funded Debt as at the end of such fiscal quarter, to Consolidated Annualized Adjusted EBITDA for such fiscal quarter, to be greater than the correlative amount indicated below:
Quarter Ending: Ratio: -------------- ----- March 31, 1999 18.00 : 1.00 June 30, 1999 10.00 : 1.00 September 30, 1999 5.00 : 1.00 December 31, 1999, and thereafter 4.00 : 1.00
For purposes of determining the ratio set forth in this Section 6.2(b), and for purposes of determining the "Applicable Margin" and "Commitment Fee Rate" as set forth in Exhibit E, for any period of --------- determination in which Consolidated Annualized Adjusted EBITDA is a sum less than Zero Dollars ($0), such sum shall be deemed to be One Dollar ($1). (d) Section 6.2(c) is amended to read as follows: (c) Consolidated Tangible Net Worth. Commencing with the ------------------------------- fiscal quarter ended December 31, 1998, permit Consolidated Tangible Net Worth as of the last day of any fiscal quarter of Borrower to be less than Thirty-Eight Million Dollars ($38,000,000), plus (i) 100% of Consolidated ---- Net Income (or loss not to exceed $10,000,000) for the fiscal quarter ended December 31, 1998, plus (ii) 100% of Consolidated Net Income (or loss not ---- to exceed $5,000,000) for the fiscal quarter ended March 31, 1999, plus ---- (iii) 100% of Consolidated Net Income (or loss not to exceed $2,000,000) for the fiscal quarter ended June 30, 1999, plus (iv) 100% of Consolidated ---- Net Income (but not loss) for the fiscal quarter ended September 30, 1999 and each quarter thereafter, plus (v) 100% of the Net Proceeds of any ---- Equity Issuance by the Borrower after September 30, 1998. (e) Section 6.2(e) is amended to read as follows: (e) Interest Coverage Ratio. As at the end of any fiscal ----------------------- quarter of Borrower commencing with the fiscal quarter ended March 31, 1999, permit the ratio of Consolidated Annualized Adjusted EBITDA for such quarter, to Consolidated Interest Expense for the four fiscal quarters ending on the last day of such fiscal quarter, to be less than the correlative amount indicated below:
Quarter Ending: Ratio: -------------- ------ March 31, 1999 1.00 : 1.00 June 30, 1999 1.00 : 1.00 September 30, 1999, and thereafter 3.00 : 1.00
(f) Clause (iii) of Section 6.2(f) is amended to read as follows: (iii) Liens in favor of no more than three (3) Qualified Financial Institutions, upon specific accounts receivable of Borrower purchased under the Receivables Facilities, provided that the obligations secured by such Liens shall not exceed $25,000,000 in the aggregate at any one time outstanding; and provided, further, that Borrower shall not permit any of the Receivables Facilities to be modified, supplemented, amended, restated, extended, renewed or replaced in a manner that is less favorable to Lenders without the prior written consent of all Lenders; (g) Clause (ii) of Section 6.2(l) is amended to read as follows: (ii) the Borrower may assign and sell accounts receivable to any three (3) Qualified Financial Institutions pursuant to the Receivables Facilities, provided that the total outstanding amount of all -------- purchased receivables under the Receivables Facilities shall not exceed $25,000,000 at any time; (h) Section 6.2(w) is amended to read as follows: (w) Minimum Consolidated Adjusted EBITDA. Permit Consolidated ------------------------------------ Adjusted EBITDA to reflect a loss of more than $10,000,000 for the fiscal quarter ended December 31, 1998. (i) Section 7.1(f) is amended to read as follows: (f) Any Loan Party shall (A) fail to pay any principal of, or premium or interest on, any Debt, the aggregate outstanding principal amount of which is at least $750,000 (excluding Debt evidenced by the Notes, and excluding Debt owed to Cylink Corporation), when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt, or (B) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Debt, when required to be performed or observed, and such failure shall result in a right, whether or not exercised, to accelerate the maturity of any such Debt; or (j) Section 7.1(m) is amended to read as follows: (m) The Borrower shall fail to receive, on or before December 22, 1998, Net Proceeds of at least $10,000,000 from an Equity Issuance after September 30, 1998, on terms satisfactory to Lenders; (k) Consent to Equity Issuance; Certain Payments in Respect of ---------------------------------------------------------- Preferred