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Filed pursuant to Rule 424(b)(3)
Registration No. 33-62297
[LETTERHEAD OF CHIPCOM CORPORATION]
September 11, 1995
Dear Stockholder:
As most of you are aware, Chipcom Corporation has entered into an agreement
to combine with 3Com Corporation ("3Com"). At a Special Meeting of Stockholders
to be held on October 12, 1995 (the "Special Meeting"), you will be asked to
consider and approve the Merger Agreement.
The Chipcom Board of Directors has unanimously approved the Merger Agreement
and recommends that you vote FOR the approval and adoption of the Merger
Agreement.
Our Board believes that the merger should enable the Company to benefit from
a broader range of products to meet the evolving computer networking needs of
our customers, a larger sales force and geographically more expansive
distribution channel, access to 3Com's technology base and the potential to
leverage 3Com's investments in research and development and its expertise in low
cost of design and efficiencies in manufacturing.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign and date the accompanying proxy card and return it promptly in
the enclosed postage-prepaid envelope. If you attend the Special Meeting, you
may vote in person if you wish, even though you have previously returned your
proxy. It is very important that your shares be represented and voted at the
Special Meeting. Your prompt cooperation will be greatly appreciated.
Sincerely,
Rob Held
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
CHIPCOM CORPORATION
SOUTHBOROUGH OFFICE PARK
118 TURNPIKE ROAD
SOUTHBOROUGH, MASSACHUSETTS 01772
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
OCTOBER 12, 1995
To the Stockholders of
Chipcom Corporation
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Chipcom Corporation, a Delaware corporation ("Chipcom"), will be
held on Thursday, October 12, 1995, at the offices of Hale and Dorr, 60 State
Street, Boston, Massachusetts, commencing at 9:00 a.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 26,
1995, by and among 3Com Corporation, a California corporation ("3Com"),
Chipcom Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of 3Com ("Sub"), and Chipcom, pursuant to which, among other
things, (a) Sub will be merged with and into Chipcom, which will be the
surviving corporation, and Chipcom will become a wholly-owned subsidiary of
3Com (the "Merger") and (b) each outstanding share of Common Stock, par
value $.02 per share, of Chipcom ("Chipcom Common Stock") will be converted
into the right to receive 1.06 shares of Common Stock, no par value, of
3Com; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on September 7, 1995 are
entitled to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof.
All stockholders are cordially invited to attend the Special Meeting in
person. However, to ensure your representation at the Special Meeting, you are
urged to complete and sign the enclosed proxy card and return it as promptly as
possible in the enclosed postage-prepaid envelope.
By Order of the Board of Directors
Robert P. Badavas
SECRETARY
September 11, 1995
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
<PAGE>
3COM CORPORATION
AND
CHIPCOM CORPORATION
------------------
CHIPCOM CORPORATION PROXY STATEMENT
------------------
3COM CORPORATION PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of Common
Stock, par value $.02 per share ("Chipcom Common Stock"), of Chipcom
Corporation, a Delaware corporation ("Chipcom"), in connection with the
solicitation of proxies by the Board of Directors of Chipcom (the "Chipcom
Board") for use at the Special Meeting of Chipcom Stockholders (the "Chipcom
Special Meeting") to be held on Thursday, October 12, 1995, at the offices of
Hale and Dorr, 60 State Street, Boston, Massachusetts, commencing at 9:00 a.m.,
local time, and at any adjournments or postponements thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of 3Com
Corporation, a California corporation ("3Com"), with respect to up to 19,504,000
shares of Common Stock, no par value ("3Com Common Stock"), of 3Com to be issued
in the Merger (as defined herein) in exchange for outstanding shares of Chipcom
Common Stock, including shares issued or issuable upon exercise of outstanding
options. All information contained in this Proxy Statement/Prospectus relating
to 3Com has been supplied by 3Com, and all information relating to Chipcom has
been supplied by Chipcom.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY CHIPCOM STOCKHOLDERS.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of Chipcom on or about September 11, 1995.
The date of this Proxy Statement/Prospectus is September 11, 1995.
<PAGE>
AVAILABLE INFORMATION
3Com and Chipcom are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by 3Com and Chipcom with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.
Copies of such material also can be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549 at prescribed rates. The 3Com Common
Stock and the Chipcom Common Stock are traded on the Nasdaq National Market.
Reports and other information concerning 3Com and Chipcom can also be inspected
at the offices of the National Association of Securities Dealers, Inc., Market
Listing Section, 1735 K Street, N.W., Washington, D.C. 20006.
3Com has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of 3Com Common Stock to be issued pursuant to the Merger Agreement. This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Proxy Statement/Prospectus or in any document incorporated by reference in this
Proxy Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following 3Com documents filed with the Commission are incorporated by
reference in this Proxy Statement/Prospectus:
1. 3Com's Annual Report on Form 10-K for the fiscal year ended May 31,
1995.
2. 3Com's Current Report on Form 8-K filed on August 1, 1995.
3. The description of 3Com's capital stock contained in 3Com's
Registration Statement on Form 8-A filed on September 22, 1989.
4. The description of 3Com's Common Stock purchase rights contained in
3Com's Registration Statement on Form 8-A/A filed on January 23, 1995.
The following Chipcom documents filed with the Commission are incorporated
by reference in this Proxy Statement/Prospectus:
1. Chipcom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
2. Chipcom's Quarterly Reports on Form 10-Q for the three-month periods
ended April 1, 1995 and July 1, 1995.
3. Chipcom's Current Reports on Form 8-K filed on June 19, 1995, August
3, 1995 and August 4, 1995.
All documents and reports subsequently filed by 3Com and Chipcom pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Chipcom Special Meeting
shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be part hereof from the date of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein
2
<PAGE>
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, IN THE CASE OF DOCUMENTS RELATING TO 3COM, DIRECTED TO 3COM
CORPORATION, 5400 BAYFRONT PLAZA, SANTA CLARA, CALIFORNIA 95052 (TELEPHONE
NUMBER (408) 764-5000), ATTENTION: INVESTOR RELATIONS, OR, IN THE CASE OF
DOCUMENTS RELATING TO CHIPCOM, DIRECTED TO CHIPCOM CORPORATION, SOUTHBOROUGH
OFFICE PARK, 118 TURNPIKE ROAD, SOUTHBOROUGH, MASSACHUSETTS 01772 (TELEPHONE
NUMBER (508) 460-8900), ATTENTION: INVESTOR RELATIONS. IN ORDER TO ASSURE TIMELY
DELIVERY OF THE REQUESTED MATERIAL BEFORE THE CHIPCOM SPECIAL MEETING, ANY
REQUEST SHOULD BE MADE PRIOR TO OCTOBER 4, 1995.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY 3COM OR CHIPCOM. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF 3COM OR CHIPCOM SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
3Com, AccessBuilder, Boundary Routing, CardBoard, CELLplex, EtherLink,
LANplex, LinkBuilder, NETBuilder, Parallel Tasking and TokenLink are registered
trademarks of 3Com. 3ComFacts, FDDILink, Impact, LinkSwitch, MSH, SuperStack and
Transcend are trademarks of 3Com. Aperture is a trademark of 3Com Primary
Access. Arpeggio is a registered trademark of 3Com Sonix Ltd. Chipcom, the
Chipcom logo, Galactica, ONcore and StarBridge are registered trademarks of
Chipcom. InfiNET, OpenHub, ONdemand, ONline, ONsemble, PowerRing, StackJack,
StackSystem, StackWay, SwitchCentral and TriChannel are trademarks of Chipcom.
This Proxy Statement/Prospectus may also include trademarks and trade names of
companies other than 3Com and Chipcom which are the property of their respective
owners.
NOTICE TO NEW HAMPSHIRE RESIDENTS: Neither the fact that a registration
statement or an application for a license has been filed with the State of New
Hampshire nor the fact that a security is effectively registered or a person is
licensed in the State of New Hampshire constitutes a finding by the Secretary of
State that any documents filed under RSA 421-B of the New Hampshire Uniform
Securities Act is true, complete and not misleading. Neither any such fact nor
the fact that an exemption or exception is available for a security or a
transaction means that the Secretary of State has passed in any way upon the
merits or qualifications of, or recommended or given approval to, any person,
security or transaction. It is unlawful to make, or cause to be made, to any
prospective purchaser, customer or client any representation inconsistent with
the provisions of this paragraph.
3
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 2
SUMMARY.................................................................................................... 6
The Companies............................................................................................ 6
Date and Place of the Chipcom Special Meeting............................................................ 7
Stockholders Entitled to Vote............................................................................ 7
Purpose of the Chipcom Special Meeting................................................................... 7
Vote Required............................................................................................ 7
Effect of the Merger..................................................................................... 7
Recommendation of the Chipcom Board of Directors......................................................... 8
Opinion of Financial Advisor to Chipcom.................................................................. 8
Interests of Certain Persons in the Merger............................................................... 8
Effective Time of the Merger............................................................................. 9
Management of Chipcom After the Merger................................................................... 9
Conditions to the Merger................................................................................. 9
Termination.............................................................................................. 9
Surrender of Certificates................................................................................ 9
No Appraisal Rights...................................................................................... 10
Certain Federal Income Tax Consequences.................................................................. 10
Accounting Treatment..................................................................................... 10
Comparison of Stockholder Rights......................................................................... 10
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........................................ 11
COMPARATIVE PER SHARE DATA................................................................................. 15
MARKET PRICE INFORMATION................................................................................... 17
RISK FACTORS............................................................................................... 18
THE CHIPCOM SPECIAL MEETING................................................................................ 23
General.................................................................................................. 23
Matters To Be Considered at the Meeting.................................................................. 23
Voting at the Meeting; Record Date....................................................................... 23
Proxies.................................................................................................. 24
THE MERGER................................................................................................. 25
Background of the Merger................................................................................. 25
Reasons for the Merger; Recommendation of Chipcom Board of Directors..................................... 28
Opinion of Financial Advisor to Chipcom.................................................................. 31
Interests of Certain Persons in the Merger............................................................... 34
Accounting Treatment..................................................................................... 35
Certain Federal Income Tax Consequences.................................................................. 35
Regulatory Approvals..................................................................................... 37
Federal Securities Law Consequences...................................................................... 37
Nasdaq National Market Quotation......................................................................... 38
No Appraisal Rights...................................................................................... 38
Certain Legal Proceedings................................................................................ 38
THE MERGER AGREEMENT....................................................................................... 39
The Merger............................................................................................... 39
Conversion of Securities................................................................................. 39
Representations and Warranties........................................................................... 40
Certain Covenants and Agreements......................................................................... 40
</TABLE>
4
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<TABLE>
<CAPTION>
PAGE
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No Solicitation.......................................................................................... 41
<S> <C>
Related Matters After the Merger......................................................................... 42
Indemnification.......................................................................................... 42
Conditions............................................................................................... 43
Stock Option and Benefit Plans........................................................................... 43
Termination; Termination Fees and Expenses............................................................... 44
Amendment and Waiver..................................................................................... 45
INFORMATION CONCERNING 3COM................................................................................ 46
Business................................................................................................. 46
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 55
Management............................................................................................... 60
Security Ownership of Certain Beneficial Owners and Management........................................... 63
INFORMATION CONCERNING CHIPCOM............................................................................. 64
Business................................................................................................. 64
Security Ownership of Certain Beneficial Owners and Management........................................... 72
Chipcom Stockholder Rights Plan.......................................................................... 73
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 74
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 80
DESCRIPTION OF 3COM CAPITAL STOCK.......................................................................... 86
Common Stock............................................................................................. 86
Certain Charter Provisions............................................................................... 86
Preferred Stock.......................................................................................... 87
3Com Shareholder Rights Plan............................................................................. 87
LEGAL MATTERS.............................................................................................. 88
EXPERTS.................................................................................................... 88
INDEX TO 3COM SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS............................................... F-1
ANNEX A AGREEMENT AND PLAN OF MERGER.................................................................... A-1
ANNEX B OPINION OF WESSELS, ARNOLD & HENDERSON, L.L.C................................................... B-1
</TABLE>
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED, OR
INCORPORATED BY REFERENCE, IN THIS PROXY STATEMENT/PROSPECTUS AND THE ANNEXES
HERETO. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY
HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES IN THEIR ENTIRETY.
ALL SHARE AND PER SHARE DATA IN THIS PROXY STATEMENT/PROSPECTUS REFLECT ALL
STOCK SPLITS OF 3COM COMMON STOCK AND CHIPCOM COMMON STOCK EFFECTED PRIOR TO THE
DATE HEREOF.
THE COMPANIES
3COM. 3Com designs, develops, manufactures, markets and supports a broad
range of ISO 9000-compliant global data networking connectivity solutions for
building/campus backbone, wide-area network ("WAN") backbone, workgroup, remote
office and personal office environments. 3Com offers virtually all the necessary
components to build and manage these networking infrastructures, including
routers, hubs, remote access servers, switches, adapters and network management
for Ethernet, Token Ring, fiber distributed data interface ("FDDI"),
Asynchronous Transfer Mode ("ATM") and other high-speed data networks. As data
networks have grown in size and importance and have become the primary computing
environment for many organizations, customers are demanding increased
performance, scalability and network access. 3Com's architecture for scaling
performance and extending the reach of customers' data networks is called High
Performance Scalable Networking ("HPSN"). HPSN encompasses the full breadth of
3Com's products and provides a blueprint for planning, implementing and managing
customers' connectivity systems requirements. With an emphasis on industry
standards, interoperability and investment protection, 3Com solutions are
designed to reduce the overall cost of network ownership.
3Com's products are marketed worldwide through multiple indirect channels,
such as systems integrators, value-added resellers, distributors and original
equipment manufacturers ("OEMs"), as well as directly to certain customers. 3Com
maintains sales offices in 32 countries, service and support centers on three
continents and manufacturing and distribution centers in the U.S. and Europe.
3Com sells its products to a wide range of customers in a variety of markets,
including financial services, education, government, healthcare, manufacturing
and technology.
3Com was incorporated in California in June 1979. 3Com's executive offices
are located at 5400 Bayfront Plaza, Santa Clara, California 95052, and its
telephone number at that address is (408) 764-5000.
CHIPCOM. Chipcom designs, manufactures and distributes computer networking
intelligent switching systems, including hubs and internetworking and network
management products. Chipcom's products are designed to allow users to build and
manage networks with dissimilar personal computers, workstations, cabling
systems and communications protocols within an entire building or campus or
across remote locations of an enterprise. As entire organizations move to
network (client/server) computing, features such as reliability, flexibility and
manageablility are critical to the enterprise network. Chipcom is using its
technology and product strategy in support of the evolution to enterprise
networks.
The ONline System Concentrator and related products, Chipcom's initial
intelligent switching system, was first introduced in 1990. The Online System
product family includes numerous modules to support Ethernet, Token Ring and
FDDI communications protocols being transmitted over various types of cabling
systems, such as shielded or unshielded twisted pair wiring, fiber-optic cable
and thick or thin coaxial cable.
During 1994, Chipcom introduced the ONcore Switching System, Chipcom's
next-generation, high-capacity, highly scalable, intelligent switching hub
designed for high-end enterprise networks. The InfiNET Switching Solution, also
introduced in 1994, is a family of packet-switching products
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which provide increased network capacity and speed, or network "bandwidth."
During the first quarter of 1995, Chipcom introduced the ONsemble StackSystem
family of products. These Ethernet and Token Ring hubs and internetworking
products are designed for remote sites or workgroups and provide a stackable
architecture scaled to the requirements of smaller installations.
Chipcom markets and sells its products worldwide primarily through
third-party distribution channels, including value-added resellers, OEMs and
distributors.
Chipcom was incorporated in Delaware in August 1983. Chipcom's principal
executive offices are located at 118 Turnpike Road, Southborough, Massachusetts
01772, and its telephone number at that address is (508) 460-8900.
DATE AND PLACE OF THE CHIPCOM SPECIAL MEETING
The Chipcom Special Meeting will be held on Thursday, October 12, 1995, at
the offices of Hale and Dorr, 60 State Street, Boston, Massachusetts, commencing
at 9:00 a.m., local time.
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Chipcom Common Stock at the close of business
on September 7, 1995, are entitled to notice of and to vote at the Chipcom
Special Meeting. At such date there were 17,106,898 shares of Chipcom Common
Stock outstanding, each of which will be entitled to one vote on each matter to
be acted upon or which may properly come before the Chipcom Special Meeting.
PURPOSE OF THE CHIPCOM SPECIAL MEETING
The purpose of the Chipcom Special Meeting is to consider and vote upon (i)
a proposal to approve and adopt the Merger Agreement and (ii) such other matters
as may properly be brought before the Chipcom Special Meeting, or any
postponements or adjournments thereof.
VOTE REQUIRED
The approval and adoption of the Merger Agreement by Chipcom stockholders
will require the affirmative vote of the holders of a majority of the
outstanding shares of Chipcom Common Stock.
EFFECT OF THE MERGER
Upon consummation of the Merger, pursuant to the Merger Agreement, (i)
Chipcom Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of 3Com ("Sub"), will be merged with and into Chipcom, which will be
the surviving corporation, and Chipcom will become a wholly-owned subsidiary of
3Com, and (ii) each issued and outstanding share of Chipcom Common Stock will be
converted into the right to receive (a) 1.06 shares of 3Com Common Stock (the
"Conversion Number" or "Exchange Ratio") and (b) the related 3Com Common Stock
Purchase Rights. See "Description of 3Com Capital Stock -- 3Com Shareholder
Rights Plan." Fractional shares of 3Com Common Stock will not be issuable in
connection with the Merger. Chipcom stockholders otherwise entitled to a
fractional share will be paid the value of such fraction in cash determined as
described herein under "The Merger Agreement -- The Merger."
Upon consummation of the Merger, each then-outstanding option to purchase
Chipcom Common Stock (a "Chipcom Option") will be assumed by 3Com and
automatically converted into an option (a "3Com Option") to purchase the number
of shares of 3Com Common Stock (rounded down to the nearest whole number) that
the holder of such Chipcom Option would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full immediately prior to
the consummation of the Merger, at a price per share (rounded up to the nearest
whole cent) equal to the aggregate exercise price for the shares of Chipcom
Common Stock otherwise purchasable pursuant to such Chipcom Option divided by
the number of whole shares of 3Com Common Stock purchasable pursuant to the 3Com
Option which replaces such Chipcom Option. See "The Merger Agreement -- Stock
Option and Benefit Plans."
7
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Based upon the capitalization of Chipcom and 3Com as of July 31, 1995, the
stockholders of Chipcom immediately prior to consummation of the Merger will own
approximately 11.1% of the outstanding shares of 3Com Common Stock immediately
following consummation of the Merger.
RECOMMENDATION OF THE CHIPCOM BOARD OF DIRECTORS
The Board of Directors of Chipcom has unanimously approved the Merger
Agreement and recommends that holders of Chipcom Common Stock approve and adopt
the Merger Agreement. See "The Merger -- Reasons for the Merger; Recommendations
of the Chipcom Board of Directors."
OPINION OF FINANCIAL ADVISOR TO CHIPCOM
Wessels, Arnold & Henderson, L.L.C. ("Wessels, Arnold & Henderson")
delivered its oral opinion to the Board of Directors of Chipcom on July 26,
1995, confirmed in writing by a written opinion of the same date, to the effect
that the terms of the Merger are fair from a financial point of view to the
holders of Chipcom Common Stock. The full text of the written opinion of
Wessels, Arnold & Henderson, which sets forth the assumptions made, the scope
and limitations of the review undertaken and the procedures followed by Wessels,
Arnold & Henderson, is attached hereto as Annex B and is incorporated herein by
reference. HOLDERS OF CHIPCOM COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. See "The Merger -- Opinion of Financial Advisor to
Chipcom."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of July 31, 1995, directors and executive officers of 3Com and their
affiliates may be deemed to be beneficial owners of approximately 3.0% of the
outstanding shares of 3Com Common Stock. See "Information Concerning 3Com --
Security Ownership of Certain Beneficial Owners and Management."
As of July 31, 1995, directors and executive officers of Chipcom and their
affiliates may be deemed to be beneficial owners of approximately 3.0% of the
outstanding shares of Chipcom Common Stock. See "Information Concerning Chipcom
-- Security Ownership of Certain Beneficial Owners and Management."
Certain stock option agreements previously entered into with Menachem E.
Abraham, Robert P. Badavas, Bruce L. Cohen, J. Robert Held, John C. Meyer, Roy
J. Moffa and Ellen R. Kokos, who are officers of Chipcom, provide that certain
unvested options granted to such officers shall accelerate upon the closing of
the Merger. Assuming the Merger is consummated on October 13, 1995, such
officers would hold unvested options to acquire an aggregate of 507,511 shares
of Chipcom Common Stock (the "Officer Options"), the vesting of which will
accelerate by 12 months. After giving effect to this acceleration, Officer
Options to purchase 226,815 shares of Chipcom Common Stock held by such officers
will then be exercisable, with exercise prices ranging from $12.75 to $41.50 per
share.
Richard M. Burnes, Jr., Jerald G. Fishman, Frank A. Onians, William H.
Sitter and Victoria A. Brown, members of Chipcom's Board of Directors, hold
options to purchase an aggregate of 132,500 shares of Chipcom Common Stock
granted under Chipcom's 1991 Director Stock Option Plan, as amended. Under the
terms of said plan, all such outstanding options shall become exercisable in
full upon the consummation of the Merger. Assuming the Merger is consummated on
October 13, 1995, these provisions will result in the accelerated vesting of an
aggregate of 77,000 shares of Chipcom Common Stock subject to options held by
such directors, with exercise prices ranging from $8.34 to $32.75 per share.
The Board of Directors of Chipcom adopted an Amended and Restated Severance
Benefit Plan (the "Chipcom Severance Plan"), effective as of October 15, 1992.
The Chipcom Severance Plan provides that each executive officer of Chipcom and
certain other management level employees (individually, a "Participant") shall
be entitled to compensation and certain benefits upon the occurrence of a
"Triggering Event." Under the Chipcom Severance Plan, a "Triggering Event" means
(i) termination of a Participant's employment within 18 months following a
"change in control" of Chipcom (as defined in the Chipcom Severance Plan) by
Chipcom, unless such termination is for "cause" (as defined in the Chipcom
Severance Plan), or by the Participant for "good reason" (as
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defined in the Chipcom Severance Plan), or (ii) death or disability of a
Participant. The Merger will constitute a "change in control" for purposes of
the Chipcom Severance Plan. Upon the occurrence of a Triggering Event within 18
months following the consummation of the Merger, a Participant shall be entitled
to receive an amount equal to up to one year's compensation. In addition, the
exercise dates of all stock options and restricted stock awards held by the
Participant will be accelerated in full and such Participant shall be entitled
to continue to receive for a period of up to one year any benefits to which he
or she was entitled prior to termination. The amount, timing and duration of any
payment or benefit received by a Participant under the Chipcom Severance Plan
following termination varies according to whether he or she is an executive
officer or a management level employee and the type of Triggering Event.
EFFECTIVE TIME OF THE MERGER
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite approval of the Chipcom stockholders has been
obtained and all other conditions to the Merger have been satisfied or waived
(the "Effective Time"). It is anticipated that, assuming all conditions are met,
the Merger will occur on October 13, 1995.
MANAGEMENT OF CHIPCOM AFTER THE MERGER
After the Effective Time, it is expected that a majority of the current
management of Chipcom will continue as members of management of 3Com or Chipcom
and that Chipcom will operate as a wholly-owned subsidiary of 3Com.
CONDITIONS TO THE MERGER
The obligations of 3Com and Chipcom to consummate the Merger are subject to
the satisfaction of certain conditions, including, but not limited to, obtaining
requisite stockholder and regulatory approvals, approval for quotation on the
Nasdaq National Market of the 3Com Common Stock to be issued pursuant to the
Merger, the absence of any injunction prohibiting consummation of the Merger,
the continuing accuracy of the representations and warranties made in the Merger
Agreement on and as of the Effective Time, the receipt of certain legal opinions
with respect to tax matters and the receipt and confirmation of certain
accountants' letters with respect to qualification of the Merger as a pooling of
interests transaction. See "The Merger -- Accounting Treatment," "The Merger --
Certain Federal Income Tax Consequences" and "The Merger Agreement --
Conditions."
The consummation of the Merger is subject to certain regulatory matters,
including expiration of the relevant waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). On August 11,
1995, 3Com and Chipcom each filed a notification and report form. The waiting
period under the HSR Act expired on September 10, 1995. See "The Merger --
Regulatory Approvals."
TERMINATION
The Merger Agreement is subject to termination by mutual written consent of
3Com and Chipcom and at the option of either 3Com or Chipcom if the Merger is
not consummated before December 31, 1995. The Merger Agreement is also subject
to termination upon the occurrence of certain other events. Under certain
circumstances, Chipcom may be required to reimburse 3Com for its expenses up to
$1,000,000 and to pay 3Com a termination fee of $23,000,000 if the Merger
Agreement is terminated. See "The Merger Agreement -- Termination; Termination
Fees and Expenses."
SURRENDER OF CERTIFICATES
If the Merger becomes effective, 3Com will mail a letter of transmittal with
instructions to all holders of record of Chipcom Common Stock immediately prior
to the Merger for use in surrendering their stock certificates in exchange for
certificates representing shares of 3Com Common Stock and a cash payment in lieu
of fractional shares, if any. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE
LETTER OF TRANSMITTAL IS RECEIVED. See "The Merger Agreement -- Conversion of
Securities."
9
<PAGE>
NO APPRAISAL RIGHTS
Holders of Chipcom Common Stock are not entitled to dissenters' appraisal
rights under the Delaware General Corporation Law (the "DGCL") in connection
with the Merger because the Chipcom Common Stock is quoted on the Nasdaq
National Market and the shares of 3Com Common Stock to be issued pursuant to the
Merger will be quoted on the Nasdaq National Market as of the Effective Time.
See "The Merger -- No Appraisal Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization so that no gain or
loss would be recognized by 3Com or Chipcom and no gain or loss would be
recognized by Chipcom stockholders, except in respect of cash received in lieu
of fractional shares. It is a condition to the Merger that 3Com and Chipcom
shall have each received an opinion of their respective counsel to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). For a
further discussion of federal income tax consequences of the Merger, see "The
Merger -- Certain Federal Income Tax Consequences." See also "The Merger
Agreement -- Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to the Merger that 3Com and
Chipcom shall have received letters from Deloitte & Touche LLP and Price
Waterhouse LLP, their respective independent accountants, to the effect that
they know of nothing with respect to 3Com or Chipcom, respectively, that would
prohibit the business combination to be effected by the Merger from qualifying
as a pooling of interests transaction under generally accepted accounting
principles. See "The Merger -- Accounting Treatment" and "The Merger Agreement
-- Conditions."
COMPARISON OF STOCKHOLDER RIGHTS
See "Comparison of Stockholder Rights" for a summary of the material
differences between the rights of holders of 3Com Common Stock and Chipcom
Common Stock.
10
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected supplemental historical consolidated financial data of 3Com and
the selected historical consolidated financial data of Chipcom have been derived
from their respective audited historical and supplemental historical financial
statements and should be read in conjunction with such financial statements and
notes thereto, which are either included or incorporated by reference elsewhere
in this Proxy Statement/Prospectus. 3Com's supplemental consolidated balance
sheet and statements of operations for the periods presented include the balance
sheet and statements of operations of Primary Access Corporation ("Primary
Access"), with which 3Com consummated a business combination accounted for on a
pooling of interests basis as of June 9, 1995, and also reflect a two-for-one
split of 3Com Common Stock issued on August 25, 1995 to shareholders of record
as of August 4, 1995. The Chipcom selected historical consolidated unaudited
financial data as of July 1, 1995 and for the six months ended July 1, 1995 have
been prepared on the same basis as the historical financial data derived from
its audited financial statements and, in the opinion of Chipcom management,
contain all adjustments, consisting only of normal recurring accruals, necessary
for the fair presentation of the results of operations for such periods.
Chipcom's operating results for the six months ended July 1, 1995 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 30, 1995.
The selected unaudited pro forma combined financial data give effect to the
proposed Merger on a pooling of interests basis. The unaudited pro forma
combined financial data is based on the respective historical and supplemental
historical financial statements and the notes thereto, which are either included
or incorporated by reference elsewhere in this Proxy Statement/Prospectus. The
unaudited pro forma combined balance sheet assumes that the Merger took place on
May 31, 1995 and combines 3Com's May 31, 1995 supplemental consolidated balance
sheet with Chipcom's July 1, 1995 unaudited consolidated balance sheet. The
unaudited pro forma combined statements of operations assume that the Merger
took place as of the beginning of the periods presented and combine 3Com's
supplemental consolidated statements of operations for the fiscal years ended
May 31, 1995, 1994 and 1993 with Chipcom's results of operations for the twelve
months ended July 1, 1995, and for the years ended December 25, 1993 and
December 26, 1992, respectively. This presentation has the effect of excluding
Chipcom's results of operations for the six-month period ended June 25, 1994
from the pro forma combined statement of operations data.
The unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods of the results
that actually would have been realized had the entities been a single entity
during these periods. The unaudited pro forma combined financial data is derived
from the unaudited pro forma combined financial statements appearing elsewhere
herein and should be read in conjunction with those statements and notes
thereto. See "Unaudited Pro Forma Combined Financial Statements."
11
<PAGE>
3COM
SELECTED SUPPLEMENTAL HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Sales....................................... $ 1,325,693 $ 851,047 $ 630,966 $ 429,597 $ 413,498
Operating income (loss)..................... 196,517 3,422 60,213 4,701 (46,058)
Net income (loss) (1)....................... 125,999 (24,216) 39,677 4,591 (27,739)
Net income (loss) per common and equivalent
share (1).................................. 0.83 (0.19) 0.30 0.04 (0.23)
Common and equivalent shares used in
computing per share amounts................ 152,698 129,620 132,872 123,312 121,936
SUPPLEMENTAL HISTORICAL CONSOLIDATED BALANCE
SHEET DATA (END OF PERIOD):
Working capital............................. $ 451,411 $ 206,313 $ 199,866 $ 144,053 $ 150,280
Total assets................................ 857,806 457,240 374,863 301,047 276,660
Long-term obligations....................... 111,094 1,229 1,367 8,225 8,261
Shareholders' equity........................ 474,788 289,429 262,445 202,253 194,360
<FN>
------------------------
(1) Net income for fiscal 1995 included a charge of approximately $60.8 million
($.24 per share) for purchased in-process technology primarily associated
with the acquisition of NiceCom, Ltd. ("NiceCom") and a charge of $6.1
million ($.04 per share) for merger costs associated with the acquisitions
of Sonix Communications Limited ("Sonix") and Primary Access.
</TABLE>
Net loss for fiscal 1994 included a charge of approximately $134.5 million
($.93 per share) for purchased in-process technology resulting from 3Com's
acquisitions of Synernetics, Inc. ("Synernetics") and Centrum
Communications, Inc. ("Centrum") and an exclusive technology licensing
agreement with Pacific Monolithics, Inc. ("Pacific Monolithics"), a gain of
approximately $17.7 million ($.08 per share) relating to the sale of an
investment and a tax benefit of $1.2 million ($.01 per share) resulting from
retroactive tax law changes.
Net income for fiscal 1993 included non-recurring items totalling $1.3
million ($.01 per share) which consisted of the net cost of a litigation
settlement of $3.6 million, merger costs of $1.0 million related to the
acquisition of Star-Tek, Inc. ("Star-Tek"), offset by a reduction in accrued
restructuring costs of $3.3 million based on revised estimates of future
costs.
Net income for fiscal 1992 included a charge of approximately $10.4 million
($.07 per share) for purchased in-process technology resulting from 3Com's
acquisition of the data networking products business of BICC Group, plc.
("BICC").
Net loss for fiscal 1991 included a restructuring charge of $67.0 million
($.36 per share) related to 3Com's exit from the workgroup systems business,
the sale of the Maxess SNA connectivity product line, the amendment of
3Com's license agreement with Microsoft Corporation ("Microsoft") making
Microsoft solely responsible for the standard LAN Manager network operating
system, and a reduction in 3Com's workforce by approximately 12 percent.
12
<PAGE>
CHIPCOM
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
------------------------ ---------------------------------------------------------
JULY 1, JUNE 25, DEC. 31, DEC. 25, DEC. 26, DEC. 28, DEC. 29,
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales............................... $ 157,721 $ 113,188 $ 267,776 $ 160,486 $ 92,265 $ 52,819 $ 34,004
Operating income (loss)............. 13,529 12,170 27,939 20,075 9,697 3,437 (644)
Income (loss) before cumulative
effect of change in accounting
principle.......................... 9,218 8,005 18,560 12,346 5,369 1,189 (1,016)
Net income (loss)................... 9,218 8,005 18,560 14,549 5,369 1,189 (1,016)
Income (loss) per share before
cumulative effect of change in
accounting principle............... 0.52 0.47 1.07 0.78 0.38 0.10 (0.11)
Net income (loss) per common and
equivalent share................... 0.52 0.47 1.07 0.92 0.38 0.10 (0.11)
Common and equivalent shares used in
computing per share amounts........ 17,725 17,145 17,341 15,791 14,178 11,556 8,948
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA (END OF PERIOD):
Working capital..................... $ 124,539 $ 119,280 $ 100,704 $ 42,699 $ 41,022 $ 8,853
Total assets........................ 236,130 221,853 157,928 82,215 58,121 20,004
Long-term debt...................... 29 284 1,058 3,466 4,995 3,959
Stockholders' equity................ 172,663 158,936 124,693 58,659 42,644 9,085
</TABLE>
------------------------
As a result of the merger between Chipcom and Artel Communications
Corporation ("Artel") effective February 14, 1994, the above financial data
for all periods reflects the combined results of operations of the two
companies.
On August 31, 1994, Chipcom acquired DSI ExpressNetworks, Inc. ("DSI"). The
results of operations of DSI are included in Chipcom's consolidated
financial data since August 31, 1994.
Net income and per share data for the year ended December 31, 1994 include
merger and acquisition related expenses incurred in conjunction with
Chipcom's merger with Artel and Chipcom's acquisition of DSI. Excluding
these one-time charges, net income and net income per share would have been
$26.8 million and $1.54, repectively.
All per share data reflects a three-for-two stock split effected November
14, 1994 in the form of a dividend.
Net income and net income per share data for 1993 include the favorable
effect of the required adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." This adoption increased
net income and net income per share by approximately $2.2 million and $.14,
respectively.
13
<PAGE>
3COM AND CHIPCOM
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------
1995 1994 1993
------------- ------------- -----------
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Sales................................................................ $ 1,638,002 $ 1,011,533 $ 723,231
Operating income..................................................... 225,815 23,497 69,910
Net income (loss).................................................... 143,772 (11,870) 45,046
Net income (loss) per common and equivalent share (1)................ 0.84 (0.08) 0.30
Common and equivalent shares used in computing per share amounts..... 171,387 145,139 147,901
PRO FORMA COMBINED BALANCE SHEET DATA (END OF PERIOD):
Working capital...................................................... $ 540,050
Total assets......................................................... 1,068,117
Long-term obligations................................................ 116,472
Shareholders' equity................................................. 605,551
Book value per share (2)............................................. 3.76
<FN>
------------------------
(1) The pro forma combined net income (loss) per common and equivalent share is
based upon the weighted average number of common and equivalent shares
outstanding (except where inclusion of common equivalent shares is
antidilutive) of 3Com and Chipcom for each period at the Exchange Ratio of
1.06 of shares of 3Com Common Stock for each share of Chipcom Common Stock.
(2) Book value per share is computed by dividing pro forma shareholders' equity
by the pro forma number of shares of Common Stock outstanding at the end of
the period at the Exchange Ratio of 1.06 shares of 3Com Common Stock for
each share of Chipcom Common Stock.
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth certain historical and supplemental
historical per share data of 3Com and Chipcom and unaudited pro forma and
equivalent pro forma combined per share data after giving effect to the proposed
Merger on a pooling of interests basis at the Exchange Ratio of 1.06 shares of
3Com Common Stock for each share of Chipcom Common Stock. This data should be
read in conjunction with the selected historical and supplemental historical
financial data, the unaudited pro forma combined financial statements and the
separate historical and supplemental historical consolidated financial
statements of 3Com and Chipcom and the notes thereto incorporated in or included
elsewhere in this Proxy Statement/Prospectus. The unaudited pro forma combined
financial data are not necessarily indicative of the operating results or
financial position that would have been achieved had the Merger been consummated
at the beginning of the periods presented and should not be construed as
representative of future operations. Neither Chipcom nor 3Com has ever declared
or paid cash dividends on their respective shares of capital stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
MAY 31, MAY 31, MAY 31,
1995 1994 1993
----------- --------- -----------
<S> <C> <C> <C> <C>
Supplemental historical -- 3Com:
Net income (loss) per share.................................... $ 0.83 $ (0.19) $ 0.30
Book value per share (1)....................................... 3.32 2.15 2.06
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
SIX MONTHS ENDED DEC. 31, DEC. 25, DEC. 26,
JULY 1, 1995 1994 1993 1992
----------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Historical -- Chipcom:
Income per share before cumulative effect of change in
accounting principle (2)...................................... $ 0.52 $ 1.07 $ 0.78 $ 0.38
Book value per share (1)....................................... 10.11 9.47 7.86 4.27
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
1995 1994 1993
----------- --------- -----------
<S> <C> <C> <C> <C>
Pro forma and equivalent pro forma combined net income (loss) per
share before cumulative effect of change in accounting principle
(3)(4):
Pro forma combined net income (loss) per 3Com share............ $ 0.84 $ (0.08) $ 0.30
Equivalent pro forma combined net income (loss) per Chipcom
share (5)..................................................... 0.89 (0.08) 0.32
<CAPTION>
MAY 31,
1995
-----------
<S> <C> <C> <C> <C>
Pro forma combined book value per share (3)(4)(6):
Pro forma combined book value per 3Com share................... $ 3.76
Equivalent pro forma combined book value per Chipcom share
(5)........................................................... 3.99
<FN>
------------------------
(1) The historical and supplemental historical book value per share is computed
by dividing shareholders' equity by the number of shares of Common Stock
outstanding at the end of each period.
(2) Chipcom adopted Statement of Financial Accounting Standards No. 109
effective at the beginning of fiscal 1993.
(3) The unaudited pro forma combined net income (loss) per common and
equivalent share data is based upon the weighted average number of common
and equivalent shares of 3Com and
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Chipcom for each period at the Exchange Ratio of 1.06 shares of 3Com Common
Stock for each share of Chipcom Common Stock. Net income (loss) of 3Com for
the fiscal year ended May 31, 1995, 1994 and 1993 has been combined with
the net income of Chipcom for the twelve months ended July 1, 1995 and for
the fiscal years ended December 25, 1993 and December 26, 1992,
respectively. The presentation has the effect of excluding Chipcom's
results of operations for the six-months period ended June 24, 1994 from
the pro forma and equivalent pro forma combined net income (loss) per
share. The pro forma and equivalent pro forma combined book value per share
data reflect 3Com's per share data as of May 31, 1995 and Chipcom's per
share data as of July 1, 1995.
(4) 3Com and Chipcom estimate they will incur direct transaction costs of
approximately $10 million associated with the Merger, consisting of fees
for investment banking, legal, accounting, financial printing and other
related charges.
</TABLE>
In addition, it is expected that as a result of the Merger, the combined
company will incur restructuring expenses estimated to be between $40 and
$50 million. For the purposes of the preparation of the unaudited pro forma
combined financial statements, an estimate of $55 million is used for the
sum of transaction costs and restructuring expenses. The restructuring
expenses are expected to include:
- write-off of assets including capitalized software, purchased
technology, inventory and fixed assets associated with duplicate
product lines;
- elimination of duplicate management information systems and
facilities, including cancellation of leases; and
- severance and outplacement costs.
The income tax effect of these expenses has also been reflected as a pro
forma adjustment. These nonrecurring costs will be charged to operations in
the fiscal quarter in which the Merger is consummated. The unaudited pro
forma combined balance sheet gives effect to such expenses as if they had
been incurred as of May 31, 1995, but the effects of these costs have not
been reflected in the unaudited pro forma combined statements of operations.
(5) The unaudited pro forma combined net income (loss) per equivalent Chipcom
share amounts and the unaudited pro forma book value per equivalent Chipcom
share amounts are calculated by multiplying the respective unaudited pro
forma combined per 3Com share amounts by the Exchange Ratio of 1.06 shares
of 3Com Common Stock for each share of Chipcom Common Stock.
(6) The unaudited pro forma combined book value per share is computed by
dividing unaudited pro forma combined shareholders' equity by the unaudited
pro forma number of shares of Common Stock outstanding at the end of each
period.
16
<PAGE>
MARKET PRICE INFORMATION
The following table sets forth the range of high and low sale prices
reported on the Nasdaq National Market for 3Com Common Stock for the fiscal
periods indicated (share prices have been adjusted to reflect two-for-one stock
splits, effective August 25, 1995 and September 1, 1994):
<TABLE>
<CAPTION>
3COM
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended May 31, 1994:
First Quarter.......................................................... $ 7.31 $ 4.91
Second Quarter......................................................... 9.25 6.03
Third Quarter.......................................................... 15.81 8.84
Fourth Quarter......................................................... 15.94 11.61
Fiscal Year Ended May 31, 1995:
First Quarter.......................................................... $ 17.28 $ 10.06
Second Quarter......................................................... 23.00 15.75
Third Quarter.......................................................... 26.63 20.06
Fourth Quarter......................................................... 34.63 25.69
Fiscal Year Ending May 31, 1996:
First Quarter.......................................................... $ 40.81 $ 30.44
Second Quarter (through September 7, 1995)............................. 41.13 38.38
</TABLE>
The following table sets forth the range of high and low sale prices
reported on the Nasdaq National Market for Chipcom Common Stock for the fiscal
periods indicated (share prices have been adjusted to reflect a three-for-two
stock split effective November 14, 1994):
<TABLE>
<CAPTION>
CHIPCOM
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended December 25, 1993:
First Quarter.......................................................... $ 23.00 $ 17.00
Second Quarter......................................................... 29.00 19.17
Third Quarter.......................................................... 37.00 26.33
Fourth Quarter......................................................... 36.33 28.92
Fiscal Year Ended December 31, 1994:
First Quarter.......................................................... $ 39.75 $ 31.50
Second Quarter......................................................... 36.75 20.75
Third Quarter.......................................................... 39.38 23.38
Fourth Quarter......................................................... 50.50 31.88
Fiscal Year Ending December 30, 1995:
First Quarter.......................................................... $ 47.25 $ 37.75
Second Quarter......................................................... 35.50 20.13
Third Quarter (through September 7, 1995).............................. 43.88 21.50
</TABLE>
The following table sets forth the closing prices per share of 3Com Common
Stock and Chipcom Common Stock on the Nasdaq National Market on July 26, 1995,
the last full trading date prior to the execution and delivery of the Merger
Agreement and the public announcement thereof, and on September 7, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus;
and the equivalent per share prices for Chipcom Common Stock based on the 3Com
Common Stock prices multiplied by the Exchange Ratio of 1.06:
<TABLE>
<CAPTION>
3COM COMMON CHIPCOM COMMON CHIPCOM
STOCK STOCK EQUIVALENT
-------------- -------------- -----------
<S> <C> <C> <C>
July 26, 1995..................................... $ 37.82 $ 29.75 $ 40.08
September 7, 1995................................. 39.50 41.38 41.87
</TABLE>
Because the market price of 3Com Common Stock is subject to fluctuation, the
market value of the shares of 3Com Common Stock that holders of Chipcom Common
Stock will receive in the Merger may increase or decrease prior to the Merger.
CHIPCOM STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION OF THE
CHIPCOM COMMON STOCK AND THE 3COM COMMON STOCK.
17
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY HOLDERS OF CHIPCOM COMMON
STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER AGREEMENT AND THEREBY BECOME
HOLDERS OF 3COM COMMON STOCK. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION
WITH THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS.
RISKS RELATING TO THE MERGER
INTEGRATION OF CHIPCOM OPERATIONS. The managements of 3Com and Chipcom have
entered into the Merger Agreement with the expectation that the Merger will
result in beneficial synergies. See "The Merger -- Reasons for the Merger;
Recommendation of Chipcom Board of Directors." Achieving the anticipated
benefits of the Merger will depend in part upon whether the integration of the
two companies' businesses is accomplished in an efficient and effective manner,
and there can be no assurance that this will occur. The successful combination
of companies in the high technology industry may be more difficult to accomplish
than in other industries. The combination of the two companies will require,
among other things, integration of the companies' respective product offerings
and coordination of their sales and marketing and research and development
efforts. There can be no assurance that such integration will be accomplished
smoothly or successfully. The difficulties of such integration may be increased
by the necessity of coordinating geographically separated organizations. The
integration of certain operations following the Merger will require the
dedication of management resources which may temporarily distract attention from
the day-to-day business of the combined company. The inability of management to
successfully integrate the operations of the two companies could have a material
adverse effect on the business and results of operations of 3Com. In addition,
as commonly occurs with mergers of technology companies, during the pre-merger
and integration phases, aggressive competitors may undertake formal initiatives
to attract customers and to recruit key employees through various incentives.
RESELLERS AND CUSTOMERS. There can be no assurance that resellers and
present and potential customers of 3Com and Chipcom will continue their current
buying patterns without regard to the announced Merger. In particular, 3Com and
Chipcom believe that certain customers may defer purchasing decisions as they
evaluate 3Com's future product strategy and consider aggressive pricing programs
of certain competitors of Chipcom and 3Com. Any such deferrals could have a
material adverse effect upon the results of operations of 3Com and/or Chipcom
both in the near term and the long term.
RELATIONSHIP WITH IBM. Sales to International Business Machines Corporation
("IBM"), Chipcom's principal customer and a reseller of Chipcom products,
accounted for 38.2% of Chipcom's revenues in 1994 and 29.9% of Chipcom revenues
in the first six months of 1995. Sales to IBM declined to $16.6 million in the
second quarter of 1995 from $30.6 million in the first quarter of 1995. This
decrease in sales to IBM resulted primarily from an inventory imbalance at IBM
and a decrease in sales of Chipcom products by IBM to its customers. Revenues
derived from sales to IBM during the third quarter of fiscal 1995 may decrease
from the second quarter level, and there can be no assurance that sales of
Chipcom products to IBM will not decrease further in future periods, whether or
not the Merger is consummated. IBM purchases products from Chipcom pursuant to a
complex series of agreements entered into between Chipcom and IBM in September
1992 (the "Alliance Agreements"). IBM and Chipcom each has the right to
terminate the Alliance Agreements for its convenience on short notice. 3Com and
IBM have entered into a Memorandum of Understanding pursuant to which they have
agreed to work together to continue and extend the existing relationship between
Chipcom and IBM. Implementation of the Memorandum of Understanding will require
the negotiation of new agreements between 3Com and IBM covering the sale of 3Com
products to IBM and the sale of IBM products to 3Com, as well as the amendment
of the existing Alliance Agreements. Subject to 3Com and IBM reaching definitive
agreement on the terms of the sale of certain products to each other, 3Com and
IBM have agreed not to terminate the Alliance Agreements for convenience for a
period of 18 months from the Effective Time. The success of the Merger will
depend in substantial part on the
18
<PAGE>
continuation and improvement of the IBM/Chipcom relationship and the successful
development of a broader business relationship between 3Com and IBM. There can
be no assurance that 3Com will be successful in this regard. See "The Merger --
Background of the Merger" and "Information Concerning Chipcom -- Business --
Relationship with IBM."
TRANSACTION AND RESTRUCTURING CHARGES. 3Com expects to incur charges to
operations currently estimated to be between $50 million and $60 million in the
quarter in which the Merger is consummated, to reflect costs associated with
combining the operations of the two companies, transaction fees and costs
incident to the Merger. This estimate includes direct transaction costs
associated with the Merger estimated to be approximately $10 million, consisting
of fees for investment banking, legal, accounting, financial printing and other
related charges, and restructuring expenses to be incurred by the combined
company estimated to be between $40 and $50 million, which expenses will include
the write-off of assets including capitalized software, purchased technology,
inventory and fixed assets associated with duplicate product lines, elimination
of duplicate management information systems and facilities, including
cancellation of leases, and severance and outplacement costs. These amounts are
preliminary estimates and therefore subject to change. Additional unanticipated
expenses may be incurred relating to the integration of the businesses of
Chipcom and 3Com, including the integration of product lines and distribution
and administrative functions. Although 3Com expects that the elimination of
duplicative expenses as well as other efficiencies related to the integration of
the businesses may offset additional expenses over time, there can be no
assurance that such net benefit will be achieved in the near term, or at all.
See "Selected Historical and Unaudited Pro Forma Combined Financial Data."
RISKS RELATING TO 3COM AND THE COMBINED COMPANY
ACQUISITION STRATEGY. Acquisitions of complementary businesses are an
active part of 3Com's overall business strategy. In addition to the proposed
Chipcom acquisition, 3Com has recently consummated acquisitions of several other
businesses, including Primary Access, Sonix, AccessWorks Communications, Inc.
