<PAGE>

--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A
                                 AMENDMENT NO. 4
                                  TO FORM 10-K

(MARK ONE)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended December 31, 1998.

OR
[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from             to             .

                         Commission File Number: 0-25356
                      ------------------------------------

                                   P-Com, Inc.
             (Exact name of Registrant as specified in its charter)

                       ----------------------------------

        Delaware                                         77-0289371
(State of Incorporation)                      (IRS Employer Identification No. )

            3175 S. Winchester Boulevard, Campbell, California 95008
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (408) 866-3666
--------------------------------------------------------------------------------

Securities Registered Pursuant To Section 12(B) Of The Act:

   Title of each class                 Name of each exchange on which registered
   -------------------                 -----------------------------------------
          None                                                None

Securities Registered Pursuant To Section 12(G) Of The Act: Common Stock,
$0.0001 par value. Preferred stock purchase rights.

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

      The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of March 18, 1999, was approximately $406,802,000 (based upon
the closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading date prior to that date). Shares of
Common Stock held by each executive officer, director and holder of 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

      On March 18, 1999, approximately 48,944,270 shares of the Registrant's
Common Stock, $0.0001 par value, were outstanding.

--------------------------------------------------------------------------------
<PAGE>

 AMENDED FILING OF FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 - RESTATEMENT
           OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION

      P-Com, Inc. (the "Company") is amending, pursuant to this amendment, its
Annual Report on Form 10-K for the year ended December 31, 1998. The Company is
amending, and pursuant to those amendments has revised its 1998 as reflected in
this filing, and first quarter of 1999 financial statements, to revise the
accounting treatment of certain contracts with a major customer. Under a joint
license and development contract, the Company recognized $10.5 million of
revenue in 1998 and $1.5 million in the first quarter of 1999 of this $12
million contract on a percentage of completion basis. Recently, the Company
determined that a related Original Equipment Manufacturer ("OEM") agreement
which included payments of $8 million to this customer in 1999 and 2000
specifically earmarked for marketing the Company's products manufactured for
this customer, should have offset a portion of the revenue recognized
previously. The net effect is to reduce 1998 revenue and pretax income by $7.1
million and to reduce the first quarter of 1999 revenue and pretax income by
$0.9 million. This amended filing contains related financial information and
disclosures as of and for the year ended December 31, 1998. See Note 1 to the
Consolidated Financial Statements.


                                       1
<PAGE>

                                     PART I

ITEM 1. BUSINESS

            The following Business section contains forward-looking statements
which involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Certain Factors Affecting the Company" and elsewhere in this Annual Report on
Form 10-K.

            P-Com was incorporated in Delaware on August 23, 1991. P-Com
supplies equipment and services for access to worldwide telecommunications and
broadcast networks. The Company's Tel-Link(R) and Airlink/Airpro systems
(point-to-point radios) are used as wireless digital links in applications that
include interconnecting base stations and mobile switching centers in
microcellular and personal communications services ("PCN/PCS") networks for
providing local telephone company ("telco") connectivity in the local loop and
public and private networks. The integrated architecture and high software
content of the Company's systems are designed to offer cost-effective,
high-performance products with a high degree of flexibility and functionality.
Additionally, the Company offers turnkey microwave relocation services,
engineering, path design, program management, installation and maintenance of
communication systems to network service providers. The Company is currently
field testing and further developing a range of point-to-multipoint radio
systems for use in both the telecommunications and broadcast industries.

            P-Com's Tel-Link(R), Point-to-Multipoint and Airlink/Airpro radio
systems utilize a common architecture for systems in multiple millimeter wave
and unlicensed spread spectrum microwave frequencies including 2.4 GHz, 5.7 GHz,
7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 24 GHz, 26 GHz, 28 GHz, 31 GHz,
38 GHz and 50 GHz. The Company's systems are designed to be highly reliable,
cost effective and simple to install and maintain. Software embedded in the
Company's systems allows the user to easily configure and adjust system settings
such as frequency, power and capacity without manual tuning and mechanical
adjustments. The Company also markets a full line of Windows and SNMP- based
software products that are complementary to its systems as sophisticated
diagnostic, maintenance, network management and system configuration tools.

            The Company's radio systems are sold internationally and
domestically through strategic partners, system providers, original equipment
manufacturers ("OEMs") and distributors as well as directly to end-users. The
Company's radio system customers include Advanced Radio Telecom Corp. ("ART"),
Bosch Telecom GmbH, Lucent Technologies, Inc. (including the entities formerly
known as AT&T Network Systems Deutschland GmbH and AT&T Network Systems
Nederland BV), Mercury Communications Ltd., Mercury One-2-One Personal
Communications, Orange Personal Communications Services, Italtel S.p.A.
(formerly known as Siemens (Italtel) Limited, Ericsson, Ltd., Fujitsu Limited,
Northern Telecom, Ltd. and WinStar Communications, Inc. (collectively with its
subsidiary WinStar Equipment Corp., "WinStar"). The Company's customers for
services include AT&T Wireless, Bell Atlantic Corp., BellSouth Corp., Mercury
One-2-One Personal Communications, Omnipoint Corporation, Orange Personal
Communications Services, PrimeCo Personal Communications, Sprint Spectrum,
Tellabs Operations, Inc. and WinStar Communications Inc.

            P-Com received in December 1993 its initial ISO 9001 registration, a
standard established by the International Organization for Standardization that
provides a methodology by which manufacturers can obtain quality certification.
In accordance with ISO 9001 requirements, the Company's ISO 9001 registration
was subsequently recertified. The Company also completed ISO 9001 registration
for its United Kingdom sales and customer support facility, Geritel facility in
Italy in 1996 and Technosystem facility in Italy in 1997. The Company is in the
process of obtaining ISO 9001 registration for its other facilities outside of
the United States.

Background

            In recent years, there has been an increase in demand for high
performance voice, data, facsimile and video communications. This trend, coupled
with regulatory changes in the United States and abroad and technological
advances, has led to significant growth in the number of users for existing
telecommunications capacity and the emergence of new wireless services for both
mobile and fixed applications.

            In response to this increased demand, existing mobile wireless
service providers, such as cellular service providers, have begun upgrading
their networks to more effectively use their allocated frequency spectrum to
accommodate more users and provide enhanced additional features, such as paging
or facsimile service. One such method of increasing capacity involves dividing
existing coverage cells into several smaller radius cells, which allows the same
frequency of the radio spectrum to be reused in adjacent cells. At the same
time, other telecommunications service providers are beginning to establish
PCN/PCS networks to provide a broad range of mobile wireless communications
similar to these enhanced cellular services. These


                                       2
<PAGE>

microcellular upgrades to existing systems and new PCN/PCS networks require the
establishment of additional, interconnected base stations.

            Additionally, there has been a worldwide trend toward privatization
of public telephone operators ("PTOs") and deregulation of local loop services.
This trend has resulted in increased competition among companies seeking to
provide local access to the Public Switched Telephone Network (PSTN), which has
resulted in increased spending by existing PTOs and the emergence of new
companies providing fixed telecommunications services. As companies enter this
market, they must establish an infrastructure to deliver local fixed
telecommunications services and interconnect that infrastructure with the PSTN.
This local access and interconnect can often be implemented using wireless
technology at a cost and time advantage to wireline alternatives.

            As competition among service providers intensifies, it is becoming
increasingly important for them to respond quickly to changes in user patterns
and preferences. This frequently involves increasing the coverage of their
networks but also involves adding additional features, functionality, and
service offerings to their customers. As time to market has become ever more
critical, network service providers have increasingly looked to outside
suppliers, including equipment suppliers, for services such as network design
and installation. These service providers have also come to expect their
equipment suppliers to develop and offer additional products for new service
offerings, such as point-to-multipoint product offerings and access devices for
connecting their networks with the customers end site. Point-to-multipoint
offerings are being driven by the need for greater flexibility and more
efficient use of spectrum allocations. Equipment providers with expertise in
these areas are becoming critical for the implementation of network upgrades and
next generation network buildout.

            Millimeter wave radio systems are increasingly utilized for
short-haul wireless connections such as base station interconnect, local fixed
telecommunications access, and interconnect to the PSTN. The lower end of the
radio frequency spectrum, encompassing the traditional microwave frequency
bands, requires the use of more expensive equipment and has become increasingly
congested as compared to the millimeter wave frequency bands. Moreover, higher
frequencies allow a greater number of channels to be allocated in the same
percentage of spectrum compared to lower frequencies. The shorter transmission
distances of higher frequencies also allow these frequencies to be reused in
adjacent geographic areas whereas lower frequencies often propagate beyond the
desired locale into nearby areas. Therefore, regulatory authorities responsible
for the allocation of the radio wave spectrum are under increasing pressure to
assign millimeter wave frequency bands to those applications that can
effectively utilize this portion of the spectrum.

            Most conventional millimeter wave radio systems have been introduced
by suppliers of microwave technology based on architectures that were originally
designed and optimized for microwave frequency bands. These conventional systems
often are expensive to install and configure, lack certain advanced features and
do not readily support remote system management and maintenance. The Company
believes that there is a significant market opportunity for short-haul
communications solutions that are optimized for millimeter wave applications and
offer high levels of functionality, ease of installation and a low cost of
ownership.

            The above notwithstanding, during 1998 the telecommunications
equipment industry as a whole experienced a slowdown. This was due in part to
the economic turmoil in Asia, where the Company saw its sales drop by over 46%
in 1998 compared with 1997. Sales within the United States dropped by over 40%
in 1998 compared with 1997, due in part to surplus capacity in the industry.
Additionally, since the Company`s largest cutomers make significant investments
in capital equipment when building telecommunication network infrastructures,
customer requirements may differ substantially from year to year. For example,
three customers purchased an aggregate of of approximately $43 million in 1997
compared with approximately $4 million in 1998. Likewise, as discussed further
under "Competition," the wireless telecommunications market is intensively
competitive and the Company's wireless-based radio systems compete with
alternative technologies. Many of these competitors have substantially greater
installed bases and financial and other resources than the Company.

The P-Com Solution

            While traditional high capacity microwave systems remain expensive,
the opening of unlicensed spread spectrum frequencies by the FCC has allowed
cost effective solutions in the ISM (industrial, scientific and medical) bands.
The Company's AirLink/Airpro product line has two primary applications. The
first application is to provide telephone connectivity to remote locations where
the limited number of users does not justify the cost of a cellular station or
wired communications link. AirLink is capable of providing point-to-point
communications and point-to-multipoint over distances up to thirty miles. The
second application is to provide a data transmission network in locations, such
as developing countries, where wired telecommunications infrastructure is either
unreliable or nonexistent.

            In addressing these two markets, the Company has positioned its
AirLink product line between the full featured, point-to-point, very high speed
microwave radio links and the high volume, low power spread spectrum wireless
devices. The Company believes that its AirLink product line responds to a market
need that exists between these two ends of the marketplace for a cost effective,
ruggedized, outdoor wireless product offering that is capable of transmitting at
medium data rates between 19.2 kbps


                                       3
<PAGE>

and 2 Mbps. The Company offers over 20 different models of its AirLink/Airpro
products to specifically address a wide range of individual customer needs
within this market segment.

            The Company's strategy for its AirLink product line is to provide
last mile and data network solutions at ranges of up to 30 miles and to continue
to seek feature improvements and cost reductions to enhance and maintain its
position within this market segment. Airlink is differentiated from Airpro by
the fact that Airlink is less expensive, without network management, while the
Airpro series incorporates network management software at a minimal cost
increase. Airpro network management allows remote configuration and diagnostics
of the Airpro network. The Company intends to maintain its strong technical
position in the wireless communications market through continued improvement of
its radio frequency designs, ASIC modem chips and software modules.

      Existing Products and Services

            P-Com offers equipment and services necessary to access
telecommunications and broadcast networks worldwide. The Company's Tel-Link(R)
millimeter wave radio systems and proprietary software offer telecommunications
service providers wireless connections for short-haul applications. The Company
also utilizes both frequency shift keying (FSK) and spread spectrum modulation
techniques in its products. In addition, the Company is developing systems which
utilize Quadrature Phase Shift Keying (QPSK) and Quadrature Amplitude Modulation
(QAM) technologies. These systems are designed to be highly reliable,
cost-effective and simple to install and maintain, thus lowering the service
provider's overall cost of ownership. Additionally, the Company offers complete
turnkey relocation services for new licensees of radio spectrum who must first
remove current users of the frequencies before building out new networks, and
also offers network design, construction, and maintenance services. P-Com also
offers frame relay and integrated access products for network service providers
to facilitate managed connections of end users to their network. The Company
markets its systems and services to cellular and PCN/PCS service providers
implementing microcellular networks and to companies offering local loop
telecommunications services.

            The diagram set forth below illustrates the use of the Company's
radio systems to connect base stations in a cellular or PCN/PCS application; the
Company's systems are used in a similar manner in cellular networks.

                                    [GRAPHIC]

            The following diagram shows the use of the Company's systems in a
PTO/local loop application to establish short-haul radio connections for telco
service utilizing the Company's point-to-point radio systems:

                                    [GRAPHIC]


                                       4
<PAGE>

            The following diagram shows the use of the Company's systems in a
PTO/local loop application to establish short-haul radio connections for telco
service utilizing the Company's point-to-multipoint radio systems. The Company
believes its current solutions offer the following benefits:

                                    [GRAPHIC]

            Commonality of Architecture. The Company's Tel-Link(R) systems
employ a design architecture that is optimized for operation at millimeter wave
and microwave frequencies. In contrast to most conventional radio systems, the
Company's systems across this frequency range are identical in architecture,
functionality and features, except for the final stage of the system which
determines the transmit and receive frequencies. This degree of commonality
assists P-Com in providing a range of products to customers that operate systems
in numerous millimeter wave and microwave bands. Currently, the Company is
shipping 7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, 28 GHz, 31 GHz,
38 GHz and 50 GHz systems. The common architecture employed in the Company's
systems is designed to offer P-Com's customers lower overall cost of ownership
and ease of system implementation through such benefits as reduced spare part
inventories, common features and software across the family of systems, reduced
training and easy integration into a network management system. The Tel-Link(R)
systems employ a high level of circuit integration, with the concomitant
advantages of fewer components and connections, less heat dissipation and
reduced human involvement in production and testing.

            Ease of Installation. The Company's systems were designed to lower
installation costs by minimizing the time and effort involved in system
implementation. The two primary assemblies of the systems, the outdoor unit
("ODU"), which is typically located on a tower or a rooftop, and the indoor unit
("IDU"), are connected with a single coaxial cable. Most conventional systems
require multiple cable connections between the IDU and the ODU, are manually
tuned and require numerous mechanical adjustments. The Company's systems are
smaller and lighter than conventional systems, and are software-configurable,
requiring minimal manual tuning and mechanical adjustments during installation.

            High Level of Software Functionality. The Tel-Link(R) architecture
is designed to provide the Company's customers with a high level of
functionality to facilitate operation of the systems. The configuration of the
Company's systems, including setting the system's power and frequency and
upgrading its capacity, can be performed via the keypad located on the IDU. The
Company also offers proprietary Windows and SNMP-based software tools that
permit a user to perform system configuration from a personal computer attached
directly to the IDU or from any remote location accessed through a network
management system. The capacity of the Company's systems can be upgraded through
software, providing a greater degree of flexibility for customers. In contrast,
conventional millimeter wave systems typically require mechanical adjustments
and manual tuning on both the IDU and ODU, and their capacities cannot be
upgraded using software. To date, the Company has not sold a significant amount
of software separately.

            Cost-effective Maintenance. The ease of maintenance of the
Tel-Link(R) systems is primarily due to the software embedded in the system and
its software tools. The Company includes a significant amount of the system's
circuitry in the IDU where system reliability is increased due to less demanding
temperature extremes and maintenance is easier to perform. Most conventional
systems contain more circuitry in the ODU, which exposes the circuitry to a
wider temperature range. This may require that more maintenance take place in
the ODU, which is typically more difficult to access. Use of the Company's
proprietary maintenance software tools can be on-site at the IDU or from any
remote location through a network management


                                       5
<PAGE>

system. These tools allow the user to read the status of numerous radio
parameters and to change settings and configurations if desired. Maintenance
tools offered with the Tel-Link(R) systems include in-service performance
monitoring and analysis, system alarm reporting and IDU and ODU temperature
readings.

            Comprehensive Services. The Company provides turnkey microwave
relocation, engineering, path design, program management, installation and
maintenance to the telecommunications industry. Such service packages assist in
meeting the critical cost and timeline objectives demanded by the wireless
industry. The Company's service division is designed to be involved in the
aspects of system build-out, including such tasks as needs and objectives
assessment, system and program planning, network engineering, operations,
maintenance, frequency coordination and resolution of regulatory issues,
management reporting, training, installation, commissioning and acceptance, and
preparation of documentation. The Company provides these services either
directly or through approved subcontractors.

      Products Under Development

            Point-to-Multipoint Products. The re-allocation of spectrum in many
bands ranging from 2.4 GHz to 40 GHz is enabling the development of new services
such as local multipoint distribution service (LMDS) and local multipoint
communications service (LMCS). These services address the desire of service
providers for more efficient use of spectrum within a particular service area.
Certain bandwidth demand thresholds must be met before a customer can
economically justify the cost of a dedicated point-to-point system. Point-to-
multipoint provides the flexibility for a service provider to offer customers
wireless bandwidth on demand thereby creating the concept of a wireless central
office. The Company is currently developing a point-to-multipoint system to
provide service to end users from a hub station in a cell typically extending
from 1 to 10 kilometers. Cell size is based on frequency, traffic requirements,
and desired availability. The hub consists of one to 24 sector subsystems that
include sectorized antennae and their associated communications equipment. Each
sector subsystem covers from 15 to 90 degrees of azimuth with additional sector
subsystems providing up to 360 degrees of coverage. The diagram below
illustrates the potential use of the Company's point-to-multipoint system to
connect end-users to a hub station:

                                    [GRAPHIC]


                                       6
<PAGE>

P-COM, INC. POINT-TO-MULTIPOINT PRODUCTS AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
            FREQUENCY              INTERFACES       SUBSCRIBER DATA RATES       MODULATION SCHEME &
                                                                                   ACCESS METHOD
-----------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>                        <C>
10 GHZ SYSTEMS*                        E0            64 KBPS TO 20 MB/S         UP TO 64 QAM,
    Hub Radius: up to 6 miles          E1            TDM                        TDMA
                                       E3
-----------------------------------------------------------------------------------------------------------
24 GHZ SYSTEMS                         DS0           64 KBPS TO 155 MB/S        UP TO 64 QAM,
    HUB RADIUS: UP TO 4 MILES          ISDN           ATM & TDM                 FDMA, TDMA
                                       DS1
                                   Frame Relay
                                    MPEG - 2
                                     10BaseT
                                     DS - 3
                                    155 Mbps
-----------------------------------------------------------------------------------------------------------
26 GHZ SYSTEMS*                      E0 64           KBPS TO 20 MB/S            UP TO 64 QAM,
    Hub Radius: up to 3.5 miles       E1             TDM                        TDMA
                                      E3
-----------------------------------------------------------------------------------------------------------
28/31 GHZ SYSTEMS*                     DS0           64 KBPS TO 155 MB/S        UP TO 64 QAM,
    HUB RADIUS: UP TO 3.5 MILES       ISDN           ATM & TDM                  FDMA, TDMA
                                       DS1
                                   Frame Relay
                                    MPEG - 2
                                    10BaseT
                                    DS - 3
                                   155 Mbps
-----------------------------------------------------------------------------------------------------------
38 GHZ SYSTEMS                         DS0           64 KBPS TO 155 MB/S        UP TO 64 QAM,
    HUB RADIUS:UP TO 3 MILES           ISDN          ATM & TDM                  FDMA, TDMA
                                       DS1
                                   Frame Relay
                                    MPEG - 2
                                    10BaseT
                                    DS - 3
                                   155 Mbps
-----------------------------------------------------------------------------------------------------------
</TABLE>

----------
*     Not currently available for shipment; prototype under development.

The P-Com Strategy

            The Company's goal is to become a leading supplier of high
performance radio systems (point-to-point and point-to-multipoint) operating in
millimeter wave and spread spectrum microwave frequency bands, as well as
related service offerings such as microwave relocation, installation and path
design. The following are the key elements of its strategy to achieve this
objective:

            Focus on Millimeter Wave and Spread Spectrum Microwave Market. The
Company is designing its products specifically for the millimeter wave and
spread spectrum microwave frequency band. The Company's core architecture is
designed to optimize its systems for operation at millimeter wave and microwave
frequencies. The Company currently ships 2.4 GHz, 5.7 GHz, 7 GHz, 13 GHz, 14
GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, , 28 GHz, 31 GHZ, 38 GHz and 50 GHz
systems. The Company is selling its systems primarily to cellular and PCN/PCS
service providers who are implementing microcellular networks using Code
Division Multiple Access (CDMA), Groupe Speciale Mobile (GSM), Time Division
Multiple Access (TDMA) and Extended Time Division Multiple Access (E-TDMA), PTO
companies offering local loop services and service companies providing
alternative access are also users.


                                       7
<PAGE>

            Provide Ancillary Services in RF Engineering and System
Construction. The Company offers turnkey microwave relocation services. These
services move existing users of a specific radio frequency in order to clear the
path for new users. In addition, the Company offers engineering, path design,
program management, installation and maintenance. The Company believes this
service business will provide it with many strategic advantages, including
allowing it to develop strong relationships with decision makers early and
maintain these relationships throughout the network buildout process.

            Continue to Expand Worldwide Presence. The Company is focused on
expanding its presence internationally and further establishing its market
position in the United States. To date, the market opportunities for the
Company's systems have been greater abroad, as the markets for PCN/PCS and
microcellular networks and local loop access have developed at a faster rate
than in the United States. The Company intends to continue its international
focus by meeting international telecommunications standards where appropriate
and using strategic alliances to penetrate international markets. The Company
has met the standards established by the European Telecommunications Standards
Institute ("ETSI") and achieved regulatory approval for certain of its systems
in many countries including, Australia, the Czech Republic, France, Germany,
Greece, Hungary, Italy, Mexico, Spain, the United Kingdom, and the United
States. The process for additional regulatory approvals for certain systems is
underway in numerous other countries, including Belgium, China and Switzerland.
The Company's management team consists of a group of highly-experienced
telecommunications executives from Italy, the United Kingdom and the United
States. The Company maintains offices throughout the world, has acquired
numerous companies throughout the world, and will continue to open offices in
new geographic areas as needed in order to support sales and customer support
efforts.

            Build and Sustain Manufacturing Cost Advantage. The Company has
designed its system architecture to reduce the number of components incorporated
in each system and to permit the use of common components across the range of
the Company's products. The Company believes this will assist in the reduction
of its manufacturing costs by permitting volume component purchases and enabling
a standardized manufacturing process. The Company utilizes contract
manufacturers to service its volume requirements, reserving its internal
manufacturing capabilities to produce initial quantities of new products prior
to commencement of volume shipments and to respond to special customer
requirements regarding specifications or delivery.

            Leverage and Maintain Software Leadership. The Company seeks to
differentiate its systems through the proprietary software embedded in the IDU
and ODU and its Windows and SNMP-based software tools. This software is designed
to allow the Company to deliver to customers a high level of functionality in a
system that can be easily configured by the user to meet particular needs. In
addition, the embedded software enables the capacity of the Company's systems to
be easily upgraded. Software tools are also offered to facilitate network
management of the system. The Company intends to continue its focus on software
development in order to support increasing levels of functionality, ease of
configuration and use of the Company's systems.

            Position P-Com for Emerging Applications and Markets. The Company
intends to market its systems for applications other than microcellular, PCN/PCS
and local loop services and to explore emerging geographic markets. Many growing
businesses and local government organizations are choosing to install, maintain
and manage their own telecommunications infrastructures and only interface with
a PTO where a connection to the public network is required.

            As the voice, data and video traffic within an organization
increases, this approach becomes more cost-effective than leasing these
intracompany services from a PTO. The Company believes that additional markets
may develop abroad, as the implementation of the communications infrastructure
upgrades in emerging countries increasingly bypasses traditional wired networks
and moves directly to a cost-effective wireless network.

            Acquire Companies with Complementary Products and Services. The
Company believes that acquisitions of companies with complementary products and
services will allow the Company to expand the products and services that it
offers to both its own customer base and to the customer bases of the acquired
companies. The Company has acquired companies that offer spread spectrum radios,
point-to-multipoint distribution systems currently under development, microwave
relocation and system construction, wire-line access systems including advanced
frame relay network management products and integrated services access
platforms, engineering, program management and installation of wireless
communications, cable and fiber optic systems. On March 28, 1998, the Company
acquired substantially all of the assets of the Wireless Communications Group of
Cylink Corporation, a Sunnyvale, California-based company (the "Cylink Wireless
Group"). The Cylink Wireless Group designs, manufactures and markets spread
spectrum radio products for voice and data applications in both domestic and
international markets. In July 1998, the Company acquired the assets of Cemetel
S.r.L., an Italian company engaged in the supply of engineering services to
wireless telecommunication providers in Italy. This acquisition was not material
to the Company's financial statements.

            Ongoing Development of Point-to-Multipoint Systems. The Company is
continuing to pursue development of point-to-multipoint radio systems for use in
both the telecommunications and broadcast industries. Incorporated into
networks, these systems are being designed to deliver broadband digital services
offering telephony, high-speed two-way data, video conferencing,


                                       8
<PAGE>

Internet access, and broadband video services. The systems are being designed to
allow alternative access to local circuit, packet and cell switching facilities
within metropolitan areas. The Company believes that the point-to-multipoint
solution will provide high-bandwidth alternatives to traditional network access
methods. It is intended that this capability, along with the Company's cell
modeling capability, will allow the wireless carriers to increase traffic
capacity and revenues.

Technology

            The Company believes its approach to millimeter wave radio systems
and spread spectrum microwave is significantly different from most conventional
approaches. Through the use of its proprietary digital signal processing,
frequency converter and antenna interface technology, and its proprietary
software and custom application-specific integrated circuits, the Company offers
a highly-integrated, feature-rich system. This integration is designed to result
in reliability and cost advantages. The microprocessors and embedded software in
both the IDU and ODU enclosures enable flexible customization to the user's
specific telecommunications network requirements.

            MILLIMETER WAVE AND MICROWAVE TECHNOLOGY

            Wireless transmission of voice, data and video traffic has become a
desirable alternative to wired solutions due to its advantages in the ease and
cost of implementation and maintenance. Since high frequency transmissions are
best suited for shorter distances, microwave radio frequencies are typically
used for communications links of 15 to 50 miles and millimeter wave radio
frequencies for transmissions of up to 15 miles. In addition, the cost of
millimeter wave radio systems and spread spectrum ISM band systems are generally
less than that of microwave radio systems.

            Most conventional millimeter wave radio systems use technology that
is very similar to microwave radio technology, except that a millimeter wave
frequency source is used at the final stage instead of a lower frequency
microwave source. As depicted below, when transmitting, the IDU, which is the
radio system's interface to the end-user's equipment, sends an unmodulated
digital transmit signal to the ODU. In the ODU, this signal directly modulates a
transmit Gunn oscillator which has its final frequency controlled by a
synthesizer. The signal, now at the desired millimeter wave frequency, is then
routed to the antenna for transmission to the millimeter wave radio system at
the receiving end. At the receiving end, the incoming signal is mixed in a
receive converter with a receive millimeter wave frequency source, typically a
Gunn oscillator which has its frequency controlled by a synthesizer. The signal
is then routed through an intermediate frequency (IF) converter, demodulated,
and the resultant signal is then sent to the IDU where it is directed to the
end-user's equipment.

                                    [GRAPHIC]

P-Com believes that its millimeter wave technology is significantly different
from that contained in most conventional systems. When transmitting, the
Company's IDU sends an already-modulated, IF transmit signal to the ODU where it
is received by the IF processor, routed to the transmit converter and mixed with
a synthesized frequency source. This signal is then amplified and passed through
to the Company's proprietary frequency converter to establish the appropriate
millimeter wave frequency. The signal is then routed to the antenna for
transmission to the millimeter wave radio system at the receiving end. At the
receiving end, the incoming signal is routed to the frequency converter and
mixed in the downconverter with the same frequency source that was


                                       9
<PAGE>

used when transmitting. The signal is passed through the same IF processor to
the IDU where it is demodulated and sent to the end-user's equipment.

            The spread spectrum products use biphase shift keying (BPSK),
minimal shift keying (MSK), quadrature phase shift keying (QPSK) or quadrature
amplitude modulation (QAM) in the IDU. This signal is upconverted into a
microwave frequency in the ODU, or in the case of some Airlink products, a
single, stand- alone terminal can be installed indoors or outdoors. This signal
is then routed to the antenna to be transmitted. The receiving antenna captures
the signal power and routes it to the ODU. The ODU down converts the signal to
be demodulated in the IDU.

            P-Com's architecture is designed to achieve reliability, cost,
installation and maintenance benefits over conventional approaches. The Company
employs a common architecture in the ODU for all stages of the system other than
the frequency converter used to establish the millimeter wave frequency at which
the system operates. In contrast, conventional millimeter wave systems often use
different designs for several components of the ODU for each different frequency
band. Third, the final transmit and receive frequencies are electronically
tunable either from the IDU or from a remote location using a network management
system. In contrast, many conventional approaches employ a Gunn oscillator to
generate the transmit millimeter wave frequency source and a second Gunn
oscillator to receive the millimeter wave transmission from the remote end.
These devices must be manually tuned and adjusted to achieve proper operation.
The Company believes that the Gunn oscillator technology that is typically used
in conventional approaches is inherently less reliable than P-Com's proprietary
frequency converter technology. Finally, in P-Com's systems, the IDU and ODU are
connected with a single coaxial cable, in contrast to many conventional systems
that require multiple cable connections.

      P-COM SYSTEM ARCHITECTURE

            The Company's millimeter wave and spread spectrum microwave radios
comprise three primary assemblies: the IDU, the ODU and the antenna. The IDU
houses the digital signal processing and the modem functions, and interfaces to
the ODU via a single coaxial cable. The ODU, a radio frequency (RF) enclosure,
establishes the specific transmit and receive frequencies and houses the
proprietary P-Com frequency converter. The antenna interfaces directly to the
ODU via a proprietary P-Com waveguide transition technology. The following
diagram illustrates a typical P-Com Tel-Link(R) radio system:

                                    [GRAPHIC]

            Indoor Unit (IDU) and Software. The IDU is the interface to the
user's network. It is an indoor mounted assembly that contains baseband
electronics, including the functions of line interface, digital signal
processing, modulation/demodulation and intermediate frequency generation. The
IDU also includes the alarm and diagnostic, service channel and
telecommunications network management interfaces. Finally, the IDU contains the
capability to set the system capacity, frequency synthesizer and power output of
the radio; no access to the ODU is required.


                                       10
<PAGE>

            The configuration of the Company's systems, including the setting of
the system's power, frequency and capacity, is performed via the keypad located
on the IDU. The Company also offers proprietary Windows and SNMP-based software
tools that permit a user to perform system configuration from a personal
computer attached directly to the IDU or from any remote location accessed
through a network management system. In contrast, conventional millimeter wave
systems typically require mechanical adjustments and manual tuning, which
involves sending maintenance personnel to the radio location. The software
embedded in the Company's systems also allows the easy upgrade of system
capacity; minimal hardware changes are required.

            Outdoor Unit (ODU). The ODU consists of a lightweight, compact,
integrated RF electronics enclosure which attaches to an antenna. The RF
enclosure contains the electronics that convert and amplify the modulated signal
received from the IDU. Typically, the ODU is installed outdoors on a tower or
rooftop. The RF enclosure is connected to the antenna with the Company's
proprietary waveguide transition that requires no alignment, tools or special
techniques. It is secured to the antenna with quick release clips that typically
allow an installer to replace the complete unit in less than five minutes. In
addition, since the antenna mount is independent of the RF enclosure,
replacement of the RF enclosure requires no realignment of the antenna. Airlink
products, which operate at lower frequencies than Tel-Link systems, utilize
cost-effective coaxial connections between the antenna and terminal.

            IDU-ODU Interconnection. The single coaxial cable connecting the
Company's IDU and ODU carries transmit and receive signals as well as DC power.
This cable can reach up to 1,000 feet without requiring additional amplification
or a setting for a specific length. No specific matching is required between the
ODU and IDU: any IDU within a particular capacity range will operate to full
specification with any ODU within that capacity range, irrespective of the
frequency band in which the ODU operates. Many conventional systems require
multiple cable connections, distance-specific settings and specific matching
between the IDU and the ODU.

Products and Services

      Current Products

            Tel-Link(R) Products. The Company's products are based on a common
system architecture and are designed to carry various combinations of voice,
data and video traffic and to be easily configurable based on the needs of its
customers. The Tel-Link(R) systems operate at both E1 and T1/T3 data rates, as
well as lower data rates. E1 is an international standard data rate operating at
2.048 megabits per second that carries 30 duplex voice circuits and T1 is a U.S.
standard data rate operating at 1.544 megabits per second that carries 24 duplex
voice circuits. T3 is a U.S. standard data rate operating at 44.736 megabits per
second that carries 672 duplex voice circuits. The Company is also developing
prototypes for Tel-Link(R) systems that operate at E3 data rates. E3 is an
international standard data rate operating at 34.368 megabits per second that
carries 480 duplex voice circuits. Typical transmission distances for the
Company's systems range from one to fifty miles, depending on the specific
frequency at which the system operates, antenna size and local climate
conditions.

            Airlink Products. Airlink products operate at data rates between
19.2 kbps and 2.048 Mbps at 2.4 GHz and 5.8 GHz.

            All of the Company's systems currently being shipped are designed to
operate in millimeter wave and spread spectrum microwave frequency bands. The
Company's systems have been shipped for network use or use in system trials in
Australia, Belgium, Bulgaria, Canada, Chile, China, Columbia, the Czech
Republic, England, France, Germany, Hong Kong, India, Indonesia, Ireland,
Israel, Italy, Japan, Malaysia, Mexico, Philippines, Saudi Arabia, Scotland,
South Africa, Spain, Switzerland, Taiwan, Thailand, Turkey, the United States,
Venezuela and Vietnam. The table on the following page provides certain
information about the systems currently being marketed by the Company, the list
price range of such systems, their transmission distances, the number of lines
each system is designed to offer and the maximum number of voice channels each
system is designed to support. List prices for each system are single quantity
prices for one radio link consisting of two radios. The Company typically offers
substantial volume price discounts. The higher end of the list prices represent
prices for higher capacity redundant radios. Most of these configurations are
currently being shipped to customers.


                                       11
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                            P-COM, INC. PRODUCTS AS OF DECEMBER 31, 1998
=========================================================================================================
                                                          NUMBER OF LINES;         NUMBER OF
              FREQUENCY                   STANDARD           DATA RATES         VOICE CHANNELS
---------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>                  <C>
SPREAD SPECTRUM:
--------------------------------------
   2.4 GHz SYSTEMS                        E1             1, 2*, 3*, 4*            30, 60, 90, 120
       Distance: Up to 50 miles           T1             1, 2*, 3*, 4*            24, 48, 72, 96
       List Price: $15,000-$62,000        Data           19.2 Kbps-2 Mbps
---------------------------------------------------------------------------------------------------------
   5.7 GHZ SYSTEMS                        E1             1, 2*, 3*, 4*            30, 60, 90, 120
       Distance: Up to 35 miles           T1             1, 2*, 3*, 4*            24, 48, 72, 96
       List Price: $19,000-$70,000        Data           56 Kbps-2 Mbps
---------------------------------------------------------------------------------------------------------
LICENSED FREQUENCIES:
--------------------------------------
   7 GHz SYSTEMS                          E1             1, 2, 4, 8, 16           30, 60, 120, 240, 480
       Distance: Up to 35 miles           E3*            1                        480
       List Price: $32,000-$94,000        T1+            1, 4, 8, 16              24, 96, 192, 384
                                          T3+            1                        672
                                          Data++         3 x 64 Kbps
---------------------------------------------------------------------------------------------------------
   13/14/15 GHZ SYSTEMS                   E1             1, 2, 4, 8, 16         30, 60, 120, 240, 480
       Distance: Up to 15 miles           E3*            1                      480
       List Price: $30,000-$93,000        T1+            1, 4, 8, 16            24, 96, 192, 384
                                          T3+            1                      672
                                          Data++         3 x 64 Kbps
---------------------------------------------------------------------------------------------------------
   18/23/26 GHZ SYSTEMS                   E1             1, 2, 4, 8, 16         30, 60, 120, 240, 480
        Distance: Up to 10 miles          E3*            1                      480
        List Price: $27,000-$82,000       T1             1, 4, 8, 16            24, 96, 192, 384
                                          T3             1                      672
                                          Data++         3 x 64 Kbps
---------------------------------------------------------------------------------------------------------
   38 GHZ SYSTEMS                         E1             1, 2, 4, 8, 16         30, 60, 120, 240, 480
        Distance: Up to 6 miles           E3*            1                      480
        List Price: $24,000-$73,000       T1             1, 4, 8, 16            24, 96, 192, 384
                                          T3             1                      672
                                          Data           3 x 64 Kbps
---------------------------------------------------------------------------------------------------------
   50 GHZ SYSTEMS                         E1             1, 2, 4, 8*, 16*       30, 60, 120, 240, 480
        Distance: Up to 3 miles           Data++         3 x 64 Kbps
        List Price: $30,000-$75,000
---------------------------------------------------------------------------------------------------------
</TABLE>

----------
*     Not currently available for shipment; prototypes under development.
+     Not currently available for shipment; prototypes to be developed based on
      customer demand, if any.
++    Currently available for shipment; no orders yet received.

            Wireline Access Products. The Company's wireline access products are
designed and manufactured by the wholly-owned subsidiary, Control Resources
Corporation. They are based on advanced architectures to provide proactive
management, real time and historic performance data capture and flexible cost
effective configurations for complex network requirements. Current NetPath
products operate from 56 Kbps DDS service through 1.544 Mbps T1 service. The
NetPath integrated access platform product can support multiple high speed
access links and can internally transfer data at up to 1 Gbps. Products are
managed using Telnet, VT100 and SNMP and have integrated ISDN interfaces and
analog modems. The following products are currently being shipped or are
currently available for shipment:

      --------------------------------------------------------------------------
          PRODUCT               APPLICATION               ACCESS RATES
      --------------------------------------------------------------------------
         NetPath 64       Managed Frame Relay Access      56 and 64 Kbps
         NetPath 100      Managed Frame Relay Access      F/T1 to T1
         NetPath 400      Integrated Access               1 to 4 T1
      --------------------------------------------------------------------------

            Technosystem Products. The Company also designs, manufactures and
markets equipment transmitters and transponders for television and radio
broadcasting through its subsidiary, Technosystem, S.p.A. The range of products
include audio/video modulators, converters, amplifiers, transponders,
transmitters and microwave links.


                                       12
<PAGE>

      Products Under Development

            Point-to-Multipoint Communications Systems. P-Com is currently field
testing point-to-multipoint systems to provide bandwidth management, increased
spectral efficiency, comprehensive network management, increased user and
network interfaces, and lower cost. The system is being developed to be highly
scalable, and to accommodate hub and remote site growth. The Company intends to
offer cost effective, highly efficient modulation schemes such as 32 and 64 QAM
at millimeter wave frequencies. There can be no assurance that the Company will
be able to successfully develop the point-to-multipoint systems or that such
products will achieve market acceptance. To date, no point-to-multipoint systems
have been shipped for revenue.

      Services

            P-Com, through its P-Com Network Services subsidiary ("Network
Services"), provides telecommunication service offerings covering the complete
spectrum, available as a turn-key package or as individual services. Network
Services performs and manages every aspect of wired or wireless system
build-outs, from initial system and path planning through network optimization
and maintenance. Network services also provides tower design, fabrication and
construction. For the switching environment, Network Services offers all the
resources necessary for the installation of central office equipment.

            Network Services' professional staff have managed the design and
construction of both wired and wireless telecommunications systems of all sizes
and complexity throughout the United States, United Kingdom, Italy and in some
25 countries around the world. Network Services has an operational presence
throughout the United States, United Kingdom and Italy with over 350 personnel
dedicated to serving our customer requirements. Network Services' customers are
comprised of some of the largest telecommunications companies in the world
including AT&T, BellSouth, Bell Atlantic, Sprint, Winstar, Orange PCS, Cellnet,
Mercury 1-2-1, and WIND. Other customers also include major communications
equipment manufacturers including Alcatel, NEC, Harris, Ericsson, Tellabs and
others.

      Sales And Marketing

            The Company's sales and marketing efforts are headquartered in the
Company's executive offices in Campbell, California. The Company has established
and staffed a sales and customer support facility in the United Kingdom that
serves as a base for the European market. Internationally, the Company uses a
variety of sales channels, including system providers, OEMs, dealers and local
agents, as well as selling directly to its customers. The Company has sales
offices or personnel located in China, England, France, Germany, Italy, Mexico,
Poland, Turkey and United Arab Emirates, and has worldwide OEM agreements with
Lucent Technologies, Fujitsu and Italtel. In addition, the Company has
established agent relationships in numerous other countries in the Asia/Pacific
region and in South America and Europe. In the United States, the Company
utilizes both direct sales and OEM channels.

            The Company currently engages in a lengthy sales process that
commences with the solicitation of bids by prospective customers. If the Company
is selected to proceed further, the Company may provide systems for
incorporation into system trials or may proceed directly to contract
negotiations. If system trials are required and successfully completed, the
Company then negotiates a contract with the customer to set technical and
commercial terms of sale. These terms of sale govern the purchase orders issued
by the customer as the network is deployed. The Company anticipates that it will
increasingly rely upon OEMs and system providers during the sales process, and
will therefore have less direct contact during this process with end-users.

            The Company believes that due to the complexity of its radio
systems, a high level of technical sophistication is required on the part of the
Company's sales and marketing personnel. In addition, the Company believes that
customer service is fundamental to its success and potential for follow-on
business. New customers are provided engineering assistance for installation of
the first units as well as varying degrees of field training depending upon the
customer's technical aptitude. All customers are provided telephone support via
a 24-hour customer service help desk. The Company's customer service efforts are
supplemented by its system providers.

            The Company believes that it must continue to expand its sales and
marketing organization worldwide. Any significant sales growth will be dependent
in part upon the Company's expansion of its marketing, sales and customer
support capabilities, which will require significant expenditures to build the
necessary infrastructure.


                                       13
<PAGE>

Customers

            The Company's principal customers currently include network
operators, which incorporate the Company's systems into networks to deliver
communications services directly to consumers, and system providers, which
incorporate the Company's systems into networks to be sold to network operators,
that in turn provide communications services directly to consumers. Certain
customers may act as both network operators and system providers depending on
the circumstances.

      Network Operators

            These users include regulated and non-regulated providers of
wireless voice, data and video services to corporate and individual customers.
Current and potential applications include cellular and PCN/PCS networks (CDMA,
TDMA, GSM and E-TDMA), PTO/local loop service, network interconnections and
access to long distance networks. For cellular and PCN/PCS applications, users
of P-Com's systems in a single cellular service area may include multiple
PCN/PCS providers, wireline cellular service operators, non-wireline cellular
service operators and alternate service providers.

      System Providers

            These customers provide engineering and installation services for
their customers, which consist of cellular service providers, private
corporations, utilities and local government entities. Current and potential
applications include supervisory control systems for water, electric and gas
companies, local area networks for private corporations and educational
institutions, and voice/data/video networks for government users (police, fire,
safety). These in- country system providers accomplish the network design and
provide the field effort necessary to install, commission and maintain the
Company's millimeter wave and spread spectrum microwave systems. System
providers are also extensively used by PTOs and cellular and PCN companies in
Eastern Europe, Russia, China and other developing countries.

            The following list represents certain customers from which the
Company has generated revenues since the beginning of 1998:

<TABLE>
<CAPTION>

===========================================================================================
               INTERNATIONAL                                   DOMESTIC
-------------------------------------------------------------------------------------------
<S>                                                     <C>
           Bosch Telecom GmbH                           Advanced Radio Telecom Corporation
           Cable and Wireless Communication             AT&T Wireless Services
           Ericsson Limited                             Bell Atlantic Corp.
           Esmartel House                               Bellsouth Mobility
           Fareastone                                   FM Associates
           Ficomp System, Inc.                          Horizon Technologies, LLC
           Fujitsu Limited                              IBM
           Gentec                                       Larscom Incorporated
           GMA Network                                  Lucent Technologies, Inc.
           Jonmag Group                                 PrimeCo Personal Communications
           Lucent Technologies International, Inc.      Sprint Spectrum
           Mercury One-2-One Personal                   Teleport Communications Group
               Communications                           Tellabs Operations, Inc.
           Norweb Communications                        WinStar Communications, Inc.
           Orange Personal Communications
               Services
           Siemens (Italtel) Limited
           Transasia Telecommunications
           Teleport Communications Group
           TSY Poland
==========================================================================================
</TABLE>


                                       14
<PAGE>

            For the year ended December 31, 1998, approximately two hundred
customers accounted for substantially all of the Company's sales, and one
customer individually accounted for over 10% of the Company's 1998 sales. In
1997, the Company had two customers, which individually accounted for over 10%
of the Company's sales. Sales to Orange Personal Communications Services
accounted for approximately 24% of the Company's sales in 1998, and sales to
Orange Personal Communications Services and WinStar Wireless, Inc. accounted for
approximately 15% and 11% of the Company's sales, respectively, in 1997. As of
December 31, 1998, six customers accounted for over 59% of the Company's backlog
scheduled for shipment in the twelve months subsequent to December 31, 1998. The
breakdown of net sales by geographic customer destination are as follows (in
thousands):

      --------------------------------------------------------------------------
                                       1998             1997            1996
                                       ----             ----            ----
      Sales:
          United States              $ 41,597          $70,312        $ 39,530
          United Kingdom               71,399           69,201          52,415
          Europe                       37,649           45,061          25,170
          Africa                       19,104            6,323              --
          Asia                         18,322           15,548           3,422

          Other geographic region        (268)          14,257             416
                                    ---------         --------       ---------
            Totals                  $ 187,803         $220,702       $ 120,953
                                    =========         ========       =========
      --------------------------------------------------------------------------

            The Company anticipates that, at least for the near term, it will
continue to sell its radio systems to an expanding, but still relatively small,
group of customers. Many of the Company's customers are implementing new
networks and may require additional capital to implement fully their planned
networks, e.g. Fareastone, Mercury One-2-One Personal Communications, Orange
Personal Communications Services and WinStar Wireless, Inc. The Company's
ability to achieve or increase its sales in the future will depend in
significant part upon its ability to obtain and fulfill orders from existing and
new customers and maintain relationships with and provide support to existing
and new customers. Equally important is its ability to manufacture systems on a
timely and cost- effective basis and to meet stringent customer performance and
shipment delivery dates. As a result, any cancellation, reduction or delay in
orders by or shipments to any customer, as a result of manufacturing
difficulties or otherwise, or the inability of any customer to finance its
purchases of the Company's radio systems may have a material adverse effect upon
the Company's business, financial condition and results of operations. There can
be no assurance that the Company's sales will increase in the future or that the
Company will be able to retain and support existing customers or to attract new
customers.

            Orders for the Company's products have typically been strongest
towards the end of the year. This trend continued in 1998 even though sales in
the second half of the year declined when compared with the comparable period of
1997. To the extent that this trend continues in the future, the Company's
results of operations will fluctutate from quarter to quarter.

            The Company's backlog was approximately $75.0 million as of December
31, 1998, as compared to approximately $65.2 million as of December 31, 1997.
The increase is primarily due to the expansion of the Company's presence in its
international market. The Company includes in backlog only those firm customer
commitments to be shipped within the following twelve months. A significant
portion of the Company's backlog scheduled for shipment in the twelve months
subsequent to December 31, 1998 can be cancelled since orders are often made
substantially in advance of shipment, and most of the Company's contracts
provide that orders may be cancelled with limited or no penalties up to a
specified period (generally 60 to 90 days) before shipment, and in some cases at
any time. Therefore, backlog is not necessarily indicative of future sales for
any particular period. In addition, the Company's customers have increasingly
been requiring shipment of products at the time of ordering rather than
submitting purchase orders far in advance of expected dates of product shipment.

            The Company also provides to its customers significant volume price
discounts, which are expected to lower the average selling price of a particular
product line as more units are sold. Likewise, the Company expects that the
average selling price of a particular product line will also decline as such
product matures, and as competition increases. Accordingly, the Company's
ability to maintain or increase sales will depend upon many factors, including
its ability to increase unit sales volumes of its systems and to introduce and
sell systems at prices sufficient to compensate for reduced revenues resulting
from declines in the average selling price of the Company's more mature
products. Last, most of the Company's sales are made to customers located
outside the United States, which introduces additional risks such as ecomonic
turmoil and currency fluctuations. For a more detailed analysis of risks
attendant to foreign operations, see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Uncertainty in
International Operations."


                                       15
<PAGE>

Manufacturing

            The Company's manufacturing objective is to produce systems that
conform to P- Com's specifications at the lowest possible manufacturing cost.
The Company has designed its system architecture to reduce the number of
components incorporated in each system and to permit the use of common
components across the range of the Company's products. P-Com believes this will
reduce its manufacturing costs by permitting volume component purchases and
enabling a standardized manufacturing process. Where appropriate, the Company
has developed component designs internally to seek to obtain higher performance
from its systems at a lower cost. The Company is engaged in an effort to
increase the standardization of its manufacturing process in order to permit it
to more fully utilize contract manufacturers.

            As part of its program to reduce the cost of its radio systems and
to support an increase in the volume of orders, the Company first began to
utilize contract manufacturers to produce its systems, components and
subassemblies in the fourth quarter of 1994, and expects to rely increasingly on
such manufacturers in the future. Currently, these contract manufacturers are
Remec, Inc., Sanmina Corporation, SPC Electronics Corp., Senior Systems
Technology, Inc., GSS Array Technology and Celeritek, Inc.

            The Company also relies on outside vendors to manufacture certain
components and subassemblies used in the production of the Company's radio
systems. Certain components, subassemblies and services necessary for the
manufacture of the Company's systems are obtained from a sole supplier or a
limited group of suppliers. In particular, Eltel Engineering S.r.L. and
Associates, Milliwave and Xilinx, Inc. are sole source or limited source
suppliers for critical components used in the Company's radio systems. The
Company intends to reserve its internal manufacturing capacity for new products
and products manufactured in accordance with a customer's custom specifications
or expedited delivery schedule. Therefore, the Company's internal manufacturing
capability for standard products is very limited, and the Company intends to
rely on contract manufacturers for high volume manufacturing. There can be no
assurance that the Company's internal manufacturing capacity and that of its
contract manufacturers will be sufficient to fulfill the Company's orders.
Failure to manufacture, assemble and ship systems and meet customer demands on a
timely and cost effective basis could damage relationships with customers and
have a material adverse effect on the Company's business, financial condition
and operating results.

