UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 1994
Commission File No. 0-12867
3COM CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-
2605794
(State or other jurisdiction of
(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
Former name, former address and former fiscal year, if changed
since last report: N/A
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 XX No
Indicate the number of shares outstanding of each of the issuee's
classes of common stock, as of the latest practicable date.
As of February 28, 1994, 31,989,245 shares of the Registrant's
Common Stock were outstanding.
3COM CORPORATION
Table of Contents
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets
February 28, 1994 and May 31, 1993
Consolidated Statements of Operations
Quarter and nine months ended February 28, 1994 and
1993
Consolidated Statements of Cash Flows
Nine months ended February 28, 1994 and 1993
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
3COM CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
February
28, May 31,
1994
1993
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 57,413
$ 40,046
Temporary cash investments 24,458
77,184
Trade receivables 121,501
83,481
Inventories 72,024
68,061
Deferred income taxes 21,992
19,805
Other 11,281
15,835
Total current assets 308,669
304,412
Property and equipment-net 58,823
55,248
Other assets 19,941
7,918
Total $387,433
$367,578
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 42,164
$ 40,212
Accrued payroll and related expenses 17,146
16,671
Accrued restructuring costs 2,884
3,682
Other accrued liabilities 75,580
37,958
Income taxes payable 9,917
8,637
Current portion of long-term obligations 378
1,021
Total current liabilities 148,069
108,181
Long-term obligations 1,128
610
Accrued restructuring costs-non-current 289
524
Shareholders' Equity:
Preferred stock, no par value, 3,000,000 shares
authorized; none outstanding -
- -
Common stock, no par value, 100,000,000 shares
authorized; shares outstanding: February 28, 1994:
31,989,245; May 31, 1993: 30,850,377 204,183
154,958
Retained earnings 34,136
103,163
Accumulated translation adjustments (372)
142
Total shareholders' equity 237,947
258,263
TOTAL $387,433
$367,578
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands except per share
data)
(unaudited)
Quarter Ended Nine Months
Ended
February 28, February 28, February 28,
February 28,
1994 1993 1994
1993
SALES $218,166 $161,396 $585,532
$449,710
Costs and expenses:
Cost of sales 104,983 83,000 289,069
236,021
Sales and marketing 44,002 35,497 121,958
99,085
Research and
development 19,369 16,077 53,410
48,051
General and
administrative 8,534 7,746 25,427
24,563
Purchased in-process
technology 134,481 - 134,481
- -
Merger costs - 1,601 -
1,601
Total 311,369 143,921 624,345
409,321
Operating income
(loss) (93,203) 17,475 (38,813)
40,389
Other expense_net (412) (570) (1,224)
(879)
Gain on sale
of investment - - 17,746
- -
Income (loss) before
income taxes (93,615) 16,905 (22,291)
39,510
Income tax provision 9,845 6,745 33,592
14,220
NET INCOME (LOSS) $(103,460) $ 10,160 $(55,883)
$ 25,290
Net income (loss)
per share:
Primary $(3.28) $0.31 $(1.80)
$0.81
Fully-diluted $(3.28) $0.31 $(1.80)
$0.79
Shares used in
computing
per share amounts:
Primary 31,544 32,381 30,962
31,163
Fully-diluted 31,544 32,387 30,962
32,010
See notes to consolidated _nancial statements.
CCONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine
Months Ended
February 28,
February 28,
1994
1993
Cash flows from operating activities:
Net income (loss) $( 55,883)
$25,290
Adjustments to reconcile net income
(loss) to cash
provided by operating activities:
Depreciation and amortization 21,654
18,292
Gain on sale of investment (17,746)
- -
Deferred income taxes (3,894)
(1,160)
Purchased in-process technology 134,481
- -
Adjustment to conform fiscal year of
pooled entity -
1,398
Pro forma provision for income taxes -
2,345
Changes in assets and liabilities
net of the effects of acquisitions:
Trade receivables (32,893)
(27,936)
Inventories 975
(7,446)
Other current assets 6,894
4,284
Accounts payable (777)
8,770
Accrued liabilities 3,908
8,308
Accrued restructuring costs (1,621)
(7,151)
Income taxes payable 16,837
7,715
NET CASH PROVIDED BY OPERATING ACTIVITIES 71,935
32,709
Cash flows from investing activities:
Proceeds from sale of investment 18,066
- -
Investment in property and equipment (20,765)
(14,498)
Purchase of temporary cash investments (35,327)
(33,518)
Proceeds from temporary cash investments 88,053
29,572
Businesses acquired in purchase transactions-net (98,128)
- -
Proceeds from partial disposition of joint venture -
498
Effect on cash of partial disposition of
joint venture -
(299)
Other-net (4,213)
915
NET CASH USED FOR INVESTING ACTIVITIES (52,314)
(17,330)
Cash flows from financing activities:
Sale of stock 16,080
12,561
Repurchases of common stock (16,645)
(9,233)
Repurchase of stock warrants -
(1,300)
Notes payable -
3,326
Repayments of long-term obligations (858)
(113)
Equity distributions of pooled entity -
(5,073)
Other-net (831)
(1,900)
NET CASH USED FOR FINANCING ACTIVITIES (2,254)
(1,732)
Increase in cash and cash equivalents 17,367
13,647
Cash and cash equivalents at beginning of period 40,046
34,694
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57,413
$48,341
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1. The consolidated financial statements include the accounts
of 3Com Corporation and its wholly- and majority-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated. In the opinion of
management, these unaudited consolidated financial
statements include all adjustments necessary for a fair
presentation of the Company's financial position as of
February 28, 1994, and the results of operations and cash
flows for the quarters and nine months ended February 28,
1994 and February 28, 1993.
The results of operations for the quarter and nine months
ended February 28, 1994 may not necessarily be indicative of
the results for the fiscal year ending May 31, 1994.
These financial statements should be read in conjunction
with the consolidated financial statements and related notes
thereto included in the Company's Annual Report to
Shareholders for the year ended May 31, 1993.
2. Inventories consisted of (in thousands):
February 28,
May 31,
1994
1993
Finished goods $42,870
$41,331
Work-in-process 10,788
4,912
Raw materials 18,366
21,818
Total $72,024
$68,061
3. Business Combinations
On January 14, 1994, the Company acquired all of the
outstanding shares of Synernetics, Inc. ("Synernetics") and
assumed all outstanding Synernetics stock options. The
purchase price consisted of approximately $104.0 million
plus $3.3 million of stock options. A substantial portion
of the purchase price was paid using funds from the
Company's working capital. Synernetics is engaged in the
development, manufacturing and marketing of local area
network hardware and software.
