<PAGE>
[LETTERHEAD OF 3COM CORPORATION]
5400 BAYFRONT PLAZA
SANTA CLARA, CALIFORNIA 95052-8145
May 8, 1997
Dear Shareholder:
As most of you are aware, 3Com Corporation has entered into an agreement to
combine with U.S. Robotics Corporation. At a special meeting of shareholders to
be held at 5400 Bayfront Plaza, Santa Clara, California, on June 11, 1997, at
9:00 a.m., local time, you will be asked to consider and approve the merger
agreement relating to the merger.
Approval of this important matter will require the affirmative vote of the
holders of a majority of the 3Com Common Stock outstanding on May 1, 1997, the
record date for the special meeting. The 3Com Board of Directors has unanimously
approved the merger agreement and recommends that you vote FOR approval and
adoption of the merger agreement.
We believe the combination of 3Com and U.S. Robotics will create the leading
player in the fastest-growing sectors of the networking market. We believe the
combination of our complementary technologies, products, brands, global
distribution and extensive R&D programs will create a unique platform for growth
and significant long-term shareholder value.
The proposed transaction involves an exchange of each share of U.S. Robotics
common stock for 1.75 shares of 3Com common stock. After the closing of the
merger, 3Com's current shareholders will own approximately 53% of what we
believe will be the best networking company in the world.
The merger will create a networking leader with $5.5 billion in annual
revenues, more than 13,000 employees in some 45 countries, leading positions in
each of its core markets and an installed base of more customer connections to
the Internet and corporate intranets than any other networking company. By
moving now to bring together the leading players in the WAN access and LAN
sectors, the combined company will be extremely well-positioned to capitalize on
the growing worldwide customer demand for integrated, end-to-end LAN/WAN
networking solutions.
3Com and U.S. Robotics have identified numerous potential benefits of the
merger that we believe will contribute to the success of the combined company.
These potential benefits include the following.
- By combining the complementary product lines and technologies of 3Com in
LANs and U.S. Robotics in WAN access, the combined company will be
competitively positioned to meet growing demand from a wide range of
customers--including large enterprises, small businesses, public network
carriers and consumers--for end-to-end connectivity across both LANs and
WANs.
- 3Com and U.S. Robotics sales channels are highly complementary and should
allow the combined company to expand distribution of each company's
products through the other's key channels.
- The combined company will have leading positions and strong brand
identities in all of its major product lines, both at the edge and the
core region of the network.
- By concentrating on 3Com's strength in LANs and U.S. Robotics' strength in
WAN access, the combined company should be better able to focus its
research and development efforts and deploy its critical engineering
resources more effectively.
- The combined company will have annualized research and development
expenditures of over $500 million at current levels.
<PAGE>
- The combined company will have sufficient resources to compete effectively
in the face of increasing customer needs for global network solutions and
anticipated continuing industry consolidation.
- The respective managements of 3Com and U.S. Robotics are committed to
providing the combined company with a management structure that features
clear allocations of authority and responsibility, coupled with ongoing
active participation by executives from both companies in key roles under
my leadership.
We believe this new company will change the landscape of the industry and
deliver significant long-term value to our shareholders. Details of the proposed
merger, important information concerning 3Com and U.S. Robotics and information
concerning other important proposals to be considered at the special meeting
appear in the accompanying Joint Proxy Statement/Prospectus. I urge you to give
this material your careful consideration.
All shareholders are cordially invited to attend the special meeting in
person. However, whether or not you plan to attend the special meeting, please
complete, sign and date the accompanying proxy card and return it promptly in
the enclosed postage-prepaid envelope. It is very important that your shares be
represented and voted at the special meeting. Your prompt cooperation will be
greatly appreciated.
Sincerely,
[SIGNATURE]
Eric A. Benhamou
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
EVERY VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IF YOU HAVE ANY QUESTIONS OR REQUIRE
ASSISTANCE IN VOTING YOUR SHARES, PLEASE CONTACT D.F. KING & CO., INC., WHICH IS
ASSISTING US IN THIS MANNER, AT 1-800-758-5880.
<PAGE>
3COM CORPORATION
5400 BAYFRONT PLAZA
SANTA CLARA, CALIFORNIA 95052
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 11, 1997
------------------------
To the Shareholders of 3Com Corporation:
PLEASE TAKE NOTICE that a special meeting of shareholders (the "3Com Special
Meeting") of 3Com Corporation, a California corporation ("3Com"), will be held
on June 11, 1997 at 3Com's executive offices, located at 5400 Bayfront Plaza,
Santa Clara, California, commencing at 9:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal (a) to approve and adopt an Amended
and Restated Agreement and Plan of Merger, dated as of February 26, 1997
and amended as of March 14, 1997 (the "Merger Agreement"), by and among
3Com, TR Acquisitions Corporation, a Delaware corporation and a wholly-
owned subsidiary of 3Com ("Sub"), 3Com (Delaware) Corporation, a Delaware
corporation and a wholly-owned subsidiary of 3Com ("3Com Delaware"), and
U.S. Robotics Corporation, a Delaware corporation ("USR"), pursuant to
which, among other things (i) Sub will be merged with and into USR, with
USR to be the surviving corporation, and USR will become a wholly-owned
subsidiary of 3Com or 3Com Delaware, depending upon whether the
reincorporation proposal described below is approved (the "Merger"), and
(ii) each outstanding share of common stock, par value $0.01 per share,
of USR will be converted into the right to receive 1.75 shares of common
stock, par value $0.01 per share, of 3Com or 3Com Delaware ("3Com Common
Stock"); and (b) to approve the issuance of 3Com Common Stock in the
Merger;
2. To consider and vote upon a proposal to approve and adopt an amendment
to 3Com's Articles of Incorporation to increase the number of authorized
shares of 3Com capital stock from 403,000,000 to 1,000,000,000 (the
"Charter Amendment");
3. To consider and vote upon a proposal to change 3Com's state of
incorporation from California to Delaware (the "Reincorporation") and, in
furtherance thereof, to approve and adopt an Agreement and Plan of Merger
and Reincorporation, dated as of March 14, 1997, by and between 3Com and
3Com Delaware (the "Reincorporation Agreement"), pursuant to which 3Com
will be merged with and into 3Com Delaware, with 3Com Delaware to be the
surviving corporation (the "Reincorporation Merger"), and each
outstanding share of common stock, par value $0.01 per share, of 3Com
will be converted automatically into one share of common stock, par value
$0.01 per share, of 3Com Delaware; and
4. To transact such other business as may properly come before the 3Com
Special Meeting, including any motion to adjourn to a later date to
permit further solicitation of proxies if necessary to establish a quorum
or to obtain additional votes in favor of the Merger Agreement, the
issuance of 3Com Common Stock in the Merger, the Charter Amendment or the
Reincorporation Agreement, or any adjournments or postponements thereof.
The Merger and related transactions, the Charter Amendment and the
Reincorporation are more fully described in the Joint Proxy Statement/Prospectus
accompanying this Notice and the annexes thereto, which include copies of the
Merger Agreement, the Charter Amendment and the Reincorporation Agreement. Any
action may be taken on any of the foregoing proposals at the 3Com Special
Meeting on the date specified above or on any date to which the 3Com Special
Meeting may be properly adjourned or postponed.
Shareholders of record at the close of business on May 1, 1997 are entitled
to notice of, and to vote at, the 3Com Special Meeting and any adjournment or
postponement thereof. Approval and adoption of the Merger Agreement, the Charter
Amendment and the Reincorporation Agreement each require the affirmative vote of
the holders of a majority of the outstanding shares of 3Com Common Stock
entitled to vote at the 3Com Special Meeting.
All shareholders are cordially invited to attend the 3Com Special Meeting in
person. However, to ensure your representation at the meeting, whether or not
you plan to attend in person, you are urged to complete and sign the enclosed
proxy card and return it as promptly as possible in the enclosed postage-prepaid
envelope.
By Order of the Board of Directors
[LOGO]
Mark D. Michael
SECRETARY
May 8, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
YOUR PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD.
<PAGE>
[LETTERHEAD OF U.S. ROBOTICS CORPORATION]
8100 NORTH MCCORMICK BOULEVARD
SKOKIE, ILLINOIS 60076
May 8, 1997
Dear Stockholder:
As most of you are aware, U.S. Robotics Corporation has entered into an
agreement to combine with 3Com Corporation. At a special meeting of stockholders
to be held at the Sheraton Chicago, Cityfront Center, located at 301 East North
Water Street, Chicago, Illinois, on June 11, 1997, at 11:00 a.m., local time,
you will be asked to consider and approve the merger agreement relating to the
merger.
Approval of this important matter will require the affirmative vote of the
holders of a majority of the U.S. Robotics Common Stock outstanding on May 1,
1997, the record date for the special meeting. The U.S. Robotics Board of
Directors has unanimously approved the merger agreement and recommends that you
vote FOR approval and adoption of the merger agreement.
We believe the combination of U.S. Robotics and 3Com will create the leading
player in the fastest-growing sectors of the networking market. We believe the
combination of our complementary technologies, products, brands, global
distribution and extensive R&D programs will create a unique platform for growth
and for the creation of significant long-term stockholder value.
The proposed transaction involves an exchange of each share of U.S. Robotics
Common Stock for 1.75 shares of 3Com Common Stock, such that following the
consummation of the transaction, U.S. Robotics' current stockholders will own
approximately 47% of what we believe will be the best networking company in the
world.
The merger will create a networking leader with $5.5 billion in annual
revenues, more than 13,000 employees in some 45 countries, leading positions in
each of its core markets and an installed base of more customer connections to
the Internet and corporate intranets than any other networking company. By
moving now to bring together the leading players in the WAN access and LAN
sectors, the combined company will be extremely well-positioned to capitalize on
the growing worldwide customer demand for integrated, end-to-end LAN/WAN
networking solutions.
U.S. Robotics and 3Com have identified numerous potential benefits of the
merger that we believe will contribute to the success of the combined company.
These potential benefits include the following:
- By combining the complementary product lines and technologies of U.S.
Robotics in WAN access and 3Com in LANs, the combined company will be
competitively positioned to meet growing demand from a wide range of
customers--including large enterprises, small businesses, public telephone
network carriers, network and Internet service providers, and
consumers--for end-to-end connectivity across both LANs and WANs.
- U.S. Robotics and 3Com sales channels are highly complementary and should
allow the combined company to expand the distribution of each company's
products through the other's key channels.
- The combined company will have leading positions and strong brand
identities in all of its major product lines, with particular strength in
the key products at the "edge" of the network, including LAN switches,
hubs, remote access servers and concentrators, NICs and high speed modems.
<PAGE>
- By concentrating on U.S. Robotics' strength in WAN access and 3Com's
strength in LANs, the combined company should be better able to focus and
deploy its research and development efforts and critical engineering
resources more effectively.
- The combined company will have annualized research and development
expenditures of $500 million at current levels.
- The combined company will have sufficient resources to compete effectively
in the face of increasing customer needs for global network solutions and
anticipated continuing industry consolidation.
- The respective managements of 3Com and U.S. Robotics are committed to
providing the combined company with a management structure that features
clear allocations of authority and responsibility, coupled with ongoing
active participation by executives from both companies in key roles under
the leadership of 3Com's chairman and CEO.
We believe this new company will change the landscape of the industry and
deliver significant long-term value to our stockholders.
Your senior management holds a major stake in U.S. Robotics. After the
merger, we will become major shareholders of 3Com. We are looking to create the
strongest possible company as an ongoing source of long-term shareholder value.
Given the opportunities in the market and intensifying competition in the
networking industry, we believe that there is no better partner for U.S.
Robotics than 3Com and no better time to do this transaction than now.
Details of the proposed merger and other important information concerning
U.S. Robotics and 3Com appear in the accompanying Joint Proxy
Statement/Prospectus. I urge you to give this material your careful
consideration.
All stockholders are cordially invited to attend the special meeting in
person. However, whether or not you plan to attend the special meeting, please
complete, sign and date the accompanying proxy card and return it promptly in
the enclosed postage-prepaid envelope. If you attend the special meeting, you
may vote in person if you wish, even though you have previously returned your
proxy. It is very important that your shares be represented and voted at the
special meeting. Your prompt cooperation will be greatly appreciated.
Sincerely,
[SIGNATURE]
Casey Cowell
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
EVERY VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
U.S. ROBOTICS CORPORATION
8100 NORTH MCCORMICK BOULEVARD
SKOKIE, ILLINOIS 60076
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1997
------------------------
To the Stockholders of U.S. Robotics Corporation:
PLEASE TAKE NOTICE that a special meeting of stockholders (the "USR Special
Meeting") of U.S. Robotics Corporation, a Delaware corporation ("USR"), will be
held on June 11, 1997, at the Sheraton Chicago, Cityfront Center, located at 301
East North Water Street, Chicago, Illinois, commencing at 11:00 a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Amended and
Restated Agreement and Plan of Merger, dated as of February 26, 1997 and
amended as of March 14, 1997 (the "Merger Agreement"), by and among 3Com
Corporation, a California corporation ("3Com"), TR Acquisitions
Corporation, a Delaware corporation and a wholly-owned subsidiary of 3Com
("Sub"), 3Com (Delaware) Corporation, a Delaware corporation and a
wholly-owned subsidiary of 3Com established to effect the reincorporation
of 3Com in Delaware ("3Com Delaware"), and USR, pursuant to which, among
other things, (a) Sub will be merged with and into USR, with USR to be
the surviving corporation, and USR will become a wholly-owned subsidiary
of 3Com or 3Com Delaware (the "Merger"), and (b) each outstanding share
of common stock, par value $0.01 per share, of USR ("USR Common Stock")
will be converted into the right to receive 1.75 shares of common stock,
par value $0.01 per share, of 3Com or 3Com Delaware; and
2. To transact such other business as may properly come before the USR
Special Meeting, including any motion to adjourn to a later date to
permit further solicitation of proxies if necessary to establish a quorum
or to obtain additional votes in favor of the Merger, or any adjournments
or postponements thereof.
The Merger and related transactions are more fully described in the Joint
Proxy Statement/Prospectus and the annexes thereto, including the Merger
Agreement, accompanying this Notice. Any action may be taken on any of the
foregoing proposals at the USR Special Meeting on the date specified above or on
any date to which the USR Special Meeting may be properly adjourned or
postponed.
Stockholders of record at the close of business on May 1, 1997 are entitled
to notice of, and to vote at, the USR Special Meeting and any adjournment or
postponement thereof. Approval and adoption of the Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of USR
Common Stock entitled to vote at the USR Special Meeting.
All stockholders are cordially invited to attend the USR Special Meeting in
person. However, to ensure your representation at the meeting, whether or not
you plan to attend in person, you are urged to complete and sign the enclosed
proxy card and return it as promptly as possible in the enclosed postage-prepaid
envelope.
By Order of the Board of Directors
[SIGNATURE]
George A. Vinyard
SECRETARY
May 8, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. DO NOT SEND ANY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
<PAGE>
3COM CORPORATION
AND
U.S. ROBOTICS CORPORATION
---------------
JOINT PROXY STATEMENT
---------------------
3COM CORPORATION AND 3COM (DELAWARE) CORPORATION
PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $0.01 per share, of 3Com Corporation, a California
corporation ("3Com"), in connection with the solicitation of proxies by the
Board of Directors of 3Com (the "3Com Board") for use at a special meeting of
3Com shareholders (the "3Com Special Meeting") to be held on June 11, 1997, at
3Com's executive offices, located at 5400 Bayfront Plaza, Santa Clara,
California, commencing at 9:00 a.m., local time, and at any adjournments or
postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, par value $0.01 per share ("USR Common Stock"), of U.S. Robotics
Corporation, a Delaware corporation ("USR"), in connection with the solicitation
of proxies by the Board of Directors of USR (the "USR Board") for use at a
special meeting of USR stockholders (the "USR Special Meeting") to be held on
June 11, 1997, at the Sheraton Chicago, Cityfront Center located at 301 East
North Water Street, Chicago, Illinois, commencing at 11:00 a.m., local time, and
at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of 3Com
and 3Com (Delaware) Corporation, a Delaware corporation and a wholly-owned
subsidiary of 3Com established to effect the proposed reincorporation of 3Com in
Delaware ("3Com Delaware"), with respect to up to 157,500,000 shares of common
stock, par value $0.01 per share of 3Com (or, if 3Com reincorporates in
Delaware, of 3Com Delaware) ("3Com Common Stock") to be issued in the merger of
TR Acquisitions Corporation, a Delaware corporation and a wholly-owned
subsidiary of 3Com ("Sub"), with and into USR (the "Merger") pursuant to the
Amended and Restated Agreement and Plan of Merger, dated as of February 26, 1997
and amended as of March 14, 1997, by and among 3Com, Sub, 3Com Delaware and USR
(the "Merger Agreement"), in respect of outstanding shares of USR Common Stock.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY BOTH 3COM SHAREHOLDERS AND USR STOCKHOLDERS.
---------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/ PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of 3Com and stockholders of USR on or
about May 12, 1997.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MAY 8, 1997.
<PAGE>
AVAILABLE INFORMATION
3Com and USR are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by 3Com and USR with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. 3Com Common Stock and USR Common
Stock are traded on The Nasdaq National Market. Reports and other information
concerning 3Com and USR can also be inspected at the offices of the National
Association of Securities Dealers, Inc., Market Listing Section, 1735 K Street,
N.W., Washington, D.C. 20006. In addition, certain of the documents filed by
3Com and USR with the Commission are available through the Commission's
Electronic Data Gathering and Retrieval System ("EDGAR") at http://www.sec.gov.
3Com and 3Com Delaware have filed with the Commission a Registration
Statement on Form S-4 (together with any amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the shares of 3Com Common Stock to be issued pursuant to the
Merger Agreement. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement. The omitted portions of the
Registration Statement may be obtained through EDGAR at http://www.sec.gov. Such
additional information also may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Joint Proxy Statement/
Prospectus or in any document incorporated by reference in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other documents
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following 3Com documents filed with the Commission are incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. 3Com's Annual Report on Form 10-K for the fiscal year ended May 31,
1996;
2. 3Com's Quarterly Reports on Form 10-Q for the three-month periods ended
August 31, 1996, November 30, 1996 and February 28, 1997;
3. 3Com's Current Reports on Form 8-K filed on November 13, 1996 and
February 27, 1997;
4. The description of 3Com's capital stock contained in 3Com's Registration
Statement on Form 8-A filed on September 22, 1989; and
5. The description of 3Com's common stock purchase rights contained in
3Com's Registration Statement on Form 8-A/A filed on January 23, 1995.
The following USR documents filed with the Commission are incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. USR's Annual Report on Form 10-K for the fiscal year ended September 29,
1996;
2. USR's Quarterly Report on Form 10-Q for the three-month period ended
December 29, 1996; and
3. USR's Current Reports on Form 8-K filed on November 5, 1996, January 22,
1997, February 18, 1997, February 27, 1997 and April 23, 1997.
ii
<PAGE>
All documents and reports subsequently filed by 3Com and USR pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the 3Com Special
Meeting and the USR Special Meeting shall be deemed to be incorporated by
reference in this Joint Proxy Statement/Prospectus and to be part hereof from
the dates of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, IN THE CASE OF DOCUMENTS RELATING TO 3COM OR 3COM DELAWARE,
DIRECTED TO 3COM CORPORATION, 5400 BAYFRONT PLAZA, SANTA CLARA, CALIFORNIA 95052
(TELEPHONE NUMBER (408) 764-5000), ATTENTION: INVESTOR RELATIONS, OR, IN THE
CASE OF DOCUMENTS RELATING TO USR, DIRECTED TO U.S. ROBOTICS CORPORATION, 8100
NORTH MCCORMICK BOULEVARD, SKOKIE, ILLINOIS 60076, (TELEPHONE NUMBER (847)
982-5010), ATTENTION: CORPORATE SECRETARY. IN ORDER TO ASSURE TIMELY DELIVERY OF
THE REQUESTED MATERIAL BEFORE THE 3COM SPECIAL MEETING AND THE USR SPECIAL
MEETING, ANY REQUEST SHOULD BE MADE PRIOR TO JUNE 2, 1997.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY 3COM, 3COM
DELAWARE OR USR, OR ANY OF THEIR AFFILIATES. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE PURSUANT
HERETO SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF 3COM, 3COM DELAWARE OR USR, OR ANY OF THEIR
AFFILIATES, SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
iii
<PAGE>
INFORMATION PROVIDED BY 3COM AND USR
The information set forth in this Joint Proxy Statement/Prospectus
concerning 3Com, 3Com Delaware and Sub has been furnished by 3Com and has not
been independently investigated or verified by USR; and the information set
forth in this Joint Proxy Statement/Prospectus concerning USR has been furnished
by USR and has not been independently investigated or verified by 3Com, 3Com
Delaware or Sub.
3Com, 3Wizard, AccessBuilder, Boundary Routing, CELLplex, Chipcom,
EtherDisk, EtherLink, EtherLink II, LANplex, LANsentry, LinkBuilder, LinkSwitch,
NetAge, NETBuilder, NETBuilder II, ONcore, ONsemble, ORnet, Parallel Tasking,
Personal Routing, PrimaryView, RingBuilder, SmartAgent, SoftHub, TokenDisk,
TokenLink, Transcend, Trichannel, ViewBuilder and Viewplex are registered
trademarks of 3Com. 3System, 3ComImpact, 3Com Network Ready, 3Com Open Partners,
3Com Park, AccessView, Aperture, Arpeggio, ATMDisk, ATMLink, AutoIQ, AutoLink,
BMXSTREAM, BRASICA, CELLBUILDER, CLEARSTREAM, CLstream, DynamicAccess, FDDILink,
FlexiProbe, FLEXSTREAM, FederalLinks, Impresario, LANServant, LinkConverter,
LXSTREAM, MSH, MultiProbe, NetProbe, OfficeConnect, ONcore, ONdemand, ONline,
ONSTREAM NETWORKS, ONSTREAM, PACE, Power Grouping, PowerRing, PrimaryVision,
SuperStack, SwitchCentral, Traffix, Velocity, WANServant and ZipChip are
trademarks of 3Com. 3ComFacts, 3Community, 3Compatible, 3Fund, 3Partner,
3PartyLine, 3Secure, 3Seller, 3Source, 3STAR, Associates Program, CardFacts,
Express, Guardian, Infoline, InfoPAK, Internet Spoken Here, netWorking Partners,
Networks That go the Distance, Premier Partner, Service Manager, Service
Partner, Service Scout, Service Select Program, SupportPAK and The Power of
Access are service marks of 3Com. HST, Megahertz, Palm Computing, Sportster,
U.S. Robotics, V.Everything, WorldPort and XJack are registered trademarks of
USR. Adaptive Speed Leveling, AllPoints, BigPicture, ConferenceLink, Courier,
EdgeServer, LANLinker, NetServer, Palm OS, PalmPilot, Quick Connect, Simulcom,
Total Control, TOTALcell, TOTALswitch and x2 are trademarks of USR. This Joint
Proxy Statement/Prospectus may also include trademarks and trade names of
companies other than 3Com and USR which are the property of their respective
owners.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ ii
INFORMATION PROVIDED BY 3Com AND USR....................................................................... iv
SUMMARY.................................................................................................... 1
The Companies............................................................................................ 1
The Merger............................................................................................... 2
Date and Place of the Meetings........................................................................... 3
Securityholders Entitled to Vote......................................................................... 3
Purposes of the Meetings................................................................................. 3
Vote Required; Voting Agreements......................................................................... 3
Recommendations of the Board of Directors................................................................ 4
Reasons for the Merger; Risks Relating to the Merger..................................................... 5
Opinions of Financial Advisors........................................................................... 6
Interests of Certain Persons in the Merger............................................................... 6
Representations and Warranties; Covenants................................................................ 7
No Solicitation.......................................................................................... 8
Conditions to the Merger................................................................................. 8
Regulatory Requirements.................................................................................. 8
Termination.............................................................................................. 8
Surrender of USR Stock Certificates...................................................................... 9
Certain Federal Income Tax Consequences.................................................................. 9
Accounting Treatment..................................................................................... 9
Restrictions on Resale of 3Com Common Stock.............................................................. 9
Stock Option Agreements.................................................................................. 10
Dissenters' Rights....................................................................................... 10
Legal Proceedings........................................................................................ 11
Comparison of Securityholder Rights...................................................................... 11
The Charter Amendment.................................................................................... 11
Reincorporation of 3Com in Delaware...................................................................... 12
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........................................ 13
COMPARATIVE PER SHARE DATA................................................................................. 17
MARKET PRICE INFORMATION................................................................................... 19
RISK FACTORS............................................................................................... 21
Risks Relating to the Merger............................................................................. 21
Risks Relating to 3Com, USR and the Combined Company..................................................... 23
THE MEETINGS............................................................................................... 27
General.................................................................................................. 27
Matters To Be Considered at the Meetings................................................................. 27
Board of Directors' Recommendations...................................................................... 27
Voting at the Meetings; Record Dates..................................................................... 28
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Adjournment of the 3Com Special Meeting or the USR Special Meeting....................................... 29
Proxies.................................................................................................. 30
Dissenters' Rights....................................................................................... 31
NETWORK INDUSTRY BACKGROUND................................................................................ 33
The Computer Communications Market....................................................................... 33
Local Area Networking.................................................................................... 34
3Com--Network Systems Provider........................................................................... 35
Remote Access Over the Wide Area Network................................................................. 35
USR--Remote Access Solutions Provider.................................................................... 36
Providing End-to-End LAN/WAN Connectivity................................................................ 37
THE MERGER................................................................................................. 39
Background of the Merger................................................................................. 39
Reasons for the Merger; Recommendations of the Boards of Directors....................................... 41
Opinion of 3Com's Financial Advisor...................................................................... 47
Opinion of USR's Financial Advisor....................................................................... 50
Interest of Certain Persons in the Merger................................................................ 54
Management Following the Merger.......................................................................... 55
Employment and Noncompete Agreements..................................................................... 56
Acceleration of USR Options.............................................................................. 58
Voting Agreements........................................................................................ 58
Accounting Treatment..................................................................................... 59
Certain Federal Income Tax Consequences.................................................................. 59
Regulatory Requirements.................................................................................. 61
Federal Securities Law Compliance........................................................................ 62
Nasdaq National Market Quotations........................................................................ 62
THE MERGER AGREEMENT....................................................................................... 63
The Merger............................................................................................... 63
Conversion of Securities................................................................................. 63
Representations and Warranties........................................................................... 64
Certain Covenants and Agreements......................................................................... 64
No Solicitation.......................................................................................... 65
Indemnification.......................................................................................... 66
Conditions............................................................................................... 66
Stock Plans and Options.................................................................................. 67
Termination; Termination Fees and Expenses............................................................... 68
Amendment and Waiver..................................................................................... 71
STOCK OPTION AGREEMENTS.................................................................................... 72
General.................................................................................................. 72
Repurchase Rights and Obligations........................................................................ 73
Limitations on Certain Amounts Payable................................................................... 74
Voting Rights, Transfer Restrictions and Registration.................................................... 74
Effect of Reincorporation on Stock Option Agreements..................................................... 74
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INFORMATION CONCERNING 3Com................................................................................ 75
Business................................................................................................. 75
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 83
Management............................................................................................... 93
Stock Ownership of Certain Beneficial Owners and Management.............................................. 96
INFORMATION CONCERNING USR................................................................................. 98
Business................................................................................................. 98
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 108
Management............................................................................................... 116
Stock Ownership of Certain Beneficial Owners and Management.............................................. 119
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 120
COMPARISON OF SECURITYHOLDER RIGHTS........................................................................ 128
DESCRIPTION OF 3Com CAPITAL STOCK.......................................................................... 136
Common Stock............................................................................................. 136
Certain Charter Provisions............................................................................... 136
Preferred Stock.......................................................................................... 136
3Com Rights Plan......................................................................................... 137
THE CHARTER AMENDMENT...................................................................................... 138
Reasons for the Charter Amendment; Recommendation of 3Com Board.......................................... 138
Intended Uses............................................................................................ 138
Timing of the Charter Amendment; Conditions.............................................................. 139
THE REINCORPORATION........................................................................................ 140
General.................................................................................................. 140
Reasons for Reincorporation.............................................................................. 140
Reincorporation Procedure................................................................................ 141
Vote Required............................................................................................ 142
Certain Federal Income Tax Consequences of the Reincorporation........................................... 142
Interests of 3Com Directors and Officers................................................................. 143
3Com Board Recommendation................................................................................ 144
Significant Changes Caused by the Reincorporation........................................................ 144
LEGAL MATTERS.............................................................................................. 154
EXPERTS.................................................................................................... 154
ANNEX A--AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER................................................. A-1
ANNEX B--3Com STOCK OPTION AGREEMENT....................................................................... B-1
ANNEX C--USR STOCK OPTION AGREEMENT........................................................................ C-1
ANNEX D--OPINION OF GOLDMAN, SACHS & CO.................................................................... D-1
ANNEX E--OPINION OF MORGAN STANLEY & CO. INCORPORATED...................................................... E-1
ANNEX F--CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW.............................................. F-1
ANNEX G--FORM OF 3Com CHARTER AMENDMENT.................................................................... G-1
ANNEX H--AGREEMENT AND PLAN OF MERGER AND REINCORPORATION.................................................. H-1
ANNEX I--FORM OF DELAWARE INDEMNITY AGREEMENT.............................................................. I-1
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. UNLESS OTHERWISE
DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE
MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
SHAREHOLDERS OF 3COM AND STOCKHOLDERS OF USR ARE URGED TO READ THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS A NUMBER OF FORWARD-LOOKING
STATEMENTS WHICH REFLECT THE CURRENT VIEWS OF 3COM, 3COM DELAWARE AND/OR USR
WITH RESPECT TO FUTURE EVENTS THAT MAY HAVE AN EFFECT ON THEIR INDIVIDUAL OR
COMBINED FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE SET FORTH UNDER
"RISK FACTORS" AND ELSEWHERE HEREIN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY. SEE "RISK FACTORS" AND "THE MERGER--REASONS FOR THE MERGER;
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS."
