<PAGE>

                                                                   EXHIBIT 10.68

                          PENALTY SETTLEMENT AGREEMENT

     This Penalty Settlement Agreement (the "Agreement") is made between P-Com,
Inc., a Delaware corporation ("P-Com"), and Castle Creek Technology Partners
LLC, a Delaware limited liability company (the "Investor"), with respect to an
Agreement between P-Com and the Investor dated as of June 4, 1999 (the "Original
Agreement").  Capitalized terms not defined in this Agreement shall have the
meanings given them in the Original Agreement.

     1.  The Investor has, under the Original Agreement, a Put Right and/or a
right to receive Late Registration Penalties, under certain circumstances. Upon
the receipt of the consideration described in sections 2 and 3 below the
Investor hereby waives all past, present and future Put Rights and Late
Registration Penalties, for all past, present and future circumstances.

     2.  P-Com hereby agrees to forthwith issue to the Investor 70,050 shares of
unregistered P-Com common stock, which is equal to $330,330 divided by the
Price.  The "Price" is the product of (a) 90% times (b) the average of the
closing bid prices of P-Com common stock as reported by the Nasdaq National
Market for the 15 trading days ending on November 10, 1999 (inclusive).  The
parties agree that the Price is $4.715625.

     3.  Simultaneous with the delivery of this Agreement P-Com shall issue to
Investor the duly executed 12% Convertible Promissory Note, in the form attached
hereto as Exhibit A (the "Note").

     4.  The parties acknowledge that the sum of the quantities in Sections 2
and 3 of this Agreement are intended to reflect the Late Registration Penalties
which would accrue by December 20, 1999, and the Investor's potential ability
after that to use SEC Rule 144 for resales (subject to the requirements of Rule
144). This reference to Rule 144 is not intended to diminish in any way the
Original Agreement obligations of P-Com referred to in the first two sentences
of Section 11 of this Agreement.

     5.  P-Com hereby represents and warrants to Investor as follows as of the
date hereof:
<PAGE>

     (a)  Authorization and Enforcement.  (i) P-Com has the requisite power and
          -----------------------------
authority to enter into and perform its obligations under this Agreement and the
Note; (ii) the execution, delivery and performance of this Agreement and the
Note by P-Com and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by P-Com's Board of Directors and no
further consent or authorization of P-Com, its Board of Directors or its
stockholders is required; and (iii) this Agreement and the Note constitute valid
and binding obligations of P-Com enforceable against P-Com in accordance with
their respective terms.

     (b)  No Conflicts.  The execution, delivery and performance of this
          ------------
Agreement and the Note by P-Com and the consummation by P-Com of the
transactions contemplated hereby and thereby and the conversion of the Note into
Common Stock in accordance with the terms of the Note will not (i) result in a
violation of the Certificate of Incorporation (including without limitation the
Certificate) or the bylaws of P-Com; (ii) cause Investor to be deemed an
"Acquiring Person" under the Amended and Restated Rights Agreement between P-Com
and BankBoston, N.A.; or (iii) 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 under, or result in termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
P-Com or any of its subsidiaries is a party or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to P-Com or any of its
subsidiaries or by which any property or assets of P-Com or any of its
subsidiaries is bound or affected.

     (c)  Issuance of Shares.  The shares issuable hereunder and upon conversion
          ------------------
of the Note (the "Shares") are duly authorized and reserved for issuance, and,
are (or upon conversion of the Note, will be) validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances (except
as created by Investor) and will not be subject to preemptive rights (except as
granted by Investor) or to P-Com's knowledge after reasonable investigation
other similar rights of stockholders of P-Com (other than as granted by
Investor). The Board of Directors of P-Com has unanimously approved the issuance
of Shares.

