UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
Date of Report (Date of earliest event reported): January 14, 1994
3COM CORPORATION
(Exact name of registrant as specified in its charter)
California 0-12867 94-2605794
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
5400 Bayfront Plaza 95052
Santa Clara, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (408) 764-5000
The undersigned registrant hereby amends the following items of its Current
Reports dated January 14, 1994 and February 2, 1994 on Form 8-K as set
forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
3Com Corporation
(Registrant)
Dated: March 30, 1994 By: /s/Christopher B. Paisley
Vice President Finance and
Chief Financial Officer
3COM CORPORATION
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATI0N AND EXHIBITS
(a) Financial statements of Synernetics, Inc. for the years ended January
2, 1994 and January 3, 1993, are attached hereto and filed herewith as
Exhibit 7.3.
(b) The attached unaudited pro forma condensed combining financial
statements for the year ended May 31, 1993 and for the six months
ended November 30, 1993 give effect to the acquisitions of
Synernetics, Inc. and Centrum Communications, Inc., by 3Com
Corporation accounted for on the purchase accounting basis. The pro
forma condensed combining statements of operations assume that the
acquisitions took place as of June 1, 1992, the beginning of the
earliest period presented and combine 3Com's results of operations for
the year ended May 31, 1993 and the six months ended November 30, 1993
with Synernetics' and Centrum's, respectively, results of operations
for the year ended June 30, 1993 and six months ended January 2, 1994
and December 31, 1993, respectively. The unaudited pro forma
condensed combining balance sheet combines 3Com's balance sheet as of
May 31, 1993 with the Synernetics and Centrum balance sheets as of
June 30, 1993, giving effect to the acquisitions as if they had
occurred on May 31, 1993.
The pro forma condensed combining financial information is presented
for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred
had the acquisitions been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future operating
results or financial position.
The pro forma condensed combining financial information should be read
in conjunction with the historical consolidated financial statements
and the related notes thereto of 3Com Corporation and Centrum
Communications, Inc. previously filed and the historical financial
statements and related notes thereto of Synernetics, Inc. included
herein.
(c) The following exhibits are attached hereto and filed herewith:
7.3 Financial statements of Synernetics, Inc. for the years ended
January 2, 1994 and January 3, 1993.
7.4 Unaudited Pro Forma Condensed Combining Financial Statements of
3Com Corporation.
3COM CORPORATION
INDEX TO EXHIBITS
EXHIBIT DOCUMENT
7.3 Financial Statements of Synernetics, Inc.
for the years ended January 2, 1994 and January 3, 1993
7.4 Unaudited Pro Forma Condensed Combining Financial
Statements of 3Com Corporation
SYNERNETICS INC.
(A Wholly-Owned Subsidiary of 3COM Corporation)
FINANCIAL STATEMENTS
for the years ended January 2, 1994 and
January 3, 1993
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Synernetics Inc., a wholly-owned subsidiary of 3Com Corporation:
We have audited the accompanying balance sheets of
Synernetics Inc., a wholly-owned subsidiary of 3Com Corporation, as of
January 2, 1994 and January 3, 1993 and the related statements of
income, changes in stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As explained in Note 1, 3Com Corporation purchased 100
percent of the stock of Synernetics, Inc. on January 14, 1994.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Synernetics Inc., a wholly-owned subsidiary of 3Com Corporation, as of
January 2, 1994 and January 3, 1993, and the results of its operations
and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Boston, Massachusetts
January 27, 1994
SYNERNETICS INC.
(A Wholly-Owned Subsidiary of 3COM Corporation)
BALANCE SHEET
_______
January 2, January 3,
ASSETS 1994 1993
Current assets:
Cash and cash equivalents $ 5,946,511 $ 7,301,445
Short-term investments - 14,000
Accounts receivable, (net of allowance for doubtful
accounts of $135,463 and $91,343 at January 2,
1994 and January 3, 1993, respectively) 4,860,024 898,860
Inventories (Note 3) 4,982,570 2,582,583
Prepaid expenses and other current assets 244,850 254,171
Total current assets 16,033,955 11,051,059
Property and equipment, net (Note 4) 2,047,598 1,305,832
Other assets 76,317 51,388
Total assets $18,157,870 $12,408,279
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable (Note 7) 178,472 -
Current portion of obligations under capital leases
(Note 9) 265,309 108,560
Accounts payable 2,634,659 974,324
Accrued expenses 1,357,933 522,275
Accrued warranty 563,487 393,587
Deferred revenue 170,679 154,308
Total current liabilities 5,170,539 2,153,054
Notes payable (Note 7) 356,633 -
Obligations under capital leases (Note 9) 390,357 133,248
Commitments (Note 9)
Stockholders' equity (Note 10):
Convertible preferred stock:
Series A, convertible preferred stock, $0.01
$0.01 par value; authorized, issued and
outstanding 3,871,143 shares (liquidating
value $6,271,252) 6,223,337 6,223,337
Series B convertible preferred stock, $0.01
par value; 2,965,320 shares authorized;
2,946,484 shares issued and outstanding
(liquidating value $6,452,800) 6,395,888 6,395,888
Series C convertible preferred stock, 0.01
par value; authorized, issued and outstanding
1,904,062 shares (liquidating value
$5,636,024) 5,600,114 5,600,114
Preferred stock, $0.01 par value; 8,721,689
shares authorized; no shares issued and
outstanding - -
Class B convertible common stock, $0.01 par value;
authorized, issued and outstanding 620,000
shares (liquidating value $341,000) (Note 10) - 315,968
Common stock, $0.01 par value; 14,000,000 shares
authorized, 1,847,075 and 1,200,925 shares
issued and outstanding at January 2, 1994
and January 3, 1993, respectively (Note 10) 18,493 12,009
Additional paid-in capital 322,066 8,012
Accumulated deficit (6,319,219) (8,433,351)
12,240,679 10,121,977
Less: treasury stock at cost, 2,250 and 0 shares
in 1993 and 1992, respectively; (338) -
Total stockholders' equity 12,240,341 10,121,977
Total liabilities and stockholders' equity $18,157,870 $12,408,279
The accompanying notes are an integral part
of the financial statements.