THE COMPANIES
3COM CORPORATION. 3Com was founded on June 4, 1979 and pioneered the
networking industry. Over the years, 3Com has evolved from a supplier of
discrete networking products to a broad-based supplier of local area network
("LAN"), wide area network ("WAN") and network access systems for the large
enterprise, small business, home and network service provider markets. Today,
3Com is a multi-billion dollar company offering customers a broad range of ISO
9000-compliant global data networking solutions that include routers, hubs,
remote access servers, switches and network interface cards ("NICs") for
Ethernet, Fast Ethernet, Token Ring, fiber distributed data interface ("FDDI"),
Asynchronous Transfer Mode ("ATM") and other high speed networks. Additionally,
3Com offers Integrated Services Digital Network ("ISDN") adapters and
internetworking products for small businesses and home users, and integrated
digital remote access systems used by network service providers and
telecommunications carriers. 3Com's products are distributed and serviced
worldwide through 3Com and its partners, principally systems integrators,
value-added resellers ("VARs"), national resellers, dealers, distributors and
original equipment manufacturers ("OEMs"). Certain products, such as ISDN
digital modems, PC Card adapters and the Network Starter Kit, are also sold
through electronics catalogs and retailers.
3Com's executive offices are located at 5400 Bayfront Plaza, Santa Clara,
California 95052, and its telephone number at that address is (408) 764-5000.
U.S. ROBOTICS CORPORATION. USR, through its operating subsidiaries, is one
of the world's leading suppliers of products and systems that provide access to
information. USR designs, manufactures, markets and supports remote access
servers and concentrators, enterprise communications systems and desktop and
mobile client products, including modems, ISDN terminal adapters, hand-held
computing devices and telephony products, that connect computers and other
equipment over analog, digital, wireless and switched cellular networks,
enabling users to gain access to, manage and share data, fax, voice, sound and
video information. USR offers reliable, cost-effective solutions at all points
of network access, from the data communications center to the desktop to the
mobile user. USR designs its products to comply with all major international and
domestic communications standards and protocols which are applicable to its
products. Many of USR's products are designed using proprietary software and
architectures which facilitate greater functional integration at both the
circuit board and systems levels. This enables USR to be early to market with
new and enhanced products as technologies and standards evolve and to offer its
customers flexible solutions which both meet their immediate needs and provide
them with a longer term communications technology implementation path.
Additionally, when USR-designed products are present at both ends of a
communications link, performance and reliability can be enhanced. To provide the
broadest possible exposure to prospective purchasers and users of its products,
USR is active in all major
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domestic and international distribution channels. USR also manufactures and
sells its products to selected OEM customers.
USR's executive offices are located at 8100 N. McCormick Boulevard, Skokie,
Illinois 60076, and its telephone number at that address is (847) 982-5010.
TR ACQUISITIONS CORPORATION. Sub, a Delaware corporation, is a corporation
recently organized by 3Com for the purpose of effecting the Merger. It has no
material assets and has not engaged in any activities except in connection with
the proposed Merger. Its executive offices are located at 5400 Bayfront Plaza,
Santa Clara, California 95052, and its telephone number at that address is (408)
764-5000.
3COM (DELAWARE) CORPORATION. 3Com Delaware, a Delaware corporation, is a
corporation recently organized by 3Com for the purpose of effecting the proposed
change of 3Com's state of incorporation from California to Delaware (the
"Reincorporation"). It has no material assets and has not engaged in any
activities except in connection with the proposed Reincorporation and the
proposed Merger. Its executive offices are located at 5400 Bayfront Plaza, Santa
Clara, California 95052, and its telephone number at that address is (408)
764-5000.
As used in this Joint Proxy Statement/Prospectus, unless the context
requires otherwise, "3Com" refers to 3Com Corporation, a California corporation,
its predecessors and its subsidiaries (other than 3Com Delaware and Sub) and
"USR" refers to U.S. Robotics Corporation, its predecessors and its
subsidiaries.
THE MERGER
Upon consummation of the Merger, pursuant to the Merger Agreement, (i) Sub
will be merged with and into USR, with USR to be the surviving corporation, and
USR will become a wholly-owned subsidiary of either 3Com or, if the
Reincorporation is effected, 3Com Delaware, and (ii) each issued and outstanding
share of USR Common Stock will be converted into the right to receive 1.75
shares of 3Com Common Stock (the "Exchange Ratio"). Fractional shares of 3Com
Common Stock will not be issued in connection with the Merger. Cash will be paid
in lieu of fractional shares. See "The Merger Agreement--Conversion of
Securities."
A VOTE BY THE USR STOCKHOLDERS IN FAVOR OF APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT IS A VOTE TO RECEIVE EITHER SHARES OF 3COM OR 3COM DELAWARE,
DEPENDING UPON WHETHER THE SHAREHOLDERS OF 3COM APPROVE THE REINCORPORATION. AT
THE TIME OF THE USR SPECIAL MEETING, THE USR STOCKHOLDERS MAY NOT KNOW WHETHER
THE REINCORPORATION WILL BE CONSUMMATED. IN THE CONTEXT OF THE MERGER, "3COM
COMMON STOCK" REFERS TO THE COMMON STOCK OF 3COM OR 3COM DELAWARE, AS THE CASE
MAY BE.
Based upon the capitalization of 3Com and USR as of May 1, 1997, an
aggregate of approximately 156,342,842 shares of 3Com Common Stock would be
issued in the Merger, representing approximately 47% of the shares of 3Com
Common Stock outstanding immediately following the consummation of the Merger.
Upon consummation of the Merger, any outstanding options to purchase USR
Common Stock ("USR Options") issued under any of USR's Key Employee Stock Option
Plan, Executive Officers and Directors Stock Option Plan and 1996 Stock Option
Plan for Israeli Employees (collectively, the "USR Option Plans") shall become
exercisable in full due to the occurrence of a "change in control" as defined in
the USR Option Plans (other than options granted under such plans in
substitution for other options that were not subject to such acceleration
provision) and will be assumed by 3Com (or 3Com Delaware, as the case may be)
and will become options to acquire shares of 3Com Common Stock, adjusted to
reflect the Exchange Ratio. Immediately prior to the consummation of the Merger,
all then outstanding rights to acquire shares of USR Common Stock under USR's
Employee Stock Purchase Plan (the "USR Purchase Plan") will be exercised. See
"The Merger Agreement--Stock Plans and Options."
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The Merger Agreement provides that the 3Com Board will elect Messrs. Casey
Cowell, James E. Cowie, and Paul G. Yovovich, each of whom is a current director
of USR, to the 3Com Board effective upon consummation of the Merger. In
addition, following the Merger, certain executive officers of USR will become
executive officers and key management employees of 3Com. See "The
Merger--Management Following the Merger."
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite stockholder and shareholder approvals have been
obtained and all other conditions to the Merger have been satisfied or waived.
If the Merger is not consummated on or before September 15, 1997, USR and 3Com
each has the right (subject to certain limitations) to terminate the Merger
Agreement. See "The Merger Agreement--Termination; Termination Fees and
Expenses."
DATE AND PLACE OF THE MEETINGS
The 3Com Special Meeting will be held on June 11, 1997 at 3Com's executive
offices, located at 5400 Bayfront Plaza, Santa Clara, California, commencing at
9:00 a.m., local time.
The USR Special Meeting will be held on June 11, 1997 at the Sheraton
Chicago, Cityfront Center, located at 301 East North Water Street, Chicago,
Illinois, commencing at 11:00 a.m., local time.
SECURITYHOLDERS ENTITLED TO VOTE
Holders of record of shares of 3Com Common Stock at the close of business on
May 1, 1997 (the "3Com Record Date") are entitled to notice of and to vote at
the 3Com Special Meeting. At the 3Com Record Date, there were 178,200,471 shares
of 3Com Common Stock outstanding, each of which will be entitled to one vote on
each matter to be acted upon or which may properly come before the 3Com Special
Meeting.
Holders of record of shares of USR Common Stock at the close of business on
May 1, 1997 (the "USR Record Date") are entitled to notice of and to vote at the
USR Special Meeting. At the USR Record Date, there were 89,338,767 shares of USR
Common Stock outstanding, each of which will be entitled to one vote on each
matter to be acted upon or which may properly come before the USR Special
Meeting.
PURPOSES OF THE MEETINGS
3COM SPECIAL MEETING. The purpose of the 3Com Special Meeting is to
consider and vote upon (i) a proposal to approve and adopt the Merger Agreement
and the issuance of 3Com Common Stock in the Merger, (ii) a proposal to approve
and adopt the Charter Amendment, (iii) a proposal to approve and adopt the
Reincorporation Agreement, and (iv) such other matters as may properly be
brought before the 3Com Special Meeting, including any motion to adjourn to a
later date to permit further solicitation of proxies if necessary, or any
adjournments or postponements thereof.
USR SPECIAL MEETING. The purpose of the USR Special Meeting is to consider
and vote upon (i) a proposal to approve and adopt the Merger Agreement and (ii)
such other matters as may properly be brought before the USR Special Meeting,
including any motion to adjourn to a later date to permit further solicitation
of proxies if necessary, or any adjournments or postponements thereof. See "The
Meetings."
VOTE REQUIRED; VOTING AGREEMENTS
3COM. The approval and adoption of the Merger Agreement, the Charter
Amendment and the Reincorporation Agreement by 3Com shareholders will each
require the affirmative vote of the holders of a majority of the outstanding
shares of 3Com Common Stock entitled to vote at the 3Com Special Meeting. The
approval of the issuance of 3Com Common Stock in the Merger will require the
affirmative vote of a majority of the shares of 3Com Common Stock voted at the
3Com Special Meeting.
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The Merger and the Reincorporation are independent transactions, each of
which (if approved and if applicable conditions are met or waived) will be
effected whether or not the other transaction is approved or effected. However,
because the increase in 3Com's authorized share capital will only be necessary
if the Merger is consummated, the Charter Amendment is contingent upon the
Merger, and will only be effective if the Merger is consummated. In addition, if
the Reincorporation is approved and effected, the Charter Amendment will be
unnecessary, since the certificate of incorporation of 3Com Delaware will
provide for an initial authorized share capital of 1,000,000,000 shares.
Directors and certain executive officers of 3Com have executed and delivered
agreements and irrevocable proxies to USR (the "3Com Voting Agreements")
obligating them, among other things, to vote their shares of 3Com Common Stock
in favor of approval and adoption of the Merger Agreement and any proposal or
action which would, or could reasonably be expected to, facilitate the Merger.
Pursuant to the 3Com Voting Agreements, all of the outstanding shares of 3Com
Common Stock beneficially owned by the directors and such executive officers of
3Com and their respective affiliates (which excludes shares subject to options
to acquire 3Com Common Stock ("3Com Options")) at the 3Com Record Date
(representing less than 1% of the total number of shares of 3Com Common Stock
outstanding at such date) will be voted for approval and adoption of the Merger
Agreement and the issuance of 3Com Common Stock in the Merger.
As of May 1, 1997, directors and executive officers of USR and their
respective affiliates beneficially owned less than 1% of the outstanding shares
of 3Com Common Stock, and USR owned no shares of 3Com Common Stock.
USR. The approval and adoption of the Merger Agreement by USR stockholders
will require the affirmative vote of the holders of a majority of the
outstanding shares of USR Common Stock entitled to vote at the USR Special
Meeting.
Directors and certain executive officers of USR have executed and delivered
agreements and irrevocable proxies to 3Com (the "USR Voting Agreements")
obligating them, among other things, to vote their shares of USR Common Stock in
favor of approval and adoption of the Merger Agreement and any proposal which
would or could reasonably be expected to facilitate the Merger. Pursuant to the
USR Voting Agreements, all of the outstanding shares of USR Common Stock
beneficially owned by the directors and such executive officers of USR and their
respective affiliates (which excludes shares subject to USR Options) at the USR
Record Date (representing approximately 2% of the total number of shares of USR
Common Stock outstanding at such date) will be voted for approval and adoption
of the Merger Agreement.
As of May 1, 1997, directors and executive officers of 3Com and their
respective affiliates beneficially owned less than 1% of the outstanding shares
of USR Common Stock, and 3Com owned no shares of USR Common Stock. See "The
Meetings."
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The 3Com Board has unanimously approved the Merger Agreement and the
issuance of 3Com Common Stock in the Merger and believes that the terms of the
Merger Agreement are fair to, and that the Merger is in the best interests of,
3Com and its shareholders and unanimously recommends that the shareholders of
3Com vote FOR the approval and adoption of the Merger Agreement. The 3Com Board
has also unanimously approved the Charter Amendment and the Reincorporation
Agreement and believes that the Charter Amendment and the Reincorporation are in
the best interests of 3Com and its shareholders and unanimously recommends that
the shareholders of 3Com vote FOR approval and adoption of the Charter Amendment
and the Reincorporation Agreement and the transactions contemplated therein.
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The USR Board has unanimously approved the Merger Agreement and the Merger
and believes that the terms of the Merger Agreement are fair to, and that the
Merger is in the best interest of, USR and its stockholders and unanimously
recommends that the stockholders of USR vote FOR approval and adoption of the
Merger Agreement.
See "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors," "The Charter Amendment" and "The Reincorporation."
REASONS FOR THE MERGER; RISKS RELATING TO THE MERGER
JOINT REASONS. The Merger will create a networking industry leader with
$5.5 billion in annual revenues, more than 13,000 employees in some 45
countries, leading positions in each of its core markets and an installed base
of more customer connections to the Internet and corporate intranets than any
other company. The combined company will be able to provide customers worldwide
with comprehensive, end-to-end, LAN/WAN networking solutions with superior
product offerings at virtually all points of network connection and access, from
enterprise and LAN workgroup switching and routing systems, to carrier class
remote access systems, to branch and small office LAN and remote access
solutions, to intelligent network interface devices (NICs, ISDN terminal
adapters and high speed modems) on the desktop and on mobile and wireless
platforms. 3Com and USR believe that the combined company will be competitively
positioned to provide the industry's best solutions from the data center/central
office to the edge of the network and in new and emerging markets. Each of 3Com
and USR believes that its markets are evolving to a point where customers are
seeking more integrated solutions. By anticipating these needs and putting in
place these capabilities at this time, the combined company should be well
positioned to serve its customers and thereby provide its shareholders the
opportunity for future value creation.
3COM. 3Com's goals have included expanding its product offerings,
technologies and customer bases in the remote access and WAN areas, increasing
the overall size and scope of its operations, and expanding its distribution
channels, particularly network service provider and retail channels. The 3Com
Board believes that the combination with USR will assist 3Com in achieving these
goals. The 3Com Board believes that the technologies, product lines and
fundamental business and operating strategies of 3Com and USR are complementary
and consistent, that 3Com and USR together can provide a greater range of
products and superior market coverage compared to any alternative combination,
and that a combination of the two companies provides a greater potential for
enhanced shareholder value than does the continuation of 3Com's operations in
their present form or any of the alternative business strategies that it
considered.
USR. The USR Board believes that the technologies, product lines and
fundamental business and operating strategies of USR and 3Com are complementary
and consistent, that USR and 3Com together can provide a greater range of
products and superior market coverage compared to any alternative combination,
and that a combination of the two companies provides a greater potential for
enhanced shareholder value than does either the continuation of USR's operations
in their present form or a combination with any other potential merger partner.
Because the consideration to be received in the Merger consists of common stock
and not cash or other non-equity consideration, the Merger will offer the
stockholders of USR the opportunity to continue to participate in the growth and
appreciation of the business conducted by the combined company.
RISKS RELATING TO THE MERGER. The Merger presents certain risks and
uncertainties, discussed under "Risk Factors." In addition to those risks, in
evaluating the Merger the Board of Directors of 3Com and of USR also considered
a number of risks and possible negative consequences, described below.
The 3Com Board considered, among others, the following risks, uncertainties
and possible negative consequences: (i) the risk that the issuance of 3Com
Common Stock in the Merger could be dilutive to current 3Com shareholders if
anticipated synergies are not realized, (ii) the effect of the public
announcement of the Merger on 3Com's sales, customer relations, operating
results, ability to retain employees and
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the trading price of 3Com Common Stock, (iii) the risk that the Merger would not
be consummated, (iv) the risk that the benefits sought in the Merger would not
be obtained, (v) the substantial charges expected to be incurred in connection
with the Merger, including costs associated with the integration of the two
companies, (vi) potentially substantial management time and effort that would be
required to consummate the Merger and integrate the operations of the two
companies, and (vii) the impact of the Merger on 3Com and USR personnel, and, in
particular, the effect of the acceleration of USR options in the Merger and the
potential expenses associated with the severance arrangements of certain USR
employees. In the judgment of the 3Com Board, the potential benefits of the
Merger clearly outweighed the risks inherent in the transaction.
The USR Board considered, among others, the following risks, uncertainties
and possible negative consequences: (i) the risk that the benefits sought in the
Merger would not be obtained, (ii) the risk that the Merger would not be
consummated, (iii) the effect of the public announcement of the Merger on USR's
sales, customer relations, operating results and ability to retain employees,
and on the trading price of USR Common Stock, (iv) potentially substantial
management time and effort that would be required to consummate the Merger and
integrate the operations of the two companies, and (v) the impact of the Merger
on USR and 3Com personnel. In the judgment of the USR Board, the potential
benefits of the Merger clearly outweighed the risks inherent in the transaction.
For further information concerning the parties' reasons for the Merger, see
"The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors."
OPINIONS OF FINANCIAL ADVISORS
3COM. Goldman, Sachs & Co. ("Goldman Sachs") delivered its oral opinion to
the 3Com Board on February 24, 1997, that, subject to the resolution of certain
matters set forth in the then-current draft of the Merger Agreement, as of such
date, the Exchange Ratio pursuant to the Merger Agreement was fair to 3Com.
Goldman Sachs subsequently confirmed its oral opinion by delivering its written
opinion dated February 26, 1997 that, as of such date, the Exchange Ratio
pursuant to the Merger Agreement was fair to 3Com. Goldman Sachs also delivered
its written opinion dated the date of this Joint Proxy Statement/ Prospectus
that as of the date of this Joint Proxy Statement/Prospectus, the Exchange Ratio
pursuant to the Merger Agreement is fair to 3Com. The full text of the written
opinion of Goldman Sachs, dated the date of this Joint Proxy
Statement/Prospectus, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is attached
hereto as Annex D and is incorporated herein by reference. HOLDERS OF 3COM
COMMON STOCK ARE URGED TO, AND SHOULD, READ GOLDMAN SACHS' OPINION IN ITS
ENTIRETY. See "The Merger--Opinion of 3Com's Financial Advisor."
USR. Morgan Stanley & Co. Incorporated ("Morgan Stanley") delivered its
oral opinion to the USR Board on February 25, 1997, confirmed in writing as of
February 26, 1997, to the effect that, as of the date of such opinion, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to the holders of USR Common Stock. Morgan Stanley subsequently
confirmed its written opinion by delivery of a written opinion dated the date of
this Joint Proxy Statement/Prospectus which is substantially the same as the
written opinion dated as of February 26, 1997. The full text of the written
opinion of Morgan Stanley, dated the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made, procedures
followed, matters considered and limits of Morgan Stanley's review, is attached
hereto as Annex E and is incorporated herein by reference. HOLDERS OF USR COMMON
STOCK ARE URGED TO, AND SHOULD, READ MORGAN STANLEY'S OPINION IN ITS ENTIRETY.
See "The Merger--Opinion of USR's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of May 1, 1997, the executive officers and directors of USR and their
affiliates owned or held options to acquire an aggregate of 10,264,621 shares of
USR Common Stock (including 8,481,296 shares of USR Common Stock subject to USR
Options, all of which will be exercisable immediately following the consummation
of the Merger).
6
<PAGE>
The directors and certain executive officers of USR and 3Com holding in the
aggregate less than 2% and less than 1% respectively of the shares of USR Common
Stock and 3Com Common Stock outstanding as of the respective record dates, have
entered into voting agreements with 3Com and USR, respectively, pursuant to
which each has agreed to vote in favor of the Merger and related matters. See
"The Merger-- Voting Agreements."
Pursuant to the Merger Agreement, upon the consummation of the Merger, Casey
Cowell, James E. Cowie and Paul G. Yovovich, directors of USR, will be elected
to the 3Com Board. Mr. Yovovich will also become a member of the 3Com Board's
two-person Compensation Committee (the "3Com Compensation Committee"). In
addition, Mr. Cowell will become Vice Chairman of 3Com and certain other
executive officers of USR will become executive officers and key management
employees of 3Com.
In connection with the execution of the Merger Agreement, Mr. Cowell, John
McCartney, Jonathan N. Zakin, Ross W. Manire and Michael S. Seedman, executive
officers of USR, entered into, and additional executive officers of USR will be
asked to enter into, noncompete agreements and amendments to their existing
employment agreements with USR. Such existing employment agreements provide that
such persons will be entitled to receive severance payments in certain
circumstances, including following any termination of their employment,
voluntarily or involuntarily, within one year after a "change in control" of
USR, including the change in control that will be deemed to result from the
consummation of the Merger. The amendments reduce the potential bonus
compensation payable to these individuals under the existing agreements and
extend from one to two years the period following the Merger during which a
termination of the employment of these individuals, voluntarily or
involuntarily, would entitle them to receive severance payments as a result of
the "change in control." Assuming the termination of the employment of all of
the USR executive officers and other employees who are parties to such
employment agreements immediately following consummation of the Merger, the
combined company's aggregate liability under the severance provisions contained
therein could be as much as approximately $26.3 million. See "Risk
Factors--Risks Relating to the Merger--Potential Severance Payment Liabilities"
and "The Merger--Employment and Noncompete Agreements."
Under the provisions of the USR Option Plans, substantially all of the
outstanding USR Options will become exercisable in full upon the consummation of
the Merger. As a result of such acceleration, USR Options to purchase an
aggregate of 11,483,693 shares of USR Common Stock, which otherwise would have
become vested over future periods ranging from four to 60 months, will become
vested and fully exercisable upon the consummation of the Merger, including USR
Options to purchase an aggregate of 4,856,437 shares of USR Common Stock held by
directors and executive officers of USR. See "The Merger--Acceleration of USR
Options."
Pursuant to the Merger Agreement, 3Com has agreed to indemnify each person
who was an officer, director or employee of USR against certain liabilities. In
addition, 3Com has agreed to maintain, with certain limitations, policies of
directors' and officers' liability insurance comparable to those currently
maintained by USR. See "The Merger Agreement--Indemnification."
As a result of the foregoing transactions and agreements, the directors and
executive officers of USR may have personal interests in the Merger which are
not identical to the interests of other USR stockholders. See "The
Merger--Interests of Certain Persons in the Merger."
REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Merger Agreement, 3Com and USR, respectively, made a number of
representations and warranties regarding their respective capital structures,
operations, financial condition and other matters. Each party agreed as to
itself and its subsidiaries that, until consummation of the Merger or the
earlier termination of the Merger Agreement, it will, among other things,
maintain its business, conduct its operations in the ordinary course, provide
the other with reasonable access to its financial, operating and
7
<PAGE>
other information, and use all reasonable efforts to consummate the Merger. See
"The Merger Agreement--Representations and Warranties" and "--Certain Covenants
and Agreements."
NO SOLICITATION
Subject to the fiduciary duties of their respective directors, each of USR
and 3Com has agreed to refrain from directly or indirectly (i) soliciting,
initiating, or encouraging a Competing Offer, as defined in the Merger
Agreement, (ii) engaging in negotiations or discussions concerning a Competing
Offer, (iii) providing any non-public information to any person or entity
relating to a Competing Offer, or (iv) approving or recommending any Competing
Offer. See "The Merger Agreement--No Solicitation."
CONDITIONS TO THE MERGER
The respective obligations of USR and 3Com to effect the Merger are subject
to the satisfaction of certain conditions, including, but not limited to,
obtaining requisite stockholder, shareholder and regulatory approvals, the
approval for quotation on The Nasdaq National Market of the 3Com Common Stock to
be issued pursuant to the Merger, the absence of any injunction prohibiting
consummation of the Merger, the accuracy of the representations and warranties
contained in the Merger Agreement, the receipt of certain legal opinions with
respect to tax matters and the receipt and confirmation of certain accountants'
letters with respect to the qualification of the Merger as a pooling of
interests transaction. See "The Merger Agreement--Conditions."
REGULATORY REQUIREMENTS
The consummation of the Merger is subject to certain regulatory
requirements, including expiration or termination of the applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and applicable foreign laws, and receipt of required
approvals under applicable foreign laws. On March 18, 1997, 3Com and USR each
filed a notification and report form under the HSR Act with respect to the
Merger, together with a request for early termination of the applicable 30-day
waiting period. The waiting period under the HSR Act expired on April 17, 1997,
without a request for additional information or other adverse action by either
the Antitrust Division of the United States Department of Justice or United
States Federal Trade Commission. The companies have obtained clearance or other
comparable favorable action for the Merger in Germany and Ireland and have made
filings and are currently in the process of seeking approvals that may be
required in the United Kingdom, Belgium and Sweden. See "The Merger--Regulatory
Requirements."
TERMINATION
The Merger Agreement is subject to termination by mutual written consent of
3Com and USR, at the option of either 3Com or USR if the Merger is not
consummated before September 15, 1997, or prior to such time upon the occurrence
of certain events. The September 15, 1997 termination date may be extended up to
90 days by either party if required approvals or consents have not been obtained
and are obtainable in such period. See "The Merger Agreement--Termination;
Termination Fees and Expenses."
Under certain circumstances, either 3Com or USR may be required to reimburse
the other party for its documented Merger-related expenses of up to $10 million.
In addition, either 3Com or USR may be required to pay the other party an
initial termination fee of $75 million if the Merger Agreement is terminated
under certain circumstances with an alternative business combination involving
such party pending and an additional termination fee of $75 million if an
alternative business combination is consummated or a definitive agreement with
respect to such a transaction is entered into by such party within 12 months
after payment of the initial termination fee. See "The Merger
Agreement--Termination; Termination Fees and Expenses."
8
<PAGE>
SURRENDER OF USR STOCK CERTIFICATES
When the Merger becomes effective, The First National Bank of Boston (the
"Exchange Agent") will mail a letter of transmittal with instructions to all
holders of record of USR Common Stock immediately prior to the Merger for use in
surrendering their USR stock certificates in exchange for certificates
representing shares of 3Com Common Stock and a cash payment in lieu of
fractional shares, if any. USR STOCKHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL. See "The Merger
Agreement--Conversion of Securities."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss would generally be recognized by 3Com or
USR, no gain or loss would generally be recognized by USR stockholders, except
in respect of cash received in lieu of fractional shares and no gain or loss
would generally be recognized by 3Com shareholders, except in respect of cash
received pursuant to the exercise of dissenters' rights. Each USR stockholder,
and each 3Com shareholder intending to exercise dissenters' rights, is urged to
consult his, her or its own tax advisors as to the specific tax consequences of
the Merger to such stockholder. It is a condition to the Merger that 3Com and
USR each shall have received an opinion of its respective counsel to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). For a
further discussion of the federal income tax consequences of the Merger, see
"The Merger--Certain Federal Income Tax Consequences." See also "The Merger
Agreement--Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. 3Com and USR have received letters from
Deloitte & Touche LLP and Grant Thornton LLP, respectively, dated as of the date
of this Joint Proxy Statement/Prospectus, stating that they know of nothing that
would prohibit the business combination to be effected by the Merger from
qualifying as a pooling of interests transaction under generally accepted
accounting principles. The obligations of 3Com and USR to consummate the Merger
are conditioned upon the receipt of letters from Deloitte & Touche LLP and Grant
Thornton LLP, respectively, dated as of the closing date of the Merger,
confirming their earlier letters. See "The Merger--Accounting Treatment."