            The Company's reliance on contract manufacturers and on sole
suppliers or a limited group of suppliers and the Company's increasing reliance
on subcontractors involves several risks, including a potential inability to
obtain an adequate supply of finished radio systems and required components and
subassemblies, and reduced control over the price, timely delivery, reliability
and quality of finished radio systems, components and subassemblies. The Company
does not have long-term supply agreements with most of its manufacturers or
suppliers. In addition, the Company has from time to time experienced and may in
the future continue to experience delays in the delivery of and quality problems
with radio systems and certain components and subassemblies from vendors.
Manufacture of the Company's radio systems and certain of these components and
subassemblies is an extremely complex process, and there can be no assurance
that delays caused by contract manufacturers and suppliers will not occur in the
future. Certain of the Company's suppliers have relatively limited financial and
other resources. Although the Company intends to qualify alternative sources and
has the ability to manufacture its finished radio systems in limited quantities
and certain of such components internally, any inability to obtain timely
deliveries of components and subassemblies of acceptable quality or any other
circumstance that would require the Company to seek alternative sources of
supply, or to manufacture its finished radio systems or such components and
subassemblies internally could delay the Company's ability to ship its systems.
Any such delay could damage relationships with current or prospective customers
and could therefore have a material adverse effect on the Company's business,
financial condition and operating results.

Research And Development

            The Company has a continuing research and development program in
order to enhance its existing systems and related software tools and to
introduce new systems. The Company invested approximately $41.5 million, $29.1
million and $20.2 million in 1998, 1997 and 1996, respectively, in research and
development efforts and expects to continue to invest significant resources in
research and development, including new product development and acquisitions.

            The Company's research and development efforts can be classified
into three distinct efforts: (1) increasing the functionality of its
point-to-point radio systems under development by adding additional frequencies
and capacities to its product portfolio, modifying its network management system
software offering, and developing other advancements to its point-to-point radio
systems under development; (2) developing new products based on its core
technologies, such as a point-to-multipoint product offering for applications
such as cable or fiber replacements; and (3) integrating new functionality to
extend the reach of its products into the customers' networks, such as access
technology which allows the customer to manage telecommunications services at
its site and integrate voice, data, video and facsimile in one offering, such as
the Company's NetPath integrated access product. There can be no assurance that
the Company will continue to focus on these areas or that current efforts will
result in new product introductions or modifications to existing products.


                                       16
<PAGE>

            The wireless communications market is subject to rapid technological
change, frequent new product introductions and enhancements, product
obsolescence, changes in end-user requirements and evolving industry standards.
The Company's ability to be competitive in this market will depend in
significant part upon its ability to develop successfully, introduce and sell
new systems and enhancements and related software tools on a timely and
cost-effective basis that respond to changing customer requirements. The Company
has experienced and may continue to experience delays from time to time in
completing development and introduction of new systems, enhancements or related
software tools. There can be no assurance that errors will not be found in the
Company's systems after commencement of commercial shipments, which could result
in the loss of or delay in market acceptance. The inability of the Company to
introduce in a timely manner new systems, enhancements or related software tools
that contribute to sales could have a material adverse effect on the Company's
business, financial condition and results of operations.

Business and Geographic Segments

            In 1998, the Company adopted the Statement of Finanical Accounting
Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decisionmaker in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decisionmaker directs the allocation of resources to operating segments based on
the profitability and cash flows of each respective segment. Operating segments
are the individual reporting units within the Company. These units are managed
separately, and it is at this level where the determination of resource
allocation is made.

            The units have been aggregated based on operating segments that have
similar economic characteristics and meet the aggregation criteria of SFAS No.
131. The Company has determined that there are three reportable segments:
Product Sales, Broadcast Sales, and Service Sales. The Product Sales segment
consists of organizations located primarily in the United States, the United
Kingdom, and Italy which develop, manufacture, and/or market network access
systems for use in the worldwide wireless telecommunications market. The
Broadcast Sales segment consists of an organization located in Italy which
develops, manufactures, and markets broadcast equipment for use in the worldwide
wireless telecommunications market. Since the Broadcast segment was acquired in
1997, there were no broadcast segment sales recorded in 1996. The Service Sales
segment consists of an organization primarily located in the United States, the
United Kingdom, and Italy which provides comprehensive network services
including system and program planning and management, path design, and
installation for the wireless communications market.

            For additional information regarding Business and Geographic
Segments, see Note 9 of Notes to the Consolidated Financial Statements.

Competition

            The wireless communications market is intensely competitive. The
Company's wireless-based radio systems compete with other wireless
telecommunications products and alternative telecommunications transmission
media, including copper and fiber optic cable. The Company has experienced
increasingly intense competition worldwide from a number of leading
telecommunications companies that offer a variety of competitive products and
services and broader telecommunications product lines, including Adtran, Inc.,
Alcatel Network Systems, Bosch Telekom, California Microwave, Inc., Digital
Microwave Corporation, Ericsson Limited, Harris Corporation--Farinon Division,
NEC, Nokia Telecommunications, Nortel/BNI, Philips T.R.T., SIAE, Siemens and
Western Multiplex Corporation, many of which have substantially greater
installed bases, financial resources and production, marketing, manufacturing,
engineering and other capabilities than the Company. The Company faces actual
and potential competition not only from these established companies, but also
from start-up companies that are developing and marketing new commercial
products and services. The Company may also face competition in the future from
new market entrants offering competing technologies. In addition, the Company's
current and prospective customers and partners, certain of which have access to
the Company's technology or under some circumstances are granted the right to
use the technology for purposes of manufacturing, have developed, are currently
developing or could develop the capability to develop or manufacture products
competitive with those that have been or may be developed or manufactured by the
Company. The Company's results of operations may depend in part upon the extent
to which these customers elect to purchase from outside sources rather than
develop and manufacture their own radio systems. There can be no assurance that
such customers will rely on or expand their reliance on the Company as an
external source of supply for their radio systems. The principal elements of
competition in the Company's market and the basis upon which customers may
select the Company's systems include price, performance, software funtionality,
ability to meet delivery requirements and customer service and support. There
can be no assurance that the Company will be able to compete effectively with
respect to such elements. Recently, certain of the Company's competitors have
announced the introduction of competitive products, including related software
tools, and the acquisition of other competitors and competitive technologies.
The Company expects its competitors to continue to improve the performance and
lower the price of their current


                                       17
<PAGE>

products and to introduce new products or new technologies that provide added
functionality and other features. New product introductions and enhancements by
the Company's competitors could cause a significant decline in sales or loss of
market acceptance of the Company's systems or intense price competition, or make
the Company's systems or technologies obsolete or noncompetitive. The Company
has experienced significant price competition and expects such price competition
to intensify, which may materially adversely affect its gross margins and its
business, financial condition and results of operations. The Company believes
that to be competitive, it will continue to be required to expend significant
resources on, among other items, new product development and enhancements. In
marketing its systems, the Company will face competition from vendors employing
other technologies that may extend the capabilities of their competitive
products beyond their current limits, increase their productivity or add other
features. There can be no assurance that the Company will be able to compete
successfully in the future.

            Since network services provided by the Company are provided
primarily to the same customers as sales of the Company's wireless-based radio
systems, competitors in this market segment include the same companies already
discussed above. Competition for network services also is provided by a number
of smaller companies that specialize in providing such services.

Government Regulation

            Radio communications are subject to extensive regulation by the
United States and foreign laws and international treaties. The Company's systems
must conform to a variety of domestic and international requirements established
to, among other things, avoid interference among users of radio frequencies and
to permit interconnection of equipment. Each country has a different regulatory
process. Historically, in many developed countries, the limited availability of
frequency spectrum has inhibited the growth of wireless telecommunications
networks. In order for the Company to operate in a foreign jurisdiction, it must
obtain regulatory approval for its systems and comply with different regulations
in each jurisdiction. Regulatory bodies worldwide are continuing the process of
adopting new standards for wireless communication products. The delays inherent
in this governmental approval process may cause the cancellation, postponement
or rescheduling of the installation of communications systems by the Company and
its customers, which in turn may have a material adverse effect on the sale of
systems by the Company to such customers.

            The failure to comply with current or future regulations or changes
in the interpretation of existing regulations could result in suspension or
cessation of operations. Such regulations or such changes could require the
Company to modify its products and incur substantial costs to comply with such
time- consuming regulations and changes. In addition, the Company is also
affected to the extent that domestic and international authorities regulate the
allocation and auction of the radio frequency spectrum. Equipment to support new
services can be marketed only if permitted by suitable frequency allocations,
auctions and regulations, and the process of establishing new regulations is
complex and lengthy. To the extent PCS operators and others are delayed in
deploying these systems, the Company could experience delays in orders. Failure
by the regulatory authorities to allocate suitable frequency spectrum could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, delays in the radio frequency spectrum
auction process in the United States could delay the Company's ability to
develop and market equipment to support new services. These delays could have a
material adverse effect on the Company's business, financial condition and
results of operations.

            The regulatory environment in which the Company operates is subject
to significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact the Company's
operations by restricting development efforts by the Company's customers, making
current systems obsolete or increasing the opportunity for additional
competition. Any such regulatory changes, including changes in the allocation of
available spectrum, could have a material adverse effect on the Company's
business and results of operations. The Company might deem it necessary or
advisable to modify its systems to operate in compliance with such regulations.
Such modifications could be extremely expensive and time-consuming.

Intellectual Property

            The Company relies on a combination of patents, trademarks, trade
secrets, copyrights and a variety of other measures to protect its intellectual
property rights. The Company currently holds eight U.S. patents. The Company
generally enters into confidentiality and nondisclosure agreements with its
service providers, customers and others, and attempts to limit access to and
distribution of its proprietary rights. The Company also enters into software
license agreements with its customers and others. However, there can be no
assurance that such measures will provide adequate protection for the Company's
trade secrets or other proprietary information, that disputes with respect to
the ownership of its intellectual property rights will not arise, that the
Company's trade secrets or proprietary technology will not otherwise become
known or be independently developed by competitors or that the Company can
otherwise meaningfully protect its intellectual property rights. There can be no
assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued


                                       18
<PAGE>

with the scope of the claims sought by the Company, if at all. Furthermore,
there can be no assurance that others will not develop similar products or
software, duplicate the Company's products or software or design around the
patents owned by the Company or that third parties will not assert intellectual
property infringement claims against the Company. A variety of third parties
have alleged that the Cylink Wirless Group's products may be infringing their
intellectual property rights. In addition, there can be no assurance that
foreign intellectual property laws will adequately protect the Company's
intellectual property rights abroad. The failure of the Company to protect its
proprietary rights could have a material adverse effect on its business,
financial condition and results of operations.

            Litigation may be necessary to enforce the Company's patents,
copyrights and other intellectual property rights, to protect the Company's
trade secrets, to determine the validity of and scope of the proprietary rights
of others or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that
infringement, invalidity, right to use or ownership claims by third parties or
claims for indemnification resulting from infringement claims will not be
asserted in the future or that such assertions will not materially adversely
affect the Company's business, financial condition and results of operations. If
any claims or actions are asserted against the Company, the Company may seek to
obtain a license under a third party's intellectual property rights. There can
be no assurance, however, that a license will be available under reasonable
terms or at all. In addition, should the Company decide to litigate such claims,
such litigation could be extremely expensive and time consuming and could
materially adversely affect the Company's business, financial condition and
results of operations, regardless of the outcome of the litigation.

Employees

            During September and October 1998, the Company laid off
approximately 121 employees from its Campbell facilities and 16 employees from
its Redditch facilities. All employees were properly notified of the impending
layoff in advance and were given severance pay. Each functional vice president
submitted a list of eligible employees for the reduction in force to the Human
Resources Department where a summary list was prepared. Between November 1998
and February 1999, the Company laid off approximately 35 additional employees
from its Campbell facilities.

            As of December 31, 1998, the Company had a total of 995 employees,
including 498 in operations, 176 in research and development, 135 in sales and
marketing, 39 in quality assurance and 147 in administration. The Company
believes its future results of operations will depend in large part on its
ability to attract and retain highly skilled employees. None of the Company's
employees are represented by a labor union, and the Company has not experienced
any work stoppages. The Company considers its employee relations to be good.


                                       19
<PAGE>

ITEM 2. PROPERTIES.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
       Location of Leased                    Functions                     Square Footage                        Date
          Facility (1)                                                                                       Lease Expires
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                             <C>                  <C>
HEADQUARTERS                              Administration
                                      Sales/Customer Support                  61,000                        September 2000
Campbell, CA                                Engineering
USA                                        Manufacturing
-----------------------------------------------------------------------------------------------------------------------------------
Campbell, CA                               Manufacturing                      25,000                        September 2002
-----------------------------------------------------------------------------------------------------------------------------------
San Jose, CA                                 Warehouse                        34,000                        December 1999
-----------------------------------------------------------------------------------------------------------------------------------
Redditch, England                     Sales/Customer Support                   5,500                          June 2005
-----------------------------------------------------------------------------------------------------------------------------------
Watford, England                       Research/Development                    7,500                          April 2008
-----------------------------------------------------------------------------------------------------------------------------------
Redditch, England                            Warehouse                         6,800                        September 1999
-----------------------------------------------------------------------------------------------------------------------------------
                                          Administration
Vienna, VA                            Sales/Customer Support                  15,000                         April 2002
-----------------------------------------------------------------------------------------------------------------------------------
Sterling, VA                              Administration                      15,000                        September 1999
-----------------------------------------------------------------------------------------------------------------------------------
Orange, CA                                   Warehouse                         3,400                          April 1999
-----------------------------------------------------------------------------------------------------------------------------------
                                          Administration
Northants, England                    Sales/Customer Support                   5,290                         August 2011
-----------------------------------------------------------------------------------------------------------------------------------
                                          Administration
Essex, England                        Sales/Customer Support                   8,000                        September 2007
-----------------------------------------------------------------------------------------------------------------------------------
                                          Administration
                                      Sales/Customer Support
                                            Engineering
Fair Lawn, NJ                              Manufacturing                      43,700                          June 2005
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                            September 2000
                                                                                                       (may be canceled with a
Frankfurt, Germany                           Warehouse                        11,000                      six month advance
                                                                                                               notice)
-----------------------------------------------------------------------------------------------------------------------------------
Melbourne, Florida                     Research/Development                   36,250                          June 2001
-----------------------------------------------------------------------------------------------------------------------------------
Beijing, China                        Sales/Customer Support                   3,500                         March 2000
-----------------------------------------------------------------------------------------------------------------------------------
Dubai, United Arab Emirates           Sales/Customer Support                   4,000                        October 1999
-----------------------------------------------------------------------------------------------------------------------------------
Mexico City, Mexico                   Sales/Customer Support                   4,050                          May 1999
-----------------------------------------------------------------------------------------------------------------------------------
Singapore, Singapore                  Sales/Customer Support                   1,050                      September 2000
-----------------------------------------------------------------------------------------------------------------------------------
                                          Administration
Rome, Italy                           Sales/Customer Support                  27,000                       October 2001
                                            Engineering
                                           Manufacturing
-----------------------------------------------------------------------------------------------------------------------------------
Rome, Italy                                  Warehouse                         2,000                        June 2001
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) All locations support product sales except Vienna, VA.; Sterling, VA.;
Northants, England; and Essex, England which support service sales.

            P-Com Italia ("Geritel") owns and maintains its corporate
headquarters in Tortona, Italy. This facility, approximately 36,000 square feet,
contains design, test, manufacturing, mechanical and warehouse functions.
Geritel also maintains a sales and sales support facility in France. The French
sales and sales support facility is approximately 950 square feet.

            Cemetel S.p.A. owns and maintains its corporate headquarters in
Carsoli, Italy. This facility, approximately 28,800 square feet, contains
corporate, administration, sales, customer support, engineering and warehousing
facilities.

            The Company's facilities are fully utilized. The Company believes
that these facilities are adequate to meet its current and foreseeable
requirements or that suitable additional or substitute space will be available
as needed.


                                       20
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

            State Actions

            On September 23, 1998, a putative class action complaint was filed
in the Superior Court of California, County of Santa Clara, by Leonard Vernon
and Gayle M. Wing on behalf of themselves and other P-Com stockholders who
purchased or otherwise acquired its common stock between April 15, 1997 and
September 11, 1998. The plaintiffs allege various state securities laws
violations by P-Com and certain of its officers and directors. The complaint
seeks unquantified compensatory, punitive and other damages, attorneys' fees and
injunctive and/or equitable relief.

            On October 16, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Terry Sommer on
behalf of herself and other P-Com stockholders who purchased or otherwise
acquired common stock between April 1, 1998 and September 11, 1998. The
plaintiff alleges various state securities laws violations P-Com and certain of
its officers. The complaint seeks unquantified compensatory and other damages,
attorneys' fees and injunctive and/or equitable relief.

            On October 20, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Leo Rubin on behalf
of himself and other stockholders who purchased or otherwise acquired its common
stock between April 15, 1997 and September 11, 1998. This complaint is identical
in all relevant respects to that filed on September 23, 1998, which is described
above, other than the fact that the plaintiffs are different.

            On October 26, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Betty B. Hoigaard
and Steve Pomex on behalf of themselves and other P-Com stockholders who
purchased or otherwise acquired its common stock between April 15, 1997 and
September 11, 1998. This complaint is identical in all relevant respects to that
filed on September 23, 1998, which is described above, other than the fact that
the plaintiffs are different.

            On October 27, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Judith Thurman on
behalf of herself and other P-Com stockholders who purchased or otherwise
acquired its common stock between April 15, 1997 and September 11, 1998. This
complaint is identical in all relevant respects to that filed on September 23,
1998, which is described above, other than the fact that the plaintiffs are
different.

            On December 3, 1998, the Superior Court of California, County of
Santa Clara, entered an order consolidating all of the above complaints. On
January 15, 1999, the plaintiffs filed a consolidated amended class action
complaint superceding all of the foregoing complaints. On March 1, 1999,
defendants filed a demurrer to the consolidated amended complaint and each cause
of action stated therein. The demurrer is set for hearing by the court on May
13, 1999.

      Federal Actions

            On November 13, 1998, a putative class action complaint was filed in
the United States District Court, Northern District of California, by Robert
Schmidt on behalf of himself and other P-Com stockholders who purchased or
otherwise acquired its common stock between April 15, 1997 and September 11,
1998. The plaintiff alleged violations of the Securities Exchange Act of 1934 by
P-Com and certain of its officers and directors. The complaint sought
unquantified compensatory damages, attorneys' fees and injunctive and/or
equitable relief. On January 26, 1999, the plaintiff voluntarily dismissed the
Schmidt action. The court entered an order dismissing the action without
prejudice on January 29, 1999.

            On December 3, 1998, a putative class action complaint was filed in
the United States District Court, Northern District of California, by Robert
Dwyer on behalf of himself and other P-Com stockholders who purchased or
otherwise acquired its common stock between April 15, 1997 and September 11,
1998. The plaintiff alleged violations of the Securities Exchange Act of 1934 by
P-Com and certain of its officers and directors. The complaint sought
unquantified compensatory damages, attorneys' fees and injunctive and/or
equitable relief. On December 22, 1998 and February 2, 1999, the plaintiff
sought to voluntarily dismiss this action. On February 11, 1999, the court
entered an order dismissing the action without prejudice.

            All of these proceedings are at a very early stage and the Company
is unable to speculate as to their ultimate outcomes. However, the Company
believes the claims in the complaints are without merit and intend to defend
against them vigorously. An unfavorable outcome in any or all of them could have
a material adverse effect on the Company's business, prospects, financial
condition and results of operations. Even if all of the litigation is resolved
in the Company's favor, the defense of such litigation may entail considerable
cost and the significant diversion of efforts of management, either of which may
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.


                                       21
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

            None.

EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

            The executive officers and directors of the Company, their ages as
of March 31, 1999, and their positions and their backgrounds are as follows:

<TABLE>
<CAPTION>
            NAME                             AGE                      POSITION
            ----                             ---                      --------
<S>                                           <C>    <C>
     George P. Roberts...................     66     Chairman of the Board and Chief Executive Officer

     Pier Antoniucci.....................     57     President and Chief Operating Officer

     Michael J. Sophie...................     41     Chief Financial Officer, Vice President, Finance and
                                                     Administration

     John R. Wood........................     43     Senior Vice President, Advanced Technologies

     Kenneth E. Bean, III................     42     Senior Vice President, Quality Assurance

     Gill Cogan..........................     47     Director

     John A. Hawkins.....................     38     Director

     M. Bernard Puckett..................     53     Director

     James J. Sobczak....................     57     Director
</TABLE>

Background

            The principal occupations of each executive officer and director of
the Company for at least the last five years are as follows:

            Mr. Roberts is a founder of the Company and has served as Chief
Executive Officer and Director since October 1991. From October 1991 through
December 1996, Mr. Roberts served as President of the Company. Since September
1993, he has also served as Chairman of the Board of Directors. From May 1989 to
August 1991, Mr. Roberts was Chief Operating Officer for Digital Microwave
Corporation, a wireless communications company. From October 1984 to May 1989,
Mr. Roberts was President of American Satellite Company, a wholly owned
subsidiary of Contel, an independent telecommunications company. Mr. Roberts
holds a B.S. in Electrical Engineering from the University of Arizona and has
completed graduate business studies at the University of Arizona and the
University of California at Los Angeles.

            Mr. Antoniucci was appointed President of the Company in January
1997. Mr. Antoniucci was also appointed and has served as Chief Operating
Officer since July 1996. From July 1995 to January 1997, Mr. Antoniucci served
as Executive Vice President of the Company. From December 1992 to June 1995, Mr.
Antoniucci served as Senior Vice President, Marketing and Sales of the Company.
>From September 1992 to November 1992, Mr. Antoniucci was Vice President,
Purchasing for Alcatel-Telettra, a manufacturer of telecommunications products.
>From July 1986 to August 1992, Mr. Antoniucci was President of Granger-Telettra
J.V., a provider of digital microwave systems located in the United States that
resulted from the acquisition of Granger by Telettra. From October 1972 to June
1986, Mr. Antoniucci served in various management positions at Telettra,
including Vice President of the E.F.I. Business Unit, Vice President of the
Telecom Infrastructure Business Unit and Project Manager at Telettra/Ford
Aerospace. Telettra was an Italian manufacturer of telecommunications products
that was subsequently acquired by Alcatel Network Systems. Mr. Antoniucci holds
a doctorate in Electrical Engineering from Bologna University in Bologna, Italy.

            Mr. Sophie was appointed Chief Financial Officer of the Company in
April 1996 and has served as Vice President, Finance and Administration of the
Company since September 1993. Mr. Sophie also served as Controller from
September 1993 through December 1996. From December 1989 to August 1993, Mr.
Sophie was Vice President, Finance and Administration of the Loral Fairchild
Imaging Sensors Division, a manufacturer of CCDs and cameras. From December 1982
to December 1989, Mr. Sophie served in various financial positions at Avantek, a
telecommunications company, including Division Controller and


                                       22
<PAGE>

Group Controller. Prior to December 1982, Mr. Sophie held various financial
positions for IBM and Fairchild Semiconductor and Signetics, two semiconductor
manufacturers. Mr. Sophie holds an MBA from the University of Santa Clara and a
B.S. in Business Administration from California State University, Chico.

            Mr. Wood was appointed Senior Vice President of Advanced
Technologies of the Company in January 1997. From April 1993 to January 1997,
Mr. Wood served as Vice President, Engineering for the Company. From August 1992
to March 1993, Mr. Wood served as Director of Systems Engineering for the
Company. From June 1990 to July 1992, Mr. Wood was Manager of Transmission
Engineering for Mercury Personal Communications, a British telecommunications
company. From September 1976 to May 1990, Mr. Wood held various technical and
management positions at Marconi Communications, a British telecommunications
equipment manufacturing company. Mr. Wood holds a B.Sc. in Physics and
Electronics from Manchester University in Manchester, England.

            Mr. Bean was appointed Senior Vice President of Quality Assurance of
the Company in January 1997. From August 1995 to January 1997, Mr. Bean served
as Vice President, Manufacturing of the Company. From September 1992 to June
1995, Mr. Bean was Director of Quality Assurance of the Company. From June 1989
to March 1992, Mr. Bean was a Senior Quality Field Engineer at TRW Space and
Defense, a provider of satellite communications equipment. From January 1989 to
June 1989, Mr. Bean was a Senior Quality Engineer at Eaton, a manufacturer of
microwave components for various telecommunications applications, and from
October 1987 to January 1989, Mr. Bean was a Quality Manager at Gamma Microwave,
a wireless component manufacturer. Mr. Bean holds a B.A. in Industrial Arts with
a minor in Business from San Jose State University.

            Mr. Cogan has served as a Director of the Company since November
1993. Since January 1994, Mr. Cogan has been a Principal of Weiss, Peck & Greer,
L.L.C., an investment company, and since 1990, he has been a general partner of
Weiss, Peck & Greer Venture Partners, L.L.C., a private venture capital
investment firm. From August 1986 to November 1990, Mr. Cogan was a partner of
Adler & Company, a venture capital group specializing in technology-related
investments. From 1983 to 1985, Mr. Cogan was Chairman and Chief Executive
Officer of Formtek, an imaging and data management computer company. Mr. Cogan
serves as a director of Electronics for Imaging, Inc., Integrated Packaging
Assembly Corporation and several private companies. Mr. Cogan holds a B.S. in
Physics and an M.B.A. from the Graduate School of Management at the University
of California--Los Angeles.

            Mr. Puckett has served as a Director of the Company since May 1994.
>From June 1995 to January 1996, he was President and Chief Executive Officer of
Mobile Telecommunication Technologies Corp. ("Mtel"), a telecommunications
corporation. From January 1994 to May 1995, Mr. Puckett was President and Chief
Operating Officer of Mtel. From June 1993 to December 1993, Mr. Puckett was
Senior Vice President, Corporate Strategy and Development for IBM. Between
September 1967 and June 1993, Mr. Puckett served in various management and
marketing positions at IBM. Mr. Puckett currently serves as a director of
Nielson Media Research (formerly known as Cognizant Corp.), R.R. Donnelley &
Sons and Software.com. Mr. Puckett holds a B.S. in Mathematics from the
University of Mississippi.

            Mr. Hawkins has served as a Director of the Company since September
1991. Since August 1995, Mr. Hawkins has been a General Partner of Generation
Capital Partners, L.P., a private equity firm. From May 1992 to July 1995, he
was a general partner of certain venture capital funds associated with Burr,
Egan, Deleage & Co., a venture capital company. From November 1987 to May 1992,
Mr. Hawkins was an Associate with Burr, Egan, Deleage & Co. He is currently a
limited partner of certain venture capital funds associated with Burr, Egan,
Deleage & Co. Mr. Hawkins serves as a director of PixTech, Inc., a manufacturer
of flat panel displays, and several private companies. Mr. Hawkins holds an
M.B.A. from the Harvard Graduate School of Business Administration and a B.A. in
English Literature from Harvard University.

            Mr. Sobczak has served as a Director of the Company since April
1997. Since 1991, Mr. Sobczak has been the President of Telecommunications
Education and Research Network, Inc. ("TERN"), a non-profit company that manages
a broadband network providing research and education support to over 35
universities. Additionally, since 1993, Mr. Sobczak has taught graduate courses
in telecommunications at the University of Pittsburgh and, from 1993 to 1995,
was a lecturer in the Carnegie Mellon University executive education program.
Between 1970 and 1990, he served in various management and marketing positions
at Bank of America, Ford Motor Co., Contel ASC and Westinghouse Communications.
Mr. Sobczak serves on the Board of Directors of one private company. Mr. Sobczak
holds an M.B.A. and a B.S. in Electrical Engineering from the University of
Detroit.

Board Committees and Meetings

            The Board of Directors held fifteen (15) meetings and acted by
unanimous written consent three (3) times during the fiscal year ended December
31, 1998 (the "1998 Fiscal Year"). The Board of Directors has an Audit Committee
and a Compensation Committee. Each director attended or participated in 75% or
more of the aggregate of (i) the total number of


                                       23
<PAGE>

meetings of the Board of Directors and (ii) the total number of meetings held by
all committees of the Board on which such director served during the 1998 Fiscal
Year.

            The Audit Committee currently consists of two directors, Mr. Cogan
and Mr. Puckett, and is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing their reports
regarding the Company's accounting practices and systems of internal accounting
controls. The Audit Committee held four (4) meetings during the 1998 Fiscal
Year.

            The Compensation Committee currently consists of two directors, Mr.
Cogan and Mr. Hawkins, and is primarily responsible for reviewing and approving
the Company's general compensation policies and setting compensation levels for
the Company's executive officers. The Compensation Committee also has the
exclusive authority to administer the Company's Employee Stock Purchase Plan and
the Company's 1995 Stock Option/Stock Issuance Plan and to make option grants
thereunder. The Compensation Committee acted by unanimous written consent
twenty-two (22) times during the 1998 Fiscal Year.

Director Compensation

            Board members do not receive cash compensation for their services as
directors.

            Under the Automatic Option Grant Program contained in the Company's
1995 Stock Option/Stock Issuance Plan (the "1995 Plan"), each individual who
first joins the Board as a non-employee director any time after February 1, 1996
will receive, at the time of such initial election or appointment, an automatic
option grant, to purchase 40,000 shares of Common Stock, provided such person
has not previously been in the Company's employ. In addition, on the date of
each annual stockholders meeting, each individual who continues to serve as a
non-employee Board member, whether or not such individual is standing for re-
election at that particular Annual Meeting, will be granted an option to
purchase 4,000 shares of Common Stock, provided such individual has not received
an option grant under the Automatic Option Grant Program within the preceding
six months. Each grant under the Automatic Option Grant Program will have an
exercise price per share equal to the fair market value per share of the
Company's Common Stock on the grant date, and will have a maximum term of ten
(10) years, subject to earlier termination should the optionee cease to serve as
a Board of Directors member.

            On May 18, 1998, the date of the 1998 Annual Stockholders Meeting,
each of the non-employee Board members, Messrs. Cogan, Hawkins, Puckett and
Sobczak, received an automatic option grant to purchase 4,000 shares of Common
Stock. The exercise price per share in effect under each such option was $19.25,
the fair market value per share of Common Stock on the grant date. Each of the
options was immediately exercisable for all the option shares, but any shares
purchased under the option would be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each option grant was to
vest in a series of eight (8) successive equal quarterly installments upon the
optionee's completion of each successive three (3)-month period of Board service
over the twenty-four (24)-month period measured from the grant date.

            On July 31, 1998, each of the option grants made under the Automatic
Grant Program on May 18, 1998 with an exercise price of $19.25 per share was
cancelled, and a new option for 4,000 shares was granted to each of the four
non-employee Board members with an exercise price of $5.8125 per share, the fair
market value per share of Common Stock on the grant date of the new option. Due
to the decrease in its share price, the competition for our directors' time and
the significant effort and commitment expended by the Company's directors on its
behalf, the Board believed that it was in the best interest of the Company to
incenivize its non-employee Board members by providing them with a continuing
opportunity to acquire shares of Common Stock at the current fair market value
of such shares. Each of the new options is immediately exercisable for all the
option shares, but any shares purchased under the option will be subject to
repurchase by the Company, at the exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each new option will vest in a series of eight (8) successive
equal quarterly installments upon the optionee's completion of each successive
three (3)-month period of Board service over the twenty-four (24)-month period
measured from the July 31, 1998 grant date.


                                       24
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol PCMS. The following table sets forth the range of high and low closing
sale prices, as reported on the Nasdaq National Market for each quarter since
the consummation of the Company's initial public offering on March 3, 1995. At
March 18, 1999, the Company had approximately 550 holders of record of its
Common Stock and approximately 48,944,270 shares outstanding.

                                                      Price Range of
                                                       Common Stock
                                                      High      Low
                                                      ----      ---
         Year Ending December 31, 1996
               First Quarter                        $10.07     $7.00
               Second Quarter                        18.00      9.75
               Third Quarter                         17.94      9.44
               Fourth Quarter                        16.88     10.16

         Year Ending December 31, 1997
               First Quarter                        $19.44    $13.00
               Second Quarter                        17.41     12.69
               Third Quarter                         26.13     16.13
               Fourth Quarter                        29.38     13.63

         Year Ending December 31, 1998
               First Quarter                        $21.13    $15.56
               Second Quarter                        20.50      8.88
               Third Quarter                          8.81      2.38
               Fourth Quarter                         4.38      2.50

Recent Sales of Unregistered Securities

            On December 22, 1998, the Company issued to Castle Creek Technology
Partners LLC, Capital Ventures International and Marshall Capital Management,
Inc., 5,500, 5,000, and 4,500 shares, respectively, of its Series B Preferred
Stock and warrants to purchase 455,494, 414,086, and 372,677 shares,
respectively, of Common Stock for an aggregate purchase price of $15,000,000.
The conversion price of the Series B Preferred Stock is equal to the lower of
$5.46 per share or 101% of the lowest three-day average closing bid prices for
the Common Stock during the fifteen consecutive day trading period immediately
prior to such conversion. The sale was arranged by Paine Webber Incorporated
which received a placement fee. The Series B Prefered Stock was issued in a
non-public offering pursuant to transactions exempt under section 4(2) of the
Securities Act.

            To date, the Company has not paid any cash dividends on shares of
its Common Stock. The Company currently anticipates that it will retain any
available funds for use in the operation of its business, and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
terms of several of the Company's agreements prohibit the Company from paying
any dividends without the prior approval of the other parties named therein. The
Series B Preferred Stock accrues a 6% premium per year, payable upon conversion
or redemption in cash or Common Stock at the option of the Company. To date, no
premiums have been paid.


                                       25
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                  1998            1997           1996          1995         1994
                                                                ---------       ---------     ---------     ---------    ---------
                                                                                (in thousands, except per share data)
                                                               (restated)
<S>                                                             <C>             <C>           <C>           <C>          <C>
STATEMENT OF OPERATIONS DATA:

Sales:
    Product                                                     $ 118,948       $ 169,453     $ 101,853     $  52,856    $  19,198
    Broadcast                                                      25,258          21,092            --            --           --
    Service                                                        43,597          30,157        19,100        11,607       10,402
                                                                ---------       ---------     ---------     ---------    ---------
        Total sales                                               187,803         220,702       120,953        64,463       29,600
                                                                ---------       ---------     ---------     ---------    ---------
Cost of sales:
    Product                                                        93,829          96,948        60,362        29,949       11,517
    Broadcast                                                      19,669          13,319            --            --           --
    Service                                                        30,777          18,968        13,696         7,507        7,297
                                                                ---------       ---------     ---------     ---------    ---------
        Total cost of sales                                       144,275         129,235        74,058        37,456       18,814
                                                                ---------       ---------     ---------     ---------    ---------
    Gross profit                                                   43,528          91,467        46,895        27,007       10,786
                                                                ---------       ---------     ---------     ---------    ---------
Operating expenses:
    Research and development                                       41,473          29,127        20,163        12,284        7,978
    Selling and marketing                                          22,020          15,696         7,525         4,837        3,275
    General and administrative                                     24,965          14,741        10,178         5,573        4,903
    Goodwill amortization                                           6,692           2,207           105            --           --
    Restructuring charges                                           4,332              --            --            --           --
    Acquired in-process research and
        development                                                15,442              --            --            --           --
                                                                ---------       ---------     ---------     ---------    ---------
        Total operating expenses                                  114,924          61,771        37,971        22,694       16,156
                                                                ---------       ---------     ---------     ---------    ---------
Income (loss) from operations                                     (71,396)         29,696         8,924         4,313       (5,370)
Interest and other income (expense), net                           (7,903)            247           906           167         (249)
                                                                ---------       ---------     ---------     ---------    ---------
Income (loss) before extraordinary
    item and income taxes                                         (79,299)         29,943         9,830         4,480       (5,619)
Provision (benefit) for income taxes                              (11,501)         11,052           956           761          338
                                                                ---------       ---------     ---------     ---------    ---------
Income (loss) before extraordinary item                           (67,798)         18,891         8,874         3,719       (5,957)
Extraordinary item: retirement of Notes                             5,333              --            --            --           --
                                                                ---------       ---------     ---------     ---------    ---------
Net income (loss)                                                 (62,465)         18,891         8,874         3,719       (5,957)
Charge related to preferred stock discount                         (1,839)             --            --            --           --
                                                                ---------       ---------     ---------     ---------    ---------
Net income (loss) applicable to holders
    of Common Stock                                             $ (64,304)      $  18,891     $   8,874     $   3,719    $  (5,957)
                                                                =========       =========     =========     =========    =========
Basic income (loss) per share (1):
    Income (loss) before extraordinary item                     $   (1.57)      $    0.45     $    0.23     $    0.11    $   (1.08)
    Extraordinary item                                               0.12              --            --            --           --
                                                                ---------       ---------     ---------     ---------    ---------
    Preferred stock discount                                        (0.04)             --            --            --           --
                                                                ---------       ---------     ---------     ---------    ---------
    Net income(loss) applicable to holders of common stock      $   (1.49)      $    0.45     $    0.23     $    0.11    $   (1.08)
                                                                =========       =========     =========     =========    =========

Diluted income (loss) per share (1):
    Income (loss) before extraordinary item                     $   (1.57)      $    0.43     $    0.22     $    0.11    $   (1.08)
    Extraordinary item                                               0.12              --            --            --           --
    Preferred stock discount                                        (0.04)             --            --            --           --
                                                                ---------       ---------     ---------     ---------    ---------
    Net income (loss)                                           $   (1.49)      $    0.43     $    0.22     $    0.11    $   (1.08)
                                                                =========       =========     =========     =========    =========
Shares used in per share computation:
Basic                                                              43,254          42,175        38,762        32,645        5,521
                                                                =========       =========     =========     =========    =========
Diluted                                                            43,254          44,570        40,607        34,853        5,521
                                                                =========       =========     =========     =========    =========
</TABLE>


                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                                        December 31,
                                               1998           1997         1996           1995           1994
                                             --------       --------     --------       --------       --------
                                                                      (in thousands)
                                            (restated)
                                            ----------
<S>                                          <C>            <C>          <C>            <C>           <C>
BALANCE SHEET DATA:
Cash and cash equivalents                    $ 29,241       $ 88,145     $ 42,226       $ 8,871       $  1,593
Working capital                                78,967        174,635       90,811        38,473          3,755
Total assets                                  315,217        305,521      155,452        62,964         18,393
Long-term debt                                 92,769        101,690          914           491          1,198
Mandatorily Redeemable Preferred Stock         13,559             --           --            --             --
Retained earnings (accumulated deficit)       (45,924)        18,380         (511)       (9,360)       (13,119)
Stockholders' equity                           99,409        148,297      112,479        47,258          6,028
</TABLE>

----------
(1)   See Note 1 of Notes to Consolidated Financial Statements for an
      explanation of the method used to determine the number of shares used to
      compute share and per share amounts.

(2)   All financial information presented in this Annual Report on Form 10-K has
      been restated to include the operating results of Control Resources
      Corporation ("CRC"), which was acquired in a pooling-of-interests
      transaction on May 29, 1997; and RT Masts Limited ("RT Masts") and
      Telematics, Inc. ("Telematics"), which were acquired in pooling-of-
      interests transactions on November 27, 1997.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

            Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "--Certain Factors Affecting the
Company" contained in this Item 7 and elsewhere in this Annual Report on Form
10-K.

Revision of financial statements and changes to certain information

            The Company is amending, and pursuant to those amendments has
revised its 1998 as reflected in this filing, and first quarter of 1999
financial statements, to revise the accounting treatment of certain contracts
with a major customer. Under a joint license and development contract, the
Company recognized $10.5 million of revenue in 1998 and $1.5 million in the
first quarter of 1999 of this $12 million contract on a percentage of completion
basis. As previously disclosed, the Company determined that a related Original
Equipment Manufacturer ("OEM") agreement which included payments of $8 million
to this customer in 1999 and 2000 specifically earmarked for marketing the
Company's products manufactured for this customer, should have offset a portion
of the revenue recognized previously. The net effect is to reduce 1998 revenue
and pretax income by $7.1 million and to reduce the first quarter of 1999
revenue and pretax income by $0.9 million. This amended filing contains related
financial information and disclosures as of and for the year ended December 31,
1998. See Note 1 to the Consolidated Financial Statements.

Results Of Operations

            The following information reflects a change in the original
accounting for the purchase price allocation for the March 1998 acquisition of
the Wireless Communications Group of Cylink Corporation (the Cylink Wireless
Group) and amortization of the related goodwill and other intangible assets
purchased for the nine months since the acquisition.

Overview

            P-Com, Inc. (the "Company") supplies equipment and services for
access to worldwide telecommunications and broadcast networks. All financial
information presented in this Annual Report on Form 10-K has been presented to
include the operating results of Control Resources Corporation ("CRC"), which
was acquired in a pooling-of-interests transaction on May 29, 1997; and RT Masts
Limited ("RT Masts") and Telematics, Inc. ("Telematics"), which were acquired in
pooling-of- interests transactions on November 27, 1997. Currently, the Company
ships 2.4 GHz and 5.7 GHz spread spectrum radio systems, as well as 7 GHz, 13
GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 26 GHz, 38 GHz and 50 GHz radio systems,
and the Company also provides software and related services for these products.
Additionally, the Company offers turnkey microwave relocation services,
engineering, path design, program management, installation and maintenance of
communication systems to network service providers. The Company is currently
field testing and further developing a range of point-to-multipoint radio
systems for use in both the telecommunications and broadcast industries.


                                       27
<PAGE>

            The Company was founded in August 1991 to develop, manufacture,
market and sell millimeter wave radio systems for wireless networks. The Company
was in the development stage until October 1993. From October 1993 through
December 31, 1998, the Company generated sales of approximately $642.7 million,
of which $408.5 million, or 64% of such amount, was generated in the twenty-four
months ended December 31, 1998. From inception to the end of 1998, the Company
had generated an accumulated deficit of approximately $45.9 million. The
decrease in retained earnings from $18.4 million in 1997 to an accumulated
deficit of $45.9 million in 1998 was due primarily to the net loss of $62.5
million in 1998 which included restructuring and other charges of $26.6 million
and acquired in- process research and development expenses of approximately
$15.4 million related to the acquisition of the assets of the Cylink Wireless
Group. For additional information regarding the acquisition, please see "Results
of Operations- Acquisitions". In addition to these charges, the net loss was
also due to a downturn and slowdown in the telecommunications equipment industry
as a whole in the second half of the year, in part due to the economic turmoil
in Asia. The Company experienced a sharp decrease in its sales beginning in June
1998, as compared to prior quarters, and began a cost reduction program shortly
thereafter. The Company laid off a portion of its work force in September,
October and November 1998 and increased its inventory reserves and allowance for
doubtful accounts and wrote down certain of its facilities, fixed assets and
goodwill in the third quarter of 1998.

            Due to many factors, including the Company's limited operating
history and limited resources, there can be no assurance that profitability or
significant revenues on a quarterly or annual basis will occur in the future.
During 1997 and the first half of 1998, both the Company's sales and operating
expenses increased rapidly. During the remainder of 1998, the Company's
operating expenses continued to increase, while the Company's sales declined
sharply. There can be no assurance that the Company's revenues will continue to
remain at or increase from the levels experienced in 1997 or in the first half
of 1998 or that sales will not decline. In fact, during the third quarter of
1998, the Company experienced a significant decrease in sales. Although the
fourth quarter showed an improvement, the Company had not recovered from the
downturn and sales remained sluggish. In recent quarters, the Company has been
experiencing higher than normal price declines. The declines in prices have a
downward impact on the Company's gross margin. There can be no assurance that
such pricing pressure will not continue in future quarters. Though the Company
is taking measures to reduce operating expenses, the Company intends to continue
to invest in its operations, particularly to support product development and the
marketing and sales of recently introduced products. As such, there can be no
assurance that operating expenses will not continue to increase in 1999 as
compared to 1998. If the Company's sales do not correspondingly increase, the
Company's results of operations would continue to be materially adversely
affected. Accordingly, there can be no assurance that the Company will achieve
profitability in future periods. The Company is subject to all of the risks
inherent in the operation of a new business enterprise, and there can be no
assurance that the Company will be able to successfully address these risks.

            During the second half of 1997 and the first half of 1998, the
Company significantly expanded the scale of its operations to support potential
market opportunities and to address critical infrastructure and other
requirements. This expansion included the opening of sales offices in the United
Arab Emirates, Singapore, China and Mexico, the acquisition of the assets of the
Cylink Wireless Group, significant investments in research and development to
support product development and services, and the hiring of additional personnel
in all functional areas, including sales and marketing, finance, manufacturing
and operations. Because the Company's sales did not correspondingly increase
during the second half of the year, the Company's results of operations were
materially adversely affected and the cost reduction program was initiated. The
Company raised gross proceeds of $15 million through the issuance of convertible
preferred stock and warrants in December 1998. The Company retired approximately
$40 million of its 4 1/4% convertible promissory notes between December 1998 and
February 1999 through the issuance of 5,279,257 shares of Common Stock.

Years Ended 1998, 1997 And 1996

            Sales. Sales consist of revenues from radio systems and bundled
software tools and service offerings. The Company generated revenues from the
sale of its 38 GHz radio systems commencing in October 1993, 50 GHz radio
systems commencing in September 1994, 23 GHz radio systems commencing in January
1995, 15 GHz radio systems commencing in June 1996, 2.4 and 5.7 GHz spread
spectrum radio systems commencing in September 1996, 13 GHz radio systems
commencing in November 1996, 26 GHz radio system commencing in July 1997, 7 and
18 GHz radio systems commencing in September 1997 and service offerings in March
1997. In 1998, the Company generated revenues from the sale of its 1U (one unit,
approximately 1.75 inches in height) enhanced IDU and 28 GHz radio system
commencing in April 1998, Cluster Network Manager commencing in May 1998, SNMP
commencing in June 1998, Airpro commencing in October 1998, and NMS Proxy
Controller commencing in November 1998.

            In 1998, 1997 and 1996, sales were approximately $187.8 million,
$220.7 million, and $121.0 million, respectively. The 15% decrease in sales from
1997 to 1998 was primarily due to the market slowdown for the Company's Tel-Link
product line and a downturn and slowdown in the telecommunication equipment
industry segment, due in particular to the economic turmoil in Asia and surplus
capacity in the industry. During 1997, the Tel-Link product line contributed
approximately $154.9 million or 70.2%


                                       28
<PAGE>

of the Company's total sales of approximately $220.7 million. During 1998, the
Tel-Link product line contributed approximately $94.6 million or 50.4% of the
Company's total sales of approximately $187.8 million. For the first half of
1998, the Tel-Link product line contributed approximately $78.1 million or 67.3%
of the Company's total sales of approximately $116.0 million. Tel-Link product
line sales for the second half of 1998 decreased to approximately $23.6 million
or 32.9% of the Company's total sales of approximately $71.8 million. The
increase in sales from 1996 to 1997 was primarily due to increased volume of 38
and 23 GHz radio systems to new and existing customers and, to a lesser extent,
sales from products acquired in recent acquisitions, and from service offerings.
In 1998, one customer accounted for 24% of sales. In 1997, two customers
accounted for an aggregate of 26% of sales.

            Product sales for 1998 decreased approximately $50.5 million or 30%
during the year as compared to an increase of approximately $67.6 million or 66%
during 1997. Product sales represented approximately 63%, 77% and 84% of sales
in 1998, 1997 and 1996, respectively. The decrease in product sales in 1998 was
primarily due to the slowdown in the telecommunication equipment industry in the
second half of the year and declining prices as a result of the Pacific Rim
currency crisis and surplus capacity in the industry. Product sales growth in
1997 was attributable to strong year-over-year growth of the 38 and 23 GHz radio
systems and to the Company's acquisitions.

            Service sales for 1998 increased approximately $13.4 million or 45%
over the prior year as compared to approximately $11.1 million or 58% during
1997. Service sales represented 23%, 14% and 16% of sales in 1998, 1997 and 1996
respectively. The increase in service sales in 1998 was primarily due to
increased presence in international markets through acquisitions in the United
Kingdom and Italy and from introductions to new customers by the sales force.
The increase in service sales in 1997 was due to the acquisition of CSM. All
service sales in 1996 were from acquisitions in 1997 and 1998 which were
accounted for as poolings-of-interest. Under the pooling-of-interests method of
accounting, the consolidated financial statements are restated to present the
results of the combined companies as if they had been combined since inception.
Since the Company is not currently contemplating further acquisitions, service
sales as a percentage of total sales are not expected to fluctuate significantly
in the future.

            Broadcast sales for 1998 increased approximately $4.2 million or 20%
during the year. Since the Broadcast segment was acquired on February 24, 1997,
there were no Broadcast segment sales recorded in 1996. The increase in sales
for the year ended 1998 was primarily due to the Company owning the Broadcast
segment for ten months in 1997 as compared to twelve months in 1998.

            Historically, the Company has generated a majority of its sales
outside of the United States. During 1998, the Company generated 22%, 38%, 20%,
10% and 10% of its sales in the US, the UK, Europe, Africa, and Asia,
respectively. During 1997, the Company generated 32%, 31%, 20%, 3% and 7% of its
sales in the US, the UK, Europe, Africa, and Asia, respectively. The Company
expects to generate a majority of its sales in international markets in the
future.

            Many of the Company's largest customers use the Company's product
and services to build telecommunication network infrastructures. These purchases
are significant investments in capital equipment and are required for a phase of
the rollout in a geographic areas or a market. Consequently, the customer may
have different requirements from year to year and may vary its purchases from
the Company accordingly.

            The decrease in sales to US customers from approximately $70 million
in 1997 to approximately $42 million in 1998 is due primarily to lower sales to
three customers who purchased an aggregate of approximately $43 million in 1997
and approximately $4 million in 1998. This was partially offset by sales to
other new and existing customers in the US during the year primarily due to the
sales generated from acquisitions made in 1997 and 1998. Sales to customers in
the UK of $71 million in 1998 and $69 million in 1997 were relatively flat.
However, lower sales from one customer in the UK were offset by increased sales
from several other customers in the UK. Sales to customers in Europe decreased
from $45 million in 1997 to $38 million in 1998, primarily due to the slowdown
in the telecommunication equipment industry in the second half of the year and
declining prices as a result of surplus capacity in the industry. The increase
in sales to customers in Africa from approximately $6 million in 1997 to
approximately $19 million in 1998 is due to increased demand by one customer.
Sales to customers in Asia increased by approximately 18% to $18 million from
$15 million due to the acquisition of the Cylink Wireless Group and to new
customers in the area. Sales to customers in Asia during the second half of 1998
decreased by 35% as compared to the first half of the year.

            There can be no assurance that sales of the Company's radio systems
or services will increase or that such systems or services will achieve market
acceptance. The Company provides to its customers significant volume price
discounts, which are expected to lower the average selling price of a particular
product line as more units are sold. In addition, the Company expects that the
average selling price of a particular product line will also decline as such
product matures, and as competition increases in the future. Accordingly, the
Company's ability to maintain or increase sales will depend upon many factors,
including its ability to increase unit sales volumes of its systems and to
introduce and sell systems at prices sufficient to compensate for reduced
revenues resulting from declines in the average selling price of the Company's
more mature products. To date, most of the Company's sales


                                       29
<PAGE>

have been made to customers located outside the United States. For risk factors
associated with customer concentration, declining average selling prices,
results of operations and international sales, please see "Certain Factors
Affecting the Company-- Customer Concentration," "-- Fluctuations in Operating
Results," and "Decline in Selling Prices."

            Gross Profit. The Company's cost of sales consists primarily of
costs related to materials, labor and overhead, and freight and duty. In 1998,
1997 and 1996, gross profits were $43.6 million, $91.5 million and $46.9
million, respectively, or 23.2%, 41.4% and 38.8% of sales, respectively. The
decline in gross profit as a percentage of sales from 1997 to 1998 was primarily
due to declining average selling prices, increased service sales which generated
lower margins than service sales in the prior year, and inventory write-downs of
approximately $16.9 million. The improvement in gross profit as a percentage of
sales from 1996 to 1997 was primarily due to product design improvements, such
as reducing the number of components incorporated into each system and the use
of common components across the range of the Company's products, which increased
manufacturing efficiencies and economies of scale.