SYNERNETICS INC.
(A Wholly-Owned Subsidiary of 3COM Corporation)
STATEMENTS OF INCOME
_______
For the years ended
January 2, January 3,
1994 1993
Revenues (Note 5):
Systems $25,663,112 $13,605,457
License 800,000 2,800,000
Service and other 849,201 333,616
Total revenues 27,312,313 16,739,073
Costs and expenses:
Cost of sales 12,045,325 7,053,029
Research and development 5,826,175 3,326,724
Marketing and selling 5,585,461 3,483,610
General and administrative 1,406,493 1,249,338
Merger expenses (Note 1) 381,850 -
Total costs and expenses 25,245,304 15,112,701
Income (loss) from operations 2,067,009 1,626,372
Other income (expense):
Interest income 169,754 139,205
Interest expense (47,031) (28,900)
Total other income, net 122,723 110,305
Income before income taxes 2,189,732 1,736,677
Provision for income taxes (Note 6) 75,600 32,000
Net income $ 2,114,132 $ 1,704,677
The accompanying notes are an integral part
of the financial statements.
SYNERNETICS INC.
(A Wholly Owned Subsidiary of 3COM Corporation)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended January 2, 1994 and January 3, 1993
_______
<TABLE>
<CAPTION>
Series A Series B Series C Class B
Convertible Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Common Stock
Number of Number of Number of Number of
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1991 3,871,143 $6,223,337 2,946,484 $6,395,888 620,000 $315,968
Issuance of 1,904,062 shares of Series C
convertible preferred stock 1,904,062 $5,600,114
Issuance of 30,425 shares of common
stock pursuant to exercise of
stock options
Net income
Balance at January 3, 1993 3,871,143 6,223,337 2,946,484 6,395,888 1,904,062 5,600,114 620,000 315,968
Removal of Class B convertible common
stock designation creating one
class of common stock (Note 10) (620,000) (315,968)
Issuance of 28,400 shares
Common Stock pursuant to exercise
of stock options
Purchase of Treasury Stock
Net income
Balance at January 2, 1994 3,871,143 $6,223,337 2,946,484 $6,395,888 1,904,062 $5,600,114 - -
Common Stock Additional Total
Number of Paid-In Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity
Balance at December 29, 1991 1,170,500 $ 11,705 $ 3,621 $(10,138,028) $ 2,812,491
Issuance of 1,904,062 shares of Series C
convertible preferred stock 5,600,114
Issuance of 30,425 shares of common
stock pursuant to exercise of
stock options 30,425 304 4,391 4,695
Net income 1,704,677 1,704,677
Balance at January 3, 1993 1,200,925 12,009 8,012 (8,433,351) 10,121,977
Removal of Class B convertible common
stock designation creating one
class of common stock (Note 10) 620,000 6,200 309,768
Issuance of 28,400 shares of
Common Stock pursuant to exercise
of stock options 28,400 284 4,286 4,570
Purchase of Treasury Stock (2,250) $(338) (338)
Net income 2,114,132 - 2,114,132
Balance at January 2, 1994 1,847,075 $ 18,493 $322,066 $ (6,319,219) $(338) $12,240,341
</TABLE>
The accompanying notes are an integral part of the financial statements.
SYNERNETICS INC.