("AccessWorks") and NiceCom. 3Com continually evaluates potential acquisition
and investment opportunities. There can be no assurance that products,
technologies and businesses of acquired companies will be effectively
assimilated into 3Com's business or product offerings. In addition, 3Com may
incur significant expenses to complete acquisitions and investments and to
support the acquired products, technologies or businesses. There can be no
assurance that any acquired products, technologies or businesses will contribute
to 3Com's revenues or earnings to any material extent. Further, the challenge of
managing the integration of several companies simultaneously is significant, and
there can be no assurance that 3Com will be able to successfully manage such
integration.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The market for 3Com's products
(including the product lines of Chipcom to be acquired in the Merger) is
characterized by rapid technological developments, evolving industry standards,
changes in customer requirements, frequent new product introductions and
enhancements and short product life cycles. 3Com's success depends in
substantial part upon its ability, on a cost-effective and timely basis, to
continue to enhance its existing products and to develop and introduce new
products that take advantage of technological advances. An unexpected change in
one or more of the technologies affecting data networking or in market demand
for products based on a particular technology could have a material adverse
effect on 3Com's operating results. For instance, a large portion of 3Com's
revenues is comprised of sales of products based on Ethernet technology. 3Com's
operating results could be adversely affected if there were to be an unexpected
change in demand for products based on such technology or if 3Com does not
respond timely and effectively to expected changes. 3Com is engaged in research
and development activities in certain emerging local-area network ("LAN") and
WAN high-speed technologies, such as 100 Mbps Ethernet, ATM and Integrated
Services Digital Network ("ISDN"). There can be no assurance that
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3Com will be able to timely and successfully develop new products to address new
industry transmission standards and technological changes or to respond to new
product announcements by others or that any such new products will achieve
market acceptance. See "Information Concerning 3Com -- Business" and
"Information Concerning Chipcom -- Business."
COMPETITION. Both 3Com and Chipcom experience significant competition and
expect substantial additional competition from established and emerging
computer, communications, intelligent network wiring and network management
companies. The primary competitors for 3Com's products are Bay Networks, Inc.
("Bay Networks"), Cabletron Systems, Inc. ("Cabletron"), Cisco Systems
("Cisco"), Intel Corporation ("Intel") and Standard Microsystems Corporation
("Standard Microsystems"), while the primary competitors for Chipcom's products
are Bay Networks, Cabletron, Digital Equipment Corporation ("Digital") and
Ungermann-Bass, Inc. ("Ungermann-Bass"). There can be no assurance that 3Com
will be able to compete successfully in the future with existing competitors or
new competitors. The data networking industry has become increasingly
competitive and 3Com's results of operations 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, marketing and sales activities directed at 3Com and Chipcom customers
while the 3Com and Chipcom product lines and sales forces are being integrated,
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. In particular, competitive pressures from existing or new
competitors who offer lower prices or introduce new products could result in
delayed or deferred purchasing decisions by potential customers and price
reductions, both of which would adversely affect 3Com's sales and operating
margins. The industry in which 3Com and Chipcom compete is characterized by
declining average selling prices. This trend could adversely impact 3Com's sales
and operating margins. 3Com pioneered its global data networking strategy by
participating in designing, manufacturing and marketing products for all
segments of the market for on-premises equipment. Until recently, 3Com's
competitors typically competed in one or a limited number of segments of the
on-premises sector of the data networking market. These companies are using
their resources and technical expertise to improve and expand their product
lines in an effort to gain market share. Several are extending their product
offerings beyond a single market segment and pursuing strategies more closely
resembling 3Com's global data networking strategy. See "Information Concerning
3Com -- Business -- Competition."
PRODUCT PROTECTION AND INTELLECTUAL PROPERTY. 3Com currently relies upon a
combination of patents, copyrights, trademarks and trade secret laws to
establish and protect its proprietary rights in its products. 3Com maintains as
proprietary the software and other portions of the technology incorporated in
its products. 3Com has been issued and has applied for numerous patents in the
United States on various aspects of its hardware and software products. There
can be no assurance that the steps taken by 3Com to protect its proprietary
rights will be adequate to prevent misappropriation of its technology or that
3Com's competitors will not independently develop technologies that are
substantially equivalent or superior to 3Com's technology. In addition, the laws
of some foreign countries do not protect 3Com's proprietary rights to the same
extent as do the laws of the United States. No assurance can be given that any
patents currently held or issued to 3Com in the future will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages.
From time to time 3Com receives communications from third parties asserting
that 3Com's use of trademarks, or that 3Com's products, infringe or may infringe
the rights of third parties. There can be no assurance that any such claims will
not result in protracted and costly litigation; however, based upon general
practice in the industry 3Com believes that such matters can ordinarily be
resolved without any material impact on its results of operations. See
"Information Concerning 3Com -- Business -- Markets and Customers," "-- Product
Development" and "-- Patents, Licenses and Related Matters."
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VOLATILITY OF STOCK PRICE. Based on the trading history of its stock, 3Com
believes factors such as announcements of new products by 3Com or its
competitors, sales of stock into the market by existing holders, quarterly
fluctuations in 3Com's financial results and general conditions in the data
networking market have caused and are likely to continue to cause the market
price of the 3Com Common Stock to fluctuate substantially. In addition,
technology company stocks have experienced extreme price and volume fluctuations
that often have been unrelated to the operating performance of such companies.
This market volatility may adversely affect the market price of 3Com's Common
Stock. See "Market Price Information." Because the market price of 3Com Common
Stock is subject to fluctuation, the market value of the shares of 3Com Common
Stock that the Chipcom shareholders will receive in the Merger may increase or
decrease prior to the Merger. Chipcom shareholders are urged to obtain a current
market quotation for 3Com Common Stock.
SMALL BACKLOG AND POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. 3Com
customers place orders on an as needed basis and 3Com typically ships products
within one to four weeks after receipt of an order. Accordingly, 3Com does not
maintain a substantial backlog, and most of its revenues in each quarter result
from orders booked in that quarter. 3Com establishes its expenditure levels
based on its expectations as to future revenues, and if revenue levels were
below expectations this could cause expenses to be disproportionately high. As a
result, a drop in near term demand will significantly affect sales, causing a
disproportionate reduction in profits in any quarter. In the future, 3Com's
operating results may fluctuate for this reason or as a result of a number of
other factors, including increased competition, variations in the mix of sales,
announcements of new products by 3Com or its competitors and capital spending
patterns of 3Com's customers.
DEPENDENCE UPON SUPPLIERS. Some key components of 3Com's products are
currently available only from single sources. The inability of 3Com to obtain
certain components could require 3Com to redesign or delay shipments of several
of its data networking products. 3Com has sought to establish close
relationships with sole-source suppliers and/or to build up inventory of such
components; however, there can be no assurance that production will not be
interrupted due to the unavailability of components. 3Com believes that its
inventory levels of these components, combined with finished components held by
3Com's suppliers, are adequate for its presently forecasted needs. Although 3Com
has contractual arrangements with certain of its sole-source suppliers, there
can be no assurance that in the future 3Com's suppliers will be able to meet the
demand for components in a timely and cost-effective manner. 3Com'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. See "Information Concerning 3Com -- Business."
CERTAIN CHARTER PROVISIONS. Certain charter provisions and 3Com's
shareholder rights plan could have the effect of delaying, deferring or
preventing a change in control of 3Com. In addition, 3Com's charter eliminates
the personal monetary liability of its directors for breach of their duty of
care, and 3Com has entered into agreements with its officers and directors
indemnifying them against losses they may incur in legal proceedings resulting
from their service to 3Com. See "Description of 3Com Capital Stock."
ACTS OF GOD. 3Com's corporate headquarters and a large portion of its
research and development activities and other critical business operations are
located near major earthquake faults. Operating results could be materially
adversely affected in the event of a major earthquake.
ATTRACTION AND RETENTION OF KEY EMPLOYEES. Competition for qualified
personnel in the computer and communications industries is intense. The future
success of the combined companies will depend in large part on its ability to
attract and retain key employees. See "Information Concerning 3Com -- Business."
RISKS RELATING TO CHIPCOM
DEPENDENCE ON IBM. In September 1992, Chipcom entered into a worldwide
marketing and development alliance with IBM embodied in the Alliance Agreements.
Sales to IBM accounted for
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38.2% of Chipcom's revenues in 1994 and 29.9% of Chipcom's revenues in the first
six months of 1995. Sales to IBM declined to $16.6 million in the second quarter
of 1995 from $30.6 million in the first quarter of 1995. This decrease in sales
to IBM resulted primarily from an inventory imbalance at IBM and a decrease in
sales of Chipcom products by IBM to its customers. Revenues derived from sales
to IBM during the third quarter of fiscal 1995 may decrease from the second
quarter level, and there can be no assurance that sales of Chipcom products to
IBM will not decrease further in future periods. Further declines in sales to
IBM would have a material adverse effect on Chipcom's results of operations. IBM
and Chipcom each has the right to terminate the Alliance Agreements for
convenience on short notice. A termination of, or significant adverse change in,
the relationships between IBM and Chipcom could have a material adverse effect
on Chipcom's business. In addition, IBM may elect to develop products
competitive with Chipcom's products which could have a material adverse effect
on Chipcom's business. See "Information Concerning Chipcom -- Business --
Relationship with IBM."
NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The market for Chipcom's products is
characterized by rapid technological developments, evolving industry standards,
changes in customer requirements, frequent new product introductions and
enhancements and short product life cycles. Chipcom's success depends in
substantial part upon its ability to continue to enhance, on a cost-effective
and timely basis, its existing products and to develop and introduce new
products that take advantage of technological advances. Chipcom's operating
results could be adversely affected if there were to be an unexpected change in
demand for products based on a particular technology or if Chipcom does not
respond timely and effectively to expected changes. Chipcom is engaged in
research and development activities in certain emerging LAN and WAN high-speed
technologies, such as 100 Mbps Ethernet, ATM and ISDN. There can be no assurance
that Chipcom will be able to timely and successfully develop new products to
address new industry transmission standards and technological changes or to
respond to new product announcements by others or that such products will
achieve market acceptance. Chipcom has in the past occasionally experienced
delays in introducing certain of its products. There can be no assurance that
Chipcom will not encounter technical or other difficulties that could delay
introduction of new products in the future or, if Chipcom encounters such
delays, that they would not have a material adverse effect on Chipcom's
business. Chipcom relies on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical measures to protect its
rights pertaining to its products. Such protection may not preclude competitors
from developing products with features similar to Chipcom's products.
COMPETITION. Chipcom experiences significant competition and expects
substantial additional competition from established and emerging computer,
communications, intelligent network wiring and network management companies. The
primary competitors for Chipcom's products are Bay Networks, Cabletron, Digital
and Ungermann-Bass. There can be no assurance that Chipcom will be able to
compete successfully in the future with existing competitors or new competitors.
The data networking industry has become increasingly competitive and Chipcom's
results of operations 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, marketing and sales
activities directed at Chipcom customers while Chipcom product lines and sales
forces are being integrated, 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. In particular, competitive pressures from existing or
new competitors who offer lower prices or introduce new products could result in
delayed or deferred purchasing decisions by potential customers and price
reductions, both of which could adversely affect Chipcom's sales and operating
margins. The industry in which Chipcom competes is characterized by declining
average selling prices. This trend could adversely impact Chipcom's sales and
operating margins. Chipcom participates in designing, manufacturing and
marketing on-premises equipment. Chipcom's competitors typically compete in one
or more segments of the on-premises sector of the data networking market. These
companies are using their resources and technical expertise to improve and
expand their product offerings beyond a single market segment. Many of Chipcom's
competitors are more established, benefit from greater market recognition and
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have greater financial, technological, production and marketing resources than
Chipcom. In addition, certain companies in the networking industry have expanded
their product lines or technologies in recent years as a result of acquisitions.
Although Chipcom believes that it has certain technological and other advantages
over its competitors, maintaining such advantages will require continued
investment by Chipcom in research and development and sales and marketing. There
can be no assurance that the Company will have sufficient resources to make such
investments or that the Company will be able to make the technological advances
necessary to maintain such competitive advantages.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The majority of Chipcom's
revenues in each quarter result from orders booked in that quarter. Chipcom
establishes its spending levels based on its expectations as to future revenues,
and if revenue levels are below expectations this could cause expenses to be
disproportionately high. As a result, a drop in near term demand will
significantly affect sales, causing a disproportionate reduction in profits in
any quarter. Chipcom's operating results may fluctuate for this reason or as a
result of a number of other factors, including increased competition,
announcements of new products by Chipcom or its competitors, acceptance of new
products in the market and capital spending patterns of Chipcom's customers.
VOLATILITY OF STOCK PRICE. Based on the trading history of its stock,
including declines in Chipcom's stock price in the second quarter of fiscal
1995, Chipcom believes factors such as quarterly fluctuations in Chipcom's
financial results, sales of stock into the market by existing holders,
announcements of new products by Chipcom or its competitors and general
conditions in the networking industry have caused and are likely to continue to
cause the market price of Chipcom Common Stock to fluctuate substantially. In
addition, technology company stocks have experienced extreme price and volume
fluctuations that often have been unrelated to the operating performance of such
companies. This market volatility may adversely affect the market price of
Chipcom's Common Stock. See "Market Price Information."
THE CHIPCOM SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Chipcom
Common Stock in connection with the solicitation of proxies by the Chipcom Board
of Directors for use at the Chipcom Special Meeting to be held on Thursday,
October 12, 1995 at the offices of Hale and Dorr, 60 State Street, Boston,
Massachusetts, commencing at 9:00 a.m., local time, and at any adjournments or
postponements thereof.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of Chipcom on or about September 11, 1995.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Chipcom Special Meeting, holders of Chipcom Common Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
such other matters as may properly be brought before the Chipcom Special
Meeting, or any postponements or adjournments thereof.
The Board of Directors of Chipcom has unanimously approved the Merger
Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement.
VOTING AT THE MEETING; RECORD DATE
Holders of record of shares of Chipcom Common Stock on September 7, 1995
will be entitled to notice of and to vote at the Chipcom Special Meeting. As of
September 7, 1995 there were 17,106,898 shares of Chipcom Common Stock
outstanding, entitled to vote and held by approximately 836 holders of record.
Each holder of record of shares of Chipcom Common Stock on the record date is
entitled to cast one vote per share on each proposal submitted for the vote of
the Chipcom stockholders, either in person or by properly executed proxy, at the
Chipcom Special Meeting. The presence, in person or by properly executed proxy,
of the holders of a majority of the outstanding shares of Chipcom Common Stock
entitled to vote is necessary to constitute a quorum at the Chipcom Special
Meeting.
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The approval and adoption by Chipcom stockholders of the Merger Agreement
will require the affirmative vote of the holders of a majority of the
outstanding shares of Chipcom Common Stock.
As of July 31, 1995, directors and executive officers of Chipcom and their
affiliates may be deemed to be beneficial owners of approximately 3.0% of the
outstanding shares of Chipcom Common Stock.
At the Chipcom Special Meeting, in determining whether the proposal to
approve and adopt the Merger Agreement has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect as
a vote against such proposal. At the Chipcom Special Meeting, abstentions and
broker non-votes will be counted for purposes of determining the presence or
absence of a quorum. A "broker non-vote" occurs when a nominee holding shares
for a beneficial owner does not vote on a proposal because, for such proposal,
the nominee does not have discretionary voting
power and has not received instructions with respect to voting of such shares.
PROXIES
This Proxy Statement/Prospectus is being furnished to Chipcom stockholders
in connection with the solicitation of proxies by and on behalf of the Board of
Directors of Chipcom for use at the Chipcom Special Meeting.
All shares of Chipcom stock which are entitled to vote and are represented
at the Chipcom Special Meeting by properly executed proxies received prior to or
at the Chipcom Special Meeting, and not revoked, will be voted at the Chipcom
Special Meeting in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such proxies will be voted FOR approval and
adoption of the Merger Agreement.
If any other matters are properly presented at the Chipcom Special Meeting
for consideration, including, among other things, consideration of a motion to
adjourn the Chipcom Special Meeting to another time and/or place (including,
without limitation, for the purpose of soliciting additional proxies), the
persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Chipcom at or before the taking of the vote at the Chipcom
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Chipcom before the taking of the vote at the
Chipcom Special Meeting or (iii) attending the Chipcom Special Meeting and
voting in person (although attendance at the Chipcom Special Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to Chipcom
Corporation, Southborough Office Park, 118 Turnpike Road, Southborough,
Massachusetts 01772, Attention: Investor Relations, or hand delivered to the
Secretary of Chipcom, at or before the taking of the vote at the Chipcom Special
Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement/ Prospectus, will be borne by 3Com and Chipcom. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Chipcom in person or by telephone, telegram
or other means of communication. Such directors, officers and employees will not
receive additional compensation, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Chipcom has
retained MacKenzie Partners, Inc., a proxy solicitation firm, for assistance in
connection with solicitation of proxies for the Chipcom Special Meeting at an
estimated expense of $5,000 plus reasonable out-of-pocket expenses. Arrangements
will also be made with custodians, nominees and fiduciaries for forwarding of
proxy solicitation materials to beneficial owners of shares held of record by
such custodians, nominees and fiduciaries, and Chipcom will reimburse such
custodians, nominees and fiduciaries reasonable expenses incurred in connection
therewith.
CHIPCOM STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
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THE MERGER
BACKGROUND OF THE MERGER
Acquisitions of complementary businesses are an active part of 3Com's
overall business strategy. Over the past four years, 3Com has consummated
acquisitions of nine other businesses, including Primary Access, Sonix,
AccessWorks, NiceCom and Centrum. See "Information Concerning 3Com-- Business."
3Com continually evaluates potential acquisition opportunities and considers
potential alliances, combinations, joint development programs and other
strategic transactions with other participants in the networking industry.
Over the past several years, Chipcom's management has from time to time
engaged in discussions with its Board of Directors and numerous companies in the
networking industry in an effort to explore the evolution in, and the future of,
the networking industry and of Chipcom's role in the industry. During the course
of such discussions, Chipcom has considered various alliances and combinations,
including product development, distribution and marketing alliances, business
combinations and related transactions.
As a result of 3Com's acquisition of Centrum in 1994, 3Com became involved
in an existing relationship between Centrum and Chipcom under which Chipcom
planned to acquire from Centrum, on an OEM basis, certain products for use in
Chipcom's OpenHub program. After the Centrum acquisition, 3Com continued the
development of Centrum's relationship with Chipcom and, in the course of that
relationship, the two companies from time to time had various management level
discussions concerning the evolution of the networking industry and the ongoing
relationship between the two companies.
On April 13, 1995, Mr. Held, President and Chief Executive Officer of
Chipcom, and Eric A. Benhamou, Chairman and Chief Executive Officer of 3Com,
discussed, on a preliminary basis, the possibility of a combination of the two
companies. Following this discussion, the senior management teams of each
company began to explore internally the feasibility of such a strategic business
combination.
On April 28, 1995, as part of a regularly scheduled Chipcom Board of
Directors meeting, Chipcom's management made a presentation to the Chipcom Board
concerning Chipcom's long-term strategy and the strategic alternatives available
to Chipcom. Following this meeting, Mr. Held, with the authorization of the
Chipcom Board of Directors, discussed with certain companies in the networking
industry, including 3Com, industry trends and potential strategic alliances with
Chipcom.
On May 1, 1995, Mr. Benhamou, Robert J. Finnochio, Jr., 3Com's Executive
Vice President and General Manager, Network Systems Operations, and Janice M.
Roberts, 3Com's Vice President, Marketing, met with Mr. Held and Mr. Abraham,
Chipcom's Senior Vice President and Chief Technical Officer, to learn more about
each other's primary product lines and product development programs.
On May 2, 1995, 3Com and Chipcom executed and delivered a Mutual
Confidentiality Agreement.
On May 15, 1995, Messrs. Benhamou and Held spoke by telephone and discussed
3Com's preliminary interest in proceeding with more substantive discussions
regarding a possible combination and agreed upon the basis under which 3Com
could conduct its preliminary due diligence review.
On May 4, 1995 and May 24, 1995, the Board of Directors of Chipcom met by
telephone conference call to discuss Chipcom's long-term strategy and strategic
relationships. At each meeting, Mr. Held reported on discussions with 3Com and
certain other companies in the networking industry concerning potential
strategic alliances with Chipcom. At each meeting, the Chipcom Board authorized
and instructed management to continue discussions with these companies and to
explore a potential strategic alliance. Following each of these meetings, Mr.
Held continued preliminary discussions with certain companies in the networking
industry concerning potential strategic alliances.
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On May 24, 1995, Mr. Held and Mr. Badavas, Senior Vice President, Finance
and Chief Financial Officer of Chipcom, met with Ms. Roberts and John Boyle,
Vice President, Business Development of 3Com, to discuss Chipcom's current
business strategy and business prospects and to review the due diligence
process.
On June 6, 1995, Messrs. Held and Badavas of Chipcom met again with Ms.
Roberts and Mr. Boyle of 3Com to discuss the structure of a potential merger, as
well as the parties' preliminary views with respect to valuation. During this
meeting, the 3Com representatives delivered a discussion outline of the
principal terms of a possible combination.
On June 11, 1995, 3Com engaged Morgan Stanley & Co. Incorporated ("Morgan
Stanley") as its financial advisor in connection with a potential strategic
combination with Chipcom.
On June 11, 1995, Messrs. Held and Badavas of Chipcom spoke with Ms. Roberts
and Mr. Boyle of 3Com by telephone and discussed, among other things, a schedule
for completing 3Com's due diligence review and reaching a conclusion as to the
feasibility of the business combination.
On June 14, 1995, another telephone conference was held between senior
management representatives of Chipcom and 3Com to discuss, among other things,
the principal terms of the proposed combination.
On June 16, 1995, at a meeting of the Chipcom Board, Chipcom's management
(i) reviewed Chipcom's projected revenues and operating profile for the last
three quarters of fiscal 1995, (ii) reviewed Chipcom's strategic planning
process for the next few years, and (iii) gave a presentation to the Chipcom
Board with respect to transitions in the networking industry and Chipcom's
competitive position and product strategy. The Chipcom Board discussed the
various strategic options available to Chipcom and Chipcom's long-term strategy.
Mr. Held and other members of management responded to numerous questions from
the Chipcom Board. The Chipcom Board instructed the management of Chipcom to
continue discussions with 3Com and certain other companies in the networking
industry regarding a potential strategic alliance.
On June 23, 1995 and June 26, 1995, the Board of Directors of Chipcom met by
telephone conference call to discuss potential strategic alliances and discussed
the various strategic options available to Chipcom. At these meetings, Chipcom's
management reported on discussions with 3Com and certain other companies in the
networking industry concerning potential strategic alliances. The Chipcom Board
instructed the management of Chipcom to continue discussions with 3Com and
certain other companies in the networking industry regarding a potential
strategic alliance.
Following each of these meetings, Mr. Held continued discussions with 3Com
and certain other companies in the networking industry concerning potential
strategic alliances. Throughout June and until July 26, 1995, Chipcom management
and its legal and financial advisors discussed the terms of a possible business
combination with another company in the networking industry. During this period,
(i) that company conducted a due diligence review of Chipcom and held various
meetings with Chipcom concerning the business, operations and technology of each
company and of the combined company that would result from a possible strategic
alliance and (ii) representatives of Chipcom and that company engaged in
negotiations of a proposed merger agreement.
On June 29, 1995, the Chipcom Board met by telephone conference call to
discuss potential strategic alliances. Mr. Held reported on discussions with
companies in the networking industry, including 3Com, concerning potential
strategic alliances including the preliminary terms of a proposed business
combination with the company referred to in the preceding paragraph. The Chipcom
Board discussed the agreement between Chipcom and IBM (the "IBM Agreement")
pursuant to which IBM had (i) a right to notice of a proposed sale of Chipcom
and (ii) 30 days in which to decide whether to indicate an interest in such
sale. The Chipcom Board authorized and instructed Chipcom management to (a)
provide notice to IBM in accordance with the terms of the IBM Agreement of a
possible business combination of Chipcom and a third party, (b) engage Wessels,
Arnold & Henderson to act as its financial advisor in connection with a possible
strategic alliance, including a possible
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business combination involving Chipcom, and (c) continue discussions with 3Com
and certain other companies in the networking industry regarding a potential
strategic alliance, including a possible business combination involving Chipcom.
Following this meeting, Chipcom's management continued discussions and
engaged in due diligence reviews of Chipcom with 3Com and certain other
companies in the networking industry, including IBM, concerning potential
strategic alliances, including a possible business combination with Chipcom.
On July 1, 1995, representatives of Wessels, Arnold & Henderson and Morgan
Stanley reviewed the status of the merger discussions between 3Com and Chipcom,
and Wessels, Arnold & Henderson advised Morgan Stanley that Chipcom had been
having preliminary discussions with another company, whom Wessels, Arnold &
Henderson did not identify, with regard to a potential strategic business
combination.
On July 5, 1995, representatives of 3Com and Chipcom spoke again regarding
the terms of a potential business combination, and 3Com delivered to Chipcom a
revised discussion outline of the principal terms of a possible transaction. On
the basis of the mutually satisfactory progress of these discussions, the
parties agreed that a series of meetings would take place during the following
week.
On July 6, 1995, the Chipcom Board met by telephone conference call to (i)
review management's discussions concerning potential strategic alliances,
including a possible business combination with 3Com and certain other companies
in the networking industry and (ii) review Chipcom's preliminary results of
operations for the fiscal quarter ended July 1, 1995.
On July 10, 1995, 3Com delivered a draft merger agreement to Chipcom and its
counsel.
During the week of July 10, 1995, representatives of 3Com and its counsel
met with representatives of Chipcom and its counsel to complete various aspects
of 3Com's due diligence review.
On July 11, 1995 and July 13, 1995, representatives of 3Com and its counsel
met with representatives of Chipcom and its counsel to discuss the proposed
structure of the merger and review the terms of the proposed merger agreement.
On July 11, 1995, July 17, 1995 and July 20, 1995, the Chipcom Board met by
telephone conference call to (i) review management's discussions with 3Com and
certain other companies in the networking industry concerning a possible
business combination with Chipcom and (ii) discuss strategic alternatives
available to Chipcom.
On July 13, 1995, at a regularly scheduled meeting of the Board of Directors
of 3Com, management reported to the 3Com Board on the status of the merger
discussions, and the 3Com Board discussed various issues relating to the
proposed business combination.
On July 22, 1995, representatives of senior management of 3Com, including
Messrs. Benhamou, Finnochio and Boyle and William G. Marr, Executive Vice
President, Worldwide Sales, met with representatives of senior management of
Chipcom, including Messrs. Held, Badavas and Abraham, and Bruce L. Cohen, Senior
Vice President, Field Operations, to discuss organizational and operational
issues relating to the potential business combination.
On July 24, 1995 and July 25, 1995, representatives of 3Com and its counsel
had various telephone conversations with IBM and its counsel which resulted in
the execution of a Memorandum of Understanding in which IBM and 3Com agreed,
among other things, assuming the consummation of the Merger, to work together to
continue and extend the existing relationship between Chipcom and IBM.
On July 24, 1995, the 3Com Board met by telephone conference call.
Management reported on the status of the merger discussions, and the 3Com Board
authorized management to continue negotiations with Chipcom.
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On July 25, 1995, 3Com delivered to Chipcom and its counsel a merger
proposal, including 3Com's proposed Exchange Ratio and other business terms of
the Merger and a form of merger agreement, and asked for a response from Chipcom
by July 26, 1995.
On July 26, 1995, 3Com and Chipcom and their respective counsel had further
discussions regarding the terms of the merger agreement and related documents.
On July 26, 1995, IBM notified Chipcom that it would waive compliance with
the 30 day notice period required under the IBM Agreement and that it would not
pursue the negotiation of an acquisition of Chipcom. The other company in the
networking industry with which Chipcom had engaged in discussions concerning a
potential strategic alliance also informed Chipcom that it would not proceed
further with such discussions.
On July 26, 1995, at a special meeting of the 3Com Board, (i) the management
of 3Com made presentations to the 3Com Board as to the status of the
discussions, the results of the due diligence evaluation of Chipcom, the
principal terms of the proposed Merger and the benefits and potential risks of
the business combination, and (ii) 3Com's financial advisor, Morgan Stanley,
reviewed, among other things, the strategic rationale for, and certain financial
analyses relating to, the proposed Merger. The 3Com Board unanimously approved
the Merger Agreement and related matters and authorized management to proceed
with the Merger.
On July 26, 1995, at a special meeting of the Chipcom Board, (i) the
management of Chipcom reported on the Exchange Ratio proposed by 3Com and other
business terms of the proposed Merger, (ii) Chipcom's legal counsel reviewed the
proposed terms of the Merger Agreement, (iii) Chipcom's financial advisor,
Wessels, Arnold & Henderson, provided financial analyses relating to the
proposed Merger and delivered its oral opinion to the effect that, as of such
date, the Exchange Ratio was fair from a financial point of view to the Chipcom
stockholders, and (iv) the Chipcom Board approved the Merger Agreement. See "The
Merger -- Opinion of Financial Advisor to Chipcom."
On July 26, 1995, following the meetings of their respective Boards of
Directors, the parties executed the Merger Agreement.
On July 27, 1995, prior to the opening of trading on the Nasdaq National
Market, 3Com and Chipcom issued a joint news release announcing the Merger.
REASONS FOR THE MERGER; RECOMMENDATION OF CHIPCOM BOARD OF DIRECTORS
JOINT REASONS FOR THE MERGER
3Com and Chipcom have identified several potential benefits of the Merger
that they believe will contribute to the success of the combined company. These
potential benefits include principally the following:
- The extensive offerings of 3Com's workgroup stackable hubs and single
function data center products, such as LANplex and CELLPlex, combined with
Chipcom's multifunction ONcore and ONline data center hubs, will position
the combined company to have one of the broadest hub product lines in the
industry. Additionally, the combined expertise of the two companies in the
emerging area of switching technology is expected to enable the combined
company to offer state-of-the-art switching technology integrated into
this broad product line.
- The combined company should benefit from synergistic development efforts
in the area of network management products. As switching technology is
accepted by the market, the role of network management is expected to
evolve and become more central to the use of the network, specifically
driving the development of "virtual LAN" management. 3Com and Chipcom each
have teams working on open, standards-based approaches to this new
development, and the combination of these resources should enhance these
efforts.
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- The combination of engineering staffs is expected to produce synergies
which may improve and accelerate product development. Further, by taking
advantage of manufacturing synergies and 3Com's manufacturing expertise,
the combined company may be able to reduce costs and increase the value of
products delivered to its customers.
- The combined resources of 3Com and Chipcom should permit the combined
company to leverage the existing Chipcom/IBM strategic relationship. IBM
resells certain of Chipcom's product lines including Chipcom's ONcore and
ONline product lines, and this relationship may be more effectively
supported by the combined company, and may be extended to cover additional
3Com and IBM products, thereby potentially expanding the channels for and
sales of 3Com and Chipcom products. Further, the technology sharing and
joint development activities proposed in the Memorandum of Understanding
between 3Com and IBM, if implemented, may create additional value for
customers by increasing the interoperability of IBM, 3Com and third party
products.
- The combination of the sales and marketing resources of the two companies
may enable the combined company to compete more effectively with greater
resources. 3Com's two-tiered distribution channel and end-user channel and
Chipcom's single-tier channel, integration partners and field organization
will be complementary. The combined company is expected to have a broader
product line, higher market profile, and greater financial stability
thereby making its products more attractive, particularly to resellers and
large end-users.
- The combined company is expected to achieve other operational efficiencies
and synergies which could allow it to reduce costs.
FURTHER 3COM BACKGROUND AND REASONS FOR THE MERGER
The Board of Directors of 3Com unanimously approved the Merger Agreement at
its meeting held on July 26, 1995. The Board of Directors of 3Com believes that
consummation of the Merger is in the best interests of 3Com.
In arriving at its unanimous decision to approve the Merger Agreement, the
Board of Directors of 3Com considered a number of factors. Among the factors
that the 3Com Board considered were (i) information concerning 3Com's and
Chipcom's respective businesses, historical financial performance, operations
and products, including possible future product releases, (ii) the anticipated
leverage between 3Com's and Chipcom's hub products, (iii) the opportunity for
3Com to distribute its products through different channels, (iv) the opportunity
to significantly expand 3Com's relationship with IBM by improving and leveraging
the existing Chipcom/IBM strategic relationship, (v) the opportunity to sell
3Com products into Chipcom's installed base of major end-user accounts, (vi) an
analysis of the relative value that Chipcom might contribute to the future
business and prospects of the combined company including pro forma historical
and projected revenue and earnings contribution, (vii) comparison of the
financial terms of comparable merger and acquisition transactions, (viii) the
compatibility of management and businesses of 3Com and Chipcom, (ix) reports
from management and legal advisors on specific terms of the relevant agreements,
including the Merger Agreement, and other matters, (x) the Board's judgment that
3Com was unlikely to identify an alternative business opportunity that would
provide superior benefits to 3Com and its shareholders in the hub market, (xi)
3Com's and Chipcom's historical and projected financial condition and results of
operations which, in the judgment of the Board, supported the consideration to
be paid by 3Com in the Merger and (xii) the technical and marketing knowledge of
the Chipcom employee team, including detailed understanding of product and
application requirements, buying behavior and key competitors' offerings.
One of 3Com's goals has been to expand its product offering and technology
in the hub business, and to continually expand its distribution channels. In
addition, 3Com has been considering ways to expand its relationship with IBM.
3Com's Board believes that the combination with Chipcom will assist 3Com in
achieving these goals.
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The 3Com Board also considered negative factors relating to the Merger,
including (i) the risks that the benefits sought in the Merger would not be
fully achieved, (ii) the risk that the Merger would not be consummated and (iii)
the effect of the public announcement of the Merger on 3Com's sales and
operating results. The 3Com Board believed that these risks were outweighed by
the potential benefits to be gained by the Merger.
CHIPCOM'S REASONS FOR THE MERGER AND RECOMMENDATION OF THE CHIPCOM BOARD
The Board of Directors of Chipcom unanimously approved the Merger Agreement
at its meeting held on July 26, 1995. The Board of Directors of Chipcom believes
that consummation of the Merger is in the best interests of Chipcom and its
stockholders and unanimously recommends that the stockholders of Chipcom vote
FOR approval of the Merger Agreement.
In arriving at its unanimous decision to approve the Merger Agreement, the
Board of Directors of Chipcom considered a number of factors, including (i) the
ability of the combined company to provide Chipcom customers with a broader set
of network connectivity solutions, (ii) the potential for increased sales of
Chipcom products through 3Com's larger sales force and geographically more
expansive distribution channel, (iii) the ability to reduce dependence on third
party technology in areas such as routing and remote access by accessing 3Com's
technology base, (iv) the ability to realize cost savings through the leverage
of research and development spending by 3Com in areas such as routing and remote
access, thus enabling Chipcom to focus its engineering resources on its core
technologies, (v) the ability to leverage 3Com's expertise in low cost of design
and manufacturing efficiencies and (vi) the ability of the Chipcom stockholders
to share in the enhanced prospects of the combined company.
The Chipcom Board also considered negative factors relating to the Merger,
including (i) the risks that the benefits sought in the Merger would not be
fully achieved, (ii) the risk that the Merger would not be consummated and (iii)
the effect of the public announcement of the Merger on Chipcom's sales and
operating results. The Chipcom Board believed that these risks were outweighed
by the potential benefits to be gained by the Merger.
In the course of its deliberations during Board meetings held on April 28,
1995, May 4, 1995, May 24, 1995, June 16, 1995, June 23, 1995, June 26, 1995,
June 29, 1995, July 6, 1995, July 11, 1995, July 17, 1995, July 20, 1995 and
July 26, 1995, the Chipcom Board reviewed with management a number of additional
factors relevant to the Merger, including the long-term strategy and prospects
for Chipcom and other potential strategic relationships. The Chipcom Board also
considered, among other matters, (i) the consideration to be received by Chipcom
stockholders in the Merger and the relationship between the market value of 3Com
Common Stock to be issued in exchange for each share of Chipcom Common Stock and
the market value of Chipcom Common Stock, (ii) information concerning 3Com's and
Chipcom's respective business, prospects, financial performance and condition,
operations, technology, management and competitive position, (iii) the financial
condition, results of operations and business of Chipcom and 3Com before and
after giving effect to the Merger and (iv) current financial market conditions
and historical market prices, volatility and trading information with respect to
Chipcom Common Stock and 3Com Common Stock. In addition, the Chipcom Board
reviewed the principal terms of the Merger Agreement. The Chipcom Board
considered the financial analyses prepared by Wessels, Arnold & Henderson,
including the oral opinion of Wessels, Arnold & Henderson delivered at the July
26, 1995 meeting of the Chipcom Board, to the effect that, as of such date, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to the Chipcom stockholders.
In view of the wide variety of factors, both positive and negative,
considered by the Chipcom Board, the Chipcom Board did not find it practical to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered.
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OPINION OF FINANCIAL ADVISOR TO CHIPCOM
Wessels, Arnold & Henderson has acted as financial advisor to Chipcom in
connection with the Merger. Pursuant to an engagement letter dated July 1, 1995
(the "Engagement Letter"), Chipcom retained Wessels, Arnold & Henderson to
furnish financial advisory and investment banking services with respect to a
possible sale or merger of Chipcom and to render an opinion as to the fairness,
from a financial point of view, to the Chipcom stockholders of the consideration
offered in any proposed sale or merger. The amount of consideration to be
received by Chipcom stockholders in the Merger was determined through
negotiations between Chipcom management and 3Com and not by Wessels, Arnold &
Henderson, although Wessels, Arnold & Henderson did assist Chipcom management in
these negotiations. Wessels, Arnold & Henderson rendered its oral opinion
(subsequently confirmed in writing) on July 26, 1995 to the Chipcom Board of
Directors that, as of such date and based on the procedures followed, factors
considered and assumptions made by Wessels, Arnold & Henderson as set forth
therein, the consideration to be received by the holders of Chipcom Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to the
holders of Chipcom Common Stock. A copy of Wessels, Arnold & Henderson's opinion
dated July 26, 1995 (the "Wessels Opinion"), which sets forth the assumptions
made, matters considered, the scope and limitations of the review undertaken and
the procedures followed by Wessels, Arnold & Henderson is attached as Annex B to
this Proxy Statement/Prospectus. Chipcom stockholders are urged to read the
Wessels Opinion in its entirety. The summary of the Wessels Opinion set forth
herein is qualified in its entirety by reference to the Wessels Opinion. The
Wessels Opinion applies only to the fairness of the consideration to be received
by the Chipcom stockholders as provided by the terms of the Merger Agreement and
should not be deemed to constitute a recommendation by Wessels, Arnold &
Henderson to Chipcom stockholders to vote in favor of any matter presented in
this Proxy Statement/Prospectus. Chipcom stockholders should note that the
opinion expressed by Wessels, Arnold & Henderson was provided solely for the use
of the Chipcom Board of Directors in its evaluation of the Merger and was not on
behalf of, and was not intended to confer rights or remedies upon, 3Com, any
securityholder of 3Com or Chipcom, or any person other than Chipcom's Board of
Directors. The Chipcom Board did not impose any limitations on the scope of the
investigation of Wessels, Arnold & Henderson with respect to rendering its
opinion.
In connection with its review of the Merger, and in arriving at its opinion,
Wessels, Arnold & Henderson has: (i) reviewed and analyzed the financial terms
of the Merger Agreement; (ii) reviewed and analyzed certain publicly available
financial statements and other information of Chipcom and 3Com; (iii) reviewed
and analyzed certain internal financial statements and other financial and
operating data concerning Chipcom prepared by the management of Chipcom; (iv)
reviewed and analyzed certain internal financial statements and other financial
and operating data concerning 3Com prepared by the management of 3Com; (v)
reviewed and analyzed certain financial projections prepared by the management
of Chipcom; (vi) reviewed and analyzed certain financial projections prepared by
the management of 3Com; (vii) conducted discussions with members of the senior
management of Chipcom with respect to the business and prospects of Chipcom;
(viii) conducted discussions with members of the senior management of 3Com with
respect to the business and prospects of 3Com; (ix) analyzed the pro forma
impact of the Merger on 3Com's results of operations; (x) reviewed the reported
prices and trading activity for the Chipcom Common Stock and the 3Com Common
Stock; (xi) compared the financial performance of Chipcom and 3Com and the
prices of the Chipcom Common Stock and the 3Com Common Stock with that of
certain other comparable publicly traded companies and their securities; (xii)
reviewed the financial terms, to the extent publicly available, of certain
comparable merger transactions; and (xiii) participated in discussions and
negotiations among representatives of Chipcom and 3Com and their respective
financial and legal advisors.
Based on this information, Wessels, Arnold & Henderson performed a variety
of analyses and examinations of the Merger and considered such financial,
economic and market criteria as it deemed necessary in arriving at its opinion.
The following is a summary of the financial analyses performed by Wessels,
Arnold & Henderson in connection with the delivery of the Wessels Opinion.
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COMPARABLE COMPANY ANALYSIS. Wessels, Arnold & Henderson used a comparable
company analysis to analyze Chipcom's operating performance relative to a group
of publicly traded companies which Wessels, Arnold & Henderson deemed for
purposes of its analysis to be comparable to Chipcom. In such analysis, Wessels,
Arnold & Henderson compared the value to be achieved by the Chipcom stockholders
in the Merger, expressed as a multiple of certain operating results, to the
market trading values achieved by the stockholders of the comparable companies,
expressed as a multiple of the same operating results. Wessels, Arnold &
Henderson compared multiples of selected financial data for Chipcom with those
of the following publicly traded companies in the networking industry: Bay
Networks, Cabletron, Cisco, LanOptics, Ltd., Madge N.V., and 3Com (collectively
referred to as the "Comparable Companies"). Although such companies were
considered comparable to Chipcom for the purpose of this analysis based on
certain characteristics of their respective businesses, none of such companies
possessed characteristics identical to those of Chipcom. Wessels, Arnold &
Henderson calculated the following valuation multiples based on, as to Chipcom,
a market price of $40.08 per share for the 3Com Common Stock to be offered as
consideration in the Merger, and, as to the Comparable Companies, on market
prices and other information available as of the date of the Wessels Opinion.
Multiples of future earnings were based on projected earnings as estimated
publicly by recognized securities analysts. The mean and median for market
capitalization as a multiple of each of the indicated statistics for Chipcom and
the Comparable Companies is as follows: (i) projected calendar year 1995
earnings per share, 38.2x for Chipcom, as compared to a mean of 24.5x and a
median of 25.3x for the Comparable Companies and (ii) projected calendar year
1996 earnings per share, 24.9x for Chipcom, as compared to a mean of 19.7x and a
median of 19.4x for the Comparable Companies. In each of the comparisons of the
value to be achieved by the Chipcom stockholders in the Merger as compared with
the mean and median of the market values realized by the stockholders of the
Comparable Companies, the multiples of operating results achieved by the Chipcom
stockholders was greater than that realized by the stockholders of the
Comparable Companies.
COMPARABLE TRANSACTIONS. Wessels, Arnold & Henderson compared multiples of
selected financial data and other financial data relating to the proposed Merger
with multiples paid in, and other financial data from, 17 acquisitions since
1988 of high-technology companies (i.e., companies in the markets for computer
equipment, electronics, communications (including networking) and other advanced
technologies) with aggregate equity values between $250 million and $2 billion.
These transactions were selected based primarily on the aggregate equity value
of the business acquired, the public company status of the target and the target
company's involvement in a high-technology industry. Wessels, Arnold & Henderson
also compared the premium of the equity value per share over the target stock
price one day and four weeks prior to the announcement of the transaction. This
analysis produced multiples of equity value to latest 12-month revenues for the
comparable acquisitions ranging from 0.8x to 9.3x with a mean and median of 2.7x
and 1.8x, respectively, as compared to 2.3x for Chipcom. The multiple of equity
value to latest 12-month operating income for comparable acquisitions ranged
from 10.1x to 56.5x with a mean and a median of 25.8x and 19.6x, respectively,
as compared to 19.6x for Chipcom. The multiple of equity value of the
acquisition to latest 12-month net income ranged from 16.8x to 70.5x, with a
mean and median of 35.8x and 30.0x, respectively, as compared to 29.4x for
Chipcom. The premium of the equity value per share over the stock price of the
target one day prior to the announcement of the transaction ranged from 16% to
62% with a mean and a median of 44% and 47%, respectively, as compared to 35%
for Chipcom. The premium of the equity value per share over the stock price of
the target four weeks prior to the announcement of the transaction ranged from
16% to 86% with a mean and median of 55% and 58%, respectively, as compared to
65% for Chipcom.
PRO FORMA MERGER ANALYSIS. Wessels, Arnold & Henderson analyzed the pro
forma effect of the Merger on the combined income statement of Chipcom and 3Com
for 3Com's fiscal years 1995 and projected 1996 (ending May 31, 1995 and May 31,
1996, respectively). The analysis was based on an assumed Conversion Number of
0.53 (1.06 after giving effect to the two-for-one split of 3Com Common Stock
issued on August 25, 1995 to shareholders of record as of August 4, 1995),
actual results of operations of Chipcom and 3Com through the quarters ended June
30, 1995 and May 31, 1995,
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respectively, and the projections of results of operations of Chipcom and 3Com
for subsequent periods and related assumptions based on projections provided by
the management of Chipcom and 3Com. The analysis disclosed that the Merger would
have a slightly dilutive effect on 3Com's earnings per share for the quarter
ending November 30, 1995 but would have a slightly accretive effect on earnings
per share for quarters ending February 28, 1996 and May 31, 1996.
DISCOUNTED CASH FLOW ANALYSIS. Wessels, Arnold & Henderson estimated
present values of Chipcom using a discounted cash flow analysis based on
projections of future operations prepared by Chipcom's management. Wessels,
Arnold & Henderson calculated present values of projected operating cash flows
after net changes to working capital over the period between July 26, 1995 and
December 31, 1995 and the three years 1996 to 1998 using discount rates ranging
from 20% to 25%. Wessels, Arnold & Henderson calculated approximate terminal
values of Chipcom as of December 31, 1998 of 7.5x Chipcom's calendar year 1998
operating income. Wessels, Arnold & Henderson determined this multiple by
analyzing the relationship between Chipcom's currently projected growth rate and
its operating income multiple as of July 26, 1995 based on Chipcom's most recent
trailing twelve months operating income and applying this relationship to
Chipcom's estimated future growth rate as of 1998. The terminal value was
discounted to present value using the same discount rates as the cash flows.
Wessels, Arnold & Henderson calculated an implied valuation of Chipcom by adding
the present value of the cash flows and the terminal value. The implied value of
shares of Chipcom Common Stock based on this analysis ranged from $29.91 to
$34.57 per share. Wessels, Arnold & Henderson determined that, at the time of
the Wessels Opinion, the value of the consideration to be received by the
Chipcom stockholders in the Merger of $40.08 per share based on the market price
of 3Com Common Stock was greater than the present value of Chipcom's cash flows
under the range of discounted cash flow valuations discussed above.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Wessels,
Arnold & Henderson believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create an incomplete or
misleading view of the processes underlying its opinion. In arriving at its
fairness determination, Wessels, Arnold & Henderson considered the results of
all such analyses. In view of the wide variety of factors considered in
connection with its evaluation of the fairness of the merger consideration,
Wessels, Arnold & Henderson did not find it practicable to assign relative
weights to the factors considered in reaching its opinion. No company or
transaction used in the above analysis as a comparison is identical to Chipcom
or 3Com or the proposed Merger. The analyses were prepared solely for purposes
of Wessels, Arnold & Henderson providing its opinion as to the fairness of the
Merger consideration pursuant to the Merger Agreement to Chipcom and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. As
described above, the Wessels Opinion and presentation to the Chipcom Board was
one of many factors taken into consideration by the Chipcom Board in making its
determination to approve the Merger Agreement.
Wessels, Arnold & Henderson assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided by Chipcom and 3Com and did not independently verify such information.
Further, Wessels, Arnold & Henderson assumed that the Merger will be accounted
for as a pooling of interests. Wessels, Arnold & Henderson did not perform an
independent evaluation or appraisal of any of the respective assets or
liabilities of Chipcom or 3Com, nor was Wessels, Arnold & Henderson furnished
with any such evaluations or appraisals. With respect to financial forecasts,
Wessels, Arnold & Henderson assumed that these forecasts were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Chipcom and 3Com, as the case may be, as to the
respective future financial performance of Chipcom or 3Com. The Wessels Opinion
was based on the conditions as they existed and the information available to
Wessels, Arnold & Henderson on the date of the opinion. Events occurring after
the
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date of the Wessels Opinion may materially affect the assumptions used in
preparing the Wessels Opinion. Further, the Wessels Opinion speaks only as of
the date thereof and is based on the conditions as they existed and information
with which Wessels, Arnold & Henderson was supplied as of the date thereof.
Wessels, Arnold & Henderson is a nationally recognized investment banking
firm and is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporations. Wessels, Arnold & Henderson is familiar with
Chipcom, having provided certain investment banking and financial advisory
services to Chipcom from time to time, including having acted as a managing
underwriter of the initial public offering of Chipcom Common Stock in May 1991
and of subsequent public offerings of Chipcom Common Stock in December 1991 and
August 1993 and having acted as a financial advisor to Chipcom in connection
with Chipcom's acquisitions of Chipcom Europe B.V. in June 1992, Artel in
February 1994 and DSI in August 1994. Chipcom selected Wessels, Arnold &
Henderson as its financial advisor based on Wessels, Arnold & Henderson's
familiarity with Chipcom and Wessels, Arnold & Henderson's experience in mergers
and acquisitions and in securities valuation generally.