Stock. Notwithstanding Section 6.2(r) or any other provision of the - --------------- Credit Agreement, subject to the terms and conditions contained herein, and in reliance on the representations and warranties of the Borrower set forth herein, Lenders hereby consent to the Borrower's issuance and sale of its equity securities on the terms set forth in the Designations, Preferences and Rights of Series B Convertible Participating Preferred Stock of P-Com, Inc. (the "Certificate of Designation") as presented to Lenders. Notwithstanding Section 6.2(h) or any other provision of the Credit Agreement, Lenders hereby consent to the Borrower's redemption of, or Override Election payments with respect to, shares of the Borrower's Preferred Stock pursuant to the Certificate of Designation (the terms "Override Election" and "Preferred Stock", as used in this subsection (d), shall have the meanings set forth in the Certificate of Designation); provided that (i) at the time of and immediately following any -------- such redemption or Override Election payment there shall exist no condition or event that constitutes an Event of Default or Potential Event of Default; (ii) the Borrower shall not make any redemption or Override Election payment which is optional or otherwise not required to be made pursuant to the Certificate of Designation or other agreements entered into with respect to the issuance of the Preferred Stock; and (iii) the aggregate of any such redemption or Override Election payments shall not in any event exceed the lesser of (A) the difference of (x) the aggregate Net Proceeds received by the Borrower from the issuance and sale of such Preferred Stock minus (y) Nine Million Dollars ($9,000,000), or (B) ----- Five Million Dollars ($5,000,000). (l) Exhibit D is deleted and replaced with Exhibit D hereto. --------- --------- (m) Exhibit E is deleted and replaced with Exhibit E hereto. --------- --------- (n) Schedule 5.1(g) (Litigation), Schedule 6.2(f) (Liens), --------------- --------------- Schedule 6.2(g) (Debt), Schedule 6.2(k) (Contingent Obligations) to the Credit - --------------- --------------- Agreement are replaced with Schedule 5.1(g), Schedule 6.2(f), Schedule 6.2(g), --------------- --------------- --------------- and Schedule 6.2(k) attached hereto. Exhibit A to the Intellectual Property --------------- --------- Security Agreement is replaced with Exhibit A to Borrower Intellectual Property Security Agreement attached hereto. 4. Conditions to Effectiveness. --------------------------- This Amendment shall become effective as of December 17, 1998 (the "Effective Date"), only upon: (a) receipt by the Agent from the Borrower of an amendment fee as set forth separately in a letter agreement by and among the Borrower, the Agent and the Lenders; (b) receipt by the Agent of the following (each of which shall be in form and substance satisfactory to the Agent and its counsel): (i) counterparts of this Amendment duly executed on behalf of the Borrower and the Lenders; (ii) copies of resolutions of the Board of Directors or other authorizing documents of the Borrower, authorizing the execution and delivery of this Amendment; (c) affirmations of the Guaranty, duly executed on behalf of each Guarantor. 5. Representations and Warranties. In order to induce the Lenders to ------------------------------ enter into this Amendment, the Borrower represents and warrants to the Lenders that the following statements are true, correct and complete as of the effective date of this Amendment: (a) Corporate Power and Authority. The Borrower has all requisite ----------------------------- corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). The Certificate of Incorporation and Bylaws of the Borrower have not been amended since the copies previously delivered to the Lenders. (b) Authorization of Agreements. The execution and delivery of this --------------------------- Amendment and the performance by the Borrower of the Amended Agreement have been duly authorized by all necessary corporate action on the part of the Borrower. (c) No Conflict. The execution and delivery by the Borrower of this ----------- Amendment do not and will not contravene (i) any law or any governmental rule or regulation applicable to the Borrower, except to the extent not resulting in a Material Adverse Effect, (ii) the Certificate of Incorporation or Bylaws of the Borrower, (iii) any