(A Wholly Owned Subsidiary of 3COM Corporation)
STATEMENTS OF CASH FLOWS
For the years ended
January 2, January 3,
1994 1993
Cash flows from operating activities:
Net income $2,114,132 $1,704,677
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,155,146 745,356
Loss on disposal of property and equipment 1,136 -
Changes in operating assets and liabilities:
Increase in accounts receivable, net (3,961,164) (17,098)
(Increase) decrease in inventories (2,399,987) 121,402
(Increase) decrease in prepaid expense and
other current assets 9,321 (190,256)
Increase (decrease) in accounts payable 1,660,335 (293,028)
Increase in accrued expenses 1,005,332 465,363
Increase (decrease) in deferred revenue 16,371 (1,655,702)
Net cash provided by (used in) operating
activities (399,378) 880,714
Cash flows from investing activities:
Purchases of short-term investments - (92,000)
Sales of short-term investments 14,000 128,090
Purchase of property and equipment (1,807,966) (978,883)
Increase in security deposits 26,121 4,028
Net cash used in investing activities (1,767,845) (938,765)
Cash flows from financing activities:
Principal payments on obligations under capital
leases (162,384) (110,468)
Proceeds from notes payable 575,123 -
Principal payments on notes payable (40,018) -
Proceeds from issuance of convertible stock, net
of issuance costs - 5,600,114
Proceeds from issuance of common stock 4,458 4,695
Proceeds from the sale and leaseback of property
and equipment 435,110 -
Net cash provided by financing activities 812,289 5,494,341
Net increase (decrease) in cash and cash equivalents (1,354,934) 5,436,290
Cash and cash equivalents at beginning of year 7,301,445 1,865,155
Cash and cash equivalents at end of year $5,946,511 $7,301,445
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $45,829 $28,900
Income taxes 4,341 20,550
Supplemental disclosures of noncash financing activities:
Capital lease obligations for computer and office equipment of $141,132
and $128,099 were incurred in fiscal 1993 and 1992, respectively.
The accompanying notes are an integral part
of the financial statements.
SYNERNETICS INC.
(a Wholly Owned Subsidiary of 3COM Corporation)
NOTES TO FINANCIAL STATEMENTS
_______
1. Nature of Business:
Synernetics Inc. (the "Company") was incorporated in the state of
Delaware in 1988 and is engaged in the development, manufacturing
and marketing of local area network hardware and software.
On January 12, 1994 the shareholders of Synernetics, Inc. approved
a Merger Agreement and Plan of Reorganization dated December 16,
1993 with its major customer, 3Com Corporation ("3Com") whereby
the shareholders of Synernetics, Inc. received $104 million in
cash, less certain amounts for severance packages and unexercised
vested options and warrants. 3Com assumed certain other
outstanding Synernetics options and these options will continue to
be exercisable for a number of 3Com common stock subject to share
price and vesting factors. Synernetics, Inc. remains to date as a
separate legal entity wholly owned by 3Com Corporation. In
connection with the merger, Synernetics incurred approximately
$382,000 in expenses primarily relating to legal fees (see Note
5).
2. Summary of Significant Accounting Policies:
The following is a summary of significant accounting policies
employed by the Company in the preparation of its financial
statements.
Revenue Recognition
The Company recognizes hardware revenue upon product shipment.
Revenue from software product sales is recognized upon delivery
unless there is uncertainty about customer acceptance, in which
case revenue is recognized upon customer acceptance.
Revenue from development and service agreements is recognized
pursuant to the related agreements based on progress on those
agreements. Payments received under these agreements prior to
the completion of the related work are recorded as deferred
revenue. Maintenance and support revenues are recognized
ratably over the term of the agreements.
Through July 1992, the Company operated a forum to further the
development of technological standards relating to the Company's
products. The Company charged forum members an annual
membership fee which was recognized ratably over the term of the
membership.
Cash and Cash Equivalents
The Company invests its excess cash in high grade money market
accounts, commercial paper and treasury notes. These
investments mature within three months of the initial
investment. Accordingly, the investments are subject to minimal
credit and market risk and are considered by the Company to be
cash equivalents. The Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months
or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, cost
being determined using the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost and are depreciated
over the estimated useful lives of the equipment using the
straight-line method.
When assets are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any
resulting gain or loss is credited or charged to income.
Maintenance and repairs are charged to expense as incurred.
Income Taxes
In fiscal 1992, the Company adopted the liability method of
accounting for income taxes, in accordance with Statement of
Financial Accounting Standards No. 109, Accounting For Income
Taxes. Under the liability method, deferred taxes are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are
expected to reverse. Tax credits are recorded as a reduction in
income taxes when utilized.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to
December 31. The 1993 fiscal year ended on January 2, 1994 and
the 1992 fiscal year ended on January 3, 1993.
Intangible Assets
The Company capitalizes expenses associated with obtaining
patents on its products. The costs are being amortized over the
lesser of their estimated useful life or seventeen years.
