__________________________________________________________________
united states
securities and exchange commission
Washington, D. C. 20549
FORM 10-Q
quarterly report pursuant to section 13 or 15(d) of
the securities exchange act of 1934
For the Quarterly Period Ended November 30, 1995 Commission File No. 0-12867
or
transition report pursuant to section 13 or 15(d) of
the securities exchange act of 1934
For the transition period from to
____________
3Com Corporation
(Exact name of registrant as specified in its charter)
California 94-2605794
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 Bayfront Plaza 95052
Santa Clara, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (408) 764-5000
Former name, former address and former fiscal year, if changed since last
report: N/A
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ....XX.... No ................
As of November 30, 1995, 164,433,661 shares of the Registrant's
Common Stock were outstanding.
__________________________________________________________________
3Com Corporation
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
November 30, 1995 and May 31, 1995
Consolidated Statements of Income
Quarters and Six Months Ended November 30, 1995 and 1994
Consolidated Statements of Cash Flows
Six Months Ended November 30, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
3Com Corporation
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
November 30, May 31,
1995 1995
------------ -------
ASSETS
Current Assets:
Cash and cash equivalents $ 199,409 $ 159,908
Temporary cash investments 181,176 225,660
Trade receivables 331,423 245,258
Inventories 194,373 182,759
Deferred income taxes 57,761 55,273
Other 34,124 26,698
--------- ---------
Total current assets 998,266 895,556
Property and equipment-net 195,501 144,944
Deposits and other assets 60,413 34,310
--------- ---------
Total $1,254,180 $1,074,810
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 119,955 $ 118,377
Accrued and other liabilities 171,824 149,079
Income taxes payable 38,046 56,412
Current portion of long-term obligations 586 997
--------- ---------
Total current liabilities 330,411 324,865
Long-term debt 110,000 110,000
Other long-term obligations 5,317 6,221
Deferred income taxes 19,587 -
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: November 30, 1995:
164,433,661; May 31, 1995: 160,911,572 492,424 435,922
Unamortized restricted stock grants (3,641) (2,037)
Retained earnings 276,193 200,030
Unrealized gain (loss) on available-for-sale
securities 24,366 (22)
Accumulated translation adjustments (477) (169)
--------- ---------
Total shareholders' equity 788,865 633,724
--------- ---------
Total $1,254,180 $1,074,810
========= =========
See notes to consolidated financial statements.
3Com Corporation
Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
Quarter Ended Six Months Ended
November 30, November 30,
1995 1994 1995 1994
---- ---- ---- ----
Sales $563,544 $376,771 $1,060,833 $691,454
Costs and expenses:
Cost of sales 266,719 175,046 502,269 321,766
Sales and marketing 118,920 74,356 221,131 139,923
Research and development 56,082 39,091 107,630 73,240
General and administrative 22,902 16,484 43,843 30,108
Purchased in-process technology - 60,796 - 60,796
Acquisition related charges
and other 69,000 (1,100) 69,000 4,025
------- ------- --------- -------
Total 533,623 364,673 943,873 629,858
------- ------- --------- -------
Operating income 29,921 12,098 116,960 61,596
Other income-net 1,930 2,210 3,183 3,368
------- ------- --------- -------
Income before income taxes 31,851 14,308 120,143 64,964
Income tax provision 15,506 5,051 46,377 23,062
------- ------- --------- -------
Net income $ 16,345 $ 9,257 $ 73,766 $ 41,902
======= ======= ========= =======
Net income per common and
equivalent share:
Primary $ .09 $ .06 $ .42 $ .25
Fully diluted $ .09 $ .05 $ .42 $ .25
Common and equivalent shares used
in computing per share amounts:
Primary 176,319 168,133 175,077 166,794
Fully diluted 176,396 168,713 175,459 168,236
See notes to consolidated financial statements.
3Com Corporation
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Six Months Ended
November 30,
------------------
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 73,766 $ 41,902
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 39,602 28,137
Deferred income taxes 9,074 (23,949)
Purchased in-process technology - 60,796
Adjustment to conform fiscal year of
pooled entity (3,048) 3,013
Non-cash acquisition-related costs 44,320 -
Non-cash restructuring costs - (1,100)
Changes in assets and liabilities,
net of effects of acquisitions:
Trade receivables (98,674) (47,829)
Inventories (22,741) (13,802)
Other current assets (7,485) (5,854)
Accounts payable 12,238 33,943
Accrued and other liabilities 6,088 (11,823)
Income taxes payable 9,482 32,142
Accrued acquisition-related costs 15,784 -
------- -------
Net cash provided by operating activities 78,406 95,576
------- -------
Cash flows from investing activities:
Purchase of property and equipment (87,073) (37,345)
Purchase of temporary cash investments (113,804) (103,604)
Proceeds from temporary cash investments 147,701 29,442
Businesses acquired in purchase transactions - (48,692)
Other-net (3,391) 2,702
------- -------
Net cash used for investing activities (56,567) (157,497)
------- -------
Cash flows from financing activities:
Sale of stock 20,719 12,619
Repurchases of common stock - (16,893)
Net proceeds from issuance of debt - 106,945
Repayments of notes payable and capital
lease obligations (2,749) (1,068)
Other-net (308) 24
------- -------
Net cash provided by financing activities 17,662 101,627
------- -------
Increase in cash and cash equivalents 39,501 39,706
Cash and cash equivalents at beginning of period 159,908 80,625
------- -------
Cash and cash equivalents at end of period $199,409 $120,331
======= =======
Non-cash operating, investing and financing activities:
Tax benefit on stock option transactions $ 30,181 $ 11,941
Fair market value adjustment on
available-for-sale securities $ 24,237 $ (163)
See notes to consolidated financial statements.
3Com Corporation
Notes to Consolidated Financial Statements
1. Basis of Presentation
On October 13, 1995, 3Com Corporation (the Company)
acquired Chipcom Corporation (Chipcom) which was accounted
for as a pooling-of-interests. All financial date of the
Company, including the Company's previously issued
financial statements for the periods presented in this
Form 10-Q, have been restated to include the historical
financial information of Chipcom in accordance with generally
accepted accounting principles and pursuant to Regulation S-X.
The unaudited consolidated financial statements have
been prepared by the Company and include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
In the opinion of management, these unaudited consolidated
financial statements include all adjustments necessary for a
fair presentation of the Company's financial position as of
November 30, 1995, and the results of operations and cash
flows for the quarters and six months ended November 30, 1995
and 1994.
The results of operations for the quarter and six months
ended November 30, 1995 may not necessarily be indicative of
the results to be expected for the fiscal year ending May 31,
1996.
These financial statements should be read in conjunction
with the consolidated financial statements and related notes
thereto for the fiscal year ended May 31, 1995 included in
the Company's fiscal 1995 Form 10-K and the Company's Joint
Proxy Statement/Prospectus dated September 11, 1995.
2. Inventories consisted of (in thousands):
November 30, May 31,
1995 1995
---- ----
Finished goods $111,241 $83,221
Work-in-process 19,908 31,102
Raw materials 63,224 68,436
------- ------
Total $194,373 $182,759
======= =======
3. Net Income Per Share
Net income per common and equivalent share is computed
based on the weighted average number of common shares and the
dilutive effects of stock options outstanding during the
period using the treasury stock method. The effect of the
assumed conversion of the 10.25% convertible subordinated
notes was antidilutive for the periods presented. Weighted
average shares outstanding and per share amounts have been
restated to reflect the two-for-one stock split on August 25,
1995 for shareholders of record on August 4, 1995.
4. Business Combinations
On October 13, 1995, the Company acquired Chipcom by
issuing approximately 18.3 million shares of its common stock
in exchange for all the outstanding stock of Chipcom. The
Company also assumed and exchanged all options to purchase
Chipcom stock for options to purchase approximately 2.4
million shares of the Company's common stock. Chipcom
designs, manufactures and distributes computer networking
multi-function platforms. The acquisition was accounted for
as a pooling-of-interests. All financial data of the Company
has been restated to include the historical financial
information of Chipcom. Chipcom maintained its financial
records on a 52-53 week fiscal year ending nearest to
December 31. The May 31, 1995 restated consolidated
balance sheet includes the balance sheet of Chipcom
as of December 31, 1994. The restated consolidated
statements of income and cash flows for the
quarter and six months ended November 30, 1994
include Chipcom's statements of income and cash flows
for the quarter and six months ended June 26, 1994. The
results of operations of Chipcom for the five month period
ended May 31, 1995, which reflected revenues of $118.1
million and net income of $2.4 million, has been reported as
an increase in the Company's fiscal 1996 retained earnings.
No significant adjustments were required to conform the
accounting policies of the Company and Chipcom. Financial
information as of November 30, 1995 and for the quarter and
six months ended reflects the Company's and Chipcom's
operations for those periods.
The following table shows the effect on the results of
operations as restated for the quarters ended August 31, 1995
and August 31, 1994 and for the six months ended November 30,
1994. The Company's quarter ended August 31, 1994 and six
months ended November 30, 1994 has been combined with
Chipcom's quarter ended March 26, 1994 and six months ended
June 25, 1994, respectively.
Quarter ended August 31, Six Months Ended
1995 1994 November 30, 1994
---- ---- -----------------
(in thousands)
Sales:
3Com $430,354 $262,801 $578,266
Chipcom 66,935 51,882 113,188
------- ------- -------
Combined $497,289 $314,683 $691,454
======= ======= =======
Net Income (loss):
3Com $ 59,421 $ 30,772 $ 33,897
Chipcom (2,000) 1,873 8,005
------- ------- -------
Combined $ 57,421 $ 32,645 $ 41,902
======= ======= =======
As a result of the acquisition, the Company recorded
acquisition-related charges totaling $69.0 million in the
second quarter of fiscal 1996. These charges include $60.8
million of integration expenses and $8.2 million of direct
transaction costs (consisting primarily of investment banking
and other professional fees). Integration expenses include
approximately $37.8 million of costs of eliminating duplicate
and discontinued products, $5.1 million of severance and
related costs for approximately 80 employees primarily
associated with duplicate or discontinued product lines,
field sales and administrative functions, $4.3 million of
costs of eliminating duplicate facilities and $13.6 million
of other acquisition-related costs. Total expected cash
expenditures relating to the acquisition-related charges are
$24.7 million, of which $8.9 million was disbursed prior to
November 30, 1995 and the remaining $15.8 million is expected
to be paid within the next twelve months.