order, judgment or decree of any court or other agency of government binding on the Borrower, or (iv) any material agreement or instrument binding on the Borrower, except to the extent not resulting in a Material Adverse Effect. (d) Governmental Consents. The execution and delivery by the --------------------- Borrower of this Amendment and the performance by the Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body (except routine reports required pursuant to the Securities and Exchange Act of 1934, as amended (as such act is applicable to any Loan Party), which reports will be made in the ordinary course of business). (e) Binding Obligation. This Amendment and the Amended Agreement ------------------ have been duly executed and delivered by the Borrower and are the binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except in each case as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws and equitable principles relating to or affecting creditors' rights. (f) Incorporation of Representations and Warranties From Credit ----------------------------------------------------------- Agreement. The representations and warranties contained in Section 5.1 of the - --------- Credit Agreement are correct in all material respects on and as of the effective date of this Amendment as though made on and as of such date. Without limiting the generality of the foregoing, Borrower represents and warrants that all of Borrower's Copyrights, Patents, and Trademarks, in connection with the Material Products, including any such property acquired from Cylink Corporation, are set forth in Exhibits A, B and C to the Intellectual Property Security Agreement, and that all such Copyrights, Patents, and Trademarks have been registered with the U.S. Copyright Office, or the U.S. Patent and Trademark Office, as applicable. (g) Absence of Default. After giving effect to this Amendment, no ------------------ event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. (h) Equity Issuance. Borrower shall account for the Net Proceeds --------------- and any other amounts related to any Equity Issuance as equity or redeemable equity and not debt. 6. Release. ------- (a) Each Loan Party acknowledges that Lenders would not enter into this Amendment without the Loan Parties' assurance that each Loan Party has no claims against any Lender, the Agent, Syndication Agent, or any of such parties' officers, directors, employees or agents, arising out of or related to the Loan Documents or any other agreement between any Loan Party and any Lender. Except for the obligations arising hereafter under the Amended Agreement, each Loan Party releases each Lender, the Agent, Syndication Agent, and each of such parties' officers, directors and employees from any known or unknown claims which any Loan Party now has against any Lender, the Agent, or Syndication Agent of any nature, arising out of or related to the Loan Documents or any other agreement between any Loan Party and any Lender, including any claims that any Loan Party, or any Loan Party's successors, counsel, and advisors may in the future discover they would have had now if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability. Each Loan Party waives the provisions of California Civil Code section 1542, which states: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. (b) The provisions, waivers and releases set forth in this section are binding upon each Loan Party and each Loan Party's shareholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of each Lender, the Agent, Syndication Agent, and each such party's agents, employees, officers, directors, assigns and successors in interest as parties to the Credit Agreement. (c) The provisions of this section shall survive payment in full of the obligations, full performance of all the terms of this Amendment and the Loan Documents, and/or the Agent's or any Lender's actions to exercise any remedy available under the Loan Documents or otherwise. (d) Each Loan Party warrants and represents that each such Loan Party is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and each such Loan Party has not heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. Each Loan Party shall indemnify and hold harmless each Lender, the Agent, and Syndication Agent, from and against any claim, demand, damage, debt, liability (including payment of reasonable attorneys' fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer. 