            Product gross profit as a percentage of product sales was
approximately 21.1%, 42.8% and 40.7% in 1998, 1997 and 1996, respectively.
Approximately one-half of the decrease in product gross profit percentage in
1998 was due to inventory write-downs of approximately $16.9 million (including
$14.5 million in inventory write downs related to the Company's existing core
business and $2.4 million in other charges to inventory relating to the
elimination of product lines). The remaining one-half of the decrease in product
gross profit percentage was due to several factors, including a declining
average selling price, changes in the product mix, excess capacity due to the
market slow down, product conversion costs and other manufacturing variances.
The increase in product gross profit percentage in 1997 was due to product
design improvements and economies of scale. Broadcast equipment gross profit as
a percentage of broadcast equipment sales was approximately 22.1% and 36.9% in
1998 and 1997, respectively. The decline in broadcast equipment gross profit
percentage was due to declining average selling prices and lower sales volumes.
Service gross profit as a percentage of service sales was approximately 29.4%,
37.1% and 28.3% in 1998, 1997, and 1996, respectively. The decrease in service
gross profit percentage in 1998 was due to increased price competition and
changes in the service offering mix. The increase in service gross profit in
1997 was due to a high demand for microwave engineering installation and
relocation projects as a result of PCS build-outs stemming from PCS license
auctions by the FCC in 1995.

            The Company has an ongoing program to reduce the costs of
manufacturing its radio systems. As part of this program, the Company has been
attempting to achieve cost reductions principally through engineering and
manufacturing improvements, production economies and utilization of third party
subcontractors for the manufacture of the Company's radio systems and certain
components and subassemblies used in the systems. The Company is also
implementing other cost reduction programs in an effort to maintain gross
margins in the future. There can be no assurance that the Company's ongoing or
future programs can be accomplished or that they will increase gross profits.
For risk factors associated with gross profit, please see "Certain Factors
Affecting the Company -"Fluctuations in Operating Results" and "--Decline in
Selling Prices," and "Product Quality, Performance and Reliability."

            Research and Development. Expenses consist primarily of costs
associated with personnel and equipment. The Company's research and development
activities include the development of additional frequencies and varying
operating features and related software tools. The Company's software products
are integrated into its hardware products. Software development costs incurred
prior to the establishment of technological feasibility are expensed as
incurred. Software development costs incurred subsequent to the establishment of
technological feasibility and before general release to customers are
capitalized, if material. To date, all software development costs incurred
subsequent to the establishment of technological feasibility have been
immaterial.

            In 1998, 1997 and 1996, research and development expenses were
approximately $41.5 million, $29.1 million and $20.2 million, respectively. As a
percentage of sales, research and development expenses increased from 13% in
1997 to 22% in 1998. The increase in research and development expenses as a
percentage of sales from 1997 to 1998 was primarily due to the Company's sales
decline and the significant investment in research and development to support
product development and services, including the costs associated with new
product development due to the acquisition of the Cylink Wireless Group in March
of 1998 and the Company's engineering efforts to develop a point-to-multipoint
product. The increase in research and development expenses from 1996 to 1997 was
primarily due to increased staffing as the Company concentrated on new product
development, including costs associated with new product development by CRC
beginning in 1996. Though the Company is taking measures to reduce expenses
where appropriate, the Company intends to continue investing resources for the
development of new systems and enhancements (including additional frequencies
and various operating features and related software tools). As such, there can
be no assurance that research and development expenses will not continue to
increase in 1999 as compared to 1998.

            Selling and Marketing. Expenses consist of salaries, investments in
international operations, sales commissions, travel expenses, customer service
and support expenses and costs related to advertising and trade shows. In 1998,
1997 and 1996, sales and marketing expenses were $22.0 million, $15.7 million
and $7.5 million, respectively. As a percentage of sales, selling and


                                       30
<PAGE>

marketing expense increased from 7% in 1997 to 12% in 1998, primarily due to a
lower level of sales in 1998 and the expansion and start-up of the Company's
international sales and marketing organization, including opening sales offices
in the United Arab Emirates, Singapore, China, and Mexico. As a percentage of
sales, selling and marketing expenses increased from 6% of sales in 1996 to 7%
of sales in 1997. Of this 108% increase in absolute dollars, approximately 60%
was due to the expansion of the Company's international sales force, primarily
in the UK, and customer support in the US. The remaining 40% increase in selling
and marketing expenses from 1996 to 1997 was due to the increase in selling and
marketing expenses resulting from the 1997 acquisitions of Technosystem, CSM and
CRC. Though the Company is taking measures to reduce expenses where appropriate,
the Company intends to continue investing resources to expand its sales and
marketing efforts, including the hiring of additional personnel, and to
establish the infrastructure necessary to support future operations. As such,
there can be no assurance that sales and marketing expenses will not continue to
increase in 1999 as compared to 1998.

            General and Administrative. Expenses consist primarily of salaries
and other expenses for management, finance, accounting, and legal and other
professional services. In 1998, 1997 and 1996, general and administrative
expenses were $25.0 million, $14.7 million and $10.2 million, respectively. As a
percentage of sales, general and administrative expense increased from 7% in
1997 to 13% in 1998, primarily due to a lower level of sales in 1998, increased
staffing and other costs resulting from the Company's international expansion,
acquisitions, and a $5.4 million increase in accounts receivable reserves that
were charged to general and administrative expenses as a result of the Company
recording restructuring and other charges during the third quarter of 1998. The
increase in general and administrative expenses from 1996 to 1997 is related to
the expansion of the Company's business associated with the acquisitions of
Geritel S.p.A., Atlantic Communication Sciences, Inc., Technosystem S.p.A.
("Technosystem"), and Columbia Spectrum Management, L.P. ("CSM"). In addition,
the Company also incurred and expects to continue to incur additional
significant ongoing expenses as a publicly owned company related to legal,
accounting and other administrative services and expenses, including its class
action litigation. The Company expects general and administrative expenses to
continue to increase in absolute dollars in 1999 as compared to 1998.

            Goodwill Amortization. Goodwill represents the excess of the
purchase price over the fair value of the net assets of acquired companies
accounted for as purchase business combinations. Goodwill is amortized based on
the expected revenue stream or on a straight-line basis over the period of
expected benefit, ranging from 3 to 20 years. In 1998, 1997 and 1996, goodwill
amortization was approximately $6.7 million, $2.2 million, and $105,000,
respectively. The increase in goodwill amortization from 1997 to 1998 was due to
the Company recording a full year of amortization expense for the acquisitions
of Technosystem, a Rome, Italy-based company and the assets of CSM, a Vienna,
Virginia-based partnership, which were acquired in February 1997 and March 1997,
respectively, and recording nine months of amortization for the acquisition of
the Cylink Wireless Group which took place in March 1998.

            Acquired In-Process Research and Development ("IPR&D"). On March 28,
1998, the Company acquired substantially all of the assets, and on April 1,
1998, the accounts receivable of the Wireless Communications Group of Cylink
Corporation ("Cylink Wireless Group"), a Sunnyvale, California-based company,
for $46.0 million in cash and $14.5 million in a short-term, non-interest
bearing unsecured subordinated promissory note due July 6, 1998. Subsequent to
the purchase and before the $14.5 million note was due, the Company determined
that $4.8 million of accounts receivable acquired from Cylink Wireless Group
were uncollectible. As a result, the Company withheld payment of $4.8 million of
the promissory note. The $4.8 million promissory note holdback is being disputed
by Cylink Wireless Group and is in arbitration. See Note 13 of Notes to
Consolidated Financial Statements.. The Cylink Wireless Group designs,
manufactures and markets spread spectrum radio products for voice and data
applications in both domestic and international markets. The acquisition of the
accounts receivable on April 1, 1998 was recorded in the second quarter of 1998.
The Company accounted for this acquisition based on the purchase method of
accounting. The results of the Cylink Wireless Group have been included since
the date of acquisition.

            The amount allocated to IPR&D and intangible assets in the first
quarter of 1998 was made in a manner consistent with widely recognized appraisal
practices at the date of acquisition. Subsequent to this time, the Company
became aware of some new information which brought into question the traditional
appraisal methodology, and the Company revised its purchase price allocation
based upon a more current and preferred methodology. As a result of computing
IPR&D using the more current and preferred methodology, the Company, decided to
revise the amount originally allocated to IPR&D. As such, the Company restated
its first, second, and third quarters in the 1998 consolidated financial
statements to reflect this significant decrease in its IPR&D charge and related
increase in goodwill and other intangible assets. As a result, the first quarter
charge for acquired IPR&D was decreased from $33.9 million previously recorded
to $15.4 million, a decrease of $18.5 million with a corresponding increase in
goodwill and other intangible assets and related amortization in subsequent
quarters.

            Among the factors considered in determining the amount of the
allocation of the purchase price to in-process research and development were
various factors such as estimating the stage of development of each in-process
research and development project at the date of acquisition, estimating cash
flows resulting from the expected revenues generated from such projects, and
discounting the net cash flows. In addition, other factors were considered in
determining the value assigned to purchased in-process technology such as
research projects in areas supporting products which address the growing third
world markets by


                                       31
<PAGE>

offering a new point-to-multipoint product, a faster, less expensive more
flexible point-to-point product, and the development of enhanced Airlink
products acquired from the Cylink Wireless Group, consisting of a Voice
Extender, Data Metro II, and RLL encoding products. At the time of acquisition,
these projects were estimated to be 60%, 85%, and 50% complete, respectively.
The Company expects to begin to benefit from these projects in early 1999. If
none of these projects is successfully developed, the Company's sales and
profitability may be materially adversely affected in future periods.
Additionally, the failure of any particular individual project in-process could
impair the value of other intangible assets acquired. In process research and
development had no future use at the date of acquisition and technological
feasibility had not been established.

            During the second quarter of 1998, due to limited staff and
facilities, the company delayed the research project for the new narrowband
point-to-multipoint project acquired from the Cylink Wireless Group and focused
available resources on the broadband point-to-multipoint project which is
targeted for a larger addressable market. The narrowband point-to-multipoint
project has a total remaining expected development cost of approximately $2.4
million and, due to the allocation of resources discussed above, is not expected
to be completed prior to the year 2000. Currently, the narrowband
point-to-multipoint project is approximately 60% complete. The point-to-point
project, discussed above, which was acquired from the Cylink Wireless Group, was
completed during the third quarter of 1998 at an estimated total cost of $2.0
million. The enhanced Airlink projects were completed during the first quarter
of 1999 at an estimated total cost of $0.6 million.

            The Company acquired the assets of the Cylink Wireless Group to
extend the Company's existing product line and distribution channels and to
provide the Company with additional technology and products under development.
The Wireless Group's existing product line and distribution channels provided
immediate benefit to P-COM's business and the technology and products under
development were expected to provide further revenue opportunities in the
expanding markets of Asia and Latin America. The purchase price for the Cylink
Wireless Group was based on the fair value as determined by two willing
independent parties. The value for the intangible assets was determined in a
manner consistent with widely recognized appraisal practices at the date of
acquisition. Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired. As the dominant supplier of spread spectrum
radios in Asia and Latin America, the established relationships provided by the
acquisition significantly improved the Company's penetration of these markets.
The Company believes that the in-process research and development at the time of
the acquisition constituted a significant part of the Wireless Group's value. In
particular, in certain markets the frequency spectrum used by the Airlink
products is becoming increasingly saturated. The Viper product offered the
Wireless Group's customer a migration path into new frequency bands. The Company
does not believe that it could have developed such products internally or would
have purchased them elsewhere for less.

            Restructuring Costs. During 1998, the Company incurred restructuring
charges of $4.3 million, consisting of severance benefits, and impairments of
facilities, fixed assets, and goodwill. These restructuring charges resulted
from the consolidation of certain of the Company's facilities.

            In addition, the Company recorded inventory reserves of $16.9
million (including $14.5 million in inventory write downs related to the
Company's existing core business and $2.4 million in other charges to inventory
relating to the elimination of product lines) which were charged to costs of
goods sold, and accounts receivable reserves of $5.4 million which were charged
to general and administrative expenses. The Company recorded these charges in
the third quarter of 1998 primarily in response to a sudden slowdown in receipt
of purchase orders from customers and the increased credit risk.

            The $4.3 million restructuring charge consisted primarily of
severance and benefits of approximately $0.6 million, facilities and fixed
assets impairments of approximately $0.9 million, and goodwill write-offs of
approximately $2.9 million.

            To attempt to offset the decrease in sales, the Company laid off
approximately 121 employees from the Campbell facilities and 16 employees from
its Redditch, UK facilities during September and October 1998, incurring costs
of approximately $0.6 million. All employees were properly notified of the
impending layoff in advance and were given severance pay. Each functional vice
president submitted a list of eligible employees for the reduction in force to
the Human Resources Department where a summary list was prepared. Between
November 1998 and February 1999, the Company laid off approximately 35
additional employees from the Campbell facilities. The employee lay-offs
described above resulted in a reduction of costs of approximately $0.6 million
per quarter, which includes approximately $0.2 million in cost of sales, $0.2
million in research and development, $0.1 million in sales and marketing, and
$0.1 million in general and administrative expense.

            Due to the slowdown in sales, the Company combined certain
operations and closed its Telesys and Advanced Wireless facilities, incurring
costs of approximately $0.9 million. Some of the employees were transferred to
other business units while others were included in the reduction in force.
Facilities expenses, such as rent expense, were expensed, and certain fixed
assets at closed locations were written down. In addition, goodwill created
through acquisitions of these business units was written off in the
restructuring charge. During 1998, the Company's operations in Florida were
moved into more suitable facilities and the Company expensed the remaining lease
payments on the original building.


                                       32
<PAGE>

            On April 30, 1996, the Company acquired for cash a 51% interest in
Geritel, which increased to 67% over the next two years as the company exercised
its option to acquire an additional 16% of Geritel's equity capital on terms
specified in the acquisition agreement. During the quarter ended September 30,
1998, the Company sold a piece of Geritel's business to a former owner and the
remaining business became a wholly owned subsidiary of the Company. The piece
that was sold was not deemed to be of long-term strategic value to the Company,
but it did generate revenue and positive cash flow from sales to unaffiliated
companies. The piece retained by the Company had developed proprietary
technology and products subsequent to the acquisition that principally were used
for internal consumption. Consequently, the remaining business generated
negative cash flow because revenue from internal sales did not recover the cost
of research and development and other operating costs. Since Geritel is expected
to generate negative cash flow for the foreseeable future, the Company
determined that the unamortized goodwill booked as part of the original purchase
price was impaired. Accordingly, the Company recorded an impairment charge of
$1.6 million to reduce the carrying amount of this goodwill to its net
realizable value. Geritel's remaining assets were not significant and were not
tested for impairment.

            In addition to the impairment charge associated with the Geritel
goodwill, the Company also recorded an impairment charge of $1.2 million
associated with the goodwill booked in connection with the ACS acquisition. This
impairment was triggered by the acquisition of the Cylink Wireless Group, whose
products superseded those of ACS. The Company determined that they would no
longer operate ACS as a separate business because the Cylink Wireless Group had
a broader and superior product offering. As a result of the negative cash flows
associated with ACS, the Company recorded an impairment charge of $1.2 million
to reduce the carrying value of this goodwill to its net realizable value. The
remaining assets of ACS were not significant, and were not tested for
impairment.

            In the third quarter of 1998, the Company determined there was a
significant and sudden downturn in sales for the telecommunications industry
which required a review of the Company's inventory on hand and resulted in an
increase to inventory reserves of approximately $16.9 million. This sudden
downturn was evidenced by a dramatic decrease in the Company's revenues of 48%
as compared with the second quarter of 1998 and further evidenced by significant
declines in the revenues of several of the Company's competitors.

            The inventory reserves included an excess and obsolete reserve of
approximately $4.5 million related to the point-to-point microwave radio
inventory, primarily for 23 GHz and 38 GHz frequencies, used worldwide. The
Company makes no distinction or categorization between excess and obsolete
inventory at this time. As customer demand is not anticipated to consume the
inventory on hand within the next twelve months, the Company will continue to
attempt to sell the inventory and will dispose of it when it is deemed to be
unsaleable.

            The inventory reserves also included $2.0 million for the write-off
of inventory relating to overlap between the Cylink Wireless Group product line
and the existing P-Com product line at the single T1/E1 (1.5-2.0 mbs) capacity
and 2.4 and 5.7 GHz frequency. With lower demand and increased competition, the
Company needed to consolidate product lines to reduce expenses.

            Additionally, the reserve included $4.3 million for the rework of
excess semi-custom finished goods that were configured for specific customer
applications or geographical regions. Prior to this quarter, the Company seldom
reworked semi-custom fininshed goods because inventory levels were driven based
upon forecasted continuing growth expectations worldwide. However, once the
Company determined these was a significant and sudden downturn in sales for the
telecommunication industry, reworking semi-custom finished goods and frequencies
became a more viable option because it can be less expensive than purchasing new
equipment and can reduce cash outlays for inventory. The types of rework which
can be performed include changing power supplies, changing interface connectors,
adding or reducing functionality through daughter cards, and changing frequency
bands by replacing filters or synthesizers. All of this rework represents an
attempt to consume inventory and improve cash flows. The costs required to
perform the rework include costs for material, assembly, and re-testing of the
inventory by the Company's suppliers.

            The reserve also includes $1.1 million for products that have been
rendered obsolete because they have been redesigned and are old revisions, and a
general inventory reserve of approximately $5.0 million for potential excess
inventory caused by the slowdown in the industry. These reserves are primarily
for the Tel-Link point-to-point microwave radio inventory covering 7GHz, 15GHZ,
23GHz, and 38GHz frequencies for components, subassemblies, and semi-finished
goods in which the probability for usage or the ability to rework the inventory
and sell it to customers has been deemed unlikely.

            The accrual balance for the inventory reserve, shown below,
represents the charge to the balance sheet contra-account for excess and
obsolete inventory. The remaining accrual balance will be relieved when the
Company deems that the inventory is not suitable for rework and is otherwise
unsaleable. During the fourth quarter of 1998 and the first quarter of 1999, the
Company relieved approximately $7.4 million and $4.4 million, respectively, of
the inventory reserve. The Company anticipates that the remaining balance will
be relieved during 1999.


                                       33
<PAGE>

            With the sudden and unexpected downturn in the microwave radio
sector, the Company determined that an additional $5.4 million of accounts
receivable reserve was needed. This amount was determined after a
customer-by-customer review of accounts more than 90 days past allowed payment
terms. The Company's experience over the last several years had been one of an
environment in which microwave radio sales were increasing and expanding
worldwide. During the third quarter of 1998, the Company experienced a weakness
in the market which resulted in cancelled purchase orders, and the stronger
dollar caused the Company's customers to delay payments on equipment that had
already been shipped. The Company has over 200 customers worldwide with business
levels ranging from a few thousand to millions of dollars. The majority of
accounts reserved (numbering less than 25 in total) were for customers of the
Company's Tel-Link product lines. These customers were located predominately in
the emerging countries of Asia and Africa. The Company's credit policy on
customers both domestically and internationally requires letters of credit and
down payments for those customers deemed to be a high risk and open credit for
customers which are deemed credit worthy and have a history of timely payments
with the Company. The Company's credit policy typically allows payment terms
between 30 and 90 days depending upon the customer and the cultural norms of the
region. Collection efforts continue on remaining past due, reserved customer
accounts. The Company's collection process escalates from the collections
department to the sales force to senior management within the Company as needed.
Outside collection agencies and legal resources are also utilized where
appropriate.

            The ending accrual balance for the accounts receivable reserve of
$1.8 million, shown below, represents the charge to the balance sheet
contra-account, allowance for doubtful accounts. In the fourth qurter of 1998
and the first quarter of 1999, the Company elected to write off approximately
$3.6 million and $1.8 million of uncollectible accounts receivable,
respectively.

            The Company expects to benefit from these restructuring and other
charges in future quarters by reducing fixed costs and future cash requirements.

            The accrued restructuring and other charges and amounts charged
against the accrual as of December 31, 1998, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 Beginning    Expenditures    Remaining
                                                                  Accrual    and Write-offs    Accrual
<S>                                                               <C>      <C>            <C>
      Severance and benefits                                      $    568     $   (568)      $     --
      Facilities and fixed asset write-offs                            879         (519)           360
      Goodwill impairment                                            2,884       (2,884)            --
                                                                  --------     --------       --------
      Total restructuring charges                                    4,331       (3,971)           360
      Inventory reserve                                             16,922       (7,360)         9,562
      Accounts receivable reserve                                    5,386       (3,609)         1,777
                                                                  --------     --------       --------
      Total accrued restructuring and other charges               $ 26,639     $(14,940)      $ 11,699
                                                                  ========     ========       ========
</TABLE>

            Interest and Other Income (Expense). For 1998, interest expense,
consisted primarily of interest and fees incurred on borrowings under the
Company's bank line of credit, interest on the principal amount of the Company's
subordinated 4 1/4% convertible promissory notes due 2002 (the "Notes"),
equipment leases and finance charges related to the Company's receivables
purchase agreements. For 1998, 1997 and 1996, interest income consisted
primarily of income generated from the Company's cash investments. For 1997 and
1996, interest expense consisted primarily of interest accrued on the Company's
bank line of credit and equipment lease lines. In 1998, 1997 and 1996, interest
income and other income (expense), were $1.1 million, $2.6 million and $2.5
million, respectively. In 1998, 1997, and 1996, interest expense was $9.0
million, $2.3 million and $1.6 million, respectively. During 1998, sales
contracts negotiated in foreign currencies were limited to British Pound
Sterling contracts and Italian Lira contracts, and any balance sheet impact to
date due to currency fluctuations in British Pound Sterling or Italia Lira has
been insignificant. However, the Company has experienced payment delays on
equipment that had already been shipped due in part to currency fluctuations.
The Company may in the future be exposed to the risk of foreign currency gains
or losses depending upon the magnitude of a change in the value of a local
currency in an international market. The Company has entered into foreign
currency hedging transactions to reduce exposure to foreign exchange risks. As
of December 31, 1998, the Company had forward exchange contracts valued at
approximately $26.1 million. The forward contracts generally have maturities of
six months or less.

            Extraordinary Item. In December 1998, the Company exchanged an
aggregate of $14.3 million of its Notes for an aggregate of 2,467,000 shares of
its Common Stock with a fair market value of $9.0 million. These transactions
resulted in an extraordinary gain of $5.3 million. In January and February of
1999, the Company exchanged an additional aggregate of $25.5 million of these
Notes for an aggregate of 2,792,257 shares of its Common Stock with a fair
market value of $18.3 million and will record an additional extraordinary gain
of $7.3 million in the first quarter of 1999.

            Charge related to preferred stock discount. In December 1998, the
Company completed a private placement of 15,000 shares of a newly designated
Series B convertible participating preferred stock and warrants to purchase up
to 1,242,257 shares of


                                       34
<PAGE>

Common Stock for $15 million. As such, in the fourth quarter of 1998, the
Company's earnings (loss) per share calculation included the fair value of the
warrants issued and the accretion of the Series B preferred stock to its fair
value. During the period of conversion of the Series B preferred stock, the
Company is required to recognize in its earnings (loss) per share calculation
any accretion of the Series B preferred stock to its redemption value as a
dividend to the holders of the Series B preferred stock. Consequently, the
Company recorded a charge of approximately $1.8 million to its accumulated
deficit for the fourth quarter of fiscal 1998 as a result of the accounting
treatment for issuance of the related warrants.

            Provision (Benefit) for Income Taxes. The Company's effective tax
rates for 1998, 1997 and 1996 were 16.9%, 36.9% and 9.7% respectively. The
Company's effective tax rate is less than the combined federal and state
statutory rate due principally to net operating losses and loss credit carry
forwards available to offset taxable income. Though most of the Company's sales
are to foreign customers, the majority of the Company's pre-tax income is
domestic as most sales take place in the United States and then title transfers
to the foreign customers.

Liquidity And Capital Resources

            Since its inception in August 1991, the Company has financed its
operations and met its capital requirements through net proceeds of
approximately $89.5 million from the Company's initial and two follow-on public
offerings of its Common Stock, four preferred stock financings aggregating
approximately $32.2 million, including a $15 million preferred stock financing
in 1998, Notes with net proceeds of approximately $97.5 million in 1997 and
borrowings under its bank lines of credit and equipment lease arrangements.

            In 1998, the Company used approximately $37.8 million in operating
activities, primarily due to the net loss (excluding non-cash charges for
acquired in-process research and development of $15.4 million offset by an
extraordinary gain on the retirement of the Notes of $5.3 million) of
approximately $52.3 million and increases in deferred taxes, inventory and
prepaid expense of $8.0 million, $15.0 million and $9.1 million, respectively,
and by decreases in accounts payable and income taxes payable of $1.4 million
and $6.4 million, respectively, offset by depreciation and goodwill amortization
of $11.5 million and $6.8 million, respectively, an increase in other accrued
liabilities and deferred liabilities of $2.7 million and $8.0 million,
respectively, and a decrease in accounts receivable and other assets of $23.9
million and 2.7 million, respectively.

            During 1998, the Company used approximately $90.6 million in
investing activities consisting of approximately $61.4 million on acquisitions,
including the assets of the Cylink Wireless Group, and $29.2 million to acquire
property and equipment.

            In 1998, the Company generated approximately $67.6 million from
financing activities. The Company received approximately $46.1 million from
borrowings under its bank line of credit, approximately $2.0 million under other
banking relationships, principally with the Company's subsidiaries in Italy,
approximately $1.6 million from the proceeds of a sale leaseback transaction,
approximately $13.6 million from the sale of preferred stock and warrants, net
of expenses, and approximately $4.5 million from issuing Common Stock pursuant
to the Company's stock option and employee stock purchase plans.

            The result of these activities is that the company experienced a
significant decrease in cash and cash equivalents in 1998. If this trend
continues, the Company's ability to invest in acquisitions will be negatively
impacted, which could slow the Company's growth rate and hurt the Company's
competitive position.

            At December 31, 1998, the Company had working capital of
approximately $79.0 million. In recent quarters, most of the Company's sales
have been realized near the end of each quarter, resulting in a significant
investment in accounts receivable at the end of the quarter. The Company expects
that its investments in accounts receivable and inventories will continue to
represent a significant portion of working capital. Significant investments in
accounts receivable and inventories have subjected and may continue to subject
the Company to increased risks which could materially adversely affect the
Company's business, financial condition and results of operations.

            The Company's principal sources of liquidity as of December 31, 1998
consisted of approximately $29.2 million of cash and cash equivalents. At
December 31, 1997, the Company had approximately $88.1 million in cash and cash
equivalents. In addition, the Company entered into a new revolving line of
credit agreement on May 15, 1998 as amended that provided for borrowings of up
to $50.0 million. At December 31, 1998, the Company had borrowed or had used as
security for letters of credit approximately $50 million under the line of
credit. The revolving commitment, as amended, is reduced from $50 million to $40
million on August 15, 1999 and to $30 million on October 15, 1999 until maturity
on January 15, 2000. Borrowings under the line are secured by all of the assets
of the Company and its subsidiaries and bear interest at a fluctuating interest
rate per annum that is 3% above a rate determined by Union Bank of California's
announced commercial lending rate as in effect from time to time subject to
adjustment under certain circumstances as provided in the line of credit
agreement. This interest rate may increase an additional 5% in the event any
default is continuing under the bank credit agreement. The line-of-credit
agreement requires the Company to comply with certain financial covenants which
include maintaining (i) minimum tangible net worth, (ii) minimum


                                       35
<PAGE>

profitability, (iii) minimum consolidated EBITDA, (iv) maximum consolidated
capital expenditures and (v) minimum ratio of consolidated quick assets to
consolidated current liabilities. Amendments to the bank credit agreement have
allowed the Company to remain in compliance with the debt covenants through
March 31, 1999. While the amendments to the covenants have been structured based
on the Company's business plan that would allow the Company to continue to be in
compliance with such covenants through January 15, 2000, the Company's business
plan includes provisions for the infusion of approximately $15 million of
capital during the second quarter of 1999 based on preliminary discussions with
potential investors and the Company's desire to solidify its equity base to
support future growth. The Company does not currently have commitments from any
potential investors. Should the Company not meet its business plan, or should
the Company not be able to raise adequate capital, it is possible that an event
of default will occur under the line-of-credit agreement. If a default is
declared by the lenders, cross defaults will be triggered on the Company's
outstanding 4 1/4% Convertible Subordinated Notes and other debt instruments
resulting in accelerated repayments of such debts, and the holders of all
outstanding Series B Preferred Stock would have the right to have their stock
redeemed by the Company. Management believes, in the event that the Company
fails to fully meet its business plan, the Company has adequate alternatives
available to remedy any negative consequences arising from a potential default
under the agreement which may include, but are not limited to additional capital
infusions through the sale of stock, revenue generated from the licensing of
technology and the divestiture of certain business units. However, there can be
no assurance that the Company will be able to implement these plans or that it
will be able to do so without a material adverse effect on the Company's
business, financial condition or results of operation. In addition, the Company
could be restricted in its ability to use more flexible registration statements
to issue securities and could be delisted by the Nasdaq National Market. Such
events would materially adversely affect the Company's business, financial
condition and results of operations. Management has implemented plans designed
to reduce the Company's cash requirements through a combination of reductions in
components of working capital, equipment purchases and operating expenditures.
However, there can be no assurance that the Company will be able to implement
these plans or that it will be able to do so without a material adverse effect
on the Company's business, financial condition or results of operations.

            In addition to the revolving line of credit, the Company's foreign
subsidiaries have lines of credit available from various financial institutions
with interest rates ranging from 8% to 12%. At December 31, 1998, $3.8 million
had been drawn down under these facilities. Genereally, these foreign credit
lines do not require commitment fees or compensating balances and are cancelable
at the option of the Company or the financial institution.

            On November 5, 1997, the Company issued $100 million in 4 1/4%
Convertible Subordinated Notes (the "Notes") due November 1, 2002. The Notes are
convertible at the option of the holder into shares of the Company's Common
Stock at an initial conversion price of $27.46 per share at any time. The Notes
are redeemable by the Company, beginning on November 5, 2000, upon 30 days
notice, subject to a declining redemption price. Interest on the Notes will be
paid semi-annually on May 1 and November 1 of each year. An event of default
could occur if the Company defaults under any of its debt instruments with the
principal amount of $15 million or more. Such default would trigger the
acceleration of the Notes causing the Notes to become due and payable
immediately. On December 30 and 31, 1998, the Company issued 2,467,000 shares of
Common Stock in exchange for $14.4 million of Notes and recorded an
extraordinary gain of $5.3 million. On January 4 and February 2, 1999, the
Company issued an additional 2,792,257 shares of Common Stock in exchange for
$25.5 million of Notes and will record an extraordinary gain of $7.3 million in
the first quarter of 1999.

            At present, the Company does not have specific long-term plans to
seek alternative liquidity sources upon the maturity of its line of credit on
January 15, 2000. If the Company is successful in reducing components of working
capital, equipment purchases and operating expenses, it may be able to operate
its business on a break-even or positive cash-flow basis. Other alternatives for
liquidity sources may include, but are not limited to, additional capital
infusions through the sale of stock, the licensing of technology or the
divestiture of certain business units.

            At present, the Company does not have any material commitments for
capital equipment purchases. However, the Company's future capital requirements
will depend upon many factors, including the repayment of its debt, the
development of new radio systems and related software tools, potential
acquisitions, the extent and timing of acceptance of the Company's radio systems
in the market, requirements to maintain adequate manufacturing facilities,
working capital requirements for the Company's acquired entities, the progress
of the Company's research and development efforts, expansion of the Company's
marketing and sales efforts, the Company's results of operations and the status
of competitive products. The Company believes that cash and cash equivalents on
hand, cash flow from operations and funds available, if any, from the Company's
bank line of credit are adequate to fund its operations in the ordinary course
of business for at least the next twelve months. There can be no assurance,
however, that the Company will not require additional financing prior to such
date to fund its operations. Specifically, given the Company's obligations to
repay its bank and other debt and its obligation to fulfill its business plan,
the Company intends to raise additional capital.

            The Company has in the past and may from time to time in the future
sell its receivables, as part of an overall customer financing program, with
immaterial recourse to the Company. There can be no assurance that the Company
will be able to locate


                                       36
<PAGE>

parties to purchase such receivables on acceptable terms, or at all. To the
extent that the Company's financial resources are insufficient to fund the
Company's activities and to repay its debts, additional funds will be required.
There can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all, when required by the Company. If
additional funds are raised by issuing equity securities, further dilution to
the existing stockholders will result. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate one or more of its
research and development or manufacturing programs, cease its acquisition
activities or obtain funds through arrangements with partners or others that may
require the Company to relinquish rights to certain of its technologies or
potential products or other assets that the Company would not otherwise
relinquish. Accordingly, the inability to obtain such financing could have a
material adverse effect on the Company's business, financial condition and
results of operations. For risk factors associated with the Company's future
capital requirements, please see "Rapid Technological Change -Additional Capital
Requirements."

            Future capital requirements will depend upon many factors, including
the repayment of its debt, the development of new products and related software
tools, potential acquisitions, maintenance of adequate manufacturing facilities
and contract manufacturing agreements, progress of research and development
efforts, expansion of marketing and sales efforts, and the status of competitive
products. Additional financing may not be available in the future on acceptable
terms, or at all. The continued existence of a substantial amount of
indebtedness incurred through the issuance of the Company's Notes, the
incurrence of debt under the Company's bank line of credit and the rights of the
holders of the Series B Preferred Stock may affect the Company's ability to
raise additional financing. The Series B Preferred Stock restricts the rights of
Common Stock Shareholders, but even if these restrictions were lifted, the
substantial amount of indebtedness incurred by the Company makes additional debt
financing problematic. Given the recent price for its Common Stock, if
additional funds are raised by issuing equity securities, significant dilution
to its stockholders could result.

            The Company has, however, recently retired approximately $40 million
of its Notes in exchange for approximately 5.3 million shares of its Common
Stock. As the Company's Notes were exchanged for an average of approximately 68%
of face value between December 30, 1998 and February 2, 1999, certain holders of
these Notes desired to exchange the notes for Common Stock. By retiring the debt
at a significant discount from its face value, the Company realized an immediate
improvement to its balance sheet, and expects to improve future earnings and
cash flow by reducing interest expense. The Company may exchange additional
Notes for shares of Common Stock or, alternatively, refinance or exchange the
remainder of the Notes and/or the bank debt or exchange the Notes for other
forms of securities. The Company has also recently issued 15,000 shares of
Series B Preferred Stock and warrants to purchase up to 1,242,257 shares of its
Common Stock in exchange for a $15 million investment. These transactions have
had and may continue to have a substantial dilutive effect on its stockholders
and may make it difficult for the Company to obtain additional future financing,
if needed.


                                       37
<PAGE>

Acquisitions

            On March 28, 1998, the Company acquired substantially all of the
assets, and on April 1, 1998, the accounts receivable, of the Wireless
Communications Group of Cylink Corporation (the Cylink Wireless Group). The
acquisition was accounted for as a purchase business combination in accordance
with Accounting Principles Board ("APB") Opinion No. 16. Under the purchase
method of accounting, the purchase price was allocated to the net tangible and
identifiable intangible assets acquired and liabilities assumed based on their
estimated fair values at the date of the acquisition with any excess recorded as
goodwill. Results of operations for the Cylink Wireless Group have been included
with those of the Company for periods subsequent to the date of acquisition.

            The total purchase price of the acquisition was $58.2 million
including acquisition expenses of $2.5 million. Of the purchase price, $15.4
million has been assigned to in-process research and development and expensed
upon the consummation of the acquisition. The Company initially recorded a $33.9
million charge for purchased in-process research and development in March 1998
based upon a purchase price allocation which was made in a manner consistent
with widely recognized appraisal practices. In September 1998, subsequent to the
filing of the Form 10-Q in May 1998 covering the Company's quarter ended on
March 31, 1998, the Company adjusted the allocation of the purchase price
related to the acquisition of the Cylink Wireless Group based on a more current
and preferred methodology. The result is a lesser charge to income for
in-process technology and a higher recorded value of goodwill and other
intangible assets.

            Among the factors considered in determining the amount of the
allocation of the purchase price to in-process research and development were
various factors such as estimating the stage of development of each in-process
research and development project at the date of acquisition, estimating cash
flows resulting from the expected revenues generated from such projects, and
discounting the net cash flows, in addition to other assumptions. Developed
technology will be amortized over the period of the expected revenue stream of
the developed products of approximately four years. The value of the acquired
workforce will be amortized on a straight-line basis over three years, and the
remaining identified intangibles, including goodwill and core technology will be
amortized on a straight-line basis over ten years. Amortization expense related
to the acquisition of the Cylink Wireless Group was $3.7 million for 1998.

            In addition, other factors were considered in determining the value
assigned to purchased in-process technology such as research projects in areas
supporting products which address the growing third world markets by offering a
new point- to-multi-point product, a faster, less expensive more flexible
point-to-point product, and the development of enhanced Airlink products,
consists of a Voice Extender, Data Metro II, and RLL encoding products.

            If none of these projects are successfully developed, the Company's
sales and profitability may be materially adversely affected in future periods.
Additionally, the failure of any particular individual project in process could
impair the value of other intangible assets acquired. The Company expects to
begin to benefit from the purchased in-process technology in 1999.

CERTAIN FACTORS AFFECTING THE COMPANY

Risks Related to the Series B preferred stock

            Please note that on June 4, 1999 , we exchanged 5,134,795 shares of
our common stock for all 15,000 shares of our outstanding Series B Preferred
Stock.

            The common stock sold in this offering may significantly increase
the supply of our common stock on the public market, which may cause our stock
price to decline.

            The conversion of the Series B preferred stock, the exercise of the
warrants and sale of the common stock into the public market could materially
adversely affect the market price of the common stock. Substantially all of the
shares of our common stock are eligible for immediate and unrestricted sale in
the public market at any time, including the approximately 5.3 million shares of
common stock we issued in exchange for approximately $40 million of our 4 1/4%
convertible promissory notes which were issued to investors other than the
selling stockholders. Once the registration statement of which this prospectus
forms a part is declared effective, all shares of common stock issuable upon
conversion of the Series B preferred stock and exercise of the warrants will be
eligible for immediate and unrestricted resale into the public market. The
presence of these additional shares of common stock in the public market may
further depress the stock price.

            Our preferred stock financing may result in substantial dilution to
holders of our common stock.

            The agreements with the purchasers of the Series B preferred stock
and warrants contain terms and covenants that could result in substantial
dilution to our stockholders. The Series B preferred stock converts into shares
of common stock at the lesser of fixed or variable rates based on future events
and future trading prices of our common stock. As of June 3, 1999, the
conversion price was $4.38 per share because the fixed conversion price was
higher than variable conversion price on that date,


                                       38
<PAGE>

which is average of the three lowest closing bid prices for our common stock
over the fifteen trading days immediately preceding June 3, 1999.

            If all shares of the Series B preferred stock converted into common
stock at that conversion price, we would be obligated to issue 3,424,658 shares
of common stock to the holders of the Series B preferred stock which would
represent 6.99% of our common stock outstanding after that issuance. In
addition, if we pay the premium that has accrued on the Series B preferred stock
between December 22, 1999 and June 3, 1999 by issuing common stock, we would
issue an aggregate of 91,762 additional shares of common stock to the selling
stockholders. These shares of common stock, when combined with the shares of
common stock issued upon conversion of the Series B preferred stock, would
represent 7.2% of our outstanding common stock.

            The conversion price will never exceed $5.46 per share, which was
above the closing price of our stock on June 3, 1999 of $4.75 per share, but the
conversion price can decrease significantly. Due to the variable conversion
price, we do not know the number of shares of common stock that we will actually
issue upon conversion of the Series B preferred stock. In addition, the
conversion price can decrease at any time if certain events occur, which would
lead to more shares of common stock being issued upon conversion and additional
dilution of our existing stockholders.

            The following table sets forth the number of shares of common stock
issuable upon conversion of the outstanding Series B preferred stock, other than
shares issuable in respect of accrued premium and any default amounts, and the
percentage ownership that each represents assuming:

      .     the market price of the common stock is 25%, 50%, 75% and 100% of
            the market price of the common stock on June 3, 1999, which was
            $4.75 per share;
      .     the variable conversion price feature of the preferred stock that
            was in effect;
      .     the maximum conversion prices of the preferred stock was not
            adjusted as provided in our certificate of incorporation or the
            amount of shares issuable is otherwise limited by the transaction
            agreements;

      --------------------------------------------------------------
              Percent of                      Series B
             Market Price                Preferred Stock(1)
      --------------------------------------------------------------
                                   Shares                %(2)
                                 Underlying
      --------------------------------------------------------------
             25%($1.1875)      12,631,579(2)           20.5%
      --------------------------------------------------------------
              50%($2.375)        6,315,789             11.4%
      --------------------------------------------------------------
             75%($3.5625)        4,210,526              7.9%
      --------------------------------------------------------------
              100%($4.75)        3,157,895              6.1%
      --------------------------------------------------------------

            (1)   On June 3, 1999, there were 48,966,750 shares of common stock
                  and 15,000 of Series B preferred stock outstanding.

            (2)   Limitations in the transaction agreements and the certificate
                  of incorporation may preclude these levels of beneficial
                  ownership from being achieved.

            Notably, the lower the conversion price at which conversions of the
Series B preferred stock occur, the lower the percentage ownership of our stock
by our existing stockholders after those conversions.

            In addition, the warrants and, potentially, our 4 1/4% convertible
promissory notes are subject to anti-dilution protection. That protection may
result in the issuance of more shares than originally anticipated if we issue
securities at less than market value or the applicable exercise price, which may
occur as a result of conversion of the Series B preferred stock. These factors
may result in substantial future dilution to the holders of our common stock.

            If our stockholders approve the proposal to waive the 20% limit, the
dilution caused by conversions of Series B preferred stock may be extreme and
could result in a change of control.

            A restriction in the Series B preferred stock financing documents
currently limits the number of shares of our common stock issuable upon
conversion of the Series B preferred stock and the warrants to 8,663,895 shares.
We will recommend to our stockholders that they approve a proposal that would
remove this restriction. If our stockholders approve the proposal, there would
be no upper limit on the number of shares of our common stock that may be issued
upon conversion of the Series B preferred stock and upon exercise of the
warrants. Indeed, if the restriction is removed, enough shares may be issued
upon conversion of the Series B preferred stock and upon exercise of the
warrants that we may undergo a change in control. Further, once the restriction
is removed, the risk of dilution to our existing holders of common stock is
increased due to the increased and


                                       39
<PAGE>

potentially unlimited number of shares of common stock that can possibly be
issued upon conversion of the Series B preferred stock and upon exercise of the
warrants.

            Our preferred stock financing may make it more difficult or
expensive for us to obtain additional funds in the future, which may cause us to
default under our credit agreements triggering cross-defaults on our outstanding
4-1/4% Convertible Subordinated Notes and redemption of the Series B Preferred
Stock.

            The Series B preferred stock financing documents contain
restrictions on our ability to issue certain securities and the terms upon which
we can enter into loan agreements. In addition, the variable conversion,
redemption and cash payment provisions of the Series B preferred stock will
impact the decision of third parties whether to lend to or invest in us and on
what terms. Further, we may need the consent of the initial purchasers of the
Series B preferred stock to issue certain securities in order to raise capital.
These factors may make it difficult to, or prevent us from, obtaining funds when
needed in the future, or force us to obtain additional funds on less attractive
terms than would otherwise be available. Our business plan includes provisions
for an infusion of approximately $15 million of additional capital during the
second quarter of 1999. We do not currently have commitments from any potential
investors, and there can be no assurance that we will be able to raise
additional capital. If the restrictions contained in the Series B preferred
stock financing documents prevent us from obtaining the financing required by
our credit agreements, we will be in default under our credit agreements and in
cross-default under the Series B financing documents, which could have a
material adverse effect on our business, financial condition, prospects and
stock price.

            Our preferred stock may require us to make significant cash
payments, diverting resources away from our business, causing us to sell key
operational assets or rendering us unable to pay our debts.

            The Series B financing documents require significant cash payments
upon the occurrence of certain events, even if we do not have cash available to
make these payments. Certain of these cash payments result from particular
events happening and other cash payments result from a redemption of the Series
B preferred stock at the holder's option. There is no ceiling on the amount of
cash payments resulting from such a redemption.

            Event-based payments

            One example of event-based cash payments is the cash payments that
must be made because this registration statement was not declared effective
before April 22, 1999. The registration rights agreement requires that the
registration statement of which this prospectus is a part be declared effective
by the SEC on or prior to April 22, 1999. For each day after April 22, 1999 that
the registration statement is not declared effective, we are required to make
cash payments to the selling stockholders.

            In addition, if certain events occur, regardless of whether those
events are within our control, we are obligated to make cash payments to the
holders of the Series B preferred stock until that event no longer exists. The
amount of these payments would be 3% of the aggregate face amount of the Series
B preferred stock originally issued plus any accrued but unpaid premium the
first week and 5% each week thereafter. The 3% amount would be at least $450,000
and the 5% amount would be at least $750,000. Thus, if that event persisted for
2 weeks, we would be required to pay at least $1,200,000, if that event
persisted for 3 weeks, we would be required to pay at least $1,950,000, and so
on.

            Also, if we fail to timely issue the number of common shares
required by any conversion notice provided to us by a holder, we must make daily
cash payments to that holder until we have issued all shares required by the
conversion notice. The daily cash payment would be in an amount equal to 1% of
the face amount of each share of Series B preferred stock that is included in
the conversion notice but for which shares of common stock were not issued. For
example, if we received a conversion notice from a holder requesting conversion
of 1,000 shares of Series B preferred stock and we did not timely issue the
stock, for each day after the last day to timely issue that common stock until
we actually issued it, we would owe that holder $10,000. Continuing this
example, if we issued the shares 7 days after the last day permitted to avoid
payments, we would owe that holder $70,000.

            Redemption payments

            If certain events occur which are deemed to be within our control,
we are obligated to redeem all outstanding shares of Series B preferred stock
for cash in an amount significantly in excess of the original issue price. If
all of the presently outstanding Series B preferred stock were outstanding on
the redemption date, the aggregate amount of redemption payments would be at
least $19,950,000, but could be much higher if the market price of our stock
increases significantly. For example, if the redemption occurred on June 30,
1999 and our stock price was three times the highest possible conversion price,
or approximately $18 per share, the aggregate redemption payments would exceed
$46,300,000.

            Consequences of cash payment provisions


                                       40
<PAGE>

            If we do not timely make the cash payments required by the Series B
financing documents, the amount of those payments will accrue default interest
at an annual rate of 18%. Making those payments may divert funds away from and
thus adversely affect our business, financial condition and results of
operations. If we do not have the funds available to make cash payments or
redemption payments, we may have to sell key operational assets or become unable
to pay our debts. Either of those event would have a material adverse effect on
our business, financial condition, prospects and stock price.

            If our credit agreement or Section 160 of the Delaware General
Corporation Law prevent redemption or cash payments, we may be required to sell
important operating assets, license our intellectual property or issue
securities having onerous terms, which would materially adversely affect our
business, financial condition and operating results.

            In the event our credit agreement prevents redemptions of the Series
B preferred stock or cash payments called for by the terms of the Series B
preferred stock, we are required to use our reasonable best efforts to take all
reasonably necessary steps permitted by the Series B financing documents to
permit further redemptions and cash payments. Similarly, in the event DGCL
Section 160 prevents redemptions of the Series B preferred stock, we are
required to use our best efforts to take all necessary steps permitted by the
Series B financing documents to remedy our capital structure to permit further
redemptions. To fulfill these requirements, we may need to alter our capital
structure by turning fixed or financial assets into liquid assets or otherwise
obtaining additional capital. Those liquid assets would augment our capital for
purposes of DGCL Section 160 and may permit us to amend our credit agreement to
permit additional payments to the holders of Series B preferred stock. Methods
by which we might be required to generate liquid assets include selling off
important operating assets, which may include divestiture of entire divisions or
subsidiaries, or licensing our intellectual property to third parties to raise
cash, which may be to the long-term detriment of our business. Additionally, we
may be required to raise capital by selling securities that impair our ability
to operate our business, are prohibitively expensive or otherwise have onerous
terms. Any of these actions could materially adversely affect our business,
operating results and financial condition.

            Our preferred stock financing may make it more difficult for us to
engage in merger and acquisition activities, rendering us unable to complete
transactions that would be beneficial to our stockholders.

            The Series B preferred stock financing agreements could also render
merger and acquisition activities more difficult. In addition, we cannot
transfer all or substantially all of our assets without the approval of each
initial holder of Series B preferred stock. The Series B preferred stock
financing agreements and this approval right may require us to ensure that
certain terms that are favorable to the selling stockholders be included in any
merger or acquisition transaction. Certain provisions of the Series B preferred
stock may prohibit us from accounting for any acquisition by or of us as a
pooling of interests transaction. These terms would likely increase the cost of
the transaction to us or the potential acquirer or otherwise be unacceptable to
the potential acquirer. As such, these provisions may result in our stockholders
receiving decreased consideration for their stock in such a transaction or
prevent such a transaction from occurring.

            The Series B preferred stock may cause us to no longer be listed on
the Nasdaq National Market, which would permit our lenders to declare a default,
which might force us to sell key operational assets or render us insolvent.

            Nasdaq may determine that the Series B preferred stock violates its
rules

            Nasdaq recently published a document that sets forth its position on
how certain of the Nasdaq Marketplace Rules, including rules relating to
shareholder approval, voting rights, minimum bid price, listing of additional
shares, change in control and Nasdaq's discretionary authority, apply to
securities having variable conversion features, such as the Series B preferred
stock. Notwithstanding the guidance provided in the Nasdaq document, it remains
unclear how the Nasdaq Marketplace Rules will be applied to the Series B
preferred stock and whether Nasdaq will exercise its discretionary authority to
adversely affect us. Nasdaq may determine that we violate one or more of its
rules, or that securities akin to the Series B preferred stock are contrary to
the public interest or the interests of investors, which could lead to our stock
being involuntarily delisted from the Nasdaq National Market.

            If our stock price drops, we may violate Nasdaq's minimum bid price
rule

            The resale of our common stock under this prospectus result in
downward pressure on the market price of our common stock. If the price of our
common stock falls below $1.00 per share, we may be dislisted from the Nasdaq
National Market. Rule 4450(a)(5) of the Nasdaq Marketplace Rules requires that
an issuer listed on the Nasdaq National Market maintain a minimum bid price of
$1 per share. Pursuant to Rule 4480(a), an issuer can be delisted from the
Nasdaq National Market for failure to maintain compliance with Rule 4450.

            If our stockholders do not approve the proposal to waive the 20%
rule, we may be required to voluntarily delist our stock from the Nasdaq
National Market and list it on an over-the-counter bulletin board.


                                       41
<PAGE>

            If we do not obtain the approval of our stockholders before June 22,
1999 and this failure prevents us from honoring conversions, any selling
stockholder who is prevented from converting has a right to force us to list our
stock on an over-the counter bulletin board or an exchange that does not have a
rule as restrictive on conversions of the Series B preferred stock and exercise
of warrants as Nasdaq's 20% rule. If our common stock were traded on an
over-the-counter bulletin board, our common stock may be subject to reduced
liquidity and reduced analyst coverage, our ability to raise capital in the
future may be inhibited, and our business, financial condition and results of
operations could be materially adversely affected.