On June 9, 1995, the Company acquired Primary Access
Corporation (Primary Access) by issuing approximately 4.6
million shares of its 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 network access systems.
The acquisition was accounted for as a pooling-of-interests.
All financial data of the Company has been restated to
include the operating results of Primary Access. No
significant adjustments were required to conform the
accounting policies of the Company and Primary Access.
5. Litigation
On October 13, 1995, the Company acquired Chipcom, which
had already been named as a defendant in the following
litigation described below. On May 30, 1995, a complaint was
filed in the United States District Court for the District of
Massachusetts entitled Lucille Nappo, Marc Linsky,
Constandine Machakos, and Mary Machakos v. Chipcom Corp.,
John Robert Held, Robert Peter Badavas, Bruce L. Cohen,
Menachem E. Abraham, and Jerald G. Fishman. The named
plaintiffs purport to represent the class of persons who
purchased Chipcom's common stock during the period from and
including February 8, 1995 through and including May 26,
1995. The complaint alleges violations by the defendants of
Sections 10(b) and 20(a) of the Securities and Exchange Act
of 1934, and seeks unspecified damages. On June 7, 1995, a
complaint alleging very similar claims was filed against the
same defendants in the same Court by Anthony Mallozzi. A
third similar complaint was filed against the same defendants
in the same Court on June 8, 1995, by Daniel List. A fourth
similar complaint was filed in the same Court on June 16,
1995, entitled Sean J. Carney and Nicholas Giannantonio v.
Chipcom Corp., John Held, and Robert Badavas. A fifth
similar complaint was filed in the same Court on June 16,
1995, entitled Manuel C. DeSousa and Barbara J. DeSousa v.
Chipcom Corp., John Held, and Robert Badavas. The cases have
been consolidated for pretrial purposes pursuant to an order
entered by the Court on June 15, 1995. The consolidated
action is entitled In re: Chipcom Securities Litigation,
Civil Action No. 95-111114-DPW. A Consolidated Complaint was
filed on September 13, 1995, and an Amended Consolidated
Complaint was filed on November 30, 1995. The defendants
have moved to dismiss the Amended Consolidated Complaint,
dispute the merits of the allegations in the consolidated
complaint, and intend to defend the actions vigorously.
Although the ultimate outcome of this litigation is difficult
to predict, based on the facts currently known, management
does not believe this matter will have a material adverse
effect on the financial position of the Company.
3Com Corporation
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Acquisitions
- ------------
During the quarter ended November 30, 1995, 3Com (the
Company) enhanced its High Performance Scalable Networking (HPSN)
enterprise-wide solutions with the acquisition of Chipcom
Corporation (Chipcom), a provider of computer networking multi-
function platforms, including hubs, switching and network
management products. The acquisition was completed on October 13,
1995. The Company issued approximately 18.3 million shares of its
common stock in exchange for all the outstanding stock of Chipcom.
The Company also assumed and exchanged all options to purchase
Chipcom stock for options to purchase approximately 2.4 million
shares of the Company's common stock. The acquisition was
accounted for as a pooling-of-interests and all financial data of
the Company prior to the acquisition has been restated to include
the historical financial information of Chipcom. See Note 4 of
Notes to Consolidated Financial Statements for additional
information on the Company's business combinations.
Results of Operations
- ---------------------
Quarter Ended November 30, 1995
The Company achieved record sales in the second quarter of
fiscal 1996 totaling $563.5 million, an increase of $186.8 million
or 50 percent from the corresponding quarter a year ago. Compared
with the first quarter of fiscal 1996, sales for the second
quarter of fiscal 1996 increased $66.3 million or 13 percent.
The Company believes that the year-over-year increase in
second quarter sales is due to several factors, including rapid
growth in sales outside the U.S., continued strength in the data
networking market as customers embrace new technologies such as
switching and Fast Ethernet, increases in personal computer sales,
the breadth of 3Com's product offerings and its ability to deliver
complete data networking solutions for different connectivity
environments.
Sales of network systems products (i.e., internetworking
platforms, remote access servers, hubs and switching products) in
the second quarter of fiscal 1996 represented 56 percent of total
sales and increased 60 percent from the same quarter one year ago.
In the second quarter of fiscal 1995, sales of network systems
products represented 52 percent of total sales. The increase in
network systems product sales was led primarily by the LANplex(registered
TM) family of switching products, the LinkBuilder(registered TM) FMS(TM)
II stackable hub, Aperture(TM) integrated network access systems and the
ONcore(TM) intelligent switching hub system. Also contributing to the
sales increase was the introduction of the LinkSwitch(TM) stackable
switches during fiscal 1996. The increase in network systems
products was partially offset by declines in sales of the ONline(TM)
system concentrator, in part due to customer migration to the
ONcore system.
Sales of network adapters in the second quarter of fiscal
1996 represented 40 percent of total sales and increased 37
percent from the year-ago period. In the second quarter of fiscal
1995, sales of network adapters represented 44 percent of total
sales. The increase in network adapter sales represented a
significant increase in unit volume combined with a marginal
increase in average selling prices. The increase in unit volume
primarily resulted from sales of the EtherLink(registered TM) III
network adapters, but was also favorably impacted by sales of the
EtherLink PC Card adapter and the Fast EtherLink PCI adapter. The
increase in average selling prices was due to the higher mix of
Fast Ethernet products, partially offset by the industry-wide
trend toward decreasing average selling prices in the desktop
Ethernet and Token Ring markets.
Sales of other products (i.e., terminal servers, customer
service and other products) represented four percent of total
sales in the second quarter of fiscal 1996 and fiscal 1995. Sales
of other products increased 52 percent from the year-ago period,
although they continued to represent a small percentage of the
Company's total sales, as expected.
Sales outside of the United States comprised 54 percent of
total sales in the second quarter of fiscal 1996, compared to
51 percent for the same period last year. International
sales rose 61% from the prior year and increased in all geographic
regions, especially in the Asia Pacific region. The Company
believes that this increase reflected its continued global
expansion through recent openings of new sales offices in Latin
America and Asia and the expansion of its worldwide service and
support programs. The Company's operations were not significantly
impacted by fluctuations in foreign currency exchange rates in the
second quarters of fiscal 1996 and 1995.
Cost of sales as a percentage of sales was 47.3 percent in
the second quarter of fiscal 1996, compared to 46.5 percent for
the second quarter of fiscal 1995. The resulting decline in gross
margin in the second quarter of fiscal 1996 primarily reflected
higher period costs for freight and duties, warranty, and obsolete
and excess expenses which reduced gross margin by 2.1 percentage
points. In addition, an unfavorable mix of certain lower margin
Chipcom products reduced gross margin by 0.8 percentage points.
However, a favorable shipment mix toward the Company's switching
products and reductions in adapter product material costs improved
gross margin by 2.3 percentage points.
Total operating expenses in the second quarter of fiscal 1996
were $266.9 million, compared to $189.6 million in the second
quarter of fiscal 1995. Excluding the acquisition-related charge
of $69.0 million for Chipcom (see Note 4 of Notes to Consolidated
Financial Statements), total operating expenses in the second
quarter of fiscal 1996 were $197.9 million, or 35.1% of sales.
Excluding the one-time charge of $60.8 million for purchased in-
process technology primarily associated with the acquisition of
NiceCom, Ltd., and a non-recurring credit of $1.1 million for the
reduction in accrued costs relating to the fiscal 1991
restructuring, total operating expenses in the second quarter of
fiscal 1995 were $129.9 million, or 34.5% of sales.
Sales and marketing expenses in the second quarter of fiscal
1996 increased $44.6 million or 60 percent from fiscal 1995. As a
percentage of sales, sales and marketing expenses increased to
21.1 percent in the second quarter of fiscal 1996, from 19.7
percent in the corresponding fiscal 1995 period. The increase in
such expenses reflected increased selling costs related to the
increase in sales volume, the cost of promoting the Company's new
and existing products, and a 39 percent year-over-year increase in
sales and marketing personnel. The Company believes the Chipcom
acquisition caused some loss of productivity due to disruptions
associated with integration of sales forces during the second
quarter of fiscal 1996. During the quarter, the Company undertook
a major new marketing initiative to heighten the public awareness
of the Company by sponsoring 3Com Park, formerly Candlestick Park,
in San Francisco.
Research and development expenses in the second quarter of
fiscal 1996 increased $17.0 million or 43 percent from the year-
ago period. As a percentage of sales, such expenses decreased to
10.0 percent in the second quarter of fiscal 1996, compared to
10.4 percent in the second quarter of fiscal 1995. The increase in
research and development expenses was primarily attributable to
the cost of developing 3Com's new products including the Company's
expansion into new technologies and markets. The Company believes
the timely introduction of new technologies and products is
crucial to its success, and will continue to make strategic
acquisitions to accelerate time to market where appropriate. Most
of the in-process technology acquired in connection with
businesses purchased by the Company since December 1993 have been
completed. The nature of costs for the projects that are still in
process are primarily labor costs for design, prototype
development and testing. The Company estimates that the remaining
costs in connection with the completion of all acquired research
and development projects are not significant.
General and administrative expenses in the second quarter of
fiscal 1996 increased $6.4 million or 39 percent from the same
period a year-ago. The increase in general and administrative
expenses reflected expansion of the Company's infrastructure
through internal growth and acquisitions. General and
administrative personnel increased 36 percent from the prior year.
However, as a percentage of sales, such expenses decreased to 4.1
percent in the second quarter of fiscal 1996, from 4.4 percent in
the corresponding fiscal 1995 period.
Other income (net) was $1.9 million in the second quarter of
fiscal 1996, compared to $2.2 million in the second quarter of
fiscal 1995. The decline in other income was due primarily to
higher interest expense associated with the $110.0 million of
convertible subordinated notes issued during the second quarter of
fiscal 1995.