In the ordinary course of business, Wessels, Arnold & Henderson acts as a
market maker and broker in the publicly traded securities of 3Com and Chipcom
and receives customary compensation in connection therewith, and also provides
research coverage for 3Com and Chipcom. In the ordinary course of business,
Wessels, Arnold & Henderson actively trades in the publicly traded securities of
3Com and Chipcom for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Pursuant to the Engagement Letter, Chipcom paid Wessels, Arnold & Henderson
a non-refundable retainer fee (the "Retainer Fee") of $150,000 upon execution of
the Engagement Letter and a non-refundable opinion fee (the "Opinion Fee") of
$500,000 upon the rendering of the Wessels Opinion. In addition, pursuant to the
Engagement Letter, Chipcom has agreed to pay Wessels, Arnold & Henderson, upon
consummation of the Merger pursuant to the Merger Agreement, a transaction fee
(the "Transaction Fee") of between approximately $3.3 miliion and $3.6 million.
The Retainer Fee and the Opinion Fee will be credited against the Transaction
Fee. Payment of the Transaction Fee is contingent upon consummation of the
Merger. Chipcom has also agreed to reimburse Wessels, Arnold & Henderson for its
reasonable out-of-pocket expenses, up to $50,000, and to indemnify Wessels,
Arnold & Henderson against certain liabilities relating to or arising out of
services performed by Wessels, Arnold & Henderson as financial advisor to
Chipcom. The terms of the Engagement Letter, which are customary in transactions
of this nature, were negotiated at arm's length between Chipcom and Wessels,
Arnold & Henderson, and the Chipcom Board was aware of such fee arrangement at
the time of its approval of the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of July 31, 1995, directors and executive officers of 3Com and their
affiliates may be deemed to be beneficial owners of approximately 3.0% of the
outstanding shares of 3Com Common Stock.
As of July 31, 1995, directors and executive officers of Chipcom and their
affiliates may be deemed to be beneficial owners of approximately 3.0% of the
outstanding shares of Chipcom Common Stock. See "Information Concerning Chipcom
-- Security Ownership of Certain Beneficial Owners and Management" for
additional information concerning such ownership.
Certain stock option agreements previously entered into with Messrs.
Abraham, Badavas, Cohen, Held, Meyer and Moffa and Ms. Kokos, who are officers
of Chipcom, provide that certain unvested options granted to such officers shall
accelerate upon the closing of the Merger. Assuming the Merger is consummated on
October 13, 1995, officers would hold unvested options to acquire 507,511 shares
of Chipcom Common Stock, the vesting of which will accelerate by 12 months.
After giving effect to this acceleration, Officer Options to purchase 226,815
shares of Chipcom Common Stock held by such officers will then be exercisable,
with exercise prices ranging from $12.75 to $41.50 per share.
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Messrs. Burnes, Fishman, Onians, and Sitter and Ms. Brown, members of
Chipcom's Board of Directors, hold options to purchase 132,500 shares of Chipcom
Common stock granted under Chipcom's 1991 Director Stock Option Plan, as
amended. Under the terms of said plan, all such outstanding options shall become
exercisable in full upon the consummation of the Merger. Assuming the Merger is
consummated on October 13, 1995, these provisions will result in the accelerated
vesting of an aggregate of 77,000 shares of Common Stock subject to options held
by such directors, with exercise prices ranging from $8.34 to $32.75 per share.
The Board of Directors of Chipcom adopted the Chipcom Severance Plan,
effective as of October 15, 1992. The Chipcom Severance Plan provides that each
executive officer of Chipcom and certain other management level employees
(individually, a "Participant") shall be entitled to compensation and certain
benefits upon the occurrence of a "Triggering Event." Under the Chipcom
Severance Plan, a "Triggering Event" shall mean (i) termination of a
Participant's employment within 18 months following a "change in control" of
Chipcom (as defined in the Chipcom Severance Plan) by Chipcom unless such
termination is for "cause" (as defined in the Chipcom Severance Plan), or by the
Participant for "good reason" (as defined in the Chipcom Severance Plan), or
(ii) death or disability of a Participant. The Merger will constitute a "change
in control" for purposes of the Chipcom Severance Plan. Upon the occurrence of a
Triggering Event within 18 months following the consummation of the Merger, the
Participant shall be entitled to receive an amount equal to up to one year's
compensation. In addition, the exercise dates of all stock options and
restricted stock awards held by the Participant will be accelerated in full and
such Participant shall be entitled to continue to receive for a period of up to
one year any benefits to which he or she was entitled prior to termination. The
amount, timing and duration of any payment or benefit received by a Participant
under the Chipcom Severance Plan following termination varies according to
whether he or she is an executive officer or a management level employee and the
type of Triggering Event.
For discussion of certain agreements by 3Com to provide indemnification of
certain directors and officers of Chipcom, see "The Merger Agreement --
Indemnification."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to the Merger that 3Com and
Chipcom shall have received letters from Deloitte & Touche LLP and Price
Waterhouse LLP, their respective independent accountants, to the effect that
they know of nothing with respect to 3Com and Chipcom, respectively, that would
prohibit the business combination to be effected by the Merger from qualifying
as a pooling of interests transaction under generally accepted accounting
principles. Under this method of accounting, the recorded assets and liabilities
of 3Com and Chipcom will be carried forward to the combined company at their
recorded amounts, income of the combined company will include income of 3Com and
Chipcom for the entire fiscal year in which the combination occurs and the
reported income of the separate companies for prior periods will be combined and
restated as income of the combined company. Consummation of the Merger is
conditioned upon the written confirmation of such letters at the Effective Time.
See "The Merger Agreement -- Conditions" and "Unaudited Pro Forma Combined
Financial Statements."
The respective affiliates of 3Com and Chipcom will be requested to execute a
written agreement to the effect that such person will not transfer shares of
Common Stock of either 3Com or Chipcom during the period beginning 30 days
preceding the Effective Time and ending on the date that 3Com publishes
financial statements which reflect 30 days of combined operations of 3Com and
Chipcom (which agreements relate to the ability of 3Com to account for the
Merger as a pooling of interests).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
considerations of the Merger that are applicable to holders of Chipcom Common
Stock. This discussion reflects the opinions of counsel attached as Exhibits 8.1
and 8.2 to the Registration Statement of which this Proxy Statement/ Prospectus
is a part (the "Exhibit Opinions"). The Exhibit Opinions each include an opinion
to the effect that the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the
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Code (a "Reorganization"). The Exhibit Opinions, which are based on certain
assumptions and subject to certain limitations and qualifications as noted in
the opinions, were delivered by Hale and Dorr and Gray Cary Ware & Freidenrich,
A Professional Corporation.
Chipcom stockholders should be aware that the following discussion does not
deal with all federal income tax considerations that may be relevant to
particular Chipcom stockholders in light of their particular circumstances, such
as stockholders who are dealers in securities, who are foreign persons or who
acquired their Chipcom Common Stock through stock option or stock purchase
programs or in other compensatory transactions. In addition, the following
discussion does not address the tax consequences of transactions effectuated
prior to or after the Merger (whether or not such transactions are in connection
with the Merger) including, without limitation, the exercise of options or
rights to purchase Chipcom Common Stock in anticipation of the Merger. Finally,
no foreign, state or local tax considerations are addressed herein. ACCORDINGLY,
CHIPCOM STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the companies' respective counsels'
interpretation of the Code, applicable Treasury Regulations, judicial authority
and administrative ruling and practice, all as of the date hereof. The Internal
Revenue Service (the "IRS") is not precluded from adopting a contrary position.
In addition, there can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the accuracy
of the statements and conclusions set forth herein. Any such changes or
interpretations could be applied retroactively and could affect the tax
consequences of the Merger to 3Com, Chipcom and/or their respective
stockholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the companies' respective
counsel are of the opinion that:
(a) No gain or loss will be recognized by the holders of Chipcom Common
Stock upon the receipt of 3Com Common Stock solely in exchange for such
Chipcom Common Stock in the Merger (except to the extent of cash received in
lieu of fractional shares);
(b) The aggregate tax basis of the 3Com Common Stock so received by
Chipcom stockholders in the Merger (including any fractional share of 3Com
Common Stock not actually received) will be the same as the aggregate tax
basis of the Chipcom Common Stock surrendered in exchange therefor;
(c) The holding period of the 3Com Common Stock so received by each
Chipcom stockholder in the Merger will include the period for which the
Chipcom Common Stock surrendered in exchange therefor was considered to be
held, provided that the Chipcom Common Stock so surrendered is held as a
capital asset at the Effective Time;
(d) Cash payments received by holders of Chipcom Common Stock in lieu of
receipt of a fractional share of 3Com Common Stock will be treated as if
such fractional share of 3Com Common Stock had been issued in the Merger and
then redeemed by 3Com; and
(e) None of 3Com, Sub or Chipcom will recognize gain or loss solely as a
result of the Merger.
Neither 3Com nor Chipcom has requested a ruling from the IRS in connection
with the Merger. However, it is a condition of the respective obligations of
3Com and Chipcom to consummate the Merger that such parties receive confirming
tax opinions from their respective legal counsel to the effect that for federal
income tax purposes, the Merger will constitute a Reorganization. The Exhibit
Opinions are not intended to satisfy this closing condition. These closing
opinions, which are collectively referred to herein as the "Tax Opinions,"
neither bind the IRS nor preclude the IRS from adopting a contrary position. As
with the Exhibit Opinions, the Tax Opinions will be subject to certain
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assumptions and qualifications and will be based on the truth and accuracy of
certain representations of 3Com, Chipcom and Sub, including representations in
certain certificates of the respective management of 3Com, Chipcom and Sub dated
on or prior to the date of this Proxy Statement/Prospectus.
A successful IRS challenge to the Reorganization status of the Merger would
result in a Chipcom stockholder recognizing gain or loss with respect to each
share of Chipcom Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time, of the 3Com Common Stock received in exchange therefor. In such event, a
Chipcom stockholder's aggregate basis in the 3Com Common Stock so received would
equal its fair market value, and the stockholder's holding period for such stock
would begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
3Com Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Common Stock of Chipcom). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that a
Chipcom stockholder was treated as receiving (directly or indirectly)
consideration other than 3Com Common Stock in exchange for the Chipcom Common
Stock.
REGULATORY APPROVALS
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. 3Com
and Chipcom filed notification and report forms under the HSR Act with the FTC
and the Antitrust Division on August 11, 1995. The waiting period under the HSR
Act expired on September 10, 1995. At any time before or after consummation of
the Merger, and notwithstanding the expiration of the HSR Act waiting period,
the Antitrust Division or the FTC could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking divestiture of
substantial assets of 3Com or Chipcom. At any time before or after the Effective
Time of the Merger, and notwithstanding the expiration of the HSR Act waiting
period, any state could take such action under the antitrust laws as it deems
necessary or desirable in the public interest. Such action could include seeking
to enjoin the consummation of the Merger or seeking divestiture of Chipcom or
businesses of 3Com or Chipcom. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Based on information available to them, 3Com and Chipcom believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, 3Com and Chipcom would prevail or would not be required to accept certain
conditions, including certain divestitures, in order to consummate the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of 3Com Common Stock received by Chipcom stockholders in the
Merger will be freely transferable, except that shares of 3Com Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Chipcom prior to the Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 in the case of such persons who become
affiliates of 3Com) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of Chipcom or 3Com generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal stockholders of such party. The Merger Agreement
requires Chipcom to use its best efforts to cause each of its affiliates to
execute a written agreement to the effect that such person will not offer to
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sell or otherwise dispose of any of the shares of 3Com Common Stock issued to
such person in or pursuant to the Merger in violation of the Securities Act or
the rules and regulations promulgated by the Commission thereunder.
NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the Merger that the shares of 3Com Common Stock to be
issued pursuant to the Merger Agreement and required to be reserved for issuance
in connection with the Merger be approved for quotation on the Nasdaq National
Market. An application has been filed for listing the shares of 3Com Common
Stock on the Nasdaq National Market.
NO APPRAISAL RIGHTS
Holders of Chipcom Common Stock are not entitled to dissenters' appraisal
rights under the DGCL in connection with the Merger because the Chipcom Common
Stock is listed on the Nasdaq National Market and the shares of 3Com Common
Stock which such holders will be entitled to receive in the Merger will be
listed on the Nasdaq National Market at the Effective Time.
CERTAIN LEGAL PROCEEDINGS
On August 2, 1995, a complaint (the "Delaware Complaint") was filed in the
Delaware Court of Chancery, New Castle County, entitled LUCILLE NAPPO V. CHIPCOM
CORP., GERALD G. FISHMAN, FRANK A. ONIANS, JOHN ROBERT HELD, RICHARD M. BURNES,
JR., VICTORIA A. BROWN, WILLIAM H. SITTER AND 3COM CORP. The plaintiff, Lucille
Nappo, who claims to be a stockholder of Chipcom, asserts that Chipcom and its
Board of Directors (the "Chipcom Defendants") violated their fiduciary duty to
Chipcom stockholders by remaining fully committed to the proposed merger with
3Com announced on July 27, 1995 and by not seeking other bids for Chipcom. As to
3Com, liability is asserted on the basis of its alleged role as an aider and
abetter of the alleged breaches of duties by the Chipcom Defendants.
As relief, the plaintiff seeks, among other things, preliminary and
permanent relief, including injunctive relief, compensatory damages and costs
and disbursements associated with the Delaware Complaint, including reasonable
attorneys' fees.
Neither the Chipcom Defendants nor 3Com have been served with the Delaware
Complaint.
The Chipcom Defendants and 3Com believe that they have meritorious defenses
to the claims alleged in the Delaware Complaint.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Proxy
Statement/Prospectus and incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
Chipcom are urged to read the Merger Agreement in its entirety for a more
complete description of the Merger.
THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the stockholders of Chipcom and the satisfaction or
waiver of the other conditions to the Merger, Sub will be merged with and into
Chipcom, with Chipcom continuing as the surviving corporation (the "Surviving
Corporation"), which shall be a wholly-owned subsidiary of 3Com.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the filing by the Surviving Corporation of a duly
executed Certificate of Merger with the Secretary of State of the State of
Delaware or at such time thereafter as is provided in the Certificate of Merger.
CONVERSION OF SECURITIES
Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding share of Chipcom Common Stock (other than shares owned by
Chipcom as treasury stock or by 3Com, Sub or any other wholly-owned subsidiary
of 3Com, all of which will be canceled) will be converted into the right to
receive (a) 1.06 shares of 3Com Common Stock and (b) the related 3Com Common
Stock Purchase Rights. See "Description of 3Com Capital Stock -- 3Com
Shareholder Rights Plan." Based upon the capitalization of Chipcom and 3Com as
of July 31, 1995, the stockholders of Chipcom immediately prior to the
consummation of the Merger will own approximately 11.1% of the outstanding
shares of 3Com Common Stock immediately following consummation of the Merger. If
any holder of shares of Chipcom Common Stock would be entitled to receive a
number of shares of 3Com Common Stock that includes a fraction, then, in lieu of
a fractional share, such holder will be entitled to receive cash in an amount
equal to such fractional part of a share of 3Com Common Stock multiplied by the
average of the last reported sale price of 3Com Common Stock, as reported on the
Nasdaq National Market, on each of the ten trading days immediately preceding
the date of the Effective Time. Each share of Sub Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into one
share of Common Stock of the Surviving Corporation.
Promptly after the Effective Time, The First National Bank of Boston (the
"Exchange Agent") will mail transmittal forms and exchange instructions to each
holder of record of Chipcom Common Stock to be used to surrender and exchange
certificates evidencing shares of Chipcom Common Stock for certificates
evidencing the shares of 3Com Common Stock to which such holder has become
entitled. After receipt of such transmittal forms, each holder of certificates
formerly representing Chipcom Common Stock will be able to surrender such
certificates to the Exchange Agent, and each such holder will receive in
exchange therefor certificates evidencing the number of whole shares of 3Com
Common Stock to which such holder is entitled and any cash which may be payable
in lieu of a fractional share of 3Com Common Stock. Such transmittal forms will
be accompanied by instructions specifying other details of the exchange. CHIPCOM
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing Chipcom Common Stock,
until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the number of whole shares of 3Com Common
Stock which the holder of such certificate is entitled to receive and the right
to receive any cash payment in lieu of a fractional share of 3Com Common Stock.
The holder of such unexchanged certificate will not be entitled to receive any
dividends or other distributions payable by 3Com until the certificate has been
exchanged. Subject to applicable laws, such dividends and distributions,
together with any cash payment in lieu of a fractional share of 3Com Common
Stock, will be paid without interest.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) the due organization, valid
existence and good standing of each of 3Com, Chipcom and each of their
respective subsidiaries and certain similar corporate matters; (b) the capital
structure of each of 3Com and Chipcom; (c) the authorization, execution,
delivery and enforceability of the Merger Agreement, the consummation of the
transactions contemplated by the Merger Agreement and related matters; (d)
conflicts under charters or by-laws, required consents or approvals and
violations of any instruments or law; (e) documents and financial statements
filed by each of 3Com and Chipcom with the Commission and the accuracy of
information contained therein; (f) undisclosed liabilities; (g) the absence of
certain material adverse changes or events; (h) taxes, tax returns and audits;
(i) properties; (j) intellectual property; (k) agreements, contracts and
commitments; (l) litigation; (m) environmental matters, hazardous materials and
hazardous materials activities; (n) employee benefit plans; (o) compliance with
laws; (p) matters affecting the availability of pooling of interests accounting;
(q) interested party transactions; (r) the accuracy of information supplied by
each of 3Com and Chipcom in connection with the Registration Statement and this
Proxy Statement/Prospectus; (s) the absence of pending discussions with other
parties; (t) opinions of financial advisors; (u) inapplicability to the Merger
of certain provisions of the DGCL; and (v) the interim operations of Sub.
CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Merger Agreement, Chipcom has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
otherwise consented to in writing by 3Com or as contemplated by the Merger
Agreement, Chipcom and its subsidiaries will: (a) carry on its business in the
ordinary course in substantially the same manner as previously conducted; (b)
pay its debts and taxes when due subject to good faith disputes over such debts
or taxes, and pay or perform other obligations when due; (c) preserve intact its
present business organization; (d) not accelerate, amend or change the period of
exercisability of options granted under any employee stock plan, except as
required pursuant to the plan or any related agreement; (e) not transfer or
license or otherwise extend, amend or modify any rights to its intellectual
property rights, other than in the ordinary course of business consistent with
past practices; (f) not declare or pay any dividends on or make other
distributions in respect of any of its capital stock, not effect certain other
changes in its capitalization, and not purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with the termination of service; (g) not
issue, or authorize or propose the issuance of, any shares of its capital stock
or securities convertible into shares of its capital stock, or any
subscriptions, rights, warrants, or options to acquire, or other agreements
obligating it to issue any such shares or other convertible securities, subject
to certain exceptions; (h) not engage in material acquisitions; (i) subject to
certain exceptions, not sell, lease, license or otherwise dispose of material
properties or assets; (j) not increase the compensation payable to its officers
or employees (except for increases consistent with past practices), grant
additional severance or termination pay or enter into employment agreements with
officers or any non-officer employee (except in accordance with past practice),
enter into any collective bargaining agreement or establish, adopt, enter into
or amend any plan for the benefit of its directors, officers, or employees,
subject to certain exceptions; (k) not revalue any of its assets, including
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business; (l) not incur indebtedness for
money borrowed (or guarantees thereof) other than indebtedness incurred under
existing lines of credit consistent with prior practice; (m) not amend its
Restated Certificate of Incorporation or Bylaws, except as contemplated by the
Merger Agreement; (n) not take any action that would or is reasonably likely to
result in any of its representations and warranties becoming untrue; (o) not
incur material capital expenditures; (p) promptly notify 3Com of any event or
occurrence not in the ordinary course of business where such event or occurrence
would result in a breach of any covenant of Chipcom or cause any representation
or warranty of Chipcom to be untrue; and (q) confer on a regular basis with
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3Com on operational matters of materiality. On August 1, 1995, 3Com waived the
prohibitions summarized in clauses (f) and (g) above with respect to Chipcom's
adoption of the Chipcom Stockholder Rights Plan. See "Information Concerning
Chipcom -- Chipcom Stockholder Rights Plan."
Pursuant to the Merger Agreement, 3Com has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
otherwise consented to in writing by Chipcom or as contemplated by the Merger
Agreement, 3Com and its subsidiaries will: (a) carry on its business in the
ordinary course in substantially the same manner as previously conducted; (b)
pay its debts and taxes when due subject to good faith disputes over such debts
or taxes, and pay or perform other obligations when due; (c) preserve intact its
present business organization; (d) not declare or pay any dividends on or make
other distributions in respect of any of its capital stock (other than stock
splits of its Common Stock or stock dividends payable in shares of Common
Stock), not effect certain other changes in its capitalization, and not purchase
or otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with the
termination of service; (e) not engage in acquisitions involving aggregate
consideration in excess of $1 billion; (f) subject to certain exceptions, not
sell, lease, or otherwise dispose of material properties or assets; (g) not
amend its Articles of Incorporation or Bylaws, except as contemplated by the
Merger Agreement; (h) not take any action that would or its reasonably likely to
result in any of its representations and warranties becoming untrue; and (i)
confer on a regular basis with Chipcom on operational matters of materiality.
NO SOLICITATION
The Merger Agreement provides that Chipcom will not, directly or indirectly,
through any officer, director, employee, representative or agent of Chipcom, (i)
solicit, initiate or encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of shares
of capital stock (including without limitation by way of a tender offer) or
similar transactions involving Chipcom or any of its subsidiaries, other than
the transactions contemplated by the Merger Agreement (any of the foregoing
inquiries or proposals being referred to in the Merger Agreement as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to, approve or recommend any Acquisition
Proposal; PROVIDED, HOWEVER, that nothing contained in the Merger Agreement
shall prevent Chipcom or the Chipcom Board from (A) furnishing non-public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity (including a new and unsolicited Acquisition Proposal
received by Chipcom after the execution of the Merger Agreement from a person or
entity whose initial contact with Chipcom may have been solicited by Chipcom
prior to the execution of the Merger Agreement) or recommending such an
unsolicited bona fide written Acquisition Proposal to the stockholders of
Chipcom, if and only to the extent that (1) the Chipcom Board believes in good
faith (after consultation with and based upon the advice of its financial
advisor) that such Acquisition Proposal would, if consummated, result in a
transaction more favorable to the Chipcom stockholders from a financial point of
view than the transaction contemplated by the Merger Agreement (any such more
favorable Acquisition Proposal being referred to as a "Superior Proposal") and
the Chipcom Board determines in good faith after consultation with and based
upon the advice of outside legal counsel that such action is necessary for
Chipcom to comply with its fiduciary duties to its stockholders under applicable
law and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the Chipcom Board
receives from such person or entity an executed confidentiality agreement with
terms no more favorable to such party than those contained in the reciprocal
non-disclosure agreement between 3Com and Chipcom; or (B) complying with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal.
Chipcom is required to notify 3Com (orally and in writing) within 24 hours
after receipt of any Acquisition Proposal or request for non-public information
or access to its properties, books or records in connection with an Acquisition
Proposal.
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RELATED MATTERS AFTER THE MERGER
At the Effective Time, Sub will be merged with and into Chipcom, and Chipcom
will be the surviving corporation and a wholly-owned subsidiary of 3Com. Each
share of Sub Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Chipcom Common Stock. Each stock
certificate of Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of Chipcom Common Stock.
Unless otherwise determined by 3Com prior to the Effective Time, at the
Effective Time the Restated Certificate of Incorporation of Chipcom, as in
effect immediately prior to the Effective Time and as amended in accordance with
the provisions of the Merger Agreement, will be the Certificate of Incorporation
of the Surviving Corporation. The Bylaws of Sub, as in effect immediately prior
to the Effective Time, will be the Bylaws of the Surviving Corporation.
The directors of Sub immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation. After the Effective Time, it is
expected that the current officers of Chipcom will continue as members of
management of Chipcom, which will operate as a wholly-owned subsidiary of 3Com.
After the Effective Time, all shares of Chipcom Common Stock will cease to
be quoted on the Nasdaq National Market, and the Surviving Corporation will
undertake to terminate registration of Chipcom Common Stock under the Exchange
Act.
INDEMNIFICATION
The Merger Agreement provides that Chipcom shall, and from and after the
Effective Time, 3Com and the Surviving Corporation shall, indemnify, defend and
hold harmless each person who was as of the date of the Merger Agreement or has
been at any time prior to the date thereof, or who becomes prior to the
Effective Time, an officer, director or employee of Chipcom or any of its
subsidiaries against all losses, claims, damages, costs, expenses, liabilities
or judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any claim, action, suit, proceeding or investigation based in
whole or in part on, or arising in whole or in part out of, the fact that such
person is or was a director, officer or employee of Chipcom or any subsidiary,
whether pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities"), and all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, or
pertaining to the Merger Agreement or the transactions contemplated thereby, in
each case to the full extent that a corporation is permitted under the DGCL to
indemnify its own directors, officers or employees, as the case may be. After
the Effective Time, 3Com and the Surviving Corporation will fulfill and honor in
all respects the obligations of Chipcom pursuant to Restated Certificate of
Incorporation of Chipcom and any indemnification agreements with Chipcom
directors and officers existing as of the date of the Merger Agreement.
In addition, 3Com has agreed to maintain, or cause the Surviving Corporation
to maintain, in effect a policy or policies of directors and officers liability
insurance with coverage substantially comparable to policies in force through
June 29, 1995 covering the directors and officers of Chipcom as of the date of
the Merger Agreement for a period of not less than six years following the
Effective Time; PROVIDED, HOWEVER, should comparable coverage at any time be
unavailable at an annual premium of less than $400,000, 3Com and/or the
Surviving Corporation shall only be required to obtain such lesser coverage as
may be obtained for such amount.
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CONDITIONS
The respective obligations of 3Com and Chipcom to effect the Merger are
subject to the following conditions, among others: (a) the Merger Agreement
shall have been approved and adopted by the stockholders of Chipcom; (b) the
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated; (c) all material governmental
authorizations, consents, orders or approvals shall have been obtained; (d) the
Registration Statement shall have become effective and shall not be the subject
of a stop order or proceedings seeking a stop order; (e) no temporary
restraining order, preliminary or permanent injunction or other order shall be
in effect nor shall there be any proceeding seeking any of the foregoing that
prevents, or seeks to prevent, the consummation of the Merger; (f) no action
shall be taken, nor any statute, rule, regulation, or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal; (g) the receipt of letters of Deloitte & Touche LLP and Price
Waterhouse LLP by 3Com and Chipcom, respectively, dated as of the date of this
Proxy Statement/Prospectus and confirmed in writing at the Effective Time,
stating that they know of nothing that would prohibit the business combination
from qualifying as a pooling of interests transaction under generally accepted
accounting principles (see "The Merger -- Accounting Treatment"); (h) the
approval of the shares of 3Com Common Stock to be issued in the Merger for
quotation on the Nasdaq National Market; (i) receipt by 3Com of a written
opinion from Gray Cary Ware & Freidenrich, A Professional Corporation, counsel
to 3Com, and receipt by Chipcom of an opinion of Hale and Dorr, counsel to
Chipcom, both to the effect that the Merger will be treated for Federal income
tax purposes as a tax-free reorganization within the meaning of Section 368(a)
of the Code (see "The Merger -- Certain Federal Income Tax Consequences"); (j)
receipt by 3Com of all state securities or "Blue Sky" permits and other
authorizations necessary to issue shares of 3Com Common Stock pursuant to the
Merger; (k) the accuracy in all material respects of the representations and
warranties of the other party set forth in the Merger Agreement, subject to the
specific provisions described below; and (l) the performance in all material
respects of all obligations of the other party required to be performed under
the Merger Agreement.
For purposes of determining the accuracy of the representations and
warranties of Chipcom relating to the absence of certain material adverse
changes, as of the Closing Date, the following events or occurrences shall not
be deemed to constitute a material adverse change to the extent that they result
in substantial part as a consequence of the public announcement of the Merger
Agreement or the terms of the Merger: (a) a reduction in Chipcom's revenues from
IBM; (b) a reduction in Chipcom's revenues from switching products and/or
stackable hub products as a result of Chipcom's endorsement of 3Com products;
(c) reduction or cancellation of orders by other major customers of Chipcom,
particularly customers who are competitors of 3Com; (d) reduction or
cancellation of orders in Chipcom's reseller channel while the effects of the
proposed Merger are assessed; (e) a slowdown in the activities of Chipcom's
field organization while the effects of the proposed Merger are assessed; (f)
termination of agreements between Chipcom and third parties, including
resellers; or (g) loss of key employees and the impact thereof on Chipcom's
operations. In addition, material adverse developments in securities litigation
currently pending against Chipcom shall not be deemed to be a material adverse
change for such purpose.
STOCK OPTION AND BENEFIT PLANS
At the Effective Time, each outstanding option to purchase shares of Chipcom
Common Stock (a "Chipcom Stock Option") under the Chipcom Stock Option Plan and
the 1991 Director Option Plan or stock option agreements otherwise outstanding
(the "Chipcom Option Plans"), whether vested or unvested, shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Chipcom Stock Option, the number of shares of 3Com Common
Stock (rounded down to the nearest whole number) as the holder of such Chipcom
Stock Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time, at
a price per share (rounded up to the nearest whole cent) equal to (x) the
aggregate exercise price for the shares of Chipcom Common Stock otherwise
purchasable pursuant to such Chipcom Stock Option divided by (y) the number of
whole shares of 3Com Common
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Stock deemed purchasable pursuant to such Chipcom Stock Option as determined
above as of July 31, 1995. Chipcom Stock Options to acquire 2,343,104 shares of
Chipcom Common Stock were outstanding under the Chipcom Option Plans. See "The
Merger -- Interests of Certain Persons in the Merger" for information relating
to the acceleration of the vesting provisions of options held by Chipcom
officers and directors upon consummation of the Merger.
3Com has agreed to reserve for issuance a sufficient number of shares of
3Com Common Stock for delivery under the Chipcom Option Plan assumed as
described above. As soon as practicable after the Effective Time, and not more
than 10 business days thereafter, 3Com shall file a registration statement on
Form S-3 or Form S-8, as the case may be, with respect to the shares of 3Com
Common Stock subject to such options and shall use its best efforts to maintain
the effectiveness of such registration statement(s) and the current status of
the prospectus(s) contained therein for so long as such options remain
outstanding. With respect to individuals who will be subject to the reporting
requirements under Section 16(a) of the Exchange Act after the Merger, 3Com
agreed to administer the Chipcom Option Plan assumed in the Merger in a manner
that complies with Rule 16b-3 promulgated under the Exchange Act.
Employees of Chipcom as of the Effective Time shall be permitted to
participate in the 3Com Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of the plan. Employees of Chipcom will each receive
credit, for purposes of such eligibility provisions, for prior service with
Chipcom.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of 3Com and Chipcom:
(a) by mutual written consent of 3Com and Chipcom;
(b) by either 3Com or Chipcom if the Merger shall not have been
consummated by December 31, 1995 (provided that the right to terminate the
Merger Agreement under this clause shall not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date);
(c) by either 3Com or Chipcom if a court of competent jurisdiction or
other Governmental Entity (as defined in the Merger Agreement) shall have
issued a nonappealable final order, decree or ruling or taken any other
action, in each case having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger, except, if the party relying on such
order, decree or ruling or other action has not complied with its
obligations under Section 6.7 (Legal Conditions to Merger) of the Merger
Agreement;
(d) by 3Com, if, at the Chipcom Special Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Chipcom in favor of the Merger Agreement and the Merger shall not have been
obtained;
(e) by 3Com, if (i) the Board of Directors of Chipcom shall have
withdrawn or modified its recommendation of the Merger Agreement or the
Merger or shall have publicly announced or disclosed to any third party its
intention to do any of the foregoing; (ii) the Board of Directors of Chipcom
shall have recommended to the stockholders of Chipcom an Alternative
Transaction (as defined in the Merger Agreement); or (iii) a tender offer or
exchange offer for 20% or more of the outstanding shares of Chipcom Common
Stock is commenced (other than by 3Com or an affiliate of 3Com) and the
Board of Directors of Chipcom recommends that the stockholders of Chipcom
tender their shares in such tender or exchange offer; or
(f) by 3Com or Chipcom, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, which breach (i) causes the
conditions set forth in Sections 7.2(a) or (b) (in the case of termination
by
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3Com) or 7.3(a) or (b) (in the case of termination by Chipcom) of the Merger
Agreement (relating to the accuracy of representations and warranties of the
other party and performance by other party of certain obligations) not to be
satisfied and (ii) shall not have been cured within 10 business days
following receipt by the breaching party of written notice of such breach
from the other party.
In the event of any termination of the Merger Agreement by either 3Com or
Chipcom as provided above, the Merger Agreement will become void and there will
be no liability or obligation on the part of 3Com, Chipcom, Sub or their
respective officers, directors, stockholders or affiliates, except to the extent
that such termination results from the willful breach by a party of any of its
representations, warranties, covenants or agreements set forth in the Merger
Agreement, provided that the provisions described below relating to the payment
of fees and expenses shall survive any such termination.
Except as described below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expenses, except that all fees and expenses, other than attorneys' fees,
incurred in relation to the printing and filing of this Proxy
Statement/Prospectus shall be shared equally by 3Com and Chipcom.
Chipcom is required to pay 3Com up to $1,000,000 as reimbursement for
expenses of 3Com actually incurred relating to the transactions contemplated by
the Merger Agreement prior to termination (including fees and expenses of 3Com's
counsel, accountants and financial advisor, but excluding any discretionary fees
paid to such financial advisor), upon the earliest to occur of the following
events: (i) the termination of the Merger Agreement by 3Com under the
circumstances described in paragraph (d) above as a result of the failure to
receive the requisite vote for approval of the Merger Agreement and the Merger
by the stockholders of Chipcom at the Chipcom Special Meeting; or (ii) the
termination of the Merger Agreement by 3Com under the circumstances described in
paragraph (e) above.
Chipcom is required to pay 3Com a termination fee of $23,000,000 upon the
earliest to occur of the following events: (i) the termination of the Merger
Agreement by 3Com under the circumstances described in paragraph (e) above; or
(ii) the termination of the Merger Agreement by 3Com under the circumstances
described in paragraph (d) above as a result of the failure to receive the
requisite vote for approval of the Merger Agreement by the stockholders of
Chipcom at the Chipcom Special Meeting if, at the time of such failure, there
shall have been announced an Alternative Transaction which shall not have been
absolutely and unconditionally withdrawn and abandoned.
Any expenses and fees payable as described above are required to be paid
within one business day after the first to occur of the relevant termination
events. In no event shall Chipcom be required to pay such expenses or fees as
provided for above, if, immediately prior to the termination of the Merger
Agreement, 3Com was in breach of any of its material obligations under the
Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of 3Com and Chipcom, but after
approval by the stockholders of Chipcom of the matters presented in connection
with the Merger to them, no amendment shall be made which by law requires
further approval by such stockholders, without such further approval. 3Com and
Chipcom, by action taken or authorized by their respective Boards of Directors,
may extend the time for performance of the obligations or other acts of the
other parties to the Merger Agreement, may waive inaccuracies in the
representations or warranties contained in the Merger Agreement and may waive
compliance with any agreements or conditions contained in the Merger Agreement.
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INFORMATION CONCERNING 3COM
BUSINESS
3Com was founded on June 4, 1979 and pioneered the networking industry.
Since then, 3Com has evolved from a supplier of discrete networking products to
a broad-based supplier of LAN and network access systems for the large
enterprise, small business, home and telco markets. In the fiscal year ended May
31, 1995, 3Com became a $1.3 billion revenue company, offering customers a broad
range of ISO 9000-compliant global data networking solutions that include
routers, hubs, remote access servers, switches and adapters for Ethernet, Token
Ring, FDDI, ATM and other high speed networks. Additionally, 3Com offers ISDN
adapters and internetworking products for small sites and home users and
integrated digital remote access systems used by network service providers and
telecommunications carriers. 3Com's products are distributed and serviced
worldwide through 3Com and its partners: principally systems integrators,
value-added resellers, national resellers and dealers, distributors and original
equipment manufacturers.
3Com's name is derived from its focus on COMputer COMmunication
COMpatibility. With its long-standing commitment to multi-vendor
interoperability, 3Com has been a leader in defining, shaping and promoting the
growth of networking infrastructures that transmit data to all parts of the
world quickly and efficiently. Underlying this commitment is a focus on:
- SIMPLICITY in the way 3Com designs and manufactures products and in the
way 3Com works with customers;
- SCALABILITY of products to allow customers to purchase networking
components that meet their current requirements, with the assurance that
3Com has cost effective migration and upgrade paths as their networking
needs change;
- VALUE by providing high-performance products, managed through a single,
powerful network management application, that lower the overall cost of the
network ownership.
In fiscal 1991, 3Com announced several actions to accelerate the transition
to global data networking. These included: (i) the decision to wind down the
operations of the workgroup systems business, which had focused on developing
computing platforms optimized for data networks (network servers, workstations
and operating software), (ii) the amendment of 3Com's license agreement with
Microsoft, making Microsoft solely responsible for the LAN Manager network
operating software and (iii) a reduction in 3Com's workforce of approximately 12
percent. 3Com recorded a restructuring charge to operating income of $67.0
million related to these actions in the third quarter of fiscal 1991.
With the restructuring completed, 3Com embarked on an aggressive product
development program, coupled with strategic acquisitions, to rebuild its product
portfolio and increase its market share in the rapidly growing data networking
market.
During fiscal 1992 and 1993, 3Com focused on building its product portfolio
with the introduction of new adapter, hub and internetworking platforms,
retrained its sales force to sell connectivity systems and solutions, and
expanded its global presence with new sales offices, service centers, and "parts
banks" worldwide. The acquisition of the data networking products business of
U.K.-based BICC in January 1992 strengthened 3Com's position in the structured
wiring hub market and expanded 3Com's position in Europe. In January 1993, 3Com
enhanced its Token Ring technology base with the acquisition of Star-Tek, a
Massachusetts-based Token Ring hub manufacturer. Further, to meet increased
demand for its network adapter products, in September 1993, 3Com began
full-scale operations at its 60,000 square foot manufacturing facility in
Blanchardstown, Ireland.
In fiscal 1994, 3Com introduced its High Performance Scalable Networking
architecture with a focus on scaling network performance and extending network
reach. Combined with Transcend network management, HPSN demonstrates 3Com's
ability to deliver complete connectivity systems for the enterprise and beyond,
and provides customers with a framework for building and managing scalable,
high-performance networking infrastructures. During the year, 3Com enhanced its
product
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offerings under HPSN with two strategic acquisitions. First, in January 1994,
3Com acquired Synernetics, 3Com's long-term development partner which was then
the revenue leader in the LAN switching market. The switching products of
Synernetics are marketed under the LANplex name and include the LANplex 6000
backbone switch and LANplex 2000 family of departmental switches. Second, in
February 1994, 3Com acquired Centrum, an innovator in remote access
internetworking technology. The Centrum remote access servers for Ethernet and
Token Ring networks are marketed under the 3Com trademark AccessBuilder.
Additionally, in December 1993, 3Com entered into a technology licensing
agreement with Pacific Monolithics, a wireless communications developer, that
will allow 3Com to offer 10 megabits-per-second ("Mbps") wireless products for
local area networks. The cost of the license was $2.5 million, substantially all
of which was charged to 3Com's operations during the third fiscal quarter of
1994 as purchased in-process technology. Fiscal 1994 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 licensing agreement. Also
during fiscal 1994, 3Com expanded its product offerings with new and enhanced
adapter, internetworking and stackable hub products, extended its worldwide
presence with sales offices in five additional countries, expanded its major
accounts sales force and added new production lines at its manufacturing
facilities in both the U.S. and Ireland.
In fiscal 1995, there was accelerated customer migration toward higher
performance and geographically dispersed networks. 3Com expanded its product
line to address this trend with high performance adapters, enhanced remote
access products, new LAN and ATM switches and higher density internetworking
platforms. Additionally, during the second quarter of fiscal 1995, 3Com acquired
substantially all the assets of Israel-based NiceCom, an innovator in ATM
technology, and also acquired a company developing advanced network adapter
technology. The aggregate purchase price of the two acquisitions was
approximately $55.5 million, plus $6.1 million of costs attributed to the
exchange of the acquired companies' stock options for 3Com stock options and
$2.0 million of costs directly attributable to the completion of the
acquisitions. Approximately $60.8 million of the total purchase price
represented in-process technology and was charged to 3Com's operations during
the quarter.
3Com is also capitalizing on what it views as a substantial opportunity in
providing connectivity solutions to the small and home office markets and to the
commercial remote access market which provides dial-up connectivity to users of
on-line information services, value-added networks, and transaction networks. In
the third quarter of fiscal 1995, 3Com acquired its ISDN adapter development
partner, New Jersey-based AccessWorks. In the fourth quarter of fiscal 1995,
3Com acquired all of the outstanding stock of Sonix, a U.K.-based innovator in
ISDN internetworking technology, in exchange for approximately 2.4 million
shares of 3Com Common Stock (with a value of approximately $70 million as of
March 22, 1995, the date of the agreement). The transaction was closed on May 1,
1995, and was accounted for as a pooling of interests. Sonix is a market leader
in ISDN internetworking in the United Kingdom, and manufactures and markets a
portfolio of network access products specifically designed for data and voice.
Sonix products include low-cost Ethernet-to-ISDN, leased-line or dial-up bridges
and routers and provide connectivity among small dispersed workgroups and
simple, high-performance, low-end, low-cost connectivity between central sites
and remote offices. Sonix operates as a wholly-owned subsidiary of 3Com, known
as 3Com Sonix.
In the fourth quarter of fiscal 1995, 3Com announced the agreement to
acquire all of the outstanding stock, stock options and warrants of San
Diego-based Primary Access, a leading supplier of integrated remote access
systems to network service providers worldwide, in exchange for approximately
4.6 million shares of 3Com Common Stock and options and warrants to purchase
approximately 1.0 million shares of 3Com Common Stock (with a value of
approximately $170 million as of March 21, 1995, the date of the agreement). The
transaction was accounted for as a pooling of interests and closed early in
fiscal 1996 on June 9, 1995. Primary Access pioneered software-defined access to
public telephone networks with its digital Aperture platform. Sold to
interexchange carriers, cellular and local carriers, as well as providers of
on-line information services, value added networks
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("VANs") and transaction networks, the Aperture platform replaces fixed-function
hardware devices such as channel banks, modems, ISDN devices and remote access
servers in central data processing sites or points of presence ("POPs").
Customers of Primary Access include Compuserve, AT&T, MCI, Sprint, regional Bell
operating companies, more than 15 cellular carriers and leading banks and oil
companies. Primary Access operates as a wholly-owned subsidiary of 3Com, known
as 3Com Primary Access.
3Com believes that its principal competitive advantages lie primarily in the
depth and breadth of its product line and a strong yet flexible business
infrastructure. 3Com has strong brand recognition in Ethernet adapters, which it
believes is transferable to other product and technology areas, as well as in
stackable networking systems, LAN switching and remote office and personal
office internetworking platforms. Additionally, 3Com believes its low-cost
manufacturing, worldwide presence, flexible distribution strategy, and
comprehensive service and support capabilities are allowing 3Com to take
advantage of market trends that are extending the reach, scope and performance
of today's data networks.
PRODUCTS
3Com believes that its HPSN architecture, with Transcend network management,
provides customers with a blueprint for building and managing networking
infrastructures using both current and emerging technologies, and for
cost-effectively migrating to higher performance networks using existing
platforms. HPSN defines five connectivity environments and delivers
cost-effective, scalable systems solutions for each, using the full breadth of
3Com products. HPSN encourages customers to build networks to meet their current
business objectives, while providing the assurance that their networks will
scale as they add more users and new applications and migrate to emerging high
performance technologies such as 100 Mbps Ethernet and ATM. In addition to the
five enterprise connectivity environments defined by HPSN, 3Com also offers
software-defined digital access platforms that deliver local access to the
public telephone data network at sites known as points of presence (POPs)
through its 3Com Primary Access subsidiary. The five types of enterprise
connectivity environments and the point of presence central access site are
defined as:
WORKGROUP
While early data networks were installed as a means of connecting individual
members of a workgroup to share files and other computing resources, such as
printers, using Ethernet or Token Ring technology, the trend toward
mission-critical applications and client/server topologies has created a need
for more sophisticated workgroup connectivity with higher bandwidth
capabilities, enhanced resilience, and a more powerful and flexible feature set.
3Com's industry-leading EtherLink, TokenLink and FDDILink adapters provide the
desktop connection to the LAN, while 3Com LinkBuilder stackable and
chassis-based hubs and LinkSwitch workgroup switches concentrate and redirect
network traffic within the workgroup or to the corporate backbone. The
SuperStack network system, which includes hubs, bridge/routers, switches and an
SDLC converter for IBM SNA connectivity, allows network administrators to add
functionality as needed and build in fault tolerance with an optional redundant
power system.
BUILDING/CAMPUS BACKBONE
As the number and complexity of workgroup networks has increased, the need
for sophisticated inter- and intra-networking has led to the creation of
building- and campus-wide "collapsed backbone" networks to transmit data quickly
and efficiently within a single site. Collapsed backbone networks condense
network traffic from workgroup and floor-based hubs and switches along the
backplane of a single powerful device. Working as collapsed backbone devices,
3Com's LANplex family of intelligent switches and NETBuilder II routers simplify
wiring complexity, centralize management, boost performance and lower costs.
Furthermore, the HPSN framework provides for an economical, step-by-step
migration to even greater performance through 100 Mbps Ethernet and ATM
technologies using existing routing and switching platforms.
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WAN BACKBONE
The WAN backbone is the nerve center for wide-area data communications.
3Com's high-performance NETBuilder II routers connect to wide-area resources
ranging from leased lines and dial-up connections to packet-switched and digital
telephone services. Transcend network management applications deliver
self-managing intelligence, putting wide-area bridge/router administration
within the power of a centrally located manager.
REMOTE OFFICE
The remote office is a specialized type of workgroup environment, one with
all the connectivity needs of a workgroup located at the corporate headquarters,
but with the additional requirement that all products plug-and-play. 3Com's
SuperStack system provides hubbing, switching, and routing in a single stackable
system that meets the special needs of the remote office for simple, easy to
maintain, high-performance connectivity. 3Com's innovative Boundary Routing
software, running on the NETBuilder Remote Office router "slice" of the
SuperStack system, simplifies remote access to the corporate network and allows
managers to maximize their resources and reduce expenses by consolidating
complex operations at headquarters. Further, the Transcend network management
applications centralize the network management function as well. Arpeggio
products from 3Com Sonix, currently marketed in Europe, provide simplified ISDN
connectivity for wide-area workgroups, enabling high-performance, low-cost
connectivity between central sites and remote offices. Designed from inception
to optimize ISDN technology from the perspective of the small office, 3Com
believes the Arpeggio line of ISDN bridges and routers are ideally suited to
network applications that require occasional connectivity, such as retail
outlets transmitting daily sales receipts, where the cost of a leased-line
cannot be justified.
PERSONAL OFFICE
The current trend toward "virtual" corporations has resulted in widely
dispersed teleworkers at home and in small offices. There are also millions of
business travelers and nomadic users with computers but no fixed network
connections. 3Com's AccessBuilder remote access servers give these mobile users
simplified analog or digital (ISDN) dial-up access to the network. Available for
Ethernet and Token Ring networks and in stackable or stand-alone versions,
AccessBuilder servers offer higher performance and more flexibility than less
sophisticated connection devices, and include a superior suite of security
measures to block unauthorized access. 3Com's Impact family of internal and
external ISDN adapters replaces traditional modem devices and provides
high-speed digital connectivity to individual users accessing corporate
networks, on-line services and the Internet.
POINTS OF PRESENCE
Increasingly, businesses and organizations of all sizes, from large
diversified companies to small offices and home offices, need to connect their
data networks to the public telephone network to take advantage of a growing
array of new data services, on-line services and public information networks.
The growth in the use of the public network for data has created new market
opportunities for network service providers and telecommunications carriers.
Carriers, for example, are increasingly delivering managed data network services
from POPs, or central processing sites housing the hardware and telco equipment
used for transaction processing and switching. 3Com Primary Access' Aperture
integrated remote access platform is used in the access sites or points of
presence in many major U.S. networks. Applications include on-line information
services such as CompuServe, cellular data networks such as United Parcel
Service's Total Trak, and transaction networks such as VisaNet.
For the five environments, 3Com offers a broad range of connectivity
products categorized as network adapters and network systems products:
PERSONAL CONNECTIVITY PRODUCTS
3Com's personal connectivity products include network adapters, also known
as network interface cards, which are add-in printed circuit boards that allow
personal computers, laptop computers, workstations and personal digital
assistants ("PDAs") to connect to the LAN, remote access adapter,
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including digital/analog modem products for personal remote connectivity and
general data communication functions and PC Card (PCMCIA) adapters which may
include both network and remote access functionality. According to International
Data Corporation ("IDC"), a leading market research firm, 3Com gained five
market share points in calendar 1994 and is the worldwide leader in Ethernet
network adapters with a 34 percent market share in calendar 1994.