            Effects of being delisted

            If our common stock is listed on an over-the-counter bulletin board
rather than on a national exchange, our lenders will have the right to declare
us in default under our credit agreement and note indenture. If our lenders
elect to declare a default, that default would cause acceleration of those debts
and redemption of the Series B preferred stock, which may render us insolvent or
force us to sell key operating assets or license vital technology to third
parties. No longer being listed on Nasdaq would have a material adverse affect
on our business, financial condition and operating results.

            If our stockholders do not approve the proposal to waive the 20%
rule, we will suffer a number of adverse consequences, and our business,
financial condition and operating results will be materially adversely affected.

            We could be forced to redeem the Series B preferred stock at a
premium

            If we do not obtain the approval of our stockholders before June 22,
1999 and this event is deemed to be within our control, the selling stockholders
can elect to have us redeem their Series B preferred stock. If we do not obtain
the approval of our stockholders before June 22, 1999 and this event is deemed
not to be within our control, we must make significant cash payment to the
selling stockholders.

            We may be required to continue to try to obtain the approval at our
significant expense

            If we do not obtain the approval of our stockholders before June 22,
1999, we may be obligated to continue to attempt to obtain the approval. Those
attempts likely would involve preparing and filing a proxy statement for a
special meeting of stockholders, holding a special meeting of stockholders,
engaging a proxy solicitation firm and other actions. Those attempts would
involve significant expenditures by us and would likely divert resources away
from our business.

            We will be obligated to make cash payments

            If we do not obtain the approval of our stockholders before June 22,
1999, we are obligated to make cash payments to the holders of the Series B
preferred stock until that event no longer exists. The amount of these payments
would be 3% of the aggregate face amount of the Series B preferred stock
originally issued plus any accrued but unpaid premium the first week and 5% each
week thereafter. The 3% amount would be at least $450,000 and the 5% amount
would be at least $750,000. Thus, if that event persisted for 2 weeks, we would
be required to pay at least $1,200,000, if that event persisted for 3 weeks, we
would be required to pay at least $1,950,000, and so on.

            The conversion price may be adjusted downward

            If we do not obtain the stockholder vote on or before June 22, 1999,
the conversion price will be the lower of the conversion price that would
otherwise be in effect and the average of the five lowest closing bid prices for
our common stock during the period beginning on June 22, 1999 and ending on the
date we obtain the stockholder approval.

            The selling stockholders can require us to delist from the Nasdaq
National Market and list our common stock on the over-the-counter electronic
bulletin board

            Please see the discussion in the risk factor entitled "The Series B
preferred stock may cause us to be delisted from the Nasdaq National Market,
which would permit our lenders to declare a default, which might force us to
sell key operational assets or render us insolvent" above.

            Effects of failing to obtain the stockholder vote on or before June
22, 1999

            As set forth above, if we fail to obtain the stockholder vote on or
before June 22, 1999, we may be forced to redeem the Series B preferred stock,
expend sums to continue to seek to obtain the vote, make significant cash
payments, suffer a reduced conversion rate and delist our stock. In sum, failing
to obtain the stockholder vote on or before June 22, 1999 would have a material
adverse effect on our business, financial condition and operating results.


                                       42
<PAGE>

            Our preferred stock financing may result in adverse accounting
charges, which could adversely affect our results of operations and stock price

            The redemption rights, liquidated damages provisions and other terms
of the Series B preferred stock, and the cross default provisions in our debt
financing agreements could, under certain circumstances, lead to a significant
accounting charge to earnings and materially adversely affect our financial
condition and results of operations. This potential charge and other future
charges relating to the provisions of the financing agreements may materially
adversely affect our earnings per share and the market price of our common stock
both currently and in future periods.

FACTORS RELATED TO THE COMPANY AND OUR BUSINESS

History of Losses

            From the Company's inception to the end of fiscal 1998, the Company
generated a cumulative net loss of approximately $45.9 million. From the end of
1997 through the end of 1998, the Company's net loss was due primarily to (i) an
acquired in-process research and development charge of approximately $15.4
million recorded in the first quarter of 1998 related to the acquisition of the
Cylink Wireless Group and (ii) a net loss of $39.7 million in the third quarter
of 1998, which included restructuring and other one-time charges of $26.6
million consisting of a $16.9 million charge to cost of goods sold (including
$14.5 million in inventory write downs related to the Company's existing core
business and $2.4 million in other charges to inventory relating to the
elimination of product lines), a $5.4 million charge to general and
administrative expenses for increased accounts receivable reserves and a $4.3
million charge (including severance benefits, facilities and fixed assets
impairments and goodwill impairments) to restructuring charges.

            From October 1993 through December 31, 1998, the Company generated
sales of approximately $642.7 million, of which $408.5 million or 63.6% was
generated in the two years ended December 31, 1998. However, the Company does
not believe such growth rates are indicative of future operating results. During
the third and fourth quarter of 1998, the Company experienced a significant
decrease in sales. This decrease in revenue was principally the result of the
market slowdown for the Company's Tel-Link product line and for the industry
segment in general, in particular the economic turmoil in Asia. Net sales in
1998 decreased by $32.9 million from the prior year. Sales for P-COM (excluding
companies acquired in 1997 and 1998) decreased from approximately $157 million
in 1997 to approximately $86 million in 1998 due to lower demand in the last
half of 1998 for its Tel-Link product line. This sales decrease was partially
offset by sales increases in companies acquired in 1998 and 1997. During 1998,
the Company acquired Cylink which contributed approximately $25 million to 1998
sales. Neither company contributed to sales in 1997. During 1997, the Company
acquired Technosystem which contributed approximately $26 million to 1998 sales
and $21 million to 1997 sales, and CSM, which contributed approximately $44
million to 1998 sales and $30 million to 1997 sales. CRC, which was acquired in
1997, showed a sales decrease from approximately $12 million in 1997 to
approximately $7 million in 1998. The Company expects sales growth in the near
future to be significantly below recent comparable periods of growth. In recent
quarters, the Company also experienced higher than historical product price
declines. The decline in prices, along with inventory write-downs, has had a
significant downward impact on its gross margin. The Company expects pricing
pressures to continue for the next several quarters and also expects gross
margins as a percentage of revenues to continue to be below comparable periods
for the next several quarters.

            During 1997 and 1998, operating expenses increased more rapidly than
the Company had anticipated, and these increases also contributed to net losses.
The Company plans to continue the Company's investments in operations,
particularly to support product development and the marketing and sales of
recently introduced products. In parallel, the Company has undertaken cost-
cutting efforts in other areas. However, if sales do not increase, the Company's
results of operations, business and financial condition may continue to be
materially adversely affected. Accordingly, the Company may not achieve
profitability for the next several quarters.

Customer Concentration

            In 1998, one customer, Orange Personal Communications Ltd.,
accounted for 24% of the Company's 1998 sales. During 1998, four customers
accounted for approximately 45% of the Company's sales and as of December 31,
1998, six customers accounted for approximately 59% of the backlog scheduled for
shipment in the twelve months subsequent to December 31, 1998. Many of the
Company's major customers are located in foreign countries, primarily in the
United Kingdom and Europe. The Company anticipates continuing to sell products
and services to existing customers and adding new customers, many of which the
Company expects to continue to be located outside of the United States.

            Similarly, several of the Company's subsidiaries are dependent on a
few customers. Some of these customers are implementing new networks and are
themselves in the early stages of development. They may require additional
capital to fully implement their planned networks, which may be unavailable to
them on an as-needed basis.


                                       43
<PAGE>

            If the Company's customers cannot finance their purchases of the
Company's or its subsidiaries products or services, then this may materially
adversely affect the Company's business, operations and financial condition.
Financial difficulties of existing or potential customers may also limit the
overall demand for the Company's products and services. Specifically, both
current customers and potential future customers in the telecommunications
industry have reportedly undergone financial difficulties and may therefore
limit their future orders. The Company's ability to achieve sales in the future
will depend in significant part upon the Company's ability to:

      .     obtain and fulfill orders from, maintain relationships with and
            provide support to existing and new customers;
      .     manufacture systems in volume on a timely and cost-effective basis;
            and
      .     meet stringent customer performance and other requirements and
            shipment delivery dates.

            The Company's success will also depend in part on the financial
condition, working capital availability and success of the Company's customers.
As a result, any cancellation, reduction or delay in orders or shipments, for
example, as a result of manufacturing or supply difficulties or a customer's
inability to finance its purchases of the Company's products or services, may
materially adversely affect the Company's business. Some difficulties of this
nature have occurred in the past and the Company believes they will occur in the
future.

            Finally, acquisitions in the communications industry are common,
which further concentrates the customer base and may cause some orders to be
delayed or cancelled. No assurance can be given that the Company's sales will
increase in the future or that the Company will be able to support or attract
customers.


                                       44
<PAGE>

Fluctuations In Operating Results

            The Company has experienced and will continue to experience
significant fluctuations in sales, gross margins and operating results. The
procurement process for most of its current and potential customers is complex
and lengthy. As a result, the timing and amount of sales is often difficult to
predict reliably. The sale and implementation of its products and services
generally involves a significant commitment of senior management, as well as its
sales force and other resources. The sales cycle for its products and services
typically involves technical evaluation and commitment of cash and other
resources and delays often occur. Delays are frequently associated with, among
other things:

            .     customers' seasonal purchasing and budgetary cycles;
            .     education of customers as to the potential applications of its
                  products and services, as well as related product-life cost
                  savings;
            .     compliance with customers' internal procedures for approving
                  large expenditures and evaluating and accepting new
                  technologies;
            .     compliance with governmental or other regulatory standards;
            .     difficulties associated with customers' ability to secure
                  financing;
            .     negotiation of purchase and service terms for each sale; and
            .     price decreases required to secure purchase orders.

            A single customer's order scheduled for shipment in a quarter can
represent a large portion of the Company's potential sales for such quarter. The
Company has at times failed to receive expected orders, and delivery schedules
have been deferred as a result of changes in customer requirements and
commitments, among other factors. As a result, the Company's operating results
for a particular period have been and could in the future be materially
adversely affected by a delay, rescheduling or cancellation of even one purchase
order. In addition, the Company's operating results may be affected by an
inability to obtain such large orders from single customers in the future, some
difficulties of this nature have occurred in the past and the Company believes
they will occur in the future.

Uncertainty in Telecommunications Industry

            Although much of the anticipated growth in the telecommunications
infrastructure is expected to result from the entrance of new service providers,
many new providers do not have the financial resources of existing service
providers. If these new service providers are unable to adequately finance their
operations, they may cancel or delay orders. Moreover, purchase orders are often
received and accepted far in advance of shipment and, as a result, the Company
typically permits orders to be modified or canceled with limited or no
penalties. Indeed, most of the backlog scheduled for shipment in the twelve
months subsequent to December 31, 1998 can be cancelled. As a result, backlog
does not necessarily indicate future sales for any particular period. In
addition, any failure to reduce actual costs to the extent anticipated when an
order is received substantially in advance of shipment or an increase in
anticipated costs before shipment could materially adversely affect the
Company's gross margin for such orders.

Inventory

            The Company's customers have also increasingly been requiring
product shipment upon ordering rather than submitting purchase orders far in
advance of expected shipment dates. This practice requires the Company to keep
inventory on hand for immediate shipment. Given the variability of customer need
and purchasing power, it is hard to predict the amount of inventory needed to
satisfy customer demand. If the Company over- or under-estimates inventory
requirements, its results of operations could continue to be adversely affected.
In particular, increases in inventory could materially adversely affect
operations if such inventory is not used or becomes obsolete.

Shipment Delays

            Most of the Company's sales in recent quarters have been realized
near the end of each quarter. Accordingly, a delay in a shipment near the end of
a particular quarter for any reason may cause sales in a particular quarter to
fall significantly below the Company's expectations. Such delays have occurred
in the past due to, for example, unanticipated shipment rescheduling, pricing
concessions to customers, cancellations or deferrals by customers, competitive
and economic factors, unexpected manufacturing or other difficulties, delays in
deliveries of components, subassemblies or services by suppliers and failure to
receive anticipated orders. The Company cannot determine whether similar or
other delays might occur in the future, but expect that some or all of such
problems might recur.

Expenses


                                       45
<PAGE>

            Magnifying the effects of any revenue shortfall, a material portion
of the Company's expenses are fixed and difficult to reduce should revenues not
meet expectations. The failure to reduce actual costs to the extent anticipated,
or an increase in anticipated costs before shipment of an order or orders could
affect the gross margins for such orders. If the Company or its competitors
announce new products, services and technologies, it could cause customers to
defer or cancel purchases of its systems and services. Additional factors have
caused and will continue to cause the Company's performance to vary
significantly from period to period. These factors include:

            .     new product introductions and enhancements and related costs;
            .     weakness in Asia and Latin America, resulting in overcapacity;
            .     ability to manufacture and produce sufficient volumes of
                  systems and meet customer requirements;
            .     manufacturing efficiencies and costs;
            .     customer confusion due to impact of actions of competitors;
            .     variations in mix of sales through direct efforts or through
                  distributors or other third parties;
            .     variations in mix of systems and related software tools sold
                  and services provided as margins from service revenues are
                  typically lower than margins from product sales;
            .     operating and new product development expenses;
            .     product discounts;
            .     accounts receivable collection, in particular those acquired
                  in recent acquisitions;
            .     changes in its pricing or customers' or suppliers' pricing;
            .     inventory write-downs and obsolescence;
            .     market acceptance by customers and timing of availability of
                  new products and services provided by the Company or its
                  competitors;
            .     acquisitions, including costs and expenses;
            .     use of different distribution and sales channels;
            .     fluctuations in foreign currency exchange rates;
            .     delays or changes in regulatory approval of systems and
                  services;
            .     warranty and customer support expenses;
            .     severance costs;
            .     consolidation and other restructuring costs;
            .     the pending stockholder class action lawsuits;
            .     need for additional financing;
            .     customization of systems;
            .     general economic and political conditions; and
            .     natural disasters.

            The Company's results of operations have been and will continue to
be influenced by competitive factors, including pricing, availability and demand
for other competitive products and services. All of the above factors are
difficult for the Company to forecast, and could materially adversely affect its
business, financial condition and results of operations. The Company believes
that period-to-period comparisons are thus not necessarily meaningful and should
not be relied upon as indications of future performance.

            Because of all of the foregoing factors, in some future quarter or
quarters the Company's operating results may continue to be below those
projected by public market analysts, and the price of its common stock may
continue to be materially adversely affected. Because of lack of order
visibility and the current trend of order delays, deferrals and cancellations,
the Company cannot assure you that it will be able to achieve or maintain its
current or recent historical sales levels.

            The Company incurred a net loss for each of the quarters in 1998.
Should current market conditions continue to deteriorate, the Company may also
incur operating and net losses in subsequent periods. Additionally, management
continues to evaluate market conditions in order to assess the need to take
further action to more closely align the Company's cost structure with
anticipated revenues. Any subsequent actions could result in restructuring
charges, inventory write-downs and provisions for the impairment of long-lived
assets, which could materially adversely affect the Company's business,
financial condition and results of operations.

ACQUISITION RELATED RISKS

            The Company may be unable to realize the full value of its past
acquisitions


                                       46
<PAGE>

            Since April 1996, the Company has acquired nine complementary
companies and businesses. Integration and management of these companies into the
Company's business is ongoing. The Company has encountered or expects to
encounter the following problems relating to such transactions:

            .     difficulty of assimilating operations and personnel of
                  combined companies;
            .     potential disruption of ongoing business;
            .     inability to retain key technical and managerial personnel;
            .     inability of management to maximize financial and strategic
                  position through integration of acquired businesses;
            .     additional expenses associated with amortization of acquired
                  intangible assets;
            .     dilution to existing stockholders;
            .     maintenance of uniform standards, controls, procedures and
                  policies;
            .     impairment of relationships with employees and customers as
                  result of integration of new personnel;
            .     risks of entering markets in which it has no or limited direct
                  prior experience; and
            .     operation of companies in different geographical locations
                  with different cultures.

            The Company may not be successful in overcoming any or all of these
risks or any other problems encountered in connection with such acquisitions,
and such transactions may materially adversely affect its business, financial
condition and results of operations or require divestment of one or more
business units or a charge due to impairment of assets, in particular, goodwill.

            The Company may have to acquire new businesses

            As part of its overall strategy, the Company plans to continue
acquisitions of or investments in complementary companies, products or
technologies and to continue entering into joint ventures and strategic
alliances with other companies. Its success in future acquisition transactions
may, however, be limited. The Company competes for acquisition and expansion
opportunities against many entities that have substantially greater resources.
The Company may not be able to successfully identify suitable candidates, pay
for or complete acquisitions, or expand into new markets. Once integrated,
acquired businesses may not achieve comparable levels of revenues,
profitability, or productivity to its existing business, or the stand alone
acquired company, or otherwise perform as expected. Also, as commonly occurs
with mergers of technology companies during the pre-merger and integration
phases, aggressive competitors may also undertake formal initiatives to attract
customers and to recruit key employees through various incentives. Moreover, if
the Company proceeds with acquisitions in which the consideration consists of
cash, a substantial portion of its limited cash could be used to consummate its
acquisitions, as was the case with the acquisition of the Cylink Wireless Group.
The occurrence of any of these events could have a material adverse effect on
the Company's workforce, business, financial condition and results of
operations. See "-Management of Growth."

ACCOUNTING ISSUES RELATED TO ACQUISITIONS

            In addition, many business acquisitions must be accounted for under
the purchase method of accounting for financial reporting purposes. Many of the
attractive acquisition candidates are technology companies which tend to have
insignificant amounts of tangible assets and significant intangible assets, and
the acquisition of these businesses would typically result in substantial
charges related to the amortization of such intangible assets. For example, all
of the Company's past acquisitions to date, except the acquisitions of Control
Resources Corporation, RT Masts Limited and Telematics, Inc. have been accounted
for under the purchase method of accounting, and as a result, a significant
amount of goodwill is being amortized. This amortization expense may have a
significant effect on the Company's financial results.

            The Company recognized an in-process research and development charge
of approximately $33.9 million in March 1998 as a result of the acquisition of
the assets of the Cylink Wireless Group. Subsequent to the filing of the
Quarterly Report on Form 10-Q for the first quarter of 1998, the Company
adjusted the allocation of the purchase price related to the acquisition of the
Cylink Wireless Group, which included decreasing the in-process research and
development charge from $33.9 million to $15.4 million. The result is a lesser
charge to income for in-process technology and a higher recorded value of
goodwill and other intangible assets.

CONTRACT MANUFACTURERS AND LIMITED SOURCES OF SUPPLY

            The Company's internal manufacturing capacity is very limited. The
Company uses contract manufacturers to produce its systems, components and
subassemblies and expects to rely increasingly on these manufacturers in the
future. The Company also relies on outside vendors to manufacture certain other
components and subassemblies. Its internal manufacturing capacity and that of
its contract manufacturers may not be sufficient to fulfill its orders. The
Company's failure to manufacture, assemble and ship systems and meet customer
demands on a timely and cost-effective basis could damage relationships with
customers and have a material adverse effect on its business, financial
condition and results of operations.


                                       47
<PAGE>

            In addition, certain components, subassemblies and services
necessary for the manufacture of its systems are obtained from a sole supplier
or a limited group of suppliers. In particular, Eltel Engineering S.r.L. and
Associates, Milliwave and Xilinx, Inc. are sole source or limited source
suppliers for critical components used in its radio systems.

            The Company's reliance on contract manufacturers and on sole
suppliers or a limited group of suppliers and increasing reliance on contract
manufacturers and suppliers involves risks. The Company has experienced an
inability to obtain an adequate supply of finished products and required
components and subassemblies. As a result, the Company has reduced control over
the price, timely delivery, reliability and quality of finished products,
components and subassemblies. The Company does not have long-term supply
agreements with most of its manufacturers or suppliers. The Company has
experienced problems in the timely delivery and quality of products and certain
components and subassemblies from vendors. Some suppliers have relatively
limited financial and other resources. Any inability to obtain timely deliveries
of components and subassemblies of acceptable quality or any other circumstance
would require the Company to seek alternative sources of supply, or to
manufacture finished products or components and subassemblies internally. As
manufacture of its products and certain of its components and subassemblies is
an extremely complex process, finding and educating new vendors could delay the
Company's ability to ship its systems, which could damage relationships with
current or prospective customers and materially adversely affect its business,
financial condition and results of operations.

MANAGEMENT OF GROWTH

            Recently, in response to market declines and poor performance in its
sector generally and its lower than expected performance over the last several
quarters, the Company introduced measures to reduce operating expenses,
including reductions in its workforce in July, September and November 1998.
However, prior to such measures, the Company had significantly expanded the
scale of its operations to support then anticipated continuing increased sales
and to address critical infrastructure and other requirements. This expansion
included leasing additional space, opening branch offices and subsidiaries in
the United Kingdom, Italy, Germany, Mexico, United Arab Emirates, China and
Singapore, opening design centers in the United Kingdom and the United States,
acquiring a large amount of inventory and funding accounts receivable, and
acquiring nine businesses. The Company had also invested significantly in
research and development to support product development and services. Further,
the Company had hired additional personnel in all functional areas, including in
sales and marketing, manufacturing and operations and finance. The Company
experienced significantly higher operating expenses than in prior years as a
result of this expansion. A material portion of these expenses remain
significant fixed costs.

            In addition, to prepare for the future, the Company is required to
continue to invest resources in its acquired and new businesses. Currently, the
Company is devoting significant resources to the development of new products and
technologies and are conducting evaluations of these products. The Company will
continue to invest additional resources in plant and equipment, inventory,
personnel and other items, to begin production of these products and to provide
any necessary marketing and administration to service and support these new
products. Accordingly, in addition to the effect its recent performance has had
on gross profit margin and inventory levels, its gross profit margin and
inventory levels may be further adversely impacted in the future by start-up
costs associated with the initial production and installation of these new
products. Start-up costs may include additional manufacturing overhead,
additional allowance for doubtful accounts, inventory and warranty reserve
requirements and the creation of service and support organizations. Additional
inventory on hand for new product development and customer service requirements
also increases the risk of inventory write-downs. Based on the foregoing, if its
sales do not increase, its results of operations will continue to be materially
adversely affected.

            Expansion of its operations and acquisitions have caused and
continue to impose a significant strain on the Company's management, financial,
manufacturing and other resources and have disrupted its normal business
operations. The Company's ability to manage any possible future growth may
depend upon significant expansion of its manufacturing, accounting and other
internal management systems and the implementation of a variety of systems,
procedures and controls, including improvements relating to inventory control.
In particular, the Company must successfully manage and control overhead
expenses and inventories, the development, introduction, marketing and sales of
new products, the management and training of its employee base, the integration
and coordination of a geographically and ethnically diverse group of employees
and the monitoring of third party manufacturers and suppliers. The Company
cannot be certain that attempts to manage or expand its marketing, sales,
manufacturing and customer support efforts will be successful or result in
future additional sales or profitability. The Company must also more efficiently
coordinate activities in its companies and facilities in Rome and Milan, Italy,
France, Poland, the United Kingdom, Mexico, United Arab Emirates, New Jersey,
Florida, Virginia, Washington and elsewhere. For a number of reasons, the
Company has in the past experienced and may continue to experience significant
problems in these areas. For example, the Company has experienced difficulties
due to the acquired businesses utilizing differing business and accounting
systems, currencies, and a variety of unique customs, culture, and language
barriers. Additionally, the products and associated marketing and sales
processes differ for each acquisition. As a result of the foregoing, as well as
difficulty in forecasting revenue levels, the Company will continue to
experience fluctuations in revenues, costs, and gross margins.


                                       48
<PAGE>

            Any failure to implement efficiently, coordinate and improve
systems, procedures and controls, including improvements relating to inventory
control and coordination with its subsidiaries, at a pace consistent with its
business, could cause continued inefficiencies, additional operational
complexities and expenses, greater risk of billing delays, inventory write-downs
and financial reporting difficulties. Such problems could have a material
adverse effect on its business, financial condition and results of operations.

            A significant ramp-up of production of products and services could
require the Company to make substantial capital investments in equipment and
inventory, in recruitment and training additional personnel and possibly in
investment in additional manufacturing facilities. If undertaken, the Company
anticipates these expenditures would be made in advance of increased sales. In
such event, gross margins would be adversely affected from time-to-time due to
short-term inefficiencies associated with the addition of equipment and
inventory, personnel or facilities, and cost categories may periodically
increase as a percentage of revenues.


                                       49
<PAGE>

DECLINE IN SELLING PRICES

            The Company believes that average selling prices and possibly gross
margins for its systems and services will decline in the long term. Reasons for
such decline may include the maturation of such systems, the effect of volume
price discounts in existing and future contracts and the intensification of
competition. To offset declining average selling prices, the Company believes it
must take a number of steps, including:

            .     successfully introducing and selling new systems on a timely
                  basis;
            .     developing new products that incorporate advanced software and
                  other features that can be sold at higher average selling
                  prices; and
            .     reducing the costs of its systems through contract
                  manufacturing, design improvements and component cost
                  reduction, among other actions.

            If the Company cannot develop new products in a timely manner, fails
to achieve customer acceptance or does not generate higher average selling
prices, then the Company would be unable to offset declining average selling
prices. If the Company is unable to offset declining average selling prices, its
gross margins will decline.

ACCOUNT RECEIVABLES

            The Company is subject to credit risk in the form of trade account
receivables. The Company may in certain circumstances be unable to enforce a
policy of receiving payment within a limited number of days of issuing bills,
especially for customers in the early phases of business development. In
addition, many of its foreign customers are granted longer payment terms than
those typically existing in the United States. The Company typically does not
require collateral or other security to support customer receivables, but in
some instances the Company has required down payments or letters of credit from
a customer before booking their order. The Company has had difficulties in the
past in receiving payment in accordance with its policies, particularly from
customers awaiting financing to fund their expansion and from customers outside
of the United States. The days sales outstanding of receivables have also
recently increased. Such difficulties may continue in the future, which could
have a material adverse effect on its business, financial condition and results
of operations.

            The Company's bank line of credit currently permits the Company to
sell up to $25 million of its receivables at any one time to a limited group of
purchasers on a non-recourse basis. The Company has in the past utilized such
sales and may continue from time to time to sell its receivables, as part of an
overall customer financing program. However, the Company may not be able to
locate parties to purchase such receivables on acceptable terms or at all.

PRODUCT QUALITY, PERFORMANCE AND RELIABILITY

            The Company has limited experience in producing and manufacturing
systems and contracting for such manufacture. customers require very demanding
specifications for quality, performance and reliability. As a consequence,
problems may occur with respect to the quality, performance and reliability of
its systems or related software tools. If such problems occur, the Company could
experience increased costs, delays or cancellations or reschedulings of orders
or shipments, delays in collecting accounts receivable and product returns and
discounts. If any of these events occur, it would have a material adverse effect
on its business, financial condition and results of operations.

            In addition, to maintain its ISO 9001 registration, the Company must
periodically undergo certification assessment. Failure to maintain such
registration could materially adversely affect its business. The Company
completed ISO 9001 registration for its United Kingdom sales and customer
support facility in 1996, its Geritel facility in Italy in 1996, and its
Technosystem facility in Italy in 1997. Other facilities are also attempting to
obtain ISO 9001 registration. Such registrations may not be achieved and the
Company may be unable to maintain those registrations the Company has already
completed. Any such failure could have a material adverse effect on its
business, financial condition and results of operations.

CHANGES IN FINANCIAL ACCOUNTING STANDARDS

            The Company prepare its financial statements in conformity with
generally accepted accounting principles ("GAAP"). GAAP is subject to
interpretation by the American Institute of Certified Public Accountants, the
Securities and Exchange Commission and various bodies formed to interpret and
create appropriate accounting policies. A change in these policies can have a
significant effect on its reported results, and may even affect its reporting of
transactions completed before a change is announced. Accounting policies
affecting many other aspects of its business, including rules relating to
software and license revenue recognition, purchase and pooling-of-interests
accounting for business combinations, employee stock purchase plans and stock
option grants have recently been revised or are under review by one or more
groups. Changes to these rules, or the


                                       50
<PAGE>

questioning of current practices, may have a material adverse effect on its
reported financial results or in the way the Company conducts its business.

            In addition, the preparation of financial statements in conformity
with GAAP requires the Company to make estimates and assumptions that affect the
recorded amounts of assets and liabilities, disclosure of those assets and
liabilities at the date of the financial statements and the recorded amounts of
expenses during the reporting period. A change in the facts and circumstances
surrounding these estimates could result in a change to the estimates and impact
future operating results.

MARKET ACCEPTANCE

            The Company's future operating results depend upon the continued
growth and increased availability and acceptance of microcellular, PCN/PCS and
wireless local loop access telecommunications services in the United States and
internationally. The volume and variety of wireless telecommunications services
or the markets for and acceptance of such services may not continue to grow as
expected. The growth of such services may also fail to create anticipated demand
for its systems. Because these markets are relatively new, predicting which
segments of these markets will develop and at what rate these markets will grow
is difficult. In addition to its other products, the Company has recently
invested significant time and resources in the development of
point-to-multipoint radio systems. If the licensed millimeter wave, spread
spectrum microwave radio or point-to-multipoint microwave radio market and
related services for its systems fails to grow, or grows more slowly than
anticipated, its business, financial condition and results of operations will be
materially adversely affected.

            Certain sectors of the communications market will require the
development and deployment of an extensive and expensive communications
infrastructure. In particular, the establishment of PCN/PCS networks will
require very large capital expenditures. Communications providers may not make
the necessary investment in such infrastructure, and the creation of this
infrastructure may not occur in a timely manner. Moreover, one potential
application of the Company's technology--use of its systems in conjunction with
the provision of alternative wireless access in competition with the existing
wireline local exchange providers--depends on the pricing of wireless
telecommunications services at rates competitive with those charged by wireline
telephone companies. Rates for wireless access must become competitive with
rates charged by wireline companies for this approach to be successful. If
wireless access rates are not competitive, consumer demand for wireless access
will be materially adversely affected. If the Company allocates resources to any
market segment that does not grow, it may be unable to reallocate resources to
other market segments in a timely manner, ultimately curtailing or eliminating
its ability to enter such segments.

            Certain current and prospective customers are delivering services
and features that use competing transmission media such as fiber optic and
copper cable, particularly in the local loop access market. To successfully
compete with existing products and technologies, the Company must offer systems
with superior price/performance characteristics and extensive customer service
and support. Additionally, the Company must supply such systems on a timely and
cost-effective basis, in sufficient volume to satisfy such prospective
customers' requirements and otherwise overcome any reluctance on the part of
such customers to transition to new technologies. Any delay in the adoption of
the Company's systems may result in prospective customers using alternative
technologies in their next generation of systems and networks.

            Prospective customers may not design their systems or networks to
include its systems. Existing customers may not continue to include its systems
in their products, systems or networks in the future. The Company's technology
may not replace existing technologies and achieve widespread acceptance in the
wireless telecommunications market. Failure to achieve or sustain commercial
acceptance of its currently available radio systems or to develop other
commercially acceptable radio systems would materially adversely affect us.
Also, industry technical standards may change or, if emerging standards become
established, the Company may not be able to conform to these new standards in a
timely and cost- effective manner.

INTENSELY COMPETITIVE INDUSTRY

            The wireless communications market is intensely competitive. The
Company's wireless-based radio systems compete with other wireless
telecommunications products and alternative telecommunications transmission
media, including copper and fiber optic cable. The Company is experiencing
intense competition worldwide from a number of leading telecommunications
companies. Such companies offer a variety of competitive products and services
and broader telecommunications product lines, and include Adtran, Inc., Alcatel
Network Systems, Bosch Telekom, California Microwave, Inc., Digital Microwave
Corporation (which has recently acquired other competitors, including Innova
International Corp. and MAS Technology, Ltd.), Ericsson Limited, Harris
Corporation-Farinon Division, Larus Corporation, Lucent T.R.T., NEC, Nokia
Telecommunications, Nortel/BNI, Philips T.R.T., SIAE, Siemens, Utilicom and
Western Multiplex Corporation.

            Many of these companies have greater installed bases, financial
resources and production, marketing, manufacturing, engineering and other
capabilities than the Company does. In early 1998, the Company acquired the
Cylink Wireless Group which competes with a large number of companies in the
wireless communications markets, including U.S. local exchange carriers and


                                       51
<PAGE>

foreign telephone companies. The most significant competition for Cylink
Wireless Group's products in the wireless market is from telephone companies
that offer leased line data services. The Company faces actual and potential
competition not only from these established companies, but also from start-up
companies that are developing and marketing new commercial products and
services.

            The Company may also compete in the future with other market
entrants offering competing technologies. Some of the Company's current and
prospective customers and partners have developed, are currently developing or
could manufacture products competitive with the Company's. Nokia and Ericsson
have recently developed new competitive radio systems.

            The principal elements of competition in its market and the basis
upon which customers may select the Company's systems include price,
performance, software functionality, ability to meet delivery requirements and
customer service and support. Recently, certain competitors have announced the
introduction of new competitive products, including related software tools and
services, and the acquisition of other competitors and competitive technologies.
The Company expects competitors to continue to improve the performance and lower
the price of their current products and services and to introduce new products
and services or new technologies that provide added functionality and other
features. New product and service offerings and enhancements by its competitors
could cause a decline in sales or loss of market acceptance of its systems. New
offerings could also make the Company's systems, services or technologies
obsolete or non-competitive. In addition, the Company are experiencing
significant price competition and expect such competition to intensify.

            The Company believes that to be competitive, the Company will need
to expend significant resources on, among other items, new product development
and enhancements. In marketing the Company's systems and services, the Company
will compete with vendors employing other technologies and services that may
extend the capabilities of their competitive products beyond their current
limits, increase their productivity or add other features. The Company may not
be able to compete successfully in the future.

RAPID TECHNOLOGICAL CHANGE

            Rapid technological change, frequent new product introductions and
enhancements, product obsolescence, changes in end-user requirements and
evolving industry standards characterize the communications market. The
Company's ability to compete in this market will depend upon successful
development, introduction and sale of new systems and enhancements and related
software tools, on a timely and cost-effective basis, in response to changing
customer requirements. Recently, the Company has been developing point-to-
multipoint radio systems. Any success in developing new and enhanced systems,
including point-to-multipoint systems, and related software tools will depend
upon a variety of factors. Such factors include:

            .     new product selection;
            .     integration of various elements of complex technology;
            .     timely and efficient implementation of manufacturing and
                  assembly processes and cost reduction programs;
            .     development and completion of related software tools, system
                  performance, quality and reliability of systems;
            .     development and introduction of competitive systems; and
            .     timely and efficient completion of system design.

            The Company has experienced and continues to experience delays in
customer procurement and in completing development and introduction of new
systems and related software tools, including products acquired in acquisitions.
Moreover, the Company may not be successful in selecting, developing,
manufacturing and marketing new systems or enhancements or related software
tools. Also, errors could be found in the Company's systems after commencement
of commercial shipments. Such errors could result in the loss of or delay in
market acceptance, as well as expenses associated with re-work of previously
delivered equipment. The Company's inability to introduce in a timely manner new
systems or enhancements or related software tools that contribute to sales could
have a material adverse effect on its business, financial condition and results
of operations.

UNCERTAINTY IN INTERNATIONAL OPERATIONS

            In doing business in international markets, the Company faces
economic, political and foreign currency fluctuations that are more volatile
than those commonly experienced in the United States and other areas. Most of
the Company's sales to date have been made to customers located outside of the
United States. The Company has also acquired three Italy-based companies, two
United Kingdom- based companies and four U.S. companies with substantial
international operations. These companies sell their products and services
primarily to customers in Europe, the Middle East and Africa. The Company
anticipates that international sales will continue to account for a majority of
its sales for the foreseeable future.

            Historically, the Company's international sales have been
denominated in British pounds sterling or United States dollars. With recent
acquisitions of foreign companies, certain of the Company's international sales
are denominated in other foreign


                                       52
<PAGE>

currencies, including Italian Lira. A decrease
in the value of foreign currencies relative to the United States dollar could
result in decreased margins from those transactions. For international sales
that are United States dollar-denominated, such a decrease could make its
systems less price-competitive and could have a material adverse effect upon its
financial condition. The Company has in the past mitigated currency exposure to
the British pound sterling through hedging measures. However, any future hedging
measures may be limited in their effectiveness with respect to the British pound
sterling and other foreign currencies. Additional risks are inherent in the
Company's international business activities. Such risks include:

            .     changes in regulatory requirements;
            .     costs and risks of localizing systems in foreign countries;
            .     delays in receiving components and materials;
            .     availability of suitable export financing;
            .     timing and availability of export licenses, tariffs and other
                  trade barriers;
            .     difficulties in staffing and managing foreign operations,
                  branches and subsidiaries;
            .     difficulties in managing distributors;
            .     potentially adverse tax consequences;
            .     foreign currency exchange fluctuations;
            .     the burden of complying with a wide variety of complex foreign
                  laws and treaties;
            .     the difficulty in accounts receivable collections; and
            .     political and economic instability.

            In addition, many of the Company's customer purchase and other
agreements are governed by foreign laws, which may differ significantly from
U.S. laws. Therefore, the Company may be limited in its ability to enforce its
rights under such agreements and to collect damages, if awarded.

            In many cases, local regulatory authorities own or strictly regulate
international telephone companies. Established relationships between government
owned or controlled telephone companies and their traditional indigenous
suppliers of telecommunications often limit access to such markets. The
successful expansion of the Company's international operations in certain
markets will depend on its ability to locate, form and maintain strong
relationships with established companies providing communication services and
equipment in targeted regions. The failure to establish regional or local
relationships or to successfully market or sell its products in international
markets could limit its ability to expand operations. The Company's inability to
identify suitable parties for such relationships, or even if identified, to form
and maintain strong relationships could prevent the Company from generating
sales of products and services in targeted markets or industries. Moreover, even
if such relationships are established, the Company may be unable to increase
sales of products and services through such relationships.

            Some of the Company's potential markets include developing countries
that may deploy wireless communications networks as an alternative to the
construction of a limited wired infrastructure. These countries may decline to
construct wireless telecommunications systems or construction of such systems
may be delayed for a variety of reasons. If such events occur, any demand for
its systems in these countries will be similarly limited or delayed. Also, in
developing markets, economic, political and foreign currency fluctuations may be
even more volatile than conditions in other developed areas. Such volatility
could have a material adverse effect on its ability to develop or continue to do
business in such countries.

            Countries in the Asia/Pacific and Latin American regions have
recently experienced weaknesses in their currency, banking and equity markets.
These weaknesses have adversely affected and could continue to adversely affect
demand for products, the availability and supply of product components to the
Company and, ultimately, its consolidated results of operations.

EXTENSIVE GOVERNMENT REGULATION

            Radio communications are extensively regulated by the United States,
foreign laws and international treaties. The Company's systems must conform to a
variety of domestic and international requirements established to, among other
things, avoid interference among users of radio frequencies and to permit
interconnection of equipment. Historically, in many developed countries, the
limited availability of radio frequency spectrum has inhibited the growth of
wireless telecommunications networks.

            Each country's regulatory process differs. To operate in a
jurisdiction, the Company must obtain regulatory approval for its systems and
comply with differing regulations. Regulatory bodies worldwide continue to adopt
new standards for wireless communications products. The delays inherent in this
governmental approval process may cause the cancellation, postponement or
rescheduling of the installation of communications systems by the Company and
its customers. The failure to comply with current or future regulations or
changes in the interpretation of existing regulations could result in the
suspension or cessation of operations. Such regulations or such changes in
interpretation could require the Company to modify products and services and
incur substantial costs to comply with such regulations and changes.


                                       53
<PAGE>

            In addition, the Company is also affected by domestic and
international authorities' regulation of the allocation and auction of the radio
frequency spectrum. Equipment to support new systems and services can be
marketed only if permitted by governmental regulations and if suitable frequency
allocations are auctioned to service providers. Establishing new regulations and
obtaining frequency allocation at auction is a complex and lengthy process. If
PCS operators and others are delayed in deploying new systems and services, the
Company could experience delays in orders. Similarly, failure by regulatory
authorities to allocate suitable frequency spectrum could have a material
adverse effect on its results. In addition, delays in the radio frequency
spectrum auction process in the United States could delay its ability to develop
and market equipment to support new services.

            The Company operate in a regulatory environment subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact its operations by
restricting its development efforts and those of its customers, making current
systems obsolete or increasing competition. Any such regulatory changes,
including changes in the allocation of available spectrum, could have a material
adverse effect on its business, financial condition and results of operations.
The Company may also find it necessary or advisable to modify its systems and
services to operate in compliance with such regulations. Such modifications
could be extremely expensive and time-consuming.

ADDITIONAL CAPITAL REQUIREMENTS

            Future capital requirements will depend upon many factors, including
the repayment of its debt, the development of new products and related software
tools, potential acquisitions, maintenance of adequate manufacturing facilities
and contract manufacturing agreements, progress of research and development
efforts, expansion of marketing and sales efforts, and the status of competitive
products. Additional financing may not be available in the future on acceptable
terms, or at all. The continued existence of a substantial amount of
indebtedness incurred through the issuance of the Company's Notes, the
incurrence of debt under the Company's bank line of credit and the rights of the
holders of the Series B Preferred Stock may affect the Company's ability to
raise additional financing. The Series B Preferred Stock restricts the rights of
Common Stock Shareholders, but even if these restrictions were lifted, the
substantial amount of indebtedness incurred by the Company makes additional debt
financing problematic. Given the recent price for its Common Stock, if
additional funds are raised by issuing equity securities, significant dilution
to its stockholders could result.

            The Company has, however, recently retired approximately $40 million
of its Notes in exchange for approximately 5.3 million shares of its Common
Stock. As the Company's Notes were exchanged for an average of approximately 68%
of face value between December 30, 1998 and February 2, 1999, certain holders of
these Notes desired to exchange the notes for Common Stock. By retiring the debt
at a significant discount from its face value, the Company realized an immediate
improvement to its balance sheet, and expects to improve future earnings and
cash flow by reducing interest expense. The Company may exchange additional
Notes for shares of Common Stock or, alternatively, refinance or exchange the
remainder of the Notes and/or the bank debt or exchange the Notes for other
forms of securities. The Company has also recently issued 15,000 shares of
Series B Preferred Stock and warrants to purchase up to 1,242,257 shares of its
Common Stock in exchange for a $15 million investment. These transactions have
had and may continue to have a substantial dilutive effect on its stockholders
and may make it difficult for the Company to obtain additional future financing,
if needed.

            If adequate funds are not available, the Company may be required to
restructure or refinance its debt or delay, scale back or eliminate research and
development, acquisition or manufacturing programs. The Company may also need to
obtain funds through arrangements with partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
products or other assets.

CLASS ACTION LITIGATION

      State Actions

            On September 23, 1998, a putative class action complaint was filed
in the Superior Court of California, County of Santa Clara, by Leonard Vernon
and Gayle M. Wing on behalf of themselves and other P-Com stockholders who
purchased or otherwise acquired its Common Stock between April 15, 1997 and
September 11, 1998. The plaintiffs allege various state securities laws
violations by P-Com and certain of its officers and directors. The complaint
seeks unquantified compensatory, punitive and other damages, attorneys' fees and
injunctive and/or equitable relief.

            On October 16, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Terry Sommer on
behalf of herself and other P-Com stockholders who purchased or otherwise
acquired its Common Stock between April 1, 1998 and September 11, 1998. The
plaintiff alleges various state securities laws violations P-Com and certain of
its officers. The complaint seeks unquantified compensatory and other damages,
attorneys' fees and injunctive and/or equitable relief.


                                       54
<PAGE>

            On October 20, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Leo Rubin on behalf
of himself and other stockholders who purchased or otherwise acquired its Common
Stock between April 15, 1997 and September 11, 1998. This complaint is identical
in all relevant respects to that filed on September 23, 1998, which is described
above, other than the fact that the plaintiffs are different.

            On October 26, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Betty B. Hoigaard
and Steve Pomex on behalf of themselves and other P-Com stockholders who
purchased or otherwise acquired its Common Stock between April 15, 1997 and
September 11, 1998. This complaint is identical in all relevant respects to that
filed on September 23, 1998, which is described above, other than the fact that
the plaintiffs are different.

            On October 27, 1998, a putative class action complaint was filed in
the Superior Court of California, County of Santa Clara, by Judith Thurman on
behalf of herself and other P-Com stockholders who purchased or otherwise
acquired its Common Stock between April 15, 1997 and September 11, 1998. This
complaint is identical in all relevant respects to that filed on September 23,
1998, which is described above, other than the fact that the plaintiffs are
different.

            On December 3, 1998, the Superior Court of California, County of
Santa Clara, entered an order consolidating all of the above complaints. On
January 15, 1999, the plaintiffs filed a consolidated amended class action
complaint superseding all of the foregoing complaints. On March 1, 1999,
defendants filed a demurrer to the consolidated amended complaint and each cause
of action stated therein. The demurrer is set for hearing by the court on May
13, 1999.

      Federal Actions

            On November 13, 1998, a putative class action complaint was filed in
the United States District Court, Northern District of California, by Robert
Schmidt on behalf of himself and other P-Com stockholders who purchased or
otherwise acquired its Common Stock between April 15, 1997 and September 11,
1998. The plaintiff alleged violations of the Securities Exchange Act of 1934 by
P-Com and certain of its officers and directors. The complaint sought
unquantified compensatory damages, attorneys' fees and injunctive and/or
equitable relief. On January 26, 1999, the plaintiff voluntarily dismissed the
Schmidt action. The court entered an order dismissing the action without
prejudice on January 29, 1999.

            On December 3, 1998, a putative class action complaint was filed in
the United States District Court, Northern District of California, by Robert
Dwyer on behalf of himself and other P-Com stockholders who purchased or
otherwise acquired its Common Stock between April 15, 1997 and September 11,
1998. The plaintiff alleged violations of the Securities Exchange Act of 1934 by
P-Com and certain of its officers and directors. The complaint sought
unquantified compensatory damages, attorneys' fees and injunctive and/or
equitable relief. On December 22, 1998 and February 2, 1999, the plaintiff
sought to voluntarily dismiss this action. On February 11, 1999, the court
entered an order dismissing the action without prejudice.

            All of these proceedings are at a very early stage and the Company
is unable to speculate as to their ultimate outcomes. However, the Company
believes the claims in the complaints are without merit and intends to defend
against them vigorously. An unfavorable outcome in any or all of them could have
a material adverse effect on its business, prospects, financial condition and
results of operations. Even if all of the litigation is resolved in its favor,
the defense of such litigation may entail considerable cost and the significant
diversion of efforts of management, either of which may have a material adverse
effect on its business, prospects, financial condition and results of
operations.

PROTECTION OF PROPRIETARY RIGHTS

            The Company relies on a combination of patents, trademarks, trade
secrets, copyrights and other measures to protect its intellectual property
rights. The Company generally enters into confidentiality and nondisclosure
agreements with service providers, customers and others to limit access to and
distribution of proprietary rights. The Company also enters into software
license agreements with customers and others. However, such measures may not
provide adequate protection for its trade secrets or other proprietary
information for a number of reasons. For example, its trade secrets or
proprietary technology may otherwise become known or be independently developed
by competitors, and the Company may not be able to otherwise meaningfully
protect intellectual property rights.

            Any of the Company's patents could be invalidated, circumvented or
challenged, or the rights granted thereunder may not provide competitive
advantages to us. Any of the Company's pending or future patent applications
might not be issued with the scope of the claims sought, if at all. Furthermore,
others may develop similar products or software or duplicate its products or
software. Similarly, others might design around the patents owned by us, or
third parties may assert intellectual property infringement claims against us.
In addition, foreign intellectual property laws may not adequately protect its
intellectual property rights abroad. A failure or inability to protect
proprietary rights could have a material adverse effect on its business,
financial condition and results of operations.


                                       55
<PAGE>

            Even if the Company's intellectual property rights are adequately
protected, litigation may also be necessary to enforce patents, copyrights and
other intellectual property rights, to protect its trade secrets, to determine
the validity of and scope of proprietary rights of others or to defend against
claims of infringement or invalidity. The Company has, through its acquisition
of the Cylink Wireless Group, been put on notice from a variety of third parties
that the Group's products may be infringing the intellectual property rights of
other parties. Any such intellectual property litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on its business, financial condition and results of operations.
Litigation, even if wholly without merit, could result in substantial costs and
diversion of resources, regardless of the outcome. Infringement, invalidity,
right to use or ownership claims by third parties or claims for indemnification
resulting from infringement claims could be asserted in the future and such
assertions may materially adversely affect us. If any claims or actions are
asserted against us, the Company may seek a license under a third party's
intellectual property rights. However, such a license may not be available under
reasonable terms or at all.


                                       56
<PAGE>

DEPENDENCE ON KEY PERSONNEL

            The Company's future operating results depend in significant part
upon the continued contributions of key technical and senior management
personnel, many of whom would be difficult to replace. Future operating results
also depend upon ability to attract and retain such specially qualified
management, manufacturing, quality assurance, engineering, marketing, sales and
support personnel. Competition for such personnel is intense, and the Company
may not be successful in attracting or retaining such personnel. Only a limited
number of persons with the requisite skills to serve in these positions may
exist and it may be increasingly difficult for the Company to hire such
personnel.

            The Company has experienced and may continue to experience employee
turnover due to several factors, including an expanding economy within the
geographic area in which the Company maintains its principal business offices.
Such turnover could adversely impact its business. The Company is presently
addressing these issues and intend to pursue solutions designed to provide
performance incentives and thereby retain employees. The loss of any key
employee, the failure of any key employee to perform in his or her position, its
inability to attract and retain skilled employees as needed or the inability of
its officers and key employees to expand, train and manage its employee base
could all materially adversely affect its business.

YEAR 2000

            Numerous computer systems and software products are coded to accept
only two digit entries in the date code field. Beginning in the year 2000, these
date code fields will have to distinguish 21st Century dates from 20th Century
dates. As a result in less than a year, computer systems and/or software used by
many companies may need to be upgraded to comply with such Year 2000 ("Y2K")
requirements.

            P-Com's compliance efforts to date have emphasized product and
infrastructure compliance. Vendor compliance has been addressed at several
locations.

      Products

            The inability of any of the Company's products to properly manage
and manipulate data in the Year 2000 could result in increased warranty costs,
customer satisfaction issues, potential lawsuits and other material costs and
liabilities. P-Com has completed testing of all products in its radio products
operations. There can be no assurance that its testing procedures detect every
potential Y2K complication. Products were tested according to various product-
specific standards. Based on these tests, all products in the Tel Link, Air
Link, and Spread Spectrum product lines have been found to be compliant in all
material respects. At the CRC facility, all products in the current line of Net
Path, Rivets, Network Series and Recovery Series product lines have been tested
and found to be compliant in all material respects. There can be no assurance,
however, that its testing procedures detect every potential Y2K complication.
CRC supports several older modem systems. These systems have not been tested for
Y2K compliance. Any complications which arise as a result of an untested modem
system's potential Y2K failures could result in increased warranty costs,
customer satisfaction issues, potential lawsuits and other material costs and
liabilities. Products produced at the Technosystem facility, the radio & TV
broadcast products and the one way point to multipoint products under
development, have been tested and are Y2K compliant in all material respects.
There can be no assurance that our testing procedures detect every potential Y2K
complication. The equipment manager utilized by the transmission equipment
manufactured at Technosystem is not Y2K compliant. The equipment manager is an
additional device which customers may purchase and attach to the transmission
system to verify that the transmission device is running properly. The
transmitters will continue to function properly even if the equipment manager
fails. However, if the equipment manager fails, it will not perform its error
detection function properly. The Y2K limitation contained in the equipment
manager can be corrected by shutting the device off on January 1, 2000 and
turning it on again. By July 1, 1999 the Company will notify customers who have
purchased the equipment manager of its Y2K limitation and the remedial
procedures which must be implemented on January 1, 2000. Any complications which
arise as a result of the equipment manager's potential Y2K failures could result
in increased warranty costs, customer satisfaction issues, potential lawsuits
and other material costs and liabilities. In 1998, the sales of radio products
represented approximately 60% of P-Com's net sales while CRC and Technosystem's
products represented approximately 4% and 13%, respectively. The Company's
network services division in Virginia represented approximately 23% of P-Com's
net sales in 1998. The Virginia division does not manufacture any products; it
provides services to networks. Y2K failures in the Company's products could
materially adversely affect the Company's results of operations.