The Company's effective income tax rate was approximately 49
percent in the second quarter of fiscal 1996 and approximately 35
percent in the second quarter of fiscal 1995. Excluding the
merger costs associated with the Chipcom acquisition, which were
not fully tax deductible, the effective tax rate was 35 percent in
the second quarter of fiscal 1996.
Net income for the second quarter of fiscal 1996 was $16.3
million, or $.09 per share, compared to net income of $9.3
million, or $.05 per share, for the second quarter of fiscal 1995.
If the aforementioned $69.0 million charge associated with the
acquisition of Chipcom was excluded, the Company would have
realized net income of $65.6 million, or $.37 per share, for the
second quarter of fiscal 1996. Excluding the $60.8 million charge
associated with purchased in-process technology and the $1.1
million credit for the reduction in the restructuring reserve, net
income was $45.9 million, or $.27 per share, for the second
quarter of fiscal 1995. Net income per share for fiscal 1995 has
been restated to reflect the two-for-one stock split on August 25,
1995.
Six Months Ended November 30, 1995
The Company achieved record sales for the first six months of
fiscal 1996 totaling $1,060.8 million, an increase of $369.4
million or 53 percent from the corresponding period a year ago.
Sales of network systems products in the first six months of
fiscal 1996 represented 57 percent of total sales and increased 68
percent from the same period one year ago. Sales of network
adapters in the first six months of fiscal 1996 represented 39
percent of total sales and increased 36 percent from the same
period last year. International sales comprised 53 percent of
total sales and increased 64 percent from the first six months of
fiscal 1995.
Cost of sales as a percentage of sales was 47.3 percent for
the first six months of fiscal 1996, compared to 46.5 percent for
the corresponding fiscal 1995 period. The resulting decline in
gross margin in the first six months of fiscal 1996 primarily
reflected higher period costs for freight and duties, warranty,
and obsolete and excess expenses which reduced gross margin by 2.0
percentage points. In addition, an unfavorable mix of certain
lower margin Chipcom products reduced gross margin by 1.0
percentage point. However, a favorable shipment mix toward the
Company's switching products and reductions in adapter product
material costs improved gross margin by 2.6 percentage points.
Total operating expenses in the first six months of fiscal
1996 were $441.6 million compared to $308.1 million in the first
six months of fiscal 1995. Excluding the $69.0 million charge
associated with the Chipcom acquisition, total operating expenses
in the first six months of fiscal 1996 were $372.6 million, or
35.1 percent of sales. Excluding the one-time charge of $60.8
million for purchased in-process technology, the non-recurring
credit of $1.1 million for the reduction in accrued restructuring
costs and a charge of $5.1 million for merger costs associated
with Chipcom's acquisition of Artel Communications Corporation,
total operating expenses in the first six months of fiscal 1995
were $243.3 million, or 35.2 percent of sales. The increase in
recurring operating expenses of $129.3 million, or 53 percent,
reflected increased selling costs related to higher sales volume,
the cost of developing and promoting the Company's products and an
average headcount increase of 35 percent over the first six months
of fiscal 1995.
In the first six months of fiscal 1996, sales and marketing
expenses increased $81.2 million or 58 percent from the prior year
and increased to 20.8 percent of sales, compared to 20.2 percent
of sales in fiscal 1995. Research and development expenses
increased $34.4 million in the first six months of fiscal 1996,
but decreased as a percentage of sales to 10.1 percent compared to
10.6 percent in fiscal 1995. General and administrative expenses
increased $13.7 million in the first six months of fiscal 1996,
but decreased as a percentage of sales to 4.1 percent compared to
4.4 percent in fiscal 1995.
Other income (net) was $3.2 million for the first six months
of fiscal 1996, compared to $3.4 million in the corresponding
period one year ago. The decline in other income was due
primarily to higher interest expense associated with the issuance
of the $110.0 million convertible notes during the second quarter
of fiscal 1995.
The Company's effective income tax rate was approximately 39
percent in the first six months of fiscal 1996 and approximately
35 percent in the first six months of fiscal 1995. Excluding the
merger costs associated with the Chipcom acquisition, which were
not fully tax deductible, the effective tax rate was 35 percent
for the first six months of fiscal 1996.
Net income for the first six months of fiscal 1996 was $73.8
million, or $.42 per share, compared to net income of $41.9
million, or $.25 per share, for the first six months of fiscal
1995. Excluding the aforementioned $69.0 million charge
associated with the acquisition of Chipcom, net income was $123.0
million, or $.70 per share, for the first six months of fiscal
1996. Excluding the $60.8 million charge associated with
purchased in-process technology, the $5.1 million charge for
merger costs and the $1.1 million credit for the reduction in the
restructuring reserve, net income was $81.8 million, or $.49 per
share, for the first six months of fiscal 1995. Net income per
share for fiscal 1995 has been restated to reflect the two-for-one
stock split on August 25, 1995.
Business Environment and Risk Factors
The Company's future operating results may be affected by
various trends and factors which the Company must successfully
manage in order to achieve favorable operating results. In
addition, there are trends and factors beyond the Company's
control which affect its operations. Such trends and factors
include adverse changes in general economic conditions or
conditions in the specific markets for the Company's products,
governmental regulation or intervention affecting communications
or data networking, fluctuations in foreign exchange rates, and
other factors, including those listed below. The data networking
industry has become increasingly competitive, and the Company's
results may be adversely affected by the actions of existing or
future competitors. Such actions may include the development or
acquisition of new technologies, the introduction of new products,
the assertion by third parties of patent or similar intellectual
property rights, and the reduction of prices by competitors to
gain or retain market share. Industry consolidation or alliances
may also affect the competitive environment.
The market for the Company's products is characterized by
rapidly changing technology. The Company's success depends in
substantial part on the timely and successful introduction
of new products. 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 the Company's operating results if the Company
does not respond timely and effectively to such changes. The
Company is engaged in research and development activities in
certain emerging LAN and WAN high-speed technologies, such as ATM,
ISDN and Fast Ethernet. As the industry standardizes on high-
speed technologies, there can be no assurance that the Company
will be able to respond timely and cost effectively to compete in
the marketplace.
Some key components of the Company's products are currently
available only from single sources. There can be no assurance
that in the future the Company's suppliers will be able to meet
the Company's demand for components in a timely and cost effective
manner. The Company's operating results and customer
relationships could be adversely affected by either an increase in
prices for, or an interruption or reduction in supply of, any key
components.
Acquisitions of complementary businesses and technologies,
including technologies and products under development, are an
active part of the Company's overall business strategy. The
Company has recently consummated acquisitions of several
companies, including Chipcom and Primary Access. There can be no
assurance that products, technologies, distribution channels, key
personnel and businesses of acquired companies will be effectively
assimilated into the Company's business or product offerings, or that
the effects of such integration will not adversely affect the Company's
business, financial condition or results of operations. The difficulties
of such integration may be increased by the size and number of such
acquisitions and the necessity of coordinating geographically separated
organizations. There can be no assurance that any acquired products,
technologies or businesses will contribute to the Company's revenues or
earnings, that the sales and earnings from acquired businesses
will not be adversely affected by the integration process or other
general factors. The acquisition of Chipcom is the largest acquisition
the Company has undertaken, and the factors identified above are therefore
more significant to the Company's business than for prior transactions.
There can be no assurance that the Company will continue to be able to
identify and consummate merger transactions in the future.
The market price of the Company's common stock has been, and
may continue to be, extremely volatile. Factors such as new
product announcements by the Company or its competitors, quarterly
fluctuations in the Company's operating results, challenges
associated with integration of acquired businesses and general
conditions in the data networking market may have a significant
impact on the market price of the Company's common stock.
These conditions, as well as factors which generally affect the
market for stocks of high technology companies, could cause the
price of the Company's stock to fluctuate substantially over short
periods.
During the third quarter of fiscal 1996, the Company is
transitioning its core order processing, logistics and financial
systems to a new client server based platform. While the Company
has extensively planned for and tested the new system, the
successful implementation of this project is not without risk.
Notwithstanding the Company's increased geographical
diversification, the Company's corporate headquarters and a large
portion of its research and development activities and other
critical business operations are located near major earthquake
faults. The Company's business, financial condition and operating
results could be materially adversely affected in the event of a
major earthquake. Because of the foregoing factors, as well as
other factors affecting the Company's operating results, past
trends and performance should not be presumed by investors to be
an accurate indicator of future results or trends.
Liquidity and Capital Resources
Cash, cash equivalents and temporary cash investments at
November 30, 1995 were $380.6 million, decreasing $5.0 million
from May 31, 1995.
During the quarter ended November 30, 1995, the Company
completed the acquisition of Chipcom. As a result of the
acquisition, the Company recorded acquisition-related charges
totaling $69.0 million. Total expected cash expenditures relating
to the acquisition-related charges are $24.7 million, of which
$8.9 million was disbursed prior to November 30, 1995 and the
remaining $15.8 million is expected to be paid within the next
twelve months. (See Note 4 of Notes to Consolidated Financial
Statements).
For the six months ended November 30, 1995, net cash
generated from operating activities was $78.4 million. Trade
receivables at November 30, 1995 increased $86.2 million from May
31, 1995. Days sales outstanding in receivables was 53 days at
November 30, 1995, compared to 46 days at May 31, 1995, due
primarily to an increase in international and carrier sales.
Inventory levels at November 30, 1995 increased $11.6 million from
the prior fiscal year-end, net of a $27.1 million provision
included in the acquisition charge for duplicate and discontinued
Chipcom products. Inventory turnover was 5.2 turns at November
30, 1995, compared to 5.4 turns at May 31, 1995.
Deposits and other assets of $60.4 million at November 30,
1995 increased $34.0 million from May 31, 1995. This increase
resulted primarily from recording an unrealized long term
investment gain of $40.1 million due to the initial public
offering of Sync Research, Inc. (Sync). In accordance with the
fair value accounting requirements of SFAS 115, the unrealized
gain on the Company's investment in Sync resulted in corresponding
increases of $24.1 million to the unrealized gain on available-for-sale
securities equity account and $16.0 million to deferred income tax
liabilities. The unrealized balance sheet gain or loss on this
investment will fluctuate quarterly with a change in that company's
stock price.