RESTRICTIONS ON RESALE OF 3COM COMMON STOCK
The shares of 3Com Common Stock issuable to stockholders of USR upon
consummation of the Merger will have been registered under the Securities Act at
the Effective Time. Such shares may be freely traded without restriction by
those USR stockholders who are not deemed to be "affiliates" of 3Com or USR, as
that term is defined in the rules under the Securities Act.
Shares of 3Com Common Stock received by stockholders of USR who are deemed
to be affiliates of USR or 3Com may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Each affiliate of USR has agreed
not to offer, sell, pledge, transfer or otherwise dispose of any shares of 3Com
Common Stock distributed pursuant to the Merger, except in compliance with Rule
145 under the Securities Act, or in a transaction that is otherwise exempt from
the registration requirements of the Securities Act and an opinion of counsel,
satisfactory to 3Com, has been provided to 3Com to the effect that no such
registration is required in connection with the proposed transaction, or in an
offering that is registered under the Securities Act. In addition, each
affiliate of 3Com and USR has agreed not to sell, transfer or otherwise dispose
of, or reduce such person's interest in or risk relating to (i) any shares of
3Com Common Stock or USR Common Stock and (ii) any shares of 3Com Common Stock
issued to such person in the Merger or otherwise beneficially owned by such
person, except in each case for amounts of USR Common Stock and
9
<PAGE>
3Com Common Stock not more than the de minimis amount permitted by the rules and
releases of the Commission relating to pooling of interests accounting
treatment, during the period beginning 30 days prior to the Closing Date and
ending on the day after 3Com has published financial results covering at least
30 days of combined operations of 3Com and USR. See "The Merger--Federal
Securities Law Compliance."
STOCK OPTION AGREEMENTS
Pursuant to reciprocal stock option agreements dated February 26, 1997 (the
"Stock Option Agreements"), 3Com and USR have each granted to the other party an
option to acquire, under certain circumstances, a number of shares of its common
stock equivalent to 19.9% of its issued and outstanding common stock as of
February 26, 1997. Under the Stock Option Agreements, 3Com has the right, under
certain circumstances, to purchase shares of USR Common Stock at a price of
$70.1094 per share, payable either in cash or in shares of 3Com Common Stock, at
the Exchange Ratio of 1.75 3Com shares for each USR share, and USR has the
right, under certain circumstances, to purchase shares of 3Com Common Stock at a
price of $40.0625 per share, payable either in cash or in shares of USR Common
Stock. Each option becomes exercisable upon the occurrence of any event that
causes an initial termination fee to become payable by the other party under the
Merger Agreement. In general, the maximum net proceeds that may be retained by
either party from the exercise of either such stock option and the sale of the
underlying stock is $250,000,000, of which not more than $150,000,000 is payable
by USR or 3Com. See "Stock Option Agreements--General" and "The Merger
Agreement--Termination; Termination Fees and Expenses."
Each Stock Option Agreement gives the option holder the right, under certain
circumstances, to require the option grantor to repurchase all or any portion of
the option or the shares acquired thereunder. See "Stock Option
Agreements--Repurchase Rights and Obligations."
Each Stock Option Agreement provides that any shares acquired thereunder
must be voted for and against each matter submitted to a vote of the other
party's stockholders in the same proportion as all other shares are voted. See
"Stock Option Agreements--Voting Rights, Transfer Restrictions and
Registrations."
DISSENTERS' RIGHTS
USR. Holders of USR Common Stock are not entitled to appraisal, dissenters'
or other similar rights under the Delaware General Corporation Law (the "DGCL")
in connection with the Merger. See "The Meetings--Dissenters' Rights."
3COM. If holders of 5% or more of the outstanding shares of 3Com Common
Stock entitled to vote at the 3Com Special Meeting vote against the approval and
adoption of the Merger Agreement and comply with certain other procedures, 3Com
shareholders will be entitled to exercise dissenter's rights pursuant to the
provisions of Chapter 13 of the California General Corporation Law (the "CGCL").
In accordance with these provisions, dissenting 3Com shareholders will have the
right to be paid the "fair market value" of their shares of 3Com Common Stock by
fully complying with the procedures specified in the CGCL. The failure of a
dissenting 3Com shareholder to timely and properly comply with such procedures
will result in the termination or waiver of such rights. See "The
Meetings--Dissenters' Rights" and Annex F hereto.
Holders of 3Com Common Stock are not entitled to dissenters' rights under
the CGCL in connection with the Reincorporation.
10
<PAGE>
LEGAL PROCEEDINGS
USR and 3Com have been named as defendants in putative USR stockholder class
action lawsuits relating to the Merger which allege, among other things,
breaches of fiduciary duty on the part of the USR Board. 3Com and USR believe
that these lawsuits are without merit and intend to contest them vigorously.
3Com is also a party to a putative 3Com shareholder class action lawsuit which
alleges fraud, negligent misrepresentation and violations of the California
securities laws. 3Com believes that this lawsuit is without merit and intends to
contest it vigorously. See "Information Concerning 3Com--Business--Legal
Proceedings" and "Information Concerning USR--Business--Legal Proceedings."
COMPARISON OF SECURITYHOLDER RIGHTS
See "Comparison of Securityholder Rights" for a summary of the material
differences between the rights of holders of USR Common Stock and 3Com Common
Stock. See "The Reincorporation" for a comparison of the rights of holders of
3Com Common Stock before the Reincorporation and the rights of such holders if
the Reincorporation is approved and effected.
THE CHARTER AMENDMENT
3Com is submitting to the 3Com shareholders a proposal to approve and adopt
an amendment to 3Com's Articles of Incorporation to increase the number of
shares of capital stock which 3Com is authorized to issue from 403,000,000 to
1,000,000,000. As of May 1, 1997, approximately 178,200,471 shares of 3Com
Common Stock are issued and outstanding, and approximately 38,274,395 additional
shares of 3Com Common Stock are reserved for issuance pursuant to 3Com's
employee stock option and stock purchase plans (including approximately
28,269,105 shares reserved for issuance under outstanding options). In addition,
as of May 1, 1997, approximately 178,200,471 shares of 3Com Common Stock are
reserved for issuance pursuant to rights granted under 3Com's Amended and
Restated Rights Agreement, dated as of December 21, 1994 (the "3Com Rights
Plan"). See "Description of 3Com Capital Stock-- 3Com Rights Plan." It is
anticipated that an aggregate of approximately 156,342,842 additional shares of
3Com Common Stock will be issued in the Merger and that a like number of shares
of 3Com Common Stock will need to be reserved for issuance under the 3Com Rights
Plan. In addition, approximately 31,724,917 shares of 3Com Common Stock will
need to be reserved following the Merger for issuance upon exercise of USR stock
options that will be assumed by 3Com. Unless the Charter Amendment is approved
and adopted, the combined company will have insufficient shares to complete the
Merger and at the same time meet its reserve obligations under the 3Com Rights
Plan. If the Charter Amendment is not approved, 3Com would need to amend the
3Com Rights Plan and eliminate the plan's reserve protections in order to
complete the Merger and at the same time maintain compliance with the plan's
requirements. Even then, the combined company would have only minimal shares
remaining for future option grants, issuance under stock purchase plans,
corporate acquisitions and other purposes.
Accordingly, the 3Com Board believes that 3Com's present authorized capital
will be inadequate to meet Merger-related needs and at the same time provide
adequate reserves and flexibility for employee compensation and incentive
programs, the 3Com Rights Plan and possible future corporate acquisitions.
Accordingly, the 3Com Board believes that it is advisable and in the best
interests of 3Com and its shareholders to increase to 1,000,000,000 the number
of shares of 3Com capital stock which 3Com is authorized to issue.
Because the increase in 3Com's authorized share capital will only be
necessary if the Merger is consummated, the Charter Amendment is contingent
upon, and will only be effective, if the Merger is consummated. In addition, if
the Reincorporation is approved and effected, the Charter Amendment will be
unnecessary, because the certificate of incorporation of 3Com Delaware will
provide for an initial authorized share capital of 1,000,000,000 shares. For
further discussion, see "The Charter Amendment."
11
<PAGE>
REINCORPORATION OF 3COM IN DELAWARE
3Com is also submitting to the 3Com shareholders a proposal to change 3Com's
state of incorporation from California to Delaware and, in furtherance thereof,
to approve and adopt the Reincorporation Agreement.
The 3Com Board has unanimously approved the proposal to change 3Com's state
of incorporation from California to Delaware. In recent years, a number of major
public corporations have obtained the approval of their shareholders to
reincorporate in Delaware. The 3Com Board believes that it is beneficial and
important that 3Com likewise obtain the advantages of Delaware law. The 3Com
Board believes the proposed change in domicile is in the best interests of 3Com
and its shareholders for several reasons, including: (i) the greater
predictability and flexibility afforded by Delaware corporate law and its
greater responsiveness to corporate needs, (ii) the more favorable and
predictable corporate environment afforded by Delaware to corporate directors
and officers and (iii) the greater certainty afforded by Delaware law with
respect to directors' duties in the face of takeover offers and with respect to
anti-takeover measures.
The Reincorporation, if approved, will also have the effect, among others,
of increasing the number of shares of capital stock authorized for issuance from
403,000,000 to 1,000,000,000. See "The Reincorporation" and "Comparison of
Securityholder Rights."
The Reincorporation is not intended to and will not affect the rights of any
of the parties to any of the lawsuits to which 3Com is a party, including
without limitation, the putative shareholder class action filed against 3Com in
the California Superior Court. See "Information Concerning 3Com--Business--Legal
Proceedings."
If both the Merger and the Reincorporation are approved, the Reincorporation
will be effected immediately prior to the consummation of the Merger. However,
the Merger and the Reincorporation are independent transactions, each of which
(if approved and if applicable conditions are met or waived) will be effected
whether or not the other transaction is approved or effected. The Merger
Agreement was amended as of March 14, 1997 to provide that the consideration to
be received by the USR stockholders would be 1.75 shares of common stock of
either 3Com Corporation, a California corporation or, if the Reincorporation is
approved, 3Com Corporation, a Delaware corporation. In the context of the
Merger, references herein to 3Com Common Stock are references to the common
stock of 3Com or 3Com Delaware, as the case may be.
The Reincorporation is intended to be a tax-free reorganization for federal
income tax purposes, so that no gain or loss would generally be recognized by
3Com or 3Com Delaware and no gain or loss would generally be recognized by 3Com
shareholders. Each 3Com shareholder is urged to consult his, her or its own tax
advisors as to the specific tax consequences of the Reincorporation to such
shareholder. The Merger Agreement provides that the Reincorporation will not be
effected unless 3Com and USR each shall have received an opinion of its
respective counsel to the effect that the Reincorporation, if effected, will
constitute a reorganization within the meaning of Section 368(a) of the Code.
For a further discussion of the federal income tax consequences of the
Reincorporation, see "The Reincorporation--Certain Federal Income Tax
Consequences of the Reincorporation."
12
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected historical consolidated financial data of 3Com as of and for
the fiscal years ended May 31, 1992 through 1996 and the selected historical
consolidated financial data of USR as of and for the fiscal years ended October
2, 1992, October 1, 1993, October 2, 1994, October 1, 1995 and September 29,
1996 have been derived from their respective audited historical consolidated
financial statements and the notes thereto, which are incorporated by reference
in this Joint Proxy Statement/Prospectus, and should be read in conjunction with
such financial statements and notes thereto. The selected historical unaudited
consolidated financial data for 3Com and USR as of and for the nine months ended
February 28, 1997 and three months ended December 29, 1996, respectively, have
been derived from their respective unaudited historical financial statements and
the notes thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, and should be read in connection with such financial
statements and the notes thereto. In the opinion of the managements of 3Com and
USR, respectively, such unaudited financial data reflect all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of the results of operations for such periods. These interim
operating results of 3Com and USR are not necessarily indicative of the results
that may be expected for their respective entire fiscal years ending May 31,
1997 and September 28, 1997.
The selected unaudited pro forma combined financial data give effect to the
proposed Merger on a pooling of interests basis. The unaudited pro forma
combined financial data are based on the respective historical consolidated
financial statements and the notes thereto, which are incorporated by reference
in this Joint Proxy Statement/Prospectus. The unaudited pro forma combined
balance sheet assumes that the Merger took place on February 28, 1997 and
combines 3Com's February 28, 1997 unaudited consolidated balance sheet with
USR's December 29, 1996 unaudited consolidated balance sheet. The unaudited pro
forma combined statements of operations assume that the Merger took place as of
the beginning of the periods presented and combine 3Com's consolidated
statements of operations for the nine months ended February 28, 1997 (unaudited)
and for the fiscal years ended May 31, 1996, 1995 and 1994 with USR's
consolidated results of operations for the nine months ended December 29, 1996
(unaudited), and for the fiscal years ended September 29, 1996, October 1, 1995
and October 2, 1994, respectively. This presentation is consistent with the
fiscal years expected to be combined after the date of the closing of the Merger
and has the effect of including USR's results of operations for the six-month
period ended September 29, 1996 in both the fiscal year ended September 29, 1996
and the nine months ended December 29, 1996 included in the unaudited pro forma
combined statements of operations.
The unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the entities been a single entity
during these periods. The unaudited pro forma combined financial data is derived
from the unaudited pro forma combined financial statements included elsewhere
herein and should be read in conjunction with those statements and notes
thereto. See "Unaudited Pro Forma Combined Financial Statements."
13
<PAGE>
3COM
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------- FISCAL YEAR ENDED MAY 31,
FEBRUARY 28, FEBRUARY 29, ----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENTS OF OPERATIONS
DATA:
Sales...................... $2,317,214 $1,666,835 $ 2,327,101 $ 1,593,469 $ 1,011,533 $ 723,231 $ 482,416
Operating income........... 431,781 229,970 301,681 224,456 23,497 69,910 8,138
Net income (loss)(1)....... 284,786 148,356 177,854 144,559 (11,870) 45,047 7,983
Net income (loss) per
common and equivalent
share(1)................. $1.53 $0.84 $1.00 $0.84 $(0.08) $0.30 $0.05
Common and equivalent
shares used in computing
per share amounts........ 185,842 176,262 176,972 171,079 145,139 147,901 146,420
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA (END OF
PERIOD):
Working capital............ $ 1,159,898 $ 785,360 $ 825,190 $ 570,691 $ 307,017 $ 244,767 $ 187,278
Total assets............... 2,134,213 1,415,095 1,525,117 1,074,810 614,688 458,869 361,248
Long-term obligations...... 115,192 115,141 115,492 116,221 4,642 4,833 13,220
Shareholders' equity....... 1,406,381 904,225 978,805 633,724 414,122 323,307 247,100
</TABLE>
- ------------------------
(1) Net income for the nine months ended February 28, 1997 included a charge of
approximately $6.6 million ($.04 per share) for merger-related costs
associated with the acquisition of OnStream Networks, Inc.
Net income for the nine months ended February 29, 1996 included a charge of
approximately $69.0 million ($.28 per share) for merger-related costs
associated with the acquisition of Chipcom Corporation ("Chipcom").
Net income for fiscal 1996 included a charge of approximately $69.0 million
($.28 per share) for merger-related costs associated with the acquisition of
Chipcom, a charge of approximately $52.4 million ($.29 per share) for
purchased in-process technology associated with the acquisition of AXON
Networks, Inc., and a charge of approximately $1.0 million (approximately
$.01 per share) for a litigation settlement.
Net income for fiscal 1995 included a charge of approximately $68.7 million
($.25 per share) for purchased in-process technology primarily associated
with the acquisition of NiceCom, Ltd. and Chipcom's acquisition of DSI
ExpressNetworks, Inc. and a charge of $11.2 million ($.06 per share) for
merger-related costs associated with the acquisitions of Sonix
Communications Limited and Primary Access Corporation, and Chipcom's
acquisition of Artel Communications Corporation, and a credit of $1.1
million ($.01 per share) for a reduction in accrued restructuring costs
based on revised estimates of future costs.
Net loss for fiscal 1994 included a charge of approximately $134.5 million
($.82 per share) for purchased in-process technology resulting from 3Com's
acquisitions of Synernetics, Inc. and Centrum
14
<PAGE>
Communications, Inc. and an exclusive technology licensing agreement with
Pacific Monolithics, Inc., a gain of approximately $17.7 million ($.07 per
share) relating to the sale of an investment and a tax benefit of $1.2
million ($.01 per share) resulting from retroactive tax law changes.
Net income for fiscal 1993 included non-recurring items totaling $1.3
million ($.01 per share) which consisted of the net cost of a litigation
settlement of $3.6 million and merger costs of $1.0 million related to the
acquisition of Star-Tek, Inc., offset by a reduction in accrued
restructuring costs of $3.3 million based on revised estimates of future
costs.
Net income for fiscal 1992 included a charge of approximately $10.4 million
($.07 per share) for purchased in-process technology resulting from 3Com's
acquisition of the data networking products business of BICC Group, plc.
USR
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
------------------------ ------------------------------------------------------------
DEC. 29, DEC. 31, SEPT. 29, OCT. 1, OCT. 2, OCT. 1, OCT. 2,
1996 1995 1996 1995 1994 1993 1992
------------ ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENTS
OF EARNINGS DATA:
Sales............................. $ 645,412 $ 364,812 $ 1,977,512 $ 889,347 $ 499,075 $ 242,653 $ 129,678
Operating profit.................. 111,000 63,748 299,327 107,062 57,266 36,307 19,029
Net income(1)..................... 69,029 41,645 170,020 65,951 36,121 24,119 11,859
Net income per common and
equivalent share(1)............. $0.72 $0.45 $1.79 $0.77 $0.47 $0.35 $0.19
Common and equivalent shares used
in computing per share
amounts......................... 96,327 92,931 94,932 85,304 76,368 68,132 61,008
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA (END OF PERIOD):
Working capital................... $ 469,697 $ 399,453 $ 416,905 $ 367,981 $ 194,994 $ 110,040 $ 46,282
Total assets...................... 1,216,349 746,343 1,067,283 659,623 323,277 200,863 80,145
Long-term obligations............. 54,922 65,431 54,044 65,651 69,464 326 604
Stockholders' equity.............. 765,313 480,104 671,870 424,395 195,717 148,985 61,630
</TABLE>
- ------------------------
(1) Net income for the fiscal year ended September 29, 1996 included a charge of
$54.0 million ($54.0 million after tax, or $.57 per share) related to
purchased in-process technology resulting from USR's acquisition of Scorpio
Communications Ltd.
Net income for the fiscal year ended October 1, 1995 included a charge of
$29.4 million ($23.2 million after tax, or $.27 per share) related to
non-recurring merger costs resulting from USR's acquisition of Megahertz
Holding Corporation.
15
<PAGE>
3COM AND USR
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FISCAL YEAR ENDED MAY 31,
FEBRUARY 28, ----------------------------------------
1997 1996 1995 1994
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:
Sales.............................................. $ 4,120,821 $ 4,304,613 $ 2,482,816 $ 1,510,608
Operating income................................... 698,423 601,008 331,518 80,763
Net income......................................... 430,585 347,874 210,510 24,251
Net income per common and equivalent share(1)...... $1.22 $1.01 $0.65 $0.08
Common and equivalent shares used in computing per
share amounts.................................... 354,260 343,691 322,767 291,748
PRO FORMA COMBINED BALANCE SHEET DATA (END OF
PERIOD):
Working capital.................................... $ 1,419,595
Total assets....................................... 3,238,056
Long-term obligations.............................. 170,114
Shareholders' equity............................... 1,929,694
Book value per share(2)............................ $ 5.79
</TABLE>
- ------------------------
(1) The pro forma combined net income per common and equivalent share, presented
here on a fully diluted basis, is based upon the pro forma weighted average
number of common and equivalent shares outstanding of 3Com and USR for each
period at the Exchange Ratio of 1.75 shares of 3Com Common Stock for each
share of USR Common Stock.
(2) Pro forma combined book value per share is computed by dividing pro forma
combined shareholders' equity by the pro forma number of shares of Common
Stock outstanding at the end of the period at the Exchange Ratio of 1.75
shares of 3Com Common Stock for each share of USR Common Stock.
16
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth certain historical per share data of 3Com and
USR and unaudited pro forma and equivalent pro forma combined per share data
after giving effect to the proposed Merger on a pooling of interests basis at
the Exchange Ratio of 1.75 shares of 3Com Common Stock for each share of USR
Common Stock. This data should be read in conjunction with the selected
historical consolidated financial data and the unaudited pro forma combined
financial statements included in this Joint Proxy Statement/Prospectus and the
separate historical consolidated financial statements of 3Com and USR and the
notes thereto incorporated by reference in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results or financial position that would
have been achieved had the Merger been consummated at the beginning of the
periods presented and should not be construed as indicative of future
operations. Neither USR nor 3Com has ever declared or paid cash dividends on
their respective shares of capital stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
NINE MONTHS ENDED -------------------------------
FEBRUARY 28, 1997 1996 1995 1994
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Historical-3Com:
Net income (loss) per share(1)................................... $ 1.53 $ 1.00 $ 0.84 $ (0.08)
Book value per share(2).......................................... 7.92 5.80
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
THREE MONTHS ENDED SEPT. 29 OCT. 1 OCT. 2
DECEMBER 29, 1996 1996 1995 1994
------------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Historical-USR:
Net income per share(1)......................................... $ 0.72 $ 1.79 $ 0.77 $ 0.47
Book value per share(2)......................................... 8.60 7.62
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
NINE MONTHS ENDED -------------------------------
FEBRUARY 28, 1997 1996 1995 1994
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pro forma and equivalent pro forma combined net income per
share(3)(4):
Pro forma combined net income per 3Com share..................... $ 1.22 $ 1.01 $ 0.65 $0.08
Equivalent pro forma combined net income per USR share(5)........ 2.14 1.77 1.14 0.14
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-------------------
<S> <C> <C> <C> <C>
Pro forma combined book value per share(3)(4)(6):
Pro forma combined book value per 3Com share..................... $ 5.79
Equivalent pro forma combined book value per USR share(5)........ 10.13
</TABLE>
- ------------------------
(1) The historical net income (loss) per common and equivalent share is based
upon the weighted average number of common and equivalent shares of 3Com and
USR outstanding for each period, except in loss periods in which the
equivalent shares are excluded as their effect would be antidilutive.
(2) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of Common Stock outstanding at the end of
each period.
(3) The unaudited pro forma combined net income per common and equivalent share
data, presented here on a fully diluted basis, is based upon the weighted
average number of common and equivalent shares outstanding of 3Com and USR
for each period at the Exchange Ratio of 1.75 shares of 3Com Common Stock
for each share of USR Common Stock. Net income (loss) of 3Com for the nine
17
<PAGE>
months ended February 28, 1997 and for the fiscal years ended May 31, 1996,
1995 and 1994 has been combined with the net income of USR for the nine
months ended December 29, 1996, and for the fiscal years ended September 29,
1996, October 1, 1995, and October 2, 1994, respectively. The presentation
has the effect of including USR's results of operations for the six-month
period ended September 29, 1996 in both the fiscal year ended September 29,
1996 and the nine months ended December 29, 1996 included in the unaudited
pro forma combined statements of operations. The pro forma and equivalent
pro forma combined book value per share data reflect 3Com's per share data
as of February 28, 1997 and USR's per share data as of December 29, 1996.
(4) 3Com and USR estimate they will incur direct transaction costs of
approximately $35 million associated with the Merger, consisting primarily
of fees for investment banking, filings with regulatory agencies, legal,
accounting, financial printing and other related costs.
In addition, it is expected that as a direct result of the Merger, the
combined company will incur cash and non-cash restructuring charges
estimated to be between $290 and $340 million (of which between
approximately $160 and $210 million will be non-cash). For the purposes of
preparation of the unaudited pro forma combined financial statements, an
estimate of $350 million has been used for the sum of the transaction and
restructuring charges. The restructuring charges are expected to include:
- $90-$115 million related to the closure and elimination of duplicate owned
and leased facilities, primarily corporate headquarters and domestic and
European sales offices;
- $85-$95 million related to the write-off of inventory associated primarily
with the elimination of duplicate wide area networking and PC Card
products, including a provision for the return of eliminated products in
the distribution channel;
- $80-$90 million related to the write-off of fixed assets (including
duplicate management information systems and other corporate assets),
purchased technology and goodwill primarily associated with the
elimination of duplicate wide area networking and PC Card products; and
- $35-$40 million for severance and outplacement costs specifically related
to the Merger.
These nonrecurring costs will be charged to operations in the fiscal quarter
in which the Merger is consummated. The unaudited pro forma combined balance
sheet gives effect to such charges as if they had been incurred as of
February 28, 1997, but the effects of these costs have not been reflected in
the unaudited pro forma combined statements of operations as they are
nonrecurring in nature. It is expected that substantially all of the cash
transaction and restructuring charges will be paid out of existing cash
reserves within six to twelve months after the consummation of the Merger.
The income tax effect of these charges has also been reflected as a pro
forma adjustment. As a result of the restructuring charges, the noncurrent
deferred tax liability will become a noncurrent deferred tax asset.
(5) The unaudited pro forma combined net income per equivalent USR share amounts
and the unaudited pro forma book value per equivalent USR share amounts are
calculated by multiplying the respective unaudited pro forma combined 3Com
per share amounts by the Exchange Ratio of 1.75 shares of 3Com Common Stock
for each share of USR Common Stock.
(6) The unaudited pro forma combined book value per share is computed by
dividing unaudited pro forma combined shareholders' equity by the unaudited
pro forma number of shares of stock outstanding at the end of the period, at
the Exchange Ratio of 1.75 shares of 3Com Common Stock for each share of USR
Common Stock.
18
<PAGE>
MARKET PRICE INFORMATION
The following table sets forth the range of high and low sale prices
reported on The Nasdaq National Market for 3Com Common Stock for the fiscal
periods indicated (share prices have been adjusted to reflect two-for-one stock
splits effective August 25, 1995 and September 1, 1994):
<TABLE>
<CAPTION>
3COM
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended May 31, 1995:
First Quarter............................................................ $ 17.28 $ 10.06
Second Quarter........................................................... 23.00 15.75
Third Quarter............................................................ 26.63 20.06
Fourth Quarter........................................................... 34.63 25.69
Fiscal Year Ended May 31, 1996:
First Quarter............................................................ $ 40.88 $ 30.44
Second Quarter........................................................... 53.63 38.38
Third Quarter............................................................ 51.88 35.50
Fourth Quarter........................................................... 52.00 36.13
Fiscal Year Ending May 31, 1997:
First Quarter............................................................ $ 50.88 $ 33.50
Second Quarter........................................................... 76.50 45.00
Third Quarter............................................................ 81.38 33.00
Fourth Quarter (through May 7, 1997)..................................... 38.00 24.00
</TABLE>
The following table sets forth the range of high and low closing sale prices
reported on The Nasdaq National Market for USR Common Stock for the fiscal
periods indicated (share prices have been adjusted to reflect two-for-one stock
splits, effected in the form of 100% stock dividends, effective May 10, 1996 and
September 8, 1995):
<TABLE>
<CAPTION>
USR
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended October 1, 1995:
First Quarter.......................................................... $ 10.81 $ 7.88
Second Quarter......................................................... 17.25 9.81
Third Quarter.......................................................... 28.19 15.88
Fourth Quarter......................................................... 45.19 26.81
Fiscal Year Ended September 29, 1996:
First Quarter.......................................................... $ 54.88 $ 37.56
Second Quarter......................................................... 69.00 34.50
Third Quarter.......................................................... 100.50 60.63
Fourth Quarter......................................................... 90.00 46.88
Fiscal Year Ending September 28, 1997:
First Quarter.......................................................... $ 80.88 $ 59.50
Second Quarter......................................................... 74.00 54.13
Third Quarter (through May 7, 1997).................................... 63.88 45.06
</TABLE>
The following table sets forth the closing prices per share of 3Com Common
Stock and USR Common Stock on The Nasdaq National Market on February 26, 1997,
the last full trading date prior to the initial execution and delivery of the
Merger Agreement and the public announcement thereof, and on May 7, 1997, the
latest practicable trading day before the printing of this Joint Proxy
Statement/Prospectus; and
19
<PAGE>
the equivalent per share prices for USR Common Stock based on the 3Com Common
Stock prices multiplied by the Exchange Ratio of 1.75:
<TABLE>
<CAPTION>
3COM
COMMON USR USR
STOCK COMMON STOCK EQUIVALENT
----------- --------------- -------------
<S> <C> <C> <C>
February 26, 1997.................................... $ 39.00 $ 61.00 $ 68.25
May 7, 1997.......................................... 37.13 63.88 64.98
</TABLE>
As of May 1, 1997 there were approximately 4,800 shareholders of record of
3Com Common Stock, and approximately 2,700 stockholders of record of USR Common
Stock.