In fiscal 1993, 3Com began shipping its family of EtherLink III Parallel
Tasking adapters, based on a 3Com-designed custom application-specific
integrated circuit ("ASIC"). The innovative Parallel Tasking architecture speeds
data transfers by allowing separate tasks to be performed in parallel, resulting
in higher overall adapter efficiency and performance than would otherwise be
possible. 3Com has applied for and received patents on certain aspects of this
technology. In fiscal 1994, 3Com introduced Ethernet PCMCIA ("PC Card") adapters
for laptop and other portable computers, further extending the EtherLink III
family. 3Com's EtherLink III adapters include 16-bit ISA, 32-bit EISA,
MicroChannel and Combo adapters as well as the PC Card adapter. All are designed
around 3Com's custom ASIC, which results in products that 3Com believes are
inherently more reliable, easier to install and configure, and less expensive to
manufacture.
In fiscal 1995, 3Com introduced a new, higher performance, lower cost
version of its popular 10 Mbps EtherLink III adapters and extended the
technology to include the new Fast Ethernet (100 Mbps Ethernet) standard. The
Fast EtherLink III family of network adapters are dual speed Ethernet adapters
capable of transmitting data at either 10 Mbps or 100 Mbps. 3Com believes the
Fast EtherLink family of adapters provides network managers with a smooth
upgrade path to higher speed workgroup connectivity.
In addition to Ethernet and Fast Ethernet adapters, 3Com offers Token Ring,
FDDI and ISDN adapters. Based on the IBM-designed TROPIC chipset, 3Com's
TokenLink III 16/4 family of ISA, EISA and MicroChannel adapters are designed to
work seamlessly with IBM drivers and applications while offering enhanced
installation and network management features. 3Com's FDDILink family of adapters
connect devices to the network via copper wiring and fiber at 100 Mbps. When
combined with 3Com's FDDI Concentrator (hub), FDDILink adapters offer
workstation and high-end PC users a cost-effective solution for high-bandwidth
applications.
NETWORK SYSTEMS PRODUCTS
3Com's network systems products include hubs, internetworking
bridge/routers, LAN switches and remote access servers, which, when combined
within the HPSN framework, create a network infrastructure that delivers
scalable, cost-effective solutions for each of the five connectivity
environments. In addition, network systems products also include 3Com Primary
Access integrated network access systems.
INTERNETWORKING PRODUCTS. 3Com's internetworking products include the
high-performance RISC-based NETBuilder II bridge/routers for collapsed backbone
and wide-area network environments and the NETBuilder Remote Office family of
remote and access routers. Additionally, the AccessBuilder remote access server
provides Ethernet and Token Ring dial-up connectivity for individual remote
users. The NETBuilder Remote Office family of bridge/routers supports Ethernet,
Token Ring and ISDN network technologies and can be operated as either
conventional stand-alone routers or using 3Com's Boundary Routing system.
Additionally, both the NETBuilder Remote Office family and the AccessBuilder
remote access server are available as part of the SuperStack network system.
LAN SWITCHES. LAN switches provide cost-effective, high-speed links between
multiple network segments, simplifying network design and reducing network
latency in client/server networks. 3Com offers a full range of LAN switches,
including the high density LANplex 6000 Ethernet/FDDI data center switch, the
LANplex 2500 Ethernet/FDDI departmental switch and the LinkSwitch family of
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stackable workgroup switches. LinkSwitch switches can operate either stand-alone
or as part of 3Com's SuperStack network systems. Additionally, the LinkSwitch
1200 Ethernet/FDDI switch is available as a module for the LinkBuilder
Multi-Services Hub ("MSH") chassis-based hub.
The development of custom ASICs for switching is central to 3Com's switching
strategy. Virtually all of 3Com's internally developed switches are based on
custom-designed ASICs, which 3Com believes will dramatically improve performance
and reliability while reducing costs. Switching ASICs developed by 3Com include
the Intelligent Switching Engine ("ISE") chip for Ethernet-to-FDDI switching,
the Brasica chip for Ethernet and Fast Ethernet switching, the ZipChip for
Ethernet-to-ATM switching and the Token Ring Switching Engine for Token Ring
switching.
HUBS. 3Com designs, manufactures and markets a full range of Ethernet,
Token Ring and FDDI hubs in either stackable or chassis-based configurations.
3Com's stackable hubs, including the LinkBuilder FMS for Ethernet and Token Ring
networks, provide users a highly reliable, cost-effective solution for
networking workgroups and remote offices.
In fiscal 1994, 3Com expanded its hub offerings with the 24-port LinkBuilder
FMS stackable hub, the LinkBuilder FDDI workgroup hub and a re-engineered
12-port LinkBuilder TP. In addition, 3Com enriched its chassis hub, the
LinkBuilder MSH, with Ethernet-to-FDDI switching, FDDI concentration and
advanced Token Ring technology. The powerful backplane of the LinkBuilder MSH
supports Ethernet, Token Ring and FDDI connectivity today and ATM connectivity
in the future.
In fiscal 1995, 3Com enhanced its RMON network management capabilities
across its hub products line, introduced internetworking bridge modules for its
stackable hubs, and introduced new products designed for telco and small/home
office markets. The LinkBuilder TP/8, a simple unmanaged 8-port hub with an
extremely small footprint, is designed specifically for the growing number of
small businesses and home users who want to connect multiple devices in a simple
structured wiring network without making a major hardware investment.
NETWORK MANAGEMENT. In September 1993, 3Com introduced the Transcend family
network management applications that represents a significant advance in
simplified and logical management of local and wide area networks. Using
Transcend applications on the network management platform of their choice,
network administrators are able to create logical groups of hubs, routers,
servers and desktop devices, regardless of physical location, to obtain
correlated management information and control. To simplify network
administration, Transcend products also leverage administrative resources by
consolidating repetitive tasks, such as downloading router software, into a
single command.
INTEGRATED NETWORK ACCESS SYSTEMS. Integrated network access systems,
offered through 3Com Primary Access, are installed in the point of presence
central access site to provide local access to data over the public switched
network. For example, a user calling up information on CompuServe would dial a
local number to be connected to CompuServe's data network, regardless of where
the data actually resided. 3Com Primary Access' software defined network access
system, known as the Aperture System, replaces a variety of hardware components
traditionally used in the POP, such as channel banks, dial or leased-line
modems, channel service units ("CSUs"), data service units ("DSUs") terminal
servers, packet assembler/disassemblers ("PADs") and switches. Since Aperture
functionality is software-defined, users can re-define and change access
capabilities to meet changing market conditions by simply downloading new
software from a central location. Contrasted with the hardware solution, which
requires site visits to replace equipment and make modifications, the Aperture
product's software-based approach enables network providers to get data services
to market faster, improves network flexibility and reliability and reduces costs
for network management, maintenance and access.
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OTHER PRODUCTS
Other products include communication servers, which provide terminal-to-host
connectivity for terminals and workstations over the network, protocol software
and worldwide service and support programs.
PRODUCT DEVELOPMENT
3Com's product development efforts are focused exclusively on its strategic
product lines: adapters, integrated network access systems and network systems
products. 3Com's ownership of core networking technologies creates opportunities
to leverage its engineering investments and develop more integrated products for
simpler, more innovative networking solutions for customers. 3Com plans to
invest in emerging technologies for use in existing and future products, as well
as to improve and enhance existing products to extend their lifecycles, reduce
manufacturing costs and increase functionality. In addition to the development
of custom ASICs to improve performance, increase reliability and reduce costs,
3Com is investing in the following areas: Fast Ethernet (100 Mbps Ethernet),
wireless local area network communications, ATM capabilities, LAN switching,
ISDN connectivity, enhanced connectivity in IBM environments, and remote access
for single and mobile users.
The industry in which 3Com competes is subject to rapid technological
developments, evolving industry standards, changes in customer requirements and
frequent new product introductions and enhancements. As a result, 3Com's success
in part depends upon its ability, on a cost-effective and timely basis, to
continue to enhance its existing products and to develop and introduce new
products that take advantage of technological advances. 3Com will continue to
make strategic acquisitions where appropriate. There can be no assurance that
3Com will be able to successfully develop new products to address new industry
transmission standards and technological changes or to respond to new product
announcements by others or that such products will achieve market acceptance.
MARKETS AND CUSTOMERS
3Com's customers are represented among the world's leading industries,
including finance, health care, manufacturing, government, education, and
service organizations. In fiscal 1994, 3Com began targeting specific vertical
markets, including health care, education, finance and government, through an
expanded major accounts sales force. With the acquisition of Primary Access,
3Com gained important presence within the telco and network service provider
markets.
Around the world, 3Com serves its customers through a variety of sales
channels including direct and indirect channels. Indirect channels include
systems integrators, value-added resellers, distributors, national dealers and
resellers, and OEMs. 3Com's multi-channel sales strategy encourages broad market
coverage, by allowing 3Com sales personnel to create demand for 3Com products
while giving customers the flexibility to choose the most appropriate delivery
option.
INTERNATIONAL OPERATIONS
3Com distinguishes itself from many of its competitors with its dedicated
research and development, manufacturing, sales and service organizations outside
the United States. 3Com maintains sales offices in 32 countries, including new
offices opened in fiscal 1995 in India, Korea, Poland and Chile. 3Com primarily
markets its products internationally through subsidiaries, sales offices and
relationships with local distributors in Europe, Canada, Asia/Pacific Rim and
Latin America.
CUSTOMER SERVICE
Since global data networking infrastructures are becoming increasingly
complex, customers require vendors to help them manage and support their
networks as well as design and build them. Additionally, as customers'
networking purchases transition from point product to connectivity systems, a
more solutions-oriented approach to service and support is required. 3Com
recognized these trends early and has invested in a comprehensive worldwide
service and support organization capable of providing virtually around-the-clock
customer support regardless of geographic location. 3Com is also developing new
service programs that will expand customers' support options.
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Worldwide logistics include support and repair centers in the United States,
dedicated service organizations in Europe and Asia/Pacific Rim, parts stock at
more than 25 locations, and electronic bulletin boards throughout the world. In
addition to on-site training, 3Com also provides computer-based courses that
allow customers to learn networking technologies at their own pace in their own
environments.
BACKLOG
3Com manufactures its products based upon its forecast of the demand of its
customers worldwide and maintains inventories of finished products in advance of
receiving firm orders from its customers. Orders are generally placed by the
customer on an as-needed basis and products are usually shipped within one to
four weeks after receipt of an order. Such orders generally may be canceled or
rescheduled by the customer without significant penalty. Accordingly, 3Com does
not maintain a substantial backlog, and backlog as of any particular date may
not be indicative of 3Com's actual sales in any succeeding period.
MANUFACTURING AND SUPPLIERS
3Com's primary production activities are conducted at its Santa Clara,
California and Blanchardstown, Ireland facilities. Purchasing, mechanical
assembly, burn-in, testing, final assembly, and quality assurance functions are
performed at both of these facilities. 3Com also procures certain products and
subassemblies through subcontractors. Over the past several years, 3Com has been
investing in automating its manufacturing capabilities, decreasing the costs and
increasing the quality of both manufacturing design and production. To meet
increased demand for its global data networking products, in both fiscal 1994
and 1995, 3Com added new automated production lines in both its California and
Ireland plants. Additionally, in August 1995, 3Com completed construction of a
new 225,000 square foot manufacturing facility at its headquarters in Santa
Clara. The new facility, which will initially produce the EtherLink and
TokenLink families of network adapters and the SuperStack network system
components, triples the existing manufacturing square footage in Santa Clara.
3Com is committed to being an environmentally conscious manufacturer and
pioneered implementation of a chlorofluorocarbon ("CFC")-free semi-aqueous
cleaning process at its California plant with DuPont and Corpane Corporations.
The same process is used at the Ireland facility and 3Com met its goal of being
CFC-free by the end of calendar year 1993. Components purchased by 3Com are
generally available from multiple suppliers. However, certain components may be
available from sole sources. The inability of 3Com to obtain certain components
could require 3Com to redesign or delay shipments of several of its data
networking products. 3Com has sought to establish close relationships with
sole-source suppliers and/or to build up inventory of such components; however,
there can be no assurance that production would not be interrupted due to the
unavailability of components. 3Com believes that its inventory levels of these
components, combined with finished components held by 3Com's suppliers, are
adequate for its presently forecasted needs.
COMPETITION
Data networking is an emerging field within the information systems industry
encompassing both on-premises (e.g., desktop connectivity devices,
internetworking platforms and wiring hubs) and off-premises (e.g., wide-area
networking) technologies. 3Com participates primarily in designing,
manufacturing and marketing on-premises equipment, and is expanding its presence
in the off-premises point-of-presence market. 3Com's competitors typically
compete in one or more segments of the on-premises sector of the data networking
market. These companies are using their resources and technical expertise to
improve and expand their product lines in an effort to gain market share.
Several are extending their product offerings beyond a single market segment and
are pursuing strategies more closely resembling 3Com's global data networking
strategy. The industry recently has witnessed a wave of merger, acquisition and
strategic partnering activity as many of these companies seek to provide broader
networking solutions.
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PERSONAL CONNECTIVITY PRODUCTS. The market for personal connectivity
products is highly competitive. The market for network adapters and PC Card
adapters is characterized by intense competition with companies offering
products that support a range of Ethernet, Token Ring and FDDI media. Principal
competitors in the traditional adapter and PC Card markets include Intel
Corporation, IBM Corporation, Madge N.V., Olicom A/S, Standard Microsystems
Corporation and Xircom. The market for remote access adapters is currently
evolving and in its early stages in both the U.S. and Europe. As remote access
becomes increasingly available to individual users and small businesses, these
companies may combine to achieve greater market presence, or new, larger
competitors, such as traditional modem companies, may enter the market.
NETWORK SYSTEMS PRODUCTS. Competition in the network systems business,
formerly characterized by niche-based competitors focused on a single industry
segment, is shifting toward more broad-based suppliers offering multiple product
lines. This has been achieved through mergers and acquisitions, through joint
marketing agreements, and through internally developed products. This industry
consolidation, and the convergence of hub, switching and routing technologies on
single platforms, will likely continue, intensifying competition among a small
group of companies with broad product offerings. Principal competitors in the
network systems products market include Bay Networks, Cabletron and Cisco
Systems.
INTEGRATED REMOTE ACCESS SYSTEMS. Until very recently, the market for
point-of-presence connectivity equipment has been characterized by a large
number of vendors with many complementary hardware products. Until recently, a
traditional point-of-presence might include modems, channel banks, and PADs from
a number of different suppliers. Integrated remote access systems, such as 3Com
Primary Access Aperture product, replace these multiple, single function
hardware products with a single software-defined platform capable of handling
both digital and analog signals. 3Com Primary Access competes against various
manufacturers of the products mentioned above, as well as Ascend Communications
and U.S. Robotics who manufacture integrated remote access systems.
3Com believes it competes favorably in the data networking market by
providing customers with a full breadth of products based on leading
technologies which, when combined under the HPSN framework, address connectivity
needs for each of the connectivity environments and provide cost-effective
migration paths to higher performance technologies. Additionally, 3Com believes
that its products typically enjoy a reputation for both high quality and
reliability.
PATENTS, LICENSES AND RELATED MATTERS
3Com relies on U.S. and foreign patents, copyright, trademark and trade
secrets to establish and maintain proprietary rights in its technology and
products. 3Com has an active program to file applications for and obtain patents
in the United States and in selected foreign countries where a potential market
for 3Coms products exists. 3Com's general policy has been to seek patent
protection for those inventions and improvements likely to be incorporated in
its products or otherwise expected to be of value. 3Com has been issued 28
utility patents and six design patents in the U.S., and has been issued four
foreign patents. Other patent applications are currently pending which relate to
3Com's research and development.
There can be no assurance that any of these patents would be upheld as valid
if litigated. While 3Com believes that its patents and applications have value,
it also believes that its competitive position depends primarily on the
innovative skills, technological expertise and management abilities of its
employees.
3Com has been granted licenses by others, including a fully paid, perpetual,
non-exclusive license to a patent held by Xerox covering a portion of the
Ethernet technology.
3Com has registered 48 trademarks in the United States and has registered 20
trademarks in one or more of 39 foreign countries. Numerous applications for
registration of domestic and foreign trademarks are currently pending.
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Many of 3Com's products are designed to include software or other
intellectual property licensed from third parties. 3Com actively seeks to
license software that promotes the compatibility of its products with industry
standards, including standard protocols and architectures. The loss of rights in
software or other intellectual property licensed from a third party and designed
into a particular product might disrupt or delay 3Com's distribution of that
product. While it may be necessary in the future to seek or renew licenses
relating to various aspects of its products, 3Com believes that, based upon past
experience and standard industry practice, such licenses generally could be
obtained on commercially reasonable terms.
EMPLOYEES
As of July 31, 1995, 3Com had 3,366 full-time employees, of whom 803 were
employed in engineering, 1,205 in sales, marketing and customer service, 945 in
manufacturing, and 413 in finance and administration. None of 3Com's employees
is represented by a labor organization and 3Com considers its employee relations
to be excellent.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACQUISITIONS
During the fiscal year ended May 31, 1995, 3Com enhanced its HPSN solutions
with several strategic acquisitions. 3Com completed the acquisition of Sonix, a
provider of ISDN connectivity solutions in the United Kingdom, on May 1, 1995.
3Com issued approximately 2.4 million shares of 3Com Common Stock in exchange
for all the outstanding stock of Sonix. The acquisition was accounted for as a
pooling of interests and all financial data of 3Com for fiscal 1995 has been
restated to include the operating results of Sonix. As the historical operations
of Sonix were not significant to any year presented, 3Com's financial statements
for prior years have not been restated and the financial effect of Sonix's
prior-year results have been accounted for as a $2.1 million charge against
retained earnings in fiscal 1995.
On October 18, 1994, 3Com acquired substantially all of the assets and
assumed substantially all the liabilities of NiceCom, an innovator of ATM
technology. 3Com also acquired a company developing network adapter technology
on October 14, 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 of approximately $55.5 million was paid using funds from 3Com's working
capital and issuance of Common Stock. In addition, 3Com assumed stock options
with an associated value of $6.1 million and incurred $2.0 million of costs
directly attributable to the completion of the acquisitions. Approximately $60.8
million of the total purchase price represented in-process technology and was
charged to 3Com's operations during the second fiscal quarter of 1995. 3Com's
consolidated results of operations for the fiscal year ended May 31, 1995
include the operating results of the acquired companies from their dates of
acquisition.
Subsequent to the end of fiscal 1995, 3Com consummated the acquisition of
Primary Access, a provider of integrated network access systems, on June 9,
1995. 3Com issued approximately 4.6 million shares of 3Com Common Stock in
exchange for all the outstanding stock of Primary Access. 3Com also assumed and
exchanged all options and warrants to purchase Primary Access stock for options
and warrants to purchase approximately 1.0 million shares of 3Com's Common
Stock. The acquisition was accounted for as a pooling of interests. All
financial data of 3Com for the periods prior to the acquisition were restated to
include the historical financial data of Primary Access.
In fiscal 1994, 3Com acquired Synernetics, a market leader in LAN switching
products and Centrum, an innovator of remote access products. Both acquisitions
were accounted for as purchases. 3Com also entered into a technology licensing
agreement with Pacific Monolithics, a developer of wireless communications. See
Note 12 of Notes to Supplemental Consolidated Financial Statements. Fiscal 1994
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.
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In fiscal 1993, 3Com acquired Star-Tek, a company specializing in Token Ring
technology. The transaction was accounted for as a pooling of interests.
See Note 3 of Notes to Supplemental Consolidated Financial Statements for
additional information on the above business combinations.
RESULTS OF OPERATIONS
Fiscal 1995 sales increased 56 percent to $1,325.7 million from $851.0
million in fiscal 1994. This compares to a 35 percent increase in sales in
fiscal 1994 from fiscal 1993 sales of $631.0 million.
3Com believes that the increase in fiscal 1995 sales is due to several
factors, including strong market acceptance of 3Com's new products, continued
strength in the data networking market, increases in personal computer sales,
rapid growth in sales outside the U.S., the breadth of 3Com's product offerings
and its ability to deliver complete data networking solutions for different
connectivity environments. Sales from products introduced in the last 12 months
represented 51 percent of total sales in fiscal 1995, an increase from 31
percent and 47 percent of total sales in fiscal 1994 and 1993, respectively.
Sales of network adapters in fiscal 1995 represented 52 percent of total
sales and increased 45 percent from fiscal 1994 sales. This followed a 31
percent sales increase in network adapters in fiscal 1994 from fiscal 1993.
Sales of network adapters in fiscal years 1994 and 1993 represented 55 percent
and 57 percent of total sales, respectively. The increase in network adapter
sales represented an increase in unit volume partially offset by continuation of
the industry-wide trend toward decreasing average selling prices, particularly
in the Token Ring market. The increase in unit volume primarily resulted from
sales of the EtherLink III network adapter, but was also favorably impacted by
sales of the PC Card adapter.
Sales of network systems products (i.e., internetworking platforms, remote
access servers, hubs and switching products) in fiscal 1995 represented 44
percent of total sales and increased 77 percent from fiscal 1994. This followed
a 51 percent increase in systems sales in fiscal 1994 from fiscal 1993. Sales of
systems products in fiscal years 1994 and 1993 represented 39 percent and 35
percent of total sales, respectively. The increase was led primarily by the
LinkBuilder FMS II stackable hub, a component of 3Com's SuperStack family of
network systems products, the LANplex family of switching products, and the
NETBuilder Remote Office internetworking system. Similar to network adapters,
the increase in systems products sales represented an increase in unit volume,
which was partially offset by a decrease in average selling prices. 3Com
believes there is an industry-wide trend towards demand for fully functional,
fault-tolerant, lower-priced network systems in a stackable format. 3Com is
currently delivering hubs, remote office routers, LAN switching products and a
redundant power system in a stackable format, which can be used in various
combinations within 3Com's SuperStack network system.
Sales of other products (i.e., terminal servers, customer service, protocols
and other products) represented four percent of total sales in fiscal 1995.
Sales of other products increased 14 percent from fiscal 1994, although they
continued to represent a decreasing percentage of 3Com's total sales, as
expected.
Sales outside of the United States comprised 53 percent of total sales in
fiscal 1995, compared to 50 percent in fiscal 1994 and 49 percent in fiscal
1993. International sales increased in all geographic regions, especially in the
Asia Pacific and Latin American regions. 3Com believes that this increase
reflected its continued global expansion through the opening of new sales
offices in Latin America, Asia and Europe, and the expansion of worldwide
service and support programs. The Company's operations were not significantly
impacted by fluctuations in foreign currency exchange rates in fiscal years
1995, 1994 and 1993.
Cost of sales as a percentage of sales was 46.4 percent in fiscal 1995,
compared to 48.9 percent in fiscal 1994 and 51.8 percent in fiscal 1993. The 2.5
percentage point improvement in gross margin in
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fiscal 1995 resulted primarily from a favorable shipment mix of 3Com's products
and reductions in product material costs which improved gross margins by 2.1
percentage points. Lower inventory obsolescence costs improved gross margins by
an additional .5 percentage points. The 2.9 percentage point improvement in
gross margin in fiscal 1994 resulted primarily from improved efficiency of
manufacturing operations and higher volume shipments which improved gross
margins by 1.7 percentage points. A favorable shipment mix of 3Com's products
and reductions in product material costs improved gross margins by .6 percentage
points and lower freight and duties, which resulted from an increase in the
volume of products manufactured in the Ireland plant, improved gross margins by
.5 percentage points.
Total operating expenses in fiscal 1995 were $513.9 million, compared to
$431.6 million in fiscal 1994 and $243.8 million in fiscal 1993. Excluding the
charge of $60.8 million for purchased in-process technology and the
non-recurring charge of $5.0 million, which consisted of approximately $6.1
million in merger costs associated with the acquisitions of Sonix and Primary
Access and a credit of $1.1 million for the reduction in accrued costs relating
to the fiscal 1991 restructuring, total operating expenses in fiscal 1995 would
have been $448.1 million, or 33.8 percent of sales. Excluding the charge of
$134.5 million for purchased in-process technology resulting from the
acquisitions of Synernetics and Centrum and the technology licensing agreement
with Pacific Monolithics, total operating expenses in fiscal 1994 would have
been $297.2 million, or 34.9 percent of sales. Excluding the non-recurring
charge of $1.3 million (see Note 13 of Notes to Supplemental Consolidated
Financial Statements), total operating expenses in fiscal 1993 would have been
$242.5 million, or 38.4 percent of sales.
SUMMARY OF OPERATING EXPENSES
<TABLE>
<CAPTION>
FISCAL PERCENT OF FISCAL PERCENT OF FISCAL PERCENT OF
(DOLLARS IN THOUSANDS) 1995 SALES 1994 SALES 1993 SALES
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing.......................... $ 259,458 19.6% $ 175,972 20.7% $ 139,066 22.0%
Research and development..................... 133,687 10.1 79,327 9.3 66,995 10.6
General and administrative................... 54,982 4.1 41,865 4.9 36,391 5.8
Non-recurring charges:
Purchased in-process technology............ 60,796 4.6 134,481 15.8 -- --
Non-recurring items........................ 5,000 0.4 -- -- 1,316 0.2
----------- --- ----------- --- ----------- ---
Total operating expenses................. $ 513,923 38.8% $ 431,645 50.7% $ 243,768 38.6%
----------- --- ----------- --- ----------- ---
----------- --- ----------- --- ----------- ---
Total operating expenses excluding
non-recurring charges................... $ 448,127 33.8% $ 297,164 34.9% $ 242,452 38.4%
----------- --- ----------- --- ----------- ---
----------- --- ----------- --- ----------- ---
</TABLE>
Sales and marketing expenses in fiscal 1995 increased $83.5 million or 47
percent from fiscal 1994. As a percentage of sales, sales and marketing expenses
decreased to 19.6 percent in fiscal 1995, from 20.7 percent in fiscal 1994. The
increase in such expenses reflected increased selling costs related to the 56
percent increase in sales volume, the cost of promoting 3Com's new and existing
products, and a year-over-year increase in sales and marketing personnel of 35
percent.
Research and development expenses in fiscal 1995 increased $54.4 million or
69 percent from fiscal 1994. As a percentage of sales, such expenses increased
to 10.1 percent in fiscal 1995, compared to 9.3 percent in fiscal 1994. The
increase in research and development expenses was primarily attributable to the
cost of developing 3Com's new products including a 42 percent increase in full
time research and development personnel from the prior year. 3Com believes the
introduction of new technologies and products to the market in a timely manner
is crucial to its success, and will continue to make strategic acquisitions
where appropriate. Several of the research and development projects acquired in
connection with 3Com's strategic acquisitions since December 1993 have been
completed. Of the projects that are still in process, development work is
proceeding as expected. Such development activities primarily included the
development of ATM-based products for the enterprise market and products based
on ISDN technology for the small office/home office environments. The nature of
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costs for such development activities is primarily employee-related costs for
design, prototype development and testing. 3Com estimates that an aggregate of
approximately $13 to $18 million will be expensed over the next four to twelve
months in connection with completion of all acquired research and development
projects. 3Com anticipates future research and development spending, including
costs remaining for the completion of these purchased in-process projects, will
not significantly differ from the historical trend of research and development
expenses as a percent of sales.
General and administrative expenses in fiscal 1995 increased $13.1 million
or 31 percent from fiscal 1994. As a percentage of sales, such expenses
decreased to 4.1 percent in fiscal 1995, from 4.9 percent in fiscal 1994. The
increase in general and administrative expenses reflects expansion of 3Com's
infrastructure through internal growth and acquisitions and an increase in the
provision for bad debt expense associated with the higher sales volume.
The increase in operating expenses in fiscal 1994 compared to fiscal 1993
reflected increased selling costs associated with higher sales, the cost of
developing and promoting 3Com's systems products, increased cooperative
advertising expenses, and growth in the number of employees to support the
higher volume of business. Research and development expenses increased
consistent with 3Com's continued commitment to develop and introduce high
quality, innovative products.
Non-operating income was favorably impacted during fiscal 1994, as 3Com
realized a non-recurring gain of $17.7 million from the sale of 3Com's
investment in Madge N.V.
Other income (net) was $3.4 million in fiscal 1995, compared to $3.3 million
in fiscal 1994 and $1.2 million in fiscal 1993. These amounts consist primarily
of interest income, which increased $6.2 million in fiscal 1995 due to larger
cash and investment balances and higher interest rates, and was offset by the
increase in interest expense associated with the $110.0 million of convertible
subordinated notes issued in the second quarter of fiscal 1995. The increase in
fiscal 1994 from fiscal 1993 resulted primarily from more favorable foreign
exchange results of $1.3 million and higher interest income of $.4 million.
3Com's effective income tax rate was 37 percent in fiscal 1995. Excluding
the merger costs associated with the Sonix and Primary Access acquisitions,
which were not tax deductible, the effective tax rate would have been 36
percent. In fiscal 1994, 3Com provided $48.7 million for income taxes on income
before income taxes of $24.5 million because a significant portion of the
purchased in-process technology charges were not tax deductible. In addition,
the income tax rate in fiscal 1994 reflected the recognition of a net benefit of
$1.2 million which resulted from retroactive changes to the Revenue
Reconciliation Act of 1993. Excluding the effect of the non-recurring items in
fiscal 1994, the effective tax rate would have been 35 percent. 3Com's effective
tax rate in fiscal 1993 was 35 percent.
Net income for fiscal 1995 was $126.0 million, or $0.83 per share, compared
to a net loss of $24.2 million, or $0.19 per share, for fiscal 1994 and net
income for fiscal 1993 of $39.7 million, or $0.30 per share. Net income for
fiscal 1995 included the aforementioned $60.8 million charge associated with
purchased in-process technology, the $6.1 million charge for merger costs and
the $1.1 million credit for the reduction in the restructuring reserve.
Excluding these one-time charges and gains, 3Com would have realized net income
of $168.8 million or $1.11 per share for fiscal 1995. Excluding the charges for
purchased in-process technology, the gain from the sale of an investment and the
tax benefit, net income for fiscal 1994 would have been $91.4 million, or $0.65
per share. Excluding the effect of non-recurring items in fiscal 1993, 3Com
would have realized net income of $40.9 million, or $0.31 per share. All per
share amounts have been restated to reflect the two-for-one stock splits on
August 25, 1995 and September 1, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and temporary cash investments at May 31, 1995 were
$333.5 million, increasing $200.3 million from May 31, 1994. At the end of
fiscal 1994 and 1993, cash, cash equivalents and temporary cash investments were
$133.2 million and $119.6 million, respectively.
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For the fiscal year ended May 31, 1995, net cash generated from operating
activities was $228.8 million. Trade receivables at May 31, 1995 increased $75.1
million from May 31, 1994 due primarily to an increase in sales. Days sales
outstanding in receivables was 46 days at the end of fiscal 1995, compared to 45
days at May 31, 1994. Inventory levels at May 31, 1995 increased $50.7 million
from the prior fiscal year-end, with inventory turnover improving from 6.5 turns
at May 31, 1994 to 6.6 turns at May 31, 1995.
During the fiscal year ended May 31, 1995, 3Com made $77.8 million in
capital expenditures. Major capital expenditures included upgrades and additions
to product manufacturing lines and facilities in Santa Clara and Ireland,
development of a new worldwide accounting and information system, and upgrades
of desktop systems. As of May 31, 1995, 3Com had outstanding approximately $29
million in capital expenditure commitments primarily associated with the
expansion and upgrade of product manufacturing lines and facilities. 3Com spent
approximately $65.8 million in net cash for acquisitions during fiscal 1995 (see
Note 3 of Notes to Supplemental Consolidated Financial Statements), which
included the final payment of $14.3 million to Centrum shareholders in the first
quarter of fiscal 1995 for the acquisition of Centrum in fiscal 1994. Cash paid
for acquisitions in fiscal 1995 were funded through existing cash balances.
In the second quarter of fiscal 1995, 3Com received net proceeds of $107.3
million from the issuance of convertible subordinated notes (see Note 8 of Notes
to Supplemental Consolidated Financial Statements). During fiscal 1995, 3Com
repurchased 1.6 million shares of Common Stock with a total cash outlay of $19.6
million. As of May 31, 1995, 3Com was authorized by its Board of Directors to
repurchase up to an additional 5.5 million shares of its Common Stock in the
open market. 3Com received cash of $28.1 million from the sale of its Common
Stock to employees through its employee stock purchase and option plans.
During the first quarter of fiscal 1995, 3Com signed a five-year lease for
225,000 square feet of office and manufacturing space to be built on land
adjacent to its existing headquarters in Santa Clara. This arrangement provides
3Com with an option to purchase the related property during the lease term, and
at the end of the lease term 3Com is obligated to either purchase the property
or arrange for the sale of the property to a third party with a guaranteed
residual value of up to $33.5 million to the seller of the property. 3Com
commenced occupancy of portions of the facility in June 1995, with payments on
the lease estimated to start in September 1995.
3Com has a $40 million revolving bank credit agreement which expires
December 31, 1996. No amount is outstanding under the credit agreement and 3Com
is in compliance with all financial ratio and minimum net worth requirements.
Based on current plans and business conditions, 3Com believes that its
existing cash and equivalents, temporary cash investments, cash generated from
operations and the available revolving credit agreement will be sufficient to
satisfy anticipated operating cash requirements through fiscal 1996.
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MANAGEMENT
The directors and executive officers of 3Com and their ages as of July 31,
1995 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Eric A. Benhamou 39 Chairman, President and Chief Executive Officer
Debra J. Engel 43 Vice President, Corporate Services
Robert J. Finocchio, Jr. 44 Executive Vice President and General Manager, Network
Systems Operations
John H. Hart 49 Vice President and Chief Technical Officer
Richard W. Joyce 39 Vice President, New Business Operations
Alan J. Kessler 37 Vice President, Customer Service Operations
William G. Marr 48 Executive Vice President, Worldwide Sales
Christopher B. Paisley 42 Vice President, Finance and Chief Financial Officer
Janice M. Roberts 39 Vice President, Marketing
Douglas C. Spreng 51 Vice President and General Manager, Network Adapter
Division
James L. Barksdale 52 Director
Gordon A. Campbell 51 Director
David W. Dorman 41 Director
Jean-Louis Gassee 51 Director
Stephen C. Johnson 53 Director
Philip C. Kantz 51 Director
William F. Zuendt 48 Director
</TABLE>
Eric A. Benhamou has been 3Com's President and Chief Executive Officer since
April 1990 and September 1990, respectively. Mr. Benhamou became Chairman of the
Board of Directors of 3Com in July 1994. Mr. Benhamou served as 3Com's Chief
Operating Officer from April 1990 through September 1990. From October 1987
through April 1990, Mr. Benhamou held various general management positions
within 3Com. Prior to that, Mr. Benhamou was one of the founders of Bridge
Communications, Inc., in September 1981, and held various executive positions in
that company in the field of engineering and product development, most recently
as Vice President of Engineering, until that company merged with 3Com in
September 1987. Mr. Benhamou serves as a Director of Cypress Semiconductor, Inc.
and Legato Systems, Inc. Mr. Benhamou is also a member of the Board of Directors
of Smart Valley, Inc.
Debra J. Engel has been 3Com's Vice President, Corporate Services since
March 1990. From the time Ms. Engel joined 3Com in November 1983 until March
1990, she was 3Com's Vice President, Human Resources. Prior to that, she was
with Hewlett-Packard Company for seven years, most recently as Corporate
Staffing Manager at Hewlett-Packard's Corporate Headquarters.
Robert J. Finocchio, Jr. has been 3Com's Executive Vice President, Network
Systems Operations since June 1993. From January 1990 through May 1993, Mr.
Finocchio served as 3Com's Executive Vice President, Field Operations. Mr.
Finocchio joined 3Com in December 1988 as Vice President of Sales, Marketing and
Services, a position he held through January 1990. Prior to joining 3Com, Mr.
Finocchio was with Rolm, Inc. for nine years, where he held various executive
positions in sales and service. Most recently he was Vice President of Rolm
Systems Marketing.
60
<PAGE>
John H. Hart has been 3Com's Vice President and Chief Technical Officer
since joining 3Com in September 1990. Prior to joining 3Com, Mr. Hart worked for
Vitalink Communications Corporation for seven years, where he held various
executive positions in product engineering and development. Mr. Hart's final
position with Vitalink was Vice President of Network Products.
Richard W. Joyce became 3Com's Vice President, New Business Operations in
June 1995. From June 1993 to June 1995, Mr. Joyce served as 3Com's Vice
President, Sales Europe and Asia/Pacific Rim (APR). From January 1990 to June
1995, Mr. Joyce served as President, 3Com Europe Limited. Mr. Joyce joined 3Com
in November 1987 as Sales Manager of 3Com (UK) Limited, a position he held until
September 1988. From September 1988 until January 1990, Mr. Joyce served as
Managing Director of 3Com (UK) Limited. Most recently prior to joining 3Com, Mr.
Joyce held the position of Managing Director Europe for State Street Trade
Development Corporation from 1985 to 1987.
Alan J. Kessler became 3Com's Vice-President, Customer Service Operations in
June 1995. From June 1993 through June 1995, Mr. Kessler served as 3Com's Vice
President, Systems Sales-North Americas. From May 1991 through May 1993, Mr.
Kessler served as 3Com's Vice President and General Manager, Network Systems
Division. From April 1990 until May 1991, Mr. Kessler served as 3Com's Vice
President and General Manager, Distributed Systems Division. Previously, he
served as 3Com's Product Marketing Manager of the Distributed Systems Division
from November 1988 through April 1990 and as 3Com's Product Line Manager from
October 1985 through November 1988.
William G. Marr joined 3Com as Executive Vice President, Worldwide Sales in
June 1995. Prior to joining 3Com, Mr. Marr was with Sun Microsystems, Inc. for
ten years, most recently as Vice President, North American and Australian Field
Operations.
Christopher B. Paisley has served as 3Com's Vice President, Finance and
Chief Financial Officer since September 1985. Prior to joining 3Com, Mr. Paisley
was Vice President, Finance of Ridge Computers from May 1982 to September 1985.
Previously, Mr. Paisley was employed by Hewlett-Packard Company for five years
in a variety of accounting and finance positions.
Janice M. Roberts has been 3Com's Vice President, Marketing since June 1992.
From February 1994 to June 1995, Ms. Roberts also served as 3Com's General
Manager, Personal Office Division. From February 1992 until June 1992, Ms.
Roberts was 3Com's Vice President and General Manager of the Premises
Distribution Division. During the period January 1989 to February 1992, Ms.
Roberts served as Director of BICC Technologies Limited and President of BICC
Technologies, Inc. and BICC Communications, Inc. She was also Chairman and
Managing Director of BICC Data Networks Limited. From December 1986 through
January 1989, Ms. Roberts was Manager of Sales and Marketing of STC Components
Ltd. located in Harlowe, United Kingdom.
Douglas C. Spreng has been Vice President and General Manager of 3Com's
Network Adapter Division since March 1992. Prior to joining 3Com, Mr. Spreng was
President and Chief Operations Officer of Domestic Automation Company, a private
communications system start-up company based in San Carlos, California.
Previously, Mr. Spreng spent 23 years with Hewlett-Packard Company (HP) in a
variety of key marketing, manufacturing and general management positions,
including General Manager of HP's Commercial Systems Group. Most recently he
served as General Manager of HP's Manufacturing Applications Group.
Mr. Barksdale has been a director of 3Com since 1987. Since January 1995,
Mr. Barksdale has been the President, CEO and a director of Netscape
Communications Corporation. Previously, Mr. Barksdale had been President and
Chief Executive Officer of AT&T Wireless Services since September 1994. Prior to
September 1994, Mr. Barksdale had been employed as the President and Chief
Operating Officer of McCaw Cellular Communications, Inc. since January 1992 and
by Federal Express Corporation since 1979. Mr. Barksdale served as a director of
Bridge Communications, Inc. from April 1986 until that company combined with
3Com in 1987. Mr. Barksdale also serves as a director of The Promus Companies,
Inc.
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<PAGE>
Mr. Campbell has been a director of 3Com since 1990. Mr. Campbell was a
founder and since 1993 has been President and Chairman of the Board of Techfarm,
Inc., a company formed to launch technology based start-up companies. Mr.
Campbell was a founder of Chips and Technologies, Inc. ("Chips"), a company that
designs and distributes very large scale integrated circuit products, and has
served as a director of Chips since December 1984 and as Chairman of the Board
of Chips since 1993. Mr. Campbell also served as the President and Chief
Executive Officer of Chips from January 1985 to July 1993. Mr. Campbell was also
a founder of Seeq Technology, Inc., and, from January 1981 to October 1984, he
served as that company's President and Chief Executive Officer. Mr. Campbell
also serves as a director of Bell Microproducts, Inc., Reply Corporation and
Scotts Valley Instruments, Inc. and as Chairman of the Board of Exponential
Technology, Inc., Summit Systems, 3D/fx Interactive Inc. and Absolute Time
Corporation.
Mr. Dorman has been a director of 3Com since 1995. Since July 1994, Mr.
Dorman has been President and Chief Executive Officer of Pacific Bell
Corporation. Prior to that, he was associated with US Sprint Corporation for 13
years, during which time he held several management positions, most recently as
President of Sprint Business Services from 1993 to 1994.
Mr. Gassee has been a director of 3Com since 1993. Mr. Gassee is the
Chairman of the Board and Chief Executive Officer of Be Incorporated, a personal
computing technology company in the development stage, which he founded in
October 1990. Previously, Mr. Gassee held several management positions with
Apple Computer, Inc. ("Apple") for 10 years, most recently as the President of
Apple Products, the research and development and manufacturing division of
Apple. Prior to joining Apple, Mr. Gassee was President and General Manager of
the French subsidiary of Exxon Corp., held several management positions with
Data General Corporation, and spent six years at Hewlett-Packard Company. Mr.
Gassee is currently also a member of the board of directors of Cray Computer,
Electronics For Imaging, Inc. and LaserMaster Technologies, Inc.
Mr. Johnson has been a director of 3Com since 1989. Since 1983, Mr. Johnson
was a founder and has been President and Chief Executive Officer of Komag,
Incorporated, a manufacturer of Winchester disk media. Mr. Johnson served as a
director of 3Com from June 1982 to September 1987; he stepped down from the
Board when 3Com combined with Bridge Communications, Inc. and returned to the
Board in 1989. Mr. Johnson also serves as a director of Komag, Incorporated and
Uniphase Corporation.
Mr. Kantz has been a director of 3Com since 1991. Since February 1995, Mr.
Kantz has served President and Chief Executive Officer of The Sandros
Enterprise, a privately held business and management consulting firm.
Previously, he was President, Chief Executive Officer and a director of
Transcisco Industries, Inc., an industrial services company, from February 1994
to January 1995. From October 1992 through September 1993, Mr. Kantz served as
President and Chief Executive Officer of Genetrix, Inc., a biotechnology
services company. Mr. Kantz was President and Chief Executive Officer of Itel
Containers International Corporation from 1988 through 1991. Previously, Mr.
Kantz was President of Transportation and Industrial Funding Corporation and
Senior Vice President and General Manager of GE Capital from 1986 to 1988. In
1988, Mr. Kantz instigated the start up of an integrated waste management
corporation, Mine Reclamation Corporation, and currently serves as Chairman of
that company's board of directors. Mr. Kantz also serves as a director of Blue
Cross of California, Falcon Building Products, Inc., Genetrix, Inc. and Trans
Ocean Ltd.
Mr. Zuendt has been a director of 3Com since 1988. Mr. Zuendt is a director
and President of Wells Fargo & Company, a bank holding company, and of Wells
Fargo Bank. He joined Wells Fargo in 1973. Mr. Zuendt is also a director of
MasterCard International and a trustee of Golden Gate University.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 31, 1995,
with respect to the beneficial ownership of 3Com's Common Stock by (i) each
director of 3Com, (ii) the Chief Executive Officer and the four other most
highly compensated executive officers of 3Com whose salary and bonus exceed
$100,000 during the fiscal year ended May 31, 1995, and (iii) all executive
officers and directors of 3Com as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF COMMON
NAME OWNERSHIP(1) STOCK OUTSTANDING
----------------------------------------- ---------------------- ---------------------
<S> <C> <C>
James L. Barksdale 120,000 *
Gordon A. Campbell 64,000 *
David W. Dorman 40,000 *
Jean-Louis Gassee 60,000 *
Stephen C. Johnson 224,000 *
Philip C. Kantz 123,004 *
William F. Zuendt 332,000 *
Eric A. Benhamou 1,398,570 *
Robert J. Finocchio, Jr. 417,552 *
Douglas C. Spreng 321,270 *
Ralph B. Godfrey 73,400 *
Alan J. Kessler 166,920 *
All directors and executive officers as a 4,459,488 3.0%
group (17 persons)
<FN>
------------------------
* Less than 1%.
(1) To 3Com's knowledge, except as indicated in the footnotes to this table,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
Includes shares of 3Com's Common Stock issuable pursuant to options
exercisable within 60 days of July 31, 1995, including options to acquire
120,000 shares of 3Com's Common Stock held by Mr. Barksdale, options to
acquire 64,000 shares held by Mr. Campbell, options to acquire 40,000
shares held by Mr. Dorman, options to acquire 60,000 shares held by Mr.
Gassee, options to acquire 168,000 shares held by Mr. Johnson, options to
acquire 103,948 shares held by Mr. Kantz, options to acquire 188,000 shares
held by Mr. Zuendt, options to acquire 979,584 shares held by Mr. Benhamou,
options to acquire 354,522 shares held by Mr. Finocchio, options to acquire
308,680 shares held by Mr. Spreng, options to acquire 48,232 shares held by
Mr. Godfrey, options to acquire 166,920 shares held by Mr. Kessler, and
options to acquire an aggregate of 3,631,792 shares of 3Com's Common Stock
held by directors and executive officers of 3Com as a group.
</TABLE>
The following table sets forth certain information, as of July 31, 1995,
with respect to the beneficial ownership of 3Com's Common Stock by all persons
known by 3Com to be the beneficial owners of more than 5% of the outstanding
Common Stock of 3Com.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF COMMON
NAME AND ADDRESS (1) STOCK OUTSTANDING
------------------------------------- ---------------------- -------------------
<S> <C> <C>
FMR Corporation 19,583,380 13.5%
82 Devonshire Street
Boston, MA 02109
Investors Research Corporation 13,200,000 9.1
4500 Main Street
Kansas City, MO 64111
<FN>
------------------------
(1) To 3Com's knowledge, the entities named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. This information is based upon a review of
Schedule 13G filings made with the Commission during 1995 to date.
</TABLE>
63
<PAGE>
INFORMATION CONCERNING CHIPCOM
BUSINESS
Chipcom designs, manufactures and distributes computer networking
intelligent switching systems, including hubs and internetworking and network
management products. Chipcom's products are designed to allow users to build and
manage networks with dissimilar personal computers, workstations, cabling
systems and communications protocols within an entire building or campus or
across remote locations of an enterprise. As entire organizations move to
network (client/server) computing, features such as reliability, flexibility and
manageability are critical to the enterprise network. The selection of an
enterprise-wide network solution is a strategic decision typically made by an
organization's senior management. Chipcom is using its technology and product
strategy in support of the evolution to enterprise networks.
The ONline System Concentrator and related products, Chipcom's initial
intelligent switching system, was first introduced in 1990. During 1994, Chipcom
expanded its offerings of intelligent switching systems and related products to
include the ONcore Switching System and the InfiNET Switching Solution
packet-switching products. In early 1995, Chipcom introduced the ONsemble
StackSystem. These products provide integrated solutions for building
intelligent networks across enterprises, from remote offices to the central
office.
In February 1994, Chipcom merged with Artel. Artel designed and developed
the Galactica Network Switching Hub and the StarBridge Turbo Switch, both part
of Chipcom's InfiNET family of packet switching hubs. In August, 1994, Chipcom
acquired DSI which develops, manufactures and sells stackable Ethernet hubs,
which are part of Chipcom's ONsemble StackSystem, and low-end modular hub
products.
ENTERPRISE NETWORKS
An enterprise network is created through the integration of many hardware-
and software-based technologies and requires an architecture that allows the
connectivity of a variety of computing equipment, cabling systems and
communications protocols. These networks support mission-critical applications
that are distributed across enterprises, incorporating branch offices, remote
users and main campuses into a cohesive whole. An intelligent switching hub
provides the platform upon which enterprise networks are built. The requirements
for these networks are:
RELIABILITY: Enterprise networks must have high reliability and
continuous availability in order to minimize the interruption of an
organization's computer applications. This requires products to have long
mean time between failure, support fault-tolerant and redundant
configurations and allow maintenance to be performed while the network is
operating.
FLEXIBILITY: Enterprise networks must be flexible and simple to
configure, allowing for organizational growth and change. The physical
portion of the network is a structured utility which, like a telephone
system, will be used for many years.
MANAGEABILITY: The enterprise network manager must have an efficient
means to monitor, control and change the network remotely as it may be
distributed over many floors within a building, many buildings on a
campus or across numerous remote locations.
BUILT-IN MIGRATION: As networking technologies evolve, so must the
network platforms on which the networks are built. However, to protect
user investments in their existing networks, the next-generation
platforms need to be compatible with existing products to allow an
efficient, cost-effective migration to the new technologies.