During the six months ended November 30, 1995, the Company
made $87.1 million in capital expenditures. Major capital
expenditures included upgrades and additions to product
manufacturing lines and facilities in Santa Clara and Ireland,
purchase of a facility in the Boston area, furnishings and
improvements to new facilities in Santa Clara and the Boston area,
and upgrades of desktop systems.
During the first six months of fiscal 1996, the Company
received cash of $20.7 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, 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
commenced occupancy of the facility in the first quarter of fiscal
1996, and payments on the lease started in the second quarter of
fiscal 1996.
The Company has a $40 million revolving bank credit agreement
which expires December 31, 1996. No amount is outstanding under
the credit agreement and the Company is in compliance with all
financial ratio and minimum net worth requirements.
Based on current plans and business conditions, the Company
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 for at least the next
twelve months.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 13, 1995, the Company acquired Chipcom, which
had already been named as a defendant in the following
litigation described below. On May 30, 1995, a complaint
was filed in the United States District Court for the
District of Massachusetts entitled Lucille Nappo, Marc
Linsky, Constandine Machakos, and Mary Machakos v. Chipcom
Corp., John Robert Held, Robert Peter Badavas, Bruce L.
Cohen, Menachem E. Abraham, and Jerald G. Fishman. The
named plaintiffs purport to represent the class of persons
who purchased Chipcom's common stock during the period from
and including February 8, 1995 through and including May
26, 1995. The complaint alleges violations by the
defendants of Sections 10(b) and 20(a) of the Securities
and Exchange Act of 1934, and seeks unspecified damages.
On June 7, 1995, a complaint alleging very similar claims
was filed against the same defendants in the same Court by
Anthony Mallozzi. A third similar complaint was filed
against the same defendants in the same Court on June 8,
1995, by Daniel List. A fourth similar complaint was filed
in the same Court on June 16, 1995, entitled Sean J. Carney
and Nicholas Giannantonio v. Chipcom Corp., John Held, and
Robert Badavas. A fifth similar complaint was filed in the
same Court on June 16, 1995, entitled Manuel C. DeSousa and
Barbara J. DeSousa v. Chipcom Corp., John Held, and Robert
Badavas. The cases have been consolidated for pretrial
purposes pursuant to an order entered by the Court on June
15, 1995. The consolidated action is entitled In re:
Chipcom Securities Litigation, Civil Action No. 95-111114-
DPW. A Consolidated Complaint was filed on September 13,
1995, and an Amended Consolidated Complaint was filed on
November 30, 1995. The defendants have moved to dismiss
the Amended Consolidated Complaint, dispute the merits of
the allegations in the consolidated complaint, and intend
to defend the actions vigorously.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on
September 28, 1995.
(b) Each of the persons named in the Proxy Statement as a
nominee for director was elected and the proposals listed below were
approved. The following are the voting results on each of the proposals
(voting results and share reserve increases reflect the two-for-one stock
split on August 25, 1995):
Proposal I
----------
Election of Directors In Favor Withheld
--------------------- -------- --------
David W. Dorman 111,692,402 14,630,450
Jean-Louis Gassee 111,693,010 14,629,842
Stephen C. Johnson 111,720,610 14,602,242
William F. Zuendt 111,719,190 14,603,662
Proposal II In Favor Opposed Abstain No Vote
----------- -------- ------- ------- -------
Increase in share reserve
by 6,000,000 shares under
the 1984 Employee Stock
Purchase Plan 109,156,642 15,926,758 401,558 837,894
Proposal III
------------
Increase in share
reserve by 500,000
shares under the
Restricted Stock Plan 91,680,285 33,229,217 575,456 837,894
Proposal IV
-----------
To ratify and approve
administrative amendments
under the Director Stock
Option Plan 107,782,158 16,986,178 716,622 837,894
Proposal V
----------
Selection of Deloitte &
Touche LLP as the Company's
independent auditors
for 1996 126,066,690 77,422 178,740 --
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation
(Exhibit 19.1 to Form 10-Q) (6)
3.2 Certificate of Amendment of the Amended and
Restated Articles of Incorporation (Exhibit 3.2 to Form 10-K) (15)
3.3 Bylaws, as amended and restated (Exhibit 4.2
to Form S-8) (10)
3.4 Certificate of Amendment of the Amended and
Restated Articles of Incorporation (Exhibit 4.1 to Form S-8) (23)
4.1 Reference is made to Exhibit 3.1 (Exhibit 4.1
to Form 10-K) (15)
4.2 Indenture Agreement between 3Com Corporation
and The First National Bank of Boston for the private placement of
convertible subordinated notes dated as of November 1, 1994 (Exhibit
5.2 to Form 8-K) (18)
4.3 Placement Agreement for the private placement
of convertible subordinated notes dated November 8, 1994 (Exhibit 5.1 to
Form 8-K) (18)
4.4 Amended and Restated Rights Agreement dated
December 31, 1994 (Exhibit 10.27 to Form 10-Q) (19)
10.1 1983 Stock Option Plan, as amended (Exhibit
10.1 to Form 10-K) (7)*
10.2 Amended and Restated Incentive Stock Option
Plan (4)*
10.3 License Agreement dated March 19, 1981 (1)
10.4 First Amended and Restated 1984 Employee Stock
Purchase Plan, as amended (Exhibit 19.1 to Form 10-Q) (8)*
10.5 Second Amended and Restated 1984 Employee
Stock Purchase Plan*
10.6 License Agreement dated as of June 1, 1986
(Exhibit 10.16 to Form 10-K) (3)
10.7 3Com Corporation Director Stock Option Plan,
as amended (Exhibit 19.3 to Form 10-Q) (8)*
10.8 Amended 3Com Corporation Director Stock Option
Plan*
10.9 Bridge Communications, Inc. 1983 Stock Option
Plan, as amended (Exhibit 4.7 to Form S-8) (2)*
10.10 3Com Headquarters Lease dated December 1,
1988, as amended (Exhibit 10.14 to Form 10-K) (7)
10.11 Ground Lease dated July 5, 1989 (Exhibit
10.19 to Form 10-K) (5)
10.12 Sublease Agreement dated February 9, 1989
(Exhibit 10.20 to Form 10-K) (5)
10.13 Credit Agreement dated April 21, 1993
(Exhibit 10.11 to Form 10-K) (9)
10.14 Amendment to Credit Agreement (Exhibit
10.20 to Form 10-Q) (14)
10.15 Second Amendment to Credit Agreement
(Exhibit 10.21 to Form 10-Q) (14)
10.16 3Com Corporation Restricted Stock Plan
dated July 9, 1991 (Exhibit 19.2 to Form 10-Q) (8)*
10.17 Amended 3Com Corporation Restricted Stock
Plan*
10.18 Form of Escrow and Indemnification
Agreement for Directors and Officers (Exhibit 10.15 to Form 10-Q) (11)
10.19 Agreement and Plan of Reorganization
dated December 16, 1993 among 3Com Corporation, 3Sub Corporation and
Synernetics, Inc. (Exhibit 7.1 to Form 8-K) (12)
10.20 Side Agreement Regarding Agreement and
Plan of Reorganization dated January 14, 1993 among 3Com Corporation, 3Sub
Corporation and Synernetics, Inc. (Exhibit 7.2 to Form 8-K) (12)
10.21 Agreement and Plan of Reorganization
dated January 18, 1994 (Exhibit 7.2 to Form 8-K) (13)
10.22 Indemnification and Escrow Agreement
dated February 2, 1994 (Exhibit 7.3 to Form 8-K) (13)
10.23 1994 Stock Option Plan (Exhibit 10.22 to
Form 10-K) (15)*
10.24 Lease Agreement between BNP Leasing
Corporation, as Landlord, and 3Com Corporation, as Tenant, effective as of
July 14, 1994 (Exhibit 10.23 to Form 10-Q) (16)
10.25 Purchase Agreement between BNP Leasing
Corporation and 3Com Corporation, dated July 14, 1994 (Exhibit
10.24 to Form 10-Q) (16)
10.26 Asset Purchase Agreement dated September
18, 1994 among 3Com Corporation, NiceCom, Ltd., and Nice Systems,
Ltd. (Exhibit 7.1 to Form 8-K) (17)
10.27 First Amendment to Asset Purchase
Agreement dated October 17, 1994 among 3Com Corporation, NiceCom, Ltd., and
Nice Systems, Ltd. (Exhibit 7.2 to Form 8-K) (17)
10.28 Acquisition and Exchange Agreement dated
March 22, 1995 among 3Com Corporation and Shareholders of Sonix
Communications Limited (Exhibit 7.1 to Form 8-K) (20)
10.29 Agreement and Plan of Reorganization,
dated March 21, 1995, by and among 3Com Corporation, Anuinui Acquisition
Corporation and Primary Access Corporation (Appendix A to prospectus included
in Form S-4) (21)
10.30 Amendment to Agreement and Plan of
Reorganization, dated May 30, 1995 by and among 3Com Corporation, Anuinui
Acquisition Corporation and Primary Access Corporation (Appendix A-1
to prospectus included in Form S-4) (21)
10.31 Escrow Agreement, dated June 9, 1995 by and among
3Com Corporation, The First National Bank of Boston and Tench Coxe,
Kathryn C. Gould and William R. Stensrud as Shareholders' Agents (Exhibit
10.27 to Form S-4) (21)
10.32 Agreement and Plan of Merger dated as of
July 26, 1995 among 3Com Corporation, Chipcom Acquisition Corporation
and Chipcom Corporation (Exhibit 2.1 to Form S-4) (22)
*Indicated a management contract or compensatory plan.
- -----------------------------------------------------------------------------
(1) Incorporated by reference to the corresponding
Exhibit previously filed as an Exhibit to Registrant's Registration
Statement on Form S-1 filed January 25, 1984 (File No. 2-89045)
(2) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Registration
Statement on Form S-8 filed October 13, 1987 (File No. 33-17848)
(3) Incorporated by reference to the corresponding
Exhibit or the Exhibit identified in parentheses previously filed as
an Exhibit to Registrant's Form 10-K filed August 29, 1987 (File No. 0-12867)
(4) Incorporated by reference to Exhibit 10.2 to
Registrant's Registration Statement on Form S-4 filed on August 31, 1987
(File No. 33-16850)
(5) Incorporated by reference to the corresponding
Exhibit or the Exhibit identified in parentheses previously filed as
an Exhibit to Registrant's Form 10-K filed on August 28, 1989 (File No.