7. Miscellaneous. ------------- (a) Reference to and Effect on the Credit Agreement and the Other ------------------------------------------------------------- Loan Documents. - -------------- (i) On and after the Effective Date, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement," "thereunder," "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Agent or Lenders under the Credit Agreement or any of the other Loan Documents. (b) Fees and Expenses. All costs and expenses of the Agent and ----------------- Lenders, including, but not limited to, reasonable attorneys' fees and the reasonable estimate of the allocated cost of in-house counsel and staff, incurred by the Agent and Lenders in the preparation and negotiation of this Amendment constitute costs and expenses in connection with the amendment and restructuring of the Loan Documents, and as such are payable by the Borrower in accordance with Section 9.5 of the Credit Agreement. (c) Headings. Section and subsection headings in this Amendment are -------- included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (d) Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL -------------- BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. (e) Counterparts. This Amendment may be executed in any number of ------------ counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: P-COM, INC. BY: /s/ MICHAEL J. SOPHIE ------------------------------- TITLE: CFO/VP FINANCE ---------------------------- AGENT: UNION BANK OF CALIFORNIA, N.A. BY: /s/ PATRICIA LEE ------------------------------- TITLE: VICE PRESIDENT ---------------------------- LENDERS: UNION BANK OF CALIFORNIA, N.A. BY: /s/ PATRICIA LEE ------------------------------- TITLE: VICE PRESIDENT ---------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION BY: /s/ FRED L. THORNE ------------------------------- TITLE: VICE PRESIDENT ---------------------------- EXHIBIT D [FORM OF COMPLIANCE CERTIFICATE] 1. This Compliance Certificate ("Compliance Certificate") is executed and delivered by P-Com, Inc., a Delaware corporation (the "Borrower"), to Union Bank of California, N.A. (the "Agent"), pursuant to Section 6.1(a)(iii)(B) of the Credit Agreement dated as of May 15, 1998, among the Borrower, the financial institutions named therein and the Agent. Any terms used herein and not defined herein shall have the meanings defined in the Credit Agreement. This Compliance Certificate covers the Borrower's: Fiscal quarter ended _________, 19__ Fiscal year ended _________, 19__ 2. The following paragraphs set forth calculations in compliance with obligations pursuant to Section 6.2(a), (b), (c), (d), (e), (h) and (w) of the Credit Agreement, as of the end of the fiscal period set forth in paragraph 1 hereof. A. Quick Ratio (Sec. 6.2(a)): ------------------------- (a) Consolidated Quick Assets $_________ (b) Consolidated Current Liabilities $_________ Ratio (a) : (b) __________ Minimum Permitted Ratio
Quarter Ending: Ratio: -------------- ----- September 30, 1998 0.70 : 1.00 December 31, 1998 0.80 : 1.00 March 31, 1999 0.90 : 1.00 June 30, 1999, and thereafter 1.00 : 1.00
B. Leverage Ratio (Sec 6.2(b)): --------------------------- (a) Consolidated Funded Debt as at the end of the $_________ most recent fiscal quarter (b) Consolidated Annualized Adjusted EBITDA $__________ for the most recently ended fiscal quarter Ratio (a) to (b) __________ Maximum Permitted Ratio
Quarter Ending: Ratio: -------------- ----- March 31, 1999 18.00 : 1.00 June 30, 1999 10.00 : 1.00 September 30, 1999 5.00 : 1.00 December 31, 1999, and thereafter 4.00 : 1.00
C. Consolidated Tangible Net Worth (Sec. 6.2(c)): --------------------------------------------- (a) $38,000,000 (b) plus 100% of Consolidated Net Income (or loss $_________ not to exceed $10,000,000) for the fiscal quarter ended December 31, 1998 (c) plus 100% of Consolidated Net Income (or loss $_________ not to exceed $5,000,000) for the fiscal quarter ended March 31, 1999 (d) plus 100% of Consolidated Net Income (or loss $_________ not to exceed $2,000,000) for the fiscal quarter ended June 30, 1999 (e) plus 100% of Consolidated Net Income (but not $_________ loss) for the fiscal quarter ended September 30, 1999 and each quarter thereafter (f) plus 100% of the capital Net Proceeds of any $_________ Equity Issuance after September 30, 1998 (Note: includes Net Proceeds from any options, warrants or other similar