To address these requirements, Chipcom initially developed its TriChannel
architecture which is a flexible platform capable of supporting a variety of
wiring solutions (coaxial cable, fiber optic cable and twisted pair wiring),
communications protocols (including Ethernet, Token Ring and FDDI) and
internetworking devices (bridges and routers), all of which are designed to be
controlled through
64
<PAGE>
network management software. As the requirements of enterprise networks evolved,
Chipcom expanded its technical breadth to include a multiple backplane
architecture in the ONcore Switching System, which allows enterprise network
customers to migrate to new technologies such as packet-switching and ATM.
PRODUCTS
INTELLIGENT SWITCHING SYSTEMS
THE ONLINE SYSTEM PRODUCT FAMILY. The ONline System product family is a
modular system for building facility and enterprise networks. First introduced
in 1990, ONline is Chipcom's first intelligent switching network system. The
core of the system is an intelligent switching hub called the ONline System
Concentrator. The ONline System product family includes numerous modules to
support Ethernet, Token Ring and FDDI communications protocols being transmitted
over various types of cabling systems, such as shielded or unshielded twisted
pair wiring, fiber-optic cable and thick or thin coaxial cable.
The ONline System Concentrator incorporates four key features to meet
enterprise network requirements, as follows:
TRICHANNEL ARCHITECTURE: TriChannel Architecture supports multiple
high-speed generic data channels and a control channel. The data channels
can be dynamically configured through software to connect networks
containing any combination of Ethernet, Token Ring and FDDI
communications protocols. This architecture allows users to take
advantage of a range of existing and future switching capabilities,
including module switching, bank switching, per port switching and per
port networking.
FAULT TOLERANCE: Chipcom designed the ONline System Concentrator as a
reliable, fault-tolerant intelligent switching hub. Chipcom achieves this
fault tolerance through components such as network management modules,
control modules, bridges, entire concentrators, power supplies and cable
links that allow for redundant and back-up configuration in order to
minimize the interruption of an organization's network. All ONline
modules and power supplies may be "hot swapped" which allows the network
to be reconfigured or repaired with minor interruption.
NETWORK CONTROL: Network control capabilities allow the network manager
to reconfigure the network in real-time to respond to heavy data traffic
conditions, failures in the network and organizational changes.
SWITCHING: Switching technology allows a port, group of ports, module,
bridge or router to be assigned to any one of multiple networks in an
ONline System Concentrator through the use of software without physically
having to go to the particular concentrator and reassign cables manually.
Port-switching technology and TriChannel Architecture enable the merger
or isolation of network segments and dynamic management of data traffic
loads.
ONCORE SWITCHING SYSTEM. In the first quarter of calendar 1994, Chipcom
introduced the ONcore Switching System, Chipcom's next-generation,
high-capacity, highly scaleable, intelligent switching hub designed for high end
enterprise networks. The ONcore Switching System incorporates the same key
features of the ONline System Concentrator (TriChannel Architecture, fault
tolerance, network control and switching) and provides users a migration path to
high-end enterprise networking. The ONcore Switching System provides the
capacity to link hundreds of users attached to both shared and switched
Ethernet, Token Ring and FDDI networks, and is designed to support multi-gigabit
cell- and packet-switching protocols such as ATM.
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<PAGE>
In addition, the ONcore Switching System platform provides for delivery of
each network switching technology available today, namely:
MODULE SWITCHING: Allows the network manager to move entire modules from
one network segment to another to increase the available capacity for
users.
BANK SWITCHING: Provides the same flexibility as Module Switching for
groups of up to 12 users.
PORT SWITCHING: Allows for individual users to be moved dynamically from
one network to another and makes user moves across the facility easy to
reassociate with their appropriate network segment.
PACKET SWITCHING: Allows for interconnecting network segments to form
large logical networks without sacrificing network capacity.
CELL SWITCHING (ATM): The latest and most advanced technique for network
switching, capable of handling data, voice and image information.
The ONcore Switching System has a full array of media modules. In addition,
it is fully interoperable with the ONline System Concentrator and all ONline
System modules can be used in the ONcore Switching System. This next-generation
compatibility helps protect Chipcom's end users' networking investments made
over the past four years.
INFINET SWITCHING SOLUTIONS. The InfiNET Switching Solutions, introduced in
calendar 1994, is a family of packet-switching products which provide increased
network capacity and speed, or network "bandwidth." These products include the
Galactica Network Switching Hub and the StarBridge Turbo Switch. These products
have dual load-sharing power supplies to protect the network against power
supply failure and allow the network to be configured with redundant links for
further fault tolerance.
The Galactica Network Switching Hub is a modular switching hub that supports
up to 32 wirespeed Ethernet segments on a one gigabit per second ("Gbps")
backplane and provides high speed Ethernet to FDDI bridging or FDDI to FDDI
bridging. The StarBridge Turbo Switch is a standalone Ethernet switch that
supports up to eight wire-speed Ethernet segments. In addition to providing
greater network bandwidth, the InfiNet Switching Solutions allow network
managers to create virtual workgroups, or groups of users on the same network
even if they are located on different floors or in different buildings. The use
of virtual workgroups benefit overall network operation by isolating network
traffic, creating network firewalls to restrict problems and improve overall
network security.
In addition to the Galactica Network Switching Hub and the StarBridge Turbo
Switch, the InfiNET Switching Solutions include the ONsemble Workgroup Switch
which, when combined with the ONsemble Ethernet StackSystem described below,
provides increased bandwidth and allows network segmentation at remote sites and
within workgroups.
ONSEMBLE STACKSYSTEM. During the first quarter of 1995, Chipcom introduced
the ONsemble StackSystem. These Ethernet and Token Ring hubs and internetworking
products are designed for remote sites or workgroups and provide a stackable
architecture scaled to the requirements of smaller installations. The ONsemble
StackSystem products incorporate high-end capabilities typically found in
chassis-based modular hubs, including fault tolerance, sophisticated network
management and internetworking and are interoperable with Chipcom's other
Intelligent Switching Systems products. The ONsemble StackSystem includes
stackable Ethernet hubs which are manufactured and sold by DSI.
The ONsemble StackSystem Ethernet Hubs are fully managed, 24-port 10BASE-T
concentrators. Up to seven ONsemble Ethernet StackSystem Expansion Hubs can be
combined with an ONsemble Ethernet StackSystem Management Hub to provide
scaleable support for up to 200 Ethernet ports in
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<PAGE>
a stack. Using StackWay Cable and software control, each hub in the stack can be
switched to any of four StackWay Ethernet segments, providing configuration
flexibility generally found only in modular hub platforms. Using a StarBridge
Turbo Switch or an ONsemble Workgroup Switch, the StackWay segments can be
connected and remotely managed to eliminate network congestion, improve security
and create fault-tolerant configurations.
The ONsemble StackSystem Token Ring Hubs are fully managed, 16-port
concentrators. Up to eight passive or active ONsemble Token Ring StackSystem
Hubs or internetworking components can be combined to provide scaleable support
for up to 128 users in a stack. Chipcom's fault tolerant StackJack connectors
permit management of all the StackSystem components and provide for hot-swapping
of components without powering-down the stack. The ONsemble StackSystem Token
Ring Hubs provide for Remote Monitoring ("RMON") specifications through network
management software.
ONDEMAND NETWORK CONTROL SYSTEM. The ONdemand Network Control System
("ONdemand NCS") is a graphical network management system that allows network
managers to monitor and reconfigure Chipcom's ONline System Concentrators and
related products, the ONcore Switching System and the ONsemble StackSystem
products throughout an enterprise network directly from a central console. Also,
ONdemand SwitchCentral extends the management capabilities of ONdemand NCS to
provide full control of Chipcom's InfiNET Switching Solutions.
ONdemand NCS provides real-time monitoring and display of the status of the
network at the hub, module and port level. It provides the information required
to isolate performance bottlenecks in the network and, combined with the
switching capabilities of Chipcom's networking products, allows the network
manager to reconfigure it to balance network traffic loads.
ONdemand NCS is based on Simple Network Management Protocol ("SNMP") and
operates on most industry-standard UNIX based network management platforms,
including Sun Microsystems, Inc.'s SunNet Manager, IBM's NetView/6000, Digital's
POLYCENTER platform and Hewlett-Packard Company's HP OpenView platform. There is
also a Windows based ONdemand NCS application that provides similar management
capabilities from a personal computer.
THIRD PARTY TECHNOLOGIES. To expand the breadth of Chipcom's product
offerings and to offer users fully integrated network solutions, Chipcom has
worked with several other network providers to incorporate their technologies
into the ONline System Concentrator and the ONcore Switching System. Examples of
these modular products include remote site routing from Cisco, terminal servers
from Penril Datability Networks and a switch/bridge/router module from Retix.
RESEARCH AND DEVELOPMENT
Chipcom's focus has evolved from the facility, or single location network,
to the requirements of enterprise networks, which are designed to encompass a
wider geographic area and support a greater number of users and volume of
traffic than facility networks. To assist customers in the migration toward
enterprise networks, Chipcom is focusing its development efforts on new
technologies and products which are designed to ensure full compatibility with
Chipcom's existing products. These new technology areas are:
ATM. ATM is a cell-switching technology designed to simultaneously
transport data, voice and video at greater speeds than standard Ethernet
or Token Ring. Chipcom is currently working with IBM to develop backbone
networking products and desktop ATM-based offerings. See "Relationship
with IBM." Chipcom is a principal member of the ATM Forum, an
industry-wide committee organized to promote development of ATM.
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<PAGE>
SWITCHING. Chipcom is currently developing next-generation
packet-switching technology designed to be integrated into the ONcore
Switching System and the ONsemble StackSystem. This development builds on
Chipcom's experience in developing the Galactica Network Switching Hub.
ATM interfaces for these packet-switching products are also under
development.
REMOTE SITES. Chipcom is continuing development of the ONsemble
StackSystem products to provide greater levels of manageability and
functionality for remote sites and workgroups within an enterprise.
NETWORK MANAGEMENT. Chipcom is extending and enhancing its ONdemand NCS
software to support new ONline and ONcore modules, additional platforms,
ATM technology and to provide further integration with various
third-party applications. In addition, management of virtual LANs,
enabled by packet-switching and cell-switching technology, is also under
development.
In addition to focusing on these technologies, a significant portion of
research and development resources were devoted in calendar 1994 to enhancing
the ONcore Switching System. Several new modules were developed and introduced
throughout the year. Also, during calendar 1994, Chipcom introduced its OpenHub
Program which, using a Chipcom developed carrier module, provides third-party
developers a standard form factor to facilitate the integration of their
technology into Chipcom's ONline and ONcore platforms.
Chipcom is currently directing its research and development efforts
principally toward enhancing and extending the ONcore Switching System,
developing next generation switching and ATM solutions, enhancing and extending
the ONsemble StackSystem products and creating network management applications
to solve enterprise problems.
Chipcom believes its future success depends on its ability to continue to
enhance its existing products and to develop new products that maintain
technological leadership. Accordingly, Chipcom intends to continue to make
substantial investments in its product development activities and to continue to
participate in the development of industry standards. Given the nature of
Chipcom's intelligent switching systems as platforms which are designed to
support a broad selection of related technologies, Chipcom currently anticipates
expanding its product offerings through internal development as well as through
strategic alliances.
During the first six months of 1995 and fiscal years 1994, 1993 and 1992,
research and development expenses were approximately $20.6 million, $32.6
million, $21.8 million and $14.2 million, respectively, which represented 13.1%,
12.2%, 13.6% and 15.4% of revenues, respectively. As of July 31, 1995, Chipcom
employed 299 persons in research and development activities.
DISTRIBUTION STRATEGY
Chipcom markets and sells its products primarily through third-party
distribution channels, including value-added resellers, OEMs and distributors
(collectively, "Resellers"). Because of the complexity of designing facility and
enterprise networks to meet customers' needs and the wide variety of
technologies involved in a complete networking solution, Chipcom believes that
end user customers are best reached through a Reseller distribution strategy.
Chipcom's products are distributed through a select group of Resellers that
provide system integration and support and focus their sales efforts at the
corporate-level MIS manager. The criteria used by Chipcom in selecting this
group of Resellers include technical expertise, reputation and financial
resources. Chipcom has developed a worldwide distribution channel for its
products, which as of July 31, 1995 consisted of approximately 250 Resellers.
Chipcom's marketing and sales support organizations provide sales, training,
marketing and technical support for Chipcom's Resellers in North and South
America, Europe, Japan and the Pacific Rim. Chipcom conducts training programs
for its Resellers and end users worldwide at its corporate
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<PAGE>
and field offices and at customer locations. Chipcom and its Resellers provide
end user support for Chipcom's products after installation. Chipcom currently
provides a one-year warranty against defects in design, materials and
workmanship on its hardware products. The marketing and sales support
organizations include salespersons and technical support personnel and totaled
374 people as of July 31, 1995.
RELATIONSHIP WITH IBM
In September 1992, Chipcom signed the Alliance Agreements with IBM for a
worldwide marketing and development alliance to provide products addressing the
growth of networked personal computers and workstations. Under the terms of the
Alliance Agreements, Chipcom and the Networking Systems Line of Business of IBM
have each agreed to make available to the other for internal use and resale
certain of their respective hardware and software products, including all
internally developed intelligent switching hub products developed by or for such
party which are generally available after December 31, 1992.
Chipcom and IBM each agreed to provide manufacturing rights to the other
party for certain hardware products under certain circumstances, subject to the
rights of third-party developers. So long as products manufactured by IBM
constitute a certain level of the revenues derived by IBM from the sale of
intelligent switching hub products, Chipcom will not be obligated to provide
additional manufacturing rights to IBM.
During the term of the Alliance Agreements, IBM has agreed not to acquire
more than 10% of the outstanding capital stock of Chipcom. However, IBM shall be
relieved of this restriction if any party engaged in the business of developing,
producing, manufacturing, selling, licensing or leasing information processing
hardware or software that meets certain revenue thresholds (a "Designated
Acquirer") acquires 5% or more of the outstanding capital stock of Chipcom. In
addition, if the Chipcom Board initiates a sale of 50% or more of Chipcom's
outstanding capital stock or substantially all of Chipcom's assets to any third
party, or 25% or more of Chipcom's outstanding capital stock to a Designated
Acquirer, then IBM shall have a right of first offer for a period of 30 days.
IBM was provided notice of, and waived this right with respect to, the proposed
Merger. See "The Merger -- Background of the Merger."
The Alliance Agreements have an initial term of five years. Either party
shall have the right, however, to terminate the Alliance Agreements on or after
April 1, 1994. If either party initiates such a termination, then the
non-terminating party shall have the right to terminate its obligations under
the Alliance Agreements, including any manufacturing rights license granted by
it, and to retain all manufacturing rights and software licenses granted to it
(subject to the obligation of the non-terminating party to pay license fees,
royalties and other fees). In addition, if at any time a Designated Acquirer
acquires 25% or more of the outstanding capital stock of Chipcom, or acquires
all or substantially all of the assets of Chipcom, IBM shall have the right to
terminate the Alliance Agreements.
Chipcom began selling products to IBM under these Alliance Agreements in the
fourth quarter of 1992. Sales to IBM during the first six months of 1995 and
fiscal 1994 and 1993 were $47.2 million, $102.4 million and $34.0 million,
respectively, or 29.9%, 38.2% and 21.2%, respectively, of revenues. Sales to IBM
were not material in 1992. The volume of products to be sold by Chipcom to IBM
is based on forecasts supplied by IBM and not on specific purchase requirements.
Sales to IBM declined to $16.6 million in the second quarter of 1995 from $30.6
million in the first quarter of 1995. This decrease in sales to IBM resulted
primarily from an inventory imbalance at IBM and a decrease in IBM's sales to
its customers. Chipcom anticipates that revenues from sales to IBM during the
third quarter of fiscal 1995 may decrease from the second quarter level.
IBM may elect to develop products competitive with Chipcom's products which
could have a material adverse effect on Chipcom's business. A termination of, or
significant adverse change in, the relationship between IBM and Chipcom would
have a material adverse effect on Chipcom.
69
<PAGE>
RELATIONSHIP WITH DIGITAL
Chipcom's relationship with Digital began in 1987 and Digital has acted as a
Reseller of Chipcom's products since 1989. During 1993 and 1992, sales to
Digital were approximately $31.2 million and $31.3 million, respectively, or
19.5% and 34.0%, respectively, of revenues. As a result of increased revenues
from other Resellers and the introduction in 1994 by Digital of intelligent hub
products that compete with certain of Chipcom's products, sales to Digital in
1994 represented less then 10% of Chipcom's revenues.
ACQUISITION OF CHIPCOM EUROPE B.V.
Effective June 29, 1992, Chipcom completed the acquisition of Chipcom Europe
B.V. ("Chipcom Europe"), a Dutch company, and its subsidiaries. Chipcom Europe
was organized and financed in June, 1991, as an independent entity dedicated
exclusively to the marketing, sales and support of Chipcom's products in Europe
and certain countries in the Middle East and Africa. In connection with such
acquisition, Chipcom issued to the Chipcom Europe shareholders an aggregate of
569,994 shares of Common Stock. As a result of this transaction, Chipcom owns
all of the outstanding stock of Chipcom Europe.
During 1992, sales of Chipcom's products to Chipcom Europe prior to its
acquisition by Chipcom were $11.7 million, or 12.7% of revenues.
MERGER WITH ARTEL
On February 14, 1994, Chipcom completed a transaction with Artel, a Hudson,
Massachusetts company which specializes in Ethernet packet switching technology.
Pursuant to this transaction, Artel merged with a subsidiary of Chipcom and
became a wholly-owned subsidiary of Chipcom.
Under the terms of the merger, each outstanding share of Artel common stock
was exchanged for .07203682 shares of Chipcom Common Stock. Chipcom issued
approximately 1,131,000 shares of Common Stock in exchange for all of the
outstanding shares of Artel common stock, and Chipcom has reserved approximately
86,000 additional shares of Common Stock for issuance to holders of options and
warrants formerly exercisable into shares of Artel common stock.
This transaction has been accounted for as a pooling of interests.
Accordingly, all financial data for periods prior to the merger have been
restated to reflect the combined operations of Chipcom and Artel.
ACQUISITION OF DSI
Effective August 31, 1994, Chipcom acquired all of the outstanding shares of
common stock of DSI, a Sunnyvale, California company, for approximately $4.4
million cash. DSI develops, manufactures and sells stackable Ethernet hubs,
which are part of Chipcom's ONsemble StackSystem, and low-end modular hub
products. The acquisition has been accounted for as a purchase and, accordingly,
the results of operations of DSI have been included in Chipcom's consolidated
financial statements since August 31, 1994.
AGREEMENT WITH LANART CORPORATION
Chipcom entered into an agreement in July, 1992 with LANart Corporation
("LANart"), relating to the organization, funding and operation of LANart and
the transfer of certain of Chipcom's technology to LANart. LANart was organized
in April 1992 by Dr. Yoseph Linde, former Chairman of the Chipcom Board for the
purpose of developing and marketing single-protocol, stand-alone computer
networking products.
In July 1993, Chipcom and LANart amended and restated the agreement. Under
the terms of this restated agreement, Chipcom agreed to purchase from LANart up
to $6.0 million in products over a period of approximately five years. In
addition, the restated agreement terminated certain restrictions imposed on each
party concerning development of products in the other party's field and the
restriction on the sale of products by LANart to Chipcom competitors. Under this
restated agreement,
70
<PAGE>
LANart repurchased from Chipcom for a nominal purchase price preferred stock of
LANart representing approximately 6.0% of the capital stock of LANart and
Chipcom's right to designate a member of the board of directors of LANart has
terminated.
In July 1994, Chipcom and LANart further amended the agreement whereby the
$6.0 million purchase commitment over five years was reduced to a $1.2 million
purchase commitment through December 31, 1995. In addition, LANart repurchased
from Chipcom for a nominal purchase price preferred stock of LANart representing
approximately 3.0% of the capital stock of LANart.
In November 1994, Chipcom purchased, on a pro rata basis, preferred stock of
LANart offered in a private placement. Chipcom's ownership of preferred stock of
LANart represents less than 10% of the capital stock of LANart. Chipcom accounts
for its investment in LANart using the cost method.
Mr. Fishman, a director of Chipcom, serves as a member of the board of
directors of LANart. No other director or officer of Chipcom currently serves as
a director or officer of LANart.
MANUFACTURING AND SUPPLIERS; BACKLOG
Chipcom's manufacturing operations consist primarily of final assembly and
test and of quality control of materials, components, subassemblies and systems.
Although Chipcom generally uses standard parts and components for its
products, certain components are currently available only from a single source
or from limited sources. For example, Chipcom purchases 10BASE-T chip-sets
solely from AT&T Company ("AT&T"), certain fiber-optic components from
Hewlett-Packard, certain power supplies from Power Switch, Inc. and Astec Power
Supply Co., Ltd. and certain microchips from National Semiconductor, Inc. To
date, Chipcom has been able to obtain adequate supplies of such components in a
timely manner from existing sources or, when necessary, from alternative
sources.
The majority of Chipcom's revenue in each quarter results from orders booked
in that quarter. Accordingly, Chipcom does not believe that its backlog at any
particular point in time is indicative of future sales.
COMPETITION
The market for networking systems is extremely competitive, and the
competition is likely to intensify. Chipcom experiences competition from many
vendors of network systems, including Bay Networks, Cabletron, Digital, and
Ungermann-Bass.
The principal competitive factors in the market for Chipcom's networking
products are performance, technical features, including support for ATM, product
breadth, distribution channels, price, time-to-market and customer service and
support. Chipcom believes that it, in conjunction with its Resellers, currently
competes favorably with respect to each of these factors. Due to the highly
competitive nature of Chipcom's business, Chipcom anticipates that price
competition may increase in the future. Chipcom believes that certain technical
features in its system networking products (such as a high degree of fault
tolerance, the flexibility of the TriChannel Architecture, remote network
reconfiguration, switching technologies and built-in migration capability)
differentiate its products from other materially competitive products in the
market.
PROPRIETARY RIGHTS
Chipcom relies on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical measures to establish and
protect its proprietary rights in its products. Chipcom and its subsidiaries
currently hold 16 United States and two foreign patents and have applications
pending for several additional United States and foreign patents. Chipcom also
has certain registered and other trademarks. Chipcom believes that, because of
the rapid pace of technological change in the networking industry, patent and
copyright protection are less significant to Chipcom's competitive position than
factors such as the knowledge, ability and experience of Chipcom's personnel,
new product development, market recognition and ongoing product maintenance and
support.
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<PAGE>
EMPLOYEES
Chipcom and its wholly-owned subsidiaries had 918 employees at July 31,
1995, including 374 in marketing, sales and support services, 299 in
engineering, research and development, 136 in manufacturing and operations, and
109 in corporate operations and administration. Of the 918 employees at July 31,
1995, 776 were employed in North America, 89 in Europe, 31 in Israel, 19 in the
Pacific Rim and three in South America. None of Chipcom's employees is
represented by a labor union. Chipcom has experienced no work stoppages and
believes that its relations with its employees are excellent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 31, 1995,
with respect to the beneficial ownership of the Chipcom Common Stock by (i) each
director; (ii) Chipcom's Chief Executive Officer and each of Chipcom's other
four most highly compensated executive officers whose salary and bonus in fiscal
1994 exceeded $100,000; and (iii) all directors and executive officers of
Chipcom as a group. To Chipcom's knowledge, based upon a review of Schedule 13G
and Schedule 13D filings made with the Commission during 1995, no person
beneficially owns 5% of the outstanding Chipcom Common Stock.
<TABLE>
<CAPTION>
SHARES OF
CHIPCOM PERCENTAGE
COMMON STOCK OF CHIPCOM
BENEFICIALLY COMMON STOCK
NAME OWNED (1) OUTSTANDING
--------------------------------------------------------------- -------------- ------------
<S> <C> <C>
John Robert Held............................................... 245,405 1.4%
Richard M. Burnes, Jr.......................................... 33,866 *
Jerald G. Fishman.............................................. 13,500 *
Victoria A. Brown.............................................. 12,000 *
William H. Sitter.............................................. 6,000 *
Frank A. Onians................................................ -- *
Robert P. Badavas.............................................. 123,808(2) *
Bruce L. Cohen................................................. 24,746 *
Menachem E. Abraham............................................ 24,223 *
Roy J. Moffa................................................... 12,547 *
All directors and executive officers as a group (11 persons)... 516,036 3.0%
<FN>
------------------------
* Less than 1% of the shares of Chipcom Common Stock outstanding
(1) The inclusion herein of any shares of Chipcom Common Stock deemed
beneficially owned does not constitute an admission of beneficial ownership
of those shares. Unless otherwise indicated, each stockholder referred to
above has sole voting and investment power with respect to the shares
listed.
The number of shares of Chipcom Common Stock beneficially owned by each
director or executive officer is determined under the rules of the
Commission and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which each director or executive officer has sole
or shared voting power or investment power and also any shares of Chipcom
Common Stock into which any options held by such director or executive
officer are exercisable within 60 days after July 31, 1995.
Includes the following shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after July 31, 1995: options to acquire
206,405 shares held by Mr. Held, options to acquire 24,000 shares held by
Mr. Burnes, options to acquire 13,500 shares held by Mr. Fishman, options
to acquire 12,000 shares held by Ms. Brown, options to acquire 6,000 shares
held by Mr. Sitter, options to acquire 119,727 shares held by Mr. Badavas,
options to acquire 22,216 shares
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
held by Mr. Cohen, options to acquire 23,812 shares held by Mr. Abraham and
options to acquire 11,249 shares held by Mr. Moffa and options to acquire
458,250 shares held by all executive officers and directors as a group.
(2) Includes 3,402 shares of Common Stock owned by Mr. Badavas as custodian for
his children.
</TABLE>
CHIPCOM STOCKHOLDER RIGHTS PLAN
On August 1, 1995, the Chipcom Board approved and adopted a stockholders
rights plan (the "Chipcom Rights Plan") and declared a dividend of one preferred
stock purchase right (a "Right") for each outstanding share of Chipcom Common
Stock to stockholders of record at the close of business on August 14, 1995 (the
"Record Date"). Each Right entitles the registered holder to purchase from
Chipcom a unit consisting of one one-thousandth of a share (a "Unit") of Series
A Junior Participating Preferred Stock, $.10 par value per share, at a purchase
price of $145 in cash per Unit, subject to adjustment. Pursuant to the Chipcom
Rights Plan, the Rights automatically attach to and trade together with each
share of Chipcom Common Stock. The Rights will not be exercisable or
transferable separately from the shares of Chipcom Common Stock to which they
are attached until the earlier of (i) 10 business days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of Chipcom Common Stock (a
"Stock Acquisition Date"), or (ii) 10 business days following the commencement
of the tender offer or exchange offer that would result in a person or group
individually owning 30% or more of the outstanding shares of Chipcom Common
Stock (the earlier of such dates being referred to as the "Distribution Date").
The Rights will expire at the earlier of the Effective Time and the close of
business on August 1, 2005, unless earlier redeemed or exchanged by Chipcom in
accordance with the Chipcom Rights Plan. The Rights are redeemable, under
certain circumstances, for $.01 per Right.
In the event that (i) Chipcom is the surviving corporation in a merger with
an Acquiring Person and the Chipcom Common Stock is not changed or exchanged, or
(ii) a person becomes the beneficial owner of more than 15% of the then
outstanding shares of Chipcom Common Stock, except pursuant to a Permitted Offer
(as defined in the Chipcom Rights Plan), each holder of a Right will thereafter
have the right to receive, upon exercise, that number of shares of Chipcom
Common Stock which equals the exercise price of the Right divided by one-half of
the current market price of the Chipcom Common Stock at the date of the
occurrence of the event. However, in any such event, all Rights that are
beneficially owned by any Acquiring Person will be null and void.
In the event that, and at any time following the Stock Acquisition Date, (i)
Chipcom is acquired in a merger or other business combination transaction in
which Chipcom is not the surviving corporation or the Chipcom Common Stock is
changed or exchanged (other than a merger that follows a Permitted Offer) or
(ii) 50% or more of Chipcom's assets or earning power is sold or transferred,
each holder of a Right (except Rights which previously have been voided as
described above) shall thereafter have the right to receive, upon exercise that
number of shares of common stock of the acquiring company which equals the
exercise price of the Rights divided by one-half of the current market price of
such common stock at the date of the occurrence of such event. The events
referred to in this paragraph and the preceding paragraph are referred to as
"Triggering Events."
The Chipcom Rights Plan provides that no Distribution Date, Stock
Acquisition Date or Triggering Event shall be deemed to have occurred, and
neither 3Com nor any affiliate or associate thereof shall be deemed to have
become an Acquiring Person, by reason of the Merger Agreement and the
consummation of the transactions contemplated thereby.
A description of the Rights is set forth in the Rights Agreement, dated
August 1, 1995, between Chipcom and The First National Bank of Boston which is
filed as an exhibit to Chipcom's Current Report on Form 8-K filed on August 4,
1995.
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<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the proposed merger of 3Com and Chipcom on a pooling of interests basis. The
unaudited pro forma combined financial statements are based on the respective
historical and supplemental historical financial statements which are either
included or incorporated by reference elsewhere in this Proxy Statement/
Prospectus. The unaudited pro forma combined balance sheet assumes that the
Merger took place on May 31, 1995 and combines 3Com's May 31, 1995 supplemental
consolidated balance sheet with Chipcom's July 1, 1995 unaudited consolidated
balance sheet. The unaudited pro forma combined statements of operations assume
that the Merger took place as of the beginning of the periods presented and
combine 3Com's supplemental consolidated statements of operations for the fiscal
years ended May 31, 1995, 1994 and 1993 with Chipcom's consolidated results of
operations for the twelve months ended July 1, 1995, and for the years ended
December 25, 1993 and December 26, 1992, respectively. This presentation has the
effect of excluding Chipcom's results of operations for the six-month period
ended June 25, 1994 from the unaudited pro forma combined statements of
operations.
3Com's supplemental consolidated balance sheet as of May 31, 1995 and
supplemental consolidated statements of operations for the periods presented
include the balance sheet and statements of operations of Primary Access, with
which 3Com consummated a business combination accounted for on a pooling of
interests basis as of June 9, 1995, and also reflect a two-for-one split of 3Com
Common Stock issued on August 25, 1995 to shareholders of record as of August 4,
1995.
The unaudited pro forma combined financial statements are based on the
estimates and assumptions set forth in the notes to such statements. The pro
forma adjustments made in connection with the development of the pro forma
information are preliminary and have been made solely for purposes of developing
such pro forma information for illustrative purposes necessary to comply with
the disclosure requirements of the Commission. The unaudited pro forma combined
financial statements do not purport to be indicative of the results of
operations of future periods or the combined financial position or the results
that actually would have been realized had the entities been a single entity
during these periods.
3Com and Chipcom estimate that they will incur direct transaction costs of
approximately $10 million associated with the Merger which will be charged to
operations in the fiscal quarter in which the Merger is consummated. In
addition, it is expected that following the Merger, 3Com will incur a
restructuring charge to operations, currently estimated to be between $40 to $50
million in the fiscal quarter in which the Merger is consummated. This amount is
a preliminary estimate only and is therefore subject to change. There can be no
assurance that 3Com will not incur additional charges in subsequent quarters to
reflect costs associated with the Merger.
These unaudited pro forma combined financial statements should be read in
conjunction with the historical and supplemental consolidated financial
statements and the related notes thereto of 3Com and Chipcom, which are either
included or incorporated by reference elsewhere herein.
74
<PAGE>
3COM AND CHIPCOM
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
3COM CHIPCOM
AT MAY 31, AT JULY 1, PRO FORMA PRO FORMA
1995 1995 ADJUSTMENTS* COMBINED
----------- ----------- ----------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 149,210 $ 14,833 $ 164,043
Temporary cash investments......................... 184,338 28,390 212,728
Trade receivables -- net........................... 199,939 48,563 248,502
Inventories........................................ 124,058 70,204 $ (21,000)(3) 173,262
Deferred income taxes.............................. 43,922 11,195 6,100 )(4 61,217
Other.............................................. 21,868 4,524 26,392
----------- ----------- -------- -------------
Total current assets............................. 723,335 177,709 (14,900 ) 886,144
Property & equipment -- net.......................... 110,449 42,174 (10,000 (3) 142,623
Other assets......................................... 24,022 16,247 (3,000 (3) 39,350
2,081 )(5
----------- ----------- -------- -------------
Total................................................ $ 857,806 $ 236,130 $ (25,819 ) $ 1,068,117
----------- ----------- -------- -------------
----------- ----------- -------- -------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $ 92,750 $ 21,528 $ 114,278
Accrued and other liabilities...................... 126,124 24,414 150,538
Accrued restructuring and transaction costs........ -- -- $ 21,000 (3) 21,000
Income taxes payable............................... 52,853 6,232 59,085
Current portion of long-term obligations........... 197 996 1,193
----------- ----------- -------- -------------
Total current liabilities........................ 271,924 53,170 21,000 346,094
Long-term debt....................................... 110,000 29 110,029
Other long-term obligations.......................... 1,094 10,268 (4,919 (5) 6,443
Shareholders' Equity:
Common stock (3Com: 143,064,572 shares; Chipcom:
17,073,045 shares; and 161,162,000 shares on a pro
forma combined basis)............................. 311,075 129,238 440,313
Unamortized restricted stock grants................ (2,037) -- (2,037)
Retained earnings.................................. 165,735 43,425 (37,900 (3) 167,348
(4,000 (4)
88 (5)
Unrealized gain (loss) on available-for-sale
securities........................................ 184 -- (88 (5) 96
Accumulated translation adjustments................ (169) -- (169)
----------- ----------- -------- -------------
Total shareholders' equity....................... 474,788 172,663 (41,900 ) 605,551
----------- ----------- -------- -------------
Total................................................ $ 857,806 $ 236,130 $ (25,819 ) $ 1,068,117
----------- ----------- -------- -------------
----------- ----------- -------- -------------
</TABLE>
* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
75
<PAGE>
3COM AND CHIPCOM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CHIPCOM
3COM YEAR ENDED
YEAR ENDED JULY 1, PRO FORMA PRO FORMA
MAY 31, 1995 1995 ADJUSTMENTS* COMBINED
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Sales.................................................. $ 1,325,693 $ 312,309 $ 1,638,002
Costs and Expenses:
Cost of sales........................................ 615,253 148,629 763,882
Selling, general and administrative.................. 314,440 87,166 401,606
Research and development............................. 133,687 39,316 173,003
Purchased in-process technology...................... 60,796 7,900 68,696
Non-recurring items.................................. 5,000 -- 5,000
------------- ----------- -------------
Total.............................................. 1,129,176 283,011 1,412,187
------------- ----------- -------------
Operating income....................................... 196,517 29,298 225,815
Other income -- net.................................... 3,359 1,874 5,233
------------- ----------- -------------
Income before income taxes............................. 199,876 31,172 231,048
Provision for income taxes............................. 73,877 11,399 $2,000 (4) 87,276
------------- ----------- ------------- -------------
Net income......................................... $ 125,999 $ 19,773 $ (2,000 ) $ 143,772
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
Net income per common and equivalent share:
Primary.............................................. $0.83 $1.12 $0.85
Fully diluted........................................ $0.83 $1.12 $0.84
Common and equivalent shares used in computing per
share amounts:
Primary.............................................. 151,062 17,631 1,058 (2) 169,751
Fully diluted........................................ 152,698 17,631 1,058 (2) 171,387
</TABLE>
* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
76
<PAGE>
3COM AND CHIPCOM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CHIPCOM
3COM YEAR ENDED
YEAR ENDED DEC. 25, PRO FORMA PRO FORMA
MAY 31, 1994 1993 ADJUSTMENTS* COMBINED
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Sales................................................. $ 851,047 $ 160,486 $ 1,011,533
Costs and Expenses:
Cost of sales....................................... 415,980 69,560 485,540
Selling, general and administrative................. 217,837 49,093 266,930
Research and development............................ 79,327 21,758 101,085
Purchased in-process technology..................... 134,481 -- 134,481
------------ ------------ -------------
Total............................................. 847,625 140,411 988,036
------------ ------------ -------------
Operating income...................................... 3,422 20,075 23,497
Gain on sale of investment............................ 17,746 -- 17,746
Other income -- net................................... 3,313 665 3,978
------------ ------------ -------------
Income before income taxes............................ 24,481 20,740 45,221
Provision for income taxes............................ 48,697 8,394 57,091
------------ ------------ -------------
Income (loss) before cumulative effect of change in
accounting principle................................. $ (24,216) $ 12,346 $ (11,870)
------------ ------------ -------------
------------ ------------ -------------
Income (loss) per common and equivalent share before
cumulative effect of change in accounting principle:
Primary............................................. $(0.19) $0.78 $(0.08)
Fully diluted....................................... $(0.19 ) $0.78 $(0.08)
Common and equivalent shares used in computing per
share amounts:
Primary............................................. 129,620 15,791 (272 (2) 145,139
Fully diluted....................................... 129,620 15,791 (272 (2) 145,139
</TABLE>
* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
77
<PAGE>
3COM AND CHIPCOM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CHIPCOM
3COM YEAR ENDED
YEAR ENDED DEC. 26, PRO FORMA PRO FORMA
MAY 31, 1993 1992 ADJUSTMENTS* COMBINED
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Sales.................................................... $ 630,966 $ 92,265 $ 723,231
Costs and Expenses:
Cost of sales.......................................... 326,985 38,115 365,100
Selling, general and administrative.................... 175,457 30,272 205,729
Research and development............................... 66,995 14,181 81,176
Non-recurring items.................................... 1,316 -- 1,316
------------ ------------ -----------
Total................................................ 570,753 82,568 653,321
------------ ------------ -----------
Operating income......................................... 60,213 9,697 69,910
Other income -- net...................................... 1,200 450 1,650
------------ ------------ -----------
Income before income taxes............................... 61,413 10,147 71,560
Provision for income taxes............................... 21,736 4,778 26,514
------------ ------------ -----------
Net income............................................... $ 39,677 $ 5,369 $ 45,046
------------ ------------ -----------
------------ ------------ -----------
Net income per common and equivalent share:
Primary................................................ $0.30 $0.38 $0.31
Fully diluted.......................................... $0.30 $0.38 $0.30
Common and equivalent shares used in computing per share
amounts:
Primary................................................ 130,784 14,178 851(2 ) 145,813
Fully diluted.......................................... 132,872 14,178 851(2 ) 147,901
</TABLE>
* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
78
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. PERIODS COMBINED
The 3Com supplemental consolidated balance sheet as of May 31, 1995 has been
combined with the Chipcom consolidated balance sheet as of July 1, 1995.
The 3Com supplemental consolidated statements of operations for each of the
fiscal years ended May 31, 1995, 1994 and 1993 have been combined with the
Chipcom consolidated statements of income for the twelve months ended July 1,
1995, and for the years ended December 25, 1993 and December 26, 1992,
respectively. This presentation has the effect of excluding Chipcom's results of
operations for the six-month period ended June 25, 1994 from the unaudited pro
forma combined statements of operations.
NOTE 2. PRO FORMA EARNINGS PER SHARE
The unaudited pro forma combined income (loss) per common and equivalent
share is based upon the weighted average number of common and equivalent shares
outstanding of 3Com and Chipcom for each period using an exchange ratio of 1.06
shares of 3Com Common Stock for each share of Chipcom Common Stock, except in
loss periods when common stock equivalent shares are excluded as their effect
would be antidilutive. The effect of the assumed conversion of 3Com's
convertible subordinated notes was antidilutive for the periods presented.
NOTE 3. TRANSACTION COSTS AND RESTRUCTURING EXPENSES
3Com and Chipcom estimate they will incur direct transaction costs of
approximately $10 million associated with the Merger, consisting of fees for
investment banking, legal, accounting, financial printing and other related
charges.
In addition, it is expected that as a result of the Merger, the combined
company will incur restructuring expenses estimated to be between $40 and $50
million. For the purposes of the preparation of the unaudited pro forma combined
financial statements, an estimate of $55 million is used for the sum of
transaction costs and restructuring expenses. The restructuring expenses are
expected to include:
- write-off of assets including capitalized software, purchased
technology, inventory and fixed assets associated with
duplicate product lines;
- elimination of duplicate management information systems and
facilities, including cancellation of leases; and
- severance and outplacement costs.
The income tax effect of these expenses has also been reflected as a pro
forma adjustment. These nonrecurring costs will be charged to operations in the
fiscal quarter in which the Merger is consummated. The unaudited pro forma
combined balance sheet gives effect to such expenses as if they had been
incurred as of May 31, 1995, but the effects of these costs have not been
reflected in the unaudited pro forma combined statements of operations.
NOTE 4. PROVISION FOR INCOME TAXES
The provision for income taxes reflects pro forma adjustments to provide a
valuation allowance for certain deferred tax assets.
NOTE 5. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There have been no other adjustments required to conform the accounting
policies of the combined company, except as described in Note 4. Intercompany
transactions between 3Com and Chipcom have been insignificant. Certain Chipcom
amounts have been reclassified to conform with the financial statement
classification of 3Com.
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COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of certain of the material differences between
the rights of holders of 3Com Common Stock and the rights of holders of Chipcom
Common Stock. Since 3Com is organized under the laws of the State of California
and Chipcom is organized under the laws of the State of Delaware, such
differences arise from differences between various provisions of the charter
documents of 3Com and Chipcom as well as from the differences between the
California General Corporation Law ("CGCL") and the Delaware General Corporation
Law ("DGCL").
CUMULATIVE VOTING. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A shareholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the shareholders may choose. Without cumulative voting, the holders of a
majority of the shares present at an annual meeting or any special meeting held
to elect directors would have the power to elect all the directors to be elected
at that meeting, and no person could be elected without the support of holders
of a majority of the shares voting at such meeting.
Under the CGCL, cumulative voting in the election of directors is a right
available to all shareholders of California corporations unless a corporation is
"listed" and that corporation's charter documents specifically eliminate voting.
3Com's Bylaws eliminate cumulative voting. Under the DGCL, cumulative voting in
the election of directors is not mandatory. Chipcom's Restated Certificate of
Incorporation also prohibits cumulative voting.
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS MEETING. Under the CGCL, a
special meeting of shareholders may be called by the board of directors, the
chairman of the board, the president, the holders of shares entitled to cast not
less than 10% of the votes at such meeting and such persons authorized to do so
in the articles of incorporation or bylaws.
Under the DGCL, a special meeting of stockholders may be called by the board
of directors or any other person authorized to do so in the corporation's
certificate of incorporation or bylaws. Chipcom's Bylaws provide that special
meetings of stockholders may be called only by the Board of Directors, the
president or by a resolution adopted by the affirmative vote of a majority of
the Chipcom Board or by the holders of shares entitled to cast not less than 10%
of the votes at the meeting.
DISSOLUTION. Under the CGCL, shareholders holding 50% or more of the total
voting power may authorize a corporation's voluntary dissolution, and this right
may not be modified by its articles of incorporation.
Under the DGCL, a dissolution must be approved by stockholders holding 100%
of the total voting power or the dissolution must be initiated by the board of
directors and approved by the holders of a majority of the outstanding voting
shares of the corporation.
SIZE OF BOARD OF DIRECTORS. Under the CGCL, although changes in the number
of directors must be in general approved by the shareholders, the board of
directors of a California corporation may fix the number of directors within a
stated range set forth in the corporation's articles of incorporation or bylaws,
if the stated range has been approved by the shareholders. 3Com's Bylaws fix the
authorized number of directors at a range from seven to eleven, with the number
currently set at eight, with changes in the authorized number of directors
permitted by either the Board of Directors or the shareholders. In addition,
3Com's Bylaws require that the Board include not less than two "independent
directors" who are not officers or employees of 3Com.
The DGCL permits the board of directors of a Delaware corporation to change
the authorized number of directors by amendment to the corporation's bylaws or
in the manner provided in the bylaws unless the number of directors is fixed in
the corporation's certificate of incorporation, in which case a change in the
number of directors may be made only by amendment to the certificate of
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incorporation. Chipcom's Bylaws provide that the number of directors of Chipcom
will not be less than three nor more than nine, with the exact number fixed from
time to time by a majority of the directors of Chipcom in office, even if less
than a quorum.
CLASSIFIED BOARD OF DIRECTORS. A classified board is one in which a certain
number, but not all, of the directors are elected on a rotating basis each year.
The CGCL permits a classified board only for corporations with shares listed on
the New York or American Stock Exchanges or qualified for trading on the Nasdaq
National Market. 3Com's Articles of Incorporation and Bylaws provide for two
classes of directors elected for staggered two-year terms.
The DGCL permits, but does not require, a classified board of directors,
with staggered terms under which the directors are elected for terms of two or
three years. This method of electing directors makes a change in the composition
of the board of directors, and a potential change in control of a corporation, a
lengthier and more difficult process. Chipcom's Bylaws provide for the Board of
Directors being divided into three classes--Class I, Class II and Class III.
Under this classification scheme, no one class of directors of Chipcom has more
than one director more than any other class of directors. If a fraction is
contained in the quotient arrived at by dividing the authorized number of
directors by three, then if such fraction is one-third, the extra director will
be a member of Class III, unless otherwise provided from time to time by
resolution of the Chipcom Board. If such fraction is two-thirds, one of the
extra directors will be a member of Class III and one of the extra directors
will be a member of Class II, unless otherwise provided for from time to time by
resolution of the Board of Directors.
REMOVAL OF DIRECTORS. Under the CGCL, any director or the entire board of
directors may be removed, with or without cause, with the approval of a majority
of the outstanding shares entitled to vote; however, no director may be removed
(unless the entire board is removed) if the number of shares voted against the
removal would be sufficient to elect the director under cumulative voting.
Under the DGCL, any director or the entire board of directors of a Delaware
corporation with a classified board of directors may only be removed with cause
unless the certificate of incorporation provides otherwise. Chipcom's Restated
Certificate of Incorporation provides that directors may be removed with cause
by a vote of a majority of the outstanding shares entitled to vote at an
election of directors, except that the directors elected by the holders of a
particular or series of stock may be removed with cause by a vote of the holders
of a majority of the outstanding shares of such class or series.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS. Under the CGCL, unless
otherwise provided in the articles of incorporation, any action which may be
taken at any annual or special meeting or shareholders, may be taken without a
meeting by written consent of shareholders having the requisite number of votes,
subject to the requirement that ten days' advance notice of such shareholder
approval of certain types of transactions and matters be given where all
shareholders' consents are not solicited. 3Com's Articles of Incorporation do
not limit the rights of shareholders to act by written consent.
Under the DGCL, stockholders may execute an action by written consent in
lieu of a meeting of stockholders. The DGCL permits a corporation to eliminate
such actions by written consent in its certificate of incorporation. Chipcom's
Restated Certificate of Incorporation limits the rights of stockholders to act
by written consent.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. 3Com's Bylaws provide that no matter proposed by 3Com shareholders
will be considered at an annual meeting or special shareholder meeting unless
(1) it is specified in the notice of meeting, (2) it is brought by or at the
direction of the Board of Directors or (3) written notice of such matter is
provided to 3Com no later than the date on which shareholder proposals to be
included in the 3Com proxy statement must be received under federal securities
laws. Neither Chipcom's Restated Certificate of Incorporation nor its Bylaws
expressly address advance notice of stockholder proposals.
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VOTING REQUIREMENTS. Unless otherwise specified in a California
corporation's articles of incorporation, an amendment to the articles of
incorporation requires the affirmative vote of a majority of the outstanding
shares entitled to vote thereon. Under the CGCL, the holders of the outstanding
shares of a class are entitled to vote as a class if the proposed amendment
would (i) increase or decrease the aggregate number of authorized shares of such
class, (ii) effect an exchange, reclassification or cancellation of all or part
of the shares of such class, other than a stock split, (iii) effect an exchange,
or create a right of exchange, of all or part of the shares of another class
into the shares of such class, (iv) change the rights, preferences, privileges
or restrictions of the shares of such class, (v) create a new class of shares
having rights, preferences or privileges prior to the shares of such class, or
increase the rights, preferences or privileges or the number of authorized
shares having rights, preferences or privileges prior to the shares of such
class, (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or
authorize the board of directors to do so, and (vii) cancel or otherwise affect
dividends on the shares of such class which have accrued but have not been paid.
Unless otherwise specified in a Delaware corporation's certificate of
incorporation, an amendment to the certificate of incorporation requires the
affirmative vote of a majority of the outstanding stock entitled to vote
thereon. Furthermore, under the DGCL, the holders of the outstanding shares of a
class are entitled to vote as a class upon any proposed amendment to the
certificate of incorporation, whether or not entitled to vote thereon by the
provisions of the corporation's certificate of incorporation, if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class, or alter
or change the powers, preferences or special rights of the shares of such class
so as to adversely affect them.
Under both the DGCL and the CGCL, with certain exceptions, any merger,
consolidation or sale of all or substantially all of a corporation's assets must
be approved by the corporation's board of directors and a majority of the
outstanding shares entitled to vote. In addition, the CGCL, but not the DGCL,
requires such transactions, among others, to be approved by a majority of the
outstanding shares of each class of stock (without regard to limitations on
voting rights). Under 3Com's Articles of Incorporation, "business combinations"
which do not meet certain conditions set forth in the Articles of Incorporation,
such as approval of the transaction by a majority of the "disinterested
directors" who are not employees or officers of 3Com, must be approved by the
holders of 66 2/3 percent of the voting shares of 3Com.