      Infrastructure.

            The failure of any internal system to achieve Y2K readiness could
result in material disruption to the Company's operations. While we have
completed evaluations of several of our internal systems and are in the process
of completing internal system review, we cannot be assured that our testing
procedures will detect every potential Y2K related failure at each of the
facilities listed below.


                                       57
<PAGE>

            CA, FL, Italy, UK, Germany, Italy

            In November of 1998, the Company installed a new internal
manufacturing resource planning business system (MRP) that is Y2K ready. The
cost of the upgrade was approximately $250,000. The Company's MRP system
facilitates accounting and manufacturing functions at all of the Company's
California sites and the Redditch, UK site. At the Tortona, Italy location, the
MRP system facilitates manufacturing functions only. The November 1998 Y2K
upgrade corrected Y2K limitations in the MRP system at each site at which it is
utilized. The Company's Florida, Watford, UK, and Frankfurt, Germany sites do
not utilize the MRP system. P-Com's Tortona, Italy facility utilizes an Italian
business system for its accounting operations. This system is not Y2K compliant.
The Company is in the process of purchasing a Y2K compliant system which will
replace the deficient system. The cost of the new system is $85,000. The new
system should be fully operational by December 31, 1999. However, the Company is
devising a plan to ensure that accounting functions are performed manually in
the event the new system is not fully operational by December 31, 1999. Since
the Company is the only customer serviced by the Tortona, Italy site, and since
the Company is in the process of identifying an alternative source supplier in
the event the new accounting system is not installed by December 31, 1999, a
failure in the present system would have a minimal impact on the Company's
customers. Since November of 1998, P-Com has completed an evaluation of many of
its internal systems. Most of its internal systems have been found to be
compliant, however we cannot guarantee that Y2K related complications will not
arise. The HP UX operating system should receive a Y2K patch by the end of June
1999. The Server Operating Systems (Novell) should receive Y2K patches by the
end of September 1999. Y2K verification procedures are currently underway to
determine the compliance status of phone systems, ATE stations and personal
computers. Verification of phone systems and ATE stations is estimated to be
completed by the end of June 1999. Verification of personal computers is
estimated to be completed by the end of September 1999. The Company's customer
service database and QA Database are noncompliant; upgrades of these two systems
is scheduled to be completed by the end of June 1999. Any unforeseen
circumstances which cause delay in upgrading any of the above systems could
result in increased warranty costs, potential customer dissatisfaction, delayed
production and/ or supply, lawsuits and other material costs and liabilities.

            Network Services (Vienna, VA)

            With the exception of personal computers, the internal systems at
Network Services in Vienna, Virginia have been tested and found to be compliant
in all material respects, however there can be no assurance that Y2K related
complications will not arise. Verification of the Y2K status of personal
computers is currently in progress and is estimated to be completed by the end
of June 1999. Any unforeseen circumstances which cause delay in upgrading any of
the above systems could result in increased warranty costs, potential customer
dissatisfaction, delayed production and/ or supply, lawsuits and other material
costs and liabilities.

            CRC Control Resources (Fair Lawn, NJ)

            Most of CRC's internal systems have been tested and many have been
found to be compliant, however there can be no assurance that Y2K related
complications will not arise. The MRP Business System Proprietary Server OS
Novell 3.11, and Corporate Server, Mail System are noncompliant and are
scheduled to be replaced by the end of September 1999. The Defect Control System
is noncompliant and is scheduled to be replaced by the end of December 1999.
Verification of the compliance status of personal computers is in progress and
is scheduled to be completed by the end of June 1999. Any unforeseen
circumstances which cause delay in upgrading any of the above systems could
result in increased warranty costs, potential customer dissatisfaction, delayed
production and/or supply, lawsuits and other material costs and liabilities.

            Technosystem (Rome, Italy)

            The ERP business system has been found to be compliant, however
there can be no assurance that Y2K related complications will not arise. The
financial administration system is noncompliant and replacement is scheduled to
be completed by the end of September 1999. Verification of the Y2K compliance
status of all other internal systems is currently underway and is estimated to
be completed by the end of June 1999. Any unforeseen circumstances which cause
delay in upgrading any of the above systems could result in increased warranty
costs, potential customer dissatisfaction, delayed production and/ or supply,
lawsuits and other material costs and liabilities.

            Vendors.

            The Company has identified two single source suppliers whose failure
to obtain Y2K compliance could potentially impact customers. Since the Company
has not yet obtained assurances of Y2K compliance from these suppliers the
impact of potential Y2K limitations experienced by these companies is merely
speculative at this time. The potential impact will only become manifest,
however, if both the single source supplier and an alternative source supplier
experience Y2K related failures. One of the two identified suppliers provides a
product which the Company uses in production of DS-3 IDUs; if this supplier were


                                       58
<PAGE>

to experience a Y2K failure, production of the product would be slowed. Sales of
DS-3 IDUs make up 3-4% of the Company's sales revenue. The additional identified
supplier produces a product which will be utilized in the production of the
Company's Encore product which is scheduled to begin in a limited capacity in
the third quarter of 1999; if this supplier experienced a Y2K related
complication, Encore production would be affected.

            Since the Company is cognizant of the risk posed by single source or
large volume suppliers that may not be addressing their Y2K readiness, the
Company has endeavored to minimize this risk by implementing a four phase plan.
First, all single source suppliers and large volume vendors were identified.
Then, in April 1999, the Company sent requests for Y2K compliance assurances to
suppliers so identified. The Company will review supplier's responses to our
requests and continue to pursue assurances and/or receipt of a remedy from
noncompliant suppliers. Even if assurances are received from third parties,
there remains a risk that failure of systems and products of other companies on
which the Company relies could have a material adverse effect on the Company's
business, condition and results of operations. Since the Company has always
followed the practice of alternative and multi-sourcing our single source and
large volume suppliers, we believe most products and services we order will be
available from an alternative source in the event a single source or large
volume supplier experiences a Y2K failure. However, we cannot be assured that
reasonable alternative suppliers or contractors will be available. Even if
assurances are received from third parties and/or alternative source suppliers
are identified, a risk remains that failures of systems and products of other
companies on which we rely could have a material adverse effect on our business,
condition and results of operations.

            Critical suppliers are currently being identified at the California,
Florida, United Kingdom, Germany and Italy sites. Six critical suppliers have
been identified at Network Services in Vienna, Virginia. Three have been
evaluated and found to be compliant, however we cannot be certain that Y2K
failures will not affect these suppliers. The remaining suppliers are scheduled
to be evaluated by the end of June 1999. CRC has identified its critical
suppliers. Evaluations are scheduled to be completed by the end of September
1999. There are three critical suppliers for the Technosystem product line.
Evaluation of these suppliers is scheduled to be completed by the end of
September 1999. Subject to Board approval, the proposed Y2K project management
office should establish and implement a vendor management strategy to ensure
compliance of its vendors. The plan should provide for onsite audits of critical
suppliers and creation and execution of compliance agreements.

            Year 2000 Obligations: Potential Exposure

            In April 1999, the Company will establish a year 2000 limited
warranty which will cover products which have been tested and certified as Y2K
compliant by the Company. The warranty will be posted on the website and will be
sent to customers in response to requests for Y2K assurances. Under the
warranty, the Company will repair or replace the Y2K certified product which
experiences a Y2K limitation. The warranty specifically disclaims liability for
all consequential and incidental damages resulting from a Y2K complication
experienced by a Y2K certified product.

            The Company's exposure in the event of Y2K complications may be
impacted by Y2K provisions contained in outstanding agreements. For example, the
Company's bank line of credit, as amended, obligates the Company to perform act
to ensure the Y2K compliance of its systems and adopt a remediation plan if
necessary by September 30, 1999.

            Budget

            The Company's budget for the Y2K Program is approximately $2.0
million and will be submitted to the Board of Directors for approval. To date
the Company has spent $357,900 on Y2K related expenses. This figure incorporates
the following expenses: 1) $250,000 in November 1998 to upgrade the MRP business
system utilized by the California, Redich, UK and Tortona, Italy sites; 2)
$24,000 in March 1999 to Y2K Consultants; 3) $3,000 through March 1999 in legal
expenses; 4) $4,000 through March 1999 in travel expenses to the Company's
non-California sites for the purpose of assessing Y2K compliance; 5) $4,000
through March 1999 on miscellaneous items including maintenance of the Y2K
website and vendor compliance mailings; and 6) $75,600 through March 1999 in
employee salaries.

      The Company anticipates expending an additional $1,267,400 on Y2K related
costs. The anticipated expenditures breakdown as follows: 1) $100,000 on
hardware replacement and/or upgrades; 2) $100,000 on software replacement and/or
upgrades; 3) $500,000 on Y2K Consultant fees and temporary employees; 4) $61,000
on legal fees; 5) $50,000 on travel to non-California Company sites for the
purpose of assessing Y2K compliance; 6) $400,000 on employee salaries; and 7)
$56,400 on miscellaneous Y2K related expenses including the Y2K website and all
Y2K correspondence.

            The foregoing statements are based upon management's best estimates
at the present time, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and


                                       59
<PAGE>

cost of personnel trained in this area, the ability to locate and correct all
relevant computer codes, the nature and amount of programming required to
upgrade or replace each of the affected programs, the rate and magnitude of
related labor and consulting costs and the success of the Company's external
customers and suppliers in addressing the Y2K issue. The Company's evaluation is
on-going and it expects that new and different information will become available
to it as that evaluation continues. Consequently, there is no guarantee that all
material elements will be Y2K ready in time.

            Year 2000 Project Management Plan

            P-Com has utilized Y2K consultants to audit its revenue generating
facilities which are located in California, and Tortona, Italy, and its
subsidiaries CRC in New Jersey and Technosystem in Rome, Italy. The consultants'
both reviewed P-Com's Y2K compliance efforts to date and identified areas
warranting further review. Based on the consultants' recommendations, P-Com has
embarked on a global program to address its readiness for the century change.
The Company will create a Y2K project management office. A project manager will
direct the office and supervise its functions. The Y2K project manager and the
office's staff will be responsible for among other tasks, business and
continuity planning, vendor compliance management, creating and maintaining an
inventory of Y2K action items, establishing and publishing standards, and
maintaining a document archive. The Y2K project management office will also be
responsible for creating and managing a contingency plan which is scheduled to
be established and implemented by the end of June 1999. P-Com has not yet
established a comprehensive contingency plan, however with the help of our
consultants, we have identified the issues which such a plan must address.

VOLATILITY OF STOCK PRICE

            In recent years, the stock market in general, and the market for
shares of small capitalization and technology stocks in particular, have
experienced extreme price fluctuations. Such fluctuations have often been
unrelated to the operating performance of affected companies. The Company
believes that factors such as announcements of developments related to its
business, announcements of technological innovations or new products or
enhancements by the Company or its competitors, developments in the Asia/Pacific
region, sales by competitors, including sales to its customers, sales of its
common stock into the public market, including by members of management,
developments in its relationships with customers, partners, lenders,
distributors and suppliers, shortfalls or changes in revenues, gross margins,
earnings or losses or other financial results that differ from analysts'
expectations (as recently experienced), regulatory developments, fluctuations in
results of operations and general conditions in its market or markets served by
its customers or the economy, could cause the price of its common stock to
fluctuate, sometimes reaching extreme and unexpected lows. The market price of
its Common Stock may continue to decline substantially, or otherwise continue to
experience significant fluctuations in the future, including fluctuations that
are unrelated to its performance. Such fluctuations could continue to materially
adversely affect the market price of its Common Stock.

SUBSTANTIAL AMOUNT OF DEBT

            In November 1997, through a private placement of the Company's
Notes, the Company incurred $100 million of indebtedness. In December 1998,
January 1999 and February 1999, the Company retired approximately $40 million of
such indebtedness in exchange for approximately 5.3 million shares of its Common
Stock. As of December 31, 1998, its total indebtedness including current
liabilities was approximately $199.5 million and its stockholders' equity was
approximately $200.4 million.

            The Company's bank line of credit provides for borrowings of
approximately $50 million, which as of December 31, 1998 had been almost fully
utilized. In addition, the revolving commitment, as amended, is reduced from $50
million to $40 million on August 15, 1999 and to $30 million on October 15, 1999
until maturity on January 15, 2000. The line of credit requires the Company to
comply with several financial covenants, including the maintenance of specific
minimum ratios. At periods in time since June 30, 1998, the Company has amended
its existing bank line of credit to prevent defaults with respect to several
covenants. Had these amendments not been made, the Company would have defaulted
on those covenants in its bank line, which would have triggered cross defaults
in the Notes, preferred stock instruments and other debt. While the amendments
to the covenants have been structured based on the Company's business plan that
would allow the Company to continue to be in compliance with such covenants
through January 15, 2000, the Company's business plan includes provisions for
the infusion of approximately $15 million of capital during the second quarter
of 1999 based on preliminary discussions with potential investors and the
Company's desire to solidify its equity base to support future growth. The
Company does not currently have commitments from any potential investors. There
can be no assurance that the Company will be able to raise additional capital.
Should the Company not meet its business plan, or should the Company not be able
to raise adequate Capital, it is possible that an event of default will occur
under the line-of-credit agreement. If a default is declared by the lenders,
cross defaults will be triggered on the Company's outstanding 4 1/4% Convertible
Subordinated Notes and other debt instruments resulting in accelerated
repayments of such debts, and the holders of all outstanding Series B Preferred
Stock would have the right to have their stock redeemed by the Company.
Management believes, in the event alternatives available to remedy any negative
consequences arising from a potential default under the agreement. However,
there can be no assurance that the Company will be able to implement these plans
or that it


                                       60
<PAGE>

will be able to do so without a material adverse effect on the Company's
business, financial condition or results of operations. In addition, the Company
could be restricted in its ability to use more flexible registration statements
to issue securities and could be delisted by the Nasdaq National Market. Such
events would materially adversely affect the Company's business, financial
condition and results of operations.

            The Company's ability to make scheduled payments of the principal
and interest on indebtedness will depend on future performance, which is subject
in part to economic, financial, competitive and other factors beyond its
control. There can be no assurance that the Company will be able to make
payments on or restructure or refinance its debt in the future, if necessary.


                                       61
<PAGE>

DIVIDENDS

            Since the Company's incorporation in 1991, the Company has not
declared or paid cash dividends on its common stock, and the Company anticipates
that any future earnings will be retained for investment in the business. The
Company is, however, required to pay a 6% per year premium on the Series B
preferred stock, payable in cash or common stock at its option. Any payment of
cash dividends in the future will be at the discretion of the Company's board of
directors and will depend upon, among other things, its earnings, financial
condition, capital requirements, extent of indebtedness and contractual
restrictions with respect to the payment of dividends.

CHANGE OF CONTROL

            Members of the Company's board of directors and executive officers,
together with members of their families and entities that may be deemed
affiliates of or related to such persons or entities, beneficially own
approximately 6% of the outstanding shares of common stock. Accordingly, these
stockholders are able to influence the election of the members of its board of
directors and influence the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions.

            This level of ownership, together with the stockholder rights
agreement, certificate of incorporation, privileges of the Series B preferred
stock, equity incentive plans, bylaws and Delaware law, may have a significant
effect in delaying, deferring or preventing a change in control of P-Com and may
adversely affect the voting and other rights of other holders of common stock.

            The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of the Series B
preferred stock and any other preferred stock that may be issued in the future,
including the Series A junior participating preferred stock that may be issued
pursuant to the stockholder rights agreement upon the occurrence of certain
triggering events. In general, the stockholder rights agreement provides a
mechanism by which its board of directors and stockholders may act to
substantially dilute the share position of any takeover bidder that acquires 15%
or more of its Common Stock. The issuance of the Series B preferred stock or the
future issuance of the Series A preferred stock or any additional preferred
stock could have the effect of making it more difficult for a third party to
acquire a majority of its outstanding voting stock.

SERIES B PREFERRED STOCK FINANCING

            In December 1998, the Company raised gross proceeds of $15 million
through the issuance of 15,000 shares of a newly designated Series B convertible
participating preferred stock and warrants to purchase up to 1,242,257 shares of
Common Stock. The issuance of the Series B preferred stock and warrants provided
the Company with additional working capital required to fund continuing
operations. However, the agreements with the purchasers of the Series B
preferred stock and warrants contain terms and covenants that could result in
substantial dilution to its stockholders, could render future financings and
loans and merger and acquisition activities more difficult and could require the
Company to expend substantial amounts of cash, even if unavailable at the time
such expenditure was required.

            Certain covenants that the Company made in connection with the
issuance of the Series B preferred stock may also have the effect of limiting
its ability to obtain additional financing and issue other securities. The
Company has agreed, until December 22, 1999, not to issue or agree to issue any
equity securities at a price less than fair market value or any variably priced
securities, subject to limited exceptions. In addition, the terms of the Series
B preferred stock financing agreements prohibit the Company from, among other
things, altering, changing or otherwise adversely affecting the terms of the
Series B preferred stock; creating or issuing any senior or pari passu
securities; or redeeming or paying any dividend on any junior securities.

            The terms of the Series B preferred stock financing agreements also
include mandatory redemption features and payment provisions that are triggered
in the event the Company fails to satisfy certain obligations. Holders of the
Series B preferred stock may require redemption of their shares at a substantial
premium, plus a default interest rate, if applicable, upon the occurrence of
certain events deemed within its control. Upon the occurrence of certain other
events deemed outside of its control, including among others, its failure to
obtain stockholder approval (which the Company must solicit at its expense) of
the potential issuance of more than 20% of the Common Stock outstanding on
December 22, 1998, or 8,707,488 shares, at a price less than the greater of book
value or fair market value may be required to make significant payments to the
holders of Series B preferred stock and warrants. All such payments are capped
at $4,950,000 plus a default interest rate, if applicable, and are in lieu of
redemption for these provisions. If the holders of Series B preferred stock
demand redemption or if the Company is required to make significant payments to
such stockholders, the Company may not be able to fund such redemption or
payments, and even if funding is available, the expenditures required to fund
such redemption or payments could have a material adverse effect on its
financial condition.


                                       62
<PAGE>

            The Series B preferred stock is convertible into shares of its
Common Stock at variable rates based on future trading prices of its Common
Stock and events that may occur in the future. The number of shares of Common
Stock that may ultimately be issued upon conversion is therefore presently
indeterminable and could fluctuate significantly based on the issuance by the
Company of other securities. Also, the warrants are subject to anti-dilution
protection and thus may require the issuance of more shares than originally
anticipated. These factors may result in substantial future dilution to the
holders of its Common Stock.

            In addition to the foregoing, the redemption rights, liquidated
damages provisions, cross default provisions to its debt instruments and other
terms of the Series B preferred stock, under certain circumstances, could lead
to a significant accounting charge to earnings and could materially adversely
affect its business, results of operations and financial condition. The Series B
preferred stock will be classified as mandatorily redeemable preferred stock. As
a result, in the fourth quarter of 1998, the Company recognized in its earnings
(loss) per share calculation the fair value of warrants issued and the accretion
of the Series B preferred stock to its fair value. During the period of
conversion of the Series B preferred stock, the Company will be required to
recognize in its earnings (loss) per share calculation any accretion of the
Series B preferred stock to its redemption value as a dividend to the holders of
the Series B preferred stock. Consequently, the Company took a charge of
approximately $1.8 million to its accumulated deficit for the fourth quarter of
fiscal 1998 as a result of the accounting treatment for issuance of the related
warrants. Such charge and potential other future charges relating to the
provisions of the Series B preferred stock financing agreements may adversely
affect its earnings (loss) per share and the market price of its Common Stock
and may continue to do so. The convertibility features of such Series B
preferred stock and subsequent sales of the Common Stock underlying both it and
the warrants could materially adversely affect its valuation and the market
trading price of its shares of Common Stock.

            We issued and sold 15,000 shares of a newly designated Series B
preferred stock and warrants to purchase 1,242,257 shares of common stock to the
selling stockholders in December 1998 for gross proceeds of $15 million. Our
board of directors decided that it was in our best interests to issue the Series
B preferred stock because:

            .     we needed additional capital to fund our operations, and the
                  consequences of not obtaining additional capital, namely
                  defaulting on our credit agreement and cross-defaulting on our
                  other debt, which would accelerate repayment of the debt and
                  likely render us unable to pay our debts, would have caused
                  immediate and irreparable damage to us;
            .     the Series B preferred stock does not require us to pay cash
                  dividends and permits us to pay accrued premium through the
                  issuance of additional shares of common stock or cash, at our
                  option;
            .     so long as our common stock trades at prices at or in excess
                  of $5.46 per share, the Series B preferred stock will be
                  convertible into common stock at a price of $5.46, which is
                  181% of the closing price of our common stock on the day the
                  Series B preferred was issued;
            .     due to our financial position and business prospects at the
                  time of issuance of the Series B preferred stock, additional
                  capital was not available to us in the necessary time frame,
                  except on terms less favorable to us than the Series B
                  preferred stock; and
            .     the board determined that, compared with the immediate and
                  irreparable damage to us that would have resulted if we did
                  not raise additional capital, issuing the Series B preferred
                  stock was in our best interests.

            On June 4, 1999, we exchanged 5,134,795 shares of our common stock
for all 15,000 shares of our outstanding Series B Preferred Stock, such that no
shares of Series B preferred stock remained outstanding. We also exchanged
outstanding warrants to purchase 1,242,257 shares of common stock, which were
held by the selling stockholders, for new warrants having the terms set forth
below. On June 14, 1999 the certificate of designations for the Series B
preferred stock was eliminated pursuant to Section 151(g) of the Delaware
General Corporation Law, and the Series B preferred stock is no longer
authorized.

            The following chart briefly summarizes the features of the Series B
preferred stock, which are described in greater detail below:

--------------------------------------------------------------------------------
Feature                             Description
--------------------------------------------------------------------------------
Conversion price                    Beginning on May 15, 1999, the conversion
                                    price is set the lesser of:

                                    .     $5.46 per share; and
                                    .     101% of the lowest average closing bid
                                          prices our common stock over any 3
                                          consecutive days during the 15
                                          consecutive day period ending on the
                                          day prior to the applicable conversion
                                          date.
                                    Certain events set forth below can cause
                                    conversion prices calculated on other bases
                                    to apply.
--------------------------------------------------------------------------------

                                       63
<PAGE>

--------------------------------------------------------------------------------
Mandatory redemption                Upon the occurrence of certain events deemed
                                    to be within our control, each then
                                    outstanding share of the Series B preferred
                                    stock is redeemable at a holder's option at
                                    the greater of $1,330 per share, plus a 6%
                                    per year premium and any default interest,
                                    or a redemption formula amount per share.
                                    The redemption formula amount is equal to:
                                    .     the highest closing bid price for our
                                          common stock during the period
                                          beginning on the date of the holder's
                                          redemption notice and ending on the
                                          date of redemption, multiplied by
                                    .     the sum of the original issue price,
                                          plus a 6% per year premium and any
                                          default interest due, and divided by
                                    .     the conversion price in effect on the
                                          date of the redemption notice.
--------------------------------------------------------------------------------
Cash payments/total amount          Upon the occurrence of certain events set
capped                              forth below, we are required to make
                                    significant cash payments to the holders of
                                    the Series B preferred stock. All cash
                                    payments required to be made as a result of
                                    such an event, together with all cash
                                    payments required to be made in respect of
                                    conversion defaults, as described below, and
                                    under the registration statement for delays
                                    or gaps in the effectiveness of the
                                    registration statement, are capped at a
                                    total amount of $1,333 per share plus
                                    default interest, if applicable.
--------------------------------------------------------------------------------
Premium                             We are required to pay, upon conversion of
                                    the Series B preferred stock, a 6% per year
                                    premium on the Series B preferred stock,
                                    payable in cash or common stock at our
                                    option. If the premium is paid in common
                                    stock, the cash amount of premium will be
                                    converted into a number of shares of common
                                    stock at the conversion price then in
                                    effect. Similarly, we are required to pay,
                                    upon redemption of the Series B preferred
                                    stock, a 6% per year premium on the Series B
                                    preferred stock, payable in cash. Premium
                                    accrues from December 22, 1998 until the
                                    date of conversion or redemption thereof.
--------------------------------------------------------------------------------
Optional redemption                 So long as:
                                    .     an event pursuant to which the holders
                                          of Series B preferred stock are
                                          entitled to redemption or an event
                                          requiring us to make a cash payment as
                                          described above has not occurred, or
                                    .     if the 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 like event, then the Series B
                                          preferred stock is redeemable at our
                                          option in certain limited
                                          circumstances for redemption amounts
                                          varying from 115% to 160% of the
                                          original issue price of the Series B
                                          preferred stock, plus a 6% premium per
                                          year and default interest, if
                                          applicable.
--------------------------------------------------------------------------------
Change of control                   If we merge with a public company meeting
                                    certain threshold criteria, the holders of
                                    the Series B preferred stock will be
                                    entitled to receive in the merger the
                                    consideration they would have received had
                                    they converted their stock the day before
                                    the public announcement of the merger. If we
                                    merge with a private company or a public
                                    company not meeting the threshold criteria,
                                    the holders of the Series B preferred stock
                                    will be entitled, at their option:
                                    .     to retain their preferred stock, which
                                          will thereafter convert into common
                                          stock of the surviving company, or
                                    .     receive either the consideration they
                                          would have received had they converted
                                          their stock the day before the public
                                          announcement of the merger or receive
                                          $1,250 per share of Series B preferred
                                          stock then outstanding, up to an
                                          aggregate of $18,750,000, in cash,
                                          plus any accrued and unpaid premium
                                          and, if applicable, default interest.
--------------------------------------------------------------------------------


                                       64
<PAGE>

--------------------------------------------------------------------------------
Feature                             Description
--------------------------------------------------------------------------------
Vote of stockholders/               We will ask our stockholders to approve the
19.9% limit                         issuance of more than 20% of our outstanding
                                    common stock on conversion of the Series B
                                    preferred stock and exercise of the warrants
                                    issued in connection with the Series B
                                    preferred stock as required under Rule
                                    4460(i) of the Nasdaq Marketplace Rules.
                                    Until the approval is obtained, such
                                    issuances are capped at 19.9% of our
                                    outstanding common stock on December 22,
                                    1998. If our stockholders do not approve
                                    these issuances by June 22, 1999,
                                    .     we may be obligated to immediately
                                          redeem all outstanding shares of
                                          Series B preferred stock for a cash
                                          payment, or
                                    .     we will be obligated to make cash
                                          payments to the holders of Series B
                                          preferred stock,
                                    .     the conversion price may be adjusted
                                          downward,
                                    .     the holders of the Series B preferred
                                          stock may require us to list our
                                          common stock on the over-the-counter
                                          electronic bulletin board, and the
                                          holders of the Series B preferred
                                          stock may require us to continue to
                                          seek stockholder approval of the
                                          conversion and exercise of those
                                          securities, which could be expensive
                                          for us.
--------------------------------------------------------------------------------
Automatic conversion at             Subject to the 19.9% limit, if then in
maturity                            effect, and the 4.9% limit, and assuming
                                    certain conditions set forth below are
                                    satisfied, all outstanding shares of Series
                                    B preferred stock will automatically convert
                                    into common stock on December 22, 2001.
--------------------------------------------------------------------------------
Default interest                    If we fail to timely pay any amounts owed to
                                    the holders of the Series B preferred stock,
                                    then we must pay the holders default
                                    interest at rate equal to the lesser of 18%
                                    per annum or the highest interest rate
                                    permitted by applicable law.
--------------------------------------------------------------------------------
Protective provisions               We have agreed:
                                    .     until December 22, 1999, not to issue
                                          or agree to issue any equity
                                          securities at a price less than fair
                                          market value or at a variable or
                                          re-settable price, subject to limited
                                          exceptions, and
                                    .     not to take certain actions without
                                          prior approval by each initial
                                          purchaser of the Series B preferred
                                          stock.
--------------------------------------------------------------------------------
4.9% limitation                     The Series B preferred stock shall not be
                                    convertible and the related warrants may not
                                    be exercisable by a holder thereof to the
                                    extent that after that conversion the holder
                                    would own in excess of 4.9% of our
                                    outstanding common stock. However, the 4.9%
                                    limit does not prevent any holder from
                                    converting all of its Series B preferred
                                    stock or exercising all of its warrants
                                    because the holder can convert or exercise
                                    into 4.9% of the outstanding common stock,
                                    then sell all or part of that common stock
                                    to permit it to engage in further
                                    conversions or exercises while remaining
                                    under the 4.9% limit.
--------------------------------------------------------------------------------
Liquidation preference              Each share of Series B preferred stock has a
                                    liquidation preference over all other
                                    classes of our capital stock in an amount
                                    equal to the $1,000 face amount thereof plus
                                    the accrued but unpaid premium and other
                                    unpaid amounts with respect thereto,
                                    including without limitation redemption
                                    amounts and cash payments with respect
                                    thereto plus any other amounts that may be
                                    due from us with respect thereto through the
                                    date of final distribution.
--------------------------------------------------------------------------------

            Conversion Price. The Series B preferred stock is convertible at any
time at a conversion price equal to the lesser of:

            .     a fixed conversion price of $5.46 per share; and
            .     a variable conversion price of 101% of the lowest average
                  closing bid prices our common stock over any 3 consecutive
                  days during the 15 consecutive day period ending on the day
                  prior to the applicable conversion date.

These bases for calculating the conversion price provide the holders of Series B
preferred stock with a method from benefiting from particular movements in the
market price of our common stock. The $5.46 fixed conversion price protects the
holder from increases in the price of our common stock. The variable conversion
price is designed to permit the holder to take advantage of periods in which our
stock price is depressed below $5.46.

            The result of these alternative bases for calculating the conversion
price is that the conversion price will be at most $5.46 and, to the extent the
market price of our common stock is less than $5.46, will result in additional
dilution. As of June 3, 1999, the conversion price was $4.38, which was below
the current market price of our stock, and at which price the Series B preferred
stock would have converted into 3,424,658 shares or 6.99% of our outstanding


                                       65
<PAGE>

stock as of June 3, 1999, excluding common stock issued in respect of premium.
There is no minimum conversion price and, therefor, there is no limit on
dilution of our existing stockholders. However, if a holder seeks to convert
Series B preferred stock at a conversion price below $2.264025 after June 21,
1999, we can pay cash to the holder in the amount the equivalent value of the
common stock the Series B preferred stock would otherwise convert into. This
right is, of course, only available to us if we have sufficient cash on hand or
credit available to pay the holders the required amounts, which will not always
be the case. In addition, it is unlikely that our lenders will consent to this
use of cash. If we have sufficient funds and elect to exercise this right, the
conversion ratio would be no more than $5.46 and no less than $2.264025, which
would limit the dilution that can be suffered by our existing common
stockholders.

            The following table sets forth the number of shares of common stock
issuable upon conversion of the outstanding Series B preferred stock, other than
shares issuable in respect of accrued premium and any default amounts, and the
percentage ownership that each represents assuming:

            .     the market price of the common stock is 25%, 50%, 75% and 100%
                  of the market price of the common stock on June 3, 1999, which
                  was $4.75 per share;
            .     the variable conversion price feature of the preferred stock
                  that was in effect;
            .     the maximum conversion prices of the preferred stock was not
                  adjusted as provided in our certificate of incorporation or
                  the amount of shares issuable is otherwise limited by the
                  transaction agreements;

      -----------------------------------------------------
              Percent of                 Series B
             Market Price            Preferred Stock(1)
      -----------------------------------------------------
                                   Shares           %(2)
                                 Underlying
      -----------------------------------------------------
             25%($1.1875)      12,631,579(2)      20.5%
      -----------------------------------------------------
              50%($2.375)        6,315,789        11.4%
      -----------------------------------------------------
             75%($3.5625)        4,210,526         7.9%
      -----------------------------------------------------
              100%($4.75)        3,157,895         6.1%
      -----------------------------------------------------

            (1)   On June 3, 1999, there were 48,966,750 shares of common stock
                  and 15,000 of Series B preferred stock outstanding.
            (2)   Limitations in the transaction agreements and the certificate
                  of incorporation may preclude these levels of beneficial
                  ownership from being achieved.


                                       66
<PAGE>

            In addition, the foregoing conversion price of the Series B
preferred stock is subject to adjustment upon the occurrence of the following
events:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                       Event                                              Applicable Conversion Ratio
-------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
Our failure to obtain by June 22, 1999 stockholder             The lesser of
approval to issue more than 20% of our common stock on         .     the conversion price otherwise in effect,
conversion of the Series B preferred stock and exercise of     .     during the period beginning on June 22, 1999
the warrants issued in connection with the Series B                  and ending on the date the approval is actually
preferred stock.                                                     obtained, a conversion price equal to the average
                                                                     of the five lowest closing bid prices of our common
                                                                     stock during the period beginning on the date the
                                                                     approval is required to be obtained under the
                                                                     certificate of designations and ending on the
                                                                     conversion date; if this period is less than five
                                                                     days, the calculation shall instead be the average
                                                                     of all of the closing bid prices over the period,
                                                                     and
                                                               .     after the date upon which we obtain the approval, a
                                                                     conversion price equal to the average of the five
                                                                     lowest closing bid prices of our common stock for
                                                                     the period beginning on the date the approval is
                                                                     required to be obtained under the certificate of
                                                                     designations and ending on the date the approval is
                                                                     actually obtained; if this period is less than five
                                                                     days, the calculation shall instead be the average
                                                                     of all of the closing bid prices over the period.
-------------------------------------------------------------------------------------------------------------------------
The registration statement of which this prospectus is a       The lesser of
part has not been declared effective by June 22, 1999.         .     the conversion price otherwise in effect,
                                                               .     during the period beginning on June 22, 1999 and
                                                                     ending on the date the registration statement is
                                                                     declared effective, a conversion price equal to the
                                                                     average of the five lowest closing bid prices of
                                                                     our common stock for the period beginning on June
                                                                     22, 1999 and ending on the conversion date; if this
                                                                     period is less than five days, the calculation
                                                                     shall instead be the average of all of the closing
                                                                     bid prices over the period, and
                                                               .     after the date upon the registration statement is
                                                                     declared effective, a conversion price equal to the
                                                                     average of the five lowest closing bid prices of
                                                                     our common stock for the period beginning on June
                                                                     22, 1999 and ending on the date the registration
                                                                     statement is declared effective; if this period is
                                                                     less than five days, the calculation shall instead
                                                                     be the average of all of the closing bid prices
                                                                     over the period.
-------------------------------------------------------------------------------------------------------------------------
Our failure to timely deliver common stock upon submission     That holder can rescind the notice of conversion and
of a notice of conversion by a holder of the Series B          convert any shares owned by it at a conversion price
preferred stock.                                               equal to the lesser of
                                                               .     the conversion price otherwise in effect on the
                                                                     date specified in the notice of conversion, and
                                                               .     lowest average closing bid prices our common stock
                                                                     over any 3 consecutive days during the 15
                                                                     consecutive day period ending on the earlier of the
                                                                     date the failure was cured and the day the holder
                                                                     rescinded the conversion notice; if this period is
                                                                     less than 15 days, the calculation shall instead be
                                                                     the average of all of the closing bid prices over
                                                                     the period.
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                           67
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                       Event                                              Applicable Conversion Ratio
-------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
Our notice to a holder or public announcement that we          The lesser of
intend not to issue shares of common stock upon conversion     .     the conversion price otherwise in effect on
by a holder of Series B preferred stock. This event will             the date specified in the notice of conversion,
not be triggered by notices or public announcements with             and
respect to issuances that would cause that holder to           .     lowest average closing bid prices our common
exceed its allocated portion of the 19.9% limit.                     stock over any 3 consecutive days during the 15
                                                                     consecutive day period ending on the date we
                                                                     undertake in writing to honor its conversion
                                                                     obligations; if this period is less than 15 days,
                                                                     the calculation shall instead be the average of all
                                                                     of the closing bid prices over the period.
-------------------------------------------------------------------------------------------------------------------------
Our failure to redeem the Series B preferred stock after       Each holders entitled to receive proceeds in the
providing to the holders of the Series B preferred stock a     redemption shall be entitled to convert its shares of
notice of redemption at our option.                            Series B preferred stock at the lesser of
                                                               .     the conversion price otherwise in effect and
                                                               .     the average of the closing bid prices for our
                                                                     common stock for any three trading days during the
                                                                     period beginning on the date of the redemption
                                                                     notice and ending on the day the day the redemption
                                                                     was to occur, as set forth in the redemption
                                                                     notice.
-------------------------------------------------------------------------------------------------------------------------
Our or any of our subsidiaries' public announcement of a       Each holder of Series B preferred stock can elect to
merger or consolidation.                                       obtain certain benefits of the transaction as though it
                                                               converted it Series B preferred stock on the trading date
                                                               immediately preceding the announcement of the transaction
                                                               at lowest conversion price obtained using any of the
                                                               three bases for calculating the conversion price
                                                               regardless of whether the announcement occurs prior to,
                                                               on or after May 15, 1999.
-------------------------------------------------------------------------------------------------------------------------
Our issuance of securities convertible or exchangeable at      The lesser of
a conversion, exercise or exchange rate based upon a           .     the conversion price otherwise in effect and
specific percentage discount from the market price of the      .     the conversion price representing the greatest
common stock at the time of conversion, exercise or                  discount from the market price of our common stock
exchange or based upon a market-based rate.                          applicable to any convertible securities or, as
                                                                     applicable, that market-based rate.
-------------------------------------------------------------------------------------------------------------------------
Our issuance of common stock or securities convertible or      The lesser of
exchangeable into common stock at a fixed conversion,          .     the conversion price otherwise in effect and
exchange or exercise price less than the lowest fixed          .     that fixed conversion, exchange or exercise
conversion price then in effect.                                     price.
-------------------------------------------------------------------------------------------------------------------------
The sale or other transfer by George Roberts, our Chief        The lesser of
Executive Officer, or Michael Sophie, our Chief Financial      .     the conversion price otherwise in effect and
Officer, of securities between December 1, 1998 and            .     the lowest price at which any trade of our
December 22, 1999 at a price less than the lowest fixed              common stock was completed on the principal market
conversion price in effect on the date of the transfer.              for trading thereof during the 20 days following
                                                                     public announcement of the transfer.
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

            The additional shares issued upon conversion of the Series B
preferred stock would dilute the percentage interest of each of our existing
common stockholders, and this dilution would increase as more common shares are
issued due to the impact of the variable conversion price. Each additional
issuance of shares upon conversion or exercise of the warrants would increase
the supply of shares in the market and, as a result, may cause the market price
of our common stock to decrease.

            The effect of this increased supply of common stock leading to a
lower market price may be magnified if there are sequential conversions of
Series B preferred stock. Specifically, the selling stockholders could convert a
portion of their Series B preferred stock and then sell the common stock issued
upon conversion, which likely would result in a drop in our stock price. Then
selling stockholders could convert another portion of their Series B preferred
stock at a lower conversion price because of the decreased stock price, and be
issued a greater number of shares of common stock due to the lower conversion
price. If they then sold those shares common stock, our stock price would likely
decrease again, permitting the holders to do more conversions at a conversion
price even more favorable to them. However, an ever falling market price for our
common stock does not benefit the holders of the Series B preferred stock. If
the price keeps falling, they receive more and more shares with a decreasing


                                       68
<PAGE>

aggregate value. Eventually, if the dilution becomes extreme, the market for our
common stock will tend to become illiquid, which will limit the ability of the
converting holders to sell shares of our common stock even at a very low price.

            A pattern of these partial conversions and sales could increase the
aggregate number of shares of common stock issued upon conversion of the Series
B preferred stock above what it would otherwise be, and could place significant
downward pressure on our stock price. This downward pressure on our stock price
might encourage market participants to sell our stock short, which would put
further downward pressure on our stock price, and further decrease the
conversion price and increase the dilution of our existing common stockholders
upon conversion of the Series B preferred stock.

            4.9% Limit. The Series B preferred stock is not convertible to the
extent the converting selling stockholder would hold in excess of 4.9% of our
outstanding common stock after those conversion. However, the 4.9% limit does
not prevent any holder from converting all of its Series B preferred stock or
exercising all of its warrants because the holder can convert or exercise into
4.9% of the outstanding common stock, then sell all or part of that common stock
to permit it to engage in further conversions or exercises while remaining under
the 4.9% limit. As a result, the 4.9% limit does not prevent any selling
stockholder from selling more than 4.9% of our outstanding common stock.

            Premium. We are required to pay, upon conversion of the Series B
preferred stock, a 6% per year premium on the Series B preferred stock, payable
in cash or common stock at our option. If the premium is paid in common stock,
the cash amount of premium will be converted into a number of shares of common
stock at the conversion price then in effect. Similarly, we are required to pay,
upon redemption of the Series B preferred stock, a 6% per year premium on the
Series B preferred stock, payable in cash. Premium accrues from the date of
issuance of the Series B preferred stock until the date of conversion or
redemption thereof.

            The aggregate annual premium on all outstanding shares of Series B
preferred stock, if those shares remained outstanding for an entire year, would
be $900,000. If all of the shares of Series B preferred stock remain outstanding
until the third anniversary of the closing, the date upon which the Series B
preferred stock may be required to convert into common stock, we would pay an
aggregate premium of $2,700,000. If we paid the premium in shares of common
stock, then the lower the conversion price, the more shares of our common stock
would be issued to pay the premium. The table below indicates the number of
shares of our common stock that would be paid in respect of the amount of
premium per year and the aggregate premium accruing from the issue date until
the third anniversary thereof at various conversion prices:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
   Conversion Price as a    Number of shares of common stock issued to pay premium in the amount of :
         Percent of
      Market Price on
       June 3, 1999
-----------------------------------------------------------------------------------------------------
                                       $900,000         %          $2,700,000           %
-----------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>           <C>               <C>
        25%($1.1875)                    757,895       1.52%         2,273,684         4.44%
-----------------------------------------------------------------------------------------------------
        50%($2.375)                     378,947       0.77%         1,136,842         2.27%
-----------------------------------------------------------------------------------------------------
        75%($3.5625)                    252,632       0.52%           757,895         1.52%
-----------------------------------------------------------------------------------------------------
        100%($4.75)                     189,474       0.39%           568,421         1.15%
-----------------------------------------------------------------------------------------------------
</TABLE>

            The 4.9% limit on holdings of our common stock by any selling
stockholder and the 19.9% limit on aggregate issuances of common stock in
respect of the Series B preferred stock and the warrants apply to and could
limit the number of shares of our common stock issued to pay the premium. The
19.9% will not apply if our stockholder approve issuances of 20% or more of our
stock in connection with the Series B preferred stock and warrants.

            Conversion Defaults. If, after a holder of Series B preferred stock
provides us with a conversion notice, we do not issue the shares of common stock
issuable pursuant to that conversion notice prior to or on the tenth business
day following the conversion date set forth in the notice, then, on each day
thereafter until we issue to the holder the shares of common stock required by
the conversion notice, we will be required to pay to the holder an amount equal
to 1% of the face amount of the shares of Series B preferred stock set forth in
the conversion notice. The foregoing provision will not be triggered if we do
not issue shares because those issuances would violate the 19.9% limit or the
4.9% limit. If we provide notice to any holder or publicly announces its intent
not to issue shares upon exercise by any holder of Series B preferred stock of
its conversion rights, then, on each day following the tenth day after the
notice or announcement until we retract the notice or announcement, we will be
required to pay to each holder an amount equal to 1% of the face amount of the
shares of Series B preferred stock held by it.


                                       69
<PAGE>

            For example, if we received a conversion notice from a holder
requesting conversion of 1,000 shares of Series B preferred stock and we did not
timely issue the stock, for each day after the last day to timely issue that
common stock until we actually issued it, we would owe that holder $10,000.
Continuing this example, if we issued the shares 7 days after the last day
permitted to avoid payments, we would owe that holder $70,000. All payments in
respect of each share of Series B preferred stock described in this paragraph
are limited to the portion of the total amount remaining after taking into
account amounts paid in respect of cash payments in connection with certain
events (as described below) and amounts paid under the registration rights
agreement (as described below).

            Registration. We are required by the Series B preferred stock
financing agreements to register for resale by the selling stockholders and keep
registered at least 150%, and in some instances 200%, of the aggregate number of
shares of common stock into which the Series B preferred stock is convertible
and for which the warrants are exercisable. To help ensure our compliance at all
times, we have chosen to initially register for resale by the selling
stockholders 13 million shares of our common stock. Notwithstanding the
registration of that number of shares, the terms of the Series B preferred stock
financing agreements prohibit us from issuing shares of common stock upon
conversion of the shares of Series B preferred stock or exercise of the warrants
if that issuance would result in any holder's beneficially owning in excess of
4.9% of our then outstanding common stock. In addition, until stockholder
approval is obtained, we are subject to the 19.9% limit.

            Pursuant to the registration rights agreement, we are required to
use our best efforts to cause the registration statement of which this
prospectus is a part to be declared effective as soon as practicable but in any
event no later than April 22, 1999. Because the registration statement was not
declared effective by April 22, 1999, we will be required to make cash payments
to the selling stockholders in an amount calculated in the following manner:

            .     the aggregate purchase price of shares of Series B preferred
                  stock, the common shares issuable upon conversion of which are
                  not immediately saleable under an effective registration
                  statement or Rule 144 promulgated under the Securities Act of
                  1933; the aggregate purchase price of shares of Series B
                  preferred stock set forth earlier in this paragraph shall
                  include shares of that stock that have been converted into
                  common stock, if that common stock has not yet been sold;
                  multiplied by
            .     the number of months contained in the period beginning on
                  April 22, 1999 and ending on the date the registration
                  statement is declared effective; for purposes of this
                  calculation, months will be prorated per day for partial
                  months; multiplied by
            .     a multiplier equal to 0.01 for the first 30 days after April
                  22, 1999, 0.015 for the second 30 days after April 22, 1999,
                  and 0.02 for all days thereafter.

            The cash payment for each of these failures will be at most $5,000
per day during the first 30 days, $7,500 per day during the second 30 days, and
$10,000 per day thereafter. The following chart indicates the amounts that would
be required to be paid to the selling stockholders, assuming all shares of
Series B preferred stock remain outstanding, if the registration statement is
not declared effective for 15, 30, 45, 60 and 75 days after April 22, 1999:

--------------------------------------------------------------------------------
  Days after April 22, 1999 before the
   registration statement is declared             Aggregate payment to
               effective                          selling stockholders
--------------------------------------------------------------------------------
                   15                                    $75,000
--------------------------------------------------------------------------------
                   30                                   $150,000
--------------------------------------------------------------------------------
                   45                                   $252,500
--------------------------------------------------------------------------------
                   60                                   $355,000
--------------------------------------------------------------------------------
                   75                                   $505,000
--------------------------------------------------------------------------------

            Once the registration is declared effective, sales cannot be made
pursuant to the registration statement by reason of a stop order, our failure to
update the registration statement or any event outside of the control of the
selling stockholders, then we must make cash payments to the selling
stockholders in an amount calculated in the following manner:

            .     the aggregate purchase price of shares of Series B preferred
                  stock, the common shares issuable upon conversion of which are
                  not immediately saleable under an effective registration
                  statement or Rule 144 promulgated under the Securities Act of
                  1933; the aggregate purchase price of shares of Series B
                  preferred stock set forth earlier in this paragraph shall
                  include shares of that stock that have been converted into
                  common stock, if that common stock has not yet been sold;
                  multiplied by
            .     the number of months (prorated per day for partial months)
                  after the registration statement is declared effective that
                  sales cannot be made under the registration statement; for
                  purposes of this calculation, months will be prorated per day
                  for partial months; multiplied by
            .     a multiplier equal to 0.01 for the first 30 days after April
                  22, 1999, 0.015 for the second 30 days after April 22, 1999,
                  and 0.02 for all days thereafter.


                                       70
<PAGE>

            The cash payment for each of these failures will be at most $5,000
per day during the first 30 days, $7,500 per day during the second 30 days, and
$10,000 per day thereafter. The following chart indicates the amounts that would
be required to be paid to the selling stockholders, assuming all shares of
Series B preferred stock remain outstanding, if the selling stockholders are
unable to make sales under the registration statement for 15, 30, 45, 60 and 75
days after it is declared effective:

--------------------------------------------------------------------------------
 Days after the registration statement
    is declared effective that sales              Aggregate payment to
    cannot be made pursuant thereto               selling stockholders
--------------------------------------------------------------------------------
                   15                                    $75,000
--------------------------------------------------------------------------------
                   30                                   $150,000
--------------------------------------------------------------------------------
                   45                                   $252,500
--------------------------------------------------------------------------------
                   60                                   $355,000
--------------------------------------------------------------------------------
                   75                                   $505,000
--------------------------------------------------------------------------------

            All payments in respect of each share of Series B preferred stock
under the registration rights agreement in connection with delays or gaps in
effectiveness of the registration statement are limited to the portion of the
total amount remaining after taking into account amounts paid in respect of cash
payments in connection with certain events (as described below) and amounts paid
in respect of conversion defaults (as described above).

            Automatic Conversion. Subject to the 19.9% limit, if then in effect,
and the 4.9% limit, and assuming the conditions listed below are satisfied, all
outstanding shares of Series B preferred stock will automatically convert into
common stock on December 22, 2001. These conditions are:

            .     the shares of common stock issuable upon the conversion are
                    .     authorized and reserved for issuance,
                    .     registered for resale under the Securities Act of
                          1933, and
                    .     listed for trading on the Nasdaq National Market,
                          Nasdaq Small Cap Market, New York Stock Exchange or
                          American Stock Exchange,
            .     we have not declared bankruptcy or been the subject of any
                  similar event, and
            .     no event has occurred that would give the holders of Series B
                  preferred stock the right to elect to have their Series B
                  preferred stock redeemed by us.

            If some or all of the Series B preferred stock is not automatically
converted as set forth above because the conversion was prevented by application
of the 19.9% limit or the 4.9% limit, then that Series B preferred stock will
remain subject to automatic conversion as set forth above at the time the 19.9%
limit or the 4.9% limit no longer prevents that conversion.

            Redemption at Holder's Option. Upon the occurrence of certain events
set forth below, if those events are deemed to be within our control, then each
then outstanding share of the Series B preferred stock is redeemable at a
holder's option at the greater of $1,330 per share, plus a 6% per year premium
and any default amounts, or a predetermined redemption formula amount per share.
The redemption formula amount is equal to:

            .     the highest closing bid price for our common stock during the
                  period beginning on the date of the holder's redemption notice
                  and ending on the date of redemption, multiplied by
            .     the sum of the original issue price, plus a 6% per year
                  premium and any default amounts due, and divided by
            .     the conversion price in effect on the date of the redemption
                  notice.