Because the market price of 3Com Common Stock is subject to fluctuation, the
market value of the shares of 3Com Common Stock that holders of USR Common Stock
will receive in the Merger may increase or decrease prior to the Merger. USR
STOCKHOLDERS AND 3COM SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR 3COM COMMON STOCK AND FOR USR COMMON STOCK.
Following the Merger, 3Com Common Stock will continue to be traded on The
Nasdaq National Market under the symbol "COMS."
Neither 3Com nor USR has ever paid cash dividends. Following the Merger, it
is expected that the 3Com Board will continue the policy of not paying cash
dividends in order to retain earnings for reinvestment in the business of the
combined company. If the Merger is not consummated, the 3Com Board and the USR
Board presently intend to continue the policy of retaining all earnings to
finance the expansion of their respective businesses. 3Com's credit agreement
permits payment of cash dividends, subject to certain limitations based on past
net income levels. USR's credit agreement and 7.52% Senior Notes due June 30,
2001 permit payment of cash dividends subject to certain limitations based on
past net income levels and the absence of defaults.
20
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY USR STOCKHOLDERS IN
EVALUATING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THEREBY BECOME
SHAREHOLDERS OF 3COM (OR 3COM DELAWARE) AND BY 3COM SHAREHOLDERS IN EVALUATING
WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT. THESE FACTORS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED AND INCORPORATED
BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
THE FOLLOWING RISK FACTORS APPLY WHETHER 3COM BECOMES A DELAWARE CORPORATION
OR REMAINS A CALIFORNIA CORPORATION. ALL REFERENCES TO "3COM" IN THIS SECTION
APPLY EQUALLY TO 3COM DELAWARE, AND ALL REFERENCES TO THE "COMBINED COMPANY" IN
THIS SECTION APPLY EQUALLY TO A COMBINATION OF USR AND 3COM DELAWARE, TO THE
EXTENT THEY REFER TO EVENTS AND CIRCUMSTANCES THAT MAY OCCUR OR EXIST AFTER THE
REINCORPORATION.
RISKS RELATING TO THE MERGER
INTEGRATION OF OPERATIONS. The success of the Merger depends in substantial
part on the ability of 3Com and USR to integrate their respective operations in
an efficient and effective manner. To enhance the likelihood of success of the
Merger, 3Com and USR intend to continue the existing operations of each company
with ongoing active participation by executives from both companies under the
leadership of 3Com's Chairman and Chief Executive Officer. See "The
Merger--Reasons for the Merger; Recommendations of the Boards of Directors."
While complex changes in management, sales channels or product development
efforts are not planned, the two companies nevertheless will be required, among
other things, to integrate their respective product offerings and management
information systems and to coordinate their sales and marketing and research and
development efforts. In addition, 3Com and USR have a large number of employees
in widely dispersed operations which may increase the difficulty of integrating
their operations. The integration of USR and 3Com will require the dedication of
management resources which may temporarily distract attention from the
day-to-day business of the combined company. There can be no assurance that such
integration will be accomplished smoothly or successfully. The inability of
management to successfully integrate the operations of the two companies could
have a material adverse effect on the business, results of operations and
financial condition of the combined company, including, without limitation,
product development cycles and marketing efforts. In addition, as commonly
occurs with mergers of technology companies, during the pre-merger and
integration phases, aggressive competitors may undertake initiatives to attract
customers and to recruit key employees through various incentives which could
have a material adverse effect on the business, results of operations and
financial condition of USR, 3Com and/or the combined company.
FAILURE TO ACHIEVE BENEFICIAL SYNERGIES. The managements of 3Com and USR
have entered into the Merger Agreement with the expectation that the Merger will
result in beneficial synergies. See "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors." Achieving these anticipated
synergies will depend on a number of factors including, without limitation, the
successful integration of 3Com's and USR's operations and general and
industry-specific economic factors. Even if 3Com and USR are able to integrate
their operations and economic conditions remain stable, there can be no
assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies could have a material adverse effect on the business,
results of operations and financial condition of the combined company.
CUSTOMERS. There can be no assurance that resellers and current and
potential end users of 3Com and USR products will continue their current buying
patterns without regard to the announced Merger. Certain customers may defer
purchasing decisions as they evaluate the combined company's future product
strategy and consider the product offerings of competitors. If substantial
numbers of customers determine to defer such purchases, such deferrals could
have a material adverse effect on the business, results of operations and
financial condition of 3Com, USR and/or the combined company both in the near
term and the longer term. In addition, by increasing the breadth of USR's and
3Com's business, the Merger may make it more difficult for the combined company
to enter into relationships, including
21
<PAGE>
customer relationships, with strategic partners, some of whom may view the
combined company as a more direct competitor than either USR or 3Com as an
independent company.
RETENTION OF EMPLOYEES. The success of the combined company after the
Merger will depend in part upon the retention of key employees of 3Com and of
USR. Competition for qualified personnel in the networking industry is very
intense, especially with respect to sales and engineering personnel. Stock
options, which generally become exercisable only over a period of several years
of employment, serve as an important incentive for retaining key employees. The
stock options held by most USR optionees will become fully exercisable upon the
consummation of the Merger, thus potentially reducing the retention incentive
provided by such options. See "The Merger--Acceleration of USR Options." While
each of USR and 3Com is engaged in ongoing efforts to retain key employees, it
may be more difficult to retain such employees after the Merger.
FIXED EXCHANGE RATIO. Under the terms of the Merger Agreement, each share
of USR Common Stock issued and outstanding at the Effective Time will be
converted into the right to receive 1.75 shares of 3Com Common Stock. The Merger
Agreement does not contain any provisions for adjustment of the Exchange Ratio
or termination of the Merger Agreement based solely on fluctuations in the price
of 3Com Common Stock. There can be no assurance that the market price of 3Com
Common Stock upon and after the consummation of the Merger will not be lower
than the market price of such stock on the date of the execution of the Merger
Agreement or the current market price. See "Risk Factors--Risks Relating to
3Com, USR and the Combined Company--Volatility of Stock Price" and "Market Price
Information."
TRANSACTION AND RESTRUCTURING CHARGES. 3Com expects to incur cash and
non-cash charges to operations currently estimated to be between $325 million
and $375 million in the quarter in which the Merger is consummated, to reflect
costs associated with combining the operations of the two companies, transaction
fees and other costs incident to the Merger. This estimate includes direct
transaction costs associated with the Merger estimated to be approximately $35
million, consisting of fees for investment banking, legal, accounting, financial
printing, proxy solicitation and other related charges and restructuring
expenses to be incurred by the combined company estimated to be between $290 and
$340 million (of which between $160 and $210 million are estimated to be
non-cash). These amounts are preliminary estimates and are therefore subject to
change. Additional unanticipated expenses may be incurred relating to the
integration of the businesses of USR and 3Com, including the integration of
product lines and distribution and administrative functions. Although 3Com
expects that the elimination of duplicative expenses as well as other
efficiencies related to the integration of the businesses may offset additional
expenses over time, there can be no assurance that such net benefit will be
achieved in the near term, or at all. See "Selected Historical and Unaudited Pro
Forma Combined Financial Data."
POTENTIAL SEVERANCE PAYMENT LIABILITIES. In connection with the execution
of the Merger Agreement, Casey Cowell, John McCartney, Jonathan N. Zakin, Ross
W. Manire and Michael S. Seedman, executive officers of USR, each entered into
amendments to their existing employment agreements with USR. Such existing
employment agreements provide that such persons will be entitled to receive
severance payments in certain circumstances, including following any termination
of their employment within one year following a "change in control" of USR,
including the change in control that will be deemed to result from the
consummation of the Merger. The amendments reduce the potential bonus
compensation payable to these individuals under the existing agreements and
extend from one to two years the period following the Merger during which a
termination of the employment of these individuals, voluntarily or
involuntarily, would entitle them to severance payments as a result of the
"change in control." Assuming the termination of the employment of all of the
USR executive officers and other employees who are parties to such employment
agreements immediately following the consummation of the Merger, the combined
company's aggregate liabilities under such severance provisions could be as much
as approximately $26.3 million. Due to the nature of these termination rights,
some or all of these severance payments may not be includable in the merger
reserve and therefore could adversely impact earnings in any subsequent quarters
in which the rights are exercised. See "The Merger--Employment and Noncompete
Agreements."
22
<PAGE>
RISKS RELATING TO 3COM, USR AND THE COMBINED COMPANY
GENERAL RISKS. 3Com's, USR's and the combined company's future operating
results may be affected by various trends and factors which must be successfully
managed in order to achieve favorable operating results. In addition, there are
trends and factors beyond 3Com's and USR's control which affect their current
and combined operations. Such trends and factors include, but are not limited
to, adverse changes in conditions in the specific markets for 3Com's and USR's
products, conditions in the broader market for computer, telecommunications and
information access equipment and services, or conditions in the domestic or
global economy generally; governmental regulation or intervention affecting
communications or data networking; fluctuations in foreign exchange rates; and
other factors, including those listed below. 3Com and USR participate in a
highly volatile and rapidly growing industry which is characterized by vigorous
competition for market share and rapid technological development carried out
amidst uncertainty over adoption of industry standards and protection of
intellectual property rights. This has in the past resulted and could in the
future result in aggressive pricing practices and growing competition both from
start-up companies and from well-capitalized computer systems and communications
companies. 3Com's, USR's and the combined company's ability to compete in this
environment depends upon a number of competitive and market factors and is
subject to the risks set forth in this Joint Proxy Statement/Prospectus and
other factors beyond the control of management. Although long term growth
prospects for the networking industry have recently been in the 30-50% range,
there can be no assurance that this industry growth rate will continue at the
same level, or that 3Com's, USR's or the combined company's results in any
particular quarter will fall within that range. In particular, based on recent
softening of demand for networking products and competitive pricing pressures,
results may fall below those levels in coming quarters.
RAPID TECHNOLOGICAL CHANGE. The markets for 3Com's and USR's products are
intensely competitive and are characterized by rapidly changing technology.
3Com's, USR's and the combined company's success depends, in substantial part,
on the timely and successful introduction of new products and upgrades of
current products to comply with emerging industry standards and to address
competing technological and product developments carried out by others. In
particular, USR's near term success will depend significantly on the market
acceptance of its recently introduced x2 technology (pulse code modulation
technology permitting downloading of data over regular analog telephone lines at
speeds up to 56 kilobits per second ("Kbps")). Although USR believes its x2
products, which USR first began shipping in commercial volumes in March 1997 and
which are now widely deployed by ISPs, have been well-received, USR anticipates
vigorous competition from many of the significant modem and remote access
equipment manufacturers most of which have announced their intentions to bring
products featuring the same basic 56Kbps technology and capabilities to market
in the coming weeks and months. The majority of these manufacturers have
indicated their intention to implement this high-speed technology with chipsets
provided by Rockwell International Corporation ("Rockwell") or Lucent
Technologies, Inc. ("Lucent").
An unexpected change in one or more of the technologies affecting data
networking or in market demand for products based on a particular technology,
such as the recent change from shared to switched networks and the slowdown in
sales of certain products for the edge of the network, could have a material
adverse effect on the business, operating results and financial condition of
3Com, USR and/or the combined company if they fail to respond timely and
effectively to such changes. For example, Intel Corporation ("Intel") and others
in the computer industry have for some time asserted that core data
communications functionality such as network interface cards and modems will
migrate to the computer motherboard and eventually to the host processor, rather
than remain on separate cards. 3Com and USR believe that, although it is
currently possible to implement these functions on the computer motherboard,
there are many technical and commercial impediments and other factors indicating
that such a migration does not pose an immediate threat to their respective
businesses. There can be no assurances, however, that these or other substantial
changes in product architectures will not occur more rapidly or in ways that are
different than expected and have an adverse effect on the businesses, operating
results and financial condition of 3Com, USR or the combined company.
23
<PAGE>
3Com and USR are engaged in research and development activities in certain
emerging LAN and WAN high-speed and broadband technologies, such as ATM, Fast
Ethernet, Gigabit Ethernet, 56Kbps DSL (Digital Subscriber Line) and
data-over-cable. Further, as the industry standardizes on high-speed
technologies, there can be no assurance that 3Com, USR or the combined company
will be able to respond promptly and cost-effectively to compete in the
marketplace. For example, there is not yet an official standard specification or
protocol for 56Kbps pulse code modulation technology such as x2, and many of
USR's competitors have indicated their support for standards and standard
setting processes that could be disadvantageous to USR.
PROPRIETARY TECHNOLOGIES, INTELLECTUAL PROPERTY RIGHTS AND RELATED
LITIGATION. Both 3Com and USR operate in industries in which the ability to
compete is dependent on the development or acquisition of proprietary technology
which must be protected both to preserve the benefits of exclusive use of the
companies' own technology, and enable the companies to license technology from
other parties on acceptable terms. Both companies attempt to protect their
intellectual property rights through a combination of patents, copyrights,
trademarks and trade secret laws. There can be no assurance that the steps taken
by USR, 3Com and the combined company will be sufficient to prevent
misappropriation of their respective intellectual properties or that competitors
will not independently develop technologies that are equivalent or superior to
the technologies of 3Com and USR.
Each of 3Com and USR must from time to time, and the combined company may in
the future, negotiate licenses with third parties with respect to third-party
proprietary technologies that are required for implementation of certain
networking and communication protocols and standards. In most instances the
owners of intellectual property rights covering technologies required for
official standards have undertaken to license such rights on fair, reasonable
and non-discriminatory terms. As a general rule, 3Com and USR have no reason to
believe that these other parties will fail to honor such undertakings, and
anticipate that they will enter into such licenses on reasonable terms. However,
there can be no assurance in this regard, and there is still the potential for
disputes and litigation even where a third party has undertaken to make licenses
generally available.
For example, Motorola, Inc. has recently brought suit against USR alleging
patent infringement with respect to technologies incorporated in the V.34 modem
standard and Xerox Corporation has recently brought suit against USR alleging
patent infringement with respect to handwriting recognition technology
incorporated in USR's PalmPilot hand-held computer. Although USR believes it has
meritorious defenses to these claims and intends to contest these lawsuits
vigorously, an adverse outcome of such litigation could have a material adverse
effect on the business, results of operations and financial condition of USR or
the combined company after the Merger. See "Information Concerning
USR--Business--Legal Proceedings."
Because of the large number of patents in the networking, computer and data
communications fields and the rapid rate of issuance of new patents, it may not
always be possible to determine in advance whether a product or any of its
components infringes patent rights of others. In the event of infringement, 3Com
and USR believe that they could redesign the affected products at reasonable
costs so as not to infringe or that necessary licenses or rights under such
patents could be obtained on terms that would not have a material adverse effect
on the business, results of operations and financial condition of the combined
company. However, there can be no assurance that such redesign could be effected
or such licenses obtained, or that material delays would not be encountered.
In addition, many of 3Com's and USR's products are designed to include
software or other intellectual property licensed from third parties, and the
loss of such software or other rights might require significant changes in, or
otherwise disrupt or delay the distribution of, those products.
CERTAIN COMPONENTS SOLE-SOURCED. Some key components of 3Com's and USR's
products are currently available only from single sources. There can be no
assurance that in the future 3Com's and USR's suppliers will be able to meet the
combined company's demand for components in a timely and cost-effective manner.
3Com and USR have sought, and it is anticipated that the combined company will
continue to seek, to minimize the risk of shortages of key components by
selecting suppliers that can manufacture components in more than one location,
monitoring the financial stability of key suppliers and
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maintaining appropriate inventories of key components. 3Com's, USR's and the
combined 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, key components.
DEPENDENCE ON KEY PERSONNEL AND MANAGEMENT OF CHANGE. 3Com's and USR's
success depends, and the success of the combined company will continue to
depend, upon the hiring and retention of key management, engineering, and sales
and marketing personnel, many of whom would be difficult to replace. 3Com and
USR use, and the combined company intends to use, a variety of strategies to
retain their respective key employees, including the granting of stock options.
Currently, many of the options held by both USR and 3Com employees have exercise
prices above, and in some cases significantly above, the current market prices
of each company's common stock, thus reducing the retention incentive provided
by such options. If key personnel were to leave 3Com, USR or the combined
company, their business, results of operations and financial condition could be
adversely affected.
INCREASED CREDIT RISKS. 3Com and USR distribute a significant portion of
their products through third party distributors and resellers. Due to the
consolidation in the distribution and reseller channels and increased volume of
sales by both USR and 3Com into these channels, 3Com and USR have each
experienced an increased concentration of credit risks; and due to significant
overlaps in 3Com's and USR's reseller channels, the combined company may be
expected to experience substantially increased concentration of credit risks.
While 3Com and USR have each continuously monitored and managed these risks,
financial difficulties on the part of one or more of their respective
significant distributors or resellers may have a material adverse effect on
3Com, USR and the combined company. Likewise, 3Com's and USR's expansion into
certain emerging geographic markets, which are characterized by economic and
political instability and currency fluctuations, may subject 3Com's and USR's
resellers to financial difficulties which may have an adverse impact on the
combined company.
COMPETITION. The networking industry is intensely competitive and
characterized by rapid technological advances, emerging industry standards and,
recently, accelerating price competition. These changes result in frequent
introductions of new products with added capabilities and features and
continuous improvements in the relative price/performance of communications and
networking products. Failure to keep pace with technological advances would
adversely affect 3Com's, USR's and the combined company's competitive position
and could have a material adverse effect on their respective businesses, results
of operations and financial conditions. 3Com's, USR's and the combined company's
primary competitors include networking companies such as Ascend Communications,
Inc. ("Ascend Communications"), Bay Networks, Inc. ("Bay Networks") and Cisco
Systems ("Cisco"), as well as other large telecommunications, computer systems
and component companies including Compaq Computer Corporation, IBM Corporation,
Intel, Lucent, Motorola, Inc. ("Motorola"), Northern Telecom and Rockwell.
Recently, competitive pricing pressure has increased in the form of
aggressive price reductions and product promotions by Intel among others, for
certain products, particularly network adapters, stackable hubs and workgroup
switches, which have resulted in average selling prices declining more rapidly
than in the past. This pricing trend may adversely affect the growth rate of
3Com, USR and the combined company.
Further, the markets in which 3Com and USR compete and in which the combined
company will compete are characterized by rapid growth and in certain cases, low
barriers to entry and rapid technological changes. As a consequence, both large
enterprises, including large telecommunications and computer systems companies
and large suppliers thereto, many of whom have substantial resources, as well as
smaller niche market companies and start up ventures, may become competitors.
Moreover, the Merger may have the effect of inducing certain of USR's and 3Com's
competitors to enter into additional business combinations, to accelerate
product development or to engage in aggressive price reductions or other
competitive practices thereby creating even more powerful or aggressive
competitors.
INDUSTRY CONSOLIDATION. Acquisitions of complementary businesses and
technologies, including technologies and products under development, have been a
significant part of 3Com's and USR's respective
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business strategies. Certain of 3Com's and USR's major competitors have also
been engaged in merger and acquisition transactions. Such consolidations by
competitors are likely to create entities with increased market shares, customer
bases, technology and marketing expertise, sales force size, or proprietary
technology in product markets in which 3Com and USR, and the combined company
will compete. These developments may adversely affect the Company's ability to
compete in such segments.
NEW PRODUCT TRANSITIONS. 3Com's and USR's businesses are, and the combined
company's business will be, characterized by the continuous introduction of new
products and the management of the transition of those products from prior
generations of technology or product platforms. In each product transition
cycle, 3Com and USR face, and the combined company will face, the challenge of
managing the inventory of its older products, including materials,
work-in-process, and products held by resellers. If 3Com, USR and the combined
company are not successful in managing these transitions, there could be an
adverse impact on their respective financial results.
CERTAIN CHARTER PROVISIONS. Certain provisions of USR's and 3Com's
respective corporate charters and by-laws, 3Com Delaware's proposed charter and
by-laws and USR's and 3Com's respective shareholder rights plans could have the
effect of delaying, deferring or preventing a change in control of USR, 3Com and
3Com Delaware. Moreover, in the event that the Reincorporation is approved,
Delaware law may make it somewhat more difficult for shareholders to effect a
change of control. In addition, USR, 3Com and 3Com Delaware have charter
provisions eliminating the personal monetary liability of directors for breach
of their duty of care, and have entered (or will enter) into agreements with
their respective officers and directors indemnifying them against losses they
may incur in legal proceedings resulting from their service to the company. See
"Comparison of Securityholder Rights," "Description of 3Com Capital Stock" and
"The Charter Amendment."
VOLATILITY OF STOCK PRICE. The market prices of 3Com Common Stock and USR
Common Stock have been, and the market price for 3Com Common Stock may continue
to be, extremely volatile. Factors such as new product announcements by USR,
3Com or the combined company or their respective competitors, quarterly
fluctuations in operating results, challenges associated with integration of
businesses and general conditions in the data networking market such as a
decline in industry growth rates may have a significant impact on the market
price of USR Common Stock or 3Com Common Stock. These conditions, as well as
factors which generally affect the market for stocks of high technology
companies, could cause the price of USR Common Stock or 3Com Common Stock to
fluctuate substantially over short periods. The stocks of both companies have
been particularly volatile in the last twelve months, as have most computer
networking industry stocks. During the past twelve months, the sale price of
3Com Common Stock rose from the mid-$30s in July 1996 to a high of $81.38 on
December 10, 1996, then declined to a low of $24 on April 22, 1997, and has
since risen to $37.13 on May 7, 1997. Prior to the announcement of the Merger,
the closing price of USR's Common Stock declined from a high of $100.50 on May
22, 1996 to $46.88 on August 19, 1996, then rose to a high of $80.88 on December
2, 1996, and thereafter declined to a low of $56.125 on February 24, 1997. Since
the announcement of the Merger, the price of USR Common Stock has moved
essentially in tandem with the price of 3Com Common Stock.
EARTHQUAKES AND NATURAL DISASTERS. Notwithstanding 3Com's increased
geographical diversification, 3Com's corporate headquarters and a large portion
of its research and development activities and other critical business
operations are located in California near major earthquake faults. The majority
of USR's manufacturing operations are carried out in facilities located in Mount
Prospect and Morton Grove, Illinois and Salt Lake City, Utah. 3Com's, USR's and
the combined company's respective businesses, results of operations and
financial conditions could be materially adversely affected in the event of a
major earthquake or other natural disaster affecting any of any of their
respective facilities.
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THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of 3Com
Common Stock in connection with the solicitation of proxies by the 3Com Board
for use at the 3Com Special Meeting to be held on June 11, 1997 at 3Com's
executive offices, located at 5400 Bayfront Plaza, Santa Clara, California,
commencing at 9:00 a.m., local time, and at any adjournments or postponements
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
USR Common Stock in connection with the solicitation of proxies by the USR Board
for use at the USR Special Meeting to be held on June 11, 1997 at the Sheraton
Chicago, Cityfront Center located at 301 East North Water Street, Chicago,
Illinois, commencing at 11:00 a.m., local time, and at any adjournments or
postponements thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of 3Com and stockholders of USR,
respectively, on or about May 12, 1997.
MATTERS TO BE CONSIDERED AT THE MEETINGS
3COM SPECIAL MEETING. At the 3Com Special Meeting, holders of 3Com Common
Stock will consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement and the issuance of 3Com Common Stock in the Merger, (ii) a proposal
to approve and adopt the Charter Amendment, which will have the effect of
increasing the number of authorized shares of 3Com capital stock from
403,000,000 to 1,000,000,000, (iii) a proposal to approve and adopt the
Reincorporation Agreement, pursuant to which 3Com would change the state of its
incorporation from California to Delaware, and (iv) such other matters as may
properly be brought before the 3Com Special Meeting, including any motion to
adjourn to a later date to permit further solicitation of proxies if necessary
to establish a quorum or to obtain additional votes, or any adjournments or
postponements thereof.
The Merger and Reincorporation are independent transactions, each of which
(if approved and if applicable conditions are met or waived) will be effected,
whether or not the other transaction is approved or effected. However, because
the increase in 3Com's authorized share capital will only be necessary if the
Merger is consummated, the Charter Amendment is contingent upon, and will only
be effective if the Merger is consummated. In addition, if the Reincorporation
is approved and effected, the Charter Amendment will be unnecessary, since the
certificate of incorporation of 3Com Delaware will provide for an initial
authorized share capital of 1,000,000,000 shares.
USR SPECIAL MEETING. At the USR Special Meeting, holders of USR Common
Stock will consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement and (ii) such other matters as may properly be brought before the USR
Special Meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies if necessary to establish a quorum or to obtain
additional votes, or any adjournments or postponements thereof.
BOARD OF DIRECTORS' RECOMMENDATIONS
3COM. The 3Com Board has unanimously approved the Merger Agreement and the
issuance of shares of 3Com Common Stock in connection with the Merger and
believes that the terms of the Merger Agreement are fair to, and that the Merger
is in the best interests of, 3Com and its shareholders and unanimously
recommends that the shareholders of 3Com vote FOR approval and adoption of the
Merger Agreement and the issuance of 3Com Common Stock in the Merger. The 3Com
Board has also unanimously approved the Charter Amendment and the
Reincorporation Agreement and believes that the Charter Amendment and the
Reincorporation are in the best interests of 3Com and its shareholders and
unanimously recommends that the shareholders of 3Com vote FOR approval and
adoption of the Charter Amendment and the Reincorporation Agreement and the
transactions contemplated therein.
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USR. The USR Board has unanimously approved the Merger Agreement and the
Merger and believes that the terms of the Merger Agreement are fair to, and that
the Merger is in the best interests of, USR and its stockholders and unanimously
recommends that the holders of USR Common Stock vote FOR approval and adoption
of the Merger Agreement.
VOTING AT THE MEETINGS; RECORD DATES
3COM. Holders of record of 3Com Common Stock on May 1, 1997 will be
entitled to notice of and to vote at the 3Com Special Meeting. As of the 3Com
Record Date there were 178,200,471 shares of 3Com Common Stock outstanding and
entitled to vote, which shares were held by approximately 4,800 holders of
record. Each holder of record of shares of 3Com Common Stock on the 3Com Record
Date is entitled to cast one vote per share, in person or by properly executed
proxy, on each proposal submitted for vote of the 3Com shareholders at the 3Com
Special Meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of 3Com Common Stock entitled to
vote at the 3Com Special Meeting is necessary to constitute a quorum at the 3Com
Special Meeting.
The approval and adoption of the Merger Agreement, the Charter Amendment and
the Reincorporation Agreement will each require the affirmative vote of the
holders of a majority of the outstanding shares of 3Com Common Stock entitled to
vote at the 3Com Special Meeting. The approval of the issuance of 3Com Common
Stock in the Merger will require the affirmative vote of a majority of the
shares of 3Com Common Stock voted at the 3Com Special Meeting.
Directors and certain executive officers of 3Com have executed and delivered
the 3Com Voting Agreements obligating them, among other things, to vote their
shares of 3Com Common Stock in favor of approval of the Merger Agreement and any
proposal which would or could reasonably be expected to facilitate the Merger.
Pursuant to the 3Com Voting Agreements, all of the approximately 860,004
outstanding shares of 3Com Common Stock beneficially owned by the directors and
such executive officers of 3Com and their respective affiliates (which excludes
shares subject to 3Com Options) at the 3Com Record Date (representing less than
1% of the total number of shares of 3Com Common Stock outstanding at such date)
will be voted for approval and adoption of the Merger Agreement and the issuance
of 3Com Common Stock in the Merger. See "The Merger--Voting Agreements."
As of May 1, 1997, directors and executive officers of USR and their
affiliates owned less than 1% of the outstanding shares of 3Com Common Stock,
and USR owned no shares of 3Com Common Stock.
USR. Holders of record of shares of USR Common Stock on May 1, 1997 will be
entitled to notice of and to vote at the USR Special Meeting. As of the USR
Record Date there were 89,338,767 shares of USR Common Stock outstanding and
entitled to vote, which shares were held by approximately 2,700 holders of
record. Each holder of record of shares of USR Common Stock on the USR Record
Date is entitled to cast one vote per share, in person or by properly executed
proxy, on each proposal submitted for the vote of the USR stockholders, at the
USR Special Meeting. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of USR Common Stock entitled
to vote at the USR Special Meeting is necessary to constitute a quorum at the
USR Special Meeting.
The approval and adoption of the Merger Agreement by USR stockholders will
require the affirmative vote of the holders of a majority of the outstanding
shares of USR Common Stock entitled to vote at the USR Special Meeting.
Directors and certain executive officers of USR have executed and delivered
the USR Voting Agreements obligating them, among other things, to vote their
shares of USR Common Stock in favor of approval and adoption of the Merger
Agreement and any proposal which would or could reasonably be expected to
facilitate the Merger. Pursuant to the USR Voting Agreements, all of the
1,782,325 outstanding shares of USR Common Stock beneficially owned by the
directors and such executive officers of USR and their respective affiliates
(which excludes shares subject to USR Options) at the USR Record Date
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(representing approximately 2% of the total number of shares of USR Common Stock
outstanding at such date) will be voted for approval and adoption of the Merger
Agreement. See "The Merger--Voting Agreements."