3. Inventories:
Inventories consist of the following:
January 4, January 3,
1994 1993
Raw materials $ 944,812 $ 781,159
Work in progress 3,105,750 839,909
Finished goods 705,854 834,305
Finished goods on loan to customers 226,154 127,210
$4,982,570 $2,582,583
4. Property and Equipment:
Property and equipment consists of the following:
Estimated
useful lives January 4, January 3,
(years) 1994 1993
Computer and office equipment 2-4 $4,482,039 $2,678,178
Furniture and fixtures 5 104,610 89,156
Leasehold improvements lesser of
useful life or
lease term 100,748 92,148
4,687,397 2,859,482
Less - accumulated depreciation
and amortization (2,639,799) (1,553,650)
$2,047,598 $1,305,832
At January 2, 1994 and January 3, 1993, computer and office
equipment with an aggregate cost of $937,202 and $395,555,
respectively and accumulated amortization of $299,075 and
$170,770, respectively, were recorded under capital leases.
5. Agreement with Major Customer (see Note 1):
During 1991, the company entered into an agreement with a major
customer under which the Company received a total of $3.6 million
for the licensing of a portion of the Company's technology. The
Company received $1.7 million upon signing of the contract in 1991
and an additional $1.1 million upon the first anniversary date.
Revenue associated with the first payment was deferred in 1991
pending delivery of the technology and subject to the lapsing of a
contingent cancellation clause. The Company met these
requirements in 1992 and has therefore recognized $2.8 million of
revenue in fiscal 1992.
A final payment of $800,000 was received in fiscal 1993 in
connection with this contract and was recognized as revenue in
fiscal 1993.
The Company has also entered into an OEM agreement with this
customer. In 1993, the Company received approximately $11.0
million from sales other than licensing to this customer. This
customer accounted for approximately 43% and 56% of the Company's
revenue in fiscal 1993 and 1992, respectively.
6. Income Taxes:
Effective December 30, 1991, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." No cumulative effect adjustment was required for the
adoption of SFAS No. 109 due to the Company's previous use of the
liability method. Under this statement, deferred tax assets (net
of any valuation allowance) and liabilities resulting from
temporary differences, net operating loss carryforwards and tax
credit carryforwards are recorded using a liability method.
Deferred taxes relating to temporary differences and loss
carryforwards are measured using the enacted tax rate expected to
be in effect when they reverse or are realized.
The provision for income taxes for fiscal 1993 and 1992 consists
of the following:
1993 1992
Federal income taxes:
Currently payable $63,000 $10,000
Deferred - -
63,000 10,000
State income taxes:
Currently payable 12,600 22,000
Deferred - -
12,600 22,000
$75,600 $32,000
The provision for federal and state income taxes for the years
ended January 2, 1994 and January 3, 1993 was reduced by the
utilization of net operating loss carryforwards in the amount of
approximately $2,955,000 and $442,000, respectively. The Company
has tax credit carryforwards of approximately $660,000 expiring at
various dates through 2008. Ownership changes may result in
future limitations on the utilization of net operating loss and
research and development tax credit carryforwards (see Note 1).
A reconciliation of the statutory federal income tax rate to the
Company's fiscal 1993 and 1992 effective tax rate is as follows:
1993 1992
Statutory federal income tax rate (benefit) 34% 34%
Utilization of net operating loss carryforwards (31) (33)
State taxes, net of federal tax benefit .5 1
Effective income tax rate 3.5% 2%
The approximate tax effect of each type of temporary difference
and carryforward before allocation of the valuation allowance is
as follows:
Year Ended
January 2, 1994
Deferred tax assets:
Net operating loss carryforwards $1,277,000
Inventory reserves and capitalization 350,000
Accounts receivable reserves 54,000
Vacation and benefits reserves 92,000
Other liabilities and reserves 63,000
Merger costs 153,000
Warranty reserves 225,000
Tax credit carryforwards 660,000
$2,874,000
Due to the uncertainty surrounding the timing of realizing the
benefits of its favorable tax attributes in future tax returns,
the Company has placed a 100% valuation allowance against its
otherwise recognizable net deferred tax assets.
7. Notes Payable:
The Company entered into a credit agreement with a bank which
provided for up to $600,000 in borrowings to purchase fixed
assets. The Company's related purchase of equipment is pledged as
collateral under the agreement. The Company borrowed
approximately $575,000 during fiscal 1993 with interest payable at
9% over 36 months.
Scheduled maturities of notes payable is as follows:
Fiscal Year
1994 $178,472
1995 195,304
1996 161,329
535,105
Less: current maturities (178,472)
Noncurrent portion of notes payable $356,633
8.Line of Credit:
In April 1993, the Company extended its $2,000,000 working
capital line of credit agreement with a bank which matures in
May 1994. All of the assets of the Company have been pledged as
collateral in connection with this line of credit agreement
reduced by assets purchased under the Company's equipment notes
payable (see Note 7). In consideration of the original line of
credit, the bank received a warrant to purchase up to 34,247
shares of the Company's Class A Common Stock at an initial
exercise price of $2.19. The warrant is exercisable until April
10, 1997. The Company paid a one-time commitment fee of $10,000
to extend the agreement. Interest is charged at the bank's
prime rate plus 1%. There were no outstanding borrowings under
the line of credit during each of the fiscal years or at January
2, 1994 or January 3, 1993.