Approval of shareholders holding at least 66 2/3 percent of the voting
shares of 3Com is required to amend those provisions of the 3Com Articles of
Incorporation addressing business combinations and those provisions addressing
amendment of the Articles of Incorporation. Under Chipcom's Restated Certificate
of Incorporation, the affirmative vote of the holders of 66 2/3 percent of the
votes which all the stockholders would be entitled to cast is required to amend
certain provisions addressing amendment of Chipcom's Restated Certificate of
Incorporation. The effect of such supermajority voting provisions is to make any
of these changes more difficult.
RIGHTS OF DISSENTING STOCKHOLDERS. Generally, shareholders of a California
corporation who dissent from a merger or consolidation of the corporation are
entitled to dissenters' rights.
Generally, stockholders of a Delaware corporation who dissent from a merger
of consolidation of the corporation for which a stockholders' vote is required
are entitled to appraisal rights, requiring the surviving corporation to
purchase the dissenting shares at fair value. There are, however, no statutory
rights of appraisal with respect to stockholders of a Delaware corporation whose
shares of stock are either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 stockholders where such stockholders receive only
shares of stock of the corporation surviving or resulting from the merger or
consolidation (or cash in lieu of fractional interests therein).
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INSPECTION OF STOCKHOLDERS LIST. Both the CGCL and the DGCL allow any
stockholder to inspect the stockholders list for a purpose reasonably related to
such person's interest as a stockholder. Additionally, the CGCL provides for an
absolute right to inspect and copy the corporation's shareholders list by a
person or persons holding at least 5% in the aggregate of the corporation's
outstanding voting shares, or any shareholder or shareholders holding 1% or more
of such shares who have filed a Schedule 14B with the Commission relating to the
election of directors. The DGCL does not provide for any such absolute right of
inspection.
DIVIDENDS. The CGCL provides that a corporation may make a distribution to
its shareholders if: (i) the retained earnings of the corporation immediately
prior to the distribution equals or exceeds the amount of the proposed
distribution; (ii) immediately after giving effect to the distribution (a) the
sum of the assets of the corporation (exclusive of goodwill, capitalized
research and development expenses and deferred charges) would be at least equal
to 1/4 times its liabilities (not including deferred taxes, deferred income and
other deferred credits), and (b) the current assets of the corporation would be
at least equal to its current liabilities or, if the average of the earnings of
the corporation before taxes on income and before interest expense for the two
preceding fiscal years was less than the average of the interest expense of the
corporation for such fiscal years, at least equal to 1/4 times its current
liabilities; and (iii) the corporation making the distribution is not, or as a
result of the distribution would not be, likely to be unable to meet its
liabilities (except those whose payment is otherwise adequately provided for) as
they mature. Neither 3Com's Articles of Incorporation nor its Bylaws contain any
presently applicable restrictions on the declaration or payment of dividends.
Subject to any restrictions contained in a corporation's certificate of
incorporation, the DGCL generally provides that a corporation may declare and
pay dividends out of surplus (defined as net assets minus stated capital) or,
when no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year. Dividends may not be
paid out of net profits if the capital of the corporation is less than the
amount of capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. Under Chipcom's Restated
Certificate of Incorporation dividends may be paid on Chipcom Common Stock as
and when determined by the Chipcom Board subject to any preferential dividend
rights of any then outstanding preferred stock.
BYLAWS. Under the CGCL, a corporation's Bylaws may be adopted, amended or
repealed either by the board of directors or the shareholders of the
corporation. 3Com's Bylaws provide that the Bylaws may be changed either by the
vote of the holders of a majority of the outstanding shares entitled to vote or
by the board of directors (subject to the shareholders' ability to adopt a Bylaw
provision restricting or eliminating the Board's power to adopt, amend or repeal
Bylaws); provided, however, that the Board may not amend the Bylaws in order to
change a fixed number of directors (except to alter the authorized number of
directors within the existing range of a minimum of four and a maximum of seven
directors) or to change from a fixed to a variable board of vice versa. A Bylaw
adopted by the shareholders may restrict or eliminate the power of the Board to
adopt, amend or repeal the Bylaws. 3Com's Bylaws may be amended by holders of a
majority of voting shares entitled to vote or by a majority of the directors.
Under the DGCL, the authority to adopt, amend, or repeal the bylaws of a
Delaware corporation is held exclusively by the stockholders unless such
authority is conferred upon the board of directors in the corporation's
certificate of incorporation. Chipcom's Bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of Chipcom issued and outstanding
and entitled to vote at any regular meeting of stockholders, or at any special
meeting of stockholders, provided that notice of such alteration is given in the
notice of such meeting. Notwithstanding the foregoing, altering, amending or
repealing bylaws relating to the size of the Board of Directors of Chipcom and
amendments adopted by the stockholders of Chipcom may only be accomplished by
the affirmative vote of the holders of 66 2/3
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percent of the shares of capital stock of Chipcom issued and outstanding and
entitled to vote at any regular meeting of stockholders, or at any special
meeting of stockholders, provided that notice of such alteration is given in the
notice for such meeting.
PREEMPTIVE RIGHTS. Shareholders of a California corporation have such
preemptive rights as may be provided in the corporation's articles of
incorporation. 3Com's Articles of Incorporation do not expressly provide for the
grant of any preemptive rights to 3Com shareholders.
Stockholders of a Delaware corporation have only such preemptive rights as
may be provided in its certificate of incorporation. Chipcom's Restated
Certificate of Incorporation does not grant any preemptive rights to its
stockholders.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS. Under the CGCL, any loan or
guarantee to or for the benefit of a director or officer of the corporation or
its subsidiaries requires approval of the shareholders unless such loan or
guarantee is provided for under a plan approved by shareholders owning a
majority of the outstanding shares of the corporation. In addition, the CGCL
permits shareholders of a corporation with 100 or more shareholders of record to
approve a bylaw authorizing the board of directors alone to approve a loan or
guarantee to or on behalf of an officer (whether or not a director) if the board
determines that such a loan or guarantee may reasonably be expected to benefit
the corporation. 3Com's Bylaws allow its Board of Directors to authorize 3Com to
make a loan to or guarantee the obligation of any officer of the corporation
without obtaining shareholder approval, provided that the Board determines such
action may reasonably be expected to benefit the corporation and the number of
shareholders of record on the date of approval is at least 100.
The CGCL also states that contracts or transactions between a corporation
and (i) any of its directors or (ii) a second corporation of which a director is
also a director are not void or voidable if the material facts as to the
transaction and as to the directors' interest are fully disclosed and the
disinterested directors or a majority of the disinterested shareholders
represented and voting at a duly held meeting approve or ratify the transaction
in good faith, or the person asserting the validity of the contract or
transaction sustains the burden of proving that the contract or transaction was
just and reasonable as to the corporation at the time it was authorized,
approved or ratified.
A Delaware corporation may lend money to, or guarantee any obligation
incurred by, its officers or directors if, in the judgment of the board of
directors, such loan or guarantee may reasonably be expected to benefit the
corporation. With respect to any other contract or transaction between the
corporation and one or more of its directors of officers, such transactions are
neither void nor voidable if either (i) the director's or officer's interest is
made known to the disinterested directors or the stockholders of the
corporation, who thereafter approve the transaction in good faith, or (ii) the
contract or transaction is fair to the corporation as of the time it is approved
or ratified by either the board of directors, a committee thereof, or the
stockholders.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under the CGCL, any vacancy on
the board of directors other than one created by removal of a director may be
filled by the board of directors. If the number of directors is less than a
quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the directors
at a meeting held pursuant to notice or waivers of notice or by a sole remaining
director. A vacancy created by removal of a director may be filled by the board
of directors only if so authorized by a corporation's articles of incorporation
or by a bylaw approved by the corporation's shareholders. 3Com's Bylaws do not
authorize its Board to fill such a vacancy.
Under the DGCL, vacancies on the board of directors and newly created
directorships may be filed by a majority of the directors then in office (even
through less than a quorum) unless (i) otherwise provided in the certificate of
incorporation or bylaws of the corporation (Chipcom's Restated Certificate of
Incorporation and Bylaws do not provide otherwise) or (ii) the certificate of
incorporation directs that a particular class is to elect such director, in
which case any other directors elected by such class, or a sole remaining
director, shall fill such vacancy.
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LIMITATIONS OF LIABILITY OF DIRECTORS. Under the CGCL, (i) a corporation
has the power to indemnify a director against expenses, judgments, fines and
settlements if that person acts in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct of
the person was unlawful, and (ii) a corporation has the power to indemnify, with
certain exceptions, any person who is a party to any action by or in the right
of the corporation, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of the action if the person
acted in good faith and in a manner the person believed to be in the best
interests of the corporation and its shareholders. The indemnification
authorized by the CGCL is not exclusive, and a corporation may grant its
directors, officers, employees or other agents certain additional rights to
indemnification. 3Com's Articles of Incorporation provide that 3Com shall
indemnify any person to the full extent permitted by the California Corporation
Code in connection with claims arising by reason of that person acting as a
director, officer or agent of 3Com. The Board of Directors of 3Com shall
determine whether such person has met the applicable standard of conduct to
establish indemnification under the standards set by the California Corporations
Code. If the Board of Directors find that the person has not met this standard,
the issue will be brought to a shareholder vote.
Under the DGCL, a corporation may include in its certificate of
incorporation a provision which would, subject to the limitations described
below, eliminate or limit directors' liability for monetary damage for breaches
of their fiduciary duty of care. Under the DGCL, a director's liability cannot
be eliminated or limited (i) for breaches of duty of loyalty, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for the payment of unlawful dividends or expenditure of
funds for unlawful stock purchases or redemptions, or (iv) for transactions from
which such director derived an improper personal benefit. Chipcom's Restated
Certificate of Incorporation provides that Chipcom will indemnify any person in
connection with any threatened, pending or completed action, suit or proceeding
by reason of the fact that person is or was or has agreed to become a director
or officer of Chipcom, or is or was serving, or has agreed to serve, at the
request of Chipcom as a director, officer or trustee of Chipcom or in a similar
capacity.
BUSINESS COMBINATIONS/REORGANIZATIONS. The CGCL provides that, except where
the fairness of the terms and conditions of the transaction has been approved by
the California Commissioner of Corporations and except in a "short-form" merger
(the merger of a parent corporation with a subsidiary in which the parent owns
at least 90% of the outstanding shares of each class of the subsidiary's stock),
if the surviving corporation or its parent corporation owns, directly or
indirectly, shares of the target corporation representing more than 50% of the
voting power of the target corporation prior to the merger, the nonredeemable
common stock of a target corporation may be converted only into nonredeemable
common stock of the surviving corporation or its parent corporation, unless all
of the shareholders of the class consent. The effect of this provision is to
prohibit a cash-out merger of minority shareholders, except where the majority
shareholder already owns 90% or more of the voting power of the target
corporation and could, therefore, effect a short-form merger to accomplish such
a cash-out of minority shareholders.
In addition, the CGCL requires that, in connection with certain transactions
between a corporation whose shares are held of record by 100 or more persons and
an "interested party," such interested party must deliver a written opinion as
to the fairness of the consideration to the shareholders of the corporation. An
"interested party" for purposes of this CGCL provision means a person who is a
party to the transaction and (i) directly or indirectly controls the
corporation, (ii) is an officer or director of the corporation, or (iii) is an
entity in which a material financial interest is held by any director or
executive officer of the corporation.
A provision of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder." For purposes of this DGCL provision
an "interested stockholder" is a stockholder that is directly or indirectly a
beneficial owner of 15% or more of the voting power of the outstanding voting
stock of a Delaware corporation (or its affiliate or associate). This provision
prohibits certain business combinations between an interested stockholder and a
corporation for a
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period of three years after the date the interested stockholder acquired its
stock, unless (i) the business combination is approved by the corporation's
board of directors prior to the stock acquisition date; (ii) the interested
stockholder acquired at least 85% of the voting stock of the corporation in the
transaction in which he became an interested stockholder; or (iii) the business
combination is approved by a majority of the board of directors and the
affirmative vote of two-thirds of disinterested stockholders.
SHAREHOLDER DERIVATIVE SUITS. The CGCL provides that a shareholder bringing
a derivative action on behalf of the corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under the DGCL, a stockholder may only bring a derivative action
on behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. The CGCL also provides
that the corporation or the defendant in a derivative suit may make a motion to
the court for an order requiring the plaintiff shareholder to furnish a security
bond. Delaware does not have a similar bonding requirement.
SHAREHOLDER RIGHTS PLAN. The Board of Directors of 3Com adopted a
Shareholder Rights Plan in September 1989, as amended in December 1994, which
provides for distribution of rights to holders of outstanding shares of 3Com
Common Stock. The Board of Directors of Chipcom adopted a Stockholder Rights
Plan in August 1995, which provides for distribution of rights to holders of
outstanding shares of Chipcom Common Stock. See "Description of 3Com Capital
Stock -- Rights Plan" and "Information Concerning Chipcom -- Chipcom Stockholder
Rights Plan."
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The foregoing summary does not purport to be a complete statement of the
rights of holders of 3Com Common Stock and Chipcom Common Stock and is qualified
in its entirety by reference to the CGCL and the DGCL and the respective charter
documents of 3Com and Chipcom.
DESCRIPTION OF 3COM CAPITAL STOCK
The authorized capital stock of 3Com consists of 400,000,000 shares of
Common Stock, no par value, and 3,000,000 shares of Preferred Stock, no par
value.
COMMON STOCK
As of July 31, 1995, there were approximately 145,346,442 shares of 3Com
Common Stock outstanding held of record by approximately 1,500 shareholders.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of 3Com Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. 3Com has not paid any cash dividends on its Common Stock.
Each holder of 3Com Common Stock is entitled to one vote for each share held of
record by him or her and may not cumulate votes for the election of directors.
In the event of a liquidation, dissolution or winding up of 3Com, holders of
3Com Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. Holders of 3Com Common Stock have no preemptive rights and have
no rights to convert their Common Stock into any other securities and there are
no redemption provisions with respect to such shares. All of the outstanding
shares of 3Com Common Stock are fully paid and non-assessable.
The transfer agent for 3Com Common Stock is The First National Bank of
Boston.
CERTAIN CHARTER PROVISIONS
3Com's Articles of Incorporation and Bylaws contain certain provisions that
could have the effect of delaying, deferring or preventing a change in control
of 3Com. These include the following: (i) a provision classifying the Board of
Directors into two classes; (ii) a provision permitting the Board of Directors
to consider factors other than price per share when evaluating a merger or
consolidation or certain other types of proposed business combination; and (iii)
a provision providing that a vote of
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66 2/3% of all of the outstanding shares of 3Com, and the holders of at least a
majority of the outstanding voting shares other than shares held by interested
shareholders, is required to approve certain business combinations.
PREFERRED STOCK
As of July 31, 1995, there were no shares of 3Com Preferred Stock
outstanding. The 3Com Preferred Stock may be issued from time to time in one or
more series. 3Com's Board of Directors has authority to fix the designation,
preferences, and rights of each such series and the qualifications, limitations
and restrictions thereon and to increase or decrease the number of shares of
such series (but not below the number of shares of such series then
outstanding), without any further vote or action by the shareholders.
3COM SHAREHOLDER RIGHTS PLAN
In September 1989, the Board of Directors of 3Com declared a dividend
distribution of one Common Stock Purchase Right (each a "Right" and collectively
the "Rights") for each outstanding share of 3Com Common Stock. The distribution
was paid as of September 20, 1989, to shareholders of record on that date and
subsequently to holders of shares issued after that date. On December 13, 1994,
the Board of Directors of 3Com approved the amendment and restatement of the
agreement specifying the terms of the Rights. Each Right entitles the registered
holder to purchase from 3Com one share of 3Com Common Stock at a purchase price
of $125 per full share (the "Purchase Price").
The description and terms of the Rights are set forth in the Amended and
Restated Rights Agreement dated as of December 21, 1994 (the "Rights Agreement")
between 3Com and The First National Bank of Boston, as the Rights Agent, a copy
of which is attached to 3Com's Quarterly Report on Form 10-Q filed with the
Commission on January 13, 1995. The Rights will expire December 13, 2004, unless
earlier redeemed or exchanged, and will become exercisable and transferable
separately from the 3Com Common Stock only (i) on the earlier of (A) the
acquisition of, or the public announcement of the intent of any person or group
to acquire, without the approval of the Board of Directors of 3Com, beneficial
ownership of 20% or more of the outstanding 3Com Common Stock ("Acquiring
Person"), or (B) the 10th day (unless extended by the Board prior to the time a
person becomes an Acquiring Person) following the commencement, or announcement
of an intention to commence by any person or group of persons, a tender offer
which would result in the offeror owning 20% or more of the outstanding 3Com
Common Stock (the earlier of such dates being referred to as the "First
Distribution Date") or (ii) with respect to any shares of 3Com Common Stock
issuable upon conversion of certain convertible notes of the Company after the
First Distribution Date, on the day immediately following the date on which such
notes are converted into shares of Common Stock (such date and the First
Distribution Date are collectively referred to as the Distribution Date).
If 3Com or more than 50% of its assets is acquired in a merger or other
business combination after the Distribution Date, each holder of a Right shall
thereafter have the right to purchase, upon payment of the Purchase Price, such
number of shares of common stock of the acquiring company having a current
market value equal to twice the Purchase Price. If any person or group acquires
20% or more of 3Com's Common Stock, or if such 20% shareholder engages in
certain self-dealing transactions (as specified in the Rights Agreement) with
3Com, each holder of Rights other than such 20% shareholder will have the right
to purchase upon payment of the then current Purchase Price, in lieu of one
share of Common Stock per outstanding Right, such number of shares of Common
Stock having a market value at the time of the transaction equal to twice the
Purchase Price. After any of these events, 3Com may also exchange all or any
portion of the outstanding Rights, other than Rights held by such 20%
shareholder, for shares of 3Com Common Stock at an exchange ratio of one share
of Common Stock per Right, subject to the provisions of the Rights Agreement.
The Board of Directors may redeem the Rights for $.01 per Right at any time
prior to the day a person or group becomes a 20% shareholder and in certain
other instances. Additionally, the exercise price and the value of stock that
may be acquired for that price are subject to adjustment from time to time to
prevent dilution.
87
<PAGE>
The Rights are designed to protect and maximize the value of the outstanding
equity interests in 3Com in the event of an unsolicited attempt by an acquiror
to take over 3Com in a manner or on terms not approved by the Board of
Directors. The Rights may have the effect of rendering more difficult or
discouraging an acquisition of 3Com deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire 3Com on terms or in a manner not approved by 3Com's Board of
Directors, except pursuant to an offer conditioned upon the negation, purchase
or redemption of the Rights.
LEGAL MATTERS
The validity of the shares of 3Com Common Stock to be issued in connection
with the Merger will be passed upon for 3Com by Gray Cary Ware & Freidenrich,
Palo Alto, California.
EXPERTS
The supplemental consolidated financial statements of 3Com as of May 31,
1995 and 1994 and for each of the three years in the period ended May 31, 1995
included in this Proxy Statement/Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, dated June 28, 1995
(August 25, 1995 as to the first paragraph of Note 9) (which includes an
emphasis paragraph relating to the restatement of the supplemental consolidated
financial statements for a pooling of interests subsequent to the date of the
historical financial statements), which is included herein, except for the
premerger financial statements of Primary Access as of October 3, 1993, and for
the 53 weeks ended October 3, 1993 and the 52 weeks ended September 27, 1992
which have been audited by KPMG Peat Marwick LLP, as stated in their report
included herein (which financial statements are included in the fiscal 1994 and
1993 supplemental consolidated financial statements of 3Com) and have been so
included in reliance upon the respective reports of such firms given upon their
authority as experts in accounting and auditing. Both of the foregoing firms are
independent auditors.
The consolidated financial statements of Chipcom as of December 31, 1994 and
December 25, 1993 and for each of the three years in the period ended December
31, 1994 incorporated by reference in this Proxy Statement/Prospectus have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
It is expected that representatives of Price Waterhouse LLP, Chipcom's
independent accountants will be present at the Chipcom Special Meeting to
respond to appropriate questions of stockholders and to make a statement if they
desire.
88
<PAGE>
3COM CORPORATION
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Supplemental Consolidated Financial Statements:
Independent Auditors' Report -- Deloitte & Touche LLP.................................................... F-2
Independent Auditors' Report -- KPMG Peat Marwick LLP.................................................... F-3
Supplemental Consolidated Statements of Operations for the fiscal years ended May 31, 1995, 1994 and
1993.................................................................................................... F-4
Supplemental Consolidated Balance Sheets at May 31, 1995 and 1994........................................ F-5
Supplemental Consolidated Statements of Shareholders' Equity for the fiscal years ended May 31, 1995,
1994 and 1993........................................................................................... F-6
Supplemental Consolidated Statements of Cash Flows for the fiscal years ended May 31, 1995, 1994 and
1993.................................................................................................... F-7
Notes to Supplemental Consolidated Financial Statements.................................................. F-9
Supplemental Quarterly Results of Operations (unaudited)................................................... F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of 3Com Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
3Com Corporation and its subsidiaries as of May 31, 1995 and 1994, and the
related supplemental consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period, ended May 31,
1995. These supplemental financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
supplemental financial statements based on our audits. We did not audit the
balance sheet of Primary Access Corporation as of October 3, 1993, or the
related statements of operations, stockholders' equity (deficit), and cash flows
of Primary Access Corporation for the fifty-three weeks ended October 3, 1993
and the fifty-two weeks ended September 27, 1992, which statements are combined
with 3Com Corporation's statements as of May 31, 1994 and for the years ended
May 31, 1994 and 1993, and reflect total assets of $12,897,000, total revenues
of $24,052,000 and $13,798,000, respectively, and net income of $4,478,000 and
$1,116,000, respectively. Those statements were audited by other auditors whose
report, dated November 5, 1993, on those statements has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Primary
Access Corporation, is based solely on the report of such other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the merger of 3Com Corporation and Primary Access Corporation on June 9,
1995, which has been accounted for as a pooling of interests as described in
Notes 1 and 3 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation, however, they will
become the historical consolidated financial statements of 3Com Corporation and
subsidiaries after financial statements covering the date of consummation of the
business combination are issued.
In our opinion, based on our audits and the report of the other auditors,
the accompanying supplemental consolidated financial statements present fairly,
in all material respects, the financial position of 3Com Corporation and its
subsidiaries at May 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended May 31, 1995 in
conformity with generally accepted accounting principles applicable after
financial statements are issued for a period which includes the date of
consummation of the business combination.
/s/ DELOITTE & TOUCHE LLP
------------------------------
DELOITTE & TOUCHE LLP
San Jose, California
June 28, 1995
(August 25, 1995 as to the first paragraph of Note 9)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Primary Access Corporation:
We have audited the balance sheet of Primary Access Corporation (the
Company) as of October 3, 1993, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the fifty-three weeks ended
October 3, 1993 and the fifty-two weeks ended September 27, 1992 (not presented
herein). 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Primary Access Corporation
as of October 3, 1993, and the related statements of operations, stockholders'
equity (deficit), and cash flows for the fifty-three weeks ended October 3, 1993
and the fifty-two weeks ended September 27, 1992, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Diego, California
November 5, 1993
F-3
<PAGE>
3COM CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
---------------------------------------
1995 1994 1993
------------- ----------- -----------
<S> <C> <C> <C>
Sales.................................................................... $ 1,325,693 $ 851,047 $ 630,966
Costs and Expenses:
Cost of sales.......................................................... 615,253 415,980 326,985
Sales and marketing.................................................... 259,458 175,972 139,066
Research and development............................................... 133,687 79,327 66,995
General and administrative............................................. 54,982 41,865 36,391
Purchased in-process technology........................................ 60,796 134,481 --
Non-recurring items.................................................... 5,000 -- 1,316
------------- ----------- -----------
Total................................................................ 1,129,176 847,625 570,753
------------- ----------- -----------
Operating income......................................................... 196,517 3,422 60,213
Gain on sale of investment............................................... -- 17,746 --
Other income -- net...................................................... 3,359 3,313 1,200
------------- ----------- -----------
Income before income taxes............................................... 199,876 24,481 61,413
Income tax provision..................................................... 73,877 48,697 21,736
------------- ----------- -----------
Net income (loss)........................................................ $ 125,999 $ (24,216) $ 39,677
------------- ----------- -----------
------------- ----------- -----------
Net income (loss) per common and equivalent share:
Primary................................................................ $ 0.83 $ (0.19) $ 0.30
Fully-diluted.......................................................... $ 0.83 $ (0.19) $ 0.30
Common and equivalent shares used in computing per share amount:
Primary................................................................ 151,062 129,620 130,784
Fully-diluted.......................................................... 152,698 129,620 132,872
</TABLE>
See notes to supplemental consolidated financial statements.
F-4
<PAGE>
3COM CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................. $ 149,210 $ 69,768
Temporary cash investments............................................................ 184,338 63,413
Trade receivables, less allowance for doubtful accounts ($16,221 in 1995 and $10,493
in 1994)............................................................................. 199,939 124,843
Inventories........................................................................... 124,058 73,358
Deferred income taxes................................................................. 43,922 31,236
Other................................................................................. 21,868 10,277
----------- -----------
Total current assets................................................................ 723,335 372,895
Property and equipment--net............................................................. 110,449 68,063
Other assets............................................................................ 24,022 16,282
----------- -----------
Total................................................................................... $ 857,806 $ 457,240
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................................................... $ 92,750 $ 53,155
Accrued and other liabilities......................................................... 126,124 93,747
Income taxes payable.................................................................. 52,853 19,090
Current portion of long-term obligations.............................................. 197 590
----------- -----------
Total current liabilities........................................................... 271,924 166,582
Long-term debt.......................................................................... 110,000 --
Other long-term obligations............................................................. 1,094 1,229
Shareholders' Equity:
Preferred stock, no par value, 3,000,000 shares authorized; none outstanding.......... -- --
Common stock, no par value, 400,000,000 shares authorized; shares outstanding:
1995--143,064,572; 1994--134,404,538................................................. 311,075 231,985
Unamortized restricted stock grants................................................... (2,037) (202)
Retained earnings..................................................................... 165,735 57,951
Unrealized gain on available-for-sale securities...................................... 184 --
Accumulated translation adjustments................................................... (169) (305)
----------- -----------
Total shareholders' equity.......................................................... 474,788 289,429
----------- -----------
Total................................................................................... $ 857,806 $ 457,240
----------- -----------
----------- -----------
</TABLE>
See notes to supplemental consolidated financial statements.
F-5
<PAGE>
3COM CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAMORTIZED
RESTRICTED
COMMON STOCK STOCK GRANTS UNREALIZED GAIN ACCUMULATED
-------------------- AND NOTES RETAINED ON AVAILABLE-FOR- TRANSLATION
SHARES AMOUNT RECEIVABLES EARNINGS SALE SECURITIES ADJUSTMENTS TOTAL
--------- --------- ------------- --------- ----------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 1, 1992, AS
PREVIOUSLY REPORTED................ 117,352 $ 129,063 $ (120) $ 71,354 $ -- $ 2,128 $ 202,425
Restatement for pooling of
interests-Primary Access........... 2,184 8,807 (10) (8,969) -- (172)
--------- --------- ------------- --------- ------- ------------- ---------
AS RESTATED......................... 119,536 137,870 (130) 62,385 -- 2,128 202,253
Stock issued........................ 11,738 22,904 22,904
Stock warrants buyback.............. (1,300) (1,300)
Repurchase of common stock.......... (3,544) (4,300) (5,340) (9,640)
Tax benefit from employee stock
transactions....................... 11,955 11,955
Cancellation of restricted stock
grants............................. (40) (131) 120 (11)
Pro forma tax provision of pooled
entity............................. 1,604 1,604
Equity distributions of a pooled
entity............................. (5,179) (5,179)
Adjustment to conform fiscal year of
a pooled entity-Star Tek........... 2,163 2,163
Accumulated translation
adjustments........................ (1,986) (1,986)
Repayment of notes receivable....... 5 5
Net income.......................... 39,677 39,677
--------- --------- ------------- --------- ------- ------------- ---------
BALANCES, MAY 31, 1993.............. 127,690 166,998 (5) 95,310 -- 142 262,445
Stock issued........................ 9,515 22,925 (255) 22,670
Repurchase of common stock.......... (2,800) (3,501) (13,143) (16,644)
Tax benefit from employee stock
transactions....................... 24,474 24,474
Amortization of restricted stock
grants............................. 53 53
Stock options assumed in connection
with acquisitions.................. 21,089 21,089
Accumulated translation
adjustments........................ (447) (447)
Repayment of note receivable........ 5 5
Net loss............................ (24,216) (24,216)
--------- --------- ------------- --------- ------- ------------- ---------
BALANCES, MAY 31, 1994.............. 134,405 231,985 (202) 57,951 -- (305) 289,429
Stock issued........................ 7,530 33,963 (2,128) 31,835
Repurchase of common stock.......... (1,570) (2,674) (16,916) (19,590)
Tax benefit from employee stock
transactions....................... 40,306 40,306
Amortization of restricted stock
grants............................. 293 293
Stock options assumed in connection
with acquisitions.................. 6,508 6,508
Adjustment to conform pooled entity-
Sonix.............................. 2,416 844 (2,079) (69) (1,304)
Adjustment to conform fiscal year of
pooled entity-Primary Access....... 284 143 780 923
Unrealized gain on
available-for-sale securities...... 184 184
Accumulated translation
adjustments........................ 205 205
Net income.......................... 125,999 125,999
--------- --------- ------------- --------- ------- ------------- ---------
BALANCES, MAY 31, 1995.............. 143,065 $ 311,075 $ (2,037) $ 165,735 $ 184 $ (169) $ 474,788
--------- --------- ------------- --------- ------- ------------- ---------
--------- --------- ------------- --------- ------- ------------- ---------
</TABLE>
See notes to supplemental consolidated financial statements.
F-6
<PAGE>
3COM CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)...................................................................... $ 125,999 $ (24,216) $ 39,677
Adjustments to reconcile net income (loss) to cash
provided by operations:
Depreciation and amortization........................................................ 47,482 30,922 25,361
Gain on sale of investment........................................................... -- (17,746) --
Deferred income taxes................................................................ (24,175) (9,865) (3,523)
Purchased in-process technology...................................................... 60,796 134,481 --
Adjustment to conform fiscal year of pooled entity................................... 3,013 -- 2,163
Pro forma provision for income taxes................................................. -- -- 1,604
Non-cash restructuring costs......................................................... (1,100) -- (3,346)
Changes in assets and liabilities net of effects of acquisitions:
Trade receivables.................................................................. (73,067) (33,779) (22,904)
Inventories........................................................................ (50,190) 1,019 (20,055)
Other current assets............................................................... (11,045) 6,160 (3,889)
Accounts payable................................................................... 37,556 9,556 11,573
Accrued and other liabilities...................................................... 39,747 (1,185) 6,902
Income taxes payable............................................................... 73,821 34,927 17,618
----------- ---------- ---------
Net cash provided by operations.......................................................... 228,837 130,274 51,181
----------- ---------- ---------
Cash flows from investment activities:
Proceeds from sale of investment....................................................... -- 18,066 --
Purchase of property and equipment..................................................... (77,817) (36,938) (22,534)
Purchase of temporary cash investments................................................. (183,232) (76,841) (72,962)
Proceeds from temporary cash investments............................................... 60,585 90,612 40,496
Acquisition of businesses and related purchase-price adjustment........................ (65,832) (98,128) 2,946
Other -- net........................................................................... 4,007 (3,020) 907
----------- ---------- ---------
Net cash used for investment activities.................................................. (262,289) (106,249) (51,147)
----------- ---------- ---------
Cash flows from financing activities:
Sale of stock.......................................................................... 28,155 22,670 22,397
Repurchase of common stock............................................................. (19,590) (16,644) (9,640)
Repurchase of stock warrants........................................................... -- -- (1,300)
Net proceeds from issuance of convertible debt......................................... 107,330 -- --
Notes payable.......................................................................... -- -- 3,326
Repayments of notes payable and capital lease obligations.............................. (3,206) (2,287) (750)
Equity distributions of pooled entity.................................................. -- -- (5,179)
Other -- net........................................................................... 205 (448) (1,867)
----------- ---------- ---------
Net cash provided by financing activities................................................ 112,894 3,291 6,987
----------- ---------- ---------
Increase in cash and cash equivalents.................................................... 79,442 27,316 7,021
----------- ---------- ---------
Cash and cash equivalents at beginning of year........................................... 69,768 42,452 35,431
----------- ---------- ---------
Cash and cash equivalents at end of year................................................. $ 149,210 $ 69,768 $ 42,452
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
F-7
<PAGE>
3COM CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Other cash flow information:
Interest paid.......................................................................... $ 5,526 $ 165 $ 418
Income taxes paid...................................................................... 25,039 22,169 5,910
Non-cash investing and financing activities:
Tax benefit on stock option transactions............................................. 40,306 24,474 11,955
Stock issued and options assumed in business acquisitions............................ 10,118 21,089 --
</TABLE>
In connection with the purchase acquisitions in fiscal 1995 (see Note 3),
the Company paid cash, net of cash acquired, of $51.6 million, and recorded
non-cash value of stock issued and options assumed of $3.7 million and $6.5
million, respectively. The fair value of assets acquired, excluding the $60.8
million purchased in-process technology charged to operations, was $4.3 million,
and liabilities of $2.6 million were assumed. In connection with the acquisition
of Centrum in fiscal 1994 (see Note 3), the Company made a final payment in cash
of $14.3 million in fiscal 1995.
In connection with the acquisitions in fiscal 1994 (see Note 3), the Company
paid cash, net of cash acquired, of $98.1 million plus $14.3 million payable in
August 1994, and recorded non-cash value of options assumed of $21.1 million.
The fair value of assets acquired, excluding the $132.1 million purchased
in-process technology charged to operations, was $35.6 million, and liabilities
of $11.3 million were assumed.
See notes to supplemental consolidated financial statements.
F-8
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Founded in 1979, 3Com Corporation pioneered the data networking industry and
is committed to providing customers global access to information. Today, 3Com
offers a broad range of ISO 9000-compliant global data networking connectivity
solutions which include routers, hubs, remote access servers, switches, adapters
and network management for Ethernet, Token Ring, FDDI, ATM and other high-speed
data networks. Headquartered in Santa Clara, California, 3Com has worldwide
research and development, manufacturing, marketing, sales and support
capabilities.
BASIS OF PRESENTATION
The supplemental consolidated financial statements of 3Com Corporation and
subsidiaries (the Company) have been prepared to give retroactive effect to the
merger with Primary Access Corporation on June 9, 1995. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation, however, they will
become the historical consolidated financial statements of the Company after
financial statements covering the date of consummation of the business
combination are issued.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of 3Com Corporation and its wholly-owned subsidiaries. All
significant intercompany balances and transactions are eliminated in
consolidation.
CASH EQUIVALENTS are highly liquid debt investments acquired with a maturity
of three months or less.
TEMPORARY CASH INVESTMENTS consist of short-term investments acquired with
maturities exceeding three months. Effective June 1, 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement requires the
Company to classify debt and equity securities with readily determinable fair
values as "held-to-maturity," "available-for-sale" or "trading". Adoption of
SFAS 115 did not have a significant effect on the Company's financial position
or results of operations. While the Company's intent is to hold debt securities
to maturity, the Company has classified all securities held as available-
for-sale securities as the sale of such securities may be required prior to
maturity to implement management strategies. Such securities are reported at
fair value with unrealized gains or losses excluded from earnings and reported
as a separate component of shareholders' equity, net of applicable taxes. Prior
to the adoption of SFAS 115, all investment securities were carried at amortized
cost.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMER. Financial instruments
which potentially subject the Company to concentrations of credit risk consist
principally of investments and trade receivables. The Company invests in
instruments with an investment credit rating of AA and better. The Company also
places its investments for safekeeping with high-credit-quality financial
institutions. Credit risk with respect to trade receivables is generally
diversified due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries and
geographies. The Company often sells its products through third-party
distributors, and, as a result, may maintain individually significant receivable
balances with major distributors. The Company believes that its credit
evaluation, approval and monitoring processes substantially mitigate potential
credit risks.
F-9
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In fiscal 1995, the Company had one customer which accounted for
approximately 11 percent of total sales. The Company did not have any customers
which individually accounted for more than 10 percent of total sales in fiscal
1994 and 1993, respectively.
INVENTORIES are stated at the lower of standard cost (which approximates
first-in, first-out cost) or market.
PROPERTY AND EQUIPMENT is stated at cost. Equipment under capital leases is
stated at the lower of fair market value or the present value of the minimum
lease payments at the inception of the lease.
PURCHASED TECHNOLOGY is included in other assets and is amortized over 2-4
years.
DEPRECIATION AND AMORTIZATION are computed over the shorter of the estimated
useful lives, lease terms, or terms of license agreements of the respective
assets, on a straight-line basis -- generally 2-7 years, except for buildings
which are at 25 years.
REVENUE RECOGNITION. The Company recognizes revenue and accrues related
product return reserves, warranty and royalty expenses upon shipment. At the
time of sale, no material vendor or post-contract support obligations remain
outstanding, except as provided by separate service agreement, and collection of
the resulting receivable is probable. Service and subscription revenue is
recognized over the contract term. The Company extends limited product return
and price protection rights to certain distributors and resellers. Such rights
are generally limited to a certain percentage of sales over a three-month
period. Historically, actual amounts recorded for product returns and price
protection have not varied significantly from estimated amounts. The Company
warrants products for periods which range from 90 days to life depending upon
the product.
FOREIGN CURRENCY TRANSLATIONS. For foreign operations with the local
currency as the functional currency, assets and liabilities are translated at
year-end exchange rates, and statements of operations are translated at the
average exchange rates during the year. Gains or losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity.
For foreign operations with the U.S. dollar as the functional currency,
assets and liabilities are translated at the year-end exchange rates except for
inventories, prepaid expenses, and property and equipment, which are translated
at historical exchange rates. Statements of operations are translated at the
average exchange rates during the year except for those expenses related to
balance sheet amounts that are translated using historical exchange rates. Gains
or losses resulting from foreign currency translation are included in other
income -- net in the statements of operations and were not significant for any
of the years presented.
NET INCOME (LOSS) PER COMMON AND EQUIVALENT SHARE is computed using the
weighted average number of common and common equivalent shares outstanding and
the dilutive effects of stock options, using the treasury stock method. The
effect of the assumed conversion of the 10.25% convertible subordinated notes
was antidilutive for the periods presented. All applicable share and per share
data in these financial statements have been restated to give effect to the
stock splits (see Note 9).
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE 3: BUSINESS COMBINATIONS
FOR THE YEAR ENDED MAY 31, 1995. On October 18, 1994, the Company acquired
substantially all the assets and assumed substantially all the liabilities of
NiceCom, Ltd. (NiceCom), and assumed all outstanding NiceCom stock options. The
purchase price consisted of approximately $53.2 million which was paid using
funds from the Company's working capital and the issuance of approximately
F-10
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: BUSINESS COMBINATIONS (CONTINUED)
186,000 shares of common stock of the Company, with an aggregate value of $3.7
million. In addition, the Company assumed stock options with an associated value
of $5.7 million. NiceCom is engaged in the development of asynchronous transfer
mode (ATM) switches and an Ethernet-to-ATM solution to provide a migration path
from existing Ethernet LANs to ATM networking.
On October 14, 1994, the Company acquired all of the outstanding shares and
assumed all outstanding stock options of a company engaged in the development of
network adapter technology. The purchase price consisted of approximately $2.3
million in cash plus the assumption of stock options with an associated value of
approximately $400,000. The purchase price was paid using funds from the
Company's working capital.
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 $61.6
million, plus $2.0 million of costs directly attributable to the completion of
the acquisitions, has been allocated to the assets and liabilities acquired.
Approximately $60.8 million of the total purchase price represented the value of
in-process technology that had not yet reached technological feasibility and had
no alternative future use and was charged to the Company's operations in the
second quarter of fiscal 1995.
On February 28, 1995, the Company acquired AccessWorks Communications, a
company involved in developing, manufacturing and marketing Integrated Services
Digital Network (ISDN) transmission products. The acquisition was accounted for
as a purchase. The purchase price and costs directly attributable to the
completion of the acquisition were not significant.
The Company's consolidated results of operations include the operating
results of the acquired companies from their acquisition dates. Pro forma
results of operations of 3Com and the aforementioned acquired companies for the
periods prior to the acquisitions are not presented as the amounts would not
significantly differ from the Company's historical results.
On May 1, 1995, the Company acquired Sonix Communications Limited (Sonix) by
issuing approximately 2.4 million shares of common stock for all of the
outstanding stock of Sonix. Sonix develops, manufactures and markets a range of
networking connectivity solutions using ISDN technology. The acquisition was
accounted for as a pooling of interests. All financial data of the Company for
fiscal 1995 has been restated to include the operating results of Sonix. As the
historical operations of Sonix were not significant to any year presented, the
Company's financial statements for prior years have not been restated and the
financial effect of the prior year's results of operations of Sonix have been
accounted for as a $2.1 million charge against retained earnings in fiscal 1995.
SUBSEQUENT EVENT. On June 9, 1995, the Company acquired Primary Access
Corporation (Primary Access) by issuing approximately 4.6 million shares of
common stock for all of the outstanding stock of Primary Access. The Company
also assumed and exchanged all options and warrants to purchase Primary Access
stock for options and warrants to purchase approximately 1.0 million shares of
the Company's common stock. Primary Access develops, manufactures and markets
integrated network access systems. The acquisition was accounted for as a
pooling of interests. All financial data of the Company for the periods prior to
the acquisition were restated to include the historical financial data of
Primary Access. Primary Access maintained its financial records on a 52-53 week
fiscal year ending nearest to September 30. The May 31, 1994 restated
consolidated balance sheet includes the balance sheet of Primary Access as of
October 3, 1993. The restated consolidated statements of operations and cash
flows for the years ended May 31, 1994 and 1993 include the Primary Access
statements of operations and cash flows for the years ended October 3, 1993 and
September 27, 1992, respectively.
F-11
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: BUSINESS COMBINATIONS (CONTINUED)
The results of operations of Primary Access for the eight-month period ended
May 31, 1994 reflected revenues of $14.6 million and net income of $780,000,
which has been reported as an increase in the Company's fiscal 1995 retained
earnings. No significant adjustments were required to conform the accounting
policies of the Company and Primary Access. Financial information as of May 31,
1995 and for the year then ended reflects the Company's and Primary Access'
operations for that period.
The following table shows the effect on the results of operations for the
fiscal years in which the combinations of Sonix and Primary Access were
effected:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
---------------------------------------
1995 1994 1993
------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
3Com................................................................... $ 1,269,908 $ 826,995 $ 617,168
Primary Access......................................................... 30,382 24,052 13,798
Sonix.................................................................. 25,403 -- --
------------- ----------- -----------
Combined............................................................... $ 1,325,693 $ 851,047 $ 630,966
------------- ----------- -----------
------------- ----------- -----------
Net income (loss):
3Com................................................................... $ 123,450 $ (28,694) $ 38,561
Primary Access......................................................... 293 4,478 1,116
Sonix.................................................................. 2,256 -- --
------------- ----------- -----------
Combined............................................................... $ 125,999 $ (24,216) $ 39,677
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
FOR THE YEAR ENDED MAY 31, 1994. 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 LAN switching products.
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 at the time of the acquisition and $14.3 million
was paid in cash in August 1994 pursuant to the acquisition agreement. 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 values at
the dates of acquisition. 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.
Approximately $132.1 million of the total purchase price represented in-process
technology that had not yet reached technological feasibility and had no
alternative future use and was charged to the Company's operations.
The Company's consolidated results of operations include the operating
results of the acquired companies since their acquisition dates.
FOR THE YEAR ENDED MAY 31, 1993. On January 29, 1993, the Company acquired
Star-Tek, Inc. (Star-Tek) by issuing approximately 7.0 million shares of common
stock for all of the outstanding shares of Star-Tek. Star-Tek designs,
manufactures and markets a range of Token Ring products focused primarily on the
connectivity needs of larger organizations with IBM mainframe, mid-range
F-12
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: BUSINESS COMBINATIONS (CONTINUED)
and Token Ring LAN-based information systems. The acquisition was accounted for
by the pooling of interests method. Star-Tek maintained its financial records on
a fiscal year ending December 31. The results of operations of Star-Tek for the
five-month period ended May 31, 1992 reflected net income of $1.6 million and
pro-forma tax adjustment of $595,000, the sum of which has been reported as an
increase in the Company's fiscal 1993 retained earnings.
NOTE 4: TEMPORARY CASH INVESTMENTS
Available-for-sale securities consist of:
<TABLE>
<CAPTION>
MAY 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal securities................................. $ 108,625 $ 214 $ (22) $ 108,817
Corporate debt securities...................................... 49,773 76 -- 49,849
U.S. Government and agency securities.......................... 25,633 39 -- 25,672
----------- ----- --- -----------
Total.................................................... $ 184,031 $ 329 $ (22) $ 184,338
----------- ----- --- -----------
----------- ----- --- -----------
</TABLE>
There were no realized gains or losses for the year ended May 31, 1995.
The contractual maturity of available-for-sale securities at May 31, 1995
was as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Within one year......................................................................... $ 142,158 $ 142,312
Over one year to two years.............................................................. 41,873 42,026
----------- -----------
Total............................................................................. $ 184,031 $ 184,338
----------- -----------
----------- -----------
</TABLE>
NOTE 5: INVENTORIES
Inventories at May 31 consist of:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Finished goods........................................................................... $ 73,061 $ 44,876
Work-in-process.......................................................................... 14,035 8,248
Raw materials............................................................................ 36,962 20,234
----------- ---------
Total.............................................................................. $ 124,058 $ 73,358
----------- ---------
----------- ---------
</TABLE>
F-13
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment at May 31 consists of:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Land................................................................................... $ 1,303 $ 1,303
Building............................................................................... 7,365 7,365
Machinery and equipment................................................................ 176,088 124,670
Furniture and fixtures................................................................. 19,564 14,647
Leasehold improvements................................................................. 16,771 15,477
Construction in progress............................................................... 15,613 --
------------ -----------
Total............................................................................ 236,704 163,462
Accumulated depreciation and amortization.............................................. (126,255) (95,399)
------------ -----------
Property and equipment -- net.......................................................... $ 110,449 $ 68,063
------------ -----------
------------ -----------
</TABLE>
NOTE 7: ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities at May 31 consist of:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accrued payroll and related expenses....................... $ 38,950 $ 22,048
Accrued product warranty................................... 20,769 14,102
Accrued cooperative advertising............................ 12,015 11,544
Accrued payment to Centrum shareholders.................... -- 14,267
Other accrued liabilities.................................. 54,390 31,786
----------- ---------
Accrued and other liabilities.............................. $ 126,124 $ 93,747
----------- ---------
----------- ---------
</TABLE>
NOTE 8: BORROWING ARRANGEMENTS AND COMMITMENTS
In November 1994, the Company completed a private placement of $110 million
aggregate principal amount of convertible subordinated notes under Rule 144A of
the Securities Act of 1933. The notes mature in 2001. Interest is payable
semi-annually at 10.25% per annum. The notes are convertible at the option of
the note holders into the Company's common stock at an initial conversion price
of $34.563 per share. Beginning in November 1997, the notes are redeemable at
the option of the Company at an initial redemption price of 102.929% of the
principal amount. The Company has reserved 3,182,640 shares of common stock for
the conversion of these notes.
In July 1994, the Company signed a five-year lease for 225,000 square feet
of office and manufacturing space to be built on land adjacent to its existing
headquarters in Santa Clara. This arrangement provides the Company with an
option to purchase the related property during the lease term, and at the end of
the lease term the Company is obligated to either purchase the property or
arrange for the sale of the property to a third party with a guaranteed residual
value of up to $33.5 million to the seller of the property. The Company
estimates that it will commence occupancy of portions of the facility in June
1995, with payments on the lease estimated to start in September 1995. Future
minimum lease payments are included in the table below.
In April 1995, the Company signed an eight-year lease for 80,000 square feet
of office and manufacturing space in Boxborough, Massachusetts to consolidate
existing facilities in that area. Concurrent with this lease, the Company
entered into an agreement pursuant to which the Company has the option to
purchase the property in November 1995. Future minimum lease payments are
included in the table below.
F-14
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: BORROWING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
As of May 31, 1995, the Company had approximately $29 million in capital
expenditure commitments, primarily associated with the expansion and upgrade of
product manufacturing lines and facilities.
The Company has a $40 million revolving bank credit agreement which expires
on December 31, 1996. Under the agreement, the Company may select among various
interest rate options, including borrowing at the bank's prime rate. The
agreement requires that the Company maintain certain financial ratios and
minimum net worth. At May 31, 1995, all such requirements were met and there
were no outstanding borrowings under the agreement. The Company has no
restrictions on paying cash dividends on its common stock.
3Com Development Corporation, a wholly-owned subsidiary of 3Com, is a
limited partner in a lease/joint venture arrangement to acquire and develop the
Company's corporate offices in Santa Clara, which were initially occupied in the
first quarter of fiscal 1991. Future minimum lease payments are included in the
table below.
The Company leases its facilities and certain equipment under operating
leases. Leases expire at various dates from 1996 to 2013 and certain facility
leases have renewal options with rentals based upon changes in the Consumer
Price Index or the fair market rental value of the property.