            An event is deemed to be outside of our control if the event is
caused by factors beyond our control notwithstanding that we have used our best
efforts to avoid the occurrence of the event. An event is deemed to be within
our control if the event was a voluntary choice by us or is otherwise within our
control. If a holder of Series B preferred stock asserts that an event within
our control has occurred, the service of notice of the event is a definitive
determination of the occurrence of the event. However, that determination will
not be definitive if we, within five business days of receipt of the notice,
provide to the holder a detailed written statement explaining why the event was
not within our control. If the holder disagrees with us, then whether the event
was within our control will be determined by the courts of the State of Delaware
interpreting the certificate of designations for the Series B preferred stock in
light of the relevant facts. Separately, if we have used our best efforts to
avoid an event within our control and it nonetheless occurs, provided that no
more than five prior events within our control or events leading to cash
payments have occurred, we can elect to cure the event and, if we do cure the
event, we will avoid the consequences of the event.


                                       71
<PAGE>

            Events which give each holder the right to demand redemption, unless
the event was caused by an act of god or was required by injunction or court of
SEC order, provided that we have used our best efforts to oppose, remove and
appeal the order or injunction:

            .     our failure to obtain on or before June 22, 1999 stockholder
                  approval to issue more than 20% of our common stock on
                  conversion of the Series B preferred stock and exercise of the
                  warrants issued in connection with the Series B preferred
                  stock;
            .     our failure to use our best efforts to obtain effectiveness of
                  the registration statement or to obtain the stockholder
                  approval;
            .     our failure to respond to SEC comments on the registration
                  statement or to request effectiveness of the registration
                  statement as soon as practicable;
            .     our failure to deliver in a timely manner common stock upon
                  submission of a notice of conversion, except to the extent the
                  conversion would violate the 19.9% limit or the 4.9% limit;
            .     our failure to remove restrictive legends on our common stock
                  when required under the securities purchase agreement;
            .     our announcement of our intention not to issue common stock
                  upon conversion of the Series B preferred stock or exercise of
                  the warrants, except to the extent the conversion or exercise
                  would violate the 19.9% limit or the 4.9% limit;
            .     our knowing breach of any material covenant or term in the
                  Series B preferred stock financing agreements;
            .     our material breach, as a result of our execution or
                  performance under the Series B preferred stock financing
                  agreements, of any agreement to which we are or become a
                  party;
            .     our knowing commission of any act or omission that constitutes
                  a breach of any representation or warranty in any of the
                  Series B preferred stock financing agreements or any officer's
                  certificate given by us in connection with the issuance of the
                  Series B preferred stock if the facts underlying the breach
                  would have a material adverse effect on us or on a holder of
                  the Series B preferred stock with respect to its investment in
                  that stock;
            .     our failure to maintain sufficient common stock reserved for
                  conversion of the Series B preferred stock or exercise of the
                  warrants to the extent only the approval of our board of
                  directors is required to obtain an increase in authorized
                  shares;
            .     our knowing and material breach of any agreement involving
                  indebtedness for borrowed money or purchase price which
                  results in or which would result in acceleration of the
                  maturity of that debt; unless the consequences of the breach,
                  including any cross-defaults, are not material to us; and
            .     our failure to use best efforts to avoid the occurrence of the
                  events described below that could result in cash payments to
                  holders of the Series B preferred stock.

            We can avoid a redemption due to the occurrence of an event listed
above if

            .     we used our best efforts to avoid the event,
            .     we elect to avoid redemption prior to the cure of the event,
                  if it is possible to cure, and
            .     no more than a total of 5 of these events and events leading
                  to cash payments (as described below) shall have occurred.

            If we are unable to avoid redemption and are unable to redeem the
Series B preferred stock upon request, we must redeem that portion that is
permitted and, thereafter, use our best efforts to remedy the impairment
preventing redemption. In addition, to the extent set forth below, certain of
the foregoing events may also require us make additional payments, either in
cash or additional shares of common stock or Series B preferred stock.

            If we were forced to redeem all of the shares of Series B preferred
stock on June 22, 1999, December 22, 1999, June 22, 2000 or December 22, 2000
and the ratio of

            .     the highest closing bid price during the period beginning on
                  the date of the redemption notice and ending on the conversion
                  date to
            .     the conversion price in effect on the date of the redemption
                  notice

was 1 to 1, 1.5 to 1, 2 to 1, 3 to 1, 4 to 1, or 5 to 1 and all Series B
preferred stock remained outstanding on those dates, we would be forced to pay
the following aggregate amount to the holders of Series B preferred stock
pursuant to the redemption:


                                       72
<PAGE>

--------------------------------------------------------------------------------
   Redemption Date              Aggregate Redemption Amount (millions)*
--------------------------------------------------------------------------------
   Ratio of highest     1 to 1   1.5 to 1   2 to 1   3 to 1    4 to 1    5 to 1
 closing bid price to
   conversion price
--------------------------------------------------------------------------------
    June 22, 1999        $19.9     $23.2    $30.9     $46.3     $61.8    $77.3
--------------------------------------------------------------------------------
  December 22, 1999      $19.9     $23.9    $31.8     $47.7     $63.6    $79.5
--------------------------------------------------------------------------------
    June 22, 2000        $19.9     $24.5    $32.7     $49.1     $65.4    $81.8
--------------------------------------------------------------------------------
  December 22, 2000      $19.9     $25.2    $33.6     $50.4     $67.2    $84.0
--------------------------------------------------------------------------------

*Please note that, as described below, our credit agreement limits payments to
redeem shares of Series B preferred stock and cash payments in connection with
certain events (as described below) to no more than approximately $5,000,000 in
the aggregate. If our credit agreement limits redemption payments, we are
obligated to use our reasonable best efforts to take all reasonably necessary
steps permitted by the Series B financing documents to remove the limitation so
that further redemptions are permitted.

            For example, if the conversion price in effect on the date of the
redemption notice were $5.46 and the highest closing bid price during the period
beginning on the date of the redemption notice and ending on the conversion date
were $10.92, the ratio would be 2 to 1. If the conversion price in effect on the
date of the redemption notice were $5.46 and the highest closing bid price
during the period beginning on the date of the redemption notice and ending on
the conversion date were $16.38, the ratio would be 3 to 1. Lastly, if the
conversion price in effect on the date of the redemption notice were $5.46 and
the highest closing bid price during the period beginning on the date of the
redemption notice and ending on the conversion date were $27.30, the ratio would
be 5 to 1. At lower conversion prices, lower closing bid prices would produce
high ratios. For example, if the conversion price in effect on the date of the
redemption notice were $2.00, a highest closing bid price during the period
beginning on the date of the redemption notice and ending on the conversion date
were $10.00, as opposed to $27.30, would be needed to produce a ratio of 5 to 1.

            Those amounts could be reduced if fewer shares of Series B preferred
stock were outstanding on the redemption date, whether through earlier
conversion or redemption of the shares, or if the holders of the Series B
preferred stock elect not to have all of their shares redeemed. Those amounts
could be increased if, due to our late payment of the redemption amounts, we
must pay default interest on the amounts, in which case the amount of the
default interest may be magnified based upon the ratio of the highest closing
bid price to the conversion price in effect on the date of the redemption
notice.

            If we are unable to purchase all shares of Series B preferred stock
which are subject to redemption notices, we must redeem all shares it is able to
purchase pro rata from the holders of based upon the relative number of shares
set forth in that holder's redemption notice compared to the total number of
shares set forth in all redemption notices. However, any such inability on our
part will not limit our obligation to purchase all shares set forth in the
redemption notices. Until we redeem all of those shares, we cannot, without the
consent of each initial holder of Series B preferred stock, enter into any
agreement, consummate any transaction, or otherwise operate in any way outside
the ordinary course of business. That inability shall be considered a breach of
our obligations with respect to the Series B preferred stock, and each holder
shall have all rights and remedies for damages available at law or under the
certificate of designations, including default interest.

            One reason for such an inability to redeem shares would be that
redeeming all shares of Series B preferred stock set forth in redemption notices
would cause us to violate Section 160 of the Delaware General Corporation Law.
Section 160 prohibits a corporation from redeeming its shares for cash if the
capital of the corporation is impaired or if that redemption would result in the
impairment of the capital of the corporation. Given that we do not have cash or
other liquid assets beyond that necessary to conduct our business, if we are
required to redeem any significant number of shares of Series B preferred stock,
those redemptions would likely cause and impairment of our capital and be
prohibited by Section 160. In that case, we are required to:

            .     redeem the greatest number of shares of Series B preferred
                  stock possible without violating that section,
            .     use our best effort to take all steps permitted by the Series
                  B preferred stock financing agreements in order to remedy our
                  capital structure to allow further redemptions without
                  violating that section, and not take any actions inconsistent
                  with so remedying our capital structure, and
            .     from time to time thereafter as promptly as possible, redeem
                  shares at the request of a holder to the greatest extent
                  possible without violating that section; with that redemption
                  to be made at the greater of the redemption price set forth in
                  the redemption notice or the redemption price applicable at
                  the time of the request.

Any inability to redeem shares based upon DGCL Section 160 shall have the
consequences set forth above in connection with any inability on our part to
redeem shares. In addition and as described in greater detail below, in the
event DGCL Section 160 prevents redemptions, we are required to use our best
efforts to take all necessary steps permitted by the Series B financing
documents to remedy our capital structure.


                                       73
<PAGE>

            Another reason for such an inability to redeem shares would be that
redeeming all shares of Series B preferred stock set forth in redemption notices
would cause us to violate the credit agreement, dated May 15, 1998, between us
and certain lenders, amended as of December 17, 1998, or any extension thereof
or replacement facility that does not affect the rights, privileges and
preferences of the selling stockholders any more than the existing credit
agreement. In that case, we are required to:

            .     redeem the greatest number of shares of Series B preferred
                  stock possible without violating those credit agreements,
            .     use our best efforts to take all steps permitted by
                     .     the Series B preferred stock financing agreements
                           which would not result in a breach thereof and
                     .     the credit agreements in order to remedy our capital
                           structure to allow further redemptions without
                           violating those credit agreements, and
            .     from time to time thereafter as promptly as possible, redeem
                  shares at the request of a holder to the greatest extent
                  possible without violating those credit agreements.

            Unlike any other inability to redeem, any inability to redeem shares
based upon our credit agreement shall not be a breach of the certificate of
designation and will not give the holders any right to damages or default
interest. At present, the credit agreement limits the amount we may pay to
redeem Series B preferred stock and the amount of cash payments in connection
with certain events (as described below) to no more than approximately
$5,000,000. In addition, from time to time, other provisions of the credit
agreement, including the financial covenants contained therein, may prevent us
from making fully honoring redemption notices.

            In the event our credit agreement prevents redemptions of the Series
B preferred stock or cash payments called for by the terms of the Series B
preferred stock, we are required to use our reasonable best efforts to take all
reasonably necessary steps permitted by the Series B financing documents to
permit further redemptions and cash payments. Similarly, in the event DGCL
Section 160 prevents redemptions of the Series B preferred stock, we are
required to use our best efforts to take all necessary steps permitted by the
Series B financing documents to remedy our capital structure to permit further
redemptions. To fulfill these requirements, we may need to alter our capital
structure by turning fixed or financial assets into liquid assets or otherwise
obtaining additional capital. Those liquid assets would augment our capital for
purposes of DGCL Section 160 and may permit us to amend our credit agreement to
permit additional payments to the holders of Series B preferred stock. Methods
by which we might be required to generate liquid assets include selling off
important operating assets, which may include divestiture of entire divisions or
subsidiaries, or licensing our intellectual property to third parties to raise
cash, which may be to the long-term detriment of our business. Additionally, we
may be required to raise capital by selling securities that impair our ability
to operate our business, are prohibitively expensive or otherwise have onerous
terms. Any of these actions could materially adversely affect our business,
operating results and financial condition.

            Cash Payments. Within 10 business days following notice to us of the
occurrence of the events set forth below, we are required to pay to each holder
of the Series B preferred stock its pro rata portion in cash of an amount equal
to 3% the first week and 5% each week thereafter of the aggregate face amount of
Series B preferred stock originally issued until the event no longer exists. The
3% amount would be at least $450,000 and the 5% amount would be at least
$750,000. Thus, if the event persisted for 2 weeks, we would be required to pay
at least $1,200,000, if the event persisted for 3 weeks, we would be required to
pay at least $1,950,000, and so on. The triggering events are:

            .     any event which would have permitted the holder of Series B
                  preferred stock to elect to have us redeem their stock but for
                  the fact that
                     .     we did not knowingly cause the event to occur,
                     .     it was caused by an act of god or was required by
                           injunction or court of SEC order, or
                     .     was otherwise outside of our control;
            .     the suspension or de-listing of our common stock from trading
                  on the Nasdaq National Market System or certain other markets
                  acceptable to the initial purchasers of the Series B preferred
                  stock for 5 or more days in any 9 month period;
            .     the registration statement of which this prospectus is a part
                  not being declared effective by June 22, 1999;
            .     the suspension of the registration statement of which this
                  prospectus is a part after its effective date for more than 10
                  consecutive business days or for an aggregate of more than 20
                  days in any twelve month period;
            .     if the approval of our stockholders is required to increase
                  the common stock reserved for conversion of the Series B
                  preferred stock or exercise of the warrants as required by the
                  Series B preferred stock financing agreements, our failure to
                  obtain the approval within 60 days or within 120 days in the
                  event of SEC review of the event giving rise to the
                  requirement to reserve more shares of common stock;
            .     failure to have declared effective amended or additional
                  registration statements that may be required under the Series
                  B preferred stock financing agreements within


                                       74
<PAGE>

                     .     5 business days of the event giving rise to the need
                           for an amended registration statement or
                     .     10 business days of the event giving rise to the need
                           for an additional registration statement for the
                           resale by the selling stockholders of shares of
                           common stock;
            .     failure to obtain on or before June 22, 1999 stockholder
                  approval to issue more than 20% of our common stock on
                  conversion of the Series B preferred stock and exercise of the
                  warrants issued in connection with the Series B preferred
                  stock;
            .     our failure to fully honor a conversion of Series B preferred
                  stock or a valid exercise of a warrant because we do not have
                  sufficient shares of common stock authorized but not
                  outstanding with which to honor the conversion or exercise;
                  and
            .     our declaration of or being put into bankruptcy or
                  receivership or failure to pay our debts generally as and when
                  due.

            All cash payments required to be made as a result of such an event,
together with all cash payments required to be made in respect of conversion
defaults and under the registration rights agreement in respect of delays or
gaps in effectiveness of the registration statement, are capped at an aggregate
of $1,333 per share plus default interest, or $19,995,000 plus default interest
in the aggregate. In addition, we may be unable to make those cash payments to
the extent that making the payments would cause us to violate the credit
agreement, dated May 15, 1998, between us and certain lenders, amended as of
December 17, 1998, or any extension thereof or replacement facility that does
not affect the rights, privileges and preferences of the selling stockholders
any more than the existing credit agreement. In that case, we are required to:

            .     make the greatest cash payments possible without violating
                  those credit agreements, and
            .     our best efforts to take all steps permitted by
                     .     the Series B preferred stock financing agreements
                           which would not result in a breach thereof and
                     .     the credit agreements in order to remedy our capital
                           structure to allow further cash payments without
                           violating those credit agreements.

            Unlike any other inability to make cash payments, any inability to
make cash payments based upon our credit agreement shall not be a breach of the
certificate of designation and will not give the holders any right to damages or
default interest. At present, the credit agreement limits the amount we may pay
to redeem Series B preferred stock and the amount of cash payments in connection
with certain events (as described below) to no more than approximately
$5,000,000. In addition, from time to time, other provisions of the credit
agreement, including the financial covenants contained therein, may prevent us
from making cash payments. However, as described above, in the event our credit
agreement prevents redemptions of the Series B preferred stock or cash payments
called for by the terms of the Series B preferred stock, we are required to use
our reasonable best efforts to take all reasonably necessary steps permitted by
the Series B financing documents to permit further redemptions and cash
payments. See "--Redemption at Holder's Option" above.

            Vote of Stockholders. We have filed with the Securities and Exchange
Commission a preliminary proxy statement in which our board of directors
recommends to our stockholders that they vote to approve the waiver of Rule
4460(i) of the Nasdaq Marketplace Rules. This rule prohibits us from issuing
more than 20% of our outstanding common stock in a single transaction or group
of related transactions. Conversion of the Series B preferred stock and exercise
of the warrants into common stock at certain conversion prices might trigger the
anti-dilution provisions of our outstanding convertible notes, although we do
not believe this to be the case. Any additional shares of common stock issued
upon conversion of the notes due to this anti-dilution adjustment and any common
stock issued in respect of premium or otherwise may be aggregated with the
shares of common stock issued upon conversion of the Series B preferred stock
and exercise of the warrants for purposes of the 20% rule.

            Currently, due to the 19.9% limitation, the number of shares that
can be issued upon conversion of the Series B preferred stock is 8,663,895. If
our stockholders approve issuances in excess of 8,663,895 shares, then
conversions of the Series B preferred stock and exercise of the warrants into
common stock may result in our issuing new shares of common stock that represent
more than 20% of our previously outstanding common stock. Indeed, once the
shareholder approval is received, there is no limit on the number of shares that
may be issued upon conversion of the Series B preferred stock. At low conversion
prices, enough shares may be issued upon conversion of the Series B preferred
stock that, if those shares were voted together, they would be able to exercise
control over us and thereby effect a change in control of us. The conversions
could result in greater dilution to our present stockholders than could occur if
the approval had not been received and the 19.9% limitation remained in place.
For numeric examples of the level of dilution that would result at certain
conversion prices, see "--Conversion price" above.

            On the other hand, if the stockholder approval sought thereby is not
obtained on or before June 22, 1999,

 .     we will continue to be prohibited by Nasdaq Rule 4460(i) from issuing 20%
      or more of our outstanding common stock on conversion of the Series B
      preferred stock, upon exercise of the warrants, and in respect of premium
      or otherwise,
 .     we may be obligated to immediately redeem all outstanding shares of Series
      B preferred stock for a cash payment in the manner described in "--
      Redemption at Holders Option" above,


                                       75
<PAGE>

 .     we will be obligated to make cash payments in the manner described in "--
      Cash Payments" above,
 .     the conversion price may be adjusted in the manner described in "--
      Conversion Price" above,
 .     the selling stockholders can require us to list our common stock on the
      over-the-counter electronic bulletin board which, as of the date hereof,
      has no limitation relating to issuance of more than 20% of our common
      stock or similar restriction and, thereafter, require us to honor all
      requested conversions, and
 .     the selling stockholders could require us to continue to seek stockholder
      approval of the conversion and exercise of those securities, which could
      be expensive for us.

            We do not have available the cash resources to satisfy the
redemption obligation set forth in the above list and it is possible that we
would not be able to effectuate the redemption in compliance with applicable
law. If the stockholder approval is not obtained, compliance with the redemption
obligation would likely have a material adverse effect on our financial
condition and ability to implement our business strategy. In addition, any delay
in payment will cause the redemption amount to accrue default interest at the
rate of the lesser of 18% per annum or the highest interest rate permitted by
applicable law until paid.

            If our common stock were traded on an over-the-counter bulletin
board, our common stock may be subject to reduced liquidity and reduced analyst
coverage, our ability to raise capital in the future may be inhibited and our
business, financial condition and results of operations could be materially
adversely affected. In addition, if our common stock is listed on an
over-the-counter bulletin board rather than on a national exchange, we may be in
default under various agreements with our financing sources, investors and
stockholders. Redemption of the Series B preferred stock and any defaults under
other agreements could significantly accelerate our cash expenditures and
capital requirements beyond the levels currently anticipated and would
materially adversely affect our ability to conduct our business.

            Redemption at Our Option. So long as

 .     an event pursuant to which the holders of Series B preferred stock are
      entitled to elect to have their shares redeemed or an event requiring us
      to make a cash payment as described above has not occurred, or
 .     if the 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 like event,

the Series B preferred stock is redeemable at our option in the limited
circumstances set forth below for redemption amounts varying from 115% to 160%
of the original issue price of the Series B preferred stock, plus a 6% premium
per year and default interest, if applicable. More particularly, the Series B
preferred stock is redeemable:

            .     on three dates between December 22, 1998 and December 22, 1999
                  for a redemption amount varying between 130% and 120% of the
                  original issue price of the Series B preferred stock, plus a
                  6% premium per year and any default amounts, provided our
                  common stock is then trading at less than $2.264025;
            .     after December 22, 1999 and prior to December 22, 2000, we may
                  redeem the Series B preferred stock at the greater of
            .     160% of the original issue price of the Series B preferred
                  stock, plus a 6% premium per year and any default amounts, and
            .     the amount obtained when sum of the face amount plus a 6%
                  premium per year and any default amounts, is divided by the
                  conversion price in effect on the date of the redemption
                  notice, and multiplied by the highest closing bid price for
                  our common stock during the period beginning on the date of
                  the holder's redemption notice and ending on the date of
                  redemption;
            .     after December 22, 2000, if the closing bid price for our
                  common stock exceeds a 200% of the fixed conversion price (as
                  described above), we may redeem the Series B preferred stock
                  at 115% of the original issue price of the Series B preferred
                  stock, plus a 6% premium per year and any default amounts; or
            .     after December 22, 2000, if we, simultaneously with the
                  redemption, close a firm commitment underwriting with a
                  minimum $8.00 per share price and a minimum aggregate amount
                  of $30 million, we may redeem the Series B preferred stock at
                  the greater of
            .     120% of the original issue price of the Series B preferred
                  stock plus a 6% premium per year and any default amounts, and
            .     the amount obtained when the sum of the face amount plus a 6%
                  premium per year and any default amounts, is divided by the
                  conversion price in effect on the date of the redemption
                  notice, and multiplied by the highest closing bid price for
                  our common stock during the period beginning on the date of
                  the holder's redemption notice and ending on the date of
                  redemption.

We must redeem either


                                       76
<PAGE>

 .     all of the Series B preferred stock or
 .     at least $5 million of Series B preferred stock and, at our discretion,
      additional amounts in $1 million increments.

In addition, we are not permitted to deliver an optional redemption notice
unless we have funds available to effect the complete amount of the redemption
in the form of deposits with a financial institution, immediately available
credit facilities, or an agreement with a standby underwriter or qualified buyer
to purchase a sufficient face amount of our securities, or any combination of
these methods.

            If we provide the holders of Series B preferred stock with a notice
of redemption at our option, then fail to redeem the Series B preferred stock,

 .     we forfeit all future redemptions at our option, and
 .     the conversion rate of the Series B preferred stock will be adjusted to
      equal to the lower of
 .     the conversion price otherwise in effect, and
 .     the average of the closing bid prices for our common stock for any three
      trading days during the period beginning on the date of the redemption
      notice and ending on the day the day the redemption was to occur (as set
      forth in the redemption notice).

Protective Provisions. The Series B preferred stock is senior to the Series A
preferred stock and common stock in respect of the right to receive liquidation
preferences. If we liquidate, dissolve or wind up, no distribution shall be made
to the holders of any shares of our capital stock upon liquidation, dissolution
or winding up unless prior thereto the holders shall have received the
liquidation preference as set forth below with respect to each share. The
liquidation preference with respect to a share of preferred stock means an
amount equal to the $1,000 face amount thereof plus the accrued but unpaid
premium and other unpaid amounts with respect thereto, including without
limitation redemption amounts and cash payments with respect thereto plus any
other amounts that may be due from us with respect thereto through the date of
final distribution.

            The Series B preferred stock has no voting power, except as
otherwise provided by applicable law. However, in the absence of prior approval
by the initial purchasers of the Series B preferred stock, we are prohibited
from:

 .     altering or changing the terms of the Series B preferred stock,
 .     altering or changing the terms of any of our capital stock so as to
      adversely affect the Series B preferred stock,
 .     creating or issuing any senior or pari passu securities,
 .     increasing the authorized shares of Series B preferred stock,
 .     redeeming or paying any dividend or distribution on any junior securities,
      subject to limited exceptions,
 .     acting so as to generate taxation under Section 305 of the Internal
      Revenue Code of 1986, as amended, or
 .     selling or transferring all or substantially all of our assets.

            Other than under the circumstances set forth below, the Series B
preferred stock financing documents generally prohibit us from issuing prior to
December 22, 1999:

 .     any equity securities at a price less than fair market value; and
 .     any variably or re-set priced equity securities of equity-like securities
      or any security convertible into or exercisable or exchangeable for any
      equity or equity-like securities.

            Notwithstanding the foregoing prohibition, we are permitted in the
following circumstances to issue any securities:

 .     to the initial purchasers and their assignees pursuant to the Series B
      preferred stock financing documents,
 .     to an industry partner(s) as part of "strategic investments" in us,
 .     in connection with the grant and/or exercise of options by employees,
      consultants or directors,
 .     in connection with direct stock issuances to employees, consultants or
      directors,
 .     in exchange solely for existing securities,
 .     in exchange for Series B preferred stock,
 .     pursuant to the stockholders rights agreement and the Series A preferred
      stock,
 .     in connection with acquisitions of other companies, material technologies
      or business entities,
 .     to equipment lessors or banks as an incentive in connection with an
      ordinary course of business equipment financings or commercial loans which
      is primarily for non-equity financing purposes, and
 .     shares of common stock in accordance with our convertible note indenture
      and the notes thereunder.

            We may need additional funds in the future, and may issue additional
convertible preferred stock or other securities in order to raise those funds.
In that regard, amendments to our bank credit agreement structured covenants
that require that we satisfy our business plan. Our business plan includes
provisions for an infusion of approximately $15 million of additional capital
during the second quarter of 1999. This part of our business plan is based upon
preliminary discussions with potential investors and our desire to solidify our
equity base to support future growth. We do not currently have commitments from
any potential


                                       77
<PAGE>

investors, and there can be no assurance that we will be able to raise
additional capital. We may need the consent of the initial purchasers of the
Series B preferred stock to issue certain securities in order to raise capital.

            Change of Control. If we merge with a public company meeting the
following threshold criteria and our common stock will be exchanged for common
stock of the acquiror or its parent company, the holders of the Series B
preferred stock will be entitled to receive in the merger the consideration they
would have received had they converted their stock the day before the public
announcement of the merger at the lowest conversion price obtained using any of
the three bases for calculating the conversion price regardless of whether the
announcement occurs prior to, on or after May 15, 1999. The threshold criteria
are:

 .     the exchange securities are publicly traded,
 .     the average daily trading volume of the exchange securities over the 90
      day period immediately preceding announcement of the transaction was
      greater than $2,000,000,
 .     the historical 100 day volatility of the exchange securities during the
      period ending on the date of announcement of the transaction is greater
      than 50%, and
 .     the last sale price of the exchange securities on the date immediately
      preceding the date on which the transaction is public disclosed is not
      less than 65% of last sale price of the exchange securities on any day
      during the 20 day period ending on that date.

            If we merge with a private company or a public company not meeting
the threshold criteria, the holders of the Series B preferred stock will be
entitled, at their option,

 .     to retain their preferred stock, which will thereafter convert into common
      stock of the surviving company, or
 .     receive either
 .     the consideration they would have received had they converted their stock
      the day before the public announcement of the merger or
 .     $1,250 per share of Series B preferred stock then outstanding, in cash,
      plus any accrued and unpaid premium and, if applicable, default interest.

            Notwithstanding the foregoing, we are permitted to acquire other
companies without having to provide special consideration to the holders of the
Series B preferred stock so long as we do not issue more than 20% of our common
stock as merger consideration. As described below, the holders of the warrants
are entitled to similar protections in the event of our merger or consolidation
with another company. We are also prohibited from selling or transferring all or
substantially all of our assets without prior approval by the purchasers of the
Series B preferred stock.

            Rank and Participation. With respect to dividends or as to the
distribution of assets upon our liquidation, dissolution or winding up, the
Series B preferred stock shall rank:

 .     prior to our common stock;
 .     prior to
 .     any other class of our capital stock now outstanding, and
 .     any class of our capital stock later created unless the stock is issued
      with the consent of the holders of the Series B preferred stock and, by
      its terms, ranks senior to the Series B preferred stock;
 .     in parity with any class of our capital stock later created that is issued
      with the consent of the holders of the Series B preferred stock and, by
      its terms, ranks in parity with the Series B preferred stock; and
 .     junior to any class of our capital stock later created that is issued with
      the consent of the holders of the Series B preferred stock and, by its
      terms, ranks senior to the Series B preferred stock.

            Subject to the rights of any of our securities senior to or in
parity with the Series B preferred stock, each holder of Series B preferred
stock shall be entitled to dividends paid and distributions made to the holders
of our common stock to the same extent as if that holder had already converted
its Series B preferred stock. Specifically, the holder would be entitled to
dividends as if it held the number of shares of common stock that it would have
received had it converted its shares of Series B preferred stock on the record
date for that dividend or distribution at the conversion price in effect on such
date. Payments of the dividend or distribution to the holders of Series B
preferred stock will be made concurrently with the payment of the distribution
or dividend.

            Warrants. The warrants are immediately exercisable until December
22, 2003. The warrants are exercisable by payment of the exercise price or by
net exercise, in which shares of our common stock having a market value equal to
the exercise price are not issued to the warrant holder upon exercise of the
warrant but instead are withheld by us to pay the exercise price. The exercise
price for the common stock underlying the warrant is $3.47 per share, subject to
adjustment as described below. Specifically, the conversion price of the
warrants is subject to anti-dilution adjustment if we sell common stock or
securities convertible into or exercisable for common stock, excluding certain
issuances such as common stock issued under employee,


                                       78
<PAGE>

director or consultant benefit plans, at a price per share less than the
conversion price then in effect, which initially shall be $3.47 per share, such
that the adjusted exercise price will be equal to:

 .     the exercise price in effect immediately prior to the issuance, multiplied
      by
 .     the sum of
 .     the number of outstanding shares of our common stock immediately prior to
      the issuance, and
 .     the number obtained when the total consideration received by us in
      exchange for the stock issued is divided by the greater of the conversion
      price then in effect or the market price on the day prior to the issuance,
      divided by
 .     the number of shares of our common stock outstanding after the issuance
      plus the number of shares deemed outstanding by reason of our issuance of
      options or convertible securities exercisable or convertible at less than
      the option price in effect at the time of issuance of those options or
      convertible securities.

            In addition, with respect to any securities we issue that are
convertible into or exercisable for our common stock in accordance with a
fluctuating or re-setting conversion or exercise price or exchange ratio, the
anti-dilution adjustment described above will be made on the date of issuance of
those securities as though:

                  .     all holding periods and other conditions to the
                        discounts contained in the securities have been
                        satisfied, and
                  .     the market price of our common stock on the date of
                        exercise, conversion or exchange of the securities was
                        80% of the market price of our common stock on the date
                        the securities were issued.

If there is a change at any time in:

                  .     the amount of additional consideration payable to us
                        upon exercise of the securities, or
                  .     the rate at which the securities are convertible into
                        our common stock, other than changes in such rate by
                        reason of provisions designed to protect against
                        dilution,

the exercise price of the warrants shall be readjusted to the exercise price
that would have been in effect had such change been in effect at the time the
securities were issued. The adjustments described in this paragraph will not be
made with respect to securities issued under employee, director or consultant
benefit plans so long as the issuance of the securities is approved by a
majority of our non-employee directors.

            In the event we merge with any other company, the warrantholders are
entitled to similar choices as to the consideration they will receive in the
merger or consolidation as are provided to the holders of the Series B preferred
stock. If we merge with a public company meeting the threshold criteria set
forth above and our common stock will be exchanged for common stock of the
acquiror or its parent company, the warrant holders will be entitled to receive
in the merger the consideration they would have received had they exercised
their warrants the day before the public announcement of the merger at the
exercise price in effect on that day. If we merge with a private company or a
public company not meeting the threshold criteria, the warrant holders will be
entitled, at their option,

 .     to retain their warrants, which will thereafter convert into common stock
      of the surviving company, or
 .     receive either
 .     the consideration they would have received had they exercised their
      warrants the day before the public announcement of the merger or
 .     125% of the Black-Scholes amount.

The Black-Scholes amount is the value of an option to purchase one share of
common stock as calculated on the Bloomberg online page using the following
values:

 .     the market price on the day prior to the date of notice of the
      transaction,
 .     volatility equal to the historical 100 day volatility of the our common
      stock during the period preceding the date of notice of the transaction,
 .     a risk free interest rate equal to the rate on U.S. treasury bill or
      treasury notes having a maturity similar to the term of the warrant on the
      date of the notice of the transaction, and
 .     an exercise price equal to the exercise price on the date of notice of the
      transaction.

            If we declare or make a distribution of assets to our common
stockholders, then the warrant holders will be entitled to exercise their
warrants and receive the amount of those assets that the holder would have been
entitled to had it been a common stockholder on the record date for determining
shares entitled to the distribution. We have agreed to use our best efforts to
list the common stock issuable upon exercise of the warrants on a major
securities exchange so long as our other common stock is so


                                       79
<PAGE>

listed. The 19.9% limit and the 4.9% limit apply to shares of common stock
issued by exercise of the warrants, and those shares are aggregated with shares
of common stock issued upon conversion of the Series B preferred stock for
purposes of the 19.9% limit and with all shares of our common stock held by a
warrant holder for purposes of the 4.9% limit.

            Anti-Dilution Provisions in our Convertible Notes. In addition,
conversion of the Series B preferred stock and exercise of the warrants,
together with common stock issued to pay premium, at conversion or exercise
prices less than the current market price (as described below) may cause an
anti-dilution adjustment with respect to the conversion price of our 4 1/4%
convertible promissory notes, although we do not believe this to be the case.
Specifically, the conversion price of the notes is subject to anti-dilution
adjustment if we sell common stock or securities initially convertible into or
exercisable for common stock, excluding certain issuances such as common stock
issued under employee, director or consultant benefit plans, at a price per
share less than the conversion price then in effect, such that the adjusted
exercise price will be equal to:

 .     the conversion price in effect immediately prior to the issuance,
      multiplied by
 .     the sum of
 .     the number of outstanding shares of our common stock immediately prior to
      the issuance, and
 .     the number of shares of common stock the consideration received for that
      stock issuance would purchase at the current market price (as set forth
      below); divided by
 .     the sum of
 .     number of shares of our common stock outstanding after the issuance, and
 .     the number of shares common stock actually issued.

            For purposes of the notes, the current market price is defined as
the average of the last sale price of our common stock on the 30 consecutive
business days immediately preceding the relevant issuance of common stock.


                                       80
<PAGE>

            Accounting Charges. The redemption rights, liquidated damages
provisions, cross default provisions to our debt instruments and other terms of
the Series B preferred stock, under certain circumstances, could lead to a
significant accounting charge to earnings. The Series B preferred stock will be
classified outside of equity as mandatorily redeemable preferred stock. On
December 22, 1998, we recognized the fair value of warrants issued and the
accretion of the Series B preferred stock to its fair value. We incurred a
charge of approximately $1.5 million to our accumulated deficit for the fourth
quarter of fiscal 1998 as a result of the accounting treatment for issuance of
the related warrants. During the period of conversion of the Series B preferred
stock, we will be required to recognize in our earnings (loss) per share
calculation any accretion of the Series B preferred stock to its redemption
value as a dividend to the holders of the Series B preferred stock. The
foregoing description is only a summary and you can obtain more detailed
information regarding the terms of the Series B preferred stock and the warrants
by reference to the securities purchase agreement dated as of December 21, 1998
by and among P-Com and the purchasers listed therein, the registration rights
agreement dated as of December 21, 1998 by and among P-Com and the purchasers
listed therein, the warrants issued by us to the purchasers and the Series B
certificate of designation attached to the Current Report on Form 8-K dated as
of December 24, 1998 as Exhibits 10.38, 10.39, 10.40A, 10.40B, and 10.40C, and
3.2D and 3.2E, respectively.


                                       81
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosure

            The Company has international sales and facilities and is,
therefore, subject to foreign currency rate exposure. Historically, its
international sales have been denominated in British pounds sterling or United
States dollars. With recent acquisitions of foreign companies, certain of its
international sales are denominated in other foreign currencies, including
Italian lira. The Company enters into foreign forward exchange contracts to
reduce the impact of currency fluctuations of anticipated sales to British
customers. The objectives of these contracts is to neutralize the impact of
foreign currency exchange rate movements on the Company's operating results. The
gains and losses on forward exchange contracts are included in earnings when the
underlying foreign currency denominated transaction is recognized.

            The foreign exchange forward contracts described above generally
require the Company to sell foreign currencies for U.S. dollars at rates agreed
to at the inception of the contracts. The forward contracts generally have
maturities of six months or less. These contracts generally do not subject the
Company to significant market risk from exchange rate movements because the
contracts are designed to offset gains and losses on the balances and
transactions being hedged. At December 31, 1998 and 1997, the Company had
forward contracts to sell approximately $26.1 million and $13.3 million in
British pounds, respectively. The fair value of forward exchange contracts
approximates cost. The Company does not anticipate any material adverse effect
on its financial position resulting from the use of these instruments.

            The functional currency of the Company's wholly owned and
majority-owned foreign subsidiaries are the local currencies. Assets and
liabilities of these subsidiaries are translated into U.S. dollars at exchange
rates in effect at the balance sheet date. Income and expense items are
translated at average exchange rates for the period. Accumulated net translation
adjustments are recorded in stockholders' equity. Foreign exchange transaction
gains and losses are included in the results of operations, and were not
material for all periods presented. Based on our overall currency rate exposure
at December 31, 1998, a near-term 10% appreciation or depreciation of the U.S.
dollar would have an insignificant effect on our financial position, results of
operations and cash flows over the next fiscal year. In 1997, a near-term 10%
appreciation or depreciation of the U.S. dollar was also determined to have an
insignificant effect. The Company does not use derivative financial instruments
for speculative or trading purposes.

Interest Rate Risk

            The Company's convertible subordinated Notes bear interest at a
fixed rate, therefore, the Company's financial condition and results of
operations would not be affected by interest rate changes in this regard. The
Company's revolving line of credit is subject to interest at either a base
interest rate or a variable interest rate that is within 200 basis points of the
base interest rate. A 200 basis point increase over the base interest rate would
not be material to the Company's financial condition or results of operations.


                                       82
<PAGE>

ITEM 8. FINANCIAL STATEMENTS

                                   P-COM, INC.
   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                                                                            Page
                                                                            ----

FINANCIAL STATEMENTS:

   Report of Independent Accountants......................................... 84

   Consolidated Balance Sheets at December 31, 1998 and 1997................. 85

   Consolidated Statements of Operations for the years ended
      December 31, 1998, 1997, and 1996...................................... 86

   Consolidated Statements of Stockholders' Equity for the years
      ended December 31, 1998, 1997, and 1996................................ 88

   Consolidated Statements of Cash Flows for the years ended
      December 31, 1998, 1997 and 1996....................................... 89

   Notes to Consolidated Financial Statements................................ 90

FINANCIAL STATEMENT SCHEDULE:

   Schedule II - Valuation and Qualifying Accounts.......................... 109

            All other schedules have been omitted because they are not required,
are not applicable, or the information is included in the consolidated financial
statements or notes thereto.


                                       83
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To The Board Of Directors And Stockholders of P-Com, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of P-Com,
Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statements schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As described in Notes 1 and 3, on April 20, 1999, the Company obtained an
amendment to its line-of-credit agreement that contains substantial changes to
the debt covenants, including certain covenants which contemplate the Company
raising additional capital.

As indicated in Notes 1 and 13, the Company revised its 1998 financial
statements with respect to revenue recognition.


PricewaterhouseCoopers LLP
San Jose, California

April 20, 1999, expect as to the effect of the restatement described in Note 13
which is as of March 30, 2000.

                                       84
<PAGE>

                                   P-COM, INC.

                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                            December 31,
                                                                        1998            1997
ASSETS                                                               (Restated)
<S>                                                                  <C>             <C>
Current assets:
  Cash and cash equivalents                                          $  29,241       $  88,145
  Accounts receivable, net of allowance for doubtful accounts
    of $9,591 in 1998 and $2,521 in 1997                                51,392          70,883
  Inventory                                                             79,026          58,003
  Prepaid expenses and notes receivable                                 21,949          12,534
                                                                     ---------       ---------
    Total current assets                                               181,608         229,565
Property and equipment, net                                             52,086          32,313
Deferred income taxes                                                    9,678           1,697
Goodwill and other assets                                               71,845          41,946
                                                                     ---------       ---------
                                                                     $ 315,217       $ 305,521
                                                                     =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                   $  39,618       $  38,043
  Accrued employee benefits                                              3,345           3,930
  Other accrued liabilities                                             10,318           6,255
  Income taxes payable                                                      --           6,409
  Deferred liabilities                                                   3,000              --
  Notes payable                                                         46,360             293
                                                                     ---------       ---------
    Total current liabilities                                          102,641          54,930
                                                                     ---------       ---------

Deferred liabilities                                                     5,000              --
                                                                     ---------       ---------
Long-term debt                                                          92,769         101,690
                                                                     ---------       ---------

Minority interest                                                           --             604

Series B Mandatorily Redeemable Convertible Preferred Stock             13,559              --
                                                                     ---------       ---------
Mandatorily Redeemable Common Stock Warrants                             1,839              --
                                                                     ---------       ---------

Commitments (Note 8)

Stockholders' equity:
  Series A Preferred Stock                                                  --              --
  Common Stock, $0.0001 par value; 95,000,000 shares
    authorized; 45,869,777 and 42,664,077 shares issued
    and outstanding at December 31, 1998 and 1997, respectively              5               4
Additional paid-in capital                                             145,246         131,735
Retained earnings (accumulated deficit)                                (45,924)         18,380
Accumulated other comprehensive income                                      82          (1,822)
                                                                     ---------       ---------
    Total stockholders' equity                                          99,409         148,297
                                                                     ---------       ---------
                                                                     $ 315,217       $ 305,521
                                                                     =========       =========
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       85
<PAGE>

                                   P-COM, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                  1998            1997            1996
                                                               (Restated)
<S>                                                            <C>             <C>             <C>
Sales:
  Product                                                      $ 118,948       $ 169,453       $ 101,853
  Broadcast                                                       25,258          21,092              --
  Service                                                         43,597          30,157          19,100
                                                               ---------       ---------       ---------
    Total sales                                                  187,803         220,702         120,953
                                                               ---------       ---------       ---------

Cost of sales:
  Product                                                         93,829          96,948          60,362
  Broadcast                                                       19,669          13,319              --
  Service                                                         30,777          18,968          13,696
                                                               ---------       ---------       ---------
    Total cost of sales                                          144,275         129,235          74,058
                                                               ---------       ---------       ---------
  Gross profit                                                    43,528          91,467          46,895
                                                               ---------       ---------       ---------

Operating expenses:
  Research and development                                        41,473          29,127          20,163
  Selling and marketing                                           22,020          15,696           7,525
  General and administrative                                      24,965          14,741          10,178
  Goodwill amortization                                            6,692           2,207             105
  Restructuring charge                                             4,332              --              --
  Acquired in-process research and development                    15,442              --              --
                                                               ---------       ---------       ---------
    Total operating expenses                                     114,924          61,771          37,971
                                                               ---------       ---------       ---------
Income (loss) from operations                                    (71,396)         29,696           8,924
Interest expense                                                  (9,031)         (2,315)         (1,579)
Interest income                                                    1,626           1,557           1,328
Other income (expense)                                              (498)          1,005           1,157
                                                               ---------       ---------       ---------
Income (loss) before extraordinary item and income taxes         (79,299)         29,943           9,830
Provision (benefit) for income taxes                             (11,501)         11,052             956
                                                               ---------       ---------       ---------
Income (loss) before extraordinary item                          (67,798)         18,891           8,874
Extraordinary item: retirement of Notes                            5,333              --              --
                                                               ---------       ---------       ---------
Net income (loss)                                                (62.465)         18,891           8,874
Charge related to Preferred Stock discount                        (1,839)             --              --
                                                               ---------       ---------       ---------
Net income (loss) applicable to holders of Common Stock        $ (64,304)      $  18,891       $   8,874
                                                               =========       =========       =========
Basic income (loss) per share:
  Income (loss) before extraordinary item                      $   (1.57)      $    0.45       $    0.23
  Extraordinary item                                                0.12              --              --
  Preferred stock discount                                         (0.04)             --              --
                                                               ---------       ---------       ---------
  Net income (loss) applicable to holders of common stock      $   (1.49)      $    0.45       $    0.23
                                                               =========       =========       =========
</TABLE>

                                       86
<PAGE>

<TABLE>
<CAPTION>
                                                1998           1997         1996
                                               -------       -------      -------
                                             (Restated)
<S>                                            <C>           <C>          <C>
Diluted income (loss) per share:
  Income (loss) before extraordinary item      $ (1.57)      $  0.43      $  0.22
  Extraordinary item                              0.12            --           --
                                               -------       -------      -------
  Preferred stock discount                       (0.04)           --           --
                                               -------       -------      -------
  Net income (loss)                            $ (1.49)      $  0.43      $  0.22
                                               =======       =======      =======

Shares used in per share computations:
  Basic                                         43,254        42,175       38,762
                                               =======       =======      =======
  Diluted                                       43,254        44,570       40,607
                                               =======       =======      =======
</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       87
<PAGE>

                                   P-COM, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                                                                Retained     Other
                                                         Common Stock           Additional      Earnings     Compre-       Compre-
                                                     ---------------------        Paid-In     (Accumulated   hensive       hensive
                                                     Shares         Amount        Capital       Deficit)     Income        Income
                                                     ------         ------        -------       --------     ------        ------
<S>                                                <C>              <C>          <C>            <C>           <C>           <C>
Balance at December 31, 1995                       35,527,028       $    3       $ 56,614       $ (9,360)
Issuance of Common Stock in public offerings,
net of issuance costs                               4,196,970            1         52,531             --
Issuance of Common Stock for the purchase of
   ACS                                                140,000           --          1,698             --
Issuance of Common Stock upon exercise of
stock                                                 784,408           --          1,353             --
options and warrants
Issuance of Common Stock under employee
stock                                                 188,800           --            717
purchase plan
Cumulative translation adjustment                          --           --             --             --      $     73      $    73
Distribution of retained earnings                                                                    (25)
Net income                                                 --           --             --          8,874                      8,874
Comprehensive income                                                                                                        $ 8,947
                                                   ----------       ------       --------       --------      --------      -------
Balance at December 31, 1996                       40,837,206            4        112,913           (511)           73

Conversion of shareholders' loan to equity
by Geritel                                                 --           --            368             --
Issuance of Common Stock for the purchase of CSM
Issuance of Common Stock upon exercise of             796,612           --         14,500             --
stock options and warrants                            878,385           --          2,912             --

Cumulative translation adjustment                          --           --             --             --        (1,895)      (1,895)

Issuance of Common Stock under employee
stock purchase plan                                   151,874           --          1,042             --
Net income                                                 --           --             --         18,891                     18,891
Comprehensive income                                                                                                        $16,996
                                                   ----------       ------       --------       --------      --------      -------
Balance at December 31, 1997                       42,664,077            4        131,735         18,380        (1,822)
Issuance of Common Stock upon exercise of
stock options and warrants                            498,670           --          2,651             --
Issuance of Common Stock under employee
stock purchases plan                                  240,030           --          1,842             --
Issuance of Common Stock upon retirement
of Convertible Subordinated Notes due 2002          2,467,000            1          9,018             --
Charge related to Preferred Stock discount                 --           --         (1,839)
Cumulative translation adjustment                          --           --             --             --         1,904      $ 1,904
Net loss                                                   --           --             --        (62,465)                   (62,465)

Comprehensive income                                                                                                        $60,561
                                                   ----------       ------       --------       --------      --------      =======
Balance at December 31, 1998                       45,869,777       $    5       $145,246       $(45,924)     $     82
                                                   ==========       ======       ========       ========      ========
</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       88
<PAGE>

                                   P-COM, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                             1998           1997           1996
                                                                           --------       --------       --------
                                                                          (Restated)
<S>                                                                        <C>            <C>            <C>
Cash flows from operating activities:
   Net income (loss)                                                       $(62,465)      $ 18,891       $  8,874
   Adjustments to reconcile net income (loss) to net cash used in
       operating activities, net of effect of acquisitions:
     Depreciation                                                            11,544          6,013          5,152
     Amortization of goodwill and other intangible assets                     6,827          2,207            105
     Change in minority interest                                               (604)           (15)           619
     Deferred income taxes                                                   (7,981)            14         (1,711)
     Acquired in-process research and development expenses                   15,442             --             --
     Non-cash effect of retirement of Notes                                  (5,333)            --             --
   Change in assets and liabilities:
     Accounts receivable                                                     23,905        (19,375)       (24,663)
     Inventory                                                              (15,016)       (20,807)       (14,773)
     Prepaid expenses and notes receivable                                   (9,109)           110         (4,544)
     Other assets                                                             2,684         (5,111)         1,850
     Accounts payable                                                        (1,390)         4,443         14,499
     Accrued employee benefits                                                 (585)         1,967            526
     Other accrued liabilities                                                2,709         (4,746)         5,549
      Deferred liabilities                                                    8,000             --             --
     Income taxes payable                                                    (6,409)         3,915          2,590
                                                                           --------       --------       --------
  Net cash used in operating activities                                     (37,781)       (12,494)        (5,927)
                                                                           --------       --------       --------
Cash flows from investing activities:
  Acquisition of property and equipment                                     (29,187)       (16,922)       (14,078)
  Acquisitions, net of cash acquired                                        (61,398)       (10,855)        (2,714)
                                                                           --------       --------       --------
  Net cash used in investing activities                                     (90,585)       (27,777)       (16,792)
                                                                           --------       --------       --------
Cash flows from financing activities:
  Proceeds (payments) of notes payable                                       46,067        (12,651)         1,425
  Proceeds from issuance of Common Stock, net of expenses                     4,493          3,955         54,576
  Proceeds (payments) from long-term debt                                     2,016           (719)            --
  Proceeds from convertible debt offering, net                                   --         97,500             --
  Proceeds from issuance of Preferred Stock and warrants, net                13,559             --             --
  Proceeds from sale-leaseback transaction                                    1,557             --             --
  Payment of sale-leaseback obligation                                         (134)            --             --
                                                                           --------       --------       --------
  Net cash provided by financing activities                                  67,558         88,085         56,001
                                                                           --------       --------       --------
Effect of exchange rate changes on cash                                       1,904         (1,895)            73
                                                                           --------       --------       --------
Net increase (decrease) in cash and cash equivalents                        (58,904)        45,919         33,355
Cash and cash equivalents at the beginning of the period                     88,145         42,226          8,871
                                                                           --------       --------       --------
Cash and cash equivalents at the end of the period                         $ 29,241       $ 88,145       $ 42,226
                                                                           ========       ========       ========
Supplemental cash flow disclosures:
  Cash paid for income taxes                                               $  3,900       $  5,610       $    217
                                                                           ========       ========       ========
  Cash paid for interest                                                   $  8,717       $    656       $    133
                                                                           ========       ========       ========
  Stock issued in connection with the acquisitions of CSM & ACS            $     --       $ 14,500       $  1,698
                                                                           ========       ========       ========
  Conversion of shareholder's loan to equity by Geritel                    $     --       $    368       $     --
                                                                           ========       ========       ========
  Exchange of Convertible Subordinated Notes for Common Stock              $ 14,350       $     --       $     --
                                                                           ========       ========       ========
  Promissory note issued in connection with the acquisition of Cylink      $  9,682       $     --       $     --
                                                                           ========       ========       ========
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       89
<PAGE>

                                   P-COM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

            P-Com, Inc. (the "Company") was incorporated in Delaware on August
23, 1991 to engage in the design, manufacture and marketing of millimeter wave
radio systems for use in the worldwide wireless telecommunications market.