9. Lease Commitments:
In April 1991, the Company entered into a Master Lease and
Warrant Agreement with Pacific Venture Finance, Inc. ("PVF").
In consideration of a master lease line of up to $550,000, PVF
received a Preferred Stock Purchase Warrant to purchase up to
18,836 shares of the Company's Series B Preferred Stock. The
warrant is exercisable for the longer of 10 years from the date
of issuance or 5 years after an initial public offering of the
Company's common stock.
The Company leases office space in North Billerica,
Massachusetts under a lease expiring in 1994. Annual rent is
approximately $134,000. The Company has an option to extend the
lease for an additional year at the then fair market value. In
addition, various short-term, renewable leases have been entered
into for sales office space. The Company also leases certain
equipment under operating and capital leases. Operating lease
rental expense for the years ended January 2, 1994 and January
3, 1993 was approximately $265,000 and $211,000, respectively.
Total minimum lease payments are as follows:
Capital Operating
Leases Leases
1994 $333,355 $264,977
1995 261,543 74,610
1996 149,646 27,037
1997 - 12,198
1998 - 647
744,544 $379,469
Less - amount representing interest (88,878)
Principal portion of minimum lease
payments, including current
portion of $265,309 $655,666
10. Stockholders' Equity:
Series A, B and C Convertible Preferred Stock
On October 30, 1992, the Company authorized and issued
1,904,062 shares of Series C convertible preferred stock
(Series C preferred stock) at $2.96 per share in exchange for
cash of $5,600,114, net of issuance costs.
The Series A, B and C preferred stock are convertible into
common stock on a share-for-share basis, subject to certain
anti-dilution adjustments, at the option of the holder or
automatically at the closing of an underwritten public offering
of the Company's common stock in which the Company receives
gross proceeds equal to or greater than $7,500,000 and in which
the price per common share equals or exceeds $8.10 (as adjusted
for stock dividends, stock splits and similar events).
Until October 30, 1992, the Series B preferred stock contained
a conversion feature, whereby if the Company did not meet
certain performance goals during 1992, the Series B preferred
stock conversion price would have been reduced. This
conversion feature was eliminated on October 30, 1992.
Until October 30, 1992, the Series A and B preferred stock
contained a provision whereby upon receipt of written request
at least sixty days prior to February 12, 1996 from the holders
of at least two-thirds of the Series A and B preferred
stockholders, respectively, the Company would be required to
redeem 25% of the Series A and B shares, commencing on February
12, 1996 and on the anniversary of that date for the following
three years, at a price of $1.62 and $2.19, respectively, per
share plus any declared but unpaid dividends. This provision
was canceled on October 30, 1992.
The Series A, B and C preferred stockholders are entitled to
one vote for each share of Class A common stock into which the
shares of Series A, B and C are convertible. Dividends on
Series A, B and C preferred stock are noncumulative and must be
paid in full prior to payment of dividends on any other class
of stock. Dividends can be declared at the discretion of the
Board of Directors and become payable when declared.
The holders of the Series A, B and C preferred shares have
liquidation preferences over all other shareholders at $1.62,
$2.19 and $2.96, respectively, per share plus any declared but
unpaid dividends.
Preferred Stock
The Company has authorized 8,721,689 shares of preferred stock,
$.01 par value, none of which are issued and outstanding.
Class B Convertible Common Stock
On November 4, 1993, the Board of Directors and stockholders
amended its certificate of incorporation to remove all
references to Class B Common Stock creating one class of common
stock consisting of the former Class B and Class A common
stock.
Class A Common Stock
On November 4, 1993, the Board of Directors and stockholders
approved an amendment of the Company's certificate of
incorporation to redesignate the Company's Class A common stock
to common stock.
The Company has reserved shares of common stock for future
issuance to management, employees and consultants and for
issuance upon conversion of the Series A, B and C preferred
stock as well as the exercise of common stock and preferred
stock purchase warrants and options as summarized in the table
below:
Issuance to management, employees and
consultants 2,074,840
Conversion of Series A preferred stock 3,871,143
Conversion of Series B preferred stock 2,946,484
Conversion of Series C preferred stock 1,904,062
Exercise of common stock purchase warrants 34,247
Exercise of Convertible Series B preferred
stock purchase warrants 18,836
Total common stock reserved for issuance 10,849,612
At January 2 1994, 1,847,075 of the Company's common shares are
outstanding of which 1,100,000 are classified as founders shares,
62,500 as incentive shares and 66,825 as incentive stock option
shares. Founders and incentive shares are subject to stock
restriction and repurchase agreements, which provide the Company
an option to repurchase at the original issuance price a portion
of an individual's shares upon termination of employment with the
Company, based on a vesting schedule over a period of five years.