On February 2, 1994, the Company acquired all of the
outstanding shares of Centrum Communications, Inc.
("Centrum") and assumed all outstanding Centrum stock
options. The purchase price consisted of approximately
$36.0 million of which $16.0 million was paid in cash and
$14.3 million is payable in August 1994 and the remainder
was associated with the value of the assumed stock options.
Centrum is engaged in the development, manufacturing and
marketing of remote access products and technology.
The acquisitions were accounted for as purchases and,
accordingly, the acquired assets and liabilities were
recorded at their estimated fair market values at the dates
of acquisitions. The aggregate purchase price of $143.3
million plus $13.1 million of costs directly attributable to
the completion of the acquisitions has been allocated to the
assets and liabilities acquired, including $12.2 million of
purchased technology that will be amortized over two to four
years. Approximately $132.1 million of the total purchase
price represented in-process technology that had not yet
reached technological feasibility and was charged to the
Company's operations.
The Company's consolidated results of operations include
the operating results of the acquired companies from their
acquisition dates.
The following table summarizes the pro forma combined
results of operations for the nine months ended February 28,
1994 and 1993 as if the acquisitions had occurred at the
beginning of each of the periods presented (in thousands,
except per share amounts):
Nine
Months Ended
February 28
1994 1993
(unaudited)
Sales
$597,490 $457,236
Net income
$68,316 $21,637
Net income per share:
Primary
$2.05 $0.69
Fully-diluted
$2.00 $0.67
Shares used in computing per share amounts:
Primary
33,291 31,560
Fully-diluted
34,201 32,175
The above table includes, on a pro forma basis, the
Company's consolidated financial information for the nine
months ended February 28, 1994 combined with the financial
information of Synernetics and Centrum for the same nine
months and the Company's consolidated financial information
for the nine months ended February 28, 1993 combined with
the financial information of Synernetics and Centrum for the
nine months ended March 31, 1993. The above table excludes
the one-time $132.1 million write-off of purchased in-
process technology arising from these acquisitions as it was
a material nonrecurring charge. This charge is included in
the actual consolidated statement of operations for the nine
months ended February 28, 1994.
The pro forma combined results of operations are presented
for illustrative purposes only and are not necessarily
indicative of the operating results that would have occurred
had the acquisitions been consummated at the beginning of
the periods presented, nor are they necessarily indicative
of future operating results.
4. During the third quarter of fiscal 1994, the Company
licensed certain in-process wireless technology from Pacific
Monolithics, Inc. This technology is still under
development and, accordingly, $2.4 million of the $2.5
million cost of obtaining this license represented in-
process technology and was charged to operations during the
third quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ACQUISITIONS
During the third fiscal quarter ended February 28, 1994, 3Com
Corporation enhanced its High Performance Scaleable Networking
architecture with several strategic acquisitions (see Note 3 of
Notes to Consolidated Financial Statements). The Company
completed the acquisitions of Synernetics, Inc. ("Synernetics"),
a market leader in LAN switching on January 14, 1994, and Centrum
Communications, Inc. ("Centrum"), an innovator of remote access
products on February 2, 1994. The acquisitions were accounted
for as purchases and accordingly, the acquired assets and
liabilities were recorded at their estimated fair market values
at the dates of acquisition. The aggregate purchase price
consisted of approximately $140.0 million plus $3.3 million of
costs attributed to the exchange of Synernetics options for 3Com
options and $13.1 million of costs directly attributable to the
completion of the acquisitions. Approximately $132.1 million of
the total purchase price represented in-process technology and
was charged to the Company's operations during the quarter. In
December 1993, the Company also announced a technology licensing
agreement with Pacific Monolithics, Inc., a pioneer in wireless
communications (see Note 4 of Notes to Consolidated Financial
Statements). The cost of the license agreement was $2.5 million,
substantially all of which was charged to the Company's
operations during the quarter as purchased in-process technology.
Third quarter results included a $134.5 million pre-tax charge to
operations for the combined effect of purchased in-process
technology related to the acquisitions and the license agreement.
The Company's consolidated results of operations for the third
fiscal quarter ended February 28, 1994 included the operating
results of Synernetics and Centrum from the dates of acquisition.
References to the Company herein refer to 3Com and its
subsidiaries.
QUARTER ENDED FEBRUARY 28, 1994
Orders for the Company's products in the third quarter of fiscal
1994 totaled $216.9 million, an increase of 27 percent from the
corresponding quarter a year ago, while sales were $218.2
million, an increase of 35 percent. Both orders and sales were
at record levels for the Company. Compared with the second
quarter of fiscal 1994, orders and sales for the third quarter of
fiscal 1994 increased 7 percent and 6 percent, respectively.
The Company believes that the year-over-year increase in third
quarter orders and sales is due to several factors, including
general market strength in the data networking market, rapid
growth in sales outside the U.S., revenues from sales of key data
networking products such as the EtherLink III Parallel Tasking
network adapter, the NETBuilder II bridge/router and the
LinkBuilder FMS stackable hub, and the Company's ability to
deliver complete data networking solutions for different
connectivity environments. These growth factors were partially
offset by the unfavorable impact of the strengthening U.S. dollar
as compared to European currencies. Revenue from the acquired
businesses did not account for a significant portion of the year-
over-year increase. Sales from products introduced in the last
12 months represented 26 percent of sales in the third quarter of
fiscal 1994, a decline from 35 percent of sales represented by
new products in the second quarter as several high volume selling
products such as the EtherLink III network adapter and
LinkBuilder FMS stackable hub met their one-year anniversary in
the first half of fiscal 1994.
Sales of the Company's network adapter products in the third
quarter of fiscal 1994 represented 55 percent of total sales and
increased 21 percent from the corresponding period in fiscal
1993. The increase in adapter sales represented an increase in
unit volume partially offset by continuation of the industry-wide
trend toward decreasing average selling prices. The increase in
unit volume was seen in the sales of the EtherLink III network
adapter and the TokenLink III network adapter. Lower average
selling prices were primarily attributable to a shift in demand
to the lower-priced EtherLink III network adapter.