As of May 1, 1997, directors and executive officers of 3Com and their
affiliates owned less than 1% of the outstanding shares of USR Common Stock, and
3Com owned no shares of USR Common Stock.
EFFECTS OF ABSTENTIONS AND "BROKER NON-VOTES." At the 3Com Special Meeting,
in determining whether the Merger Agreement, the Charter Amendment and the
Reincorporation Agreement have received the requisite number of affirmative
votes, abstentions and broker non-votes will have the same effect as a vote
against the Merger Agreement, the Charter Amendment and the Reincorporation
Agreement, but will have no effect either for or against the vote with respect
to issuance of 3Com Common Stock in the Merger. At the USR Special Meeting, in
determining whether the proposal to approve and adopt the Merger Agreement has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against such proposal. At both the
3Com Special Meeting and the USR Special Meeting, abstentions and broker
non-votes will be counted for purposes of determining the presence of a quorum.
A "broker non-vote" occurs when a nominee holding shares for a beneficial owner
does not vote on a proposal because, for such proposal, the nominee does not
have discretionary voting power and has not received instructions from such
beneficial owner.
ADJOURNMENT OF THE 3COM SPECIAL MEETING OR THE USR SPECIAL MEETING
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement, and the issuance of 3Com Common Stock in the Merger, or to
approve and adopt the Charter Amendment or the Reincorporation Agreement, at the
time of the 3Com Special Meeting, such proposal could not be approved unless the
3Com Special Meeting was adjourned to permit further solicitation of proxies
from 3Com shareholders. Proxies that are being solicited by the 3Com Board grant
the discretionary authority to vote for any such adjournment, if necessary. If
it is necessary to adjourn the 3Com Special Meeting, and the adjournment is for
a period of less than 30 days, no notice of the time and place of the adjourned
meeting is required to be given to 3Com shareholders other than the announcement
of such time and place at the 3Com Special Meeting. A majority of the voting
power represented and voting at the 3Com Special Meeting is required to approve
such adjournment whether or not a quorum is present at the 3Com Special Meeting.
It is not the intention of the 3Com Board to delay the vote upon the proposal to
approve and adopt the Merger Agreement solely to permit further solicitation of
proxies from the 3Com shareholders in favor of the Charter Amendment or the
Reincorporation.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement at the time of the USR Special Meeting, such proposal could not
be approved unless the USR Special Meeting was adjourned in order to permit
further solicitation of proxies from USR stockholders. Proxies that are being
solicited by the USR Board grant the discretionary authority to vote for any
such adjournment, if necessary. If it is necessary to adjourn the USR Special
Meeting, and the adjournment is for a period of less than 30 days, no notice of
the time and place of the adjourned meeting is required to be given to USR
stockholders other than an announcement of such time and place at the USR
Special Meeting. A majority of the voting power represented and voting at the
USR Special Meeting is required to approve any such adjournment.
An adjournment of either the 3Com Special Meeting or USR Special Meeting, or
both, may be necessary because the limited time between the mailing of the Joint
Proxy Statement/Prospectus and the special meetings may result in the lack of a
quorum at either or both special meetings. In addition, an absolute majority of
all outstanding shares of USR Common Stock is required to approve the Merger,
and not merely a majority of the shares present and voting in person or by
proxy. To obtain the requisite vote, it may be necessary to adjourn the USR
Special Meeting to solicit additional proxies.
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PROXIES
This Joint Proxy Statement/Prospectus is being furnished to 3Com
shareholders and USR stockholders in connection with the solicitation of proxies
by and on behalf of the 3Com Board and the USR Board for use at the 3Com Special
Meeting and the USR Special Meeting, respectively.
All shares of 3Com Common Stock and USR Common Stock which are entitled to
vote and are represented at the 3Com Special Meeting and the USR Special
Meeting, respectively, by properly executed proxies received prior to or at the
relevant special meeting, and not revoked, will be voted at such special meeting
in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted:
(i) in the case of the 3Com Special Meeting, FOR (a) approval and
adoption of the Merger Agreement and the issuance of 3Com Common Stock in
the Merger, (b) approval and adoption of the Charter Amendment and (c)
approval and adoption of the Reincorporation Agreement; and
(ii) in the case of the USR Special Meeting, FOR approval and adoption
of the Merger Agreement.
If any other matters are properly presented for consideration at either of
the special meetings, including, among other things, consideration of a motion
to adjourn a special meeting (including, without limitation, for purposes of
soliciting additional proxies for approval and adoption of the Merger Agreement,
the Charter Amendment, or the Reincorporation Agreement, as applicable) to
another time and/or place, the persons named in the enclosed form of proxy and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of 3Com or USR, as the case may be, at or before the taking
of the vote at the 3Com Special Meeting or the USR Special Meeting,
respectively, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of 3Com or USR, as the case may be, before the
taking of the vote at the relevant special meeting or (iii) attending the 3Com
Special Meeting or the USR Special Meeting, respectively, and voting in person
(although attendance at a special meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to, in the case of 3Com shareholders, to
3Com Corporation, 5400 Bayfront Plaza, Santa Clara, California 95052-8145,
Attention: Secretary, and in the case of USR stockholders, to U.S. Robotics
Corporation, 8100 North McCormick Boulevard, Skokie, Illinois 60076-2999,
Attention: Secretary, or hand delivered to the Secretary of 3Com or USR, as the
case may be, at or before the taking of the vote at the relevant special
meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Joint Proxy Statement/Prospectus, will be borne by 3Com and USR. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of 3Com and USR, respectively, in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. 3Com has
retained D.F. King & Co., Inc., a proxy solicitation firm, for assistance in
connection with the solicitation of proxies for the 3Com Special Meeting at a
cost of approximately $10,000 plus reasonable out-of-pocket expenses. USR has
retained MacKenzie Partners, Inc., a proxy solicitation firm, for assistance in
connection with the solicitation of proxies for the USR Special Meeting at a
cost of approximately $15,000 plus reasonable out-of-pocket expenses.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and 3Com and USR,
respectively, will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
USR STOCKHOLDERS AND 3COM SHAREHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
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DISSENTERS' RIGHTS
USR. Holders of USR Common Stock are not entitled to dissenters' appraisal
or other similar rights under the DGCL in connection with the Merger.
3COM. RIGHTS OF SHAREHOLDERS OF 3COM TO DISSENT FROM THE MERGER AND TO
DEMAND PAYMENT FOR THEIR SHARES ARE GOVERNED BY CHAPTER 13 OF THE CGCL, THE FULL
TEXT OF WHICH IS ATTACHED HERETO AS ANNEX F. THE SUMMARY OF THESE RIGHTS SET
FORTH BELOW IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX F.
If holders of 5% or more of the outstanding shares of 3Com Common Stock
entitled to vote at the 3Com Special Meeting vote against the approval and
adoption of the Merger and comply with certain other procedures, 3Com
shareholders will be entitled to exercise dissenters' rights pursuant to the
provisions of Chapter 13 of the CGCL. In accordance with these provisions,
dissenting 3Com shareholders will have the right to be paid the "fair market
value" of their shares of 3Com Common Stock by fully complying with the
procedures specified in Chapter 13 of the CGCL. Under the CGCL, "fair market
value" is determined as of the day before the first announcement of the terms of
the Merger, excluding any appreciation or depreciation in consequence of the
Merger.
DISSENTERS' RIGHTS CANNOT BE VALIDLY EXERCISED BY PERSONS OTHER THAN
SHAREHOLDERS OF RECORD REGARDLESS OF THE BENEFICIAL OWNERSHIP OF THE SHARES.
Persons who are beneficial owners of shares held of record by another person,
such as a broker, a bank or a nominee, should instruct the record holder to
follow the procedures outlined below if they wish to dissent from the Merger
with respect to any or all of their shares.
In order to perfect their dissenters' rights, shareholders of record must
(i) make written demand for the purchase of their dissenting shares upon 3Com on
or before the date of the 3Com Special Meeting; (ii) vote their shares against
adoption and approval of the Merger Agreement; and (iii) within 30 days after
the mailing to shareholders by 3Com of the notice of approval of the principal
terms of the Merger, submit the certificate(s) representing their dissenting
shares to 3Com or its transfer agent for notation thereon that they represent
dissenting shares. Failure to follow any of these procedures may result in the
loss of statutory dissenters' rights.
Dissenting shareholders must submit to 3Com at its principal office, 5400
Bayfront Plaza, Santa Clara, California, 95052-8145, Attention: Secretary, a
written demand that 3Com purchase for cash some or all of their shares. The
notice must state the number of shares held of record which the shareholder
demands to be purchased and the amount claimed to be the "fair market value" of
those shares. That statement of fair market value will constitute an offer by
the dissenting shareholder to sell such shares at that price. SUCH DEMAND WILL
NOT BE EFFECTIVE UNLESS IT IS RECEIVED NOT LATER THAN THE DATE OF THE 3COM
SPECIAL MEETING.
Dissenting shareholders may not withdraw their demand for payment without
the consent of the 3Com Board. The rights of dissenting shareholders to demand
payment terminate if (i) the Merger is abandoned (although dissenting
shareholders are entitled upon demand to reimbursement of expenses incurred in a
good faith assertion of their dissenters' rights); (ii) the shares are
transferred prior to submission for endorsement as dissenting shares; (iii) the
dissenting shareholder withdraws, with the consent of 3Com, his or her demand
for purchase of the dissenting shares; or (iv) the dissenting shareholder and
3Com do not agree as to the fair market value of such shares and a complaint is
not filed within six months of the date on which the notice of approval was
mailed.
No shareholder who has a right to demand payment for cash for such
shareholder's shares and who in fact makes such a demand will have any right to
attack the validity of the Merger or have the Merger set aside or rescinded,
except in an action to test whether the number of shares required to approve the
Merger have been legally voted in favor thereof. Any shareholder who does not
demand payment of cash for such shareholder's shares and who institutes an
action to attack the validity of the Merger or to have the Merger set aside or
rescinded would not thereafter have any right to demand payment of cash pursuant
to the exercise of dissenters' rights.
Dissenting shareholders must vote their dissenting shares against the Merger
Agreement. Record shareholders may vote part of the shares which they are
entitled to vote in favor of the Merger Agreement
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or abstain from voting a part of such shares without jeopardizing their
dissenters rights as to other shares; however, if record shareholders vote part
of the shares they are entitled to vote in favor of the Merger Agreement and
fail to specify the number of shares they are so voting, it is conclusively
presumed under California law that their approving vote is with respect to all
shares which they are entitled to vote. Voting against the Merger Agreement will
not, of itself, absent compliance with the provisions summarized herein, satisfy
the requirements of the CGCL for exercise and perfection of dissenters' rights.
However, any 3Com shareholder desiring to exercise dissenters' rights must vote
against the Merger Agreement.
If 3Com shareholders have a right to require 3Com to purchase their shares
for cash under the dissenters' rights provisions of the CGCL, 3Com will mail to
each such shareholder a notice of approval of the Merger within 10 days after
the date of shareholder approval, stating the price determined by it to
represent the "fair market value" of the dissenting shares. The statement of
price will constitute an offer to purchase any dissenting shares at that price.
Within 30 days after the mailing of the notice of approval of the Merger,
dissenting shareholders must submit to 3Com at the address set forth above,
certificates representing the dissenting shares with respect to which a purchase
demand has been made, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed. The notice of approval of the Merger will
specify the date by which the submission of certificates for endorsement must be
made and a submission made after that date will not be effective for any
purpose.
If a dissenting shareholder and 3Com agree that shares are dissenting shares
and agree upon the price of the shares, 3Com, upon surrender of the
certificates, will make payment of that amount (plus interest thereon at the
legal rate on judgments from the date of such agreement) within 30 days after
such agreement. Any agreement between dissenting shareholders and 3Com fixing
the "fair market value" of any dissenting shares must be filed with the
Secretary of 3Com.
If 3Com denies that the shares are dissenting shares, or 3Com and a
dissenting shareholder fail to agree upon the "fair market value" of the shares,
the dissenting shareholder may, within six months after the date on which notice
of approval of the Merger was mailed to the shareholder, but not thereafter,
file a complaint (or intervene in a pending action, if any) in the Superior
Court for the County of Santa Clara, State of California, requesting that the
Superior Court determine whether the shares are dissenting shares and the "fair
market value" of such dissenting shares. The Superior Court may appoint one or
more impartial appraisers to determine the "fair market value" per share of the
dissenting shares. The costs of the action will be assessed or apportioned as
the Superior Court considers equitable, but if the "fair market value" is
determined to exceed the price offered by 3Com, 3Com will be required to pay
such costs including, in the discretion of the Superior Court, attorneys' fees,
fees of expert witnesses and interest at the legal rate on judgments, if such
"fair market value" is determined to exceed 125% of the price offered by 3Com. A
dissenting shareholder must bring such an action within six months after the
date on which the notice of approval of the Merger Agreement was mailed to the
shareholder, whether or not 3Com responds within such time to the shareholder's
written demand that 3Com purchase for cash shares voted against the Merger
Agreement.
THE RESPECTIVE OBLIGATIONS OF 3COM AND USR TO EFFECT THE MERGER ARE SUBJECT
TO THE CONDITION THAT EACH OF THEM SHALL HAVE RECEIVED A LETTER FROM ITS
RESPECTIVE INDEPENDENT ACCOUNTANTS, DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS AND CONFIRMED AS OF THE CLOSING DATE OF THE MERGER, STATING
THAT SUCH ACCOUNTANT KNOWS OF NOTHING THAT WOULD PROHIBIT THE MERGER FROM
QUALIFYING AS A POOLING OF INTERESTS TRANSACTION UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. IF HOLDERS OF APPROXIMATELY 10% OF THE OUTSTANDING 3COM
COMMON STOCK WERE TO EXERCISE DISSENTERS' RIGHTS, POOLING OF INTERESTS
ACCOUNTING TREATMENT WOULD NOT BE AVAILABLE, AND EITHER PARTY WOULD HAVE THE
RIGHT NOT TO EFFECT THE MERGER. SEE "THE MERGER--ACCOUNTING TREATMENT" AND "THE
MERGER AGREEMENT--CONDITIONS."
Holders of 3Com Common Stock are not entitled to dissenters' rights under
the CGCL in connection with the Reincorporation.
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NETWORK INDUSTRY BACKGROUND
THE FOLLOWING DISCUSSION CONTAINS A NUMBER OF FORWARD-LOOKING STATEMENTS
WHICH REFLECT THE CURRENT VIEWS OF 3COM AND/OR USR WITH RESPECT TO FUTURE EVENTS
THAT MAY HAVE AN EFFECT ON THEIR FUTURE FINANCIAL PERFORMANCE. THESE
FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING THE MARKETS FOR 3COM'S,
USR'S AND THE COMBINED COMPANY'S PRODUCTS, THEIR PLANNED RESPONSE TO THE DEMANDS
OF THESE MARKETS, THEIR PRODUCT AND SALES STRATEGIES, AND CERTAIN POTENTIAL
TECHNOLOGICAL AND OPERATING SYNERGIES TO BE ACHIEVED BY THE MERGER. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS OF 3COM, USR AND THE COMBINED COMPANY TO DIFFER
MATERIALLY FROM THOSE CURRENTLY ANTICIPATED, INCLUDING THE ABILITY OF 3COM AND
USR TO SUCCESSFULLY INTEGRATE THEIR OPERATIONS AND ACHIEVE EXPECTED SYNERGIES;
THE RISK THAT CUSTOMERS MAY DEFER PURCHASING DECISIONS FOLLOWING THE
ANNOUNCEMENT OF THE MERGER; THE ABILITY OF 3COM AND USR TO RETAIN KEY EMPLOYEES
FOLLOWING ANNOUNCEMENT OF THE MERGER; THE IMPACT OF TRANSACTION AND
RESTRUCTURING CHARGES TO BE INCURRED BY 3COM AS A RESULT OF THE MERGER; CHANGES
IN BUSINESS CONDITIONS AND GROWTH TRENDS AFFECTING USR AND 3COM'S PRODUCTS AND
MARKETS, THE PERSONAL COMPUTER MARKET AND TELECOMMUNICATIONS INDUSTRIES AND THE
ECONOMY IN GENERAL; TECHNOLOGICAL ADVANCEMENTS AND NEW PRODUCT OFFERINGS BY
3COM'S AND USR'S COMPETITORS; 3COM'S AND USR'S ABILITY TO SUCCESSFULLY INTRODUCE
NEW PRODUCTS AND UPGRADES TO EXISTING PRODUCTS, PARTICULARLY IN THE CASE OF USR,
THE MARKET ACCEPTANCE OF ITS RECENTLY INTRODUCED X2 TECHNOLOGY; DISPUTES OVER
THE USE OF PROPRIETARY TECHNOLOGY SUCH AS THE PENDING LITIGATION BROUGHT BY
MOTOROLA AGAINST USR RELATING TO TECHNOLOGIES INCORPORATED IN THE V.34 MODEM
STANDARD; A VARIETY OF OTHER COMPETITIVE FACTORS SUCH AS PRICE REDUCTIONS BY
USR, 3COM OR THEIR COMPETITORS; AND CHANGES IN CONSUMER AND BUSINESS PURCHASING
PRACTICES. THESE AND OTHER FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS TO
DIFFER MATERIALLY ARE DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS.
THE FOLLOWING DISCUSSION APPLIES WHETHER 3COM BECOMES A DELAWARE CORPORATION
OR REMAINS A CALIFORNIA CORPORATION, AND ALL REFERENCES TO 3COM IN THIS SECTION
APPLY EQUALLY TO 3COM DELAWARE, AND ALL REFERENCES TO THE COMBINED COMPANY IN
THIS SECTION APPLY EQUALLY TO A COMBINATION OF USR AND 3COM DELAWARE, TO THE
EXTENT THEY REFER TO EVENTS AND CIRCUMSTANCES THAT MAY OCCUR OR EXIST AFTER THE
REINCORPORATION.
THE COMPUTER COMMUNICATIONS MARKET
In the last decade, the use of personal computers in both the workplace and
at home has become pervasive. Fueled by more powerful processors and easier to
use software, applications have expanded from word processing, accounting and
database management to include electronic mail, research, entertainment and
education. As the number of personal computers has grown, the need to share
information among users has also grown, giving rise to a large and rapidly
expanding data networking and communications industry.
Computers communicate with each other through two basic types of networks
which are differentiated primarily by the physical distances they cover and the
ownership and control of the systems they use. The local area network ("LAN")
connects PCs to other PCs and to file servers (central information depositories)
and other devices such as printers located in the same building or site. LANs
are predominantly used in large organizations which typically own and control
the LAN. LANs are becoming increasingly important in small businesses, and more
recently are beginning to be used in homes as well.
The wide area network ("WAN") connects LANs at one site to other sites and
connects users working at home or traveling to their corporate LAN, third party
information sources, or the Internet. WAN traffic is transmitted over the public
switched telephone network or through high-speed leased lines (for example TI or
T3 transports) provided by regional Bell operating companies, interexchange
carriers and PTTs. As more people need to access information services such as
America OnLine ("AOL") and CompuServe, the Internet, or corporate intranets from
their homes or offices, the need for remote access equipment increases.
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LOCAL AREA NETWORKING
In a LAN, each computer physically attaches to the network via a network
adapter (also known as a network interface card or NIC) which resides inside the
PC. Specialized software properly formats data into packets and directs these
packets between an application on the computer and the NIC. In nearly all LANs,
the formatted data includes a source address, a destination address and control
information which is used by the network to direct the path of data through the
network.
Each NIC connects to a wire or cable which terminates at a shared hub,
router or switch. In a hub topology, all computers attached to the same hub
share the same bandwidth and, as a result, all packets are seen by all client
PCs connected to that hub. However, only the intended recipient PC recognizes
the destination address which triggers it to process the incoming packet, while
other computers wired to the hub ignore the packets not intended for them.
Computers sharing the same bandwidth are considered part of a LAN segment.
While hubs can be connected together to create larger segments, this
increases the number of computers sharing the same bandwidth and increases
network congestion. Congestion is alleviated by dividing large segments into
subnetworks ("subnets") with local routers. Routers de-encapsulate each packet,
determine which subnet is to receive the data, re-encapsulate the data into a
new packet and forward it to the proper subnet. In this way routers help limit
unnecessary traffic within a network. Unfortunately, this extra processing
reduces the speed at which data can be sent over the LAN.
Recently, LAN switches have begun to replace hubs and local routers. In a
shared-bandwidth LAN, all client PCs see all packets of data and only one
computer in the LAN can transmit information at any given time. As network
traffic increases, these limitations increase congestion and performance
problems. LAN switches alleviate these problems by directing each packet only to
its intended destination and by simultaneously directing packets from several
sources to several destinations. In addition, LAN switches with routing
functionality can replace local routers and reduce the processing needed to
analyze and direct data between subnets, thereby significantly improving the
capacity and performance of the LAN.
Routers are also used to connect sites to each other over the WAN. The
routers maintain tables of the other routers and subnets in the network and use
this information to determine the best path for network traffic. Information
regarding changes in the routed network is frequently transmitted to each router
in the network. As the number of connected sites grows, the size of the router
tables dramatically increases as does the traffic needed to keep the tables
current. The WAN becomes congested and more difficult to manage, and the
computing power needed to perform the routing function increases. As a result,
the cost of building and maintaining a private routed WAN dramatically
increases.
Currently LANs are built using either switching or routing or in many cases
a hybrid combination of both switching and routing as the predominant solution,
and each approach has advantages and disadvantages. Traditional routers provide
important capabilities including translating between protocols and different
types of physical media. However, routed networks are expensive to build,
difficult to manage and add latency (or delay) to network traffic. Further, as
LAN and WAN speeds increase through adoption of new standards, current
generation routers have become a bottleneck in the network.
Pure switched networks, on the other hand, historically have not scaled
well. However, a number of developments, including, in particular, the reduction
in the number of protocols and a convergence on the Internet protocol ("IP"),
have permitted high-speed, LAN routing functionality to be incorporated into
switches (also known as "IP switches"). As the price of switches with this
routing functionality declines, large switched networks are expected to compete
effectively with large routed networks. Router vendors including Cisco, are
increasingly incorporating switches and switching functionality into their
product lines, and offering alternatives to IP switching, such as Cisco's Tag
switching. In the near term, vigorous competition is expected between
strategies, such as Cisco's, based primarily on proprietary routers, and those,
such as 3Com's, based increasingly on advanced switching technology.
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3COM--NETWORK SYSTEMS PROVIDER
3Com is a leading provider of end-to-end network systems. 3Com's Transcend
Networking framework allows a network to scale as the number of users increase,
extend as the number of sites expands, and remain manageable despite continuous
growth. In addition, 3Com strives to make networks faster, cheaper, and more
reliable, while protecting customers' investments and minimizing the
obsolescence of installed equipment.
3Com offers the most comprehensive set of networking solutions available.
3Com is a leading provider of hubs and switches, having pioneered stackable hubs
and switches (which allow cost effective network expansion by modularly stacking
on top of one another). 3Com is the leading provider of stackable hubs and
switches.
3Com is also a leading provider of campus LAN backbone switches. 3Com
pioneered the use of high function switches (switches with routing intelligence)
in the data center to alleviate router bottlenecks. As the number of users in
corporate networks grew and demand for higher network speeds increased, 3Com
expanded its family of high bandwidth switch products to include high speed ATM
(cell-based) and Fast Ethernet technology and plans to introduce products
including Gigabit Ethernet technology in 1997.
3Com invented the concept of Boundary Routing to allow customers to connect
a large number of remote sites without the need for sophisticated networking
skills at these remote sites. 3Com is a leading supplier of routers and has
built some of the largest networks in the world, including those of Wells Fargo
Bank, Deutsche Bank, Boots PLC and The Home Depot.
3Com is the leading provider of NICs and continues to differentiate these
products through superior performance based on developments such as Parallel
Tasking and through a high degree of software value added such as Dynamic Access
technology.
As networks have become pervasive they have become more mission critical. As
a part of offering complete network solutions, 3Com provides a graphical,
platform independent management application for network configuration, remote
monitoring and trouble shooting.
3Com has a strong indirect sales channel. 3Com is significantly increasing
its direct sales presence and service capabilities and continues to increase its
presence in large enterprise accounts through its 130 sales and support offices
worldwide. More than half of its revenues come from outside the U.S. and 3Com is
the leading data networking vendor in several European countries and has a
strong presence in both Asia and Latin America.
As networking becomes increasingly cost-effective and the need to share
information continues to become more critical to the success of business and
non-business organizations, the number of smaller businesses and home users
building networks is expected to increase significantly. 3Com is aggressively
pursuing this market with products targeted to the small office/home office
market.
REMOTE ACCESS OVER THE WIDE AREA NETWORK
Many computer users want or need to gain access to their corporate LAN or
corporate intranets from remote sites such as a branch office, their home or
while traveling. In addition, many individuals access on-line services or the
Internet for education, entertainment, or to communicate via e-mail. Users at
both a primary office and at remote sites increasingly require access to the
Internet. Typically, these users gain access to these resources by placing a
call over the public switched telephone network using an analog modem or digital
terminal adapter attached to their computer, together with remote node software
or a web browser. The call is answered at the corporate site or at the on-line
information or internet service provider ("ISP") headend by remote access
equipment. This equipment, commonly referred to as a remote access server or a
remote access concentrator, includes a WAN access interface (either analog,
digital or both), modems and a server which attaches the user to the corporate
LAN, the service provider's network,
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or the Internet. Sophisticated remote access equipment can integrate routers and
switches as well as proxy servers which off-load network traffic, and can handle
digital voice and video as well as data calls.
Growth in telecommuting, home offices and small businesses, the World Wide
Web ("WWW") and e-mail applications have created tremendous demand for access to
the Internet, corporate networks and corporate intranets. Today, there are
numerous ISPs ranging from small regional providers to large national and global
providers (such as AT&T Worldnet, AOL/Bertelsman, IBM Global Networks) who
provide access to the Internet. In addition, on-line information service
providers (such as America OnLine, CompuServe and Prodigy) now offer access to
the Internet and the WWW as well as to their own information systems and
services. The rapidly growing number of Internet users has driven the demand for
remote access concentrators with higher port densities (the capacity to handle
greater numbers of simultaneous calls). In addition, the rich graphical content
on the WWW has driven strong demand for increased modem speeds and driven
investment in high speed access technologies such as data-over-cable and Digital
Subscriber Loop ("xDSL").
USR--REMOTE ACCESS SOLUTIONS PROVIDER
USR, with its Total Control remote access platform, is the largest worldwide
vendor of remote access servers and concentrators to ISPs and carriers. USR is
also the largest worldwide branded modem manufacturer and the number one
supplier of desktop and laptop modems for sale through the retail channel.
While many other WAN equipment providers buy "off the shelf" chipsets from
suppliers such as Rockwell and Lucent, and "package" them in modem products and
remote access servers, USR's unique software, running on a digital signal
processor ("DSP"), and its remote access technologies provide it with a more
cost effective, differentiated platform. This core technology extends from the
client products sold at retail for under $200 to large Total Control remote
access platforms selling for over $50,000 and functioning as the WAN access
solution for large networks such as AT&T Worldnet, Internet MCI, AOL and IBM
Global Networks. In addition, USR's core modem technology has allowed it to
capture more value-added by realizing the profit most of its competitors pay to
the commodity chipset modem suppliers. This has allowed USR to realize
substantially greater gross margins than other modem manufacturers.
Recently, USR's core DSP competency allowed it to be first to market with a
new generation of analog data transmission technology--x2. x2 technology
effectively doubles existing modem speeds over standard phone lines to up to
56,000 bits per second. By combining its modem and other remote access
technologies and developing strong relationships with large ISPs and carriers as
well as strong two-tier distribution and retail channels, USR has become the
leading provider of end-to-end WAN connectivity and is positioned to bring the
benefits of x2 performance to more than 18 million Internet subscribers through
the more than 400 ISPs who have indicated their intention to support x2. All of
the over one million installed Total Control WAN access ports can be upgraded to
x2 technology with a simple software upgrade.
Although USR anticipates vigorous competition from many of the significant
modem and remote access equipment manufacturers, most of which have announced
their intentions to bring products featuring the same basic 56Kbps technology
and capabilities to market in the coming weeks and months, it believes it
continues to have a time-to-market advantage. The majority of these
manufacturers have indicated their intention to implement this high-speed
technology with chipsets provided by Rockwell or Lucent. USR believes that ISPs
with an installed base of competitors' remote access products, the vast majority
of which are not software upgradeable, will incur significant costs and
time-consuming delays in implementing the competitors' 56Kbps technology.