Future operating lease commitments are as follows:
<TABLE>
<CAPTION>
(IN
FISCAL YEAR THOUSANDS)
----------------------------------------------------------- -------------
<S> <C>
1996....................................................... $ 20,648
1997....................................................... 17,975
1998....................................................... 13,242
1999....................................................... 12,247
2000....................................................... 9,919
Thereafter................................................. 15,416
-------------
Total.................................................. $ 89,447
-------------
-------------
</TABLE>
Rent expense was $17.8 million, $14.0 million, and $14.1 million for fiscal
1995, 1994, and 1993, respectively.
NOTE 9: COMMON STOCK
The Company's common stock was split two-for-one on August 25, 1995 for
shareholders of record on August 4, 1995 and was split two-for-one on September
1, 1994 for shareholders of record on August 16, 1994. All applicable share and
per share data in these financial statements have been restated to give effect
to these stock splits.
SHAREHOLDER RIGHTS PLAN. In September 1989, the Company's Board of
Directors approved a stock purchase rights plan and declared a dividend
distribution of one common stock purchase right for each outstanding share of
its common stock. The Company's Board of Directors approved an amendment and
restatement of the rights plan in December 1994. The rights become exercisable
based on certain limited conditions related to acquisitions of stock, tender
offers and certain business combination transactions of the Company. In the
event one of the limited conditions is triggered, each right entitles the
registered holder to purchase for $125 a number of shares of 3Com common stock
(or of any acquiring company) with a fair market value of $250. The rights are
redeemable at the Company's option for $.01 per right and expire on December 13,
2004.
F-15
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: COMMON STOCK (CONTINUED)
STOCK OPTION PLANS. The Company has stock option plans under which
employees and directors may be granted options to purchase common stock. Options
are generally granted at not less than the fair market value at grant date, vest
over a four-year period, and expire ten years after the grant date.
A summary of option transactions under the plans follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------------------------
1995 1994 1993
-------------- -------------- ------------
(IN THOUSANDS EXCEPT PRICE PER SHARE)
<S> <C> <C> <C>
Number of option shares:
Granted and assumed........................... 7,320 9,630 8,766
Exercised..................................... (6,208) (7,444) (7,318)
Cancelled..................................... (1,188) (896) (1,302)
Outstanding at end of year.................... 25,330 25,406 24,116
Option price per share:
Granted and assumed........................... $ 0.02-34.13 $ 0.22-15.44 $ 0.24-9.85
Exercised..................................... 0.22-26.07 0.22-12.94 0.24-8.75
Cancelled..................................... 0.37-26.10 0.23-14.10 0.24-8.78
Outstanding at end of year.................... $ 0.02-34.13 $ 0.22-15.44 $ 0.24-9.85
</TABLE>
In connection with the fiscal 1995 purchase acquisitions discussed in Note
3, the Company assumed certain outstanding options to purchase common stock of
the acquired companies and exchanged them for options to acquire 328,000 shares
of the Company's common stock at exercise prices of $0.02 to $1.72 per share.
In connection with the acquisition of Primary Access in June 1995, the
Company assumed certain outstanding options to purchase common stock of Primary
Access and exchanged them for options to acquire 904,000 shares of the Company's
common stock at excercise prices of $0.24 to $26.07 per share. The Company also
assumed certain outstanding warrants to purchase common stock of Primary Access
and exchanged them for warrants to acquire 54,000 shares of the Company's common
stock at excercise prices of $2.26 to $4.89 as of May 31, 1995. The warrants
expire through 1997.
At May 31, 1995, options for 10.6 million shares were exercisable, 9.6
million shares were available for future grants, and 34.9 million shares were
reserved for issuance under the stock option plans.
EMPLOYEE STOCK PURCHASE PLAN. The Company has an employee stock purchase
plan, under which eligible employees may authorize payroll deductions of up to
10 percent of their compensation (as defined) to purchase common stock at a
price not less than 85 percent of the lower of the fair market values as of the
beginning or the end of the offering period. At May 31, 1995, 1.3 million shares
of common stock were reserved for issuance under this plan.
RESTRICTED STOCK PLAN. The Company has a restricted stock plan, under which
400,000 shares of common stock were reserved for issuance at no cost to key
employees. The shares are issued at the fair market value on the date of the
grant. Any compensation expense is recognized as the granted shares vest over a
one to four year period. Through May 31, 1995, 114,000 shares of common stock
have been issued under this plan. At May 31, 1995, 286,000 shares were reserved
for future issuance.
STOCK REPURCHASE PROGRAM. The Board of Directors has authorized the Company
to repurchase up to 30.0 million shares of common stock. Under this
authorization, 24.5 million shares have been repurchased and the Company may
repurchase up to an additional 5.5 million shares of common stock.
F-16
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: FOREIGN EXCHANGE CONTRACTS
INTERCOMPANY BALANCES AND BALANCE SHEET EXPOSURES. The Company enters into
foreign exchange forward contracts to hedge certain balance sheet exposures and
intercompany balances against future movements in foreign exchange rates. Gains
and losses on the foreign exchange contracts are included in other income --
net, which offset foreign exchange gains or losses from revaluation of foreign
currency-denominated balance sheet items and intercompany balances.
At May 31, 1995 and 1994, the Company had outstanding foreign exchange
forward contracts of $16.7 million and $14.6 million, respectively, excluding
the foreign exchange contracts related to the Irish manufacturing facility. The
contracts require the Company to exchange foreign currencies for U.S. dollars or
vice versa, and generally mature in one month.
IRISH MANUFACTURING FACILITY. The Company has entered into foreign exchange
forward contracts to minimize fluctuation in the expected U.S. dollar cost of
expanding its Irish manufacturing facility due to movements in the Irish pound
to U.S. dollar exchange rate. Gains and losses on the forward contracts, when
material, are included in construction in progress. At May 31, 1995, the
outstanding foreign exchange contracts related to the construction in Ireland
were $10.1 million. The contracts require the Company to exchange U.S. dollars
for Irish pounds and have maturities from one to seven months.
NOTE 11: FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
The following summary disclosures are made in accordance with the provisions
of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which
requires the disclosure of fair value information about both on- and off-balance
sheet financial instruments where it is practicable to estimate the value. Fair
value is defined in SFAS No. 107 as the amount at which an instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. It is not the Company's intent to enter into such
exchanges.
Because SFAS No. 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements, any aggregation of
the fair value amounts presented would not represent the underlying value of the
Company.
<TABLE>
<CAPTION>
MAY 31, 1995 MAY 31, 1994
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............... $ 149,210 $ 149,210 $ 69,768 $ 69,768
Temporary cash investments.............. 184,338 184,338 63,413 63,208
Liabilities:
Convertible subordinated notes.......... $ 110,000 $ 138,050 $ -- $ --
Commitments:
Foreign exchange contracts.............. $ 26,796 $ 26,782 $ 14,634 $ 14,648
</TABLE>
The following methods and assumptions were used in estimating the fair
values of financial instruments:
CASH AND CASH EQUIVALENTS. The carrying amounts reported in the balance
sheets for cash and cash equivalents approximate their estimated fair values.
TEMPORARY CASH INVESTMENTS, FOREIGN EXCHANGE CONTRACTS AND CONVERTIBLE
SUBORDINATED NOTES. The fair value of temporary cash investments, foreign
exchange contracts and convertible subordinated notes are based on quoted market
prices.
F-17
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12: LICENSE
In fiscal 1994, the Company licensed certain in-process wireless technology
from Pacific Monolithics, Inc. This technology was 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 in fiscal 1994.
NOTE 13: NON-RECURRING ITEMS
Non-recurring items for the year ended May 31, 1995 consists of merger costs
of $6.1 million related to the acquisitions of Sonix and Primary Access (see
Note 3) offset by a $1.1 million reduction in accrued costs associated with the
fiscal 1991 restructuring based on revised estimates of future costs.
Non-recurring items for the year ended May 31, 1993 consists of the net cost
of a litigation settlement of $3.6 million (see Note 17), and merger costs of
$1.0 million related to the acquisition of Star-Tek (see Note 3), offset by a
reduction in accrued restructuring costs of $3.3 million based on revised
estimates of future costs.
NOTE 14: OTHER INCOME -- NET
Other income -- net consists of:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.............................................. $ 10,204 $ 4,033 $ 3,657
Interest expense............................................. (6,874) (164) (419)
Other........................................................ 29 (556) (2,038)
--------- --------- ---------
Total.................................................... $ 3,359 $ 3,313 $ 1,200
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 15: INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $ 56,122 $ 31,880 $ 13,808
State................................................... 19,393 8,208 3,139
Foreign................................................. 22,537 16,771 8,293
---------- --------- ---------
Total current......................................... 98,052 56,859 25,240
---------- --------- ---------
Deferred:
Federal................................................. (17,600) (9,266) (1,658)
State................................................... (6,885) -- --
Foreign................................................. 310 1,104 (1,846)
---------- --------- ---------
Total deferred........................................ (24,175) (8,162) (3,504)
---------- --------- ---------
Total................................................. $ 73,877 $ 48,697 $ 21,736
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-18
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: INCOME TAXES (CONTINUED)
The components of the net deferred tax asset consist of:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Amortization and depreciation.............................. $ 29,180 $ 4,168
Reserves not recognized for tax purposes................... 32,324 32,289
Other...................................................... 15,092 4,505
Valuation allowance........................................ (6,845) (8,274)
--------- ---------
Total deferred tax asset..................................... 69,751 32,688
--------- ---------
Deferred tax liabilities:
Unremitted earnings........................................ (12,828) --
Net unrealized gain on securities available-for-sale....... (123) --
Other...................................................... (85) (25)
--------- ---------
Net deferred tax asset....................................... $ 56,715 $ 32,663
--------- ---------
--------- ---------
</TABLE>
Valuation allowance relates primarily to expenses, the realization of which
is not assured on future state income tax returns. The valuation allowance
decreased $1.4 million in fiscal 1995, and increased $926,000 and $1.1 million
in 1994 and 1993, respectively.
Tax carryforwards of acquired businesses consist of $1.0 million and
$800,000 of net operating loss and tax credit carryforwards, respectively, that
expire in 2004 through 2008.
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income before taxes as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ -----
<S> <C> <C> <C>
Tax computed at federal statutory rate.......................................... 35.0% 35.0% 34.0%
State income taxes, net of federal effect....................................... 4.1 3.6 3.4
Foreign sales corporation....................................................... (0.6) (4.2) (1.2)
Tax exempt investment income.................................................... (0.8) (4.5) (1.5)
Benefit of net operating loss carryforwards..................................... -- (7.4) (0.8)
Provision for combined foreign and U.S. taxes on certain foreign income at rates
less than U.S. rates........................................................... (4.1) (6.0) (0.4)
Research tax credits............................................................ (1.5) (6.9) (0.2)
Non-deductible purchased in-process technology.................................. 3.0 192.7 --
Effect of tax law changes....................................................... -- (5.1) --
Other........................................................................... 1.9 1.7 2.1
----- ------ -----
Total....................................................................... 37.0% 198.9% 35.4%
----- ------ -----
----- ------ -----
</TABLE>
Income before income taxes for the years ended 1995, 1994, and 1993 includes
income of $131.2 million, $58.2 million and $18.7 million from the Company's
foreign subsidiaries. The Company has not provided for federal income taxes on
approximately $38.7 million of undistributed earnings of foreign subsidiaries,
which the Company intends to reinvest in subsidiary operations indefinitely. If
such undistributed earnings were to be remitted, the related tax liability would
be approximately $10.7 million.
F-19
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16: GEOGRAPHIC AREA INFORMATION
The Company operates in a single industry segment: the design, manufacture,
marketing, and support of data networking systems. The Company's foreign
operations consist primarily of central distribution and order administration,
manufacturing and research and development facilities in Western Europe, and
sales, marketing and customer service activities conducted through sales
subsidiaries throughout the world.
Sales, operating income and identifiable assets, classified by the major
geographic areas in which the Company operates, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States operations................................................. $ 623,153 $ 423,888 $ 322,677
Export sales from United States operations............................... 179,225 103,127 69,237
European operations...................................................... 523,151 324,032 224,891
Other.................................................................... 164 -- 14,161
------------- ----------- -----------
Total................................................................ $ 1,325,693 $ 851,047 $ 630,966
------------- ----------- -----------
------------- ----------- -----------
Transfers from geographic areas (eliminated in consolidation):
United States operations................................................. $ 144,862 $ 112,418 $ 101,570
European operations...................................................... 123,360 52,595 39,920
Other.................................................................... 439 -- 23,354
------------- ----------- -----------
Total................................................................ $ 268,661 $ 165,013 $ 164,844
------------- ----------- -----------
------------- ----------- -----------
Operating income (loss):
United States operations................................................. $ 79,117 $ (55,869) $ 40,393
European operations...................................................... 141,367 63,306 23,757
Other.................................................................... (2,149) 587 (212)
Eliminations............................................................. (21,818) (4,602) (3,725)
------------- ----------- -----------
Total................................................................ $ 196,517 $ 3,422 $ 60,213
------------- ----------- -----------
------------- ----------- -----------
Identifiable assets:
United States operations................................................. $ 647,072 $ 345,548
European operations...................................................... 235,634 123,144
Other.................................................................... 10,009 2,498
Eliminations............................................................. (34,909) (13,950)
------------- -----------
Total................................................................ $ 857,806 $ 457,240
------------- -----------
------------- -----------
</TABLE>
Operating income (loss) for the United States operations for the years ended
May 31, 1995 and 1994 included charges of approximately $60.8 million and $134.5
million, respectively, for purchased in-process technology resulting from the
Company's acquisitions in those years. Transfers between geographic areas are
accounted for at prices representative of unaffiliated party transactions.
NOTE 17: LITIGATION
In August 1989, four class action lawsuits were filed in the United States
District Court for the Northern District of California naming the Company and
certain of its directors and officers as defendants. The suits, which were
consolidated into a single action, alleged that defendants misrepresented or
failed to disclose material facts about the Company's operations and financial
results, which plaintiffs contended artificially inflated the price of the
Company's securities during the period December 6, 1988 to August 7, 1989.
F-20
<PAGE>
3COM CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17: LITIGATION (CONTINUED)
In April 1993, the Company and plaintiffs reached an agreement to settle the
consolidated action in its entirety. Although the Company believes that the
claims asserted in the class action were without merit, the Company believed it
was in the best interest of its shareholders to settle the case due to the
continuing costs of defense, the distraction of management's attention and the
uncertainties inherent in any litigation. The principal terms of the agreement
called for a settlement of $9.9 million, a substantial portion of which was paid
by the Company's insurance carrier.
SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1995 QUARTERS ENDED FISCAL 1994 QUARTERS ENDED
------------------------------------------ ------------------------------------------
MAY 31 FEB. 28 NOV. 30 AUG. 31 MAY 31 FEB. 28 NOV. 30 AUG. 31
1995 1995 1994 1994 1994 1994 1993 1993
--------- --------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales............................ $ 393,372 $ 354,055 $ 315,465 $ 262,801 $ 248,110 $ 224,396 $ 211,067 $ 167,474
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin..................... 212,438 190,471 168,622 138,909 128,378 116,767 106,282 83,640
Gross margin %................... 54.0% 53.8% 53.5% 52.9% 51.7% 52.0% 50.4% 49.9%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss).......... 74,544 72,547 2,594 46,832 42,323 (93,356) 33,106 21,349
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)................ 45,846 46,256 3,125 30,772 28,173 (102,294) 22,523 27,382
Net income (loss) %.............. 11.7% 13.1% 1.0% 11.7% 11.4% (45.6%) 10.7% 16.4%
--------- --------- --------- --------- --------- --------- --------- ---------
Fully diluted net income (loss)
per share....................... $ 0.30 $ 0.30 $ 0.02 $ 0.21 $ 0.20 $ (0.78) $ 0.16 $ 0.20
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
Notes: Net income for the quarter ended May 31, 1995 included a charge of
approximately $6.1 million ($.04 per share) for merger costs associated with the
acquisitions of Sonix and Primary Access (see Note 3 to the Supplemental
Consolidated Financial Statements). Net income for the quarter ended November
30, 1994 included a charge of approximately $60.8 million ($.25 per share) for
purchased in-process technology (see Note 3 to the Supplemental Consolidated
Financial Statements) and a credit of $1.1 million ($.01 per share) for a
reduction in accrued restructuring costs. Net loss for the quarter ended
February 28, 1994 included a charge of approximately $134.5 million ($.96 per
share) for purchased in-process technology (see Notes 3 and 12 to the
Supplemental Consolidated Financial Statements). Net income for the quarter
ended August 31, 1993 included a gain of approximately $17.7 million ($.08 per
share) related to the sale of an investment and a tax benefit of $1.2 million
($.01 per share) resulting from tax law changes.
Excluding the non-recurring items noted above, pro forma net income per
share on a fully diluted basis would have been as follows:
<TABLE>
<CAPTION>
FISCAL 1995 QUARTERS ENDED FISCAL 1994 QUARTERS ENDED
------------------------------------------ ------------------------------------------
MAY 31 FEB. 28 NOV. 30 AUG. 31 MAY 31 FEB. 28 NOV. 30 AUG. 31
1995 1995 1994 1994 1994 1994 1993 1993
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pro forma net income per share... $ 0.34 $ 0.30 $ 0.26 $ 0.21 $ 0.20 $ 0.18 $ 0.16 $ 0.11
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
F-21
<PAGE>
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
3COM CORPORATION,
A CALIFORNIA CORPORATION,
CHIPCOM ACQUISITION CORPORATION,
A DELAWARE CORPORATION AND WHOLLY-OWNED
SUBSIDIARY OF 3COM CORPORATION
AND
CHIPCOM CORPORATION,
A DELAWARE CORPORATION
DATED JULY 26, 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I THE MERGER.................................................................... A-1
Section 1.1 Effective Time of the Merger.................................................. A-1
Section 1.2 Closing....................................................................... A-1
Section 1.3 Effects of the Merger......................................................... A-1
Section 1.4 Directors and Officers........................................................ A-2
ARTICLE II CONVERSION OF SECURITIES...................................................... A-2
Section 2.1 Conversion of Capital Stock................................................... A-2
Section 2.2 Exchange of Certificates...................................................... A-3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CHIPCOM..................................... A-5
Section 3.1 Organization.................................................................. A-5
Section 3.2 Chipcom Capital Structure..................................................... A-5
Section 3.3 Authority; No Conflict; Required Filings and Consents......................... A-6
Section 3.4 SEC Filings; Financial Statements............................................. A-7
Section 3.5 No Undisclosed Liabilities.................................................... A-7
Section 3.6 Absence of Certain Changes or Events.......................................... A-7
Section 3.7 Taxes......................................................................... A-8
Section 3.8 Properties.................................................................... A-8
Section 3.9 Intellectual Property......................................................... A-8
Section 3.10 Agreements, Contracts and Commitments......................................... A-9
Section 3.11 Litigation.................................................................... A-9
Section 3.12 Environmental Matters......................................................... A-9
Section 3.13 Employee Benefit Plans........................................................ A-10
Section 3.14 Compliance with Laws.......................................................... A-11
Section 3.15 Pooling of Interests.......................................................... A-11
Section 3.16 Interested Party Transactions................................................. A-11
Section 3.17 Registration Statement: Proxy Statement/Prospectus............................ A-11
Section 3.18 Opinion of Financial Advisor.................................................. A-12
Section 3.19 Section 203 of the DGCL Not Applicable........................................ A-12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB............................... A-12
Section 4.1 Organization of the Company................................................... A-12
Section 4.2 Buyer Capital Structure....................................................... A-12
Section 4.3 Authority; No Conflict; Required Filings and Consents......................... A-13
Section 4.4 SEC Filings; Financial Statements............................................. A-14
Section 4.5 No Undisclosed Liabilities.................................................... A-14
Section 4.6 Absence of Certain Changes or Events.......................................... A-14
Section 4.7 Taxes......................................................................... A-15
Section 4.8 Properties.................................................................... A-15
Section 4.9 Intellectual Property......................................................... A-15
Section 4.10 Agreements, Contracts and Commitments......................................... A-15
Section 4.11 Litigation.................................................................... A-16
Section 4.12 Environmental Matters......................................................... A-16
Section 4.13 Employee Benefit Plans........................................................ A-16
Section 4.14 Compliance with Laws.......................................................... A-17
Section 4.15 Pooling of Interests.......................................................... A-17
Section 4.16 Interested Party Transactions................................................. A-17
Section 4.17 Registration Statement; Proxy Statement/Prospectus............................ A-17
Section 4.18 Opinion of Financial Advisor.................................................. A-18
Section 4.19 Interim Operations of Sub..................................................... A-18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE V CONDUCT OF BUSINESS........................................................... A-18
Section 5.1 Covenants of Chipcom.......................................................... A-18
Section 5.2 Covenants of Buyer............................................................ A-19
Section 5.3 Cooperation................................................................... A-20
ARTICLE VI ADDITIONAL AGREEMENTS......................................................... A-20
Section 6.1 No Solicitation............................................................... A-20
Section 6.2 Proxy Statement/Prospectus; Registration Statement............................ A-21
Section 6.3 Consents...................................................................... A-21
Section 6.4 Current Nasdaq Quotation...................................................... A-21
Section 6.5 Access to Information......................................................... A-21
Section 6.6 Chipcom Stockholders Meeting.................................................. A-22
Section 6.7 Legal Conditions to Merger.................................................... A-22
Section 6.8 Public Disclosure............................................................. A-22
Section 6.9 Tax-Free Organization......................................................... A-22
Section 6.10 Pooling Accounting............................................................ A-22
Section 6.11 Affiliate Agreements.......................................................... A-22
Section 6.12 Nasdaq Quotation.............................................................. A-23
Section 6.13 Stock Plans, Options and Warrants............................................. A-23
Section 6.14 Brokers or Finders............................................................ A-24
Section 6.15 Indemnification............................................................... A-24
Section 6.16 Additional Agreements; Reasonable Efforts..................................... A-25
ARTICLE VII CONDITIONS TO MERGER.......................................................... A-25
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.................... A-25
Section 7.2 Additional Conditions to Obligations of Buyer and Sub......................... A-26
Section 7.3 Additional Conditions to Obligations of Chipcom............................... A-27
ARTICLE VIII TERMINATION AND AMENDMENT..................................................... A-27
Section 8.1 Termination................................................................... A-27
Section 8.2 Effect of Termination......................................................... A-28
Section 8.3 Fees and Expenses............................................................. A-28
Section 8.4 Amendment..................................................................... A-29
Section 8.5 Extension; Waiver............................................................. A-29
ARTICLE IX MISCELLANEOUS................................................................. A-29
Section 9.1 Nonsurvival of Representations, Warranties and Agreements..................... A-29
Section 9.2 Notices....................................................................... A-30
Section 9.3 Interpretation................................................................ A-30
Section 9.4 Counterparts.................................................................. A-30
Section 9.5 Entire Agreement; No Third Party Beneficiaries................................ A-30
Section 9.6 Governing Law................................................................. A-30
Section 9.7 Assignment.................................................................... A-30
</TABLE>
ii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Acquisition Proposal..................................................................... Section 6.1(a)
Affiliate................................................................................ Section 6.11
Affiliates Agreement..................................................................... Section 6.11
Agreement................................................................................ Preamble
Alternative Transaction.................................................................. Section 8.3(e)
Buyer.................................................................................... Preamble
Buyer Balance Sheet...................................................................... Section 4.4(b)
Buyer Common Stock....................................................................... Section 2.1(b)
Buyer Disclosure Schedule................................................................ Article IV
Buyer Employee Plans..................................................................... Section 4.13(a)
Buyer Intellectual Property Rights....................................................... Section 4.9(a)
Buyer Material Contracts................................................................. Section 4.10
Buyer Option Plans....................................................................... Section 4.2(a)
Buyer Preferred Stock.................................................................... Section 4.2(a)
Buyer Purchase Plan...................................................................... Section 4.2(a)
Buyer Restricted Stock Plan.............................................................. Section 4.2(a)
Buyer SEC Reports........................................................................ Section 4.4(a)
Certificate(s)........................................................................... Section 2.2(b)
Certificate of Merger.................................................................... Section 1.1
Chipcom.................................................................................. Preamble
Chipcom Balance Sheet.................................................................... Section 3.4(b)
Chipcom Common Stock..................................................................... Section 2.1
Chipcom Director Option Plan............................................................. Section 2.1(d)
Chipcom Disclosure Schedule.............................................................. Article III
Chipcom Employee Plans................................................................... Section 3.13(a)
Chipcom Intellectual Property Rights..................................................... Section 3.9(a)
Chipcom Material Contracts............................................................... Section 3.10
Chipcom Preferred Stock.................................................................. Section 3.2(a)
Chipcom Purchase Plans................................................................... Section 2.1(d)
Chipcom SEC Reports...................................................................... Section 3.4(a)
Chipcom Stock Option..................................................................... Section 6.13
Chipcom Stockholders' Meeting............................................................ Section 3.17
Chipcom Third Party Intellectual Property Rights......................................... Section 3.9(a)
Closing.................................................................................. Section 1.2
Closing Date............................................................................. Section 1.2
Code..................................................................................... Preamble
Confidentiality Agreement................................................................ Section 6.1(a)
Constituent Corporations................................................................. Section 1.3(a)
Conversion Number........................................................................ Section 2.1(c)
DGCL..................................................................................... Section 1.1
Effective Time........................................................................... Section 1.1
Environmental Permits.................................................................... Section 3.12(c)
ERISA.................................................................................... Section 3.13(a)
ERISA Affiliate.......................................................................... Section 3.13(a)
Exchange Act............................................................................. Section 3.3(c)(iv)
Exchange Agent........................................................................... Section 2.2(a)
Exchange Fund............................................................................ Section 2.2(a)
Governmental Entity...................................................................... Section 3.3(c)
Hazardous Material....................................................................... Section 3.12(a)
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Hazardous Materials Activities........................................................... Section 3.12(b)
HSR Act.................................................................................. Section 3.3(c)(i)
Indemnified Liabilities.................................................................. Section 6.15(a)
Indemnified Parties...................................................................... Section 6.15(a)
IRS...................................................................................... Section 3.13(b)
Material Lease(s)........................................................................ Section 3.8
Material Adverse Change.................................................................. Section 3.6
Material Adverse Effect.................................................................. Section 3.1
Merger................................................................................... Preamble
Proxy Statement.......................................................................... Section 3.17
Registration Statement................................................................... Section 3.17
Returns.................................................................................. Section 3.7(b)
Rule 145................................................................................. Section 6.11
SEC...................................................................................... Section 3.3(c)(ii)
Securities Act........................................................................... Section 3.3(c)(ii)
Sub...................................................................................... Preamble
Subsidiary............................................................................... Section 2.1(b)
Superior Proposal........................................................................ Section 6.1(a)
Surviving Corporation.................................................................... Section 1.3(a)
Tax(es).................................................................................. Section 3.7(a)
Third Party.............................................................................. Section 8.3(e)
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 26, 1995 by
and among 3Com Corporation, a California corporation ("Buyer"), Chipcom
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
Buyer ("Sub"), and Chipcom Corporation, a Delaware corporation ("Chipcom").
WHEREAS, the Boards of Directors of Buyer, Sub and Chipcom deem it advisable
and in the best interests of each corporation and its respective stockholders
that Buyer and Chipcom combine in order to advance the long-term business
interests of Buyer and Chipcom;
WHEREAS, the combination of Buyer and Chipcom shall be effected by the terms
of this Agreement through a transaction in which Sub will merge with and into
Chipcom, Chipcom will become a wholly owned subsidiary of Buyer and the
stockholders of Chipcom will become stockholders of Buyer (the "Merger");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, a certificate of merger in such form as is required by the
relevant provisions of the Delaware General Corporation Law (the "DGCL") (the
"Certificate of Merger") shall be duly prepared, executed and acknowledged by
the Surviving Corporation (as defined in Section 1.3) and thereafter delivered
to the Secretary of State of the State of Delaware for filing, as provided in
the DGCL, as soon as practicable on or after the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware or at
such time thereafter as is provided in the Certificate of Merger (the "Effective
Time").
Section 1.2 CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Eastern Time, on a date to be specified by Buyer and
Chipcom, which shall be (i) no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Sections 7.1,
7.2(b) (other than the delivery of the officers' certificate referred to
therein) and 7.3(b) (other than the delivery of the officers' certificate
referred to therein) (provided that the other closing conditions set forth in
Article VII have been met or waived as provided in Article VII at or prior to
the Closing) and (ii) not earlier than October 13, 1995, unless Chipcom consents
to such earlier date, such consent to not be unreasonably withheld (the "Closing
Date"), at the offices of Hale and Dorr, 60 State Street, Boston, Massachusetts
unless another date or place is agreed to in writing by Buyer and Chipcom.
Section 1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into Chipcom (Sub and Chipcom are sometimes
referred to below as the "Constituent Corporations" and Chipcom is sometimes
referred to below as the "Surviving Corporation"), (ii) the Certificate of
Incorporation of Chipcom shall be amended so that Article FOURTH of such
Certificate of Incorporation shall read as follows: "The total number of shares
of all classes of stock which the Corporation shall have authority to issue is
1,000, all of which shall consist of Common Stock, par
A-1
<PAGE>
value $.001 per share," and, as so amended, such Certificate of Incorporation
shall be the Certificate of Incorporation of the Surviving Corporation, and
(iii) the Bylaws of Sub as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation.
(b) At and after the Effective Time, the Surviving Corporation shall possess
all the rights, privileges, powers and franchises of a public as well as of a
private nature, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
Section 1.4 DIRECTORS AND OFFICERS. The directors of Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Chipcom immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, $.02 par value, of Chipcom ("Chipcom Common Stock") or
capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $.001 par value, of the Surviving
Corporation.
(b) CANCELLATION OF TREASURY STOCK AND BUYER-OWNED STOCK. All shares
of Chipcom Common Stock that are owned by Chipcom as treasury stock and any
shares of Chipcom Common Stock owned by Buyer, Sub or any other wholly-owned
Subsidiary (as defined below) of Buyer shall be cancelled and retired and
shall cease to exist and no stock of Buyer or other consideration shall be
delivered in exchange therefor. All shares of Common Stock, no par value, of
Buyer ("Buyer Common Stock") owned by Chipcom shall remain unaffected by the
Merger. As used in this Agreement, the word "Subsidiary" means, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general partnership
interests of which held by such party or any Subsidiary of such party do not
have a majority of the voting interest in such partnership) or (ii) at least
a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or
other organization is directly or indirectly owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and one or
more of its Subsidiaries.
(c) EXCHANGE RATIO FOR CHIPCOM COMMON STOCK. Subject to Section 2.2,
each issued and outstanding share of Chipcom Common Stock (other than shares
to be cancelled in accordance with Section 2.1(b)) shall be converted into
the right to receive .53 (which amount will be adjusted
A-2
<PAGE>
for any stock split or stock dividend effected between the date of this
Agreement and the Effective Time) (the "Conversion Number") fully paid and
nonassessable shares of Buyer Common Stock. All such shares of Chipcom
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Buyer
Common Stock and any cash in lieu of fractional shares of Buyer Common Stock
to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.2, without interest.
(d) CHIPCOM STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLANS. At the
Effective Time, all
then outstanding options to purchase Chipcom Common Stock issued under
Chipcom's 1983 Stock Option Plan and 1991 Stock Option Plan (collectively,
the "Chipcom Employee Option Plans") will be assumed by Buyer in accordance
with Section 6.13. At the Effective Time, all then outstanding options to
purchase Chipcom Common Stock under Chipcom's 1991 Director Option Plan (the
"Chipcom Director Option Plan") not exercised as of the Effective Time will
terminate in accordance with the terms of the Chipcom Director Option Plan
and the agreements entered into under such plan. Immediately prior to the
Effective Time, all then outstanding rights to acquire shares of Chipcom
Common Stock under Chipcom's 1991 Employee Stock Purchase Plan and 1993
Employee Stock Purchase Plan (collectively, the "Chipcom Purchase Plans")
will be exercised for the purchase of shares of Chipcom Common Stock, as
provided in Section 6.13.
Section 2.2 EXCHANGE OF CERTIFICATES. The procedures for exchanging
outstanding shares of Chipcom Common Stock for Buyer Common Stock pursuant to
the Merger are as follows:
(a) EXCHANGE AGENT. As of the Effective Time, Buyer shall deposit with
The First National Bank of Boston (the "Exchange Agent"), for the benefit of
the holders of shares of Chipcom Common Stock, for exchange in accordance
with this Section 2.2, through the Exchange Agent, certificates representing
the shares of Buyer Common Stock (such shares of Buyer Common Stock,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.1 in exchange for outstanding shares of Chipcom Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Chipcom Common Stock (each a "Certificate"
and collectively, the "Certificates") whose shares were converted pursuant
to Section 2.1 into the right to receive shares of Buyer Common Stock (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form
and have such other provisions as Buyer and Chipcom may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates
in exchange for certificates representing shares of Buyer Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Buyer, together with such
letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing that
number of whole shares of Buyer Common Stock which such holder has the right
to receive pursuant to the provisions of this Article II, and the
Certificate so surrendered shall immediately be cancelled. In the event of a
transfer of ownership of Chipcom Common Stock which is not registered in the
transfer records of Chipcom, a certificate representing the proper number of
shares of Buyer Common Stock may be issued to a transferee if the
Certificate representing such Chipcom Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to
A-3
<PAGE>
represent only the right to receive upon such surrender the certificate
representing shares of Buyer Common Stock and cash in lieu of any fractional
shares of Buyer Common Stock as contemplated by this Section 2.2.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect
to Buyer Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Buyer Common Stock represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to subsection
(e) below until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the record holder
of the certificates representing whole shares of Buyer Common Stock issued
in exchange therefor, without interest, (i) at the time of such surrender,
the amount of any cash payable in lieu of a fractional share of Buyer Common
Stock to which such holder is entitled pursuant to subsection (e) below and
the amount of dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Buyer
Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable
with respect to such whole shares of Buyer Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN CHIPCOM COMMON STOCK. All shares of
Buyer Common Stock issued upon the surrender for exchange of shares of
Chipcom Common Stock in accordance with the terms hereof (including any cash
paid pursuant to subsection (c) or (e) of this Section 2.2) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such
shares of Chipcom Common Stock, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by Chipcom on such shares of Chipcom Common Stock in
accordance with the terms of this Agreement on or prior to the date hereof
and which remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Chipcom Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be cancelled and exchanged as provided in this Section 2.2.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Buyer. Notwithstanding any other provision of this Agreement, each holder of
shares of Chipcom Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Buyer
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Buyer Common Stock multiplied by
the average of the last reported sale prices of Buyer Common Stock, as
reported on the Nasdaq National Market, on each of the ten trading days
immediately preceding the date of the Effective Time.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the stockholders of Chipcom for one year
after the Effective Time shall be delivered to Buyer, upon demand, and any
stockholders of Chipcom who have not previously complied with this Section
2.2 shall thereafter look only to Buyer for payment of their claim for Buyer
Common Stock, any cash in lieu of fractional shares of Buyer Common Stock,
and any dividends or distributions with respect to Buyer Common Stock.
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(g) NO LIABILITY. Neither Buyer nor Chipcom shall be liable to any
holder of shares of Chipcom Common Stock or Buyer Common Stock, as the case
may be, for such shares (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CHIPCOM
Chipcom represents and warrants to Buyer and Sub that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure schedule delivered by Chipcom to Buyer on or before the date of this
Agreement (the "Chipcom Disclosure Schedule"). The Chipcom Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article III and the disclosure in any paragraph
shall qualify only the corresponding paragraph in this Article III.
Section 3.1 ORGANIZATION. Each of Chipcom and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or results
of operations ("Material Adverse Effect") of Chipcom and its Subsidiaries, taken
as a whole. Except as set forth in the Chipcom SEC Reports (as defined in
Section 3.4) or the Chipcom Disclosure Schedule, neither Chipcom nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by
Chipcom and comprising less than five percent (5%) of the outstanding stock of
such company.
Section 3.2 CHIPCOM CAPITAL STRUCTURE.
(a) The authorized capital stock of Chipcom consists of 36,000,000 shares of
Common Stock, $.02 par value, and 1,500,000 shares of Preferred Stock, $.10 par
value ("Chipcom Preferred Stock"). As of June 30, 1995, (i) 17,073,045 shares of
Chipcom Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) no shares of Chipcom Common Stock
were held in the treasury of Chipcom or by Subsidiaries of Chipcom, (iii)
2,230,405 shares of Chipcom Common Stock were reserved for future issuance
pursuant to stock options granted and outstanding under the Chipcom Employee
Option Plans, (iv) 132,500 shares of Chipcom Common Stock were reserved for
future issuance pursuant to stock options granted and outstanding under the
Chipcom Director Option Plan, (v) approximately 75,000 shares of Chipcom Common
Stock were reserved for future issuance pursuant to rights outstanding under the
Chipcom Purchase Plans and (vi) 200,000 shares were reserved for future issuance
under the Chipcom Restricted Stock Plan. No material change in such
capitalization has occurred between June 30, 1995 and the date of this
Agreement. As of the date of this Agreement, none of the shares of Chipcom
Preferred Stock are issued and outstanding. All shares of Chipcom Common Stock
subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. There
are no obligations, contingent or otherwise, of Chipcom or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Chipcom
Common Stock or the capital stock of any Chipcom Subsidiary or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations of
such Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of Chipcom's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and all such shares
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(other than directors' qualifying shares in the case of foreign Subsidiaries)
are owned by Chipcom or another Subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in Chipcom's voting
rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 3.2 or as reserved for future grants
of options under the Chipcom Employee Option Plans, the Chipcom Director Option
Plan or the Chipcom Purchase Plans, there are no equity securities of any class
of Chipcom or any of its Subsidiaries, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 3.2 or in the Chipcom
Disclosure Schedule, there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which Chipcom or any of
its Subsidiaries is a party or by which it is bound obligating Chipcom or any of
its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Chipcom or any of its Subsidiaries
or obligating Chipcom or any of its Subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. To the best knowledge of Chipcom, there are no
voting trusts, proxies or other agreements or understandings with respect to the
shares of capital stock of Chipcom.
Section 3.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Chipcom has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Chipcom, subject only to the approval
of the Merger by Chipcom's stockholders under the DGCL. This Agreement has been
duly executed and delivered by Chipcom and constitutes the valid and binding
obligation of Chipcom, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Chipcom does not, and
the consummation of the transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Chipcom, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Chipcom or any of its Subsidiaries
is a party or by which any of them or any of their properties or assets may be
bound, or (iii) conflict or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Chipcom or any of its Subsidiaries or any of their properties or assets,
except in the case of (ii) and (iii) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not be
reasonably likely to have a Material Adverse Effect on Chipcom and its
Subsidiaries, taken as a whole, or a material adverse effect on the ability of
Chipcom to consummate the transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Chipcom or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the pre-merger
notification report under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the filing by Buyer of the Registration
Statement (as defined in Section 3.17) with the Securities and Exchange
Commission ("SEC") in accordance with the Securities Act of 1933, as amended
(the "Securities Act"), (iii) the filing of the Certificate of Merger with the
Delaware Secretary of State in accordance with DGCL, (iv) the filing of the
Proxy Statement (as defined in Section 3.17) with the SEC in accordance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (v) such
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consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the laws of any foreign country and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Material Adverse Effect on
Chipcom and its Subsidiaries, taken as a whole.
Section 3.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Chipcom has filed and made available to Buyer all forms, reports and
documents required to be filed by Chipcom with the SEC since December 31, 1992,
other than registration statements on Form S-8 and the unredacted version of
documents for which confidential treatment has been granted by the SEC or for
which such treatment has been applied (collectively, the "Chipcom SEC Reports").
The Chipcom SEC Reports (i) at the time filed, complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Chipcom SEC Reports or necessary in
order to make the statements in such Chipcom SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Chipcom's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Chipcom SEC Reports, including any Chipcom
SEC Reports filed after the date of this Agreement until the Closing, complied
or will comply as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was or will be prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly presented or will present the
consolidated financial position of Chipcom and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The unaudited
balance sheet of Chipcom as of June 30, 1995 is referred to herein as the
"Chipcom Balance Sheet."
Section 3.5 NO UNDISCLOSED LIABILITIES. Except as disclosed in writing to
Buyer or as otherwise disclosed in the Chipcom SEC Reports, Chipcom and its
Subsidiaries do not have any liabilities, either accrued or contingent (whether
or not required to be reflected in financial statements in accordance with
generally accepted accounting principles), and whether due or to become due,
which individually or in the aggregate, would be reasonably likely to have a
Material Adverse Effect on Chipcom and its Subsidiaries, taken as a whole, other
than (i) liabilities reflected in the Chipcom Balance Sheet, (ii) liabilities
specifically described in this Agreement, or in the Chipcom Disclosure Schedule,
and (iii) normal or recurring liabilities incurred since June 30, 1995 in the
ordinary course of business consistent with past practices.
Section 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Chipcom Balance Sheet, Chipcom and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any material adverse
change in the financial condition, results of operations or business (together,
a "Material Adverse Change") of Chipcom and its Subsidiaries, taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by insurance) with
respect to Chipcom or any of its Subsidiaries having a Material Adverse Effect
on Chipcom and its Subsidiaries, taken as a whole; (iii) any material change by
Chipcom in its accounting methods, principles or practices to which Buyer has
not previously consented in writing; (iv) any revaluation by Chipcom of any of
its assets having a Material Adverse Effect on Chipcom and its Subsidiaries,
taken as a whole, including, without limitation, writing down the value of
capitalized software or inventory or writing off notes or accounts receivable
other than in
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the ordinary course of business, unless Buyer has previously consented in
writing; or (v) except as disclosed in the Chipcom Disclosure Schedule, any
other action or event that would have required the consent of Buyer pursuant to
Section 5.1 of this Agreement had such action or event occurred after the date
of this Agreement and that would be reasonably likely to have a Material Adverse
Effect on Chipcom and its Subsidiaries, taken as a whole.
Section 3.7 TAXES.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means any and all material federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Chipcom has accurately prepared and timely filed all material federal,
state, local and foreign returns, estimates, information statements and reports
required to be filed at or before the Effective Time ("Returns") relating to any
and all Taxes concerning or attributable to Chipcom or any of its Subsidiaries
or to their operations, and such Returns are true and correct in all material
respects and have been completed in all material respects in accordance with
applicable law.
(c) Chipcom as of the Effective Time: (i) will have paid all Taxes it is
required to pay prior to the Effective Time and (ii) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, except where any failure to make such
payment or withholding would not be reasonably likely to have a Material Adverse
Effect on Chipcom and its Subsidiaries, taken as a whole.
(d) There is no Tax deficiency outstanding, proposed or assessed against
Chipcom or any of its Subsidiaries that is not reflected as a liability on the
Chipcom Balance Sheet nor has Chipcom or any of its Subsidiaries executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(e) Chipcom does not have any material liabilities for unpaid federal,
state, local and foreign Taxes that have not been accrued for or reserved on
Chipcom Balance Sheet, whether asserted or unasserted, contingent or otherwise.
Section 3.8 PROPERTIES. Chipcom has provided or made available to Buyer a
true and complete list of all real property owned by Chipcom or its Subsidiaries
and real property leased by Chipcom or its Subsidiaries pursuant to leases
providing for the occupancy, in each case, of not less than 20,000 square feet
("Material Lease(s)"), and the name of the lessor, the date of the Material
Lease and each amendment to the Material Lease and the aggregate annual rental
or other fee payable under any such Material Lease. All such Material Leases are
in good standing, valid and effective in accordance with their respective terms,
and neither Chipcom nor its Subsidiaries is in default under any of such leases,
except where the lack of such good standing, validity and effectiveness or the
existence of such default would not be reasonably likely to have a Material
Adverse Effect on Chipcom and its Subsidiaries, taken as a whole.
Section 3.9 INTELLECTUAL PROPERTY.
(a) Chipcom owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights
and mask works, any applications for and registrations of such patents,
trademarks, trade names, service marks, copyrights and mask works, and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Chipcom as
currently conducted, or planned to be conducted, the absence of which would be
reasonably likely to have a Material Adverse Effect on Chipcom and its
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Subsidiaries, taken as a whole (the "Chipcom Intellectual Property Rights").
Schedule 3.9 of the Chipcom Disclosure Schedule lists (i) all patents and patent
applications and all trademarks, registered copyrights, trade names and service
marks, which Chipcom considers to be material to its business and included in
the Chipcom Intellectual Property Rights, including the jurisdictions in which
each such Chipcom Intellectual Property Right has been issued or registered or
in which any such application for such issuance and registration has been filed,
(ii) all material licenses, sublicenses, distribution agreements and other
agreements as to which Chipcom or any of its Subsidiaries is a party and
pursuant to which any person is authorized to use any Chipcom Intellectual
Property Rights or has the right to manufacture, reproduce, market or exploit
any Chipcom product or any adaptation, translation or derivative work based on
an Chipcom product or any portion thereof, (iii) all material licenses,
sublicenses and other agreements as to which Chipcom or any of its Subsidiaries
is a party and pursuant to which Chipcom or any of its Subsidiaries is
authorized to use any third party patents, trademarks or copyrights, including
software ("Chipcom Third Party Intellectual Property Rights") which are
incorporated in, are, or form a part of any Chipcom product that is material to
the business of Chipcom and its Subsidiaries, taken as a whole, and (iv) all
material joint development agreements as to which Chipcom or any of its
Subsidiaries is a party.
(b) Chipcom is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the Chipcom
Intellectual Property Rights or Chipcom Third Party Intellectual Property
Rights, the breach of which would be reasonably likely to have a Material
Adverse Effect on Chipcom and its Subsidiaries, taken as a whole.
(c) To Chipcom's knowledge, all patents, registered trademarks, service
marks and copyrights held by Chipcom or any of its Subsidiaries are valid and
subsisting. Except as set forth on Schedule 3.9 of the Chipcom Disclosure
Schedule, Chipcom (i) has not been sued in any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party; and (ii) has no knowledge that the manufacturing, marketing,
licensing or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
such infringement would reasonably be expected to have a Material Adverse Effect
on Chipcom and its Subsidiaries, taken as a whole.
Section 3.10 AGREEMENTS, CONTRACTS AND COMMITMENTS. Chipcom has not
breached, or received in writing any claim or threat that it has breached, any
of the terms or conditions of any material agreement, contract or commitment
filed as an exhibit to the Chipcom SEC Reports ("Chipcom Material Contracts") in
such a manner as would permit any other party to cancel or terminate the same or
would permit any other party to collect material damages from Chipcom under any
Chipcom Material Contract. Each Chipcom Material Contract that has not expired
or been terminated is in full force and effect and is not subject to any
material default thereunder of which Chipcom is aware by any party obligated to
Chipcom pursuant to such Chipcom Material Contract.
Section 3.11 LITIGATION. Except as described in the Chipcom SEC Reports,
there is no action, suit or proceeding, claim, arbitration or investigation
against Chipcom pending or as to which Chipcom has received any written notice
of assertion, which is reasonably likely to have a Material Adverse Effect on
Chipcom and its Subsidiaries, taken as a whole, or a material adverse effect on
the ability of Chipcom to consummate the transactions contemplated by this
Agreement.
Section 3.12 ENVIRONMENTAL MATTERS.
(a) As of the date hereof, to the knowledge of Chipcom, no underground
storage tanks are present under any property that Chipcom or any of its
Subsidiaries has at any time owned, operated, occupied or leased. As of the date
hereof, except as set forth in the Chipcom Disclosure Schedule, no material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and
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all substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws (a "Hazardous Material"), are present as a result of the actions of
Chipcom or any of its Subsidiaries, or any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that Chipcom or any of its
Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such Hazardous Material is reasonably likely to have a Material
Adverse Effect on Chipcom and its Subsidiaries, taken as a whole.
(b) At no time has Chipcom or any of its Subsidiaries transported, stored,
used, manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has Chipcom or any of its Subsidiaries disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity which has had or
is reasonably likely to have a Material Adverse Effect on Chipcom and its
Subsidiaries, taken as a whole.
(c) Chipcom currently holds all environmental approvals, permits, licenses,
clearances and consents (the "Environmental Permits") necessary for the conduct
of its Hazardous Material Activities and other businesses of Chipcom as such
activities and businesses are currently being conducted, the absence of which
would be reasonably likely to have a Material Adverse Effect on Chipcom and its
Subsidiaries, taken as a whole.
(d) No action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Chipcom, threatened
concerning any Environmental Permit or any Hazardous Materials Activity of
Chipcom or any of its Subsidiaries. Chipcom is not aware of any fact or
circumstance which could involve Chipcom in any environmental litigation or
impose upon Chipcom any environmental liability which would be reasonably likely
to have a Material Adverse Effect on Chipcom and its Subsidiaries, taken as a
whole.
Section 3.13 EMPLOYEE BENEFIT PLANS.
(a) Chipcom has set forth on Schedule 3.13 of the Chipcom Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Chipcom or any trade or business
(whether or not incorporated) which is a member or which is under common control
with Chipcom within the meaning of Section 414 of the Code (an "ERISA
Affiliate") (together, the "Chipcom Employee Plans").
(b) With respect to each Chipcom Employee Plan, Chipcom has made available
to Buyer, a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service ("IRS"), (ii) such Chipcom
Employee Plan, (iii) each trust agreement and group annuity contract, if any,
relating to such Chipcom Employee Plan and (iv) the most recent actuarial report
or valuation relating to a Chipcom Employee Plan subject to Title IV of ERISA.