0-12867)
(6) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed
on January 2, 1991 (File No. 0-12867)
(7) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-K filed
on August 27, 1991 (File No. 0-12867)
(8) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed
January 10, 1992 (File No. 0-12867)
(9) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-K filed
on August 27, 1993 (File No. 0-12867)
(10) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Registration
Statement on Form S-8, filed on November 24, 1993 (File No. 33-72158)
(11) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed
on January 14, 1994 (File No. 0-12867)
(12) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed
on January 31, 1994 (File No. 0-12867)
(13) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed
on February 11, 1994 (File No. 0-12867)
(14) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed
on April 13, 1994 (File No. 0-12867)
(15) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-K filed
on August 31, 1994 (File No. 0-12867)
(16) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed
on October 16, 1994 (File No. 0-12867)
(17) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed
on November 1, 1994 (File No. 0-12867)
(18) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed
on November 16, 1994 (File No. 0-12867)
(19) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed
on January 13, 1995 (File No. 0-12867)
(20) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed
on May 16, 1995 (File No. 0-12867)
(21) Incorporated by reference to the Exhibit or other
item identified in parentheses previously filed as an Exhibit to or included
in Registrant's Registration Statement on Form S-4, originally filed on
March 23, 1995 (File No. 33-58203)
(22) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Registration
Statement on Form S-4, originally filed on August 31, 1995 (File No. 33-62297)
(23) Incorporated by reference to the Exhibit identified
in parentheses previously filed as an Exhibit to Registrant's Registration
Statement on Form S-8, filed on October 19, 1995 (File No. 33-63547)
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the fiscal
quarter covered by this report as follows:
(i) Report on Form 8-K filed on October 27, 1995,
reporting under Item 2 the completion of the
acquisition of Chipcom Corporation effective
October 13, 1995.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
3Com Corporation
(Registrant)
Dated: January 15, 1996 By: /s/ Christopher B. Paisley
------------------------------
Christopher B. Paisley
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 10.5
AMENDED AND RESTATED
3COM CORPORATION
1984 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The 3Com Corporation 1984 Employee
Stock Purchase Plan (the "Prior Plan") was established to
provide eligible employees of 3Com Corporation ("3Com")
and any current or future subsidiary corporation(s) of
3Com (collectively referred to as the "Company") with an
opportunity through payroll deductions to acquire common
stock of 3Com. The Prior Plan has been amended from time
to time. On September 28, 1995, the Board of Directors of
3Com (the "Board") amended and restated the Prior Plan as
amended in order to make various changes to the Prior Plan
considered beneficial for continuing to carry out the
purposes of such plan, all in the form set forth herein
(the "Plan"). For purposes of the Plan, a parent
corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code"). The
Company intends that the Plan shall qualify as an
"employee stock purchase plan" under section 423 of the
Code (including any future amendments or replacements of
such section), and the Plan shall be so construed. Any
term not expressly defined in the Plan but defined for
purposes of section 423 of the Code shall have the same
definition herein. Because an eligible employee who
participates in the Plan (a "Participant") may withdraw
the Participant's accumulated payroll deductions and
terminate participation in the Plan or any Offering (as
defined below) therein at any time during an Offering
Period (as defined below), the Participant is, in effect,
given an option which may or may not be exercised during
any Offering Period.
2. Share Reserve. The maximum number of shares
which may be issued under the Plan shall be 20,000,000
shares of 3Com's authorized but unissued common stock (the
"Shares"). In the event that any option granted under the
Plan (an "Option") for any reason expires or is
terminated, the Shares allocable to the unexercised
portion of such Option may again be subjected to an
Option.
3. Administration. The Plan shall be administered
by the Board and/or by a duly appointed committee of the
Board having such powers as shall be specified by the
Board. Any subsequent references to the Board shall also
mean the committee if it has been appointed. All
questions of interpretation of the Plan or of any Options
shall be determined by the Board and shall be final and
binding upon all persons having an interest in the Plan
and/or any Option. Subject to the provisions of the Plan,
the Board shall determine all of the relevant terms and
conditions of Options granted pursuant to the Plan;
provided, however, that all Participants granted Options
pursuant to the Plan shall have the same rights and
privileges within the meaning of section 423(b)(5) of the
Code. All expenses incurred in connection with the
administration of the Plan shall be paid by the Company.
4. Eligibility. Any regular employee of the
Company is eligible to participate in the Plan and any
Offering (as hereinafter defined) under the Plan except
the following:
(a) employees who are customarily employed by
the Company for less than twenty (20) hours a week;
(b) employees who own or hold options to
purchase or who, as a result of participation in the Plan,
would own or hold options to purchase stock of the Company
possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the
Company within the meaning of section 423(b)(3) of the
Code; and
(c) with respect to participation in the
Additional Offering described in paragraph 5(a) below,
employees who were not employed by the Company or Chipcom
Corporation ("Chipcom") as of October 2, 1995.
5. Offerings.
(a) Offering Periods Beginning On or After
October 1, 1995. Effective for offerings commencing on or
after October 1, 1995, the Plan shall be implemented by
sequential offerings (individually, an "Offering") of
approximately six (6) months duration (an "Offering
Period"). Effective October 1, 1995, Offerings shall
commence on April 1 and October 1 of each year and end on
the first September 30 and March 31, respectively,
occurring thereafter. An additional Offering shall
commence upon the date immediately following the Effective
Time (as defined in the Agreement and Plan of Merger dated
as of July 26, 1995 by and among 3Com, Chipcom Acquisition
Corporation, a wholly-owned subsidiary of 3Com and
Chipcom) and shall end on March 31, 1996 (the "Additional
Offering"). Notwithstanding the foregoing, the Board may
establish a different term for one or more Offerings
and/or different commencing and/or ending dates for such
Offerings; provided, however, that no Offering may exceed
a term of twenty-seven (27) months. An employee who
becomes eligible to participate in the Plan after an
Offering Period has commenced shall not be eligible to
participate in such Offering but may participate in any
subsequent Offering provided such employee is still
eligible to participate in the Plan as of the commencement
of any such subsequent Offering. The first day of an
Offering Period shall be the "Offering Date" for such
Offering Period. The last day of each Offering Period
shall be the "Purchase Date" for such Offering Period. In
the event the first and/or last day of an Offering Period
is not a business day, the Company shall specify the
business day that will be deemed the first or last day, as
the case may be, of the Offering Period.
(b) Offering Periods Beginning Prior to October
1, 1995. Offering Periods which began prior to October 1,
1995 and were in effect on the date of this amendment
shall continue in effect, subject to the terms and
conditions of the Plan as in effect immediately prior to
this amendment.
(c) Governmental Approval; Shareholder
Approval. Notwithstanding any other provision of the Plan
to the contrary, any Option granted pursuant to the Plan
shall be subject to (i) obtaining all necessary
governmental approvals and/or qualifications of the sale
and/or issuance of the Options and/or the Shares, and (ii)
in the case of Options with an Offering Date after an
amendment to the Plan, obtaining any necessary approval of
the shareholders of the Company required in paragraph 17.
6. Participation in the Plan.
(a) Initial Participation. An eligible
employee may elect to become a Participant effective as of
the first Offering Date after satisfying the eligibility
requirements set forth in paragraph 4 above by delivering
a subscription agreement authorizing payroll deductions (a
"Subscription Agreement") to the Company's payroll office
not later than fifteen (15) calendar days, or such other
period as the Company may determine in its sole
discretion, prior to such Offering Date. Such
Subscription Agreement shall state the eligible employee's
election to participate in the Plan and the rate at which
payroll deductions shall be accumulated. An eligible
employee who does not deliver a Subscription Agreement to
the Company's payroll office at least fifteen (15)
calendar days, or such period as the Company may determine
in its sole discretion, prior to the first Offering Date
after becoming eligible to participate in the Plan, shall
not participate in the Plan for that Offering Period or
for any subsequent Offering Period unless such employee
subsequently enrolls in the Plan by filing a Subscription
Agreement with the Company in accordance with this
paragraph 6(a).
(b) Automatic Participation in Subsequent
Offerings. A Participant shall automatically participate
in each subsequent Offering Period until such time as such
Participant ceases to be eligible as provided in paragraph
4, the Participant withdraws from the Plan pursuant to
paragraph 10 below, or the Participant terminates
employment as provided in paragraph 11 below. A
Participant is not required to file an additional
Subscription Agreement for such Offering Periods in order
to automatically participate therein. Unless otherwise
indicated in a subsequently filed Subscription Agreement,
the rate at which payroll deductions shall be accumulated
with respect to any such subsequent Offering Period shall
equal the rate applicable to the immediately preceding
Offering Period.
7. Purchase Price. The purchase price at which
Shares may be acquired in any Offering Period under the
Plan shall be eighty-five percent (85%) of the lesser of
(a) the fair market value of the Shares on the Offering
Date of such Offering Period or (b) the fair market value
of the Shares on the Purchase Date of such Offering
Period. For purposes of the Plan, the fair market value
of the Shares at any point in time shall be determined by
the Board based on such factors as the Board deems
relevant; including, without limitation, the mean of the
bid and asked price of the Shares on the date in question
as reported by the National Association of Securities
Dealers Automated Quotation System.
8. Payment of Purchase Price; Payroll Deductions.
(a) Accumulation of Payroll Deductions. The
purchase price of Shares to be acquired in an Offering
Period shall be accumulated only by payroll deductions
over the Offering Period. Payroll deductions from a
Participant's compensation on each payday during the
Offering Period (i) shall not exceed ten percent (10%) of
such Participant's base pay per month reduced by any
payroll deductions from such Participant's compensation to
purchase stock under any other plan of the Company
intended to qualify as an "employee stock purchase plan"
under section 423 of the Code, and (ii) shall not be less
than one percent (1%) of the Participant's base pay per
month. For purposes hereof, a Participant's "base pay"
from the Company is an aggregate that (i) shall include
all salaries and commissions, and (ii) shall not include
annual awards or incentive bonuses and any other payments
not specifically referenced in (i) above, except to the
extent that the inclusion of any such item with respect to
all Participants on a non-discriminatory basis is
specifically approved by the Board. Payroll deductions
shall commence on the first payday following the first day
of an Offering Period or as soon as administratively
feasible thereafter and shall continue to the end of such
Offering Period unless sooner altered or terminated as
provided in the Plan.