In fiscal 1996, USR shipped $400 million in Total Control chassis-based
remote access products, topping the next largest supplier of remote access
systems, Ascend Communications. The technology in USR's chassis-based remote
access products is software upgradeable so additional functionality can be
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downloaded to the installed base of equipment quickly with no additional
hardware and with minimal disruption.
USR continues to make significant investments to increase the functionality
of the Total Control remote access platform, including higher speed routing,
increased modem density, higher speed trunking and wireless access. In 1996, USR
demonstrated its technological innovation by being first to offer EdgeServer, a
powerful NT server integrated into the Total Control remote access chassis.
EdgeServer enables USR's remote access customers to run any Microsoft NT
compatible software and easily implement conferencing capabilities, firewalls,
proxy caching and other applications that reduce network traffic and provide
added value to its customers. USR has aggressively pursued development of
multimedia functionality and next generation access technologies (e.g.,
data-over-cable and xDSL) which can be incorporated into the Total Control
product.
In an effort to expand its presence in the branch office and workgroup, USR
migrated its Total Control chassis technologies into its recently introduced
award-winning NetServer 8 and 16 port remote access servers and LANLinker remote
office routers.
In 1996, USR introduced the PalmPilot hand-held computing device which now
holds a leading share of the electronic, connected organizer market. USR expects
to achieve significant future growth from its PalmPilot as the product is
extended to become a broader personal communications platform. USR recently
announced added functionality for the PalmPilot, enabling users to remotely
access e-mail and other information by dialing into a computer network.
USR sells its client products through one of the broadest retail and two
tier distribution channels in the industry. USR's systems products are sold
through a growing number of value added resellers and a direct sales force with
valuable relationships in the ISP and carrier markets. Historically, USR has
earned most of its revenues in North American and European markets. USR recently
began to expand into a number of new markets including Japan, other parts of
Asia and Latin America.
PROVIDING END-TO-END LAN/WAN CONNECTIVITY
3Com is a leading provider of network systems solutions and commands a
leading position at the edge of the LAN. Similarly, USR is a leading provider of
wide area remote access solutions and holds a corresponding position at the edge
of the WAN. The edge of the network constitutes a large portion of the cost of
the network and presents a significant opportunity for the combined company as
demand for faster access to information continues. The combined company will
continue to differentiate its edge products through value added software, and
continue to make the devices at the edge an intelligent, active component of the
network which is increasingly critical to delivering a total network solution.
Combining this strength at the edge with the two companies' extensive
capabilities in providing systems solutions should allow the combined company to
deliver seamless, ubiquitous connectivity across both the LAN and the WAN.
For example, the combined company should be well positioned to help
corporate information technology ("IT") managers to accommodate new and less
predictable network traffic patterns resulting from (i) increased demand for
Internet access, (ii) implementation of corporate intranets, (iii) introduction
of delay-sensitive multimedia applications, and (iv) increases in
bandwidth-intensive transmissions. These changes increase the need for an IT
manager to monitor traffic patterns on the network and set policies regarding
which traffic should be given priority and who should be able to access which
resources on the network. 3Com's recently introduced Fast IP technology uses
existing standard protocols and increased intelligence in the NIC, along with a
policy server, to improve network performance. In addition, 3Com's Dynamic
Access technology allows the NIC to become an active component in the operation
and management of the network. By implementing Fast IP and Dynamic Access in
USR's modem and remote access products, the combined company should be able to
extend similar benefits to the WAN for remote users.
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Remote users will increasingly demand access speeds similar to what they
experience on the LAN. The combined company plans to accelerate the development
of high speed access technologies such as data-over-cable and xDSL. In addition
to providing dramatically higher access speeds to remote users, these new
technologies can be used to allow data traffic to bypass existing voice band
telephone switches. The current telephone network was not designed to handle
long duration calls typically generated by people using the local telephone loop
to access corporate networks or the Internet.
As new types of traffic (e.g., voice and video) become prevalent in the LAN,
and higher speed access technologies become more prevalent, remote users will
also soon expect similar functionality over wide area links. Just as 3Com is
making investments to support multimedia traffic in the LAN, USR is making
related investments to deliver new traffic types over the WAN. In addition,
because the Total Control remote access platform sits at the LAN/WAN boundary,
it is a natural point in the network to act as a gateway for multimedia traffic.
IT managers have also been burdened by the complexity, cost, bandwidth
requirements and support associated with the growing numbers of remote users. By
joining together USR's remote access technology, service expertise and strong
relationships with service providers and carriers and 3Com's internetworking
technology and presence in enterprise accounts, the combined company expects to
drive the implementation of virtual private networks (VPNs). With VPNs, IT
managers will be able to outsource the provisioning of remote access services to
network service providers or carriers.
By extending Fast IP and Dynamic Access to the WAN and by accelerating the
deployment of high speed access technologies, this VPN concept can also be used
to outsource the connection of remote offices to the corporate network. This
will allow customers to reduce or eliminate their private, routed WAN without
sacrificing the control and security inherent in a privately-managed network and
allow them to significantly reduce the cost of connecting remote sites. The
combined company will also continue to work to reduce the need for proprietary
routers (although not the need for routing) in WAN backbones through the use of
standard protocols and WAN switching. This approach should increase the
performance and improve the scaleability of wide area networks.
As a result, the Merger should allow 3Com and USR to combine their
technologies, channels, and other capabilities to compete effectively by
delivering value-added, differentiated, complete solutions across the LAN and
WAN with increased control and at lower cost, thereby strengthening the combined
company's position in the enterprise and carrier markets.
The combined company's key competitors are expected to compete vigorously
through a variety of strategies including broadening their product offerings,
price competition such as Intel's aggressive pricing on recently announced
products, advancing alternatives to Fast IP, such as Cisco's proprietary Tag
switching, and leveraging any installed base. At least in the short term, some
competitors are expected to continue to compete primarily through offering a
limited number of "best in class" products. The combined company will compete by
offering the broadest range of products in the industry, spanning the network
end-to-end, by focusing on providing network management software that operates
across this broad range of products, increasing the manageability of the network
and by offering low cost, simpler and faster, standards-based products. Further,
the combined company will continue to compete based upon its low-cost volume
manufacturing and distribution capabilities, which are expected to become
increasingly important as portions of the networking industry move toward
broader distribution.
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THE MERGER
BACKGROUND OF THE MERGER
Business combinations have been a significant part of the business
strategies of both 3Com and USR. Both 3Com and USR have active corporate
development programs to review and evaluate potential business combinations,
corporate acquisition opportunities, strategic alliances, joint development
programs and other strategic transactions involving other participants in the
networking, communications and computer industries and related industries, with
the aim of obtaining and developing access to complementary technologies,
products and distribution channels. Over the past five years, 3Com has completed
business combinations with and corporate acquisitions of twelve companies, while
USR has completed business combinations with and corporate acquisitions of nine
companies. See "Information Concerning 3Com--Business" and "Information
Concerning USR--Business."
On January 8, 1997, as part of USR's corporate development efforts, USR's
president and chief operating officer, John McCartney, met with representatives
of Morgan Stanley at the Morgan Stanley Technology Conference in Scottsdale,
Arizona, and requested Morgan Stanley to prepare an analysis of a small number
of potential strategic partners. On January 15, 1997, Mr. McCartney, Casey
Cowell, Chairman and Chief Executive Officer of USR, and Jonathan N. Zakin,
Executive Vice President, Business Development and Corporate Strategy of USR,
met with representatives of Morgan Stanley to review Morgan Stanley's analyses
of such potential strategic partners. Based on this review, on January 16, 1997,
Mr. Cowell called Eric Benhamou, Chairman and Chief Executive Officer of 3Com,
to inquire if 3Com had an interest in a potential strategic combination with
USR, and Messrs. Cowell and Benhamou discussed the possibility of such a
transaction.
On January 17 and 18, 1997, the 3Com Board held its annual offsite meeting.
During that meeting, the 3Com Board and management discussed various strategic
issues, including the continuing consolidation in the networking industry. In
the context of this discussion, 3Com management discussed with the 3Com Board
possible business combinations, including a possible combination with USR.
On January 22 and 23, 1997, members of 3Com senior management met with
members of USR senior management in California to discuss whether a strategic
combination of 3Com and USR might be feasible, to discuss each other's
businesses and to review the potential business impact of a potential strategic
combination and the integration issues such a combination would present.
On January 24, 1997, Mr. Cowell spoke by telephone with USR Board members
Paul G. Yovovich, Peter I. Mason, James E. Cowie and Terence M. Graunke and
discussed with them the possibility of a strategic combination with 3Com.
On January 24, 1997, 3Com retained Goldman Sachs as its financial advisor
and requested Goldman Sachs to analyze a potential combination with USR.
On January 27, 1997, representatives of USR management made a technical
presentation to a representative of 3Com in Skokie, Illinois. On January 29,
1997, Mr. McCartney, Mr. Zakin and other USR personnel made business and
financial presentations to Janice M. Roberts, Senior Vice President, Marketing
of 3Com, and Steve Foster, Director, Business Development of 3Com, which
included a tour of USR's Mt. Prospect, Illinois production facility. Later that
day, Mr. McCartney, Mr. Zakin, Karen Slimmon, Manager, Business Development and
Corporate Strategy of USR, and Ms. Roberts and Mr. Foster of 3Com and their
respective financial advisors met in Chicago, Illinois, to hold preliminary
discussions focusing on the possible timing and structure of a potential
transaction.
On February 5, 1997, at an off-site meeting of the 3Com Executive Committee
in Hertfordshire, U.K., 3Com's management discussed the implications of and
strategy for a possible strategic combination with USR. On February 7 and 8,
1997, Mr. McCartney, Mr. Benhamou, Ms. Roberts and Robert Finocchio,
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President, 3Com Systems, met in Paris, France, to discuss cultural and
organizational issues and structures for a possible strategic combination
between 3Com and USR.
On February 9, 1997, USR and 3Com executed a Confidentiality and Standstill
Agreement.
On February 11, 1997, the 3Com Board held a special telephonic meeting to
discuss a possible strategic combination of USR and 3Com. 3Com management
presented an analysis of the potential strategic benefits of the combination,
and Goldman Sachs presented a preliminary analysis regarding the potential
transaction. At such meeting, the 3Com Board directed 3Com's management to
proceed with discussions concerning the possible combination.
Between February 13 and 26, 1997, the parties and their respective financial
and legal advisors conducted
intensive on- and off-site due diligence reviews and held numerous meetings and
discussions regarding possible terms and structures for the proposed
combination. As part of their due diligence, each party reviewed public and
non-public documents and information of the other party and heard presentations
by representatives of the other party.
On February 13, 1997, Messrs. Cowell and Zakin of USR made a business
presentation to Messrs. Benhamou and Finocchio of 3Com, and conducted a tour of
USR's Mt. Prospect and Morton Grove, Illinois facilities. After the
presentation, there was a discussion of the structure of the proposed combined
company. On February 13 and 14, 1997, representatives of USR and 3Com and their
respective financial advisors held preliminary discussions in Chicago, Illinois
regarding possible transaction structures and valuations. On February 14, 1997,
members of USR's management and the USR Board conferred with representatives of
Morgan Stanley at USR headquarters in Skokie, Illinois to discuss the terms of a
possible strategic combination between USR and 3Com.
Between February 15 and 18, 1997, the parties conducted further internal
analyses of the prospective transaction and made arrangements for
further on- and off-site due diligence. On February 19 and 20, 1997
representatives of 3Com and its legal and financial advisors conducted legal and
financial due diligence reviews in Chicago and heard business overview
presentations by USR representatives. On February 20, 1997, a draft of the
Merger Agreement was provided by Gray Cary Ware & Freidenrich, legal counsel for
3Com, to Mayer, Brown & Platt, legal counsel for USR. From February 21 through
February 24, 1997 representatives of USR and its legal and financial advisors
met at 3Com's headquarters in Santa Clara, California to conduct legal and
financial due diligence reviews of 3Com.
On February 22, 1997, the 3Com Board met to review the proposed transaction
and alternative business strategies. At the meeting, 3Com management, Goldman
Sachs and Gray Cary Ware & Freidenrich each made presentations to the 3Com
Board, and copies of the draft Merger Agreement were distributed to the 3Com
Board. Following the meeting, the members of the 3Com Board met with Messrs.
Cowell, Zakin and Yovovich of USR. That same day, members of USR's senior
management and certain directors met with USR's financial and legal advisors in
San Jose, California to review the draft Merger Agreement.
On February 22 and 23, 1997, representatives of both companies and their
respective advisors continued their due diligence reviews of each other and
heard business overview presentations by representatives of each company. In
addition, members of the two companies' senior managements met to review the
compatability of the two companies' business cultures and the related
implications of the proposed combination.
Between February 21 and 26, 1997, members of 3Com's and USR's managements
and their respective financial and legal advisors participated in ongoing
negotiations regarding the terms of the proposed transaction. During this
period, counsel for 3Com and USR met on a number of occasions to review and
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discuss drafts of the Merger Agreement, the reciprocal Stock Option Agreements,
other ancillary documents and related issues.
On February 23, 1997, the USR Board held a telephonic meeting at which the
proposed business combination was discussed and USR's financial and legal
advisors made detailed presentations on key elements of the proposed
transactions.
On February 24, 1997, the 3Com Board met at 3Com's headquarters in Santa
Clara, California, with members of management and representatives of Goldman
Sachs and Gray Cary Ware & Freidenrich to review the terms of proposed
combination. After discussing the terms of the proposed transaction, the 3Com
Board voted to give preliminary approval to the combination of 3Com and USR on
the terms set forth in the then current draft of the Merger Agreement, subject
to successful resolution of certain outstanding issues.
On February 25, 1997, the USR Board met with USR senior management and
representatives of Morgan Stanley and Mayer, Brown & Platt in San Jose,
California, to discuss the status of negotiations and financial information from
Morgan Stanley. Following the USR Board's meeting, representatives of management
of both companies and their respective advisors continued negotiations of the
draft Merger Agreement, Stock Option Agreements and the other transaction
agreements. After extensive negotiation, the USR Board reconvened on the
afternoon of February 25, 1997 in Santa Clara, California with USR's legal and
financial advisors and held detailed discussions concerning the transaction
documents.
On February 26, 1997 at noon, Pacific Standard Time, the 3Com Board held a
meeting to review the status of certain issues that were pending as of the
February 24 3Com Board meeting. Following 3Com management's report on the
successful resolution of such issues, the 3Com Board unanimously approved the
Merger and approved and adopted the Merger Agreement. At 4:00 p.m., Eastern
Standard Time, at a meeting of the USR Board, the USR Board unanimously approved
the Merger and approved and adopted the Merger Agreement. After the meeting, the
Merger Agreement and the Stock Option Agreements were executed and delivered by
3Com and USR.
On February 26, 1997, following the execution and delivery of the Merger
Agreement, 3Com and USR issued a joint press release announcing the Merger.
In March 1997, USR and certain of its directors were named as defendants in
a series of lawsuits relating to the Merger. 3Com has been named as a defendant
in certain of these actions. See "Information Concerning USR--Business--Legal
Proceedings."
On March 13, 1997, the 3Com Board approved the Charter Amendment, pursuant
to which the authorized number of shares of 3Com capital stock would be
increased from 403,000,000 to 1,000,000,000, and also approved the
Reincorporation, pursuant to which 3Com would change the state of its
incorporation from California to Delaware, in each case subject to the approval
of the 3Com shareholders.
To facilitate the Merger and the Reincorporation, 3Com, 3Com Delaware, USR
and Sub entered into an Amended and Restated Merger Agreement dated as of March
14, 1997. As amended and restated, the Merger Agreement provides for USR
stockholders to receive either shares of 3Com or 3Com Delaware in exchange for
their USR shares, depending on whether the Reincorporation is approved and
effected prior to the Effective Time. See "The Reincorporation."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
THE FOLLOWING DISCUSSION OF THE PARTIES' REASONS FOR THE MERGER CONTAINS A
NUMBER OF FORWARD-LOOKING STATEMENTS WHICH REFLECT THE CURRENT VIEWS OF 3COM
AND/OR USR WITH RESPECT TO FUTURE EVENTS THAT MAY HAVE AN EFFECT ON THEIR FUTURE
FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS
REGARDING THE MARKETS FOR 3COM'S, USR'S AND THE COMBINED COMPANY'S PRODUCTS,
THEIR PLANNED RESPONSE TO THE DEMANDS OF THESE MARKETS, THEIR PRODUCT AND SALES
STRATEGIES, AND CERTAIN POTENTIAL TECHNOLOGICAL AND OPERATING SYNERGIES TO
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BE ACHIEVED BY THE MERGER. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
VARIOUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS OF 3COM, USR AND
THE COMBINED COMPANY TO DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED,
INCLUDING THE ABILITY OF 3COM AND USR TO SUCCESSFULLY INTEGRATE THEIR OPERATIONS
AND ACHIEVE EXPECTED SYNERGIES; THE RISK THAT CUSTOMERS MAY DEFER PURCHASING
DECISIONS FOLLOWING THE ANNOUNCEMENT OF THE MERGER; THE ABILITY OF 3COM AND USR
TO RETAIN KEY EMPLOYEES FOLLOWING ANNOUNCEMENT OF THE MERGER; THE IMPACT OF
TRANSACTION AND RESTRUCTURING CHARGES TO BE INCURRED BY 3COM AS A RESULT OF THE
MERGER; CHANGES IN BUSINESS CONDITIONS AND GROWTH TRENDS AFFECTING USR AND
3COM'S PRODUCTS AND MARKETS, THE PERSONAL COMPUTER MARKET AND TELECOMMUNICATIONS
INDUSTRIES AND THE ECONOMY IN GENERAL; TECHNOLOGICAL ADVANCEMENTS AND NEW
PRODUCT OFFERINGS BY 3COM'S AND USR'S COMPETITORS; 3COM'S AND USR'S ABILITY TO
SUCCESSFULLY INTRODUCE NEW PRODUCTS AND UPGRADES TO EXISTING PRODUCTS,
PARTICULARLY IN THE CASE OF USR, THE MARKET ACCEPTANCE OF ITS RECENTLY
INTRODUCED X2 TECHNOLOGY; DISPUTES OVER THE USE OF PROPRIETARY TECHNOLOGY SUCH
AS THE PENDING LITIGATION BROUGHT BY MOTOROLA AGAINST USR RELATING TO
TECHNOLOGIES INCORPORATED IN THE V.34 MODEM STANDARD; A VARIETY OF OTHER
COMPETITIVE FACTORS SUCH AS PRICE REDUCTIONS BY USR, 3COM OR THEIR COMPETITORS;
AND CHANGES IN CONSUMER AND BUSINESS PURCHASING PRACTICES. THESE AND OTHER
FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE DESCRIBED
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
THE FOLLOWING DISCUSSION OF THE VARIOUS REASONS FOR THE MERGER APPLIES
WHETHER 3COM BECOMES A DELAWARE CORPORATION OR REMAINS A CALIFORNIA CORPORATION,
AND ALL REFERENCES TO 3COM IN THIS SECTION APPLY EQUALLY TO 3COM DELAWARE, AND
ALL REFERENCES TO THE COMBINED COMPANY IN THIS SECTION APPLY EQUALLY TO A
COMBINATION OF USR AND 3COM DELAWARE, TO THE EXTENT THEY REFER TO EVENTS AND
CIRCUMSTANCES THAT MAY OCCUR OR EXIST AFTER THE REINCORPORATION.
JOINT REASONS FOR THE MERGER
The Merger will create a networking industry leader with $5.5 billion in
annual revenues, more than 13,000 employees in some 45 countries, leading
positions in each of its core markets and an installed base of more customer
connections to the Internet and corporate intranets than any other company. The
combined company will be able to provide customers worldwide with comprehensive,
end-to-end, LAN/ WAN networking solutions with superior product offerings at
virtually all points of network interconnection and access, from enterprise and
LAN workgroup switching and routing systems, to carrier class remote access
systems, to branch and small office LAN and remote access solutions, to
intelligent network interface devices (NICs, ISDN terminal adaptors and high
speed modems) on the desktop and on mobile and wireless platforms. 3Com and USR
believe that the combined company will be competitively positioned to provide
the industry's best solutions from the data center/central office to the edge of
the network and in new and emerging markets. Each of 3Com and USR believes that
its markets are evolving to a point where customers are seeking more integrated
solutions. By anticipating these needs and putting in place these capabilities
at this time, the combined company should be well positioned to serve its
customers and thereby provide its shareholders the opportunity for future value
creation.
3Com and USR have identified numerous potential benefits of the Merger that
they believe will contribute to the success of the combined company. These
potential benefits include the following:
- END-TO-END CONNECTIVITY. By combining the complementary product lines and
technologies of 3Com in LANs and USR in WAN access, the combined company
will be competitively positioned to deliver end-to-end connectivity across
both LANs and WANs. 3Com and USR believe that this capability will be of
increasing strategic importance in the marketplace for networking
solutions as networking applications, such as multimedia, and patterns of
usage, such as Internet and intranet access, continue to evolve. 3Com and
USR believe that the ability to offer end-to-end connectivity will allow
the combined company to further improve network performance and to provide
the seamless, fully-integrated solutions demanded by customers. For
example, the combined company will be able to implement its leading
technologies across a broader product line and provide industry leading
solutions, such as 3Com's recently introduced FastIP switching, which
accelerates
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the performance of IP traffic across the switched LAN infrastructure, and
USR's recently introduced x2 technology which effectively doubles remote
access downstream transmission speed over the public switched telephone
network without expensive changes to central office equipment.
- COMPLEMENTARY SALES CHANNELS. USR's and 3Com's sales channels are highly
complementary and should allow the combined company to expand the
distribution of each company's current and future products through the
other's key channels. 3Com has a stronger enterprise sales force, an
industry leading two-tier distribution channel and a broader international
channel which currently generates in excess of 50% of its revenues, while
USR has developed a stronger retail distribution channel and stronger
presence in the ISP and carrier markets, in addition to its traditional
two-tier channel. By cross-selling products through each other's channels,
3Com and USR should have the opportunity to reach additional customers and
enhance sales of their respective products, particularly in newly emerging
markets for such products. For example, 3Com and USR believe the combined
company should benefit from increased sales of: (i) 3Com's systems
products to USR's ISP and carrier customers, (ii) 3Com's Office Connect
and NIC products through USR's retail channels, and (iii) USR's remote
access platforms and modems to 3Com's enterprise customers and through its
value added resellers and international sales organization, particularly
in the Far East and Latin America.
- STRENGTH AT THE EDGE OF THE NETWORK. The combined company will have
leading positions and strong brand identities in all of its major product
lines with particular strength in the key products at the edge of the
network. 3Com and USR have consistent approaches to building networks and
network access devices that make their products easy to install, use and
maintain, yet continue to integrate technology and intelligence that make
devices at the edge increasingly important to delivering a complete
networking solution. By leveraging its position at the edge of the network
with its strengths in core network systems and sophisticated remote access
platforms, the combined company will be able to deliver complete solutions
across the LAN and the WAN, with enhanced network manageability and at
lower cost, greatly strengthening its position with enterprise,
information service provider and carrier customers.
- TECHNOLOGICAL LEADERSHIP. The combined company has annualized research
and development expenditures of $500 million at current levels. Further,
the combined company will have industry leading expertise in ASIC
development and DSP programming, areas which are critical to the rapid
introduction of new cost-effective networking products for LAN and WAN
applications, respectively. By combining the existing intellectual
property positions of 3Com and USR and their substantial ongoing
development efforts, the combined company should achieve a number of
benefits associated with technological leadership and with owning or
controlling more of the intellectual property content in its products.
- FOCUS OF CRITICAL ENGINEERING RESOURCES. By concentrating on 3Com's
strength in LANs and USR's strength in WAN access, the combined company
should be better able to more effectively focus and deploy its research
and development efforts and critical engineering resources. The ability to
redeploy these resources will be particularly helpful as both companies
have not had the capacity to fully exploit opportunities in their existing
markets or properly address opportunities in emerging markets. This should
shorten product development cycles and result in solutions that are more
likely to be commercially successful than those that either company might
independently acquire or develop in the other's area of core competency.
In particular, it is expected that the combined company will deploy the
respective 3Com and USR research and development teams to continue 3Com's
development programs in the area of frame and cell switching and USR's
development programs in remote access. Similarly, in the area of LAN/modem
connections, it is expected that 3Com resources will continue to focus in
the area of LAN technology and USR resources will continue to focus in the
area of modem technology, including broadband access technologies such as
xDSL and data-over-cable.
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- CRITICAL MASS AND SYNERGY OPPORTUNITIES. The combined company will have
increased financial and other resources to compete in the face of
increasing customer needs for global network solutions and anticipated
continuing industry consolidation. Additionally, 3Com and USR believe that
the combined company will be able to achieve operational efficiencies and
other synergies that would be more difficult to achieve or unavailable to
either company alone. These operational efficiencies and other synergies
may include improved manufacturing capacity utilization, procurement
savings and corporate overhead reductions.
- STRONG MANAGEMENT TEAM. The respective managements of 3Com and USR are
committed to providing the combined company with a management structure
that features clear allocations of authority and responsibility coupled
with ongoing active participation by executives from both companies in key
roles under the leadership of 3Com's Chairman and Chief Executive Officer.
3Com and USR believe that many factors indicate the combined company
should be able to combine the operations of 3Com and USR effectively and
proceed with achieving its operating goal and realizing the potential
benefits of the Merger. These factors include: (i) the highly
complementary nature of the 3Com and USR businesses which involve very
little overlapping of products, technologies, sales organizations, or
other operations; (ii) the two companies' shared vision of the future of
the networking industry; (iii) the similarity and compatibility of the two
companies' respective operations and corporate cultures; and (iv) the fact
that the success of the Merger is not dependent upon major organizational
changes or complex development projects aimed at combining or redefining
technologies or product lines.
Finally, the Boards of Directors and managements of both companies firmly
believe that this combination is in the best interests of their shareholders
because it will lead to the creation of greater shareholder value by positioning
the combined company as the leading player in the fastest growing segments of
the networking market.
3COM BACKGROUND AND REASONS FOR THE MERGER
The 3Com Board considered the proposed Merger at its meetings held on
February 11 and 22, 1997, preliminarily approved the Merger at its meeting held
on February 24, 1997, and unanimously approved and adopted the Merger Agreement
at its meeting held on February 26, 1997. The 3Com Board believes the
consummation of the Merger is in the best interests of 3Com and its
shareholders, and unanimously recommends that the shareholders of 3Com vote FOR
approval and adoption of the Merger Agreement and the issuance of 3Com Common
Stock in the Merger.
In arriving at its unanimous decision to approve the Merger Agreement, the
3Com Board considered a number of factors. Among the factors that the 3Com Board
considered were (i) information concerning 3Com's and USR's respective
businesses, technologies, operations and products, including possible future
product releases, competitive positions and business prospects, (ii) the
complementary nature of 3Com's and USR's technologies and product lines, and the
anticipated benefits from offering complete end-to-end connectivity provided by
the combined product offerings of 3Com and USR, (iii) the opportunity for 3Com
to distribute its products to USR's ISP and telecommunications carrier customers
and through USR's retail channel and to distribute USR's products through 3Com's
more extensive enterprise and international sales channels, (iv) an analysis of
the relative contributions that USR's technology and products might make to the
future business and prospects of the combined company, (v) the compatibility of
the management and businesses of 3Com and USR, (vi) the possible ability to
achieve cost savings, (vii) reports from 3Com's management and legal advisors on
the specific terms of the relevant agreements, including the Merger Agreement
and the USR and 3Com Stock Option Agreements and other matters (including the
fact that the Merger is expected to be accounted for as a pooling of interests
and that no goodwill is expected to be created on the books of the combined
company as a result thereof), (viii) the 3Com Board's judgment that 3Com was
unlikely to identify an alternative strategic business combination that would
provide superior benefits to 3Com and its shareholders in the remote WAN access
market,
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(ix) 3Com's and USR's historical financial condition and results of operations
and estimated future results, as well as current financial market conditions and
historical market prices, and trading information for 3Com Common Stock and USR
Common Stock, and the percentage of the combined company to be owned by the 3Com
shareholders following the Merger, and (x) the technical and marketing knowledge
of the USR employee team. The 3Com Board also considered the financial analyses
presented by Goldman Sachs, including the February 24, 1997 oral opinion of
Goldman Sachs that, subject to the resolution of certain matters set forth in
the then-current draft of the Merger Agreement, as of such date, the Exchange
Ratio pursuant to the Merger Agreement was fair to 3Com. Goldman Sachs
subsequently delivered its written opinion dated February 26, 1997 that, as of
such date, the Exchange Ratio pursuant to the Merger Agreement was fair to 3Com.
See "The Merger--Opinion of 3Com's Financial Advisor."