Sales of the Company's systems products (internetworking, hub and
switching products) in the third quarter of fiscal 1994
represented 39 percent of total sales and increased 73 percent
from the year-ago quarter. The increase was led primarily by the
high-performance NETBuilder II bridge/router, Boundary Routing
systems architecture internetworking products, and the
LinkBuilder FMS and TRi stackable hub.
Sales of the Company's other products (terminal servers, customer
service, protocols and other products) represented six percent of
third quarter sales and continued to decrease from the third
quarter of fiscal 1993, primarily reflecting a continuing decline
in the sales of terminal server products.
Sales outside the United States provided 56 percent of third
quarter sales, compared to 50 percent for the same period last
year. Growth in international sales was particularly strong in
Europe and the Latin America region. The Company believes that
the increase in international sales from a year ago reflected
customer acceptance of the Company's products and the results of
the Company's continued expansion globally and the opening of new
sales offices.
Cost of sales as a percentage of sales was 48.1 percent for the
quarter, compared to 51.4 percent for the third quarter of fiscal
1993. The 3.3 percentage points improvement in gross margin from
the year-ago period resulted primarily from increased utilization
of production capacity and increased manufacturing efficiencies,
a favorable shipment mix of higher-margin Etherlink III adapters,
and an improvement in intelligent hub margins.
Total operating expenses in the third quarter of fiscal 1994 were
$206.4 million, compared to $60.9 million in the third quarter of
fiscal 1993. Excluding the one-time write-off of $134.5 million
of purchased in-process technology in the third quarter of fiscal
1994 and $1.6 million of costs associated with the Company's
acquisition of Star-Tek a year ago, total operating expenses in
the third quarter of fiscal 1994 would have been $71.9 million,
or 33.0 percent of sales, compared to $59.3 million, or 36.8
percent of sales, a year ago. The $12.6 million, or 21 percent
increase in operating expenses reflected increased selling costs
related to higher sales volume and increased cooperative
advertising expenses, as well as continued investment in research
and development activities.
The Company provided $9.8 million for income taxes in the third
quarter of fiscal 1994 because a significant portion of the
purchased in-process technology costs was not tax deductible.
The tax rate associated with continuing operations was 35
percent.
Net loss for the third quarter of fiscal 1994 was $103.5 million,
or $3.28 per share, compared to net income of $10.2 million, or
$0.31 per share, reported a year ago. Excluding the effects of
the one-time write-offs in the third quarters of fiscal 1994 and
fiscal 1993, the Company would have realized net income of $0.72
per share in the third quarter of fiscal 1994, compared to $0.37
per share a year ago.
NINE MONTHS ENDED FEBRUARY 28, 1994
Orders for the first nine months of fiscal 1994 were $576.0
million, a 25 percent increase from the $460.2 million in orders
during the corresponding period in fiscal 1993. Sales totaled
$585.5 million, a 30 percent increase from sales of $449.7
million in the first nine months of fiscal 1993.
Cost of sales for the first nine months of fiscal 1994 was 49.4
percent of sales, which decreased from 52.5 percent of sales in
the corresponding period during fiscal 1993. The 3.1 percentage
points improvement in gross margin was primarily related to
improved efficiency of the manufacturing operations, a favorable
shipment mix with higher shipments of the lower-cost EtherLink
III network adapter, and reduction in product material costs.
Operating expenses in the first nine months of fiscal 1994 were
$335.3 million compared to $173.3 million in the comparable prior-
year period. Excluding the one-time write-off of purchased in-
process technology in fiscal 1994 and merger costs in fiscal
1993, operating expenses in the first nine months of fiscal 1994
would have been $200.8 million, or 34.3 percent of sales,
compared to $171.7 million, or 38.2 percent of sales a year ago.
The $29.1 million, or 17 percent increase, was primarily due to
increased selling costs related to higher sales volume, the cost
of promoting the Company's systems products, and increased
cooperative advertising expenses partially offset by the
favorable impact of the strengthening U.S. dollar as compared to
European currencies.
Other expense-net was $1.2 million in the first nine months of
fiscal 1994 compared with expense of $879,000 for the same period
a year ago. The increase from fiscal 1993 resulted primarily
from a higher provision for doubtful accounts partially offset by
more favorable foreign exchange results and higher interest
income.
Net loss was $55.9 million, or $1.80 per share, for the first
nine months of fiscal 1994, compared to net income of $25.3
million, or $.79 per share, for the first nine months of fiscal
1993. Net loss for the first nine months of fiscal 1994
reflected the aforementioned $134.5 million pre-tax write-off
associated with purchased in-process technology, an $11.5 million
after-tax gain from the sale of the Company's investment in
Madge, N.V. and a $1.2 million tax benefit due to retroactive
components and the effect of changes in federal statutory rates
of the Revenue Reconciliation Act of 1993. Excluding these one-
time write-offs and gains, the Company would have realized net
income of $1.75 per share for the first nine months of fiscal
1994.
BUSINESS ENVIRONMENT AND RISK FACTORS
The Company's future operating results may be affected by various
trends and factors which are beyond the Company's control. These
include adverse changes in general economic conditions,
governmental regulation or intervention affecting communications
or data networking, and fluctuations in foreign exchange rates,
and other factors listed below. Accordingly, past trends should
not be used by investors to anticipate future results or trends.
Further, the Company's prior performance should not be presumed
to be an accurate indicator of future performance. The data
networking industry has become increasingly competitive, and the
Company's results may be adversely affected by the actions of
existing or future competitors. Such actions may include the
development or acquisition of new technologies, the introduction
of new products, the assertion by third parties of patent or
similar intellectual property rights, and the reduction of prices
by competitors to gain or retain market share. Industry
consolidation or alliances may also affect the competitive
environment.
Some key components of the Company's products are sole-sourced
from outside suppliers. There can be no assurance that in the
future the Company's suppliers will be able to meet the Company's
demand for such components in a timely and cost effective manner.
The Company's operating results and customer relationships could
be adversely affected by either an increase in prices for or an
interruption or reduction in supply of any key components. The
market for the Company's products is characterized by rapidly
changing technology. An unexpected change in the technologies
affecting data networking could have a material adverse effect on
the Company's operating results.
The market price of the Company's common stock has been, and may
continue to be, extremely volatile. Factors such as new product
announcements by the Company or its competitors, quarterly
fluctuations in the Company's operating results and general
conditions in the data networking market may have a significant
impact on the market price of the Company's common stock. These
conditions, as well as factors which generally affect the market
for stocks of high technology companies, could cause the price of
the Company's stock to fluctuate substantially over short
periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and temporary cash investments at February
28, 1994 were $81.9 million, down $35.4 million from May 31,
1993. During the quarter ended February 28, 1994, the Company
spent approximately $98.1 million in net cash for the
acquisitions of Synernetics and Centrum.