     (d)  SEC Documents. As of their respective dates, the SEC Documents (as
          -------------
defined in the Purchase Agreement) complied in all material respects with the
requirements of the Exchange Act (as defined in the Purchase Agreement) and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, except for the Exceptions, 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, except for the Exceptions. None of the
statements made in any such SEC Documents is currently required to be updated or
amended under applicable law, except for the Exceptions. Since December 31,
1998, 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 of P-Com, except as
clearly disclosed as such in the SEC Documents filed with the SEC since December
31, 1998 and except for the Exceptions. The "Exceptions" are the necessity to
restate P-Com's financial statements for the matters and to the extent disclosed
in P-Com's January 28, 1999 and October 28, 1999 press releases, and the various
writedowns, writeoffs and charges described in P-Com's Form 10-Q for the quarter
ended June 30, 1999.

                                       2
<PAGE>

          (e)  Disclosure. No information (written or oral) relating to or
               ----------
concerning P-Com and set forth in this Agreement or provided to Investor 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 P-Com or any of its subsidiaries which has not been
publicly disclosed. P-Com has not provided Investor with any material non-public
information.

          (f)  Exemption.  The transactions contemplated hereby are exempt from
               ---------
the registration requirements of the Securities Act.

      6.  The Investor hereby waives any rights and remedies under the Original
Agreement arising from inaccuracies in the SEC Documents to the extent such
inaccuracies were caused by the Exceptions.

     7.  With a view to making available the benefits of certain rules and
regulations of the Securities and Exchange Commission (the "Commission") which
may permit the sale of the Shares to the public without registration, P-Com
agrees to:

          A.  Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act;

          B.  File with the Commission in a timely manner all reports and other
documents required of P-Com under the Securities Act and the Exchange Act;

          C.  So long as Investor owns any Shares, furnish to Investor forthwith
upon request a written statement by P-Com as to its compliance with the
reporting requirements of Rule 144, and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of P-Com, and such
other reports and documents so filed as Investor may reasonably request in
availing itself of any rule or regulation of the Commission allowing Investor to
sell any such securities without registration.

     8.  If P-Com proposes to register shares of common stock under the
Securities Act in connection with the public offering of such shares (other than
the resale registration statement for the Registrable Securities contemplated by
the Original Agreement or a registration relating solely to the sale of
securities issued by P-Com on June 22, 1999 to certain investors in the amount
of $40,000,000 or to participants in a Company stock plan or employee stock
award or a registration on Form S-4 under the Securities Act or any successor or
similar form registering stock issuable upon a reclassification, a business
combination involving an exchange of

                                       3
<PAGE>

securities or an exchange offer for securities of the issuer or another entity)
(a "Proposed Registration"), P-Com shall, at such time, promptly give Investor
written notice of such Proposed Registration. Investor shall have thirty (30)
days from its receipt of such notice to deliver to P-Com a written request
specifying the amount of Shares that it intends to sell and Investor's intended
method of distribution. Upon receipt of such request, P-Com shall use its best
efforts to cause all Shares which P-Com has been requested to register to be
registered under the Securities Act to the extent necessary to permit their sale
or other disposition in accordance with the intended methods of distribution
specified in the request of Investor; provided, however, that P-Com shall have
the right to postpone or withdraw any registration effected pursuant to this
section without obligation to Investor. If, in connection with any underwritten
public offering for the account of P-Com, the managing underwriter(s) thereof
shall impose a limitation on the number of shares of common stock which may be
included in the registration statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distributions, then P-Com shall be obligated to include in
such registration statement only such limited portion of the Shares with respect
to which Investor has requested inclusion hereunder as such underwriter(s) shall
permit. P-Com shall not exclude any Shares unless P-Com has first excluded all
outstanding securities, the holders of which are not entitled to inclusion of
such securities in such registration statement; and provided, further, however,
that, after giving effect to the immediately preceding proviso, any exclusion of
Shares shall be made pro rata with holders of other securities having the right
to include such securities in the registration statement. The Investor shall
provide all requested information needed for the registration statement.

     9.  P-Com will use all reasonable efforts to cause all Shares held by
Investor to be listed on each securities exchange on which similar securities
issued by P-Com are then listed.