3Com's goals have included expanding its product offerings, technologies and
customer bases in the remote access and WAN areas, increasing the overall size
and scope of its operations, and expanding its distribution channels,
particularly network service provider and retail channels. The 3Com Board
believes that the combination with USR will assist 3Com in achieving these
goals.
The 3Com Board evaluated the likelihood of realizing superior benefits
through alternative business strategies, which included evaluations of the
business and financial prospects of 3Com in its current form and if 3Com were to
seek various alternative acquisitions and strategic combinations with other
companies in the networking and data communications industries. In this
connection, the 3Com Board considered a number of factors, including market
growth, ongoing industry consolidation, the anticipated emergence of new
products and technologies, 3Com's internal product development strategies, the
ability of 3Com to access new customers and markets, and the fit of 3Com's
technologies and product lines with those of other potential partners. The 3Com
Board believes that the technologies, product lines and fundamental business and
operating strategies of 3Com and USR are complementary and consistent, that 3Com
and USR together can provide a greater range of products and superior market
coverage compared to any alternative combination, and that a combination of the
two companies provides a greater potential for enhanced shareholder value than
does the continuation of 3Com's operations in its present form or any of the
alternative business strategies that it considered.
The 3Com Board also considered (i) the risk that the issuance of 3Com Common
Stock in the Merger could be dilutive to the 3Com shareholders if anticipated
synergies are not realized, (ii) the effect of the public announcement of the
Merger on 3Com's sales, customer relations, operating results, ability to retain
employees and the trading price of 3Com Common Stock, (iii) the risk that the
Merger would not be consummated, (iv) the risk that the benefits sought in the
Merger would not be obtained, (v) the substantial charges expected to be
incurred in connection with the Merger, including costs associated with the
integration of the two companies, (vi) the potentially substantial management
time and effort that will be required to consummate the Merger and integrate the
operations of the two companies, (vii) the impact of the Merger on 3Com and USR
personnel, and, in particular, the effect of the acceleration of USR options in
the Merger and the potential expenses associated with the severance arrangements
of certain USR employees, and (viii) other risks described herein under "Risk
Factors". In the judgment of the 3Com Board, the potential benefits of the
Merger clearly outweighed the risks inherent in the transaction.
In view of the wide variety of factors, both positive and negative, which
were considered, the 3Com Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered.
USR BACKGROUND AND REASONS FOR THE MERGER
The Board of Directors of USR considered the proposed Merger at a board
meeting on February 23, 1997 and two meetings on February 25, 1997, and
unanimously approved the Merger Agreement at its meeting held on February 26,
1997. Four directors participated in the due diligence and negotiation sessions
with 3Com held in California from February 21 through February 25, 1997, and the
remaining
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three directors were kept continually informed concerning the progress of such
due diligence and negotiations by numerous telephone calls with USR officers and
directors throughout this period. In addition, senior management of USR
discussed the proposed merger and the reasons therefor with all directors,
individually and in small groups, on numerous occasions between January 24, and
February 21, 1997. The USR Board believes that the consummation of the Merger is
in the best interests of USR and its stockholders, and unanimously recommends
that the stockholders of USR vote FOR the approval and adoption of the Merger
Agreement.
In arriving at its unanimous decision to approve the Merger Agreement, the
USR Board considered a number of factors. Among the factors that the USR Board
considered were (i) information concerning USR's and 3Com's respective
businesses, technologies, operations and products, including possible future
product releases, competitive positions and business prospects, (ii) the
complementary nature of USR's and 3Com's technologies and product lines, and the
anticipated benefits from offering complete end-to-end connectivity provided by
the combined product offerings of 3Com and USR, (iii) the opportunity to
distribute USR's products through 3Com's more extensive enterprise and
international sales channels and to distribute 3Com's products to USR's ISP and
telecommunications carrier customers and through USR's retail channels, (iv) an
analysis of the relative contributions that 3Com's technology and products might
make to the future business and prospects of the combined company, (v) the
compatibility of the management and businesses of 3Com and USR, (vi) the
possible ability to achieve cost savings, (vii) reports from management and
legal advisors on the specific terms of the relevant agreements, including the
Merger Agreement and the USR and 3Com Stock Option Agreements, and other matters
(including the fact that the Merger is expected to be accounted for as a pooling
of interests and that no goodwill is expected to be created on the books of the
combined company as a result thereof), (viii) the USR Board's judgment that USR
was unlikely to identify an alternative strategic business combination that
would provide superior benefits to USR and its stockholders, (ix) 3Com's and
USR's historical financial condition and results of operations and estimated
future results, as well as current financial market conditions and historical
market prices, and trading information for USR Common Stock and 3Com Common
Stock, the consideration to be received by USR stockholders in the Merger, and
the percentage of the combined company to be owned by USR stockholders following
the Merger, (x) the technical and marketing knowledge of the 3Com employee team
and (xi) the ability of USR stockholders to participate, through continued
ownership of 3Com Common Stock, in the enhanced prospects of the combined
companies. The USR Board also considered the financial and other analyses
presented by Morgan Stanley, including the oral opinion of Morgan Stanley,
subsequently confirmed in writing, that the terms of the Merger Agreement were
fair to USR and its stockholders from a financial point of view as of the date
of such opinion. See "The Merger--Opinion of USR's Financial Advisor."
The USR Board evaluated the likelihood of realizing superior benefits
through alternative business strategies, which included evaluations of the
business and financial prospects of USR if it were to continue as an independent
company, and if USR were to seek a strategic combination with another company in
the networking or data communications industries. In this connection, the USR
Board considered a number of factors, including market growth, ongoing industry
consolidation, the anticipated emergence of new products and technologies, USR's
internal product development strategies, the ability of USR to access new
customers and markets, and the fit of USR's technologies and product lines with
those of other potential partners. The USR Board believes that the technologies,
product lines and fundamental business and operating strategies of USR and 3Com
are complementary and consistent, that USR and 3Com together can provide a
greater range of products and superior market coverage compared to any
alternative combination, and that a combination of the two companies provides a
greater potential for enhanced shareholder value than does either the
continuation of USR's operations in their present form or a combination with any
other potential merger partner. Because the consideration to be received in the
Merger consists of common stock and not cash or other non-equity consideration,
the Merger will offer the stockholders of USR the opportunity to continue to
participate in the growth and appreciation of the business conducted by the
combined company.
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The USR Board also considered (i) the risk that the benefits sought in the
Merger would not be obtained, (ii) the risk that the Merger would not be
consummated, (iii) the effect of the public announcement of the Merger on USR's
sales, customer relations, operating results and ability to retain employees,
and on the trading price of USR Common Stock, (iv) the potentially substantial
management time and effort that will be required to consummate the Merger and
integrate the operations of the two companies, (v) the impact of the Merger on
USR and 3Com personnel, and (vi) other risks described herein under "Risk
Factors". In the judgment of the USR Board, the potential benefits of the Merger
clearly outweighed the risks inherent in the transaction.
In view of the wide variety of factors, both positive and negative, which
were considered, the USR Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered.
OPINION OF 3COM'S FINANCIAL ADVISOR
On February 24, 1997, Goldman Sachs delivered its oral opinion to the 3Com
Board, that, subject to the resolution of certain matters set forth in the
then-current draft of the Merger Agreement, as of the date of such opinion, the
Exchange Ratio pursuant to the Merger Agreement was fair to 3Com. Goldman Sachs
subsequently confirmed its oral opinion by delivering its written opinion dated
February 26, 1997 that, as of such date, the Exchange Ratio pursuant to the
Merger Agreement was fair to 3Com. Goldman Sachs also delivered its written
opinion dated the date of this Joint Proxy Statement/Prospectus that as of the
date of this Joint Proxy Statement/Prospectus the Exchange Ratio pursuant to the
Merger Agreement is fair to 3Com.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED THE DATE OF THIS
JOINT PROXY STATEMENT/ PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
OPINION, IS ATTACHED HERETO AS ANNEX D TO THIS JOINT PROXY STATEMENT/ PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF 3COM ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement and the Registration Statement on Form S-4; (ii) Annual
Reports to Stockholders and Annual Reports on Form 10-K of USR for the five
fiscal years ended September 30, 1996 and of 3Com for the five fiscal years
ended May 31, 1996; (iii) certain interim reports to stockholders and Quarterly
Reports on Form 10-Q for USR and 3Com; (iv) certain other communications from
USR and 3Com to their stockholders; (v) certain unaudited interim financial
reports of USR and 3Com; and (vi) certain internal financial analyses and
forecasts for USR and 3Com prepared by their respective managements. Goldman
Sachs also held discussions with members of the senior management of USR and
3Com regarding the strategic rationale, cost savings, operating synergies and
other benefits of the Merger and the past and current business operations,
financial condition, and future prospects of their respective companies without,
and after, giving effect to the Merger. In addition, Goldman Sachs reviewed the
reported price and trading activity for the 3Com Common Stock and the USR Common
Stock, compared certain financial and stock market information for USR and 3Com
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the networking and data communications industry and performed
such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, it assumed
with the consent of 3Com that the financial forecasts provided to it and
discussed with it with respect to 3Com and the financial forecasts provided to
it with respect to USR, as adjusted to reflect the views of 3Com management, in
each case on a standalone basis and after giving effect to the Merger,
including, without limitation, the projected cost savings and operating
synergies resulting from the
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Merger, were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of 3Com and that such forecasts will be
realized in the amounts and at the times contemplated thereby. In addition,
Goldman Sachs has not made an independent evaluation or appraisal of the assets
and liabilities of USR or 3Com or any of their subsidiaries and Goldman Sachs
has not been furnished with any such evaluation or appraisal. Goldman Sachs'
advisory services and its opinion are provided for the information and
assistance of the 3Com Board and its opinion does not constitute a
recommendation as to how any holder of 3Com Common Stock should vote with
respect to the Merger.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinions to the 3Com Board on
February 24, 1997 and February 26, 1997, respectively. Goldman Sachs used
substantially the same type of analysis in connection with providing the written
opinion dated the date of this Joint Proxy Statement/Prospectus and attached
hereto as Annex D.
- HISTORICAL STOCK TRADING ANALYSIS. Goldman Sachs reviewed the historical
trading prices for the 3Com Common Stock and the USR Common Stock. In
addition, Goldman Sachs compared the average market price of a share of
USR Common Stock to the average market price of a share of 3Com Common
Stock for the 365 days, 180 days, 30 days and one week ended February 21,
1997. Such comparison indicated that for such periods the average market
price of a share of USR Common Stock was equal to 1.35, 1.07, 1.27 and
1.49, respectively, of a share of 3Com Common Stock.
- SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared certain
financial information relating to 3Com and USR to corresponding financial
information, ratios and public market multiples for the following eleven
publicly traded data networking corporations: Ascend Communications, Bay
Networks, Cabletron Systems, Inc. ("Cabletron"), Cascade Communications
Corp., Cisco, Fore Systems, Inc., Premisys Communications, Inc., Shiva
Corp. ("Shiva"), 3Com, USR and Xylan Corp. ("Xylan") (the "Selected
Companies"). The Selected Companies were chosen because they are publicly
traded companies with operations that for purposes of analysis may be
considered similar to 3Com. Goldman Sachs calculated and compared various
financial multiples and ratios. The multiples of 3Com and USR were
calculated using a price of $38.69 per share of 3Com Common Stock and
$59.13 per share of USR Common Stock, the closing prices of such shares on
The Nasdaq National Market on February 24, 1997, and the multiples of the
Selected Companies were calculated using closing market prices for such
companies on February 24, 1997. The multiples and ratios for the Selected
Companies were based on the most recent publicly available information.
With respect to the Selected Companies, Goldman Sachs considered
annualized revenues (based on latest quarter data, which for Premisys
Communications, Inc. and Xylan was as of September 30, 1996) as a multiple
of levered market capitalization (i.e., market value of common equity plus
estimated market value of debt less cash) and annualized earnings per
share ("EPS") (based on latest quarter data, which for Premisys
Communications, Inc. and Xylan was as of September 30, 1996) as a multiple
of price/earnings ratio, which multiples ranged from a low of 2x to a high
of 11x, with a mean of 5x and a median of 4x, and a low of 16x to a high
of 79x, with a mean of 38x and a median of 36x, respectively, compared to
multiples of 2x and 16x, respectively, for 3Com, and multiples of 2x and
21x, respectively, for USR. Goldman Sachs also considered for the Selected
Companies estimated calendar year 1997 and 1998 price/earnings ratios
(based on Institutional Broker Estimate System ("IBES") estimates as of
February 21, 1997), which ranged from a low of 15x to a high of 44x, with
a mean of 25x and a median of 22x, for estimated calendar year 1997, and a
low of 11x to a high of 31x, with a mean of 18x and a median of 16x, for
estimated calendar year 1998 compared to 18x and 13x, respectively, for
3Com, and 17x and 12x, respectively, for USR; and estimated calendar year
1996 and 1997 multiples of revenues (based on recent analyst research
reports or, where reports are not available, IBES 5-year growth rate
estimates), which ranged from a low of 1.7x to a high of 15.2x, with a
mean of 6.0x and a median of 4.1x, for estimated calendar year 1996, and a
low of 1.2x to a high of 8.9x, with a mean of 4.1x and a median of 3.0x,
for
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estimated calendar year 1997, compared to 2.7x and 2.1x, respectively, for
3Com, and 2.5x and 1.8x, respectively, for USR. The estimated calendar
year 1997 price/earnings ratio to five-year EPS growth rate (based on IBES
estimates as of February 21, 1997) for the Selected Companies ranged from
a low of 0.3x to a high of 1.2x, with a mean of 0.7x and a median of 0.6x,
compared to 0.6x for 3Com and 0.5x for USR. IBES is a data service which
monitors and publishes a compilation of earnings estimates produced by
selected research analysis on companies of interest to investors.
- PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma analyses of
the financial impact of the Merger. Using earnings estimates for 3Com and
USR (based on the views of 3Com management which reflect the best
currently available estimates and judgments of 3Com management) for the
1998 fiscal year (the "Management Scenario") and earnings estimates for
3Com and USR prepared by IBES for the 1998 fiscal year (the "IBES
Scenario"), Goldman Sachs compared the EPS of 3Com Common Stock, on a
standalone basis, to the EPS of the common stock of the combined companies
on a pro forma basis. These comparisons were based on the following: (i)
the Exchange Ratio of 1.75, (ii) total equity consideration (based on the
treasury stock method) of $6.774 billion, (iii) an implied price per share
of USR Common Stock of $67.70 (which represents a 14.5% premium over the
closing market price on February 24, 1997), (iv) the issuance of 175.1
million shares of 3Com Common Stock and common stock equivalents in the
Merger, and (v) $0.00 in pre-tax synergies. The analysis indicated that
3Com's stockholders would own 51.7% of the outstanding common equity
(based on the treasury stock method) of the combined companies after the
Merger. The analyses also indicated that the proposed transaction would be
dilutive to 3Com's stockholders on an EPS basis under the Management
Scenario and the IBES Scenario, respectively, for the 1998 fiscal year.
The proposed transaction would be break-even to 3Com's stockholders on an
EPS basis under the Management Scenario and the IBES Scenario if the
combined company realized $21 million and $42 million, respectively, in
pre-tax synergies during its 1998 fiscal year.
- CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain estimated future
operating and financial information (including, among other things, net
sales, cost of goods sold, gross profit, sales and marketing expenses,
research and development expenses, general and administrative expenses,
operating income and net income) for 3Com and USR (based on the views of
3Com management which reflect the best currently available estimates and
judgments of 3Com management) and the pro forma combined entity resulting
from the Merger (such estimates are based on 3Com's 1998 fiscal year
ending in May and USR's 1998 fiscal year ending in September). Goldman
Sachs analyzed the relative contributions of 3Com and USR to the combined
entity based on the estimates for the 1998 fiscal year. This analysis
indicated that in 1998 3Com would contribute 51% to net sales, 46% to cost
of goods sold, 57% to gross profit, 61% to sales and marketing expenses,
65% to research and development expenses, 45% to general and
administrative expenses, 51% to operating income, and 53% to net income.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company (other
than 3Com and USR) or transaction used in the above analyses as a comparison is
directly comparable to 3Com or USR or the contemplated transaction. The analyses
were prepared solely for purposes of Goldman Sachs' providing its opinion to the
3Com Board as to the fairness to 3Com of the Exchange Ratio pursuant to the
Merger Agreement and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their
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respective advisors, none of 3Com, USR, Goldman Sachs, or any other person
assumes responsibility if future results are materially different from those
forecast.
As described above, Goldman Sachs' opinion to the 3Com Board was one of many
factors taken into consideration by the 3Com Board in making its determination
to approve the Merger Agreement. The foregoing summary does not purport to be a
complete description of the analysis performed by Goldman Sachs and is qualified
by reference to the written opinion of Goldman Sachs set forth in Annex D
hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. 3Com selected Goldman
Sachs as its financial advisor because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger. Goldman Sachs is familiar with 3Com, having provided certain investment
banking and financial advisory services to 3Com from time to time and having
acted as its financial advisor in connection with, and having participated in
certain of the negotiations leading to, the Merger Agreement. From January 1,
1995 to May 1, 1997, Goldman Sachs was paid total fees of approximately $250,000
by 3Com. Goldman Sachs has never provided financial advisory services to USR or
its affiliates.
Pursuant to a letter agreement dated February 19, 1997 (the "Goldman Sachs
Engagement Letter"), 3Com engaged Goldman Sachs to act as its financial advisor
in connection with the possible merger, sale transaction or other business
combination with, or acquisition of all or a portion of the stock or assets of,
USR. Pursuant to the terms of the Goldman Sachs Engagement Letter, 3Com has
agreed to pay Goldman Sachs (i) if at least 50% of the USR Common Stock or at
least 50% of the assets (based on book value thereof) of USR is acquired in one
or more transactions, or if 3Com undertakes a merger, sale or other business
combination in one or more transactions involving 50% or more of USR's Common
Stock or 50% or more of its assets (based on book value thereof), a transaction
fee of $10.0 million and (ii) if less than 50% of the outstanding common stock
or assets (based on the book value thereof) of USR is acquired, or if 3Com
undertakes a merger, sale or other business combination involving less than 50%
of the stock or assets of USR, a mutually acceptable transaction fee to be
agreed upon by 3Com and Goldman Sachs prior to consummation of such transaction.
3Com has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
OPINION OF USR'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of February 20, 1997 (the "Morgan
Stanley Engagement Letter"), Morgan Stanley provided a financial fairness
opinion in connection with the Merger. Morgan Stanley was selected by the USR
Board to act as USR's financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of USR. At the meeting of the USR Board on February 25, 1997, Morgan
Stanley rendered its oral opinion, subsequently confirmed in writing as of
February 26, 1997, that as of such date, based upon and subject to the various
considerations set forth in the opinion, the Exchange Ratio pursuant to the
Merger Agreement was fair from a financial point of view to the holders of
shares of USR Common Stock. Morgan Stanley subsequently confirmed its written
opinion by delivery of another written opinion dated the date of this Joint
Proxy Statement/ Prospectus which is substantially the same as the written
opinion dated February 26, 1997.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED AS OF THE DATE
OF THIS JOINT PROXY/ PROSPECTUS WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS
ATTACHED AS ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS. USR STOCKHOLDERS
ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY IN
CONJUNCTION WITH THIS JOINT PROXY STATEMENT/PROSPECTUS. MORGAN STANLEY'S OPINION
IS DIRECTED TO THE USR BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW AS OF THE
DATE OF THE OPINION, AND
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DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF USR COMMON STOCK AS TO HOW
TO VOTE AT THE USR SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY
SET FORTH IN THIS JOINT PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of 3Com and USR, respectively; (ii) reviewed certain internal
financial statements and other financial and operating data concerning USR and
3Com prepared by the managements of USR and 3Com, respectively; (iii) discussed
the past and current operations and financial condition and the prospects of
3Com, including information relating to certain strategic, financial and
operational benefits anticipated from the Merger, with senior executives of
3Com; (iv) discussed the past and current operations and financial condition and
the prospects of USR, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger, with senior
executives of USR; (v) reviewed the pro forma impact of the Merger on the
earnings per share and consolidated capitalization of 3Com and USR,
respectively; (vi) reviewed the reported prices and trading activity for the
3Com Common Stock and the USR Common Stock; (vii) compared the financial
performance of 3Com and USR and the prices and trading activity of the 3Com
Common Stock and the USR Common Stock with that of certain other publicly traded
companies and their securities; (viii) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions; (ix)
reviewed and discussed with the senior managements of 3Com and USR the strategic
rationale for the Merger and certain alternatives to the Merger; (x)
participated in discussions and negotiations among representatives of 3Com and
USR and their financial and legal advisors; (xi) reviewed the Merger Agreement
and certain related agreements; and (xii) considered such other factors as it
deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. With respect to the internal financial statements and other
financial and operating data including estimates of the strategic, financial and
operational benefits anticipated from the Merger provided by USR and 3Com,
Morgan Stanley assumed that they were reasonably prepared on bases reflecting
the best then currently available estimates and judgments of the prospects of
3Com and USR, respectively. Morgan Stanley relied upon the assessment by the
managements of 3Com and USR of their ability to retain key employees of both
3Com and USR. Morgan Stanley also relied upon, without independent verification,
the assessment by the managements of 3Com and USR of the strategic and other
benefits expected to result from the Merger. Morgan Stanley also relied upon,
without independent verification, the assessment by the managements of 3Com and
USR of 3Com's and USR's technologies and products, the timing and risks
associated with the integration of USR with 3Com, and the validity of, and risks
associated with, 3Com's and USR's existing and future products and technologies.
Morgan Stanley did not make any independent valuation or appraisal of the
assets, liabilities or technology of 3Com or USR, respectively, nor was Morgan
Stanley furnished with any such appraisals. Morgan Stanley assumed that the
Merger would be accounted for as a "pooling-of-interests" business combination
in accordance with U.S. Generally Accepted Accounting Principles and that the
Merger would be treated as a tax-free reorganization and/or exchange pursuant to
the Code and would be consummated in accordance with the terms set forth in the
Merger Agreement. Morgan Stanley's opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to it as of, the date of the opinion. In arriving at its opinion, Morgan Stanley
was not authorized to solicit, and did not solicit, interest from any other
party with respect to an acquisition, business combination or other
extraordinary transaction involving USR, nor did Morgan Stanley negotiate with
any parties other than 3Com.
The following is a brief summary of the analysis performed by Morgan Stanley
in connection with its oral opinion and the preparation of its opinion letter
dated February 26, 1997.
- COMPARATIVE STOCK PRICE PERFORMANCE. As part of its analysis, Morgan
Stanley reviewed the recent stock price performance of USR and 3Com and
compared such performance with that of Cisco, a group of two data
communications companies (together, the "Data Communications Companies")
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and a group of seven high growth data communications companies
(collectively, the "High Growth Data Communications Companies"). Morgan
Stanley observed that over the period from January 1, 1996 to February 24,
1997, the market price of USR Common Stock appreciated approximately 35%,
compared with an approximate depreciation of 17% for 3Com, an approximate
appreciation of 55% for Cisco, and an approximate depreciation of 40% and
39% for an index of the Data Communications Companies and an index of the
High Growth Data Communications Companies, respectively.
- PEER GROUP COMPARISON. Morgan Stanley compared certain financial
information of USR with that of the Data Communications Companies
(together with Cisco and 3Com) and the High Growth Data Communications
Companies. Such financial information included, among other things, market
valuation, stock price as a multiple of earnings per share, and the ratio
of calendar year 1997 price earnings multiple to projected growth rate.
Such analysis showed that as of February 24, 1997, based on earnings per
share and growth rate projections of securities research analysts, USR
traded at a multiple of 16.4 times forecasted earnings per share for the
calendar year 1997 (representing a multiple of 0.47 times its forecasted
growth rate), compared to median multiples of 21.2 times (representing a
median multiple of 0.66 times forecasted growth rate) for the Data
Communications Companies (together with Cisco and 3Com) and 26.1 times
(representing a median multiple of 0.57 times forecasted growth rate) for
the High Growth Data Communications Companies based on securities research
analyst forecasts. Such analysis also showed growth rate projections of
35.0% for U.S. Robotics and medians of 27.5% and 50.0% for the Data
Communications Companies (together with Cisco and 3Com) and the High
Growth Data Communications Companies, respectively. No company used in the
peer group comparison is identical to USR.
- ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. As part of this analysis,
Morgan Stanley reviewed six technology transactions (collectively the
"Large Data Communications Technology Transactions"). Morgan Stanley
compared certain statistics for the Large Data Communications Technology
Transactions to the relevant financial statistics for USR based on the
value of USR assuming the closing stock price for 3Com as of February 24,
1997 and the Exchange Ratio. The analysis showed multiples of earnings
ranging from a low of 12.9 times to a high of 210.4 times one year forward
earnings and multiples of latest twelve months revenues ranging from a low
of 0.5 times to a high of 16.5 times. These compared to multiples of 19.1
times one year forward earnings and 3.1 times latest twelve months
revenues for USR based on the Exchange Ratio and the closing stock price
of the 3Com Common Stock as of February 24, 1997. No transaction used in
the Analysis of Selected Precedent Transactions is identical to the
Merger.
- DISCOUNTED EQUITY VALUE. Morgan Stanley performed an analysis of the
present value per share of USR's future trading price based on a range of
earnings per share estimates for USR for calendar years 1998 and 1999,
illustrative multiples of earnings per share ranging from 16.4 times
(USR's then current multiple) to 20.0 times the 1997 calendar year's
earnings per share and an illustrative discount rate of 17.0% based on
Morgan Stanley estimates of the theoretical return required by
shareholders to hold shares of U.S. Robotics. Based on this analysis,
Morgan Stanley estimated a present value of the potential future trading
price per share ranging from $64.18 to $87.79 for the USR Common Stock
based on multiples ranging from 16.4 times to 20.0 times the 1997 calendar
year's earnings per share and an illustrative discount rate of 17.0%.
Additionally, Morgan Stanley compared the present value per share of USR
to the pro forma present value per equivalent share assuming consummation
of the Merger. This analysis showed per share values ranging from $75.95
to $106.95 (assuming no synergies) and $108.12 to $150.91 (with synergies)
for USR assuming consummation of the Merger based on multiples ranging
from 18.3 times (3Com's then current multiple) to 24.0 times the 1997
calendar year's earnings per share and an illustrative discount rate of
17.0%. This analysis suggested that, based on the aforementioned earnings
per share estimates, multiples of earnings and discount rates, the range
of present values of the potential future trading price per equivalent USR
share for the combined company could be higher than for USR as a
stand-alone entity.
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- RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma
contribution of each of USR and 3Com to the combined company assuming
consummation of the Merger and based on securities research analyst
forecasts. This analysis showed, among other things, that in terms of
revenue, operating income and net income, USR would contribute 44.2%,
42.1% and 40.8%, respectively, in the calendar year 1996 and 48.4%, 48.2%
and 46.7%, respectively, in the forecasted calendar year ended 1997. These
figures, adjusted to reflect each company's respective capital structure,
were compared to the pro forma ownership of the combined company by USR
stockholders of 47.9% on a fully converted basis based on the Exchange
Ratio.
- EXCHANGE RATIO ANALYSIS. Morgan Stanley compared the exchange ratios
implied by average historical exchange ratios, the Discounted Equity Value
Analysis and the Relative Contribution Analysis to the Exchange Ratio.
Morgan Stanley reviewed the ratios of the closing stock prices of USR to
3Com over various periods during the twelve month period ending February
24, 1997 and computed the premiums represented by the Exchange Ratio over
the averages of these daily ratios over various periods. The averages of
these daily ratios of the closing stock prices of USR and 3Com were 1.528
as of the close of market on February 24, 1997, 1.504 for the previous 10
trading days, 1.094 for the previous 60 trading days, 1.072 for the
previous 120 trading days and 1.355 for the latest twelve month period
ending February 24, 1997. The Exchange Ratio represented premiums of 15%,
16%, 60%, 63% and 29%, respectively, over the aforementioned average
ratios of the USR and 3Com stock prices. Additionally, Morgan Stanley
computed the exchange ratios implied by each company's respective
discounted equity value per share assuming a discount rate of 17.0% based
on Morgan Stanley estimates of the theoretical return required by
shareholders to hold shares of USR and 3Com and the then current multiples
of calendar year 1997 earnings per share of 16.4 times and 18.3 times for
USR and 3Com, respectively. The ratios of the discounted equity values per
share were 1.411 and 1.521 for calendar years 1998 and 1999, respectively.
The Exchange Ratio represented premiums of 24% and 15%, respectively, over
the aforementioned ratios of the discounted equity values per share.
Morgan Stanley also reviewed the exchange ratios implied by the relative
contribution of revenues, operating income and net income by each company
to the combined company. The exchange ratios implied by contribution of
calendar 1997 revenue, calendar 1997 operating income and calendar years
1997 and 1998 earnings were 1.599, 1.586, 1.665 and 1.511, respectively.