            On April 20, 1999, the Company obtained an amendment to its
line-of-credit agreement, which contains substantial changes to the debt
covenants (see Note 3). The covenants were amended to provide for compliance
based on the Company's business plan for 1999, and the Company is in compliance
with such covenants through March 31, 1999. The Company's business plan includes
provisions for the infusion of approximately $15 million of capital during the
second quarter of 1999 based on preliminary discussions with potential investors
and the Company's desire to solidify its equity base to support future growth.
The Company does not currently have commitments from any potential investors.
Should the Company not meet its business plan or should the Company not be able
to raise adequate capital, it is possible that an event of default will occur
under the line-of- credit agreement. If a default is declared by the lenders it
would trigger cross defaults on the Company's outstanding 4 1/4% Convertible
Subordinated Notes and other debt instruments, giving rise to acceleration of
payments of such debt, and also giving rise to the rights of holders of all
outstanding Series B Preferred Stock to have their stock redeemed by the
Company. Management believes, in the event that the Company fails to fully meet
its business plan, the Company has adequate alternatives available to remedy any
negative consequences arising from a potential default under the agreement.
However, there can be no assurance that the Company will be able to implement
these plans or that it will be able to do so without a material adverse effect
on the Company's business, financial condition or results of operations.

            Effective May 29, 1997, the Company acquired Control Resources
Corporation ("CRC"). Effective November 28, 1997, the Company acquired RT Masts
Limited ("RT Masts") and Telematics, Inc. ("Telematics"), see Note 5. These
transactions were accounted for as poolings-of-interests and accordingly, the
consolidated financial statements for all periods presented include the results
of these acquired companies as if they had been combined since inception.

             See Note 13 to the consolidated financial statements for revision
of financial statements and changes to certain information.

Summary Of Significant Accounting Policies

            The following is a summary of the Company's significant accounting
policies:

            Management's use of estimates and assumptions

            The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

            Principles of consolidation

            The consolidated financial statements include the accounts of the
Company and its majority-owned and wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

            Foreign currency translation

            The functional currency of the Company's wholly owned and
majority-owned foreign subsidiaries are the local currencies. Assets and
liabilities of these subsidiaries are translated into U.S. dollars at exchange
rates in effect at the balance sheet date. Income and expense items are
translated at average exchange rates for the period. Accumulated net translation
adjustments are recorded in stockholders' equity. Foreign exchange transaction
gains and losses are included in the results of operations, and were not
material in all periods presented.

            Fair Value of Financial Instruments

            The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. The estimated fair
value of the Company's Convertible Subordinated Notes was approximately 63% of
par or $53.8 million at December 31, 1998. The estimated fair value of all other
financial instruments at December 31, 1998 and 1997 approximated cost.

            Cash and cash equivalents


                                       90
<PAGE>

            The Company considers all highly liquid debt instruments with a
maturity when acquired of three months or less to be cash equivalents.

            Revenue recognition

            Revenue from product sales is recognized upon shipment of the
product provided no significant obligations remain and collectibility is
probable. Provisions for estimated warranty repairs, returns and allowances are
recorded at the time products are shipped. Revenue from service sales is
recognized ratably over the contractual period or as the service is performed.

            Inventory

            Inventory is stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.

            Property and equipment

            Property and equipment are stated at cost. Depreciation is computed
using the straight-line method based upon the useful lives of the assets ranging
from three to seven years. Leasehold improvements are amortized using the
straight-line method based upon the shorter of the estimated useful lives or the
lease term of the respective assets.

            Software development costs

            The Company's software products are integrated into its hardware
products. Software development costs incurred prior to the establishment of
technological feasibility are expensed as incurred. Software development costs
incurred subsequent to the establishment of technological feasibility and before
general release to customers are capitalized, if material. To date, all
softwaredevelopment costs incurred subsequent to the establishment of
technological feasibility have been immaterial.

            Goodwill

            Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired companies accounted for as purchase business
combinations. Goodwill is amortized based on the expected revenue stream or on a
straight-line basis over the period of expected benefit ranging from three to
twenty years. The carrying value of goodwill is reviewed periodically based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period. Should this review indicate that goodwill will not be
recoverable, the Company's carrying value of the goodwill will be reduced to its
discounted cash flows value.

            In-process research and development

            The Company recorded a charge for purchased in-process research and
development ("IPR&D") in March 1998 in a manner consistent with widely
recognized appraisal practices at the date of acquisition. Subsequent to this
time, the Company became aware of some new information which brought into
question the traditional appraisal methodology, and revised its purchase price
allocation based upon a more current and preferred methodology. As a result of
computing IPR&D using the more current and preferred methodology, the Company,
decided to revise the amount originally allocated to in-process research and
development. As such, the Company has restated its first, second, and third
quarter 1998 consolidated financial statements. As a result, the first quarter
charge for acquired IPR&D was decreased from $33.9 million previously recorded
to $15.4 million, a decrease of $18.5 million with a corresponding increase in
goodwill and other intangible assets and related amortization in subsequent
quarters. Technological feasibility was not established for the expensed IPR&D,
and the expensed IPR&D had no alternative future use. The portion of the
purchase price allocated to goodwill and other intangible assets includes $6.3
million of developed technology, $2.7 million of core technology, $1.8 million
of assembled workforce, and $23.5 million of goodwill.


                                       91
<PAGE>

            Impairment of long-lived assets

            In the event that facts and circumstances indicate that the cost of
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value is
required.

            Income taxes

            The Company accounts for income taxes under the liability method,
which recognizes deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, the Company can not determine will more
likely than not be realized.

            Concentration of credit risk

            Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents, trade accounts receivable, and derivative financial instruments
used in hedging activities. The Company places its cash and cash equivalents in
a variety of financial instruments such as market rate accounts and U.S.
Government agency debt securities. The Company, by policy, limits the amount of
credit exposure to any one financial institution or commercial issuer.

            To date, the Company has sold most of its products in international
markets. Sales to seven customers have been denominated in British pounds, and
at December 31, 1998 and 1997 amounts due from these customers represented 49%
and 30%, respectively, of accounts receivable. Any gains and/or losses incurred
on the settlement of these receivables are included in the financial statements
as they occur.

            The Company extends credit terms to international customers of up to
120 days, which is consistent with local business practices. The Company
performs on-going credit evaluations of its customers' financial condition to
determine the customer's credit worthiness. Sales are then made either on 30 to
90 day payment terms, COD or letters of credit.

            At December 31, 1998 and 1997, approximately 75% and 47%,
respectively, of trade accounts receivable represents amounts due from four
customers. The Company has an agreement with certain banks to sell, without
recourse, certain of its trade accounts receivable. During 1998 and 1997, the
Company sold approximately $57 million and $12 million, respectively, of its
trade accounts receivable. For this service, the banks received a fee of between
0.5% and 1.0% plus interest of between 6% and 10% per annum. In 1998, 1997, and
1996, there were no material gains or losses on accounts receivable sold without
recourse.

The following table summarizes the percentage of sales accounted for by the
Company`s significant customers with sales of 10% or more:

                                                 Year ended December 31,
                                          1998             1997             1996
                                          ----             ----             ----
                                       (restated)
      Customer A                           24%              15%              11%
      Customer B                           --               11               11
      Customer C                           --               --               11
      Customer D                           --               --               11
      Customer E                           --               --               11

            Off-balance sheet risk

            The Company enters into foreign forward exchange contracts to reduce
the impact of currency fluctuations of sales to British customers. The objective
of these contracts is to neutralize the impact of foreign currency exchange rate
movements on the Company's operating results. The foreign forward exchange
contracts generally require the Company to sell foreign currencies for U.S.
dollars at rates agreed to at the inception of the contracts. The forward
contracts generally have maturities of six months or less.

            The Company considers purchase orders from customers to be firm
commitments for purposes of designating foreign forward exchange contracts as
hedges. As such, gains or losses on a contract are deferred and included in
other income (expense) when the underlying contract is recognized. Losses are
not deferred, however, if it is estimated that deferral would lead to
recognizing losses in later periods. The Company does not enter into speculative
forward exchange contracts.


                                       92
<PAGE>

            At December 31, 1998 and 1997, the Company had forward exchange
contracts to sell approximately $26.1 million and $13.3 million in British
pounds, respectively. The fair value of forward exchange contracts, which was
determined based on a comparison of the exchange rate per the contract and the
market exchange rate on December 31, 1998, approximates cost. The Company does
not anticipate any material adverse effect on its financial position resulting
from the use of these instruments.

            Net income (loss) per share

            Basic net income (loss) per share is computed by dividing net income
applicable to holders of Common Stock (numerator) by the weighted average number
of shares of Common Stock outstanding (denominator) during the period. Diluted
net income (loss) per share, gives effect to all potentially dilutive Common
Stock outstanding during a period such as those relating to stock options,
Notes, Preferred Stock and warrants. In computing diluted net income (loss) per
share, the average stock price for the period is used in determining the number
of shares assumed to be purchased from exercise of stock options. The weighted
average effect of unexercised stock options to purchase 813,596 shares of Common
Stock were excluded from the computation of diluted net loss per share in 1998
as the effect would be antidilutive.

            Following is a reconciliation of the numerators and denominators of
the Basic and Diluted net income (loss) per share computations for the periods
presented (in thousands):

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                      1998             1997         1996
                                                                   ----------       ----------   ----------
                                                                     (in thousands, except per share data)
                                                                   (restated)
<S>                                                                <C>              <C>          <C>
Income (loss) before extraordinary item                            $  (67,798)      $   18,891   $    8,874
Charge related to preferred stock discount                             (1,839)              --           --
                                                                   ----------       ----------   ----------
Income (loss) before extraordinary item applicable to holders
  of Common Stock                                                     (69,637)          18,891        8,874
Extraordinary item                                                      5,333               --           --
                                                                   ----------       ----------   ----------
Net income (loss) applicable to holders of Common Stock               (64,304)          18,891        8,874
                                                                   ----------       ----------   ----------

Effect of dilutive securities:
    Interest expense on Convertible Subordinated Notes                     --              397           --
Numerator for diluted net income (loss) per common share           $  (64,304)      $   19,288   $    8,874
                                                                   ==========       ==========   ==========

Denominator for basic net income (loss) per common share               43,254           42,175       38,762
Effect of dilutive securities:
  Stock options and warrants                                               --            1,826        1,845
  Convertible Subordinated Notes                                           --              569           --
                                                                   ----------       ----------   ----------
Denominator for diluted net income (loss) per common share             43,254           44,570       40,607
                                                                   ==========       ==========   ==========
Basic income (loss) per share:
  Income (loss) before extraordinary item                          $    (1.57)      $     0.45   $     0.23
  Extraordinary Item                                                     0.12               --           --
                                                                   ----------       ----------   ----------
  Preferred stock discount                                              (0.04)              --           --
                                                                   ----------       ----------   ----------
  Net income (loss) applicable to holders of common stock          $    (1.49)      $     0.45   $     0.23
                                                                   ==========       ==========   ==========
Diluted income (loss) per share:
  Income (loss) before extraordinary item                          $    (1.57)      $     0.43   $     0.22
  Extraordinary item                                                     0.12               --           --
                                                                   ----------       ----------   ----------
  Preferred stock discount                                              (0.04)              --           --
                                                                   ----------       ----------   ----------
  Net income (loss)                                                $    (1.49)      $     0.43   $     0.22
                                                                   ==========       ==========   ==========
</TABLE>

            Stock-based Compensation

            The Company accounts for stock-based employee compensation
arrangements in accordance with provisions of Accounting Principles Board No.
25, "Accounting for Stock Issued to Employees" (APB 25) and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). Under APB 25, compensation
cost is recognized based on the difference, if any, on the date of grant between
the fair value of the Company's stock and the consideration received.

            Comprehensive Income


                                       93
<PAGE>

            The Company has adopted SFAS 130, "Reporting Comprehensive Income".
Under SFAS 130, the Company is required to display comprehensive income and its
components as part of the Company's full set of financial statements. The
measurement and presentation of net income did not change. Comprehensive income
comprises net income and other comprehensive income. Other comprehensive income
includes certain changes in equity of the Company that are excluded from net
income. Specifically, SFAS 130 requires unrealized gains and losses on the
Company's foreign currency translation, which were reported separately in
stockholders' equity, to be included in accumulated other comprehensive income.
Comprehensive income in 1998, 1997, and 1996 has been reflected in the
Consolidated Statements of Stockholders' Equity.

            Recently Issued Accounting Pronouncements

            In June 1998, the Financial Accounting Standards Board issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities," effective
beginning in the first quarter of 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
companies to recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting under SFAS 133. The Company is currently evaluating the impact of
SFAS 133 on its financial position and results of operations.

            In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires that entities capitalize certain costs related to internal-use software
once certain criteria have been met. The Company is required to implement SOP
98-1 for the year ending December 31, 1999. Adoption of SOP 98-1 is not expected
to have a material impact on the Company's financial position or results of
operations.

            In April, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. The Company has expensed
these costs historically, therefore, the adoption of this standard is not
expected to have a material impact on the Company's financial position or
results of operations.


                                       94
<PAGE>

NOTE 2 -- BALANCE SHEET COMPONENTS (in thousands):

                                                     December 31,
                                                 1998           1997
                                               --------       --------
            Inventory:
               Raw materials                   $ 16,395       $  9,695
               Work-in-process                   42,995         32,472
               Finished goods                    19,636         15,836
                                               --------       --------
                                               $ 79,026       $ 58,003
                                               ========       ========
            Property and equipment:
               Tooling and test equipment      $ 52,718       $ 31,603
               Computer equipment                 9,210          4,950
               Furniture and fixtures             7,220          4,979
               Land and buildings                 3,506          1,389
               Construction-in-process            4,878          3,294
                                               --------       --------
                                                 77,532         46,215
            Less accumulated depreciation       (25,446)       (13,902)
                                               --------       --------
                                               $ 52,086       $ 32,313
                                               ========       ========
            Goodwill and other assets:
            Goodwill:
               ACS                             $     --       $  1,347
               Geritel                               --          1,306
               Technosystem                      15,850         15,850
               CSM                               22,295         22,295
               Cylink                            34,261             --
               Cemetel                            4,360             --
                                               --------       --------
                                                 76,766         40,798
            Less accumulated amortization        (8,424)        (2,620)
                                               --------       --------
                    Net goodwill                 68,342         38,178
            Other assets:                         3,503          3,768
                                               --------       --------
                                               $ 71,845       $ 41,946
                                               ========       ========

            During 1998, the Company incurred a restructuring charge, which
included an impairment write down of goodwill related to the acquisition of ACS
and Geritel of approximately $2.9 million, included above.

NOTE 3 -- DEBT ARRANGEMENTS:

            On November 5, 1997, the Company issued $100 million in 4 1/4%
Convertible Subordinated Notes (the "Notes") due November 1, 2002. The Notes are
convertible at the option of the holder into shares of the Company's Common
Stock at an initial conversion price of $27.46 per share at any time. The Notes
are redeemable by the Company, beginning on November 5, 2000, upon 30 days
notice, subject to a declining redemption price. Interest on the Notes will be
paid semi-annually on May 1 and November 1 of each year. On December 30 and 31,
1998, the Company issued 2,467,000 shares of Common Stock in exchange for $14.4
million of Notes and recorded an extraordinary gain of $5.3 million. On December
30, and December 31, 1998, the closing price of the Company's Common Stock was
$3.50 and $3.98, respectively. On January 4 and February 2, 1999, the Company
issued an additional 2,792,257 shares of Common Stock in exchange for $25.5
million of Notes and will record an extraordinary gain of $7.3 million. On
January 4, 1999 and February 2, 1999, the closing price of the Company's Common
Stock was $3.53 and $8.88, respectively.

            The Company entered into a new revolving line-of-credit agreement on
May 15, 1998, as amended during the year, that provided for borrowings of up to
$50 million. At December 31, 1998, the Company had been advanced approximately
$46.4 million and had used the remaining $3.6 million to secure letters of
credit under such line. The revolving commitment, as amended, is reduced from
$50 million to $40 million on August 15, 1999 and to $30 million on October 15,
1999 until maturity on January 15, 2000. Borrowings under the line are secured
by the assets of the Company and bear interest at either a base interest rate or
a variable interest rate. The bank credit agreement requires the Company to
comply with certain financial covenants, including the maintenance of specific
minimum ratios. Amendments to the bank credit agreement have allowed the Company
to remain in compliance with the debt covenants through March 31, 1999. While
the amendments to the covenants have been structured based on the Company's
business plan that would allow the Company to continue to be in compliance with
such covenants through January 15, 2000, non-compliance could cause the Company
to be in default under the bank credit agreement. If a default is declared by
the lenders, cross defaults will be triggered on the Company's outstanding 4
1/4% Convertible Subordinated Notes and other debt instruments resulting in
accelerated repayments of such debts, and the holders of all outstanding Series
B Preferred Stock would have the right to have their stock redeemed by the
Company.


                                       95
<PAGE>

            The remaining borrowings consist of bank loans and notes payable of
$2.2 million, and amounts drawn under lines of credit available to the Company's
foreign subsidiaries, with interest rates ranging from 8% to 12%. The Company's
foreign subsidiaries had lines of credit available from various financial
institutions. At December 31, 1998, $3.8 million had been drawn down under these
facilities. Generally, these foreign credit lines do not require commitment fees
or compensating balances and are cancelable at the option of the Company or the
financial institutions.

NOTE 4 -- CAPITAL STOCK:

            The authorized capital stock of the Company consists of 95 million
shares of Common Stock, $0.0001 par value (the "Common Stock"), and 2 million
shares of preferred stock, $0.0001 par value (the "Preferred Stock"), including
500,000 shares of which have been designated Series A Junior Participating
Preferred Stock (the "Series A") pursuant to the Stockholder Rights Agreement
(see discussion below) and 20,000 shares of which have been designated Series B
Convertible Participating Preferred Stock (the "Series B"), 15,000 shares of
which are issued and outstanding.

            Common Stock. In May 1996, the Company received net proceeds of
$52.5 million from the sale of 4,196,970 shares of Common Stock in a follow-on
public offering.

            Preferred Stock. The Board of Directors has the authority to issue
the remaining shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the holders of Common Stock; however, the Board may not create or issue any
additional shares of Series B or of the remaining authorized but unissued shares
of preferred stock without the consent of the initial purchasers of the Series
B.

            The Series A is not redeemable. Each share of Series A will be
entitled to an aggregate dividend of 10,000 times any dividend declared per
share of Common Stock. In the event of liquidation, the holders of Series A will
be entitled to the greater of a $10,000 per share payment, plus any accrued and
unpaid dividends, or an aggregate payment of 10,000 times any payment to be made
per share of Common Stock, prior to any payment to any holder of Common Stock.
Each share of Series A will have 10,000 votes, voting together with the Common
Stock. In the event of any merger, consolidation or other transaction in which
Common Stock is exchanged, each share of Series A will be entitled to receive
10,000 times the amount received per share of Common Stock.

            Mandatorily Redeemable Convertible Preferred Stock and Warrants. In
December 1998, the Company completed a private placement of 15,000 shares of
Series B Mandatorily Redeemable Convertible Preferred Stock (the "Series B") for
$1,000 per share and Warrants to purchase up to 1,242,257 shares of Common
Stock. A portion of the proceeds were allocated to the warrants based on their
fair value and accounted for as a discount to the Series B. The remainder of the
proceeds were allocated to the Series B. Because Series B is immediately
convertible into shares of Common Stock, the discount was amortized as a
reduction of income available to holders of Common Stock upon the issuance of
Series B. The Company did not record a beneficial conversion feature related to
Series B because the conversion price, using the conversion terms that are most
beneficial to the holder, was greater than the market price of the Common Stock
on the date of issuance. The Series B is immediately convertible into shares of
Common Stock at the lower of $5.46 per share and 101% of the lowest three day
average closing bid prices of the Common Stock during the 15 consecutive day
trading period immediately prior to such conversion. The number of shares of
Common Stock that may ultimately be issued upon conversion is therefore
presently indeterminable and could fluctuate significantly based on the issuance
of other securities. Assuming certain conditions are met, the Series B will
automatically convert into Common Stock on December 22, 2001.

            The Series B is senior to Series A and Common Stock with respect to
the right to receive dividend payments and liquidation preferences. Series B
accrues a 6% per year premium, payable in cash or Common Stock, at the Company's
option. Series B has no voting power, except as otherwise provided by applicable
law or pursuant to certain contractual protections described in the Certificate
of Designations.

            Upon the occurrence of certain events deemed within the Company's
control, each then outstanding share of Series B is redeemable at the holder's
option at the greater of $1,330 per share, plus a 6% per year premium and any
default amounts, or a predetermined redemption formula based on the average of
the closing bid prices for the Company's Common Stock during the period
beginning on the date of the holder's redemption notice and ending on the date
of redemption. In certain circumstances, the Company may be able to avoid
redemption if they cure such events prior to the redemption election by a
holder.

            Upon the occurrence of certain other events deemed outside of the
Company's control ("Override Election Events"), the Company is required to make
significant cash payments to the holders of Series B. All cash payments required
to be made as a result of an Override Election Event, together with all cash
payments required to be made under the other Series B financing agreements, are
capped at an aggregate of $1,330 per share plus a default interest rate, if
applicable.

            As long as an event pursuant to which the holders of Series B 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), Series B is redeemable at the Company's option in certain limited


                                       96
<PAGE>

circumstances at premiums varying from 115% to 160% of the original issue price
of Series B, plus a 6% premium per year and a default interest rate, if
applicable.

            If the Company merges with a public company meeting certain
threshold criteria, the holders of Series B will be entitled to receive in the
merger the consideration they would have received had they converted their stock
the day before the public announcement of the merger. If the Company merges with
a private company or a public company not meeting the threshold criteria, the
holders of Series B will be entitled, at their option, (1) to retain their
preferred stock, which will thereafter convert into common stock of the
surviving company, or (2) receive either the consideration they would have
received had they converted their stock the day before the public announcement
of the merger or receive $1,250 per share of Series B then outstanding, up to an
aggregate of $18.7 million in cash, plus any accrued and unpaid premium and a
default interest rate, if applicable.

            The warrants issued in connection with Series B were valued at
$1,839,000 using the Black-Scholes option-pricing model with the following
assumptions used: expected volatility of 65%; a weighted-average risk-free
interest rate of 4.5% and a weighted-average expected life of 5 years. The
initial exercise price for the Common Stock underlying the Warrant is $3.47. The
Warrants are immediately exercisable until the earlier of: (1) December 22, 2003
or (2) the date on which the closing of a consolidation, merger of other
business combination with or into another entity pursuant to which the Company
does not survive. In the event the Company merges or consolidates with any other
company, the warrant holders are entitled to similar choices as to the
consideration they will receive in such merger or consolidation as are provided
to the holders of Series B. 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 $3.47
(subject to adjustment).

            Stockholder Rights Agreement. On September 26, 1997, the Board of
Directors of the Company adopted a Stockholder Rights Agreement (the
"Agreement"). Pursuant to the Agreement, rights (the "Rights") will be
distributed as a dividend on each outstanding share of its Common Stock held by
stockholders of record as of the close of business on November 3, 1997. Each
Right will entitle stockholders to buy Series A Preferred at an exercise price
of $125.00 upon certain events. The Rights will expire ten years from the date
of the Agreement.

            In general, the Rights will be exercisable only if a person or group
acquires 15% or more of the Company's Common Stock or announces a tender offer,
the consummation of which would result in ownership by a person or group of 15%
or more of the Company's Common Stock. If, after the Rights become exercisable,
the Company is acquired in a merger or other business combination transaction,
or sells 50% or more of its assets or earning power, each unexercised Right will
entitle its holder to purchase, at the Right's then-current exercise price, a
number of the acquiring company's common shares having a market value at the
time of twice the Right's exercise price. In addition, if a person or group
acquires 15% or more of the Company's common Stock (or cash, other securities or
property, at the discretion of the Board of Directors) having a market value of
twice the Right's exercise price. At any time within ten days after the public
announcement that a person or group has acquired beneficial ownership of 15% or
more of the Company's Common Stock, the Board, in its sole discretion, may
redeem the Rights for $0.0001 per Right.

NOTE 5 -- ACQUISITIONS:

            On March 28, 1998, the Company acquired substantially all of the
assets, and on April 1, 1998, the accounts receivable of the Wireless
Communications Group of Cylink Corporation ("Cylink Wireless Group"), a
Sunnyvale, California-based company, for $46.0 million in cash and $14.5 million
in a short-term, non-interest bearing unsecured subordinated promissory note due
July 6, 1998. The Company has withheld approximately $4.8 million of the
short-term promissory note due to the Company's belief that Cylink Corporation
breached various provisions of the acquisition agreement. In the Asset Purchase
Agreement between the Company and Cylink Corporation, Cylink Corporation agreed
to sell certain assets to the Company, including a specific list of accounts
receivable. Subsequent to the purchase and before the $14.5 million note was
due, the Company determined that approximately $4.8 million of accounts
receivable were uncollectible. Such amount has been excluded from the amount
allocated to accounts receivable purchased. The remaining amount due on the note
of $9.7 million was paid in July 1998. The acquisition of the accounts
receivable on April 1, 1998 was recorded in the second quarter of 1998. The
promissory note holdback is being disputed by Cylink Corporation and is in
arbitration. See Note 13. The Cylink Wireless Group designs, manufactures and
markets spread spectrum radio products for voice and data applications in both
domestic and international markets.

            The Company accounted for this acquisition as a purchase business
combination. The results of the Cylink Wireless Group have been included since
the date of acquisition.


                                       97
<PAGE>

            The total purchase price of the acquisition was as follows (in
thousands):

            Cash payment                    $46,000
            Short-term promissory note        9,682
            Expenses                          2,483
                                            -------
                    Total                   $58,165
                                            =======

            The allocation of the purchase price, restated for the revision of
the amount allocated to in-process research and development as discussed below,
and as previously reported, was as follows (in thousands):

            Accounts receivable, net                         $  4,247
            Inventory                                           5,109
            Property and equipment, net                           461
            In-process research and development expense        15,442
            Current liabilities assumed                        (1,355)
            Intangible Assets:
                Goodwill                                       23,482
                Developed technology                            6,291
                Acquired workforce                              1,781
                Core technology                                 2,707
                                                             --------
                   Total                                     $ 58,165
                                                             ========

            The following unaudited pro forma information combines the
historical sales and net income (loss) and net income (loss) per share of P-Com
and Cylink for the years ended December 31, 1998 and 1997 in each case as if the
acquisition had occurred at the beginning of the earliest period presented. The
results include amortization of goodwill and other intangible assets related to
the Cylink acquisition, as restated for the revision of the amount of purchase
price allocated to in-process research and development as discussed below, and
as previously reported.

<TABLE>
<CAPTION>
                                           Twelve Months Ended                      Twelve Months Ended
                                            December 31, 1998                        December 31, 1997
                                            ------------------                       -----------------
                                  (In thousands, except per share data)     (In thousands, except per share data)
                                   P-Com          Cylink    Pro Forma        P-Com        Cylink       Pro Forma
                                   -----          ------    ---------        -----        ------       ---------
                                 (Restated)                 (Restated)
<S>                               <C>            <C>         <C>            <C>           <C>          <C>
Sales                             $187,803       $ 4,508     $192,311       $220,702      $27,957      $248,659
Net income (loss)                  (64,304)       (4,706)     (69,010)        18,891       (3,443)       15,448
Net Income (loss) per share:
   Basic                             (1.49)        (0.11)       (1.60)          0.45        (0.08)         0.37
   Diluted                           (1.49)        (0.11)       (1.60)          0.43        (0.08)         0.35
</TABLE>

            After consideration of recent guidance, which included modification
of widely recognized appraisal practices, the Company has adjusted the
allocation of the purchase price related to the acquisition of the Cylink
Wireless Group, which included decreasing the in-process research and
development charge from $33.9 million as reported in the Company's Quarterly
Report on Form 10-Q for its quarter ended March 31, 1999 to $15.4 million. The
result of this restatement is a lesser charge to income for in-process research
and development and a higher recorded value of goodwill and other intangible
assets, resulting in increased amortization of such goodwill and other
intangible assets in future periods.

            In-process research and development had no future use at the date of
acquisition and technological feasibility had not been established.

            Among the factors considered in determining the amount of the
allocation of the purchase price to in-process research and development were
various factors such as estimating the stage of development of each in-process
research and development project at the date of acquisition, estimating cash
flows resulting from the expected revenues generated from such projects, and
discounting the net cash flows, in addition to other assumptions. Developed
technology of $6.3 million, will be amortized over the period of the expected
revenue stream of the developed products of approximately four years. The value
of the acquired workforce, $1.8 million, will be amortized on a straight-line
basis over three years, and the remaining identified intangible assets,
including core technology of $2.7 million and goodwill of $23.5 million will be
amortized on a straight-line basis over ten years. Amortization expense related
to the acquisition of Cylink was $3.7 million for fiscal year 1998.

         In addition, other factors were considered in determining the value
assigned to purchased in-process technology such as research projects in areas
supporting products which address the growing third world markets by offering a
new point to multi-


                                       98
<PAGE>

point product, a faster, less expensive more flexible point-to-point product,
and the development of enhanced Airlink products, consisting of a Voice
Extender, Data Metro II, and RLL encoding products.

            If none of these projects are successfully developed, the Company's
sales and profitability may be adversely affected in future periods.
Additionally, the failure of any particular individual project in-process could
impair the value of other intangible assets acquired. The Company expects to
begin to benefit from the purchased in-process technology in 1999.

            During the second quarter of 1998, due to limited staff and
facilities, the Company delayed the research project for the new narrowband
point-to-multipoint project acquired from the Cylink Wireless Group and focused
available resources on the broadband point-to-multipoint project which is
targeted for a larger addressable market. The narrowband point-to-multipoint
project is not expected to be completed prior to the Year 2000. Currently, the
narrowband point-to-multipoint project is approximately 60% complete. The
point-to-point project, discussed above, which was acquired from the Cylink
Wireless Group, was completed during the third quarter of 1998 at an estimated
total cost of $2.0 million. The enhanced Airlink projects were completed during
the first quarter of 1999.

            During 1998, the Company acquired the remaining interest in Geritel
and the assets of Cemetel S.p.A., a service company located in Carsoli, Italy.
These acquisitions were not material to the consolidated financial statements or
the results of operations of the Company.

            On February 24, 1997, the Company acquired 100% of the outstanding
stock of Technosystem S.p.A. ("Technosystem"), a Rome, Italy-based company, with
additional operations in Poland, for aggregate payments of $3.3 million and the
assumption of long-term debt of approximately $12.7 million in addition to other
liabilities. The Company initially paid $2.6 million in cash, and an additional
payment of $0.7 million was made on March 31, 1998, which was subject to certain
indemnification obligations of the former Technosystem security holders, as set
forth in the securities purchase agreement. Technosystem designs, manufactures
and markets equipment for transmitters and transponders for television and radio
broadcasting. The range of products include audio/video modulators, converters,
amplifiers, transponders, transmitters and microwave links.

            On March 7, 1997, the Company acquired substantially all of the
assets of Columbia Spectrum Management, L.P. ("CSM"), a Vienna, Virginia-based
company, for $7.8 million in cash and 796,612 shares of Common Stock valued at
approximately $14.5 million. CSM provides turnkey relocation services for
microwave paths over spectrum allocated by the Federal Communications Commission
for Personal Communications Services and other emerging technologies.

            The Company accounted for its acquisitions of Technosystem and CSM
based on the purchase method of accounting. The results of these acquired
entities are included from the date of acquisition. Goodwill and other
intangible assets recorded as a result of the purchase of CSM and Technosystem
are being amortized over twenty and ten years, respectively, using the
straight-line method.

            On May 29, 1997, the Company acquired all of the outstanding shares
of capital stock of CRC a provider of integrated network access devices to
network service providers, in exchange for 1,502,956 shares of the Company's
Common Stock that were issued or are issuable to former CRC security holders in
a stock-for-stock merger. CRC, located in Fair Lawn, New Jersey, manufactures
products used by the communications industry to connect end-user sites to a
range of communications services. CRC's NetPath product line enables network
service providers to offer their customers a migration path from entry-level
data services to cost-effective integrated delivery of voice, video and Internet
access. The NetPath product line also supports the network service provider's
introduction of new technologies including asynchronous transfer mode and frame
relay.

            On November 27, 1997, the Company acquired all of the outstanding
shares of capital stock of RT Masts and Telematics in exchange for 766,151 and
248,215 shares of the Company's Common Stock, respectively. RT Masts, located in
Wellingborough, Northhamptonshire, U.K. and Telematics, located in Herndon,
Virginia, supply, install and maintain telecommunications systems and structure
including antennas covering high frequency, medium frequency and microwave
systems. Both companies manage the construction of radio system sites,
construction of towers and installation of radios and antennas at system sites.

            The Company accounted for its acquisitions of CRC, RT Masts and
Telematics as poolings-of-interests and, therefore, all prior period financial
statements presented include the results of these acquired companies as if they
had been combined since inception. Sales and net income below show the separate
historical sales and net income of P-Com, CRC, RT Masts and Telematics, prior to
their combination, for the years ended December 31, 1997, and 1996.


                                       99
<PAGE>

                                                       Year Ended December 31,
                                                           (In thousands)
                                                        1997            1996
                                                      ---------       ---------
      Sales:
          P-Com                                       $ 202,757       $  97,515
          CRC                                               713           4,338
          RT Masts                                       12,035          15,472
          Telematics                                      5,197           3,628
                                                      ---------       ---------
                                                      $ 220,702       $ 120,953
                                                      =========       =========
      Net income:
          P-Com                                       $  20,375       $  14,068
          CRC                                            (1,254)         (5,196)
          RT Masts                                         (537)            101
          Telematics                                        307             (99)
                                                      ---------       ---------
                                                      $  18,891       $   8,874
                                                      =========       =========

NOTE 6 -- EMPLOYEE BENEFIT PLANS:

            Stock Option Plans. On January 11, 1995, the Company's Board of
Directors adopted the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") as
a successor to its 1992 Stock Option Plan (the "1992 Plan"). As of January 11,
1995, no further option grants or stock issuances were made under the 1992 Plan,
and all option grants and stock issuances made during the remainder of 1995 were
made under the 1995 Plan. All outstanding options under the 1992 Plan were
incorporated into the 1995 Plan. The 1995 Plan authorizes the issuance of up to
13,434,459 shares of Common Stock as of December 31, 1998.

            Options granted under the 1992 Plan are generally exercisable for a
period not to exceed ten years, and generally must be issued with exercise
prices not less than 100% and 85%, for incentive and non-qualified stock
options, respectively, of the estimated fair market value of the Common Stock on
the date of grant as determined by the Board of Directors. Options granted under
the 1992 Plan are exercisable immediately upon grant. Options granted under the
1992 Plan generally vest 25% on the first anniversary from the date of grant,
and ratably each month over the remaining thirty-six month period. Unvested
shares purchased through the exercise of stock options are subject to repurchase
by the Company.

            The 1995 Plan contains three equity incentive programs: a
Discretionary Option Grant Program, a Stock Issuance Program for officers and
employees of the Company and independent consultants and advisors to the Company
and an Automatic Option Grant Program for non-employee members of the Company's
Board of Directors.

            Options under the Discretionary Option Grant Program may be granted
at not less than 85% of the fair market value per share of Common Stock on the
grant date with exercise periods not to exceed ten years. The Plan Administrator
is authorized to issue tandem stock appreciation rights and limited stock
appreciation rights in connection with the option grants.

            The Stock Issuance Program provides for the sale of Common Stock at
a price not less than 85% of fair market value. Shares may also be issued solely
for services. The administrator has discretion as to vesting provisions,
including accelerations, and may institute a loan program to assist participants
with financing stock purchases. The program also provides certain alternatives
to satisfy tax liabilities incurred by participants in connection with the
program.

            Under the Automatic Option Grant Program, as amended at the May 1997
Annual Meeting of Stockholders, participants will automatically receive an
option to purchase 40,000 shares of Common Stock upon initially joining the
Board of Directors and will receive an additional automatic grant each year at
each annual stockholders' meeting for 4,000 shares. Each option will have an
exercise price per share equal to 100% of the fair market value of the Common
Stock on the grant date. The shares subject to the initial share option and the
annual 4,000 share option will vest in eight successive equal quarterly
installments upon the optionee's completion of each successive 3-month period of
Board service over the 24-month period measured from the grant date.

            The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1998, 1997 and 1996, respectively: expected
volatility of 72%, 57% and 57%; weighted-average risk-free interest rates of
5.1%, 6.1% and 6.0%, and weighted-average expected lives of 2.76, 3.16 and 4.11
years.

            The following table summarizes stock option activity under the
Company's 1992 and 1995 Plans.


                                      100
<PAGE>

<TABLE>
<CAPTION>
                                                          1998                        1997                         1996
                                               ------------------------     -------------------------     ------------------------
                                                               Weighted                      Weighted                     Weighted
                                                Shares         Average        Shares         Average        Shares        Average
                                                               Exercise                      Exercise                     Exercise
                                                                Price                         Price                        Price
<S>                                           <C>               <C>         <C>               <C>         <C>             <C>
Outstanding at beginning of year               6,006,039        $12.65      3,778,688         $ 7.14      2,854,872       $ 3.08
Granted                                        6,480,495          6.20      3,317,712          16.73      2,164,500         9.97
Exercised                                       (498,670)         5.32       (878,385)          3.31       (784,408)        1.73
Forfeited                                     (4,126,144)        14.59       (211,976)         11.41       (456,276)        4.74
                                              ----------                    ---------                     ---------
Outstanding at end of year                     7,861,720                    6,006,039                     3,778,688
                                               =========                    =========                     =========
Options exercisable at year-end                2,482,939                    2,970,244                     3,524,284
Weighted-average fair value of
  options granted during the year                  $2.24                       $ 7.54                         $4.78
</TABLE>

            The following table summarizes information about stock options
outstanding and exercisable at December 31, 1998:

<TABLE>
<CAPTION>
                                            Options Outstanding                               Options Exercisable
                                       -----------------------------            -----------------------------------------------
                                                           Weighted-            Weighted-                              Weighted
    Range of                                                Average               Life                                 Average
    Exercise Prices                      Shares            Remaining            Exercise           Shares              Exercise
                                                             Life                Price                                  Price
<S>                                    <C>                    <C>               <C>              <C>                   <C>
  $   0.10  - 0.10                           278              4.7               $  0.10                278             $ 0.10
     0.45  -  0.56                       107,213              5.5                  0.56            107,213               0.56
     0.94  -  0.94                         6,658              5.8                  0.94              6,658               0.94
     1.80  -  2.10                       103,020              6.2                  1.88             93,490               1.86
     2.88  -  4.31                     2,489,397              9.6                  3.04            110,997               3.57
     4.63  -  6.56                     2,836,100              8.4                  5.76            495,879               5.51
     7.00  - 10.25                     1,347,395              7.2                  8.78            894,855               8.43
    12.38  - 18.28                       924,526              8.6                 17.41            752,607              17.66
    19.25  - 23.22                        47,133              8.8                 21.23             20,962              21.20
                                       ---------                                                 ---------
                                       7,861,720                                                 2,482,939
                                       =========                                                 =========
</TABLE>

            Repricing. On July 15, 1998, the Plan Administrator implemented an
option cancellation/regrant program for all employees of the Company, excluding
the Company's executive officers and directors. Pursuant to that program, each
participant was given the opportunity to surrender his or her outstanding
options under the 1995 Plan with exercise prices in excess of $5.813 per share
in return for a new option grant for the same number of shares but with an
exercise price of $5.813 per share, the closing selling price per share of
Common Stock as reported on the Nasdaq National Market on July 31, 1998, the
grant date of the new option. Options for a total of 2,746,000 shares with a
weighted average exercise price of $16.45 per share were surrendered for
cancellation, and new options for the same number of shares were granted with an
exercise price of $5.813 per share. The new options granted to employees did not
vest or become exercisable unless the participant continued in the Company's
employ through January 31, 1999. On that date, the option became exercisable for
(i) the number of shares for which the cancelled higher-priced option was
exercisable on July 31, 1998 plus (ii) the number of shares for which the
higher-priced option would have become exercisable over the period from August
1, 1998 to January 31, 1999 had that option not been cancelled. The new option
will become exercisable for the balance of the option shares in a series of
installments, with each such installment to become exercisable on the same date
that installment would have become exercisable under the cancelled higher-priced
option. In addition, each new option will vest and become exercisable on an
accelerated basis in the event the Company were to be acquired by a merger or
asset sale in which those options were not assumed by the successor entity.

            On July 31, 1998, each of the option grants made under the Automatic
Option Grant Program on May 18, 1998 with an exercise price of $19.25 per share
was cancelled, and a new option for 4,000 shares was granted to each of the four
non-employee Board members with an exercise price of $5.8125 per share, the fair
market value per share of Common Stock on the grant date of the new option. Each
of the new options is immediately exercisable for all the option shares, but any
shares purchased under the option will be subject to repurchase by the Company,
at the exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each new option
will vest in a series of eight (8) successive equal quarterly installments upon
the optionee's completion of each successive three (3)-month period of Board
service over the twenty-four (24)-month period measured from the July 31, 1998
grant date.

            Employee Stock Purchase Plan. On January 11, 1995, the Company's
Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase
Plan"), which was approved by stockholders in February 1995. The Purchase Plan
permits eligible


                                      101
<PAGE>

employees to purchase Common Stock at a discount through payroll deductions
during successive offering periods with a maximum duration of 24 months. Each
offering period shall be divided into consecutive semi-annual purchase periods.
The price at which the Common Stock is purchased under the Purchase Plan is
equal to 85% of the fair market value of the Common Stock on the first day of
the offering period or the last day of the purchase period, whichever is lower.
The initial offering period commenced on the effectiveness of the Offering. A
total of 1,150,000 shares of Common Stock has been reserved for issuance under
the Purchase Plan, as amended at the May 1997 and 1998 Annual Meetings of
Stockholders. Awards and terms are established by the Company's Board of
Directors. The Purchase Plan may be canceled at any time at the discretion of
the Company's Board of Directors prior to its expiration in December 2004. Under
the Plan, the Company sold 240,030, 151,874 and 188,800 shares in 1998, 1997 and
1996, respectively.

            The fair value of the employees' purchase rights was estimated using
the Black-Scholes model with the following assumptions for 1998, 1997, and 1996,
respectively: expected volatility of 72%, 57% and 57% weighted-average risk-free
interest rates of 5.3%, 5.3%, and 5.0% and weighted-average expected lives of
0.5, 0.7, and 0.7 years. The weighted-average fair value of those purchase
rights granted in 1998, 1997, and 1996 was $1.99, $3.65, and $1.55,
respectively.

            Because the Company has adopted the disclosure-only provision of
SFAS No. 123, no compensation expense has been recognized for its stock option
plan or for its stock purchase plan. Had compensation costs for the Company's
two stock-based compensation plans been determined based on the fair value at
the grant dates for awards under those plans, consistent with the method of SFAS
123, the Company's net income (loss) and net income (loss) per share would have
been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                 1998           1997         1996
                                                                -------        ------       -----
                                                               (Restated)
<S>                                  <C>                        <C>            <C>          <C>
Net income (loss) applicable to
  holders of Common Stock            As reported                $(64,304)      $18,891      $8,874
                                     Pro forma                  $(73,614)      $11,221      $4,883

Net income (loss) per share          As reported - Basic        $ (1.49)       $ 0.45       $0.23
                                     As reported - Diluted      $ (1.49)       $ 0.43       $0.22

                                     Pro forma - Basic          $ (1.70)       $ 0.27       $0.13
                                     Pro forma - Diluted        $ (1.70)       $ 0.25       $0.12
</TABLE>

NOTE 7 -- INCOME TAXES:

            Income (loss) before extraordinary item and income taxes consists of
the following (in thousands):

                                  Year ended December 31,
                             1998           1997        1996
                          ---------       -------      ------
                          (Restated)
            Domestic      $ (74,146)      $26,390      $9,962
            Foreign          (5,153)        3,553        (132)
                          ---------       -------      ------
                          $ (79,299)      $29,943      $9,830
                          =========       =======      ======


                                      102
<PAGE>

            The provision (benefit) for income taxes comprises the following (in
thousands):

                                        Year ended December 31,
                                   1998           1997           1996
                                 --------       --------       --------
            Current:
               Federal           $ (4,727)      $  7,850       $  2,543
               State                  (37)           268             27
               Foreign              1,244          2,920             97
                                 --------       --------       --------
                                   (3,520)        11,038          2,667
                                 --------       --------       --------
            Deferred:
               Federal             (7,410)          (217)        (1,617)
               State                 (571)           231            (94)
                                 --------       --------       --------
                                   (7,981)            14         (1,711)
                                 --------       --------       --------
                      Total      $(11,501)      $ 11,052       $    956
                                 ========       ========       ========

      Deferred tax assets consist of the following (in thousands):

                                                           December 31,
                                                       1998           1997
                                                     --------       --------
            Net operating loss carryforwards         $  7,030       $  2,032
            Credit carryforwards                        1,833            615
            In-process research and development         5,527             --
            Start-up costs                                 99            202
            Reserves and other                          5,988          1,495
                                                     --------       --------
                                                       20,477          4,344
            Valuation allowance                       (10,799)        (2,647)
                                                     --------       --------
                                                     $  9,678       $  1,697
                                                     ========       ========

            The Company's net operating loss carryforwards included as a
deferred tax asset above are approximately $19 million and do not include stock
option deductions of $5.1 million and $9.4 million for 1998 and 1997,
respectively, which will be credited to paid in capital when realized.

            Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                          Year ended December 31,
                                                     1998          1997          1996
                                                    ------        ------        ------
<S>                                                  <C>            <C>          <C>
U.S. federal statutory rate                          (35.0%)        35.0%         35.0%
State income taxes, net of federal tax benefit        (0.3)          1.1           6.0
Change in valuation allowance                         11.9            --         (36.6)
Benefit from foreign sales corporation                  --          (2.3)           --
Research and development tax credit                     --          (7.3)           --
Foreign income taxed at different rate                 0.8           4.8            --
Other, net                                             6.7           5.6           5.3
                                                    ------        ------        ------
                                                     (15.9%)        36.9%          9.7%
                                                    ======        ======        ======
</TABLE>


                                      103
<PAGE>

NOTE 8 -- COMMITMENTS:

Obligations Under Capital And Operating Leases

            In August 1998, the Company entered into a capital lease for
equipment in the amount of $1.6 million with interest accruing at the rate of
6.3%. The lease is accounted for as a sale-leaseback transaction, which expires
in January 2003. Future minimum lease payments required under the lease are as
follows (in thousands):

            Year ending December 31,
               1999 ......................................      $  396
               2000 ......................................         396
               2001 ......................................         396
               2002 ......................................         396
               2003 ......................................          33
                                                                ------
               Total minimum lease payments ..............       1,617
               Less: amount representing interest ........         194
                                                                ------
               Present value of net minimum lease payments      $1,423
                                                                ======

            The present value of net minimum lease payments is reflected in the
December 31, 1998 balance sheet as components of other accrued liabilities and
long-term debt of $315,000 and $1,108,000, respectively.

            The Company leases its facilities under non-cancelable operating
leases. The leases require the Company to pay taxes, maintenance and repair
costs. Future minimum lease payments under the Company`s non-cancelable
operating leases at December 31, 1997 are as follows (in thousands):

            Year ending December 31, 1999................      $ 3,853
            2000 ........................................        3,189
            2001 ........................................        2,267
            2002 ........................................        1,569
            Thereafter ..................................          860
                                                               -------
                                                               $11,738
                                                               =======

            Rent expense for all operating leases was approximately $3,218,000,
$2,205,000 and $1,369,000 in 1998, 1997, and 1996, respectively.

NOTE 9 -- SEGMENT REPORTING:

            In 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision maker directs the allocation of resources to operating
segments based on the profitability and cash flows of each respective segment.
Operating segments are the individual reporting units within the Company. These
units are managed separately, and it is at this level where the determination of
resource allocation is made.

            The units have been aggregated based on operating segments that have
similar economic characteristics and meet the aggregation criteria of SFAS 131.
The Company has determined that there are three reportable segments: Product
Sales, Broadcast Sales, and Service Sales. The Product Sales segment consists of
organizations located primarily in the United States, the United Kingdom, and
Italy which develop, manufacture, and/or market network access systems for use
in the worldwide wireless telecommunications market. The Broadcast Sales segment
consists of an organization located in Italy which develops, manufactures, and
markets broadcast equipment for use in the worldwide wireless telecommunications
market. Since the Broadcast segment was acquired in 1997, there were no
Broadcast segment sales recorded in 1996. The Service Sales segment consists of
an organization primarily located in the United States, the United Kingdom, and
Italy which provides comprehensive network services including system and program
planning and management, path design, and installation for the wireless
communications market.

            The accounting policies of the operating segments are the same as
those described in the "Summary of Significant Accounting Policies" in Note 1.
The Company evaluates performance based on operating income. Capital
expenditures for long-


                                      104
<PAGE>

lived assets are not reported to management by segment and are excluded as
presenting such information is not practical. Additionally, service sales were
not introduced until 1997. As such, the Company's operations by segment are not
shown for 1996. The following tables show the operations of the Company's
operating segments (in thousands):

<TABLE>
<CAPTION>
For the year ended                   Product           Broadcast          Service
December 31, 1998                     Sales              Sales             Sales            Total
----------------------------------------------------------------------------------------------------
                                   (Restated)         (Restated)                          (Restated)
<S>                                 <C>                 <C>               <C>          <C>
Sales                               $118,948            $25,258           $43,597          $187,803
Income (loss) from operations        (68,123)               503            (3,776)          (71,396)
Depreciation                          10,528                634               382            11,544
Total assets                         284,332             30,860                25           315,217
Interest expense                      (8,518)              (379)             (134)           (9,031)

<CAPTION>
For the year ended                    Product           Broadcast          Service
December 31, 1997                      Sales              Sales             Sales              Total
----------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>               <C>          <C>
Sales                               $169,453            $21,092           $30,157          $220,702
Income from operations                21,712              2,784             5,200            29,696
Depreciation                           5,447                288               278             6,013
Total assets                         286,505             19,000                16           305,521
Interest expense                      (1,764)              (404)             (147)           (2,315)

<CAPTION>
For the year ended                    Product           Broadcast          Service
December 31, 1996                      Sales              Sales             Sales              Total
----------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>               <C>          <C>
Sales                               $101,853                 --           $19,100          $120,953
Income from operations                 8,773                 --               151             8,924
Depreciation                           4,938                 --               214             5,152
Total assets                         147,525                 --             7,927           155,452
Interest expense                      (1,354)                --              (225)           (1,579)
</TABLE>

            A reconciliation of Income (loss) from operations to Income (loss)
before extraordinary item and income taxes (in thousands):

<TABLE>
<CAPTION>
                                                                   1998           1997           1996
                                                                 --------       --------       --------
                                                                (Restated)
<S>                                                              <C>            <C>            <C>
Income (loss) from operations                                    $(71,396)      $ 29,696       $  8,924
   Interest expense                                                (9,031)        (2,315)        (1,579)
   Interest income                                                  1,626          1,557          1,328
   Other income (expense), net                                       (498)         1,005          1,157
                                                                 --------       --------       --------
   Income (loss) before extraordinary item and income taxes      $(79,299)      $ 29,943       $  9,830
                                                                 ========       ========       ========
</TABLE>


                                      105
<PAGE>

            The Company's product, broadcast and service sales by category are
as follows (in thousands):

                                              1998          1997          1996
                                            --------      --------      --------
                                           (Restated)
Microwave radio transmission equipment      $112,118      $156,768      $ 97,515
Broadcast equipment                           25,258        21,092            --
Network monitoring equipment                   6,830        12,685         4,338
Service                                       43,597        30,157        19,100
                                            --------      --------      --------
       Sales                                $187,803      $220,702      $120,953
                                            ========      ========      ========

         The breakdown of sales by geographic customer destination and property,
plant and equipment, net are as follows (in thousands):

                                            1998           1997         1996
                                          --------       --------     --------
                                         (Restated)
Sales:
    United States                         $ 41,597       $ 70,312     $ 39,530
    United Kingdom                          71,399         69,201       52,415
    Europe                                  37,649         45,061       25,170
    Africa                                  19,104          6,323           --
    Asia                                    18,322         15,548        3,422
    Other geographic region                   (268)        14,257          416
                                          --------       --------     --------
        Totals                            $187,803       $220,702     $120,953
                                          ========       ========     ========

                                            1998           1997         1996
                                          --------       --------     --------
Property, plant, and equipment, net:
    United States                         $ 30,726       $ 20,785     $ 17,082
    United Kingdom                           9,845          7,632           88
    Italy                                   11,317          3,773        3,399
    Other geographic region                    198            123           17
                                          --------       --------     --------
        Totals                            $ 52,086       $ 32,313     $ 20,586
                                          ========       ========     ========

NOTE 10 - RESTRUCTURING AND OTHER CHARGES:

            During 1998, the Company incurred restructuring and other charges of
$4.3 million, consisting of severance benefits, and impairments of facilities,
fixed assets, and goodwill. These restructuring and other charges resulted from
the consolidation of certain of the Company's facilities.