     10. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof. Any negotiations, understandings or
agreements, prior or

                                       4
<PAGE>

contemporaneous, written or oral, with respect to such subject matter are
superseded hereby and merged herein. This Agreement may not be amended except in
writing.

     11.  Except as expressly amended hereby, the Original Agreement, as amended
in writing from time to time through the date hereof, remains unchanged and in
full force and effect. Without limitation, the provisions of the Original
Agreement requiring P-Com to use its best efforts to register for resale the
Registrable Securities remain effective; however, the particular remedies of the
Put Right and the Late Registration Penalties are eliminated. Also, the Investor
hereby agrees not to, until the earlier of January 31, 2000 and such time as P-
Com has fully repaid the Union Bank of California debt due in January 2000, seek
any remedy whatever for failure to have the resale registration statement
declared effective, and further agrees not to before or after such time ever
seek any remedy whatever for failure to have the resale registration statement
declared, before November 16, 1999, effective.

DATED:  November 16, 1999         P-COM, INC.

                                  By: /s/ Robert E. Collins
                                     ---------------------------------

                                  CASTLE CREEK TECHNOLOGY PARTNERS LLC

                                  By:   Castle Creek Partners, LLC

                                        By: /s/ Richard S. Marks
                                           ---------------------------
                                           Richard S. Marks, Vice President

                                       5
<PAGE>

                                   EXHIBIT A
                                   ---------

                                  P-COM, INC.

                                PROMISSORY NOTE
                                ---------------

November 16, 1999                                                       $400,000

          P-Com, Inc., a Delaware corporation (the "Company"), hereby promises
to pay to the order of Castle Creek Technology Partners LLC  the principal
amount of $400,000 together with interest thereon calculated from the date
hereof in accordance with the provisions of this Note.

          This Note was issued pursuant to a Penalty Settlement Agreement,
entered into as of November 16, 1999 (as amended and modified from time to time,
the "Agreement"), between the Company and the original holder of this Note.

          1.  Payment of Interest.  Except as otherwise expressly provided in
              -------------------
paragraph 3(b) hereof, interest shall accrue at the rate of twelve percent (12%)
per annum on the unpaid principal amount of this Note outstanding from time to
time, or (if less) at the highest rate then permitted under applicable law. The
Company shall pay to the holder of this Note all accrued interest on the date
the principal amount of this Note is due (whether at maturity or otherwise).
Unless prohibited under applicable law, any accrued interest which is not paid
on the date on which it is due and payable shall bear interest at the same rate
at which interest is then accruing on the principal amount of this Note until
such interest is paid. Interest shall accrue on any principal payment due under
this Note and, to the extent permitted by applicable law, on any interest which
has not been paid on the date on which it is due and payable until such time as
payment therefor is actually delivered to the holder of this Note.

          2.  Payment of Principal on Note.
              ----------------------------
              (a)  Scheduled Payments.  The Company shall pay the principal
                   ------------------
amount of $400,000 (or such lesser principal amount then outstanding) to the
holder of this Note on November 15, 2000, together with all accrued and unpaid
interest on the principal amount being repaid.

              (b)  Prepayments.  The Company may not prepay this Note without
                   -----------
the prior written consent of the Holder which may be withheld for any or no
reason. In connection with each prepayment of principal hereunder, the Company
shall also pay all accrued and unpaid interest to the date of prepayment on the
principal amount of this Note being repaid.

          3.  Events of Default.
              -----------------
              (a)  Definition.  For purposes of this Note, an Event of Default
                   ----------
shall be deemed to have occurred if:

                                  Exhibit A-1
<PAGE>

                   (i)    the Company fails to pay when due and payable (whether
at maturity or otherwise) the full amount of interest then accrued on this Note
or the full amount of any principal payment on this Note;

                   (ii)   the Company fails to perform or observe any other
material provision contained in this Note or in the Agreement, and such failure
is not cured within 5 days after the occurrence hereof;

                   (iii)  any representation, warranty or information contained
in the Agreement is false or misleading in any material respect on the date
made;