The repurchase rights on the founders' shares lapsed in fiscal
1992 and the repurchase rights on the incentive shares lapse
through April 24, 1994. At January 2, 1994, 187,500 incentive
shares were restricted. In fiscal 1994, the Company repurchased
2,250 shares of its common stock for $338. These shares are
classified as treasury stock at January 2, 1994.
Stock Option Plan
In August 1989, the Company adopted the 1989 Stock Option Plan
(the "Stock Plan") under which incentive stock options to purchase
shares of common stock may be issued to key employees and officers
of the Company. The Stock Plan is administered by the Company's
Board of Directors and terminates at the earlier of August 11,
1999 or when all options issuable under the Plan have been
exercised. The Company has designated 2,532,600 shares of common
stock less 62,500 restricted shares which have previously been
issued to employees, for use in the Stock Plan.
Stock Plan transactions during 1993 and 1992 were as follows:
1993 1992
Number Price Number Price
Options outstanding at
beginning of year 1,702,160 $ .15- .50 1,234,050 $.15
Granted 442,190 .50-4.00 628,535 . 25-.50
Exercised (28,400) .15- .25 (30,425 .15-.25
Canceled or expired (41,110) .15- .75 (130,000 .15-.50
Options outstanding at
end of year 2,074,840 $.15-4.00 1,702,160 $.15-.50
At January 2, 1994, there were 898,511 shares exercisable.
Under the terms of the Stock Plan, the option price per share
for incentive stock options may not be less than the fair market
value (110% of the fair market value for employees possessing
more than 10% of the total voting power of all classes of
stock), as defined in the Plan, on the date of the grant.
Incentive stock options will expire on dates specified by the
Board of Directors, but no more than ten years from the date of
grant (five years for employees possessing more than 10% of the
total combined voting power of all classes of stock). Each
eligible employee may be granted incentive stock options which
would entitle that employee to purchase up to a maximum of
$100,000 in fair market value (determined at the time of grant)
of common stock in any one year.
Pursuant to the Stock Plan, nonqualified stock options, which
are not incentive options, may be issued to employees,
consultants and directors of the Company. The option price per
share for nonqualified options may not be less than the lesser
of (1) book value per share as of the end of the fiscal year
immediately preceding the date of grant or (2) 50% of the fair
market value on the date of grant. Nonqualified options expire
no later than ten years plus one day from the date of grant.
The exercise date of options granted is determined by the Board
of Directors.
The Company has a right of first refusal to repurchase shares
acquired under the stock plan should an employee receive an
offer, and desire to sell such shares. The price per share that
the Company would pay to repurchase the shares would be equal to
the offered price per share. The Company's right of first
refusal will expire should the Company receive at least
$5,000,000 in a public offering of its common stock.
11. Defined Contribution Plan:
During 1989, the Company adopted a defined contribution plan
under Section 401(k) of the Internal Revenue Code. All full-
time employees of the Company who are at least 21 years of age
are eligible to participate in the Plan. The Plan allows
employees to contribute up to 20% of their salaries on a pre-tax
basis. Company contributions to the Plan are at the discretion
of management. All contributions vest immediately except for
Company contributions in which employees are 20% vested after
three years of service and an additional 20% for each year of
service thereafter. The Company made no contributions to the
Plan during the fiscal years ended January 4, 1994 and January
3, 1993.