For the nine months ended February 28, 1994, net cash generated
from operating activities was $71.9 million. Trade receivables
at February 28, 1994 increased $38.0 million from May 31, 1993
due primarily to a significant increase in sales over the same
time period and, to a lesser extent, trade receivables from
acquired businesses. Days sales outstanding in receivables ended
at 50 days at the end of the third quarter, compared to 45 days
at May 31, 1993. Inventory levels increased $4.0 million from
the prior fiscal year end, with inventory turnover improved from
5.3 turns at May 31, 1993 to 6.5 turns at February 28, 1994.
Other assets increased $12.0 million from May 31, 1993, which
primarily resulted from acquired technology related to the
Synernetics and Centrum businesses.
Investing activities for the first nine months of fiscal 1994
included $18.1 million of proceeds from the sale of the Company's
investment in Madge N.V., offset by $20.8 million used for
capital expenditures. In addition, the Company liquidated
temporary cash investments to fund its third quarter
acquisitions. As of February 28, 1994, the Company has an
outstanding payment obligation of $14.3 million related to the
Centrum acquisition which is payable in August 1994.
During the first nine months of fiscal 1994, the Company
repurchased 700,000 shares of its common stock at an average
price of $23.78 per share, for a total cash outlay of $16.6
million. In the same period, the Company received cash of $16.1
million from sale of its common stock to employees through its
employee stock purchase and option plans. As of February 28,
1994, the Company was authorized to repurchase up to an
additional 1.8 million shares of its common stock in the open
market.
In January 1994, the Company increased its revolving credit
agreement with a bank from $20 million to $40 million and
extended the expiration date to December 31, 1996.
Based on current plans and business conditions, the Company
believes that its existing cash balances, together with cash
generated from operations, the established revolving credit
agreement and other reasonable sources of capital, are sufficient
to satisfy anticipated operating cash requirements through
calendar year 1994.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 1983 Stock Option Plan, as amended
10.2 Amended and Restated Incentive Stock Option
Plan (4)
10.3 License Agreement dated March 19, 1981 (1)
10.4 First Amended and Restated 1984 Employee
Stock Purchase Plan, as amended (Exhibit 19.1
to Form 10-Q) (11)
10.5 License Agreement dated as of June 1, 1986
(Exhibit 10.16 to Form 10-K) (3)
10.6 3Com Corporation Director Stock Option
Plan, as amended (Exhibit 19.3 to Form 10-Q)
(11)
10.7 Bridge Communications, Inc. 1983 Stock
Option Plan, as amended (Exhibit 4.7 to Form
S-8) (2)
10.8 3Com Headquarters Lease dated December 1,
1988, as amended (Exhibit 10.14 to Form 10-K)
(10)
10.9 Ground Lease dated July 5, 1989 (Exhibit
10.19 to Form 10-K) (5)
10.10 Sublease Agreement dated February 9, 1989
(Exhibit 10.20 to Form 10-K) (5)
10.11 Credit Agreement dated April 21, 1993 (7)
10.12 Asset Purchase Agreement dated as of
January 24, 1992 (Exhibit 2.1 to Form 8-K)
(12)
10.13 3Com Corporation Restricted Stock Plan
dated July 9, 1991 (Exhibit 19.2 to Form 10-
Q) (11)
10.14 Agreement and Plan of Merger dated
December 16, 1992 (Exhibit 3 to Form 8-K)
(13)
10.15 Form of Indemnity Agreement for Directors
and Officers (Exhibit 10.15 to Form 10-Q)
(13)
10.16 Agreement and Plan of Reorganization dated
December 16, 1993 among 3Com Corporation,
3Sub Corporation and Synernetics, Inc.
(Exhibit 7.1 to Form 8-K) (11)
10.17 Side Agreement Regarding Agreement and
Plan of Reorganization dated January 14, 1993
among 3Com Corporation, 3Sub Corporation and
Synernetics, Inc. (Exhibit 7.2 to Form 8-K)
(11)
10.18 Agreement and Plan of Reorganization dated
January 18, 1994. (Exhibit 7.2 to Form 8-K)
(12)
10.19 Indemnity and Escrow Agreement dated
February 2, 1994. (Exhibit 7.3 to Form 8-K)
(12)
10.20 Amendment to Credit Agreement
10.21 Second Amendment to Credit Agreement
20.1 3Com Corporation Second Quarter Report
(1) Incorporated by reference to the
corresponding Exhibit previously filed
as an Exhibit to Registrant's
Registration Statement on Form S-1 filed
January 25, 1984 (File No. 2-89045).
(2) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's Registration Statement on
Form S-8 filed October 13, 1987 (File
No. 33-17848).
(3) Incorporated by reference to the
corresponding Exhibit or the Exhibit
identified in parentheses filed
previously filed as an Exhibit to
Registrant's Form 10-K filed August 29,
1987 (File No. 0-12867).
(4) Incorporated by reference to Exhibit
10.2 to Registrant's Registration
Statement on Form S-4 filed on August
31, 1987 (File No. 33-16850).
(5) Incorporated by reference to the
corresponding Exhibit or the Exhibit
identified in parentheses previously
filed as an Exhibit to Registrant's Form
10-K filed on August 28, 1989 (File No.
0-12867).
(6) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's Form 10-K filed on August
27, 1991 (File No. 0-12867).
(7) Incorporated by reference to the
corresponding Exhibit or the Exhibit
identified in parentheses previously
filed as an Exhibit to Registrant's Form
10-K filed on August 27, 1993 (File No.
0-12867).
(8) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's Form 10-Q filed January 10,
1992 (File No. 0-12867).
(9) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's Form 8-K filed on February
18, 1992 (File No. 0-12867).
(10) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's Form 8-K filed on February
12, 1993 (File No. 0-12867).
(11) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's Form 8-K filed on January
31, 1994 (File No. 0-12867).
(12) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's Form 8-K filed on February
11, 1994 (File No. 0-12867).
(13) Incorporated by reference to the
Exhibit identified in parentheses
previously filed as an Exhibit to
Registrant's 10-Q filed on January 14,
1994 (File No. 0-12867).