(b) Election to Change Payroll Deduction Rate.
A Participant may decrease (but not increase) the rate of
payroll deductions with respect to an Offering Period only
on or before and effective as of the date three (3) months
after the beginning of such Offering Period by filing an
amended Subscription Agreement with the Company. A
Participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing a
new Subscription Agreement with the Company not later than
fifteen (15) calendar days, or such other period as the
Company may determine in its sole discretion, prior to the
beginning of such subsequent Offering Period.
(c) Participant Accounts. Individual accounts
shall be maintained for each Participant. All payroll
deductions from a Participant's compensation shall be
credited to the Participant's account under the Plan and
shall be deposited with the general funds of the Company.
No interest shall accrue on such payroll deductions. All
payroll deductions received or held by the Company may be
used by the Company for any corporate purpose.
9. Purchase of Shares.
(a) Purchase. On the Purchase Date of each
Offering Period, each remaining Participant shall
automatically purchase, subject to the limitations set
forth in paragraphs 9(b) and 9(c) below, that number of
whole Shares arrived at by dividing the total amount
theretofore credited to the Participant's account pursuant
to paragraph 8(c) by the purchase price established for
such Offering Period pursuant to paragraph 7. Any cash
balance remaining in the Participant's account shall be
refunded to the Participant as soon as practicable after
the Purchase Date. In the event the cash to be returned
to a Participant pursuant to the preceding sentence is an
amount less than the amount necessary to purchase a whole
Share, such amount shall continue to be credited to the
Participant's account and shall be applied toward the
purchase of Shares in the immediately subsequent Offering
Period. No Shares shall be purchased in a given Offering
Period on behalf of a Participant whose participation in
the Plan has terminated prior to the Purchase Date for
such Offering Period.
(b) Share Limitation. Subject to the
adjustments set forth in paragraph 13 below, no
Participant shall be entitled to purchase more than 4,000
Shares in a single Offering.
(c) Fair Market Value Limitation.
Notwithstanding any other provision of the Plan, no
Participant shall be entitled to purchase Shares under the
Plan (or any other employee stock purchase plan which is
intended to meet the requirements of section 423 of the
Code sponsored by 3Com or a parent corporation or
subsidiary corporation of 3Com) at a rate which exceeds
$25,000 in fair market value (or such other limit as may
be imposed by section 423 of the Code) for each calendar
year in which the Participant participates in the Plan or
any other employee stock purchase plan described in this
sentence, as determined in accordance with section
423(b)(8) of the Code.
(d) Pro Rata Allocation. In the event the
number of Shares which might be purchased by all
Participants in the Plan exceeds the number of Shares
available in the Plan, the Company shall make a pro rata
allocation of the remaining Shares in as uniform a manner
as shall be practicable and as the Company shall determine
to be equitable.
(e) Rights as a Shareholder and Employee. A
Participant shall have no rights as a shareholder by
virtue of the Participant's participation in the Plan
until the date of issuance of a stock certificate(s) for
the Shares being purchased pursuant to the exercise of the
Participant's Option. No adjustment shall be made for
dividends or distributions or other rights for which the
record date is prior to the date such stock certificate(s)
are issued. Nothing herein shall confer upon a
Participant any right to continue in the employ of the
Company or interfere in any way with any right of the
Company to terminate the Participant's employment at any
time.
(f) The Company may, from time to time,
establish or change (i) limitations on the frequency
and/or number of changes in the amount withheld during an
Offering, (ii) an exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, (iii)
procedures for permitting unequal percentages of payroll
withholding from a Participant's compensation in order to
accommodate the Company's established payroll procedures
or mistakes or delays in following those procedures when
processing Participants' withholding elections, and (iv)
such other limitations or procedures as deemed advisable
by the Company in the Company's sole discretion which are
consistent with the Plan and section 423 of the Code.
(g) Any portion of a Participant's Option
remaining unexercised after the end of the Offering Period
to which such right relates shall expire immediately upon
the end of such period.
10. Withdrawal.
(a) Withdrawal From the Plan. A Participant
may withdraw from the Plan by signing and delivering to
the Company's payroll office, a written notice of
withdrawal on a form provided by the Company for such
purpose. Such withdrawal may be elected at any time, and
if prior to the end of an Offering Period shall be
effective for that Offering Period. A Participant is
prohibited from again participating in an Offering upon
withdrawal from the Plan during such Offering. A
Participant who elects to withdraw from the Plan may again
participate in the Plan by filing a new Subscription
Agreement in the same manner as set forth in paragraph
6(a) above for initial participation in the Plan. The
Company may impose, from time to time, a requirement that
the notice of withdrawal be on file with the Company for a
reasonable period of time prior to the effectiveness of
the Participant's withdrawal from the Plan.
(b) Return of Payroll Deductions. Upon
withdrawal from the Plan, the accumulated payroll
deductions credited to a withdrawing Participant's account
shall be returned to the Participant and the Participant's
interest in the Plan shall terminate. No interest shall
accrue on the payroll deductions of a Participant.
11. Termination of Employment. Termination of a
Participant's employment with the Company for any reason,
including retirement or death, or the failure of a
Participant to remain an eligible employee, shall
terminate the Participant's participation in the Plan
immediately. Upon such termination, the payroll
deductions credited to the Participant's account shall be
returned to the Participant (or in the case of the
Participant's death, to the Participant's legal
representative) and all of the Participant's rights under
the Plan shall terminate. A Participant whose
participation has been so terminated may again become
eligible to participate in the Plan by again satisfying
the requirements of paragraphs 4 and 6.
12. Repayment of Payroll Deductions Without
Interest. In the event a Participant's interest in the
Plan is terminated, the Company shall deliver to the
Participant (or in the case of the Participant's death or
incapacity, to the Participant's legal representative) the
payroll deductions credited to the Participant's account.
No interest shall accrue on the payroll deductions of a
Participant.
13. Capital Changes. In the event of changes in
the common stock of the Company due to a stock split,
reverse stock split, stock dividend, combination,
reclassification or like change in the Company's
capitalization, or in the event of any merger, sale or
reorganization, appropriate adjustments shall be made by
the Company in (a) the number and class of Shares of stock
subject to the Plan and to any outstanding Option, (b) the
purchase price per Share of any outstanding Option and (c)
the Share limitation set forth in paragraph 9(b) above.
14. Nonassignability. Only the Participant may
elect to exercise the Participant's Option during the
Participant's lifetime, and no rights or accumulated
payroll deductions of any Participant under the Plan may
be pledged, assigned or transferred for any reason, except
by will or the laws of descent and distribution, and any
such attempt may be treated by the Company as an election
by the Participant to withdraw from the Plan.
15. Reports. Each Participant shall receive after
the last day of each Offering Period a report of the
Participant's account setting forth the total payroll
deductions accumulated, the number of Shares purchased and
the remaining cash balance to be carried over and/or
refunded pursuant to paragraph 9(a) above, if any.
16. Plan Term. This Plan shall continue until
terminated by the Board or until all of the Shares
reserved for issuance under the Plan have been issued.
17. Amendment or Termination of the Plan. The Board
may at any time amend or terminate the Plan, except that
such termination cannot affect Options previously granted
under the Plan except as otherwise permitted by the Plan,
nor may any amendment make any change in an Option
previously granted under the Plan which would adversely
affect the right of any Participant except as otherwise
permitted by the Plan, nor may any amendment be made
without approval of the shareholders of the Company within
twelve (12) months of the adoption of such amendment if
such amendment would authorize the sale of more shares
than are authorized for issuance under the Plan or would
change the designation of corporations whose employees may
be offered Options under the Plan. Notwithstanding any
other provision of the Plan to the contrary, in the event
of an amendment to the Plan which affects the rights or
privileges of Options to be offered under the Plan, each
Participant with an outstanding Option shall have the
right to exercise such outstanding Option on the effective
date of the amendment and to participate in the Plan for
the remaining term of such outstanding Option pursuant to
the terms and conditions of the Plan as amended. If in
accordance with the preceding sentence a Participant
elects to exercise such outstanding Option and to commence
participation in the Plan as amended on the effective date
of such amendment, the Participant shall be deemed to have
received a new Option on such effective date, and such
effective date shall be deemed the Offering Date for such
Option.
EXHIBIT 10.8
3Com CORPORATION
DIRECTOR STOCK OPTION PLAN
(As Amended September 28, 1995)
1. Purpose. It is the purpose of this Director
Stock Option Plan (the "Plan") to enable 3Com CORPORATION
(the "Company") and its subsidiaries to retain and
provide incentives to outside directors by offering them
an opportunity to acquire a proprietary interest in the
Company.
2. Eligibility and Administration. Eligible
participants shall be limited to outside directors of the
Company and its subsidiaries. The Plan shall be
administered by a committee of the Company's Board of
Directors (the "Board") consisting of its directors who
are also employees of the Company. The Board and such
committee are both referred to as the Board and the
committee shall have all the powers of the Board
hereunder, including, without limitation, the authority
to, from time to time, establish guidelines (the
"Guidelines") that determine the number of shares to be
subject to the options granted under the Plan, subject to
the per option limits set forth in Sections 4(b) and
4(c) and the restriction on amendment of the Guidelines
set forth in Section 9. The Guidelines must (i) provide
that on each grant date, the number of shares of Common
Stock subject to each option automatically granted
pursuant to Section 4(b) or 4(c), as the case may be,
shall be equal for each eligible participant, subject to
distinctions based on the outside director's position as
Chairman of the Board, designation as the "lead" outside
director, and service on Board committees, and (ii) not
cause an outside director who receives an option under
the Plan to cease to be a "disinterested person" for
purposes of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended. All questions of interpretation of
the Plan or of any option shall be determined by the
Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan or such
option.