rights exercised in respect of Borrower'capital stock). Minimum Required Consolidated Tangible Net Worth: (a) + (b) + (c) + (d) + (e) + (f): $_________ Actual Consolidated Tangible Net Worth: $_________ D. Profitability (Sec 6.2(d)): -------------------------- 1. (a) Net income before taxes of Borrower $_________ and its consolidated Subsidiaries on a fiscal year-to-date basis as of the last day of the most recent fiscal quarter, for the fiscal quarters ended September 30, 1998, and December 31, 1998 Required: No loss exceeding $82,000,000 2. (a) Net income before taxes of Borrower $_________ and its consolidated Subsidiaries for the most recent fiscal quarter, commencing with the quarter ended March 31, 1999 (b) Consolidated Net Income for the most $_________ recent fiscal quarter, commencing with the quarter ended March 31, 1999 Required: (a) and (b): greater than $0 E. Interest Coverage Ratio (Sec. 6.2(e)): ------------------------------------- (a) Consolidated Annualized Adjusted EBITDA $_________ for the most recent fiscal quarter (b) Consolidated Interest Expense for the four $_________ fiscal quarters ending on the last day of the most recent fiscal quarter Ratio (a) to (b) ____ : 1.00 Minimum Permitted Ratio
Quarter Ending: Ratio: -------------- ----- March 31, 1999 1.00 : 1.00 June 30, 1999 1.00 : 1.00 September 30, 1999, and thereafter 3.00 : 1.00
F. Dividends (Sec. 6.2(h)): ----------------------- Dividends declared or paid in current fiscal year $_________ Permitted: $0 G. Minimum Consolidated Adjusted EBITDA (Sec. 6.2(w)): -------------------------------------------------- Consolidated Adjusted EBITDA for the fiscal quarter $_________ ended December 31, 1998 Required: No loss exceeding $10,000,000 H. Consolidated Capital Expenditures (Sec. 6.2(x)): ----------------------------------------------- Consolidated Capital Expenditures of the Borrower $_________ and its Subsidiaries for the current fiscal quarter Permitted: ---------
Quarter Ending: Not more than: -------------- ------------- September 30, 1998 $7,500,000 December 31, 1998 $7,500,000 March 31, 1999, and thereafter $5,000,000
3. The undersigned has reviewed the terms of the Credit Agreement and has made, or caused to be made under his/her supervision, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the fiscal period covered by this Compliance Certificate. The undersigned does not (either as a result of such review or otherwise) have any knowledge of the existence as of the date of this Compliance Certificate of any condition or event that constitutes an Event of Default or a Potential Event of Default, with the exception set forth below in response to which the Borrower is taking or proposes to take the following actions (if none, so state): ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 4. This Compliance Certificate is executed on _______________, ___, by the Chief Executive Officer or Chief Financial Officer of the Borrower. The undersigned hereby certifies that each and every matter contained herein is derived from the Borrower's books and records and is, to the best knowledge of the undersigned, true and correct. P-Com, Inc. a Delaware corporation By:_________________________________ Title:______________________________ EXHIBIT E PRICING GRID The "Applicable Margin" and the "Commitment Fee Rate" shall mean the variable number of percentage points determined in accordance with the grid set forth below, based upon the Borrower's ratio of Consolidated Funded Debt as at the end of each fiscal quarter to Consolidated Annualized Adjusted EBITDA as specified in Section 6.2(b) (the "Leverage Ratio"), as determined by the Agent with reference to the Borrower's most recently delivered financial statements and Compliance Certificate. The effective date of any change in the Applicable Margin and/or the Commitment Fee Rate shall be five (5) Business Days following Agent's receipt of Borrower's financial statements and Compliance Certificate; provided that if Borrower shall not have timely delivered its financial statements and Compliance Certificate in accordance with Section 6.1(a), then commencing five (5) Business Days following the date upon which such financial statements should have been delivered and continuing until such financial statements are actually delivered, it shall be assumed for purposes of determining said rates that Borrower's Leverage Ratio is equal to or greater than 8.50 to 1.00.