                   (iv)   the Company or any subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Company or any subsidiary bankrupt or insolvent; or any order
for relief with respect to the Company or any subsidiary is entered under the
Federal Bankruptcy Code; or the Company or any subsidiary petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company or any subsidiary, or of any substantial part of the
assets of the Company or any subsidiary, or commences any proceeding (other than
a proceeding for the voluntary liquidation and dissolution of any subsidiary)
relating to the Company or any subsidiary under any bankruptcy reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any subsidiary and either (A)
the Company or any such subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (B) such petition, application or
proceeding is not dismissed within 60 days;

                   (v)  a judgment in excess of $250,000 is rendered against the
Company or any subsidiary and, within 60 days after entry thereof, such judgment
is not discharged in full or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not discharged
in full; or

                   (vi) the Company or any subsidiary defaults in the
performance of any obligation if the effect of such default is to cause an
amount exceeding $250,000 to become due prior to its stated maturity or to
permit the holder or holders of such obligation to cause an amount exceeding
$250,000 to become due prior to its stated maturity.

          The foregoing shall constitute Events of Default whatever the reason
or cause for any such Event of Default and whether it is voluntary or
involuntary or is effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body.

              (b)  Consequences of Events of Default.
                   ---------------------------------
                   (i)  If any Event of Default has occurred the interest rate
on this Note shall increase immediately to the lesser of 18% or the highest
interest rate permitted by law.

                   (ii) If an Event of Default of the type described in
subparagraph 3(a)(iv) has occurred, the aggregate principal amount of this Note
(together with

                                  Exhibit A-2
<PAGE>

all accrued interest thereon and all other amounts due and payable with respect
thereto) shall become immediately due and payable without any action on the part
of the holders of this Note, and the Company shall immediately pay to the
holders of this Note all amounts due and payable with respect to this Note.

                   (iii)  If any Event of Default has occurred (other than under
subparagraph 3(a)(iv)), the holder of this Note may declare all or any portion
of the outstanding principal amount of this Note (together with all accrued
interest thereon and all other amounts due and payable with respect thereto) to
be immediately due and payable and may demand immediate payment of all or any
portion of the outstanding principal amount of this Note (together with all such
other amounts then due and payable).

                   (iv)   The holder of this Note shall also have any other
rights which such holder may have been afforded under any contract or agreement
at any time and any other rights which such holder may have pursuant to
applicable law.

                   (v)    The Company hereby waives diligence, presentment,
protest and demand and notice of protest and demand, dishonor and nonpayment of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time and that the holder hereof may accept security for
this Note or release security for this Note, all without in any way affecting
the liability of the Company hereunder.

          4.  Amendment and Waiver.  Except as otherwise expressly provided
              --------------------
herein, the provisions of this Note may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holder of this Note.

          5.  Payments.  All payments to be made to the holder of this Note
              --------
shall be made in the lawful money of the United States of America in immediately
available funds.

          6.  Place of Payment.  Payments of principal and interest shall be
              ----------------
paid by wire transfer of immediately available funds to an account designated by
the holder of this Note.

          7.  Business Days.  If any payment is due, or any time period for
              -------------
giving notice or taking action expires, on a day which is a Saturday, Sunday or
legal holiday in the State of New York, the payment shall be due and payable on,
and the time period shall automatically be extended to, the next business day
immediately following such Saturday, Sunday or legal holiday, and interest shall
continue to accrue at the required rate hereunder until any such payment is
made.

          8.  Conversion.
              ----------

              (a)  The Holder may, at any time and from time to time, convert
all or any part of this Note into fully paid and non-assessable shares of common
stock of the Company by delivery of a conversion notice to the Company. The
effective date of any conversion shall be the date of the conversion notice.
Upon any conversion the Company will within three business days of receipt of
this Note and the conversion notice, issue to the Holder such number of shares
of common stock equal to (i) the principal amount of this Note being converted
plus all accrued


                                  Exhibit A-3
<PAGE>

and unpaid interest thereon divided by (ii) $4.715625 (the "Conversion Price").
If the Note is converted for less than the full amount of principal, the Company
shall cancel the original Note and issue to the Holder a new Note, of like
tenor, for the remaining principal balance.