(b) Reports on Form 8-K
The Company filed two Reports on Form 8-K during
the fiscal
quarter covered by this report, as follows:
(i) Report on Form 8-K filed on January 31,
1994, reporting under Item 2 the completion
of the acquisition of Synernetics, Inc.
effective January 14, 1994.
(ii) Report on Form 8-K filed on February 11,
1994, reporting under Item 2 the completion
of the acquisition of Centrum Communications,
Inc. effective February 2, 1994, and filing
the following financial statements:
Audited financial statements of
Centrum
Communications, Inc. for the years
ended
September 30, 1993 and September
30, 1992.
A Report on Form 8-K/A amending the two Reports
on form 8-K
referenced above was filed on March 30, 1994, and
included the
following financial statements:
Financial statements of Synernetics, Inc.
for the years ended January 2, 1994 and
January 3, 1993.
Unaudited Pro Forma Condensed Combining
Financial Statements of 3Com Corporation
Signatures
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: By:
April 13, 1994 /s/ Christopher B.
Paisley
Vice President
Finance and
Chief Financial
Officer
Exhibit 10.1
3Com CORPORATION
1983 STOCK OPTION PLAN
1. Purpose. The 3Com Corporation 1983 Stock Option Plan
(the "Plan") is established to create additional incentive for
key employees of 3Com Corporation and any present or future
parent and/or subsidiary corporation of such corporation
(collectively referred to as the "Company") to promote the
financial success and progress of the Company. For purposes of
the Plan, a parent corporation and a subsidiary corporation shall
be as defined in sections 425(e) and 425(f) of the Internal
Revenue Code of 1954, as amended (the "Code").
2. Administration. The Plan shall be administered by the
Board of Directors (the "Board") and/or by a duly appointed
committee of the Board having such powers as shall be specified
by the Board. Any subsequent references to the Board shall also
mean the committee if it has been appointed. All questions of
interpretation of the Plan or of any options granted under the
Plan (an "Option") shall be determined by the Board, and such
determinations shall be final and binding upon all persons having
an interest in the Plan and/or any Option. Options may be either
incentive stock options as defined in section 422A of the Code or
nonqualified stock options. All incentive stock options and
nonqualified stock options granted to an Optionee shall be set
forth in separate Options.
3. Eligibility.
(a) Eligible Persons. The Options may be granted only
to employees (including officers) of the Company. The Board
shall, in its sole discretion, determine which persons shall be
granted Options (an "Optionee"). A director of the Company shall
not be granted an Option unless the director is also an employee
of the Company. An Optionee may, if he is otherwise eligible, be
granted additional Options.
(b) Fair Market Value Limitation. Notwithstanding any
other provisions in the Plan to the contrary, any Option which is
designated as an incentive stock option and is granted pursuant
to the Plan on or after January 1, 1987 shall comply with the
limitations set forth in section 422A(b)(7) of the Internal
Revenue Code of 1986 (the "1986 Code") (i.e., shall not become
exercisable at a rate faster than $100,000 per calendar year).
In the event an Option is subsequently determined to have
exceeded the foregoing limitation, the Option shall be amended,
if necessary, in accordance with applicable Treasury Regulations
and rulings to preserve, as the first priority, to the maximum
possible extent, the status of the Option as an incentive stock
option and to preserve, as a second priority, to the maximum
possible extent, the total number of shares subject to the
Option. Notwithstanding the above, the Board of Directors shall
have the authority, in its sole discretion, to amend the Plan to
eliminate the limitation set forth in the first sentence of this
paragraph or any limitation set forth in the Plan setting forth
or otherwise designed to comply with the provisions of section
422A(b)(8) of the Internal Revenue Code of 1954, as amended prior
to the Tax Reform Act of 1986 (the "1954 Code"), and/or to grant
Options which comply with either limitation referred to above but
which do not comply with both such limitations.
4. Shares Subject to Option. The maximum number of shares
which may be issued under the Plan shall be 9,700,000 shares of
the Company's authorized but unissued common stock, subject to
adjustment as provided in paragraph 7. In the event that any
outstanding Option for any reason expires or is terminated and/or
shares subject to repurchase are repurchased by the Company, the
shares of common stock allocable to the unexercised portion of
such Option or so repurchased may again be subjected to an
Option.
5. Time for Granting Options. All Options shall be granted,
if at all, within ten (10) years from the earlier of the date the
Plan is adopted by the Board or the date the Plan is duly
approved by the stockholders of the Company.
6. Terms, Conditions and Form of Options. Subject to the
provisions of the Plan, the Board shall determine for each Option
(which need not be incidental) the number of shares for which the
Option shall be granted, the option price of the Option, the
exercisability of the Option, whether the Option is a
nonqualified stock option or an incentive stock option, and all
other terms and conditions of the Option not inconsistent with
this paragraph 6. Options granted pursuant to the Plan shall be
evidenced by written agreements specifying the number of shares
covered thereby, in such form as the Board shall from time to
time establish, and shall comply with and be subject to the
following terms and conditions:
(a) Option Price.
(i) The option price for any incentive stock option
shall be not less than the fair market value as determined by the
Board of the shares of common stock of 3Com on the date of the
granting of such Option, except that, as to an Optionee who at
the time the Option is granted owns stock possessing more than
10% of the total combined voting power of all classes of stock of
the Company within the meaning of section 422A(b)(6) of the Code
(a "Ten Percent Owner Optionee"), the option price for any
incentive stock option granted to the Ten Percent Owner Optionee
shall not be less than 110% of the fair market value of the
shares on the date the Option is granted.
(ii) The option price for any nonqualified stock
option shall be not less than 85% of the fair market value as
determined by the Board of the shares of common stock of 3Com on
the date of granting of such Option.
(b) Exercise Period of Options. The Board shall have the
power to set the time or times within which each Option shall be
exercisable or the event or events upon the occurrence of which
all or a portion of each Option shall be exercisable and the term
of each Option; provided, however, that no Option shall be
exercisable after the expiration of ten (10) years from the date
such Option is granted, and provided further that no Option
granted to a Ten Percent Owner Optionee which is intended to be
an incentive stock option shall be exercisable after the
expiration of five (5) years from the date such Option is
granted.
(c) Stockholder Approval. An Option is not exercisable
until such time as the Plan is duly approved by the stockholders
of the Company.
(d) Payment of Option Price. Payment of the option price
for the number of shares being purchased shall be made (1) in
cash, (2) by tender to the Company of shares of the Company's
common stock which (a) either has been owned by the Optionee for
more than one (1) year or was not acquired, directly or
indirectly from the Company, and (b) has a fair market value not
less than the option price, or (3) by such other consideration
(including, without limitation, the Optionee's promissory note)
as the Board may approve at the time the Option is granted.