(c) With respect to the Chipcom Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Chipcom, there exists
no condition or set of circumstances in connection with which Chipcom could be
subject to any liability that is reasonably likely to have a Material Adverse
Effect on Chipcom and its Subsidiaries, taken as a whole, under ERISA, the Code
or any other applicable law.
(d) With respect to the Chipcom Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there
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are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the financial statements of Chipcom, which obligations
are reasonably expected to have a Material Adverse Effect on Chipcom and its
Subsidiaries, taken as a whole.
(e) Except as set forth in Schedule 3.13 of the Chipcom Disclosure Schedule
or as disclosed in Chipcom SEC Reports filed prior to the date of this
Agreement, and except as provided for in this Agreement, neither Chipcom nor any
of its Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
Chipcom or any of its Subsidiaries, the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Chipcom of the nature contemplated by this Agreement, (iii) agreement
with any officer of Chipcom providing any term of employment or compensation
guarantee extending for a period longer than one year from the date hereof or
for the payment of compensation in excess of $100,000 per annum, or (iv)
agreement or plan, including any stock option plan, stock appreciation right
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement.
Section 3.14 COMPLIANCE WITH LAWS. Chipcom has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which would not be reasonably likely to have a
Material Adverse Effect on Chipcom and its Subsidiaries, taken as a whole.
Section 3.15 POOLING OF INTERESTS. To its knowledge, neither Chipcom nor
any of its Affiliates (as defined in Section 6.11) has, through the date of this
Agreement, taken or agreed to take any action which would prevent Buyer from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
Section 3.16 INTERESTED PARTY TRANSACTIONS. Except as set forth in
Schedule 3.16 of the Chipcom Disclosure Schedule or in the Chipcom SEC Reports,
since the date of Chipcom's last proxy statement to its stockholders, no event
has occurred that would be required to be reported by Chipcom as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section 3.17 REGISTRATION STATEMENT: PROXY STATEMENT/PROSPECTUS. The
information supplied by Chipcom for inclusion in the registration statement on
Form S-4 pursuant to which shares of Buyer Common Stock issued in the Merger
will be registered with the SEC (the "Registration Statement"), shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by Chipcom for
inclusion in the proxy statement/prospectus (the "Proxy Statement") to be sent
to the stockholders of Chipcom in connection with the meeting of Chipcom's
stockholders to consider this Agreement and the Merger (the "Chipcom
Stockholders' Meeting") shall not, on the date the Proxy Statement is first
mailed to stockholders of Chipcom, at the time of the Chipcom Stockholders'
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it was made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made in the Proxy Statement not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Chipcom Stockholders' Meetings which has become false or
misleading. If at any time prior to the Effective Time any event relating to
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Chipcom or any of its Affiliates, officers or directors should be discovered by
Chipcom which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, Chipcom shall promptly inform Buyer.
Section 3.18 OPINION OF FINANCIAL ADVISOR. The financial advisor of
Chipcom, Wessels, Arnold & Henderson, has delivered to Chipcom an opinion dated
the date of this Agreement to the effect that the Conversion Number is fair from
a financial point of view to the stockholders of Chipcom.
Section 3.19 SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of
Directors of Chipcom has taken all actions so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Buyer and Sub represent and warrant to Chipcom that the statements contained
in this Article IV are true and correct, except as set forth in the disclosure
schedule delivered by Buyer to Chipcom on or before the date of this Agreement
(the "Buyer Disclosure Schedule"). The Buyer Disclosure Schedule shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article IV and the disclosure in any paragraph shall qualify
only the corresponding paragraph in this Article IV.
Section 4.1 ORGANIZATION OF THE COMPANY. Each of Buyer and Sub and Buyer's
other Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Buyer and its Subsidiaries, taken as a whole. Except as set
forth in the Buyer SEC Reports (as defined in Section 4.4) or the Buyer
Disclosure Schedule, neither Buyer nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity, excluding securities in any
publicly traded company held for investment by Buyer and comprising less than
five percent (5%) of the outstanding stock of such company.
Section 4.2 BUYER CAPITAL STRUCTURE.
(a) The authorized capital stock of Buyer consists of 200,000,000 shares of
Common Stock, no par value, and 3,000,000 shares of Preferred Stock, no par
value ("Buyer Preferred Stock"). As of May 31, 1995, (i) 69,230,946 shares of
Buyer Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) no shares of Buyer Common Stock were held in
the treasury of Buyer or by Subsidiaries of Buyer, (iii) approximately 5,100,000
shares of Buyer Common Stock were reserved for future issuance pursuant to stock
options granted and outstanding under Buyer's stock option plans (the "Buyer
Option Plans"), (iv) approximately 629,000 shares of Buyer Common Stock were
reserved for future issuance pursuant to rights outstanding under Buyer's
employee stock purchase plan (the "Buyer Purchase Plan") and (v) 143,000 shares
were reserved for future issuance under Buyer's Restricted Stock Plan (the
"Buyer Restricted Stock Plan"). No material change in such capitalization has
occurred between May 31, 1995, and the date of this Agreement. As of the date of
this Agreement, none of the shares of Buyer Preferred Stock are issued and
outstanding. All shares of Buyer Common Stock subject to issuance as specified
above, upon issuance on the terms and conditions specified in the instruments
pursuant to which they were issuable, shall be duly authorized, validly issued,
fully paid and nonassessable. There are no obligations, contingent or otherwise,
of Buyer or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares
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of Buyer Common Stock or the capital stock of any Subsidiary or to provide funds
to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
bank obligations of Subsidiaries entered into in the ordinary course of
business. All of the outstanding shares of capital stock of each of Buyer's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and all such shares (other than directors' qualifying shares in the case of
foreign subsidiaries) are owned by Buyer or another Subsidiary free and clear of
all security interests, liens, claims, pledges, agreements, limitations in
Buyer's voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.2 or as reserved for future grants
of options under the Buyer Option Plan or the Buyer Purchase Plan, there are no
equity securities of any class of Buyer or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as set forth in this Section 4.2 or
in the Buyer Disclosure Schedule, there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
Buyer or any of its Subsidiaries is a party or by which it is bound obligating
Buyer or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of Buyer or any of
its Subsidiaries or obligating Buyer or any of its Subsidiaries to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. To the best knowledge of Buyer,
there are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of Buyer.
Section 4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Buyer has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Buyer. This Agreement has been duly
executed and delivered by Buyer and constitutes the valid and binding obligation
of Buyer, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Buyer does not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of Buyer, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which Buyer or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iii) conflict or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Buyer or any of its Subsidiaries or any of its or their
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not be reasonably likely to have a Material Adverse Effect on Buyer
and its Subsidiaries, taken as a whole.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transac-
tions contemplated hereby, except for (i) the filing of the pre-merger
notification report under the HSR Act, (ii) the filing of a form S-4
Registration Statement with the SEC in accordance with the Securities Act, (iii)
the filing of the Certificate of Merger with the Delaware Secretary of State in
accordance with the DGCL, (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign
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country and (v) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not be reasonably likely to
have a Material Adverse Effect on Buyer and its Subsidiaries, taken as a whole.
Section 4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Buyer has filed and made available to Chipcom all forms, reports and
documents required to be filed by Buyer with the SEC since December 31, 1992,
other than registration statements on Form S-8 and the unredacted version of
documents for which confidential treatment has been granted by the SEC or for
which such treatment has been applied (collectively, the "Buyer SEC Reports").
The Buyer SEC Reports (i) at the time filed, complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Buyer SEC Reports or necessary in
order to make the statements in such Buyer SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Buyer's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Buyer SEC Reports, including any Buyer SEC
Reports filed after the date of this Agreement until the Closing, complied or
will comply as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was or will be prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly presented or will present the
consolidated financial position of Buyer and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The unaudited
balance sheet of Buyer as of May 31, 1995 is referred to herein as the "Buyer
Balance Sheet."
Section 4.5 NO UNDISCLOSED LIABILITIES. Except as disclosed in writing to
Chipcom or as otherwise disclosed in the Buyer SEC Reports, Buyer and its
Subsidiaries do not have any liabilities, either accrued or contingent (whether
or not required to be reflected in financial statements in accordance with
generally accepted accounting principles), and whether due or to become due,
which individually or in the aggregate would be reasonably likely to have a
Material Adverse Effect on Buyer and its Subsidiaries, taken as a whole, other
than (i) liabilities reflected in the Buyer Balance Sheet, (ii) liabilities
specifically described in this Agreement, or in the Buyer Disclosure Schedule,
and (iii) normal or recurring liabilities incurred since May 31, 1995 in the
ordinary course of business consistent with past practices.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Buyer Balance Sheet, Buyer and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any Material Adverse Change of Buyer and
any of its Subsidiaries, taken as a whole; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to Buyer or any of its
Subsidiaries having a material Adverse Effect on Buyer and its Subsidiaries,
taken as a whole; (iii) any material change by Buyer in its accounting methods,
principles or practices to which Chipcom has not previously consented in
writing; (iv) any revaluation by Buyer of any of its assets having a Material
Adverse Effect on Buyer and its Subsidiaries, taken as a whole, including,
without limitation, writing down the value of capitalized software or inventory
or writing off notes or accounts receivable other than in the ordinary course of
business, unless Chipcom has previously consented in writing; or (v) except as
disclosed in the Buyer Disclosure Schedule, any other action or event that would
have required the consent of
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Chipcom pursuant to Section 5.1 of this Agreement had such action or event
occurred after the date of this Agreement and that would be reasonably likely to
have a Material Adverse Effect on Buyer and its Subsidiaries, taken as a whole.
Section 4.7 TAXES.
(a) Buyer has accurately prepared and timely filed all material required
Returns relating to any and all Taxes concerning or attributable to Buyer or its
operations and such Returns are true and correct in all material respects and
have been completed in all material respects in accordance with applicable law.
(b) Buyer as of the Effective Time: (i) will have paid all Taxes it is
required to pay prior to the Effective Time and (ii) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, except where any failure to make such
payment or withholding would not be reasonably likely to have a Material Adverse
Effect on Buyer and its Subsidiaries, take as a whole.
(c) There is no Tax deficiency outstanding, proposed or assessed against
Buyer that is not reflected as a liability on the Buyer Balance Sheet nor has
Buyer executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(d) Buyer does not have any material liabilities for unpaid federal, state,
local and foreign Taxes that have not been accrued for or reserved on Buyer
Balance Sheet, whether asserted or unasserted, contingent or otherwise.
Section 4.8 PROPERTIES. All Material Leases under which Buyer leases real
property are in good standing, valid and effective in accordance with their
respective terms, and Buyer is not in default under any of such Material Leases,
except where the lack of such good standing, validity and effectiveness or the
existence of such default would not be reasonably likely to have a Material
Adverse Effect on Buyer and its Subsidiaries, taken as a whole.
Section 4.9 INTELLECTUAL PROPERTY.
(a) Buyer owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights
and mask works, any applications for and registrations of such patents,
trademarks, trade names, service marks, copyrights and mask works, and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or material that are necessary to conduct the business of Buyer as
currently conducted or planned to be conducted, the absence of which would be
reasonably likely to have a Material Adverse Effect on Buyer and its
Subsidiaries, taken as a whole (the "Buyer Intellectual Property Rights").
(b) Buyer is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the Buyer
Intellectual Property Rights or any material license, sublicense or other
agreement pursuant to which Buyer is authorized to use any third party patents,
trademarks or copyrights, including software, which are incorporated in, are or
form a part of any Buyer product that is material to its business, the breach of
which would be reasonably likely to have a Material Adverse Effect on Buyer and
its Subsidiaries, taken as a whole.
(c) To Buyer's knowledge, all patents, registered trademarks, service marks
and copyrights held by Buyer or any of its Subsidiaries which Buyer considers to
be material to its business are valid and subsisting. Buyer has no knowledge
that the manufacturing, marketing, licensing or sale of its products infringes
any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, which infringement would be reasonably
likely to have a Material Adverse Effect on Buyer and its Subsidiaries, taken as
a whole.
Section 4.10 AGREEMENTS, CONTRACTS AND COMMITMENTS. Buyer has not
breached, or received in writing any claim or threat that it has breached, any
of the terms or conditions of any material
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agreement, contract or commitment filed as an exhibit to the Buyer SEC Reports
("Buyer Material Contracts") in such a manner as would permit any other party to
cancel or terminate the same or would permit any other party to seek material
damages from Buyer under any Buyer Material Contract. Each Buyer Material
Contract that has not expired or been terminated is in full force and effect and
is not subject to any material default thereunder of which Buyer is aware by any
party obligated to Buyer pursuant to such Buyer Material Contract.
Section 4.11 LITIGATION. Except as described in the Buyer SEC Reports,
there is no action, suit or proceeding, claim, arbitration or investigation
against Buyer pending or as to which Buyer has received any written notice of
assertion, which is reasonably likely to have a Material Adverse Effect on Buyer
and its Subsidiaries, taken as a whole, or a material adverse effect on the
ability of Buyer to consummate the transactions contemplated by this Agreement.
Section 4.12 ENVIRONMENTAL MATTERS.
(a) As of the date hereof, to the knowledge of Buyer, no underground storage
tanks are present under any property that Buyer or any of its Subsidiaries has
at any time owned, operated, occupied or leased. As of the date hereof other
than as set forth in the Buyer Disclosure Schedule, no material amount of any
Hazardous Material are present as a result of the actions of Buyer, or, to
Buyer's knowledge, as a result of any actions of any third party or otherwise,
in, on or under any property, including the land and the improvements, ground
water and surface water, that Buyer or any of its Subsidiaries has at any time
owned, operated, occupied or leased, where the presence of such Hazardous
Materials is reasonably likely to have a Material Adverse Effect on Buyer and
its Subsidiaries, taken as a whole.
(b) At no time has Buyer or any of its Subsidiaries engaged in Hazardous
Materials Activities in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity which has had or is
reasonably likely to have a Material Adverse Effect on Buyer and its
Subsidiaries, taken as a whole.
(c) Buyer currently holds all Environmental Permits necessary for the
conduct of its Hazardous Material Activities and other businesses of Buyer as
such activities and businesses are currently being conducted, the absence of
which would be reasonably likely to have a Material Adverse Effect on Buyer and
its Subsidiaries, taken as a whole.
(d) No action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Buyer, threatened
concerning any Environmental Permit or any Hazardous Materials Activity of
Buyer. Buyer is not aware of any fact or circumstance which could involve Buyer
in any environmental litigation or impose upon Buyer any environmental
liability, which would be reasonably likely to have a Material Adverse Effect on
Buyer and its Subsidiaries, taken as a whole.
Section 4.13 EMPLOYEE BENEFIT PLANS.
(a) Buyer has made available to Chipcom all employee benefit plans (as
defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar employee benefit plans, and all unexpired severance agreements, written
or otherwise, for the benefit of, or relating to, any current or former employee
of Buyer or any ERISA Affiliate of Buyer (together, the "Buyer Employee Plans").
(b) With respect to each Buyer Employee Plan, Buyer has made available to
Chipcom, a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) such Buyer Employee Plan, (iii) each trust
agreement and group annuity contract, if any, relating to such Buyer Employee
Plan and (iv) the most recent actuarial report or valuation relating to a Buyer
Employee Plan subject to Title IV of ERISA.
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(c) With respect to the Buyer Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Buyer, there exists no
condition or set of circumstances in connection with which Buyer could be
subject to any liability that is reasonably expected to have a Material Adverse
Effect on Buyer and its Subsidiaries, taken as a whole, under ERISA, the Code or
any other applicable law.
(d) With respect to the Buyer Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Buyer, which obligations are reasonably expected to have a
Material Adverse Effect on Buyer and its Subsidiaries, taken as a whole.
(e) Except as set forth in Schedule 4.13 of the Buyer Disclosure Schedule or
as disclosed in Buyer SEC Reports filed prior to the date of this Agreement, and
except as provided for in this Agreement, neither Buyer nor any of its
Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
Buyer or any of its Subsidiaries, the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Buyer of the nature contemplated by this Agreement, (iii) agreement
with any officer of Buyer providing any term of employment or compensation
guarantee extending for a period longer than one year from the date hereof or
for the payment of compensation in excess of $100,000 per annum, or (iv)
agreement or plan, including any stock option plan, stock appreciation right
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement.
Section 4.14 COMPLIANCE WITH LAWS. Buyer has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which would not be reasonably likely to have a
Material Adverse Effect on Buyer and its Subsidiaries, taken as a whole.
Section 4.15 POOLING OF INTERESTS. To its knowledge, neither Buyer nor any
of its Affiliates (as defined in Section 6.11) has, through the date of this
Agreement, taken or agreed to take any action which would prevent Buyer from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
Section 4.16 INTERESTED PARTY TRANSACTIONS. Except as set forth in
Schedule 4.16 of the Buyer Disclosure Schedule or in the Buyer SEC Reports,
since the date of Buyer's last proxy statement to its stockholders, no event has
occurred that would be required to be reported by Buyer as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section 4.17 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by Buyer for inclusion in the Registration Statement shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Buyer for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to stockholders of Chipcom, at the time of
the Chipcom Stockholder's Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements made in the
Proxy Statement not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Chipcom
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Stockholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Buyer or any of its Affiliates,
officers or directors should be discovered by Buyer which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, Buyer shall promptly inform Chipcom.
Section 4.18 OPINION OF FINANCIAL ADVISOR. The financial advisor of Buyer,
Morgan Stanley & Co. Incorporated, has delivered to Buyer an opinion dated the
date of this Agreement to the effect that the financial terms of the Merger are
fair to Buyer from a financial point of view.
Section 4.19 INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 COVENANTS OF CHIPCOM. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Chipcom agrees as to itself and its Subsidiaries (except
to the extent that Buyer shall otherwise consent in writing), to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as previously conducted, to pay its debts and taxes when due, subject to
good faith disputes over such debts or taxes, to pay or perform its other
obligations when due, and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practices and policies to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees and (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it. Chipcom shall promptly notify Buyer of
any event or occurrence not in the ordinary course of business of Chipcom where
such event or occurrence would result in a breach of any covenant of Chipcom set
forth in this Agreement or cause any representation or warranty of Chipcom set
forth in this Agreement to be untrue as of the date of, or giving effect to,
such event or occurrence. Except as expressly contemplated by this Agreement,
subject to Section 6.1, Chipcom shall not (and shall not permit any of its
Subsidiaries to), without the prior written consent of Buyer:
(a) Accelerate, amend or change the period of exercisability of options
or restricted stock granted under any employee stock plan of Chipcom or
authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement;
(b) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Chipcom Intellectual Property Rights other
than in the ordinary course of business consistent with past practices;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock,
or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service by such party;
(d) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the grant of options consistent with past
practices to employees, which options shall represent in the aggregate the
right to acquire no more than the average number of shares of Chipcom Common
Stock subject to
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options granted in a comparable period of time during the preceding 12-month
period; or (ii) the issuance of (A) rights to purchase shares of Chipcom
Common Stock under the Chipcom Purchase Plans or (B) shares of Chipcom
Common Stock issuable upon the exercise of options granted under the Chipcom
Employee Option Plans or the Chipcom Director Option Plan or pursuant to
rights under the Chipcom Purchase Plan;
(e) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise acquire
or agree to acquire any assets other than acquisitions involving aggregate
consideration of not more than $500,000;
(f) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Chipcom and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business;
(g) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees in accordance with past practices, (ii) grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, officers, (iii) grant any severance or
termination pay to, or enter into any employment or severance agreement,
with any employee, except in accordance with past practices, (iv) enter into
any collective bargaining agreement, (v) establish, adopt, enter into or
amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or
employees;
(h) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the
ordinary course of business;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others,
other than indebtedness incurred under outstanding lines of credit
consistent with past practice;
(j) Amend or propose to amend its Certificate of Incorporation or
Bylaws, except as contemplated by this Agreement; or
(k) Incur or commit to incur any individual capital expenditure in
excess of $100,000 or aggregate capital expenditures in excess of $500,000;
or
(l) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (k) above, or any action which is
reasonably likely to make any of Chipcom's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
Section 5.2 COVENANTS OF BUYER. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, Buyer agrees as to itself and its Subsidiaries (except to
the extent that Chipcom shall otherwise consent in wiring), to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as previously conducted, to pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, to pay or perform its other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others
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having business dealings with it. Except as expressly contemplated by this
Agreement, Buyer shall not (and shall not permit any of its Subsidiaries to),
without the prior written consent of Chipcom which shall not be unreasonably
withheld:
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock,
or reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares
of its capital stock (other than stock splits of its Common Stock or stock
dividends payable in shares of Common Stock), or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase or shares in connection with any termination of
service by such party;
(b) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division involving aggregate
consideration in excess of $1 billion;
(c) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Buyer and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business;
(d) Amend or propose to amend its Articles of Incorporation or Bylaws,
except as contemplated by this Agreement; or
(e) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (c) above, or any action which is
reasonably likely to make any of Buyer's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
Section 5.3 COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Buyer and Chipcom shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 NO SOLICITATION.
(a) Chipcom shall not, directly or indirectly, through any officer,
director, employee, representative or agent, (i) solicit, initiate, or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving Chipcom,
other than the transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
any non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal;
PROVIDED, HOWEVER, that nothing contained in this Agreement shall prevent
Chipcom or its Board of Directors from (A) furnishing non-public information to,
or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Acquisition Proposal by such
person or entity (including a new and unsolicited Acquisition Proposal received
by Chipcom after the execution of this Agreement from a person or entity whose
initial contact with Chipcom may have been solicited by Chipcom prior to the
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execution of this Agreement) or recommending such an unsolicited bona fide
written Acquisition Proposal to the stockholders of Chipcom, if and only to the
extent that (1) the Board of Directors of Chipcom believes in good faith (after
consultation with and based upon the advice of its financial advisor) that such
Acquisition Proposal would, if consummated, result in a transaction more
favorable to Chipcom's stockholders from a financial point of view than the
transaction contemplated by this Agreement (any such more favorable Acquisition
Proposal being referred to in this Agreement as a "Superior Proposal") and the
Board of Directors of Chipcom determines in good faith after consultation with
and based upon the advice of outside legal counsel that such action is necessary
for Chipcom to comply with its fiduciary duties to its stockholders under
applicable law and (2) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, such
Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party than those
contained in the Confidentiality Agreement dated May 2, 1995 between Buyer and
Chipcom (the "Confidentiality Agreement"); or (B) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
(b) Chipcom shall notify Buyer no later than 24 hours after receipt by
Chipcom (or its advisors) of any Acquisition Proposal or any request for
nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of Chipcom by any person or entity that
informs Chipcom that it is considering making, or has made, an Acquisition
Proposal. Such notice shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact.
Section 6.2 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement, Buyer
and Chipcom shall prepare and file with the SEC the Proxy Statement, and Buyer
shall prepare and file with the SEC the Registration Statement, in which the
Proxy Statement will be included. Buyer and Chipcom shall use all reasonable
efforts to cause the Registration Statement to become effective as soon after
such filing as practicable. The Proxy Statement shall include the recommendation
of the Board of Directors of Chipcom in favor of this Agreement and the Merger;
provided that the Board of Directors of Chipcom may withdraw such recommendation
if such Board of Directors believes in good faith, after consultation with its
outside counsel, that the withdrawal of such recommendation is necessary to
comply with its fiduciary duties under applicable law.
(b) Buyer and Chipcom shall make all necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and applicable state blue
sky laws and the rules and regulations thereunder.
Section 6.3 CONSENTS. Each of Buyer and Chipcom shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under any of
Buyer's or Chipcom's material agreements, contracts, licenses or leases as may
be necessary or advisable to consummate the Merger and the other transactions
contemplated by this Agreement.
Section 6.4 CURRENT NASDAQ QUOTATION. Each of Buyer and Chipcom agrees to
continue the quotation of Buyer Common Stock and Chipcom Common Stock,
respectively, on the Nasdaq National Market during the term of the Agreement so
that, to the extent necessary, appraisal rights will not be available to
stockholders of Chipcom under Section 262 of the DGCL.
Section 6.5 ACCESS TO INFORMATION. Upon reasonable notice, Chipcom and
Buyer shall each (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, each of Chipcom and Buyer shall (and shall cause each
of its Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(b) all
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other information concerning its business, properties and personnel as such
other party may reasonably request. Unless otherwise required by law, the
parties will hold any such information which is nonpublic in confidence in
accordance with the Confidentiality Agreement. No information or knowledge
obtained in any investigation pursuant to this Section 6.5 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
Section 6.6 CHIPCOM STOCKHOLDERS MEETING. Chipcom shall call a meeting of
its stockholders to be held as promptly as practicable for the purpose of voting
upon this Agreement and the Merger. Subject to Sections 6.1 and 6.2, Chipcom
will, through its Board of Directors, recommend to Chipcom's stockholders
approval of such matters and will coordinate and cooperate with Buyer with
respect to the timing of such meeting and shall use its best efforts to hold
such meeting as soon as practicable after the date hereof. Unless otherwise
required to comply with the applicable fiduciary duties of the directors of
Chipcom, as determined by such directors in good faith after consultation with
and based upon the advice of outside legal counsel, Chipcom shall use all
reasonable efforts to solicit from its stockholders proxies in favor of such
matters.
Section 6.7 LEGAL CONDITIONS TO MERGER. Each of Buyer and Chipcom will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
under the HSR Act and in connection with approvals of or filings with any other
Governmental Entity) and will promptly cooperate with and furnish information to
each other in connection with any such requirements imposed upon any of them or
any of their Subsidiaries in connection with the Merger. Each of Buyer and
Chipcom will, and will cause its Subsidiaries to, take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public third party, required to be obtained or made
by Chipcom, Buyer or any of their Subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement.
Section 6.8 PUBLIC DISCLOSURE. Buyer and Chipcom shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or by the rules of the NASD.
Section 6.9 TAX-FREE ORGANIZATION. Buyer and Chipcom shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
Section 6.10 POOLING ACCOUNTING. Buyer and Chipcom shall each use its best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Each of Buyer and Chipcom shall use its
best efforts (i) to cause its respective Affiliates (as defined in Section 6.11)
not to take any action that would adversely affect the ability of Buyer to
account for the business combination to be effected by the Merger as a pooling
of interests and (ii) to cause its respective Affiliates to sign and deliver to
Buyer a customary "pooling letter" in form and substance agreed upon by Chipcom
and Buyer to the extent that receipt of such letter is required to assure the
availability of pooling of interests accounting treatment.
Section 6.11 AFFILIATE AGREEMENTS. Upon the execution of this Agreement,
Buyer and Chipcom will provide each other with a list of those persons who are,
in Buyer's or Chipcom's respective reasonable judgment, "affiliates" of Buyer or
Chipcom, respectively, within the meaning of Rule 145 (each such person who is
an "affiliate" of Buyer or Chipcom within the meaning of Rule 145 is referred to
herein as an "Affiliate") promulgated under the Securities Act ("Rule 145").
Buyer and Chipcom shall provide each other such information and documents as
Chipcom or Buyer shall reasonably request for purposes of reviewing such list
and shall notify the other party in writing regarding any change in the identity
of its Affiliates prior to the Closing Date. Chipcom shall use its best efforts
to deliver or cause to be delivered to Buyer by August 31, 1995 from each of the
Affiliates of Chipcom, an executed Affiliate Agreement, in form and substance
satisfactory to Buyer and Chipcom, by which
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such Affiliate of Chipcom agrees to comply with the applicable requirements of
Rule 145 ("Affiliates Agreement"); provided, however, that it is understood that
Affiliates Agreements are not likely to be obtainable from shareholders who are
institutional investors not affiliated with any officer or director of Chipcom.
Buyer shall be entitled to place appropriate legends on the certificates
evidencing any Buyer Common Stock to be received by such Affiliates of Chipcom
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Buyer Common Stock, consistent with
the terms of the Affiliates Agreements.
Section 6.12 NASDAQ QUOTATION. Buyer shall use its best efforts to cause
the shares of Buyer Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
Section 6.13 STOCK PLANS, OPTIONS AND WARRANTS.
(a) At the Effective Time, each outstanding option to purchase shares of
Chipcom Common Stock (an "Chipcom Stock Option") under the Chipcom Employee
Option Plans, whether vested or unvested, shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Chipcom Stock Option, the same number of shares of Buyer Common Stock as
the holder of such Chipcom Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time (rounded down to the nearest whole number), at a
price per share (rounded up to the nearest whole cent) equal to (i) the
aggregate exercise price for the shares of Chipcom Common Stock otherwise
purchasable pursuant to such Chipcom Stock Option divided by (ii) the number of
full shares of Buyer Common Stock deemed purchasable pursuant to such Buyer
Stock Option in accordance with the foregoing; PROVIDED, HOWEVER, that, in the
case of any Chipcom Stock Option to which Section 422 of the Code applies
("incentive stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 425(a) of the Code.
(b) As soon as practicable after the Effective Time, Buyer shall deliver to
the participants in the Chipcom Option Plans appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to the
Chipcom Option Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.13 after giving effect to
the Merger). Buyer shall comply with the terms of the Chipcom Option Plans and
ensure, to the extent required by, and subject to the provisions of, such
Chipcom Option Plans, that Chipcom Stock Options which qualified as incentive
stock options prior the Effective Time continue to qualify as incentive stock
options after the Effective Time.
(c) Buyer shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Buyer Common Stock for delivery under Chipcom
Stock Options assumed in accordance with this Section 6.13. As soon as
practicable after the Effective Time, and not more than 10 business days
thereafter, Buyer shall file a registration statement on Form S-3 or Form S-8 as
the case may be (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Buyer Common Stock subject to
such options and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding. With respect to those individuals who subsequent to
the Merger will be subject to the reporting requirements under Section 16(a) of
the Exchange Act, where applicable, Buyer shall administer Chipcom Stock Options
assumed pursuant to this Section 6.13 in a manner that complies with Rule 16b-3
promulgated under the Exchange Act to the extent the Chipcom Option Plans
complied with such rule prior to the Merger.
(d) Employees of Chipcom as of the Effective Time shall be permitted to
participate in the Buyer Purchase Plan commencing on the first enrollment date
of such plan following the Effective Time, subject to the eligibility provisions
of such plan (with employees receiving credit, for purposes of such eligibility
provisions, for service with Chipcom or Buyer).
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Section 6.14 BROKERS OR FINDERS. Each of Buyer and Chipcom represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Wessels, Arnold & Henderson, whose fees and expenses will be paid by Chipcom in
accordance with Chipcom's agreement with such firm (copies of which have been
delivered by Chipcom to Buyer prior to the date of this Agreement), and Morgan
Stanley & Co. Incorporated, whose fees and expenses will be paid by Buyer in
accordance with Buyer's agreement with such firm (copies of which have been
delivered by Buyer prior to the date of this Agreement), and each of Buyer and
Chipcom agrees to indemnify and hold the other harmless from and against any and
all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its Affiliate.
Section 6.15 INDEMNIFICATION.
(a) Chipcom shall and, from and after the Effective Time, Buyer and the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director or employee of Chipcom
or any of its Subsidiaries (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts that are
paid in settlement with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer,
or employee of Chipcom or any of its Subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities") including, without limitation, all losses, claims, damages, costs,
expenses, liabilities or judgments based in whole or in part on, or arising in
whole or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the full extent a corporation is permitted
under the DGCL to indemnify its own directors, officers and employees, as the
case may be (Chipcom, Buyer and the Surviving Corporation, as the case may be,
will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law upon
receipt of any undertaking contemplated by Section 145(e) of the DGCL). Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and Chipcom (or them and Buyer and the Surviving
Corporation after the Effective Time), (ii) Chipcom (or after the Effective
Time, Buyer and the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, and (iii) Chipcom (or after the Effective Time, Buyer and
the Surviving Corporation) will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that none of Chipcom, Buyer or the
Surviving Corporation shall be liable for any settlement of any claim effected
without its written consent, which consent, however, shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 6.15, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Chipcom, Buyer or the Surviving Corporation
(but the failure so to notify an Indemnifying Party shall not relieve it from
any liability which it may have under this Section 6.15 except to the extent
such failure prejudices such party), and shall deliver to Chipcom (or after the
Effective Time, Buyer and the Surviving Corporation) the undertaking
contemplated by Section 145(e) of the DGCL. The Indemnified Parties as a group
may retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(b) From and after the Effective Time, the Surviving Corporation and Buyer
will fulfill and honor in all respects the obligations of Chipcom pursuant to
Chipcom's Certificate of Incorporation
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and any indemnification agreement between Chipcom and any of Chipcom's directors
and officers existing and in force as of the date of this Agreement and filed as
an exhibit to the Chipcom SEC Reports.
(c) Buyer shall maintain, or shall cause the Surviving Corporation to
maintain, in effect a policy or policies of directors and officers liability
insurance with coverage substantially comparable to policies in force through
June 29, 1995 (copies of which have been provided to Buyer) covering the
directors and officers of Chipcom as of the date of this Agreement for a period
of not less than six (6) years following the Effective Time; provided, however,
that should such comparable coverage at any time be unavailable at an annual
premium of less than $400,000, Buyer and/or the Surviving Corporation shall only
be required to obtain such lesser coverage as may be obtained for such amount.
(d) The provisions of this Section 6.15 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives, and may not be amended, altered or repealed without the written
consent of any affected Indemnified Party.
Section 6.16 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of stockholders of Chipcom
described in Section 6.6, including cooperating fully with the other party,
including by provision of information and making all necessary filings under the
HSR Act. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either of the Constituent Corporations,
the proper officers and directors of each party to this Agreement shall take all
such necessary action.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) CHIPCOM STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Chipcom Common Stock.
(b) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) APPROVALS. Other than the filing provided for by Section 1.2, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
the failure of which to obtain would be reasonably likely to have a Material
Adverse Effect on Buyer and its Subsidiaries or Chipcom and its
Subsidiaries, in each case taken as a whole, shall have been filed, occurred
or been obtained.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting Buyer's conduct or operation of the business of Buyer after the
Merger shall have been issued, nor shall any proceeding brought by a
domestic administrative agency or
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commission or other domestic Governmental Entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Merger which makes the consummation of the Merger illegal.
(f) POOLING LETTERS. Buyer and Chipcom shall have received letters
from Deloitte & Touche LLP and Price Waterhouse LLP, respectively, each
dated the date of the Proxy Statement and confirmed in writing at the
Effective Time and addressed to Buyer and Chipcom, respectively, stating
that they know of nothing that would prohibit the business combination to be
effected by the Merger from qualifying as a pooling of interests transaction
under generally accepted accounting principles.
(g) NASDAQ. The shares of Buyer Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq National Market.
Section 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUYER AND SUB. The
obligations of Buyer and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Buyer and Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Chipcom set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except for (i)
changes contemplated by this Agreement and (ii) where the failure to be true
and correct would not be reasonably likely to have a Material Adverse Effect
on Chipcom and its Subsidiaries taken as a whole, or a material adverse
effect upon the consummation of the transactions contemplated hereby; and
Buyer shall have received a certificate signed on behalf of Chipcom by the
chief executive officer and the chief financial officer of Chipcom to such
effect. For purposes of determining the accuracy of the representations and
warranties set forth in Section 3.6 as of the Closing Date, the following
events or occurrences shall not be deemed to constitute a Material Adverse
Change to the extent that they result in substantial part as a consequence
of the public announcement of this Agreement or the terms of the proposed
Merger:
(i) a reduction in Chipcom's revenues from International Business
Machines Corporation;
(ii) a reduction in Chipcom's revenues from switching products and/or
stackable hub products as a result of Chipcom's endorsement of Buyer's
products;
(iii) reduction or cancellation of orders by other major customers of
Chipcom, particularly customers who are competitors of Buyer;
(iv) reduction or cancellation of orders in Chipcom's reseller channel
while the effects of the proposed Merger are assessed;
(v) a slowdown in the activities of Chipcom's field organization
while the effects of the proposed Merger are assessed;
(vi) termination of agreements between Chipcom and third parties,
including resellers; or
(vii) loss of key employees and the impact thereof on Chipcom's
operations.
In addition, material adverse developments in securities litigation
currently pending against Chipcom and disclosed in the Chipcom
Disclosure Schedule shall not be deemed to be a Material Adverse Change
for such purpose.
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(b) PERFORMANCE OF OBLIGATIONS OF CHIPCOM. Chipcom shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and Buyer shall
have received a certificate signed on behalf of Chipcom by the chief
executive officer and the chief financial officer of Chipcom to such effect.
(c) TAX OPINION. Buyer shall have received a written opinion from Gray
Cary Ware & Freidenrich, A Professional Corporation, counsel to Buyer, to
the effect that the Merger will be treated for Federal income tax purposes
as a tax-free reorganization within the meaning of Section 368(a) of the
Code.
(d) BLUE SKY LAWS. Buyer shall have received all permits and other
authorizations required under applicable state blue sky laws for the
issuance of shares of Buyer Common Stock pursuant to the Merger.
Section 7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CHIPCOM. The
obligation of Chipcom to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by Chipcom:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer and Sub set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except for (i) changes
contemplated by this Agreement and (ii) where the failure to be true and
correct would not be reasonably likely to have a Material Adverse Effect on
Buyer and its Subsidiaries, taken as a whole, or a material adverse effect
upon the consummation of the transactions contemplated hereby; and Chipcom
shall have received a certificate signed on behalf of Buyer by the chief
executive officer and the chief financial officer of Buyer to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF BUYER AND SUB. Buyer and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Chipcom shall have received a certificate signed on behalf of Buyer by the
chief executive officer and the chief financial officer of Buyer to such
effect.
(c) TAX OPINION. Chipcom shall have received the opinion of Hale and
Dorr, counsel to Chipcom, to the effect that the Merger will be treated for
Federal income tax purposes as a tax-free reorganization within the meaning
of Section 368(a) of the Code.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(f), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Chipcom:
(a) by mutual written consent of Buyer and Chipcom; or
(b) by either Buyer or Chipcom if the Merger shall not have been
consummated by December 31, 1995 (provided that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date); or
(c) by either Buyer or Chipcom if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger,
except, if the party relying on such order, decree or ruling or other action
has not complied with its obligations under Section 6.7 of this Agreement;
or
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(d) by Buyer, if, at the Chipcom Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Chipcom in favor of this Agreement and the Merger shall not have been
obtained; or
(e) by Buyer, if (i) the Board of Directors of Chipcom shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
a manner adverse to Buyer or shall have publicly announced or disclosed to
any third party its intention to do any of the foregoing; (ii) an
Alternative Transaction (as defined in Section 8.3(e) shall have taken place
or the Board of Directors of Chipcom shall have recommended to the
stockholders of Chipcom an Alternative Transaction; or (iii) a tender offer
or exchange offer for 20% or more of the outstanding shares of Chipcom
Common Stock is commenced (other than by Buyer or an Affiliate of Buyer) and
the Board of Directors of Chipcom recommends that the stockholders of
Chipcom tender their shares in such tender or exchange offer; or
(f) by Buyer or Chipcom, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (i) causes the conditions
set forth in Section 7.2(a) or (b) (in the case of termination by Buyer) or
7.3(a) or (b) (in the case of termination by Chipcom) not to be satisfied
and (ii) shall not have been cured within 10 business days following receipt
by the breaching party of written notice of such breach from the other
party.
Section 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, there shall be no liability or obligation
on the part of Buyer, Chipcom, Sub or their respective officers, directors,
stockholders or Affiliates, except as set forth in Section 8.3 and further
except to the extent that such termination results from the willful breach by a
party of any of its representations, warranties or covenants set forth in this
Agreement; provided that, the provisions of Sections 6.14 and 8.3 of this
Agreement and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement.
Section 8.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Buyer and Chipcom shall share equally all
fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Proxy Statement (including any related preliminary
materials) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements.
(b) Chipcom shall pay Buyer up to $1,000,000 as reimbursement for expenses
of Buyer actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and expenses
of Buyer's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors) upon the earliest to occur
of the following events:
(i) the termination of this Agreement by Buyer pursuant to Section
8.1(d) as a result of the failure to receive the requisite vote for approval
of this Agreement and the Merger by the stockholders of Chipcom at the
Chipcom Stockholders' Meeting; or
(ii) the termination of this Agreement by Buyer pursuant to Section
8.1(e).
(c) Chipcom shall pay Buyer a termination fee of $23,000,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Buyer pursuant to Section
8.1(e); or
(ii) the termination of this Agreement by Buyer pursuant to Section
8.1(d) as a result of the failure to receive the requisite vote for approval
of this Agreement and the Merger by the
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stockholders of Chipcom at the Chipcom Stockholders' Meeting if, at the time
of such failure, there shall have been announced an Alternative Transaction
(as hereinafter defined) which shall not have been absolutely and
unconditionally withdrawn and abandoned.
(d) The expenses and fees, if applicable, payable pursuant to Section 8.3(b)
or 8.3(c) shall be paid within one business day after the first to occur of the
events described in Section 8.3(b)(i) or (ii); provided that, in no event shall
Buyer or Chipcom, as the case may be, be required to pay any expenses or
termination fees, if applicable, to the other, if, immediately prior to the
termination of this Agreement, the party to receive the expenses and fees, if
applicable, was in breach of any of its material obligations under this
Agreement.
(e) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than Buyer
or its Affiliates (a "Third Party"), acquires more than 20% of the outstanding
shares of Chipcom Common Stock, pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger or other business combination involving Chipcom
pursuant to which any Third Party acquires more than 20% of the outstanding
equity securities of Chipcom or the entity surviving such merger or business
combination, (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of Subsidiaries of Chipcom, and the entity surviving any merger or
business combination including any of them) of Chipcom having a fair market
value (as determined by the Board of Directors of Chipcom in good faith) equal
to more than 20% of the fair market value of all the assets of Chipcom
immediately prior to such transaction, or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Section 8.4 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Chipcom, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 8.5 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing and the Effective Time, except for the agreements contained
in Sections 1.3, 1.4, 2.1, 2.2, 6.13, 6.15, 6.16, the last sentence of Section
8.4 and Article IX, and the agreements of the Affiliates of Chipcom delivered
pursuant to Section 6.11. The Confidentiality Agreement shall survive the
execution and delivery of this Agreement.
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<PAGE>
Section 9.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Buyer or Sub, to
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Dennis C. Sullivan, Esq.
(b) if to Chipcom, to
Chipcom Corporation
118 Turnpike Road
Southborough, Massachusetts 01772-1886
Attention: President
with a copy to
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Peter B. Tarr, Esq.
Section 9.3 INTERPRETATION. When a reference is made in this Agreement to
a section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement", "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to July
26, 1995.
Section 9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and the instruments referred to herein) (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 6.15 is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
Section 9.6 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 9.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise)
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without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
IN WITNESS WHEREOF, Buyer, Sub and Chipcom have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
<TABLE>
<S> <C>
CHIPCOM CORPORATION 3COM CORPORATION
By: /s/John Robert Held By: /s/Eric A. Benhamou
Title: President and Chief Executive Officer Title: Chairman and Chief Executive Officer
CHIPCOM ACQUISITION CO., INC.
By: /s/Eric A. Benhamou
Title: President
</TABLE>
A-31
<PAGE>
ANNEX B
July 26, 1995
The Board of Directors
Chipcom Corporation
Southborough Office Park
118 Turnpike Road
Southborough, MA 01772
Attention: Mr. J. Robert Held, President and Chief Executive Officer
Mr. Robert P. Badavas, Senior Vice President - Finance and Chief
Financial Officer
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Chipcom Corporation (the "Company"), of the
consideration to be received by the stockholders pursuant to the terms of the
proposed Agreement and Plan of Merger (the "Agreement") dated July 26, 1995 by
and among the Company, Chipcom Acquisition Corporation and 3Com Corporation (the
"Acquiror"). Capitalized terms used herein shall have the meaning used in the
Agreement unless otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock of Chipcom
is proposed to be converted into and represent the right to receive such number
of shares of the Acquiror's common stock as is equal to the Conversion Number.
The Conversion Number is 0.53 (subject to adjustment in the event of a stock
split or stock dividend effected between the date hereof and the Effective
Time).
Wessels, Arnold & Henderson, L.L.C. ("Wessels, Arnold & Henderson"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as financial advisor to the Chipcom Board of
Directors in connection with the Merger and will receive fees for our services,
including the rendering of this opinion. In the ordinary course of business,
Wessels, Arnold & Henderson acts as a market maker and broker in the publicly
traded securities of the Acquiror and receives customary compensation in
connection therewith, and also provides research coverage for the Acquiror. In
the ordinary course of business, Wessels, Arnold & Henderson actively trades in
the publicly traded securities of the Acquiror for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
In connection with our review of the Merger, and in arriving at our opinion,
we have: (i) reviewed and analyzed the financial terms of the Agreement, (ii)
reviewed and analyzed certain publicly available financial statements and other
information of the Company and the Acquiror; (iii) reviewed and analyzed certain
internal financial statements and other financial and operating data concerning
the Company prepared by the management of the Company; (iv) reviewed and
analyzed certain internal financial statements and other financial and operating
data concerning the Acquiror prepared by the management of the Acquiror; (v)
reviewed and analyzed certain financial projections prepared by the management
of the Company; (vi) reviewed
B-1
<PAGE>
Chipcom Corporations/3Com Corporation Merger
Fairness Opinion
July 26, 1995
Page 2
and analyzed certain financial projections prepared by the management of the
Acquiror; (vii) conducted discussions with members of the senior management of
the Company with respect to the business and prospects of the Company; (viii)
conducted discussions with members of the senior management of the Acquiror with
respect to the business and prospects of the Acquiror; (ix) analyzed the pro
forma impact of the Merger on the Acquiror's results of operations; (x) reviewed
the reported prices and trading activity for the Company's Common Stock and the
Acquiror's Common Stock; (xi) compared the financial performance of the Company
and the Acquiror and the prices of the Company's Common Stock and the Acquiror's
Common Stock with that of certain other comparable publicly-traded companies and
their securities; (xii) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions; and (xiii) participated in
discussions and negotiations among representatives of the Company and the
Acquiror and their respective financial and legal advisors. In addition, we have
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we have deemed necessary in arriving
at our opinion.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by the Company and the Acquiror, and have not independently
verified such information. Further, our opinion is based on the assumption that
the Merger will be accounted for as pooling-of-interests. We have not performed
an independent evaluation or appraisal of any of the respective assets or
liabilities of the Company or the Acquiror and we have not been furnished with
any such valuations or appraisals. With respect to the financial forecasts, we
have assumed that they have been reasonably prepared on the bases reflecting the
best currently available estimates and judgments of the management of the
Company and the Acquiror, as the case may be, as to the respective future
financial performance of the Company and the Acquiror.
It is understood that this letter is for the information of the Board of
Directors of the Company only, and this letter shall not be published or
otherwise used and no public references to Wessels, Arnold & Henderson, L.L.C.
shall be made without our prior written consent, which consent shall not be
unreasonably withheld; provided, however, that this letter may be included in
its entirety in the proxy statement submitted to the stockholders of the Company
and the Acquiror for the purpose of approving the Merger. Further, our opinion
speaks only as of the date hereof and is based on the conditions as they exist
and information which we have been supplied as of the date hereof.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion that as of the date hereof, the consideration to be received by the
holders of the Company's Common Stock pursuant to the Agreement is fair from a
financial point of view to the holders of the Company's Common Stock.
Very truly yours,
Wessels, Arnold & Henderson, L.L.C
By: /s/ BRYSON D. HOLLIMON
--------------------------------------
Managing Director
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<PAGE>
CHIPCOM CORPORATION
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 12, 1995
THIS PROXY IS SOLICITED
ON BEHALF OF
THE BOARD OF DIRECTORS OF The Company
The undersigned, revoking all prior proxies, hereby appoint(s) John Robert Held,
Robert P. Badavas and Peter B. Tarr, and each of them, with full power of
substitution, as proxies to represent and vote as designated herein, all shares
of stock of Chipcom Corporation, a Delaware corporation (the "Company"), which
the undersigned would be entitled to vote if personally present at the Special
Meeting of Stockholders of the Company to be held at the offices of Hale and
Dorr, 60 State Street, Boston, Massachusetts, on Thursday, October 12, 1995 at
9:00 a.m., local time, and at any postponements or adjournments thereof.
PROXY
PROXY
V
V
FOLD AND DETACH HERE
I plan to attend
the meeting.
X
1. To approve and adopt an Agreement and Plan of Merger, dated as of July 26,
1995, among the Company, 3Com Corporation, a California corporation ("3Com"),
and Chipcom Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of 3Com ("Sub"), pursuant to which, among other things, (i) Sub will
be merged with and into the Company which will be the surviving corporation and
(ii) each share of common stock, $.02 par value per share, of the Company will
be converted into the right to receive 1.06 shares of common stock, no par, of
3Com.
FOR
AGAINST
ABSTAIN
X
X
X
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is given, this proxy will be voted
for proposals 1 and 2. Attendance of the undersigned at the meeting or at any
adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing before it is exercised.
2. To transact such other business as may properly come before the meeting or
any adjournment or adjournments of the meeting.
FOR
AGAINST
ABSTAIN
Dated: , 1995
Signature
Signature if held jointly
Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give the full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer. If
a partnership, please sign in partnership name by authorized person.
X
X
X
V
V
FOLD AND DETACH HERE