Applicable Applicable Margin for Margin for Leverage Commitment LIBO Rate Base Rate Level Ratio Fee Rate Loans Loans ----- -------- ----------- ----------- ----------- I. Equal to or greater than 0.50% N/A 2.00% 8.50 : 1.00 II. Equal to or greater than 0.50% N/A 1.00% 7.00 : 1.00 but less than 8.50 : 1.00 III. Equal to or greater than 0.50% N/A .50% 4.00 : 1.00 but less than 7.00 : 1.00 IV. Equal to or greater than 0.30% 2.50% 0.00% 3.00 : 1.00 but less than 4.00 : 1.00 V. Equal to or greater than 0.25% 1.50% 0.00% 2.00 : 1.00 but less than 3.00 : 1.00 VI. Less than 2.00 : 1.00 0.20% 1.00% 0.00%
AFFIRMATION OF GUARANTY ----------------------- The undersigned Guarantors hereby acknowledge and agree to the terms of the foregoing Third Amendment to Credit Agreement (the "Amendment"), and further acknowledge and agree that nothing contained in the Amendment in any way affects the validity and enforceability of that certain Subsidiary Guaranty (the "Guaranty") dated as of May 15, 1998, executed by each of the undersigned Guarantors in favor of Lenders, the validity and effectiveness of which Guaranty is hereby reaffirmed as of the Effective Date of the Amendment. CONTROL RESOURCES CORPORATION By: /s/ WARREN LAZAROW ------------------------------- NAME: TITLE: P-COM NETWORK SERVICES, INC. By: /s/ WARREN LAZAROW ------------------------------- NAME: TITLE: P-COM FINANCE CORPORATION By: /s/ WARREN LAZAROW ------------------------------- NAME: TITLE: P-COM UNITED KINGDOM, INC. By: /s/ WARREN LAZAROW ------------------------------- NAME: TITLE: TELEMATICS, INC. By: /s/ WARREN LAZAROW ------------------------------- NAME: TITLE: EX-99.1 9 P-COM, INC. ENTERS INTO AN AGREEMENT EXHIBIT 99.1 FOR IMMEDIATE RELEASE Page 1 of 2 COMPANY CONTACT: Michael Sophie Chief Financial Officer (408) 866-3666 P-COM, INC. ENTERS INTO AN AGREEMENT FOR A $15 MILLION EQUITY INVESTMENT - -------------------------------------------------------------------------------- CAMPBELL, CA--December 22, 1998--P-Com, Inc. (NASDAQ National Market: PCMS) announced today that it has entered into an agreement for a $15 million convertible preferred stock private placement with three investors, Castle Creek Partners, LLC, Marshall Capital Management, and Heights Capital Management. Each of the Investors specializes in equity investments in public technology companies. Under the terms of the purchase agreement, P-Com will sell 15,000 shares of newly designated Series B Convertible Preferred Stock for an aggregate purchase price of $15 million. PaineWebber Incorporated served as the Company's placement agent on this transaction. The Series B Convertible Preferred Stock is convertible into shares of Common Stock immediately upon issuance, at conversion rates that vary with time and with the occurrence of certain events, and, subject to certain exceptions, will automatically convert into Common Stock three years after the date of its issuance by the Company. The Series B Convertible Preferred Stock will accrue a 6% per year premium, payable in cash or Common Stock, and carries 25% Common Stock purchase warrant coverage, which is exercisable at a premium to the current stock price. The Series B Convertible Preferred Stock is redeemable upon the occurrence of certain events. "This financing will strengthen the cash position on our balance sheet, positioning us to pursue P-Com's growth opportunities," said Michael J. Sophie, Chief Financial Officer of the Company. The securities to be issued in the private placement are not registered under the Securities Act of 1933, as amended (the "Act"), and will be offered and sold in the United States under the exemption from registration requirements provided by Regulation D promulgated under the Act. The Company will be filing a registration statement covering the resale of the Common Stock underlying the Series B Convertible Preferred Stock and warrants. P-Com, Inc. develops, manufactures and markets network access systems for the worldwide wireless telecommunications market. The point-to-point, spread spectrum, and point-to-multipoint radio links provided by P-Com are designed to satisfy the network requirements of cellular and personal communications services, corporate communications, public utilities and local governments. In addition, P-Com provides comprehensive network services including system and program planning and management, path design and installation. P-Com also provides network performance monitoring devices. --more-- Page 2 of 2 P-COM, INC. ENTERS INTO AN AGREEMENT FOR A $15 MILLION EQUITY INVESTMENT - -------------------------------------------------------------------------------- P-Com, Inc., with world headquarters in Campbell, California, USA and offices in Florida, New Jersey, Virginia, the UK, Italy, France, Germany, Poland, Mexico, and China, is an ISO 9001 certified company. For additional information, contact P-Com at: P-Com, Inc. * 3175 S. Winchester Boulevard * Campbell, CA 95008 * USA TEL: (408) 866-3666 * FAX: (408) 866-3655 ### -----END PRIVACY-ENHANCED MESSAGE-----