3. Shares Subject to Plan.
(a) Subject to adjustment as provided in
Section 3(b), the maximum number of shares of the
Company's common stock ("Common Stock") and rights to
acquire Common Stock that may be issued pursuant to this
Plan shall be 2,000,000 shares. Options or shares that
are issued to participants under the Plan and terminate
without being exercised shall revert to the status of
authorized but unissued options or shares under the Plan.
(b) In the event of any stock dividend, stock
split, reverse stock split, recapitalization,
combination, reclassification or similar change in the
capital structure of the Company, appropriate adjustments
shall be made in the number and class of shares subject
to the Plan, the Guidelines and the per option limits set
forth in Section 4, and to any outstanding options
granted under the Plan, and in the exercise price of such
outstanding options.
4. Rights Issuable Under the Plan.
(a) During the term of the Plan, eligible
participants shall be granted options to acquire shares
of the Common Stock of the Company ("Options") as
provided in this Section 4. Each Option shall be
exercisable immediately as to all shares of Common Stock
subject to the Option and shall vest in 24 monthly
increments. All Options shall be subject to the terms
and conditions set forth in the form of Nonqualified
Stock Option Agreement attached hereto as Exhibit 1;
provided, however, that the Board may at the time of
grant of any Option make such modifications to such terms
and conditions as are otherwise in compliance with the
restrictions contained in the Plan.
(b) The Board shall grant an Option to
purchase that number of shares as may be specified in the
Guidelines then currently in effect (the "Guideline
Amount") for service on the Board, not to exceed 60,000
shares of Common Stock (or 80,000 shares if the
participant is the Chairman of the Board on the date of
grant), to each eligible participant at the first Board
meeting following the date upon which he or she first
becomes eligible. Thereafter, the Board shall grant an
additional Option to purchase that number of shares equal
to the Guideline Amount for service on the Board, not to
exceed 60,000 shares of Common Stock (or 80,000 shares if
the participant is the Chairman of the Board on the date
of grant), to an eligible participant following the
vesting in full of the Option of that eligible
participant most recently granted under this Section 4(b)
for service on the Board. Such additional grant shall be
made at the first Board meeting following the vesting in
full of such most recently granted Option.
(c) In addition to the Options granted by the
Board pursuant to Section 4(b), the Board shall grant an
Option to purchase that number of shares equal to the
Guideline Amount for service on a Standing Committee, not
to exceed 24,000 shares of Common Stock, to each eligible
participant serving on a Standing Committee of the Board
at the first meeting of the Board occurring on or after
the date on which he or she begins to serve on a Standing
Committee. A Standing Committee shall mean either the
Audit Committee or the Compensation Committee of the
Board. Thereafter, the Board shall grant an additional
Option to purchase that number of shares equal to the
Guideline Amount for service on a Standing Committee, not
to exceed 24,000 shares of Common Stock, to each eligible
participant who continues to serve on a Standing
Committee following the vesting in full of the Option of
that eligible participant most recently granted under
this Section 4(c). Such additional grant shall be made
at the first Board meeting following the vesting in full
of such most recently granted Option.
5. Consideration. The exercise price for Options
shall be payable by (i) delivery of cash or check, (ii)
tender of shares of Common Stock having a fair market
value equivalent to the purchase or exercise price, or
(iii) delivery of a promissory note payable to the
Company; provided, however, that the Board may impose at
the time of any grant of rights hereunder such
restrictions on the exchange of Common Stock or delivery
of a promissory note as the Board may deem appropriate or
necessary and that any promissory note shall be secured
by such collateral as is required by the attached form of
Nonqualified Stock Option Agreement, or as the Board
shall otherwise determine at the time of grant.
6. Exercise Price. The exercise price payable
upon exercise of any Option shall be equal to the fair
market value of a share of Common Stock as determined by
the Board on the date of grant.
7. Limitation on Exercisability. No right
granted hereunder shall be exercisable for a period of
more than five years after the date of grant.
8. Restriction on Transfer of Options. No Option
may be transferred in any manner whatsoever, other than
by the laws of descent and distribution. Options may be
exercised during the lifetime of the optionee only by the
optionee.
9. Termination or Amendment. The Board,
including any duly appointed committee of the Board, may
terminate or amend the Plan at any time; provided,
however, that without the approval of the shareholders of
the Company, there shall be (a) no increase in the total
number of shares of stock covered by the Plan (except by
operation of the provision of Section 3, above), and (b)
no expansion in the class of persons eligible to receive
Options; and provided, further, that the provisions of
the Plan addressing eligibility to participate in the
Plan and the amount, price and timing of grants of
Options (including changes to the Guidelines) shall not
be amended more than once every six (6) months, other
than to comport to changes in the Internal Revenue Code
of 1986, as amended, or the rules thereunder. In any
event, no amendment may adversely affect any then
outstanding Option, or any unexercised portion thereof,
without the consent of the optionee.
EXHIBIT 10.17
3COM CORPORATION
RESTRICTED STOCK PLAN
(As Amended September 28, 1995)
1. Purpose. The 3Com Corporation Restricted Stock
Plan (the "Plan") was adopted by the Board of Directors of
3Com Corporation (the "Board") on July 9, 1991, and was
established to create additional incentive for key employees
of 3Com Corporation and any successor corporation thereto
(collectively referred to as the "Company"), and any present
or future parent and/or subsidiary corporations of such
corporation (all of whom along with the Company being
individually referred to as a "Participating Company" and
collectively referred to as the "Participating Company
Group") to promote the financial success and progress of the
Participating Company Group. For purposes of the Plan, a
parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Administration. The Plan shall be administered by
the Board and/or by a duly appointed committee of the Board
having such powers as shall be specified by the Board. Any
such committee shall satisfy the requirements of Rule 16b-3,
as promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and amended from time to time,
for being a committee of "disinterested persons" as defined
in Rule 16b-3. Any subsequent references herein to the Board
shall also mean the committee if such committee has been
appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the
powers of the Board granted herein, including, without
limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable
limitations imposed by law. All questions of interpretation
of the Plan or of the provisions of the grant of shares of
the common stock of the Company under the Plan shall be
determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the
Plan. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with
respect to such matter, right, obligation, or election.
3. Eligibility. Key employees of the Company
(including officers and directors who are also employees) are
eligible to participate in the Plan. The Board shall, in the
Board's sole discretion, determine which individuals shall
have the right to acquire shares of the common stock of the
Company under the Plan (the "Participants").
4. Share Reserve. The Plan shall have a share reserve
of nine hundred thousand (900,000) shares of the authorized
but unissued common stock of the Company (the "Stock"). Such
share reserve shall be reduced by the number of shares of
Stock granted pursuant to the Plan. In the event that any
shares of Stock granted pursuant to the Plan are reacquired
under the terms of the Plan by the Company, the shares so
reacquired shall be returned to the share reserve.
Appropriate adjustments shall be made in the number and class
of shares of Stock in such share reserve in the event of a
stock dividend, stock split, reverse stock split,
combination, reclassification, or like change in the capital
structure of the Company.
5. Compliance with Securities Laws. Inability of the
Company to obtain from any regulatory body having
jurisdiction authority deemed by the Company's legal counsel
to be necessary to the lawful issuance of any shares of Stock
under the Plan shall relieve the Company of any liability in
respect of the non-issuance of such shares of Stock as to
which such requisite authority shall not have been obtained.
6. Stock Grant. The Board shall have the authority to
grant shares of Stock from time to time to Participants.
After the Board has granted a Participant shares of Stock
pursuant to the Plan, the Company shall advise such
Participant in writing of the terms, conditions and
restrictions of the grant, including the number of shares of
Stock which the Participant has been granted. The number of
shares of Stock which a Participant may receive under the
Plan shall be determined by the Board in the Board's sole
discretion. Subject to the provisions of paragraph 7 below,
the grant shall be made in the form attached hereto as
Exhibit A (the "Stock Grant Agreement"). The grant of shares
of Stock pursuant to the Plan shall be made in consideration
of the past services of a Participant. Notwithstanding any
other provision of the Plan to the contrary, the Board may
not require a Participant to make any monetary payment as a
condition of receiving a grant of shares of Stock pursuant to
the Plan. Therefore, for purposes of Rule 16b-3(d)(1)(i)
promulgated under the Exchange Act, the "price at which
securities may be offered" shall be zero (0) dollars.
7. Authority to Vary Terms. The Board shall have the
authority from time to time to vary the terms of the standard
form of Stock Grant Agreement attached hereto as Exhibit A
either in connection with an individual grant or in
connection with the authorization of a new standard form;
provided, however, that the terms and conditions of such
revised or amended standard form of stock grant agreement
shall be in accordance with the terms of the Plan.
8. Provision of Information. Each Participant who
receives a grant of shares of Stock pursuant to the Plan
shall be given access to information concerning the Company
equivalent to that information generally made available to
the common shareholders of the Company so long as the
Participant retains ownership of such shares.
9. Term. Unless otherwise terminated, the Plan shall
continue until July 9, 2001.
10. Termination or Amendment of Plan. The Board may
terminate or amend the Plan at any time. In any event, no
amendment may adversely affect any outstanding grant of
shares of Stock without the consent of the Participant. A
grant shall be considered as outstanding as of the effective
date of such grant as determined by the Board.
EXHIBIT A
3COM CORPORATION
RESTRICTED STOCK PLAN
STOCK GRANT AGREEMENT
THIS AGREEMENT is made and entered into as of the ___
day of ___________, 19__, by and between 3Com Corporation, a
California corporation (the "Company"), and _________________
(the "Participant").
The Company desires to issue and the Participant desires
to acquire shares of the common stock of the Company as
herein described, pursuant to the 3Com Corporation Restricted
Stock Plan (the "Plan"), on the terms and conditions set
forth in this Agreement. Unless otherwise provided in this
Agreement, defined terms shall have the meaning given to such
terms in the Plan.