Notwithstanding the foregoing, the Option may not be exercised by
the tender of the Company's common stock to the extent such
tender of stock would constitute a violation of the provisions of
section 500 et seq. of the California Corporations Code, or the
corresponding provisions of other applicable law. In the event
the Board permits the exercise of an Option in whole or in part
by means of the Optionee's promissory note, the Board shall
determine the provisions of such note; provided, however, that
the note shall not represent more than ninety-five (95%) of the
option price, the principal shall be due and payable not more
than four (4) years after the Option is exercised and interest
shall be payable at least annually and be at least equal to the
minimum interest rate to avoid imputed interest pursuant to
section 483 of the Code.
(e) Sequential Exercise Limitation. Notwithstanding any
other provision of the Plan to the contrary, the Board of
Directors shall have the authority, in its sole discretion, to grant Options
on or after January 1, 1987 designated as incentive stock options
which are subject to any restrictions on exercise set forth in
the Plan setting forth or otherwise designed to comply with the
provisions of section 422A(b)(7) of the 1954 Code.
(f) Options Non-Transferable. During the lifetime of
the Optionee, the Option shall be exercisable only by said
Optionee. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and
distribution.
(g) Standard Option Terms.
(i) Incentive Stock Options. Unless otherwise
provided for the Board in the grant of an Option, an Option
designated by the Board as an incentive stock option shall comply
with and be subject to terms and conditions set forth in the form
of Incentive Stock Option Agreement attached hereto as Exhibit A
and incorporated herein by reference.
(ii) Nonqualified Stock Options. Unless otherwise
provided for by the Board in the grant of an Option, an Option
designated by the Board as a nonqualified stock option shall
comply with and be subject to the terms and conditions set forth
in the form of Nonqualified Stock Option Agreement attached
hereto as Exhibit B and incorporated herein by reference.
(iii) Authority to Vary Terms. The Board shall
have the authority from time to time to vary the terms of the
option agreements set forth as Exhibits A and/or B either in
connection with the grant of an individual Option or in
connection with the authorization of a new standard form or
forms; provided, however, that the terms and conditions of such
option agreements shall be in accordance with the terms of the
Plan. Such authority shall include, but not by way of
limitation, the authority to grant Options which are not
immediately exercisable.
7. Effect of Change in Stock Subject to Plan. Appropriate
adjustments shall be made in the number and class of shares of
stock subject to this Plan and to any outstanding Options and in
the exercise price of any outstanding Options in the event of a
stock dividend, stock split, reverse stock split or like change
in the capital structure of the Company.
8. Termination or Amendment of Plan. The Board may at any
time terminate or amend the Plan, provided that without approval
of stockholders there shall be (i) no increase in the total
number of shares covered by the Plan (except by operation of the
provisions of paragraph 7 above, and (ii) no change in the class
of persons eligible to receive Options. In any case, no
amendment may adversely affect any then outstanding Options or
any unexercised portions thereof without the consent of the
Optionee unless such amendment is required to enable the Option
to qualify as an incentive stock option (a--s defined in the
Code).
9. Effect of Prior Plan as to Outstanding Options. The
Company has heretofore adopted the 3Com Corporation Amended and
Restated Incentive Stock Option Plan (the "Earlier Plan"). The
Plan in all respects is independent of and not a continuation or
amendment of the Earlier Plan. Accordingly, the terms of the
Earlier Plan shall remain in effect and apply to Options granted
pursuant to the Earlier Plan.
Exhibit 10.20
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated
as of January 11, 1994, is entered into by and between 3COM
CORPORATION (the "Company") and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION (the "Bank").
RECITALS
A. The Bank and the Company are parties to a Credit Agreement
dated as of April 21, 1993 (the "Credit Agreement") pursuant to
which the Bank has extended certain credit facilities to and for
the benefit of the Company.
B. The Company has requested that the Bank agree to certain
amendments of the Credit Agreement.
C. The Bank is willing to amend the Credit Agreement, subject
to the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings, if any,
assigned to them in the Credit Agreement.
2. Amendments to Credit Agreement.
(a) Section 1.01 of the Credit Agreement shall be amended
as follows:
(i) The definition of "Assessment Rate" as set forth
in the definition of "CD Rate" shall be amended by deleting the
word "Agent" in the third line thereof and inserting "Bank" in
lieu thereof, and by adding the following to the end of such
definition: "or, in the event that the FDIC shall at any time
hereafter cease to assess time deposits based upon such
classifications or successor classifications, equal to the
maximum annual assessment rate in effect on such day that is
payable to the FDIC by commercial banks (whether or not
applicable to the Bank) for insuring time deposits at offices of
such banks in the United States".
(ii) The definition of "Commitment" shall be
replaced in its entirety with the following:
""Commitment" means Forty Million Dollars ($40,000,000)."
(iii) The definition of "Revolving Termination Date"
shall be replaced in its entirety with the following:
""Revolving Termination Date means the last Business Day on or
preceding December 31, 1996."
(b) Subsection 6.01(a) of the Credit Agreement shall be
amended by inserting "(i)" after "Company," in the second line
thereof, and by inserting the following after the word "years" in
the last line of such subsection:
", and (ii) a copy of an unaudited consolidating balance
sheet of the Company and each of its Subsidiaries as at the end
of such fiscal year and the related consolidating statement of
income for such fiscal year, all in reasonable detail, certified
by an appropriate Responsible Officer of the Company as having
been used in connection with the preparation of the financial
statements refereed to in clause (i) of this subsection 6.01(a)".
(c) Subsection 7.03(c) of the Credit Agreement shall be
amended by deleting the proviso thereto and inserting in lieu
thereof the following: "provided that immediately prior to and
immediately after giving effect thereto, no Default or Event of
Default exists or would exist.".
(d) Section 7.07 of the Credit Agreement shall be amended
by (i) adding the following after the end of the parenthetical in
the seventh line of such Section: "and, commencing with the
fiscal quarter ending February 28, 1994, the amount of all
letters of credit and bank guarantees extended by the Bank to the
Company or any of the Company's Subsidiaries", and (ii) adding
the following after "1.00" in the penultimate line of such
Section: "through and including the fiscal quarter ending
November 30, 1993, 1.00 to 1.00 through and including the fiscal
quarter ending February 28, 1995, and 1.25 to 1.00 thereafter".