              (b)  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 upon the conversion of this Note.

              (c)  No fractional shares of common stock are to be issued upon
the conversion of this Note, 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.

              (d)  Notwithstanding anything to the contrary contained herein,
this Note 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% (the "Applicable Percentage") of the shares of common stock.
                        ---------------------
To the extent the above limitation applies, the determination of whether this
Note shall be exercisable (vis-a-vis other securities owned by Holder which
contain similar limitations on conversion) shall be made on the basis of the
earliest submission of this Note (vis-a-vis other securities owned by the Holder
which contain similar limitations on conversion), in each case subject to such
aggregate percentage limitation. No prior inability to convert this Note
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of
convertibility. 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 Regulation
13D and G thereunder. The provisions of this paragraph 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 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, 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 Section shall apply to each
successor Holder.

          9.  Stock Splits, Stock Dividends, Etc.  If at any time on or after
              ----------------------------------
the date of issuance of this Note, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, combination,
reclassification or other similar event, 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 Conversion Price shall be proportionately
increased. In such event, the Company shall notify the Company's transfer agent
of such change on or before the effective date thereof.

          10. Adjustment Due to Distribution.  If 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 otherwise (including any dividend or

                                  Exhibit A-4
<PAGE>

distribution to the Company's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary) (a "Distribution") at any
                                                      ------------
time, then the Holder shall be entitled, upon any conversion of this Note after
the date of record for determining shareholders entitled to such Distribution,
to receive the amount of such assets (or rights) which would have been payable
to the Holder had the Holder with respect to the shares of common stock issuable
upon such conversion (without regard to any limitations on conversion or
exercise herein or elsewhere contained) been the holder of such shares of common
stock on the record date for the determination of shareholders entitled to such
Distribution.

          11.  Purchase Rights.  If the Company issues any securities or rights
               ---------------
to purchase stock, warrants, securities or other property (the "Purchase
                                                                --------
Rights") pro rata to the record holders of any class of common stock, then the
------
Holders will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which each Holder could have acquired if
such Holder had held the number of shares of common stock acquirable upon
complete conversion of this Note (without regard to any limitations on
conversion or exercise herein or elsewhere contained) immediately before the
date on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of common stock are to be determined for the grants, issue or sale of such
Purchase Rights.

          12.  Governing Law.  All issues and questions concerning the
               -------------
construction, validity, enforcement and interpretation of this Note shall be
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.

          13.  Application of Payments.  All payments shall be applied first, to
               -----------------------                                 -----
accrued and unpaid interest on the unpaid principal balance of this Note and
then to the unpaid principal balance of this Note.
----

          14.  Late Charge.  If a payment of principal or interest to be made
               -----------
pursuant to this Note becomes past due for a period in excess of 5 days, The
Company shall pay on demand to the Holder a late charge of 2% of the amount of
such overdue payment.

          15.  Costs of Collection.  If any suit or action is instituted or
               -------------------
attorneys are employed to collect this Note or any part hereof, the Company
promises and agrees to pay all costs of collection, including all court costs
and reasonable attorneys' fees based upon customary hourly rates and not a
percentage of the indebtedness outstanding.

          16.  WAIVER OF JURY TRIAL.  THE COMPANY ACKNOWLEDGES AND AGREES THAT
               --------------------
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE WOULD BE BASED UPON DIFFICULT
AND COMPLEX ISSUES AND THEREFORE, THE COMPANY AGREES THAT ANY COURT PROCEEDING
ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

                                  Exhibit A-5
<PAGE>

          IN WITNESS WHEREOF, the Company has executed and delivered this Note
on November 16, 1999.

                              P-COM, INC.

                              By:
                                   ---------------------------
                              Its:
                                   ---------------------------

                                  Exhibit A-6