Exhibit 7.4
3COM CORPORATION
PRO FORMA CONDENSED COMBINING BALANCE SHEET
as of May 31, 1993
(unaudited)
(dollars in thousands)
Pro forma Pro forma
3Com Synernetics Centrum Adjustments Combined
ASSETS
Current Assets:
Cash,cash equivalents
and temporary cash
investments $117,230 $ 5,353 $ 193 $(107,921)(1) $ 14,855
Trade receivables 83,481 2,546 524 (1,108)(2) 85,443
Inventories 68,061 2,524 466 (529)(3) 70,522
Deferred income taxes 19,805 - - - 19,805
Other 15,835 222 49 (190)(2) 15,916
Total current assets 304,412 10,645 1,232 (109,748) 206,541
Property and equipment-net 55,248 1,356 202 - 56,806
Other assets 7,918 59 28 12,160(4) 20,165
Total $367,578 $12,060 $1,462 $(97,588) $283,512
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 40,212 $ 688 $ 974 $ (1,108)(2) $ 40,766
Notes payable - - 300 - 300
Accrued and other
liabilities 58,311 1,556 389 31,440(5) 91,696
Income taxes payable 8,637 - - - 8,637
Current portion of
long-term obligations 1,021 97 - - 1,118
Total current
liabilities 108,181 2,341 1,663 30,332 142,517
Long-term obligations 610 99 - - 709
Accrued restructuring
costs-noncurrent 524 - - - 524
Shareholders' Equity:
Preferred stock - 18,218 - (18,218)(6) -
Common stock 154,958 339 2,100 18,649 (6) 176,046
Retained earnings 103,163 (8,937) (2,301) (128,351)(7) (36,426)
Accumulated translation
adjustments 142 - - - 142
Total shareholders' equity 258,263 9,620 (201) (127,920) 139,762
TOTAL $367,578 $12,060 $1,462 $(97,588) $283,512
3COM CORPORATION
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Fiscal Year Ended May 31, 1993
(in thousands except per share data)
(unaudited)
3Com Synernetics Centrum
Year Year Year
Ended Ended Ended Pro Forma Pro Forma
5/31/93 6/30/93 6/30/93 Adjustments Combined
Sales $617,168 $15,241 $1,142 $(5,005)(8) $628,546
Costs and expenses:
Cost of sales 320,386 6,328 601 237(8)(10)327,552
Sales and marketing 137,021 4,273 1,236 - 142,530
Research and development 64,346 4,295 850 (1,736)(8) 67,755
General and administrative 33,176 1,222 401 - 34,799
Non-recurring items 1,316 - - - 1,316
Total 556,245 16,118 3,088 (1,499) 573,952
Operating income (loss) 60,923 (877) (1,946) (3,506) 54,594
Other income (expense)-net (677) 138 8 - (531)
Income (loss) before
income taxes 60,246 (739) (1,938) (3,506) 54,063
Provision for income taxes 21,685 15 1 (1,262)(9) 20,439
Net income (loss) $ 38,561 $ (754)$(1,939) $(2,244) $ 33,624
Net income (loss) per common and
equivalent share:
Primary $1.22 - - - $1.05
Fully-diluted $1.20 - - - $1.04
Common and equivalent
shares used in computing
per share amounts:
Primary 31,624 - - - 32,066
Fully-diluted 32,146 - - - 32,309
See notes to pro forma condensed combining financial statements.
3COM CORPORATION
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
Six Months Ended November 30, 1993
(in thousands except per share data)
(unaudited)
3Com Synernetics Centrum
6 mos. 6 mos. 6 mos.
Ended Ended Ended Pro Forma Pro Forma
11/30/93 1/2/94 12/31/93 Adjustments Combined
SALES $367,366 $17,816 $723 $(8,095)(8) $377,810
Costs and expenses:
Cost of sales 184,086 7,816 549 (4,008)(8)(10) 188,443
Sales and marketing 77,956 3,099 1,298 - 82,353
Research and
development 34,041 3,302 514 - 37,857
General and
administrative 16,893 805 528 - 18,226
Total 312,976 15,022 2,889 (4,008) 326,879
Operating income
(loss) 54,390 2,794 (2,166) (4,087) 50,931
Other income (expense)
-net (812) (332) 1 - (1,143)
Gain on sale of
investments 17,746 - - - 17,746
Income (loss) before
income taxes 71,324 2,462 (2,165 (4,087) 67,534
Provision for income
taxes 23,747 19 1 (1,430)(9) 22,337
NET INCOME (LOSS) $ 47,577 $ 2,443 $(2,166) $(2,657) $ 45,197
Net income (loss)
per common and
equivalent share:
Primary $1.46 - - - $1.37
Fully-diluted $1.44 - - - $1.35
Common and equivalent
shares used in
computing per share
amounts:
Primary 32,692 - - - 32,961
Fully diluted 33,124 - - - 33,396
See notes to pro forma condensed combining financial statements.
3COM CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
1. Acquisitions
SYNERNETICS, INC.
On January 14, 1994, pursuant to an Agreement and Plan of
Reorganization dated December 16, 1993 ("Synernetics Agreement")
among 3Com Corporation (the "Company"), 3Sub Corporation, a
Delaware corporation and wholly owned subsidiary of the Company
("3Sub"), and Synernetics, Inc., a Delaware corporation
("Synernetics"), 3Sub was merged with and into Synernetics,
which became a wholly owned subsidiary of the Company. The
holders of capital stock of Synernetics received cash at the rate
of approximately $8.4402 per share. The negotiated value for the
outstanding shares of Synernetics stock was approximately
$104,000,000 less (i) the value of the Company's stock reserved
for issuance in connection with the post-merger exercise of vested
Synernetics stock options assumed by 3Com (including options that
accelerated and became vested in connection with the merger), (ii)
severance payments made to certain employees of Synernetics, and
(iii) approximately $385,000 attributable to stock options granted
by Synernetics to three of its employees in December 1993 after
the terms of the merger had been substantially negotiated. The
purchase price of $104,000,000 was paid using funds from the
Company's working capital. Under the terms of the Synernetics
Agreement, a portion of such amount was deposited into an escrow
account as security for the indemnification of the Company by
Synernetics for breaches of the representations, warranties and
covenants of Synernetics set forth in the Agreement. Such account
is the sole and exclusive source of compensation for any claim by
the Company against Synernetics or its stockholders in connection
with the merger. Subject to reduction based on outstanding or
resolved claims, the funds in such account shall be distributed to
the Synernetics stockholders on a pro rata basis in the future. In
addition to the purchase price for outstanding shares of
Synernetics' stock, 3Com assumed all outstanding options held by
Synernetics' employees.