(e) Section 7.08 of the Credit Agreement shall be amended
in its entirety to read as follows:
"7.08. Tangible Net Worth. The Company shall not permit its
Tangible Net Worth, on a consolidated basis, at the end of any
fiscal quarter to be less than the sum of (i) the greater of (A)
90% of the Company's consolidated Tangible Net Worth as of
February 28, 1994, or (B) $200,000,000, plus (ii) 75% of the
Company's consolidated net income (but without deducting any net
losses for any period) earned in each fiscal quarter, starting
with the quarter ended May 31, 1994, and ending with the quarter
which, at such time, is the most recently ended fiscal quarter,
plus (iii) 100% of the net proceeds (whether in cash, other
property, or in kind) of equity securities issued by the Company
after the fiscal quarter ended February 28, 1994, and up to the
end of such fiscal quarter, less (iv) 100% of the amount of
capital stock repurchased after the fiscal quarter ended February
28, 1994, and up to the end of such fiscal quarter.".
(f) Subsection 7.10(b) shall be amended by inserting at
the end of such subsection the following: "; provided that
solely for the fiscal quarter ended February 28, 1994, the
Company may have, on a consolidated basis, Net Income and/or
operating income which is below $0.00 by more than 5% of Tangible
Net Worth as of the end of the immediately preceding fiscal
quarter, but not below $0.00 by more than $90,000,000 for either
or both of Net Income or operating income".
3. Representations and Warranties. The Company hereby
represents and warrants to the Bank as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) The execution, delivery and performance by the Company
of this Amendment have been duly authorized by all necessary
corporate and other action and do not and will not require any
registration with, consent or approval of, notice to or action
by, any Person (including any Governmental Authority) in order to
be effective and enforceable. The Credit Agreement as amended by
this Amendment constitutes the legal, valid and binding
obligations of the Company, enforceable against it in accordance
with its respective terms, without defense, counterclaim or
offset.
(c) All representations and warranties of the Company
contained in the Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the
basis of its own investigation and for its own reasons, without
reliance upon the Bank or any other Person.
4. Effective Date. This Amendment will become effective as
of January 11, 1994 (the "Effective Date"), provided that each of
the following conditions precedent has been satisfied:
(a) The Bank has received from the Company a duly executed
original of this Amendment.
(b) The Bank has received from the Company a copy of a
resolution passed by the board of directors of such corporation,
certified by the Secretary or an Assistant Secretary of such
corporation as being in full force and effect on the date hereof,
authorizing the execution, delivery and performance of this
Amendment.
(c) The Bank has received from the Borrower such other
approvals, opinions or documents as the Bank may reasonably
request.
5. Reservation of Rights. The Company acknowledges and
agrees that the execution and delivery by the Bank of this
Amendment shall not be deemed to create a course of dealing or
otherwise obligate the Bank to forbear or execute similar
amendments under the same or similar circumstances in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms,
covenants and provisions of the Credit Agreement are and shall
remain in full force and effect and all references therein to
such Credit Agreement shall henceforth refer to the Credit
Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective
successors and assigns. No third party beneficiaries are
intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all
such counterparts together shall constitute but one and the same
instrument.
(e) This Amendment, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto
with reference to the matters discussed herein and therein. This
Amendment supersedes all prior drafts and communications with
respect thereto. This Amendment may not be amended except in
accordance with the provisions of Section 9.03 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be
deemed prohibited by or invalid under any applicable law, such
provision shall be invalidated without affecting the remaining
provisions of this Amendment or the Credit Agreement,
respectively.
(g) Company covenants to pay to or reimburse the Bank,
upon demand, for all costs and expenses (including allocated
costs of in-house counsel) incurred in connection with the
development, preparation, negotiation, execution and delivery of
this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
3COM CORPORATION
By: /s/Christopher B. Paisley
Title: CFO
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/Kevin McMahon
Title: Vice President
Exhibit 10.21
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Amendment"),
dated as of January 25, 1994, is entered into by and between 3COM
CORPORATION (the "Company") and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION (the "Bank").
RECITALS
A. The Bank and the Company are parties to a Credit
Agreement dated as of April 21, 1993, as amended by that certain
Amendment to Credit Agreement dated as of January 11, 1994 (the
"First Amendment") (the Original Agreement, as amended by the
First Amendment, the "Credit Agreement") pursuant to which the
Bank has extended certain credit facilities to and for the
benefit of the Company.
B. The Company has requested that the Bank agree to certain
amendments of the Credit Agreement.
C. The Bank is willing to amend the Credit Agreement,
subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings, if any,
assigned to them in the Credit Agreement.
2. Amendments to Credit Agreement.
(a) Section 7.08 of the Credit Agreement shall be
amended by replacing the amount"$200,000,000" with the amount
"$161,000,000".
(b) The reference to "section 7.10(b)" in Section 3(f)
of the First Amendment shall first be replaced with "Section
7.10(a)" and Section 7.10(a) of the Credit Agreement shall then
be amended by replacing the amount "$90,000,000" with the amount
"$129,000,000".
3. Representations and Warranties. The Company hereby
represents and warrants to the Bank as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) The execution, delivery, and performance by the
Company of this Amendment have been duly authorized by all
necessary corporate and other action and do not and will not
require any registration with, consent or approval of, notice to
or action by, any Person (including any governmental authority)
in order to be effective and enforceable. The Credit Agreement
as amended by this Amendment constitutes the legal, valid, and
binding obligations of the Company, enforceable against it in
accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Company
contained in the Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the
basis of its own investigation and for its own reasons, without
reliance upon the Bank or any other Person.
4. Effective Date. This Amendment will become effective as
of January 25, 1994 (the" Effective Date") provided that each of
the following conditions precedent has been satisfied:
(a) The Bank has received from the Company a duly
executed original of this Amendment.
(b) All representations and warranties contained
herein are true and correct as of the Effective Date.
5. Reservation of Rights. The Company acknowledges and
agrees that the execution and delivery by the Bank of this
amendment shall not be deemed to create a course of dealing or
otherwise obligate the Bank to forbear or execute similar
amendments under the same or similar circumstances in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms,
covenants, and provisions of the Credit Agreement are and shall
remain in full force and effect and all references therein to
such Credit Agreement shall henceforth refer to the Credit
Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to
the benefit of the parties hereto and thereto and their
respective successors and assigns. No third party beneficiaries
are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed
in accordance with the law of the State of California.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all
such counterparts together shall constitute but one and the same
instrument.