            In addition, the Company recorded inventory reserves of $16.9
million (including $14.5 million in inventory write downs related to the
Company's existing core business and $2.4 million in other charges to inventory
relating to the elimination of product lines) which were charged to costs of
goods sold, and accounts receivable reserves of $5.4 million which were charged
to general and administrative expenses. The Company recorded these charges in
the third quarter of 1998 primarily in response to a sudden slowdown in receipt
of purchase orders from customers and the increased collection risk.

            The $4.3 million restructuring charge consisted primarily of
severance and benefits of approximately $0.6 million, facilities and fixed
assets impairments of approximately $0.9 million, and goodwill write-offs of
approximately $2.9 million.

            To attempt to offset the decrease in sales, the Company laid off
approximately 121 employees from the Campbell facilities and 16 employees from
its Redditch, UK facilities during September and October 1998, incurring costs
of approximately $0.6 million. All employees were properly notified of the
impending layoff in advance and were given severance pay. Each functional vice
president submitted a list of eligible employees for the reduction in force to
the Human Resources Department where a summary list was prepared. Between
November 1998 and February 1999, the Company laid off approximately 35
additional employees from the Campbell facilities. These layoffs affected most
business functions and job classes.

            Due to the slowdown in sales, the Company combined certain
operations and closed its Telesys and Advanced Wireless facilities, incurring
costs of approximately $0.9 million. Some of the employees were transferred to
other business units while others were included in the reduction in force. As a
result of the facilities closures, certain fixed assets became idle, and leased


                                      106
<PAGE>

buildings were abandoned. The charge of $0.9 million comprises the write off of
the remaining book value of fixed assets that became idle and were not
recoverable, and lease termination payments associated with abandoned leased
facilities. The charge does not include any expenses, such as moving expenses or
lease payments that will benefit future operations.

            On April 30, 1996, the Company acquired for cash a 51% interest in
Geritel, which increased to 67% over the next two years as the company exercised
its option to acquire an additional 16% of Geritel's equity capital on terms
specified in the acquisition agreement. During the quarter ended September 30,
1998, the Company sold a piece of Geritel's business to a former owner and the
remaining business became a wholly owned subsidiary of the Company. The piece
that was sold was not deemed to be of long-term strategic value to the Company,
but it did generate revenue and positive cash flow from sales to unaffiliated
companies. The piece retained by the Company had developed proprietary
technology and products subsequent to the acquisition that principally were used
for internal consumption. Consequently, the remaining business generated
negative cash flow because revenue from internal sales did not recover the cost
of research and development and other operating costs. Since Geritel is expected
to generate negative cash flow for the foreseeable future, the Company
determined that the unamortized goodwill booked as part of the original purchase
price was impaired. Accordingly, the Company recorded an impairment charge of
$1.6 million to reduce the carrying amount of this goodwill to its net
realizable value. Geritel's remaining assets were not significant and were not
tested for impairment.

            In addition to the impairment charge associated with the Geritel
goodwill, the Company also recorded an impairment charge of $1.2 million
associated with the goodwill booked in connection with the ACS acquisition. This
impairment was triggered by the acquisition of the Cylink Wireless Group, whose
products superseded those of ACS. The Company determined that they would no
longer operate ACS as a separate business because the Cylink Wireless Group had
a broader and superior product offering. As a result of the negative cash flows
associated with ACS, the Company recorded an impairment charge of $1.2 million
to reduce the carrying value of this goodwill to its net realizable value. The
remaining assets of ACS were not significant, and were not tested for
impairment.

            In the third quarter of 1998, the Company determined there was a
significant and sudden downturn in sales for the telecommunications industry
which required a review of the Company's inventory on hand and resulted in an
increase to inventory reserves of approximately $16.9 million. This sudden
downturn was evidenced by a dramatic decrease in the Company's revenues of 52%
as compared with the second quarter of 1998 and further evidenced by significant
declines in the revenues of several of the Company's competitors.

            The inventory reserves included an excess and obsolete reserve of
approximately $4.5 million related to the point-to-point microwave radio
inventory, primarily for 23 GHz and 38 GHz frequencies, used worldwide. The
Company makes no distinction or categorization between excess and obsolete
inventory at this time. As customer demand is not anticipated to consume the
inventory on hand within the next twelve months, the Company will continue to
attempt to sell the inventory and will dispose of it when it is deemed to be
unsaleable.

            The inventory reserves also included $2.0 million for the write-off
of inventory relating to overlap between the Cylink Wireless Group product line
and the existing P-Com product line at the single T1/E1 (1.5-2.0 mbs) capacity
and 2.4 and 5.7 GHz frequency. With lower demand and increased competition, the
Company needed to consolidate product lines to reduce expenses.

            Additionally, the reserve included $4.3 million for the rework of
excess semi-custom finished goods that were configured for specific customer
applications or geographical regions. Prior to this quarter, the Company seldom
reworked semi-custom finished goods because inventory levels were driven based
upon forecasted continuing growth expectations worldwide. However, once the
Company determined there was a significant and sudden downturn in sales for the
telecommunication industry, reworking semi-custom finished goods and frequencies
became a more viable option because it can be less expensive than purchasing new
equipment and can reduce cash outlays for inventory. The types of rework which
can be performed include changing power supplies, changing interface connectors,
adding or reducing functionality through daughter cards, and changing frequency
bands by replacing filters or synthesizers. All of this rework represents an
attempt to consume inventory and improve cash flows. The costs required to
perform the rework include costs for material, assembly, and re-testing of the
inventory by the Company's suppliers.

            The reserve also includes $1.1 million for products that have been
rendered obsolete because they have been redesigned and are old revisions, and a
general inventory reserve of approximately $5.0 million for potential excess
inventory caused by the slowdown in the industry. These reserves are primarily
for the Tel-Link point-to-point microwave radio inventory covering 7GHz, 15GHZ,
23GHz, and 38GHz frequencies for components, subassemblies, and semi-finished
goods in which the probability for usage or the ability to rework the inventory
and sell it to customers has been deemed unlikely.

            The accrual balance for the inventory reserve, shown below,
represents the charge to the balance sheet contra-account for excess and
obsolete inventory. The remaining accrual balance will be relieved when the
Company deems that the inventory is not suitable for rework and is otherwise
unsaleable. During the fourth quarter of 1998, and the first quarter of 1999,
the Company


                                      107
<PAGE>

relieved approximately $7.4 million and $4.4 million, respectively, of the
inventory against the reserve. The Company anticipates that the remaining
blalnce will be relieved during 1999.

            With the sudden and unexpected downturn in the microwave radio
sector, the Company determined that an additional $5.4 million of accounts
receivable reserve was needed. This amount was determined after a
customer-by-customer review of accounts more than 90 days past allowed payment
terms. The Company's experience over the last several years had been one of an
environment in which microwave radio sales were increasing and expanding
worldwide. During the third quarter if 1998, the Company experienced a weakness
in the market which resulted in cancelled purchase orders, and the stronger
dollar caused the Company's customers to delay payments on equipment that had
already been shipped. The Company has over 200 customers worldwide with business
levels ranging from a few thousand to millions of dollars. The majority of
accounts reserved (numbering less than 25 in total) were for customers of the
Company's Tel-Link product lines. These customers were located predominately in
the emerging countries of Asia and Africa. The Company's credit policy on
customers both domestically and internationally requires letters of credit and
down payments for those customers deemed to be a high risk and open credit for
customers which are deemed credit worthy and have a history of timely payments
with the Company. The Company's credit policy typically allows payment terms
between 30 and 90 days depending upon the customer and the cultural norms of the
region. Collection efforts continue on remaining past due, reserved customer
accounts. The Company's collection process escalates from the collections
department to the sales force to senior management within the Company as needed.
Outside collection agencies and legal resources are also utilized where
appropriate.

            The ending balance for the accounts receivable reserve of $1.8
million, shown below, represents the charge to the balance sheet contra-account,
allowance for doubtful accounts. In the fourth quarter of 1998 and the first
quarter of 1999, the Company elected to write off approximately $3.6 million and
$1.8 million of uncollectible accounts receivables, respectively.

            The Company expects to benefit from these restructuring and other
charges in future quarters by reducing fixed costs and future cash requirements.

            The accrued restructuring and other charges and amounts charged
against the accrual as of December 31, 1998, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     Beginning     Expenditures     Remaining
                                                                      Accrual     and Write-offs     Accrual
<S>                                                                  <C>             <C>            <C>
            Severance and benefits                                   $    568        $   (568)      $     --
            Facilities and fixed asset write-offs                         879            (519)           360
            Goodwill impairment                                         2,884          (2,884)            --
                                                                     --------        --------       --------
            Total restructuring charges                                 4,331          (3,971)           360
            Inventory reserve                                          16,922          (7,360)         9,562
            Accounts receivable reserve                                 5,386          (3,609)         1,777
                                                                     --------        --------       --------
            Total accrued restructuring and other charges            $ 26,639        $(14,940)      $ 11,699
                                                                     ========        ========       ========
</TABLE>

NOTE 11 - CONTINGENCIES

            The Company is a defendant in several class action lawsuits in which
the plaintiffs are alleging various federal and state securities laws violations
by the Company and certain of its officers and directors. The plaintiffs seek
unspecified damages based upon the decrease in market value of shares of the
Company's Common Stock. While management believes the actions are without merit
and intends to defend them vigorously, all of these proceedings are at the very
early stage and the Company is unable to speculate on their ultimate outcomes.
However, the ultimate results could have a material adverse effect on the
Company's results of operations or financial position either through the defense
or results of such litigation.

NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA:

            As a result of the Company's decision to restate its second and
third quarter 1998 consolidated financial statements, quarterly financial data
is presented as originally reported and as restated below (in thousands, except
per share data, unaudited):

<TABLE>
<CAPTION>
                                                   Three Months Ended
                                                   ------------------
                          September 30,      September 30,         June 30,          June 30,
                              1998               1998               1998               1998
                          (As Restated)      (As Reported)      (As Restated)      (As Reported)
                          -------------      -------------      -------------      -------------
<S>                    <C>                <C>                <C>                <C>
Sales                       $ 29,739           $ 30,240           $ 57,406           $ 63,459
Gross profit (deficit)      $(11,962)          $(11,461)          $ 18,666           $ 24,719
Net loss                    $(41,197)          $(40,696)          $ (6,263)          $   (210)
Loss per share:
    Basic and diluted       $  (0.95)          $  (0.94)          $  (0.14)          $   0.00
</TABLE>


                                      108
<PAGE>

Note 13 - Subsequent Event - Revision of financial statements and changes to
          certain information

            The Company is amending, and pursuant to those amendments has
revised its 1998 and first quarter of 1999 financial statements, to revise the
accounting treatment of certain contracts with a major customer. Under a joint
license and development contract, the Company recognized $10.5 million of
revenue in 1998 and $1.5 million in the first quarter of 1999 of this $12
million contract on a percentage of completion basis. As previously disclosed,
the Company determined that a related Original Equipment Manufacturer ("OEM")
agreement which included payments of $8 million to this customer in 1999 and
2000 specifically earmarked for marketing the Company's products manufactured
for this customer, should have offset a portion of the revenue recognized
previously. The net effect is to reduce 1998 revenue and pretax income by $7.1
million and to reduce the first quarter of 1999 revenue and pretax income by
$0.9 million.

            The effect of this revision on previously reported consolidated
financial statements as of and for the year ended December 31, 1998 is as
follows (in thousands except per share amounts):

                                                         December 31, 1998
                                                    As reported        Restated
                                                    -----------        --------
Statements of Operations

Revenue                                               $ 194,944       $ 187,803
Loss from operations                                  $ (64,255)      $ (71,396)
Net loss                                              $ (55,324)      $ (62,465)
Net loss per share
  Basic and diluted                                   $   (1.32)      $   (1.49)

                                                         December 31, 1998
                                                    As reported        Restated
                                                    -----------        --------
Balance Sheets:

Accounts receivable, net                              $  50,533       $  51,392
Total assets                                          $ 314,358       $ 315,217
Deferred liabilities                                  $      --       $   3,000
Deferred liabilities, net of current portion          $      --       $   5,000
Total liabilities                                     $ 192,410       $ 200,410
Accumulated deficit                                   $ (38,783)      $ (45,924)
Total stockholders' equity                            $ 106,550       $  99,409

NOTE 14 - SUBSEQUENT EVENT (UNAUDITED)

In September 1999, the Company and Cylink Corporation agreed to a resolution of
the $4.8 million promissory note holdback (see Note 5). Under the terms of the
resolution, the Company agreed to pay to Cylink Corporation $3.25 million of the
original disputed amount of $4.8 million. The $3.25 million was recorded as a
charge to other expense.

SCHEDULE II

                                  P-COM, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                 Years ended December 31, 1996, 1997, and 1998
                                 (in thousands)

<TABLE>
<CAPTION>
                                                     Additions
                                                     Charged to
                                     Balance at       Statement       Deductions        Balance at
                                     Beginning           of              from            end of
                                     of Period       Operations        Reserves          Period
                                     ---------       ----------        --------          ------
<S>                                <C>             <C>              <C>               <C>
Allowance for doubtful accounts:
    Year ended December 31, 1996         257           1,658               --             1,915
    Year ended December 31, 1997       1,915             810             (204)            2,521
    Year ended December 31, 1998       2,521          10,892           (3,822)            9,591
                                      ------          ------           ------            ------
Sales returns reserves:
    Year ended December 31, 1996           0           1,042               --             1,042
    Year ended December 31, 1997       1,042           3,743               --             4,785
    Year ended December 31, 1998       4,785          13,298           (8,583)            9,500
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

            Not applicable.


                                      109
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT.

            The information required by this item relating to the Company's
executive officers and directors is included under the caption "Executive
Officers and Directors" in Part I of this Form 10-K Annual Report.

ITEM 11. EXECUTIVE COMPENSATION AND RELATED INFORMATION.

            The following table provides certain information summarizing the
compensation earned, by (i) the Company's Chief Executive Officer and (ii) each
of the Company's other four executive officers whose salary and bonus for the
fiscal year ended December 31, 1998 (the "1998 Fiscal Year") was in excess of
$100,000 (collectively, the "Named Executive Officers"), for services rendered
in all capacities to the Company and its subsidiaries for each of the last three
fiscal years. No other executive officer who would otherwise have been included
in such table on the basis of salary and bonus earned for the 1998 Fiscal Year
resigned or terminated employment during that fiscal year.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                 Annual                          Number of
                                                              Compensation                      Securities
                                                              ------------                      ----------
                                                                                                 Long-Term
                                                                                               Compensation
        Name and Principal Position                    Year   Salary($)/(1)/     Bonus($)         Awards
        ---------------------------                    ----   --------------     --------         ------
<S>                                                    <C>       <C>             <C>             <C>
George P. Roberts .........................            1998      366,600               0         450,000
   Chief Executive Officer                             1997      330,069         358,000         300,000
   and Chairman of the Board of Directors              1996      250,000         162,500         570,000

Pier Antoniucci ...........................            1998      270,855               0         200,000
   President and Chief                                 1997      244,962         165,000         200,000
   Operating Officer                                   1996      165,769          81,900         300,000

Michael Sophie ............................            1998      195,000               0         200,000
   Chief Financial Officer,                            1997      175,673         109,000         150,000
   Vice President, Finance and                         1996      117,308          48,750         220,000
   Administration

John Wood .................................            1998      141,278               0          45,000
   Senior Vice President, Technology                   1997      147,421          28,980          10,000
                                                       1996      138,000          44,850          10,000

Kenneth E. Bean, II .......................            1998      107,250               0          90,000
   Senior Vice President, Quality Assurance            1997      109,462          25,000          60,000
                                                       1996       93,000          30,225               0
</TABLE>

----------
/(1)/   Includes amounts deferred under the Company's 401(k) Plan.


                                      110
<PAGE>

Option Grants In 1998 Fiscal Year

            The following table contains information concerning the stock option
grants made to each of the executive officers named in the Summary Compensation
Table for the 1998 Fiscal Year. No stock appreciation rights were granted to
these individuals during such fiscal year.

<TABLE>
<CAPTION>
                                                                          Individual Grant
                                                                          ----------------
                                    Number of       % of Total                                           Potential Realizable
                                   Securities         Options                                       Value at Assumed Annual Rates
                                   Underlying        Granted t.                                    of Stock Price Appreciation for
                                    Options          Employees        Exercise                            Option Term /(1)/
                                    Granted          in Fiscal         Price         Expiration    -------------------------------
            Name                      (#)               Year           ($/Sh)           Date            5% ($)           10%($)
            -----                     ----             -----           ------           ----            -------          ------
<S>                               <C>                   <C>             <C>           <C>               <C>           <C>
George P. Roberts .........       416,667/(2)/          6.49            3.00          09/17/08          786,118       1,992,179
                                   33,333/(2)/           .52            3.00          09/17/08           62,889         259,372
Pier Antoniucci ...........       166,667/(2)/          2.59            3.00          09/17/08          314,448         796,873
                                   33,333/(2)/           .52            3.00          09/17/08           62,889         259,372
Michael Sophie ............       166,667/(2)/          2.59            3.00          09/17/08          314,448         796,873
                                   33,333/(2)/           .52            3.00          09/17/08           62,889         259,372
John R. Wood ..............        33,245/(2)/           .52            3.00          09/17/08           62,733         158,952
                                   11,755/(2)/           .18            3.00          09/17/08           22,178          56,203
Kenneth E. Bean, II .......        42,667/(2)/           .66            3.00          09/17/08           80,499         204,001
                                   47,333/(2)/           .74            3.00          09/17/08           89,302         226,310
</TABLE>

----------
/(1)/ There can be no assurance provided to any executive officer or any other
      holder of the Company's securities that the actual stock price
      appreciation over the ten-year option term will be at the assumed 5% and
      10% levels or at any other defined level. Unless the market price of the
      Common Stock appreciates over the option term, no value will be realized
      from the option grants made to the executive officers.

/(2)/ Each option is immediately exercisable for all the option shares, but any
      shares purchased under the option will be subject to repurchase by the
      Company, at the option exercise price paid per share, should the
      individual cease service with the Company prior to vesting in those
      shares. Twenty-five percent (25%) of the option shares will vest upon the
      optionee's continuation in service through one year following the grant
      date and the balance of the shares will vest in thirty-six (36) successive
      equal monthly installments upon the optionee's completion of each of the
      next thirty-six (36) months of service thereafter. The shares subject to
      the option will immediately vest in full should (i) the Company be
      acquired by merger or asset sale in which the option is not assumed or
      replaced by the acquiring entity or (ii) the optionee's employment be
      involuntarily terminated within eighteen (18) months after certain changes
      in control or ownership of the Company. The grant date for all of these
      options to purchase shares of the Company's Common Stock was September 18,
      1998.

Aggregated Option Exercises And Fiscal Year-End Values

            The table below sets forth certain information with respect to the
Company's Chief Executive Officer and the other executive officers named in the
Summary Compensation Table concerning the exercise of options during the 1998
Fiscal Year and unexercised options held by such individuals as of the end of
such fiscal year. No SARs were exercised during the 1998 Fiscal Year, nor were
any SARs outstanding at the end of such fiscal year.

<TABLE>
<CAPTION>
                                                                 Number of Securities              Value of Unexercised
                                            Aggregate           Underlying Unexercised           in-the-Money Options at
                               Shares        Value               Options at FY-End(#)                   FY-End(1)
                             Acquired on    Realized             --------------------                   ---------
       Name                  Exercise(#)     ($)(2)         Exercisable(3)    Unexercisable    Exercisable($)    Unexercisable($)
       ----                 ------------     ------        ---------------    -------------   ---------------    ----------------
<S>                      <C>              <C>            <C>                <C>             <C>                   <C>
George P. Roberts              60,000       1,171,875         1,206,457           206,875         712,635               0
Pier Antoniucci               120,000       1,668,296           507,793           121,875         208,207               0
Michael Sophie                 79,759         781,632           417,770            70,000         201,243               0
John R. Wood                   53,332       1,075,240            98,541             6,459          44,280               0
Kenneth E. Bean, II             8,194          92,956           137,014            37,918          89,036               0
</TABLE>

----------
(1)   Based on the fair market value of the option shares at the 1998 Fiscal
      Year-end ($3.984 per share based on the closing selling price on the
      Nasdaq National Market as of December 31, 1998) less the exercise price.

(2)   Based on the fair market value of the shares on the exercise date less the
      exercise price paid for those shares.

(3)   The exercisable options are immediately exercisable for all the option
      shares. However, any shares purchased under the options are subject to
      repurchase by the Company, at the original exercise price paid per share,
      upon the optionee's cessation of service prior to vesting in such shares.
      As of December 31, 1998, the following number of shares were


                                      111
<PAGE>

      unvested: Mr. Roberts--892,292 shares; Mr. Antoniucci--478,126 shares; Mr.
      Bean--138,542 shares; Mr. Sophie--405,206 shares; and Mr. Wood--59,586
      shares.

Employment Contracts, Termination Of Employment Arrangements And Change Of
Control Agreements

            The Compensation Committee of the Board of Directors, as Plan
Administrator of the 1995 Stock Option/Stock Issuance Plan, has the authority to
provide for accelerated vesting of the shares of Common Stock subject to any
outstanding options held by the Chief Executive Officer and any other executive
officer or any unvested share issuances actually held by such individual, in
connection with certain changes in control of the Company or the subsequent
termination of the officer's employment following the change in control event.

            The Company has entered into severance agreements (the "Agreements")
with George Roberts, Chairman of the Board of Directors and Chief Executive
Officer, Pier Antoniucci, President and Chief Operating Officer, and Michael
Sophie, Chief Financial Officer and Vice President, Finance and Administration
(individually, the "Officer" and collectively the "Officers"), each dated
December 15, 1997. Each of these Agreements provides for the following benefits
should the Officer's employment terminate, either voluntarily or involuntarily,
for any reason within twenty-four (24) months following a Change in Control: (a)
a severance payment in an amount equal to two (2) times his annual rate of base
salary; (b) a bonus in an amount equal to the greater of either (i) two (2)
times the full amount of the Officer's target bonus for the fiscal year in which
the termination occurs or (ii) two (2) times the full amount of his target bonus
for the fiscal year in which a Change in Control occurs; (c) the shares subject
to each outstanding option held by the Officer (to the extent not then otherwise
fully vested) will automatically vest so that each such option will become
immediately exercisable for all the option shares as fully-vested shares
(notwithstanding anything in this Form 10-K to the contrary); and (d) the
Company will, at its own expense, provide (i) both Messrs. Sophie and Antoniucci
and their respective dependents with continued health care coverage for a period
of up to twenty-four (24) months following their termination of employment, and
(ii) Mr. Roberts and his dependents continued health care coverage for life. A
Change in Control will be deemed to occur under the Agreements upon: (a) a
merger or consolidation in which securities possessing fifty percent (50%) or
more of the total combined voting power of the Company's outstanding securities
are transferred to person or persons different from the persons holding those
securities immediately prior to such transaction, (b) the sale, transfer or
other disposition of all or substantially all of the assets of the Company in
complete liquidation or dissolution of the Company; (c) a hostile take-over of
the Company, whether effected through a tender offer for more than twenty-five
percent (25%) of the Company's outstanding voting securities or a change in the
majority of the Board by one or more contested elections for Board membership;
or (d) the acquisition, directly or indirectly by any person or related group of
persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company), of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of securities possessing more than thirty percent (30%) of
the total combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's stockholders. In
addition, each Officer will be entitled to a full tax gross-up to the extent one
or more of the severance benefits provided under his Agreement are deemed to
constitute excess parachute payments under the federal income tax laws.

            The Company does not have any existing agreements with the Chief
Executive Officer or any other executive officer named in the Summary
Compensation Table that establish a specific term of employment for them, and
their employment may accordingly be terminated at any time at the discretion of
the Board of Directors. The Compensation Committee of the Board of Directors has
the authority as Plan Administrator of the 1995 Plan to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding options
held by the Company's executive officers, whether granted under that plan or any
predecessor plan, in the event their employment were to be terminated (whether
involuntarily or through a forced resignation) following certain changes in
control or ownership of the Company.

Compensation Committee Interlocks And Insider Participation

            The Compensation Committee of the Company's Board of Directors
currently consists of Mr. Cogan and Mr. Hawkins. Neither of these individuals
was an officer or employee of the Company at any time during the 1998 Fiscal
Year or at any other time.

            No current executive officer of the Company has ever served as a
member of the board of directors or compensation committee of any other entity
that has or has had one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.


                                      112
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

            The following table sets forth certain information known to the
Company with respect to the beneficial ownership of the Company's Common Stock
as of February 28, 1999, by (i) all persons who are beneficial owners of five
percent (5%) or more of the Company's Common Stock, (ii) each director and
nominee for director, (iii) the executive officers named in the Summary
Compensation Table of the Executive Compensation and Related Information section
of this Annual Report on Form 10-K and (iv) all current directors and executive
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially owned,
subject to community property laws, where applicable.

<TABLE>
<CAPTION>
                                                                                                   Percentage
                                                                                  Shares            of Shares
                                                                               Beneficially        Beneficially
                         Beneficial Owner                                        Owned (#)           Owned (1)
                         ----------------                                        ---------           ---------
<S>                                                                           <C>                 <C>
Wellington Management Company, L.L.C./2/ ...............................         2,272,400              5.22
  75 State Street
  Boston, MA 02109
Pilgrim Baxter & Associates, Ltd /3/ ...................................         3,109,860              7.14
  825 DuPortail Road
  Wayne, PA 19087
State of Wisconsin Investment Board /4/ ................................         2,659,200              6.11
  P.O. Box 7842
  Madison, WI 53707
Entities deemed to be affiliated with
Putnam Investments, Inc. /5/ ...........................................         3,353,661              7.70
  One Post Office Square
  Boston, MA 02109
George P. Roberts /6 ...................................................         1,473,009              3.29
Pier Antoniucci /7/ ....................................................           591,808              1.34
Michael J. Sophie /8/ ..................................................           431,750                 *
John R. Wood /9 ........................................................           164,769                 *
Kenneth E. Bean, II /10/ ...............................................           143,623                 *
M. Bernard Puckett /11/ ................................................           101,332                 *
Gill Cogan /12/ ........................................................            58,564                 *
John A. Hawkins /13/ ...................................................            30,000                 *
James J. Sobczak /14/ ..................................................            44,000                 *
All current directors and executive officers as a group (9 persons) /15/         3,034,055              6.58
</TABLE>

----------
*     Less than one percent of the outstanding Common Stock

(1)   Percentage of ownership is based on 43,532,000 shares of Common Stock
      outstanding on February 28, 1999. Shares of Common Stock subject to stock
      options that are currently exercisable or will become exercisable within
      60 days after February 28, 1999 are deemed outstanding for computing the
      percentage of the person or group holding such options, but are not deemed
      outstanding for computing the percentage of any other person or group.

(2)   Pursuant to a Schedule 13G dated February 8, 1999 filed with the
      Securities and Exchange Commission, Wellington Management Company, L.L.C.
      has reported that as of February 8, 1999 it had shared power to vote or to
      direct the vote of 972,400 shares and shared power to dispose or to direct
      the disposition of all of the shares.

(3)   Pursuant to a Schedule 13G/A dated February 13, 1998, filed with the
      Securities and Exchange Commission, Pilgrim Baxter & Associates, Ltd.
      reported that as of December 31, 1997 it had sole voting power over
      2,487,960 shares, shared voting power over all 3,109,860 shares and sole
      dispositive power over all 3,109,860 shares.

(4)   Pursuant to a Schedule 13G dated February 1, 1999, filed with the
      Securities and Exchange Commission, the State of Wisconsin Investment
      Board reported that as of February 1, 1999 it had sole voting power over
      all 2,659,200 shares and sole dispositive power over all shares.

(5)   Pursuant to a Schedule 13G/A dated January 16, 1998, filed with the
      Securities and Exchange Commission, Putnam Investments, Inc., on its own
      behalf and on behalf of Marsh & McLennan Companies, Inc., Putnam
      Investment Management, Inc. and the Putnam Advisory Company, Inc. reported
      that as of January 16, 1998 it had shared voting power over 91,100 shares
      and shared dispositive power over all 3,353,661 shares.


                                      113
<PAGE>

(6)   Includes 1,247,707 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(7)   Includes 530,732 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(8)   Includes 429,436 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(9)   Includes 99,374 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(10)  Includes 142,430 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(11)  Includes 81,332 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(12)  Includes 8,000 shares issuable upon exercise of options that are currently
      exercisable or will become exercisable within 60 days after February 28,
      1999.

(13)  Includes 30,000 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(14)  Includes 44,000 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

(15)  Includes 2,613,011 shares issuable upon exercise of options that are
      currently exercisable or will become exercisable within 60 days after
      February 28, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

            In addition to the indemnification provisions contained in the
Company's Restated Certificate of Incorporation and Bylaws, the Company has
entered into separate indemnification agreements with each of its directors and
officers. These agreements require the Company, among other things, to indemnify
such director or officer against expenses (including attorneys' fees),
judgments, fines and settlements (collectively, "Liabilities") paid by such
individual in connection with any action, suit or proceeding arising out of such
individual's status or service as a director or officer of the Company) other
than Liabilities arising from the willful misconduct or conduct that is
knowingly fraudulent or deliberately dishonest) and to advance expenses incurred
by such individual in connection with any proceeding against such individual
with respect to which such individual may be entitled to indemnification by the
Company.

            Mr. Roberts' adult son and Mr. Antoniucci's adult daughter each
holds a minority interest in a private company that supplies synthesizers to the
Company for use in its products. To date, the Company has purchased
approximately $10.2 million of synthesizers from such supplier, including
approximately $965,000 in 1998 which is down from $2.3 million in 1997. Sales of
synthesizers to the Company, for fiscal year 1998, accounted for 62% of the
sales of such supplier, the terms of the Company's purchase agreement with such
supplier are no less favorable to the Company than could be obtained from an
unaffiliated third party supplier. The Company also purchases synthesizers from
Geritel, S.p.A., Communication Techniques, Inc. and SPC Electronics Corp. at
competitive prices approximately equal to those of such suppler. Each such adult
is financially independent of his or her parent and resides at a different
address from his or her parent.

            All future transactions between the Company and its officers,
directors, principal stockholders and affiliates will be approved by a majority
of the independent and disinterested members of the Board of Directors, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.


                                      114
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this Annual Report on Form
10-K:

      1.    Financial Statements. The following Consolidated Financial
            Statements of P-Com, Inc. and its subsidiaries are included in Item
            9 of this Annual Report on Form 10-K:

Form 10K                                                             Page Number
                                                                     -----------

FINANCIAL STATEMENTS:

Report of Independent Accountants ......................................      56
Consolidated Balance Sheets at December 31, 1998 and 1997 ..............      57
Consolidated Statements of Operations for the years ended
  December 31, 1998, 1997 and 1996 .....................................      58
Consolidated Statements of Stockholders' Equity for the years
  ended December 31, 1998, 1997, and 1996 ..............................      59
Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996......................................      60

      Notes to Consolidated Financial Statements .......................      61

FINANCIAL STATEMENT SCHEDULE:
      Schedule II - Valuation and Qualifying Accounts...................      80

      All other schedules have been omitted since they are either not required,
      are not applicable, or the required information is shown in the financial
      statements or related notes.

(b)   Reports on Form 8-K

      Report on Form 8-K dated October 5, 1998, regarding the Company's
      amendment to the Rights Agreement between the Company and BankBoston,
      N.A., as Rights Agent, as filed with the Securities and Exchange
      Commission on October 15, 1998.

      Report on Form 8-K dated October 22, 1998, regarding the Company's press
      release announcing its earnings for the quarter ended September 30, 1998,
      as filed with the Securities and Exchange Commission on October 23, 1998.

      Report on Form 8-K dated December 21, 1998, regarding the Company's press
      release announcing its agreement to sell a $15 million equity investment
      to three investors, Castle Creek Partners, L.L.C., Marshall Capital
      Management and Heights Capital Management, as filed with the Securities
      and exchange Commission on December 23, 1998.

      Report on Form 8-K dated December 21, 1998, regarding the Company's sale
      of $15 million equity investment to three investors, Castle Creek
      Partners, L.L.C., Marshall Capital Management and Heights Capital
      Management and the departure of one of the Company's executive officers,
      as filed with the Securities and Exchange Commission on December 24, 1998.

      Report on Form 8-K dated December 30, 1998, regarding the Company's
      exchange of an aggregate of $9,150,000 of its 4 1/4% Convertible
      Subordinated Notes due 2002 for an aggregate of 1,670,000 shares of common
      stock, as filed with the Securities and Exchange Commission on December
      31, 1998.

      Report on Form 8-K dated December 31, 1998, regarding the Company's
      exchange of an aggregate of $5,200,000 of its 4 1/4% Convertible
      Subordinated Notes due 2002 for an aggregate of 797,000 shares of common
      stock, as filed with the Securities and exchange commission on January 4,
      1999.

(c)   Exhibits-- See Exhibit list below.


                                      115
<PAGE>

NUMBER            DESCRIPTION
------            -----------

2.1(6)            Agreement dated April 15, 1996, by and among the Company, Mr.
                  Giovanni Marciano and certain other parties named thereunder.

2.2(7)            Asset Purchase Agreement dated as of August 2, 1996, by and
                  between the Company, Atlantic Communication Sciences, Inc. and
                  Edward c. Gerhardt, L. Roger Sanders, Charles W. Richards, IV,
                  Grover W. Brower, William M. Koos, Jr., Larry W. Koos, Koos
                  Technical Services, Inc., the Edward C. Gerhardt Trust. U/A
                  dated June 22, 1988 and the L. Roger Sanders Revocable Trust,
                  U/A dated June 18, 1991.

2.2A(8)           Asset Purchase Agreement revised as of August 23, 1996 by and
                  between the Company, Atlantic Communication Sciences, Inc. and
                  Edward C. Gerhardt, L. Roger Sanders, Charles W. Richards, IV,
                  Grover W. Brower, William M. Koos, Jr., Larry W. Koos, Koos
                  Technical Services, Inc., the Edward C. Gerhardt Trust, U/A
                  dated June 22, 1988 and the L. Roger Sanders Revocable Trust,
                  U/A dated June 18, 1991.

2.3(20)           Escrow Agreement dated November 28, 1997, by and among P-Com,
                  Inc., P-Com Field Services Inc., Telematics Inc. and Daniel N.
                  Carter.

2.4(20)           Registration Rights Agreement, dated November 17, 1997, by and
                  among P-Com Field Services Inc., Telematics Inc. and Daniel N.
                  Carter.

2.5(20)           Escrow Agreement, dated November 28, 1997, by and among P-Com,
                  Inc., P-Com Services (UK) Limited and R T Masts Limited.

2.6(20)           Securities Purchase Agreement, dated November 17, 1997, by and
                  among P-Com, Inc., P-Com Field Services Inc., Telematics Inc.
                  and Daniel N. Carter.

2.7(20)           Share Purchase Agreement, dated October 14, 1997, by and among
                  P-Com, Inc., P-Com Services (UK) Limited and R T Masts
                  Limited.

2.8(21)           Asset Purchase Agreement dated March 13, 1998, by and between
                  P-Com, Inc. and Cylink Corporation

2.8A(21)          Amendment to the Asset Purchase Agreement dated March 13, 1998
                  by and between P-Com, Inc. and Cylink Corporation.

2.8B(21)          Amendment No. 2 to the Asset Purchase Agreement dated March
                  27, 1998 by and between P-Com, Inc. and Cylink Corporation.

2.8C(21)          Unsecured Subordinated Promissory Note

3.2(3)            Restated Certificate of Incorporation filed on March 9, 1995.

3.2A(14)          Certificate of Amendment of Restated Certificate of
                  Incorporation filed on June 16, 1997.

3.2B(16)          Certificate of Designation for the Series A Junior
                  Participating Preferred Stock, as filed with the Delaware
                  Secretary of State on October 8, 1997.

3.2C(24)          Certificate of Designation of the Series A Junior
                  Participating Preferred Stock, as filed with the Delaware
                  Secretary of State on December 21, 1998.

3.2D(24)          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(24)          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.

3.3(1)            Bylaws of the Company.

4.1(1)            Form of Common Stock Certificate.

4.2(19)           Indenture, dated as of November 1, 1997, between the
                  Registrant and State Street Bank and Trust Company of
                  California, N.A., as Trustee.


                                      116
<PAGE>

NUMBER            DESCRIPTION
------            -----------

4.4(19)           Registration Rights Agreement, dated as of November 1, 1997 by
                  and among the Registrant and PaineWebber Incorporated,
                  BancAmerica Robertson Stephens, NationsBanc Montgomery
                  Securities, Inc. and Pacific Growth Equities, Inc.

4.5(17)           Rights Agreement, dated as of October 1, 1997, between the
                  Company and BankBoston, N.A., which includes the form of
                  Certificate of Designation for the Series A Junior
                  Participating Preferred Stock as Exhibit A, the form of Right
                  Certificate as Exhibit B and the Summary of Rights to Purchase
                  Preferred Shares as Exhibit C.

4.6(23)           First Amendment to the Rights Agreement, dated as of October
                  5, 1998, between the Company and BankBoston, N.A.

4.7(24)           Amended and Restated Rights Agreement, dated as of December
                  18, 1998 between the Company and BankBoston, N.A.

4.8(24)           Amended and Restated Rights Agreement, dated as of December
                  21, 1998 between the Company and BankBoston, N.A.

*10.1(1)          Purchase Order issued by AT&T Network Systems Deutschland
                  GmbH, dated December 7, 1994.

*10.2(1)          Purchase Order issued by AT&T Network Systems Deutschland
                  GmbH, dated December 19, 1994.

*10.3(1)          Master OEM Agreement dated January 1, 1995, by and between the
                  Company and AT&T Corp.

*10.4(1)          Purchase Order issued by AT&T Network Systems Nederland BV,
                  dated December 9, 1994.

*10.5(1)          Amendment to Purchase Order issued by AT&T Network Systems
                  Nederland BV, dated December 22, 1994.

*10.6(1)          NSD Master Purchase Order issued by AT&T Network Systems
                  Deutschland GmbH, dated December 23, 1994.

*10.7(1)          Purchase Agreement dated August 29, 1994, by and between the
                  Company and Harris Corporation--Farinon Division.

*10.8(1)          Contract for Supply of 50 GHz Radio dated June 4, 1994, by and
                  between the Registrant and Mercury Communications Ltd.

*10.9(1)          Manufacturing Agreement dated July 13, 1994, by and between
                  the Company and SPC.

*10.10(1)         Manufacturing Agreement dated April 20, 1994, by and between
                  the Company and Comptronix Corporation (assigned to Sanmina
                  Corporation).

*10.11(1)         Agreement dated November 11, 1994, by and between the Company
                  and WinStar Wireless, Inc.

10.12(1)          Master Lease Agreement dated November 9, 1992, by and between
                  the Company and Dominion; First Amendment to Master Lease
                  Agreement dated June 23, 1993, by and between the Company and
                  Dominion. 10.13(1) Master Equipment Lease entered into by and
                  between the Company and Phoenix Leasing Incorporated on August
                  10, 1994.

10.14(1)          Commitment Letter dated January 10, 1995, by and between the
                  Company and Applied Telecommunications Technologies, Inc.
                  ("ATTI"), including form of Master Lease to be entered into
                  between the Company and ATTI.

10.15D(18)        Accounts Receivable Purchase Agreement dated December 31, 1997
                  by and between the Company and Wells Fargo MCBC Trade Bank
                  N.A.

10.16(22)         1995 Stock Option/Stock Issuance Plan, as amended.

10.16A(7)         1995 Stock Option/Stock Issuance Plan, including forms of
                  Notices of Grant of Automatic Stock Option for initial grant
                  and annual grants and Automatic Stock Option Agreement, as
                  amended.

10.16B(13)        1995 Stock Option/Stock Issuance Plan, including forms of
                  Notices of Grant of Automatic Stock Option for initial grant
                  and annual grants and Automatic Stock Option Agreement, as
                  amended.

10.17(22)         Employee Stock Purchase Plan, as amended.


                                      117
<PAGE>

NUMBER            DESCRIPTION
------            -----------

10.18(1)          Form of Indemnification Agreement by and between the Company
                  and each of its officers and directors and a list of
                  signatories.

10.19A(18)        Service Agreement dated December 15, 1997 by and between the
                  Company and Mr. George P. Roberts.

10.19B(18)        Service Agreement dated December 15, 1997 by and between
                  theCompany and Mr. Michael J. Sophie.

10.19C(18)        Service Agreement dated December 15, 1997 by and between the
                  Company and Mr. Pier Antoniucci.

10.21(1)          Real Property Lease dated December 10, 1993, by and between
                  the Company and Bryan T.D. Trust, pertaining to 3175 S.
                  Winchester Boulevard, Campbell, California 95008.

*10.22(1)         Low Capacity Digital Radio Product Agreement dated February
                  13, 1995 by and between the Company and Siemens.

*10.22A(18)       Low Capacity Digital Radio Agreement dated February 13, 1995
                  by and between the Company and Itatel.

10.23(3)          Sublease dated May 1, 1995 by and between the Company and
                  Medallion Mortgage Company.

10.24(4)          Lease dated August 4, 1995 by and between P-COM United
                  Kingdom, Inc. and Capital Counties plc; Rent Deposit Deed
                  dated August 4, 1995, by and between P-Com United Kingdom,
                  Inc. and Capital Counties plc.

10.25(2)          Underwriting Agreement dated March 2, 1995 by and between the
                  Company and the underwriters named therein.

10.26(5)          Underwriting Agreement dated August 17, 1995 by and between
                  the Company and the underwriters named therein.

10.27(9)          Lease dated November 11, 1995 by and between the Company, Inc.
                  and Johann Birkart, Internationale Spedition GmbH & Co.

10.30A(11)        Loan Agreement dated March 3, 1997 by and between the Company
                  and Union Bank of California, N.A. 10.30B(11) Amendment dated
                  May 7, 1997 to the Loan Agreement dated March 3, 1997 by and
                  between the Company and Union Bank of California, N.A.

10.30C(13)        Amended and Restated Loan Agreement dated September 17, 1997
                  by and between the Company and Union Bank of California, N.A.

10.31(22)         Credit Agreement among P-Com, Inc. 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 hereto dated as of May 15, 1998.

10.32(22)         Revolving Promissory Note in the principal amount of
                  $25,000,000 dated May 15, 1998.

10.33(22)         Revolving Promissory Note in the principal amount of
                  $25,000,000 dated May 15, 1998.

10.34(22)         Subsidiary Guarantee dated as of May 15, 1998.

*10.35(22)        Joint Development and License Agreement between Siemens
                  Aktiengesellschaft and P-Com, Inc. dated June 30, 1998.

10.36(22)         International Employee Stock Purchase Plan

10.37(23)         First Amendment to Credit Agreement by and among P-Com, Inc.,
                  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 July 31, 1998.

10.38(24)         Securities Purchase Agreement dated as of December 21, 1998 by
                  and among the Company and the purchasers listed therein.

10.39(24)         Registration Rights Agreement dated as of December 21, 1998 by
                  and among the Company and the purchasers listed therein.

10.40(24)         Form of Warrant to purchase shares of Common Stock


                                      118
<PAGE>

NUMBER            DESCRIPTION
------            -----------

10.40A(25)        Warrant to purchase shares of Common Stock, dated as of
                  December 21, 1998, issued by the Company to Castle Creek
                  Technology Partners LLC

10.40B(25)        Warrant to purchase shares of Common Stock, dated as of
                  December 21, 1998, issued by the Company to Capital Ventures
                  International.

10.40C(25)        Warrant to purchase shares of Common Stock, dated as of
                  December 21, 1998, issued by the Company to Marshall Capital
                  Management, Inc..

10.41(24)         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(24)         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.

10.43(26)         Fourth 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 December 28, 1998.

10.44(26)         Fifth 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 January 29, 1999.

10.45(27)         Sixth 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 March 31, 1999.

11.1(26)          Computation of Pro Forma Net Income (Loss) Per Share.

21.1(26)          List of subsidiaries of the Registrant.

23.1              Consent of PricewaterhouseCoopers LLP, Independent
                  Accountants.

24.1(26)          Power of Attorney.

27.1              Financial Data Schedule

(1)   Incorporated by reference to identically numbered exhibits included in the
      Company's Registration Statement on FormS-1 (File No. 33-88492) declared
      effective with the Securities and Exchange Commission on March 2, 1995.

(2)   Incorporated by reference to Exhibit 1.1 to the Company's Registration
      Statement on Form S-1 (File No. 33-88492) declared effective with the
      Securities and Exchange Commission on March 2, 1995.

(3)   Incorporated by reference to identically numbered exhibits included in the
      Company's Registration Statement on Form S-1 (File No. 33-95392) declared
      effective with the Securities and Exchange Commission on August 17, 1995.

(4)   Incorporated by reference to identically numbered exhibits included in the
      Company's Quarterly Report on Form 10-Q filed with the Securities and
      Exchange Commission on November 1, 1996.

(5)   Incorporated by reference to Exhibit 1.1 to the Company's Registration
      Statement on Form S-1 (File No. 33-95392) declared effective with the
      Securities and Exchange Commission on August 17, 1995.

(6)   Incorporated by reference to identically numbered exhibits included in the
      Company's Registration Statement on Form S-3 declared effective with the
      Securities and Exchange Commission on May 16, 1996 (File No. 333-3558).

(7)   Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      June 30, 1996.

(8)   Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      September 30, 1996.

(9)   Incorporated by reference to identically numbered exhibits to the
      Company's Annual Report on Form 10-K for the annual period ended December
      31, 1995.

                                      119
<PAGE>

(10)  Incorporated by reference to Exhibit 1.1 to the Company's Registration
      Statement on Form S-3 declared effective with the Securities and Exchange
      Commission on May 16, 1996 (File No. 333-3558).

(11)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      March 31, 1996.

(12)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      March 31, 1997.

(13)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      June 30, 1997.

(14)  Incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report
      on Form 10-Q for the quarterly period ended June 30, 1996.

(15)  Incorporated by reference to identically numbered exhibits to the
      Company's Quarterly Report on Form 10-Q for the quarterly period ended
      September 30, 1997.

(16)  Incorporated by reference to Exhibit 3 to the Company's Quarterly Report
      on Form 10-Q for the quarterly period ended September 30, 1997.

(17)  Incorporated by reference to Exhibit 4 to the Company's Quarterly Report
      on Form 10-Q for the quarterly period ended September 30, 1997.

(18)  Incorporated by reference to identically numbered exhibits to the
      Company's Annual Report on Form 10-K for the annual period ended December
      31, 1997.

(19)  Incorporated by reference to identically numbered exhibits included in the
      Company's Registration Statement on Form S-3 (File No. 333-45463) filed
      with the Securities and Exchange Commission on February 2, 1998.

(20)  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      dated December 10, 1997 as filed with the Securities and Exchange
      Commission on November 28, 1997 (File No. 001-13475).

(21)  Incorporated by reference to identically numbered exhibits included in the
      Company's Quarterly Report on Form 10-Q filed with the Securities and
      Exchange Commission on May 15, 1998.

(22)  Incorporated by reference to identically numbered exhibits included in the
      Company's Quarterly Report on Form 10-Q filed with the Securities and
      Exchange Commission on August 14, 1998

(23)  Incorporated by reference to identically numbered exhibits included in the
      Company's Quarterly Report on Form 10-Q filed with the Securities and
      Exchange Commission on November 13, 1997.

(24)  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      dated December 22, 1998 as filed with the Securities and Exchange
      Commission on December 24, 1998 (File No. 000-25356).

(25)  Incorporated by reference to identically numbered exhibits included in the
      Company's Registration Statement on Form S-3 (File No. 333-70937) filed
      with the Securities and Exchange Commission on January 21, 1999.
(26)  Incorporated by reference to identically numbered exhibits included in the
      Company's Annual Report on Form 10-K for the annual period ended December
      31, 1998
(27)  Incorporated by reference to identically numbered exhibits
      included in the Company's Annual Report on Form 10-K for the annual period
      ended December 31, 1998 as amended on from 10-K/A filed with the
      Securities and Exchange Commission on May 3, 1999.

*     Confidential treatment granted as to certain portions of these exhibits.


                                      120
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on September 24,1999.

                                     P-COM, INC.


Date: March 30, 2000                 By /s/ George P. Roberts
                                        -------------------------------------
                                        George P. Roberts
                                        Chairman of the Board and
                                        Chief Executive Officer


Date: March 30, 2000                 By /s/ Robert E. Collins
                                        -------------------------------------
                                        Robert E. Collins
                                        Chief Financial Officer, Vice President,
                                        Finance and Administration


                                      121
<PAGE>

POWER OF ATTORNEY

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Date: March 30, 2000                 By  /s/ George P. Roberts
                                        -------------------------------------
                                        George P. Roberts
                                        Chairman of the Board and
                                        Chief Executive Officer
                                        (Principal Executive Officer)

Date: March 30, 2000                 By  /s/ Robert E. Collins
                                        -------------------------------------
                                        Robert E. Collins
                                        Chief Financial Officer, Vice President,
                                        Finance and Administration
                                        (Principal Financial Officer)

Date: March 30, 2000                 By
                                        -------------------------------------
                                        Gill Cogan
                                        Director of the Company

Date: March 30, 2000                 By  /s/ John A. Hawkins
                                        -------------------------------------
                                        John A. Hawkins
                                        Director of the Company

Date: March 30, 2000                 By  /s/ M. Bernard Puckett
                                        -------------------------------------
                                        M. Bernard Puckett
                                        Director of the Company

Date: March 30, 2000                 By  /s/ James J. Sobczak
                                        -------------------------------------
                                        James J. Sobczak
                                        Director of the Company


                                      122
<PAGE>

                                   FORM 10-K/A
                                 AMENDMENT NO. 4

      The undersigned Registrant hereby is amending its Annual Report on Form
10-K for the year ended December 31, 1998, originally filed with the Securities
and Exchange Commission on April 15, 1999.


                                      123