IT IS AGREED between the parties as follows:
1. Issuance of Shares. On the effective date of this
Agreement as set forth above (the "Grant Date"), the
Participant shall acquire and the Company shall issue,
subject to the provisions hereof, _________ shares of the
common stock of the Company (the "Stock") in consideration
for the Participant's past service with the Company.
No shares of Stock shall be issued pursuant to this
Agreement if the issuance and delivery of such shares of
Stock would constitute a violation of any applicable federal
or state securities law or other law or regulation, or would
fail to satisfy the requirements of any stock exchange upon
which the common stock of the Company may then be listed. As
a condition to the issuance and delivery of any shares of
Stock pursuant to this Agreement, the Company may require the
Participant to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any
applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the
Company.
Notwithstanding the foregoing, any shares of Stock which
are granted prior to approval of the Plan, or any amendment
thereto, by the shareholders of the Company as provided by
Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended, shall be contingent upon such stockholder
approval and the Participant shall have no right to sell or
transfer the shares of Stock prior to such approval. In the
event such shareholder approval is not obtained within one
(1) year of the Grant Date, the issuance of the shares of
Stock shall be null and void and the certificates
representing the shares shall be returned to the Company for
cancellation.
2. Administration. All questions of interpretation
concerning this Agreement shall be determined by the Board of
Directors of the Company (the "Board") and/or by a duly
appointed committee of the Board having such powers as shall
be specified by the Board. Any subsequent references herein
to the Board shall also mean the committee if such committee
has been appointed and, unless the powers of the committee
have been specifically limited, the committee shall have all
of the powers of the Board granted herein, including, without
limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable
limitations imposed by law. All determinations by the Board
shall be final and binding upon all persons having an
interest in this Agreement.
3. Vesting and Unvested Share Reacquisition Right.
(a) Vesting.
(i) Provided the Participant is continuously
employed by a Participating Company, the shares of Stock
shall vest in the Participant and become "Vested Shares" for
purposes of this Agreement in four (4) equal annual
installments, commencing one (1) year after the Grant Date.
(ii) Notwithstanding the foregoing, in the
event of a Transfer of Control (as defined in paragraph 3(d)
below), the Board, in its sole discretion, shall either (A)
provide that any Unvested Shares (as defined in paragraph
3(b) below) shall become "Vested Shares" for purposes of this
Agreement as of the date of the Transfer of Control, or (B)
arrange with the surviving, continuing, successor, or
purchasing corporation, as the case may be, that such
corporation substitute shares of such corporation's stock for
the outstanding shares of Stock held by the Participant.
(iii) In the event that the acceleration
of the vesting of any Unvested Shares pursuant to paragraph
3(a)(ii) above will result in a "parachute payment" as
defined in section 280G of the Internal Revenue Code of 1986,
as amended, notwithstanding such paragraph 3(a)(ii), the
extent to which vesting will be accelerated in connection
with a Transfer of Control shall not exceed the amount of
vesting which produces the greatest after-tax benefit to the
Participant as determined by the Company in a fair and
equitable manner.
(b) Unvested Share Reacquisition Right. In the
event the Participant's employment with the Participating
Company Group is terminated for any reason, with or without
cause, or if the Participant or the Participant's legal
representative attempts to sell, exchange, transfer, pledge,
or otherwise dispose of (other than pursuant to an Ownership
Change) any shares of Stock which are not Vested Shares (the
"Unvested Shares"), including, without limitation, any
transfer to the nominee or agent of the Participant, the
Company shall automatically reacquire the Unvested Shares and
the Participant shall not be entitled to any payment therefor
(the "Unvested Share Reacquisition Right").
(c) Ownership Change. In the event of an
Ownership Change (as defined in paragraph 3(d) below), the
Unvested Share Reacquisition Right shall continue in full
force and effect; provided, however, that "employment with
the Participating Company Group" for purposes of this
paragraph 3 shall include all service with any corporation
which was a Participating Company at the time the services
were rendered whether or not the corporation was included
within such term both before and after the event constituting
the Ownership Change.
(d) Ownership Change and Transfer of Control. An
"Ownership Change" shall be deemed to have occurred in the
event any of the following occurs with respect to the
Company:
(i) the direct or indirect sale or exchange
by the shareholders of the Company of all or substantially
all of the stock of the Company;
(ii) a merger in which the Company is a party;
or
(iii) the sale, exchange or transfer of
all or substantially all of the Company's assets (other than
a sale, exchange, or transfer to one (1) or more corporations
where the shareholders of the Company before such sale,
exchange, or transfer retain, directly or indirectly, at
least a majority of the beneficial interest in the voting
stock of the corporation(s) to which the assets were
transferred).
A "Transfer of Control" shall mean an Ownership Change
in which the shareholders of the Company before such
Ownership Change do not retain, directly or indirectly, at
least a majority of the beneficial interest in the voting
stock of the corporation(s) to which the assets were
transferred.
4. Legends. The Company may at any time place legends
referencing the Unvested Share Reacquisition Right set forth
in paragraph 3 above and any applicable federal and/or state
securities law restrictions on all certificates representing
shares of Stock subject to the provisions of this Agreement.
The Participant shall, at the request of the Company,
promptly present to the Company any and all certificates
representing shares of Stock acquired under this Agreement in
the possession of the participant in order to carry out the
provisions of this paragraph 4. Unless otherwise specified
by the Company, legends placed on such certificates may
include, but shall not be limited to, the following:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS SET FORTH IN THIS AGREEMENT
BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."
5. Escrow.
(a) Establishment of Escrow. To insure that
shares of Stock subject to the Unvested Share Reacquisition
Right will be available for reacquisition, the Company may
require the Participant to deposit the certificate or
certificates evidencing the shares with an escrow agent
designated by the Company under the terms and conditions of
an escrow agreement approved by the Company. If the Company
does not require such deposit as a condition of the issuance
of shares of Stock to the Participant, the Company reserves
the right at any time to require the Participant to so
deposit the certificate or certificates in escrow. The
Company shall bear the expenses of the escrow.
(b) Delivery of Shares to Participant. As soon as
practicable after the expiration of the Unvested Share
Reacquisition Right, the escrow agent shall deliver to the
Participant the shares of Stock no longer subject to such
restriction.
6. Transfers in Violation of Agreement. The Company
shall not be required (a) to transfer on its books any shares
of Stock which are sold or transferred in violation of any of
the provisions set forth in this Agreement, or (b) to treat
as the owner of such shares or to accord the right to vote as
such owner or to pay dividends to any transferee to whom any
such shares shall have been so transferred.
7. Effect of Change in Company's Capital Structure.
Appropriate adjustments shall be made in the number and class
of shares of Stock in the event of a stock dividend, stock
split, reverse stock split, combination, reclassification, or
like change in the capital structure of the Company. If,
from time to time, there is any stock dividend, stock split,
or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and
all new substituted or additional securities to which the
Participant is entitled by reason of the Participant's
ownership of the shares of Stock shall be immediately subject
to the Unvested Share Reacquisition Right with the same force
and effect as the shares of Stock subject to the Unvested
Share Reacqusition Right immediately before such event.
8. Rights as a Shareholder or Employee. The
Participant shall have no rights as a shareholder with
respect to the shares of Stock until the date of issuance of
a certificate or certificates for the shares. Except as
provided in paragraph 7 above, no adjustment shall be made
for dividends or distributions or other rights for which the
record date is prior to the date such certificate or
certificates are issued. Nothing in the Plan or in this
Agreement shall confer upon the Participant any right to
continue in the employ of a Participating Company or
interfere in any way with any right of the Participating
Company Group to terminate the Participant's employment at
any time.
9. Further Instruments. The parties hereto agree to
execute such further instruments and to take such further
action as may reasonably be necessary to carry out the intent
of this Agreement.
10. Notice. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively
given upon personal delivery or upon telegraphic delivery, or
upon delivery by certified mail, addressed to the other party
hereto at the address shown below such party's signature or
at such other address as such party may designate by ten days
advance written notice to all other parties hereto.
11. Binding Effect. This Agreement shall inure to the
benefit of the successors and assigns of the Company and,
subject to the restrictions on transfer herein set forth, be
binding upon the Participant and the Participant's heirs,
executors, administrators, successors and assigns.
12. Withholding. At the time that this Agreement is
executed, or at any time thereafter as requested by the
Company, the Participant shall make adequate provision for
foreign, federal and state tax withholding obligations of the
Participating Company Group, if any, which arise in
connection with the acquisition of shares of Stock pursuant
to the Plan, including, without limitation, obligations
arising upon (i) the transfer, in whole or in part, of any
shares of Stock, (ii) the lapse of any restriction with
respect to any shares of Stock acquired pursuant to the Plan,
or (iii) the filing of an election to recognize a tax
liability. The Participant authorizes the Participating
Company Group to withhold from the Participant's compensation
such amounts as may be necessary to satisfy the Participating
Company Group's tax withholding obligations arising in
connection with the issuance of the shares of Stock pursuant
to the Plan. The Company shall have no obligation to issue a
certificate as to such share of Stock and/or to release such
shares of Stock from escrow until the Participating Company
Group's tax withholding obligations have been satisfied.
13. Certificate Registration. The certificate or
certificates for the shares of Stock acquired pursuant to
this Agreement shall be registered in the name of the
Participant.
14. Integrated Agreement. This Agreement and the Plan
constitute the entire understanding and agreement of the
Participant and the Participating Company Group with respect
to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or
warranties among the Participant and the Participating
Company Group other than those set forth or provided for
herein or therein.
15. Applicable Law. This Agreement shall be governed
by the laws of the State of California as such laws are
applied to agreements between California residents entered
into and to be performed entirely within the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
COMPANY: PARTICIPANT:
3COM CORPORATION
By:_________________________________
_________________________________
(Signature)
Title: _____________________________
_________________________________
(Print Name)
Address: Address:
5400 Bayfront Plaza _________________________________
P.O. Box 58145 _________________________________
Santa Clara, CA 95052-8145
_________________________________
Attention: Legal Department
_________________________________
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1995
<CASH> 199,409
<SECURITIES> 181,176
<RECEIVABLES> 355,749
<ALLOWANCES> (24,326)
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<DEPRECIATION> (187,570)
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0
0
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<SALES> 1,060,833
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