CENTRUM COMMUNICATIONS, INC.
On February 2, 1994, pursuant to an Agreement and Plan of
Reorganization dated January 18, 1994, (the "Centrum Agreement")
among 3Com Corporation , 3Sub Acquisition Corporation, a
California corporation and wholly owned subsidiary of the Company
("Sub"), and Centrum Communications, Inc., a California
corporation ("Centrum"), Sub was merged with and into Centrum,
which became a wholly owned subsidiary of the Company. The
negotiated value for all the shares of Centrum stock outstanding
was approximately $30,200,000. Such amount was paid using funds
from the Company's working capital. In addition, the Company
assumed all outstanding options to acquire Centrum stock, which
became exercisable for shares of Company Common Stock. The
holders of capital stock of Centrum received cash at the rate of
approximately $1.567 per share. Such cash amount will be payable
in two (2) installments, (i) 19/36ths was paid during the month
of February 1994 and (ii) 17/36ths shall be paid on August 2, 1994
or as promptly as is practicable thereafter. Under the terms of
the Centrum Agreement, a portion of such amount was deposited into
an escrow account as security for the indemnification of the
Company by Centrum for breaches of the representations, warranties
and covenants of Centrum set forth in the Agreement. Such account
is the sole and exclusive source of compensation for any claim by
the Company against Centrum or its stockholders in connection
with the merger. Subject to reduction based on outstanding or
resolved claims, the funds in such account shall be distributed to
the Centrum stockholders on a pro rata basis in the future.
2. Pro forma adjustments
The accompanying pro forma financial statements are presented in
accordance with Article 11 of Regulations S-X.
3COM CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The unaudited pro forma condensed combining balance sheet has been prepared as
if the acquisitions, which are being accounted for as purchases, were completed
as of May 31, 1993. The aggregate purchase price of $140 million, plus $3.3
million of costs attributed to the exchange of Synernetics and Centrum options
for 3Com options and $13.1 million of costs directly attributable to the
completion of the acquisition have been allocated to assets and liabilities
acquired. The allocation of the purchase price among the identifiable
intangible assets was based on independent appraisals of the fair market value
of those assets. Such appraisals allocated $132.1 million to purchased
research and development, which has not yet reached technological feasibility
and does not have alternative future uses. This amount has been written off as
a pro forma adjustment in accordance with generally accepted accounting
principles.
To prepare the pro forma unaudited condensed combining statement of operations,
the 3Com statement of operations for the year ended May 31, 1993 has been
combined with the statements of operations of Synernetics and Centrum for the
year ended June 30, 1993. Also, the 3Com statement of operations for the six
months ended November 30, 1993 has been combined with the statements of
operations of Synernetics and Centrum for the six months ended January 2, 1994
and December 31, 1993, respectively. This method of combining the companies is
for the presentation of unaudited condensed combining financial statements
only. Actual statements of operations of the companies will be combined from
the effective date of the acquisitions, with no retroactive restatement.
The unaudited pro forma condensed combining financial statements should be read
in conjunction with the historical financial statements of 3Com, Synernetics
and Centrum.
The unaudited pro forma condensed combining statements of operations do not
include the one-time $132.1 million write-off of purchased research and
development in process arising from these acquisitions, as it is a material
nonrecurring charge. This charge will be included in the actual consolidated
statement of income of 3Com Corporation in the third quarter of fiscal 1994.
The following pro forma adjustments have been made to the pro forma condensed
combining financial statements.
(1) Reflects cash paid to stockholders of Synernetics and Centrum
(2) Reflects elimination of intercompany receivables and payables
(3) Reflects the elimination of intercompany profit in ending
inventory
(4) Reflects the allocation of purchase price to the intangible
assets identified in the purchase price allocation
(5) Reflects accrual of second payment due on Centrum acquisition
and the accrual of costs directly attributable to the completion
of the acquisitions
(6) Reflects the elimination of Synernetics' and Centrum's
shareholders' equity and assumption of stock options outstanding
under the Synernetics and Centrum stock option plans
(7) Includes the one-time write-off of purchased in-process research
and development identified in the purchase price allocation
(8) Reflects elimination of intercompany sales, cost of sales and
other transactions between 3Com and Synernetics
(9) Reflects the tax effect of the pro forma adjustments at the
effective tax rate
(10) Also reflects pro forma amortization of the purchased intangibles
of $5.3 million for the year ended May 31, 1993 and $2.6 million for the
six months ended November 30, 1993.