(e) This Amendment, together with the Credit
Agreement, contains the entire and exclusive agreement of the
parties hereto with reference to the matters discussed herein and
therein. This Amendment supersedes all prior drafts and
communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 9.03
of the Credit Agreement.writing executed by both of the parties
hereto.
(f) If any term or provision of this Amendment shall
be deemed prohibited by or invalid under any applicable law, such
provision shall be invalidated without affecting the remaining
provisions of this Amendment or the Credit Agreement,
respectively.
(g) Company covenants to pay to or reimburse the Bank,
upon demand, for all costs and expenses (including allocated
costs of in-house counsel) incurred in the connection with the
development, preparation, negotiation, execution and delivery of
this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
3COM CORPORATION
By:
/s/Christopher B. Paisley
Title: CFO
BANK OF AMERICA
NATIONAL TRUST
AND
SAVINGS
ASSOCIATION
By: /s/Kevin
McMahon
Title: Vice
President
3Com Corporation
November 30, 1993
Second Quarter Report
To Our Shareholders
For the second quarter of fiscal 1994, we are pleased to report
record orders, sales and net income. Sales and orders were $205.3
million and $202.1 million, respectively. Net income of $21.5 million
($.65 per share) grew 60% sequentially, excluding non-recurring gains
from the August quarter, and 131% from the prior year.
These results reflected the company's focus on providing complete
desktop-to-WAN connectivity systems, as well as our ability to
leverage investments in sales, marketing, and engineering to improve
our operating model. Sales of the company's systems products,
including internetworking platforms and hubs, represented 35% of total
sales, increased 24% sequentially and 30% from the year-earlier
quarter. Sales of network adapters accounted for 59% of total sales,
and grew 31% sequentially and 45% from a year ago. Communication
servers and customer service accounted for most of the remaining 6% of
the company's business, increasing 11% sequentially but declining 11%
from last year. Additionally, sales outside the U.S. represented 51%
of total sales this quarter.
During the quarter we strengthened our leadership position in
global data networking with expanded geographic coverage, increased
investments in emerging technologies and new alliances. We opened a
new office in Mexico City and formed 3Com Japan to respond to the
unique data networking requirements of these growing regions.
We also strengthened our relationship with Anixter, Inc., one of
the world's largest integrators of networking and wiring systems with
150 locations worldwide. As the latest addition to our network
systems integration program, Anixter now provides their customers with
comprehensive networking systems using the full breadth of 3Com
products.
In a move to bring 100 megabits-per-second (Mbps) Ethernet
products to market quickly, 3Com joined with AT&T Microelectronics to
codevelop silicon for 100Base-T applications. The new silicon, based
on 3Com's pioneering Parallel Tasking technology, will ultimately
allow users to migrate smoothly from 10 Mbps to 100 Mbps Ethernet
networks.
Following the close of the quarter, we announced two strategic
moves that position 3Com squarely at the forefront of key emerging
markets. In December, the company announced a definitive agreement to
acquire Synernetics, Inc., the leader in Ethernet and FDDI switching
technologies, for $104 million. LAN switching is an important
technology which strengthens our High Performance Scalable Networking
strategy as well as our position in the hub and internetworking
markets. The two companies have worked together since 1991 to develop
the switching market and the agreement is the natural culmination of
these efforts. The transaction is expected to close in January.
We also announced an exclusive licensing agreement with Pacific
Monolithics, inc. to develop, manufacture and sell wireless LAN
products based on radio technology utilizing gallium arsenide.
Incorporating this innovative e technology with 3Com's Parallel
Tasking technology will allow seamless integration of mobile users
into existing Ethernet LANs, extending the full-wire functionality and
speed of 10 Mbps Ethernet into the portable domain for the first time.
The recent months have been very exciting and rewarding for 3Com.
As we look forward to the second half of fiscal 994, we will continue
to focus our efforts on providing customers with the complete
connectivity solutions they need to support their businesses both
today and in the future.
Eric A. Benhamou
President and CEO
CONSOLIDATED STATEMENT OF INCOME
QUARTER ENDED AUGUST 31, SIX MONTHS
ENDED NOVEMBER 30,
1993 1992 1993
1992
in thousands,
except per share data
(unaudited)
Sales $205,275 $152,697 $367,366
$288,314
Costs and Expenses:
Cost of sales 102,410 78,888 184,086
153,021
Sales and marketing 42,501 34,430 77,956
63,588
Research and development 18,163 16,271 34,041
31,974
General and administrative 8,689 8,484 16,893
16,817
_______ _______ _______
_______
Total 171,763 138,073 312,976
265,400
_______ _______ _______
_______
Operating income 33,512 14,624 54,390
22,914
Gain on sale of investment - - 17,746
- -
Other income (expense)_net (492) (769) (812)
(309)
Income before taxes 33,020 13,855 71,324
22,605
Income tax provision 11,557 4,575 23,747
7,475
_______ _______ _______
_______
Net income $ 21,463 $ 9,280 $ 47,577
$ 15,130
_______ _______ _______
_______
Earnings per share $ 0.65 $ 0.29 $ 1.44
$ 0.48
Shares used in computing
per share amount 33,159 31,493 33,124
31,381
_______ _______ _______
_______
CONSOLIDATED BALANCE SHEET
QUARTER
ENDED NOVEMBER 30,
1993
1992
in thousands, except per share data
(unaudited)
Assets
Current Assets:
Cash, cash equivalents and
temporary cash investments $160,759
$ 87,416
Trade receivable 100,113
80,498
Inventories 57,761
59,727
Other 41,048
26,915
_______
_______
Total current assets 359,681
254,556
Property and equipment_net 54,604
55,879
Other assets 8,577
11,984
_______
_______
Total $422,862
$332,419
_______
_______
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ -
$ 8,227
Accounts payable and accruals 101,733
83,935
Accrued restructuring costs 3,059
7,790
Income taxes payable 17,455
2,986
Current portion of long-term obligations 194
244
_______
_______
Total current liabilities 122,441
103,162
Long-term obligations 597
1,413
Accrued restructuring costs_non-current 289
1,516
Shareholders' Equity:
Common stock 162,365
134,240
Retained earnings 137,596
81,561
Accumulated translation adjustments
(426) 527
_______
_______
Total shareholders' equity 299,535
216,328
_______
_______
Total $422,862
$322,419