The Exchange Ratio represented premiums of 9%, 10%, 5% and 16%,
respectively, over the aforementioned exchange ratios implied by revenue,
operating income and net income contribution to the combined company.
- PRO FORMA ANALYSIS OF THE MERGER. Morgan Stanley analyzed the pro forma
impact of the Merger on USR's estimated earnings per share for the
calendar years 1997 and 1998 and the fiscal year ending May 31, 1997
(3Com's fiscal year end). Such analysis was based on earnings estimates
for USR and 3Com based on securities research analyst forecasts for the
corresponding periods. Morgan Stanley observed that, assuming that the
Merger was treated as a pooling-of-interests for accounting purposes and
before taking into account any one-time restructuring charges or any
synergies resulting from the combination, the Merger would result in
earnings per share accretion for USR stockholders of 1.3%, 5.8% and 3.9%
for the estimated calendar years 1997 and 1998 and the fiscal year ending
May 31, 1997, respectively, based on the Exchange Ratio. Morgan Stanley
also observed, based on the foregoing assumptions, that the Merger would
result in earnings per share accretion for USR stockholders of 21.7%,
50.6% and 46.9% for the estimated calendar years 1997 and 1998 and the
fiscal year ending May 31, 1997, respectively, assuming synergies.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement/Prospectus, Morgan Stanley confirmed the appropriateness of its
reliance on the analyses used to render its written opinion dated February 26,
1997, by performing procedures to update certain of such analyses and by
reviewing the assumptions upon which such analyses were based and the factors
considered in connection therewith.
In connection with the review of the Merger by the USR Board, Morgan Stanley
performed a variety of financial and comparative analyses for purposes of its
opinion given in connection therewith. While the
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foregoing summary describes the analyses and factors reviewed by Morgan Stanley
in connection with its opinion, it does not purport to be a complete description
of all the analyses performed by Morgan Stanley in arriving at its opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a whole
and did not attribute any particular weight to any analysis or factor considered
by it. Furthermore, selecting any portion of its analyses, without considering
all analyses, would create an incomplete view of the process underlying its
opinion. In addition, Morgan Stanley may have given various analyses and factors
more or less weight than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of 3Com and USR. In
performing its analyses, Morgan Stanley made numerous assumptions with respect
to industry performance, general business and economic conditions of other
matters, many of which are beyond the control of USR or 3Com. Any estimates
contained herein are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than those suggested
by such estimates. The analyses performed were prepared solely as part of Morgan
Stanley's analysis of the fairness of the Exchange Ratio in the Merger to the
holders of shares of USR Common Stock and were conducted in connection with the
delivery of Morgan Stanley's opinion. The analyses do not purport to be
appraisals or to reflect the prices at which USR or 3Com might actually be sold.
The consideration to be received by the stockholders of USR pursuant to the
Merger was determined through arm's-length negotiations between USR and 3Com and
was approved by the USR Board of Directors. Morgan Stanley did not recommend any
specific exchange ratio to USR or that any specific exchange ratio constituted
the only appropriate exchange ratio for the Merger.
The USR Board retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Morgan Stanley makes a market in USR Common Stock and 3Com
Common Stock. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, may trade or otherwise effect transactions, for its own account or
for the account of customers, in the equity securities of USR or 3Com.
Pursuant to the Morgan Stanley Engagement Letter, Morgan Stanley provided
advisory services and a financial opinion in connection with the Merger and USR
has agreed to pay a fee to Morgan Stanley based on the aggregate value of the
transaction if the Merger is consummated and to reimburse Morgan Stanley for
reasonable expenses as incurred. This fee could range from 0.1875% to 0.3% of
the aggregate transaction value depending on the market value (determined over a
measurement period prior to the consummation of the Merger) of the consideration
received by USR's stockholders in the Merger. Upon execution of the Merger
Agreement, Morgan Stanley became entitled to receive payment of $1.0 million,
which amount will be credited toward the fee described in the immediately
preceding sentence if the Merger is consummated. In addition, USR has also
agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to Morgan Stanley's engagement. In the past, Morgan Stanley and its
affiliates have provided financial advisory and financing services for USR and
3Com and have been compensated for the rendering of these services. Apart from
the foregoing, from January 1, 1995 to May 1, 1997, Morgan Stanley received
underwriting discounts of approximately $300,000 from USR and fees of
approximately $4.2 million from 3Com.
INTEREST OF CERTAIN PERSONS IN THE MERGER
As of May 1, 1997, the executive officers and directors of USR and their
affiliates owned or held options to acquire to an aggregate of 10,264,621 shares
of USR Common Stock (including 8,481,296 shares
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of USR Common Stock subject to USR Options, all of which will be exercisable
immediately following the consummation of the Merger).
The directors and certain executive officers of USR and 3Com, holding in the
aggregate less than 2% and 1% respectively of the shares of USR and 3Com
outstanding as of the respective record dates, have entered into voting
agreements with 3Com and USR, respectively, pursuant to which each has agreed to
vote in favor of the Merger and related matters. See "The Merger--Voting
Agreements."
Pursuant to the Merger Agreement, upon the consummation of the Merger, Casey
Cowell, James E. Cowie and Paul G. Yovovich, directors of USR, will be elected
to the 3Com Board. Mr. Yovovich will also become a member of the 3Com Board's
two person Compensation Committee (the "3Com Compensation Committee"). In
addition, Mr. Cowell will become Vice Chairman of 3Com and certain other
executive officers of USR will become executive officers and key management
employees of 3Com.
In connection with the execution of the Merger Agreement, Mr. Cowell, John
McCartney, Jonathan N. Zakin, Ross W. Manire and Michael S. Seedman, executive
officers of USR, entered into, and additional executive officers of USR will be
asked to enter into, noncompete agreements and amendments to their existing
employment agreements with USR. Such existing employment agreements provide that
such persons will be entitled to receive severance payments in certain
circumstances, including following any termination of employment within one year
after a "change in control" of USR, including the change of control that will be
deemed to result from the consummation of the Merger. The amendments reduce the
potential bonus compensation payable to these individuals under the existing
agreements and extend from one to two years the period following the Merger
during which a termination of the employment of these individuals, voluntarily
or involuntarily, would entitle them to receive severance payments as a result
of the "change in control." Assuming the termination of the employment of all
USR executive officers and other employees who are parties to such employment
agreements immediately following the consummation of the Merger, 3Com's
aggregate liability under the severance provisions contained therein could be as
much as approximately $26.3 million. See "The Merger--Employment and Noncompete
Agreements."
Under the provisions of the USR Option Plans, substantially all of the
outstanding USR Options will become exercisable in full upon the consummation of
the Merger. As a result of such acceleration, USR Options to purchase 11,483,693
shares of USR Common Stock, which otherwise would have become vested over future
periods ranging from four to 60 months, will become vested and fully exercisable
upon the consummation of the Merger, including USR Options to purchase 4,856,437
shares of USR Common Stock held by directors and executive officers of USR. See
"The Merger--Acceleration of USR Options."
Pursuant to the Merger Agreement, 3Com has agreed to indemnify each person
who was an officer, director or employee of USR against certain liabilities. In
addition, 3Com has agreed to maintain, with certain limitations, policies of
directors' and officers' liability insurance comparable to those currently
maintained by USR. See "The Merger Agreement--Indemnification."
As a result of the foregoing transactions and agreements, the directors and
executive officers of USR may have personal interests in the Merger which are
not identical to the interests of other USR stockholders.
MANAGEMENT FOLLOWING THE MERGER
Pursuant to the Merger Agreement, upon the consummation of the Merger, Casey
Cowell, James E. Cowie and Paul G. Yovovich, directors of USR, will be elected
to the 3Com Board. Mr. Yovovich will also become a member of the 3Com
Compensation Committee. In addition, Mr. Cowell will become Vice Chairman of
3Com, and certain other executive officers of USR will become executive officers
and key management employees of 3Com.
For additional information concerning the management of 3Com, see
"Information Concerning 3Com--Management."
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EMPLOYMENT AND NONCOMPETE AGREEMENTS
USR's executive officers are parties to employment agreements with USR that
provide for employment for a fixed period, certain severance arrangements and
salaries and bonuses based upon USR executive compensation arrangements as more
fully described below. The executive compensation arrangements of 3Com and USR
are different, and USR has generally paid higher salaries and bonuses to its
executive officers than 3Com has paid to its executive officers. In order to
encourage key USR executive officers to remain with the combined company after
the Merger, certain amendments to the existing agreements were proposed. In
particular, 3Com requested that certain key employees agree to a transition plan
regarding salaries and bonuses pursuant to which USR compensation arrangements
would generally be maintained until May 31, 1998, with certain reductions in
anticipated bonuses. During such period, the 3Com Compensation Committee will
evaluate the compensation plan for executive officers and create a uniform plan
for all executive officers. Further, 3Com and such executive officers agreed to
amend their agreements in other respects intended to encourage such employees to
remain with the combined company, as more fully described below.
Each of Messrs. Cowell, McCartney and Zakin has been a party to an
employment agreement with USR since 1991. Their current employment agreements,
which expire December 31, 1999, provide for minimum annual base salaries of
$950,000, $500,000 and $400,000, respectively. The term of each of these
agreements is automatically extended at the end of each year by one additional
year, in the absence of a notice of non-extension from USR or the executive
officer. Each of these employment agreements contemplates participation by the
executive officer in USR's Senior Executive Performance Bonus Plan or a
comparable bonus arrangement. Each agreement also provides for severance
compensation payable as a lump sum in an amount equal to three times such
executive officer's annual base salary, plus the total of the executive
officer's bonus compensation for each of the preceding three years (less the
amount of bonuses paid in the year of termination), if termination occurs for
any reason, including any termination within one year following a "Change in
Control" of USR, as defined in such agreements, other than for cause, death,
disability, impaired health or resignation for other than "Good Reason", as
defined in such agreements. The change of control that will be deemed to result
from the consummation of the Merger is within the definition of a "Change in
Control," and voluntary termination following a Change in Control is within the
definition of Good Reason. Therefore, each of such executive officers would be
entitled to receive a severance payment if his employment were terminated either
involuntarily by 3Com or voluntarily by the executive officer within one year
following the consummation of the Merger. Such severance compensation is limited
to an amount that is less than the maximum amount that the executive officer
could receive without it being deemed an "excess parachute payment" under
Section 280G of the Code. Assuming the termination of the employment of such
executive officers immediately following the consummation of the Merger (and
assuming no reduction as a result of Section 280G), the amount of such severance
compensation payable to Messrs. Cowell, McCartney and Zakin would be
approximately $8,990,000, $6,090,000 and $5,259,000, respectively.
Each of Messrs. Manire and Seedman is a party to an employment agreement
with USR which expires December 31, 1998. Each of these employment agreements
provides for a minimum annual base salary of $375,000. These base salary amounts
are subject to review by USR's Stock Option and Compensation Committee and may
be increased on an annual basis at the beginning of each fiscal year. These
agreements contain provisions for automatic renewals for successive one-year
terms following the initial term, absent notice of non-renewal from either USR
or the executive officer. Each agreement also provides for severance
compensation in an amount equal to one year's compensation (determined by taking
the sum of the current year's base salary plus the average of the preceding
three years' aggregate annual bonuses) in the event of termination for any
reason following a Change in Control. Assuming the termination of the employment
of such executive officers immediately following the consummation of the Merger,
the amount of such severance compensation payable to Messrs. Manire and Seedman
would be approximately $1,585,000 and $1,149,000, respectively.
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Certain other USR officers are parties to two-year employment agreements
which are substantially identical in their terms and conditions (other than the
amounts of compensation) to those of Messrs. Manire and Seedman described above.
Assuming the termination of the employment of all of such officers immediately
following the consummation of the Merger, the aggregate amount of the severance
compensation payable to them would be approximately $3,253,000.
In connection with the Merger, the employment agreements of Messrs. Cowell,
McCartney, Zakin, Manire and Seedman have been amended effective as of the
Effective Time (the "Amendments"). Under the Amendments, the minimum salary of
Mr. Cowell was reduced to $650,000 and the bonus program in which such executive
officers participate was redefined to provide for generally smaller bonus
payments. Generally, USR has provided incentives to its executive officers in
the form of significant bonuses tied to achieving growth in earnings per share,
aligning cash compensation with the interests of USR's stockholders. 3Com has
generally provided substantially smaller bonuses. The bonus program provided for
in the Amendments ends as of May 31, 1998 and is intended as a transition plan
to provide an incentive to these key executive officers to remain with the
combined company, and to allow 3Com's Compensation Committee a transition period
in which it can review and revise its existing executive compensation plan and
create a uniform executive compensation plan for the combined company.
The Amendments also provide for the grant to the executive officers of
options to acquire 3Com Common Stock when the 3Com Compensation Committee first
grants options to executives of 3Com with the amount of shares granted under
such options to be comparable to the grants made to 3Com executives with similar
responsibilities.
The Amendments also extend the period within which any termination of the
executives' employment would be deemed to be for Good Reason (and therefore
entitle the executive to severance payments) from one year (in the case of
Messrs. Cowell, McCartney and Zakin) or six months (in the case of Messrs.
Manire and Seedman) to two years following the Effective Time. 3Com believes
such extension will substantially reduce the incentive for such persons to
terminate their employment with the combined company in the first year after the
Merger.
Additionally, the Amendments provide that, in the event the employment of
any of these executives is terminated involuntarily by 3Com without cause, 3Com
will continue to retain them as consultants. These consulting arrangements will
continue until the second anniversary of the Effective Time, unless earlier
terminated by 3Com for cause or by the former executive's voluntary resignation,
death or disability. Under these arrangements, each former executive would have
an obligation, subject to certain limitations on the time committed, to provide
services as requested by 3Com for daily fees of $2,500 (in the case of Messrs.
Cowell, McCartney or Zakin) or $1,750 (in the case of Messrs. Manire or Seedman)
per day, with a minimum retainer in each case of $1,000 per month. Finally, the
Amendment to Mr. Manire's employment agreement provides, as partial
consideration for his noncompete agreement, that in the event his employment is
terminated for any reason, other than by 3Com for cause, at any time during the
two years following the Effective Time, Mr. Manire will receive an additional
severance payment equal to one year's compensation (determined by taking the sum
of the current year's base salary plus the amount of the cash bonuses he
actually received (i) with respect to USR's 1996 fiscal year or (ii) with
respect to the then most recent full fiscal year of 3Com, whichever is greater).
Messrs. Cowell, McCartney, Zakin, Manire and Seedman also entered into, and
additional executives of USR will be asked to enter into, noncompete agreements.
The noncompete agreements provide that such executives will not, for a period of
two years following the Effective Time, engage in any business that is
developing, marketing or manufacturing products competitive with USR's
data/networking products ("Competitive Products") or be employed primarily in
the development, marketing or manufacture of Competitive Products. The
noncompete agreements also contain restrictions on the executives as to the
solicitation of USR employees for other employment and other matters.
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The Merger Agreement provides that 3Com and USR will use their reasonable
efforts to cause certain additional USR officers and key employees to enter
forms of noncompete agreements and, where applicable, employment agreement
amendments substantially similar to that described above for Mr. Seedman.
ACCELERATION OF USR OPTIONS
Substantially all of the options granted under the USR Option Plans vest in
equal annual installments over a five-year period. As of May 1, 1997, 18,128,524
shares of USR Common Stock were subject to outstanding options under the USR
Option Plans, of which options to purchase 11,483,693 shares were not yet
exercisable. The USR Option Plans provide that, subject to certain exceptions,
all unexercisable options will become immediately exercisable upon a change in
control of USR, which such plans define to include, among other things, the
acquisition by any person, or persons acting in concert, of 51% of the USR
Common Stock. As 3Com will acquire 100% of the voting stock of USR in the
Merger, substantially all options held by USR employees to acquire USR Common
Stock will become exercisable upon the consummation of the Merger. As of May 1,
1997, Messrs. Cowell, McCartney, Zakin, Manire and Seedman and all other USR
directors and executive officers as a group held options to purchase 1,720,000,
1,957,932, 1,685,548 (excluding 93,016 shares held in trust for his adult
children as to which he disclaims beneficial interest), 1,287,464, 724,336 and
1,013,000 shares of USR Common Stock, respectively, of which options to purchase
1,280,000, 852,666, 736,000, 629,771, 668,000 and 690,000 shares, with average
exercise prices of $30.71, $30.96, $27.54, $31.23, $28.67 and $32.33,
respectively, were unexercisable as of that date. All of such options will
become exercisable upon the consummation of the Merger. As of May 1, 1997, all
other USR employees held options to purchase an aggregate of 9,647,228 shares of
USR Common Stock, of which options to purchase 6,627,256 shares, with an average
exercise price of $41.36, were unexercisable as of that date. Substantially all
of such options will become exercisable upon the consummation of the Merger.
As a result of the Merger, each USR Option outstanding under the USR Option
Plans will be assumed by 3Com (or 3Com Delaware, as the case may be) and will
become an option to acquire shares of 3Com Common Stock, adjusted to reflect the
Exchange Ratio. See "The Merger Agreement--Stock Plans and Options."
VOTING AGREEMENTS
3COM. The directors and certain executive officers of 3Com have executed
and delivered the 3Com Voting Agreements to USR obligating them, among other
things, to (i) vote their shares of 3Com Common Stock in favor of approval of
the Merger Agreement and any proposal or action which would, or could reasonably
be expected to, facilitate the Merger, and against any proposal made in
opposition or competition with the Merger or which would, or could reasonably be
executed to prohibit or discourage the Merger and (ii) not to transfer, pledge,
sell, exchange or offer to transfer or sell or otherwise dispose or encumber any
shares of 3Com Common Stock prior to the earlier of the consummation of the
Merger or the termination of the Merger Agreement. Concurrently with the
execution of each 3Com Voting Agreement, each such shareholder delivered to USR
an irrevocable proxy pursuant to which such shareholder appointed the USR Board
as such shareholder's proxy to vote all shares of 3Com Common Stock owned by
such stockholder in a manner consistent with the 3Com Voting Agreement. As of
the date of this Joint Proxy Statement/Prospectus, 3Com Voting Agreements and
related irrevocable proxies had been executed and delivered to USR covering an
aggregate of approximately 860,004 shares of 3Com Common Stock, representing
less than 1% of the shares of 3Com Common Stock.
USR. The directors and certain executive officers of USR have executed and
delivered the USR Voting Agreements obligating them, among other things, (i) to
vote their shares of USR Common Stock in favor of approval of the Merger and the
Merger Agreement and any proposal or action which would, or could reasonably be
expected to, facilitate the Merger, and against any proposal made in opposition
to or
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competition with the Merger or which would, or could reasonably be expected to,
prohibit or discourage the Merger, and (ii) not to transfer, pledge, sell,
exchange or offer to transfer or sell or otherwise dispose of or encumber any
shares of USR Common Stock prior to the earliest of the Effective Time or the
termination of the Merger Agreement. Concurrently with the execution of each USR
Voting Agreement, each such stockholder delivered to 3Com an irrevocable proxy
pursuant to which such stockholder appointed the 3Com Board of Directors as such
stockholder's proxy to vote all shares of USR Common Stock owned by such
stockholder in a manner consistent with the USR Voting Agreement. As of the date
of this Joint Proxy Statement/Prospectus, USR Voting Agreements and related
irrevocable proxies had been executed and delivered to 3Com covering an
aggregate of approximately 1,782,325 shares of the USR Common Stock,
representing approximately 2% of the shares of USR Common Stock.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. 3Com and USR have received letters from
Deloitte & Touche LLP and Grant Thornton LLP, their respective independent
accountants, stating that they know of nothing that would prohibit the business
combination to be effected by the Merger from qualifying as a pooling of
interests transaction under generally accepted accounting principles. It is a
condition to the Merger that 3Com and USR shall have received letters from
Deloitte & Touche LLP and Grant Thornton LLP, dated as of the closing date of
the Merger, confirming their earlier letters. Under pooling of interests
accounting, the recorded assets and liabilities of 3Com and USR will be carried
forward to the combined company at their recorded amounts, income of the
combined company will include income of 3Com and USR for the entire fiscal year
in which the combination occurs and the reported income or loss of the separate
companies for prior periods will be combined and restated as income of the
combined company. See "The Merger Agreement--Conditions" and "Unaudited Pro
Forma Combined Financial Statements."
The letters from 3Com's and USR's independent accountants are based upon
certain material representations provided by 3Com and USR. In addition, to help
ensure that the parties meet the prerequisites for pooling of interests
accounting treatment, certain 3Com shareholders and USR stockholders who may be
deemed to be affiliates of 3Com and USR have each executed a letter agreement to
the effect that such person will not sell, transfer or otherwise dispose of, or
reduce such person's interest in or risk relating to any shares of 3Com Common
Stock or USR Common Stock during the 30 days prior to the Effective Time and
thereafter will not sell any shares of 3Com Common Stock received in the Merger
or otherwise beneficially owned by such person, except in each case for amounts
of USR Common Stock and 3Com Common Stock not more than the de minimis amount
permitted by the rules and releases of the Commission relating to pooling of
interests accounting treatment, until 3Com publishes financial statements which
reflect 30 days of combined operations of 3Com and USR. These restrictions lapse
if the Merger Agreement is terminated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses certain federal income tax considerations
of the Merger that are generally applicable to holders of USR Common Stock and
3Com Common Stock. This discussion reflects the opinions of Gray Cary Ware &
Freidenrich, A Professional Corporation, and Mayer, Brown & Platt, counsel to
3Com and USR, respectively, which are attached as Exhibits 8.1 and 8.2 to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part
(the "Exhibit Opinions"). The Exhibit Opinions each include an opinion to the
effect that the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code (a "Reorganization"). The Exhibit Opinions are based
on certain assumptions and representations and are subject to certain
limitations and qualifications as noted therein.
USR stockholders and 3Com shareholders should be aware that the following
discussion does not deal with all federal income tax consequences that may
result from the Merger, including the survival or
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availability of any tax attributes or elections of USR as a result of the
Merger, and does not deal with all federal income tax considerations that may be
relevant to particular USR stockholders and 3Com shareholders in light of their
particular circumstances, such as stockholders and shareholders who are dealers
in securities, who are foreign persons or who acquired their USR Common Stock or
3Com Common Stock through stock option or stock purchase programs or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of transactions effectuated prior to or after the
Merger (whether or not such transactions are in connection with the Merger),
including, without limitation, the exercise of USR Options and the conversion of
USR Options into options to acquire 3Com Common Stock. However, for a discussion
of the federal income tax consequences of the Reincorporation, see "The
Reincorporation--Certain Federal Income Tax Consequences of the
Reincorporation." Finally, no foreign, state or local tax considerations are
addressed herein. ACCORDINGLY, USR STOCKHOLDERS AND 3COM SHAREHOLDERS INTENDING
TO EXERCISE DISSENTERS' RIGHTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND RELATED TRANSACTIONS,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER AND SUCH RELATED TRANSACTIONS.
The following discussion is based on the interpretation of the Code by the
companies' respective counsel, applicable Treasury Regulations, judicial
authority and administrative rulings and practice, all as of the date hereof.
The Internal Revenue Service (the "IRS") is not precluded from adopting a
contrary position. In addition, there can be no assurance that future
legislative, judicial or administrative changes or interpretations will not
adversely affect the accuracy of the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the merger to 3Com, USR and/or their
respective shareholders and stockholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger qualifying as a Reorganization, the following federal
income tax consequences will generally result:
(a) No gain or loss will be recognized by the holders of USR Common
Stock upon the receipt of 3Com Common Stock solely in exchange for USR
Common Stock in the Merger (except to the extent of cash received in lieu of
fractional shares);
(b) The aggregate tax basis of the 3Com Common Stock to be received by
the USR stockholders in the Merger (including any fractional share of 3Com
Common Stock deemed to be received and subsequently redeemed by 3Com) will
be the same as the basis of the USR Common Stock surrendered in exchange
therefor;
(c) The holding period of the 3Com Common Stock received by each USR
stockholder in the Merger will include the period during which the USR
Common Stock surrendered in exchange therefor was held, provided that the
USR Common Stock so surrendered is held as a capital asset at the Effective
Time;
(d) Cash payments received by USR stockholders in lieu of receipt of
fractional shares of 3Com Common Stock will be treated as received in
redemption of such fractional shares, subject to the provisions of Code
Section 302, as if such fractional share had been issued in the Merger and
then redeemed by 3Com for cash;
(e) No gain or loss will be recognized by 3Com, Sub or USR as a result
of the Merger; and
(f) No gain or loss will be recognized by 3Com shareholders as a result
of the Merger (except to the extent 3Com shareholders receive cash as a
result of exercising their dissenters' rights).
With respect to the receipt of cash payments in lieu of fractional shares,
under Code Section 302, a USR stockholder who (i) is not involved in directing
corporate affairs, (ii) holds a minimal stock interest in USR, and (iii) is not
considered to own indirectly shares of USR or 3Com under the constructive
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ownership provisions of Code Section 318, would recognize capital gain or loss
on the redemption equal to the difference between the amount of cash received
and the holder's tax basis in such fractional share (computed as described
above). Such capital gain or loss will be long term if the USR stockholder's
holding period exceeds one year. In the case of other USR stockholders, Section
302 sets forth other tests which if met, would also result in similar treatment
of the holder. In the event, however, that none of these tests could be met, the
redemption payment would be taxed as a dividend.
With respect to the receipt of a cash payment by a 3Com shareholder
exercising its dissenters' rights, such shareholder generally would recognize
capital gain or loss equal to the difference between the amount of cash received
and the holder's tax basis in its shares. Such capital gain or loss would be
long term if the 3Com shareholder's holding period exceeds one year. If,
however, a dissenting 3Com shareholder would be considered to own indirectly
shares of 3Com under the constructive ownership provisions of Code Section 318,
the cash payment could under some circumstances be taxed as a dividend.
USR may redeem, effective immediately prior to the Effective Time, all of
the then outstanding Rights (as defined in the USR Rights Agreement) for cash.
Cash payments, if any, received by USR stockholders in redemption of such Rights
will be taxed as a dividend.
Neither 3Com nor USR has requested a ruling from the IRS in connection with
the Merger. However, it is a condition of the respective obligations of 3Com and
USR to consummate the Merger that 3Com and USR receive confirming tax opinions
from their respective counsel to the effect that, for federal income tax
purposes, the Merger will constitute a Reorganization. The Exhibit Opinions are
not intended to satisfy this closing condition. These closing opinions, which
are collectively referred to herein as the "Tax Opinions," neither bind the IRS
nor preclude the IRS from adopting a contrary position. As with the Exhibit
Opinions, the Tax Opinions will be subject to certain assumptions, exceptions
and qualifications and will be based on the truth and accuracy of certain
representations of 3Com, USR, Sub and perhaps certain USR stockholders,
including representations contained in certain certificates of the respective
managements of 3Com, USR and Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in a USR stockholder recognizing gain or loss with respect to each share
of USR Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time, of the 3Com Common Stock received in exchange therefor. In such event, a
stockholder's aggregate basis in the 3Com Common Stock so received would equal
its fair market value, and the stockholder's holding period for such stock would
begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
3Com Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely for USR Common Stock). All or a portion of such gain may be taxable as
ordinary income. Gain would also be recognized to the extent that a USR
stockholder was treated as receiving (directly or indirectly) consideration
other than 3Com Common Stock in exchange for the stockholder's USR Common Stock.
USR stockholders will be required to attach a statement to their tax returns
for the year of the Merger that contains the information listed in Treasury
Regulation Section 1.368-3(b). Such statement must include the stockholder's tax
basis in the stockholder's USR Common Stock and a description of the 3Com Common
Stock received.
REGULATORY REQUIREMENTS
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. 3Com
and USR filed
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notification and report forms under the HSR Act with the FTC and the Antitrust
Division on March 18, 1997. The waiting period under the HSR Act with respect to
the Merger expired on April 17, 1997, without a request for additional
information or other adverse action by either the Antitrust Division or the FTC.
At any time before or after the Effective Time, and notwithstanding that the HSR
waiting period has expired, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of 3Com or USR. At any time before or after
the Effective Time, and notwithstanding that the HSR Act waiting period has
expired, any state could take such action under the antitrust laws as it deems
necessary or desirable in the public interest. Such action could include seeking
to enjoin the consummation of the Merger or seeking divestiture of USR or
businesses of 3Com or USR. Private parties may also seek to take legal action
under the antitrust laws under certain circumstances.
Based on information available to them, 3Com and USR believe that the Merger
can be effected in compliance with federal and state antitrust laws. However,
there can be no assurance that a challenge to the consummation of the Merger on
antitrust grounds will not be made or that, if such a challenge were made, 3Com
and USR would prevail or would not be required to accept certain conditions
possibly including certain divestitures in order to consummate the Merger.
FOREIGN APPROVALS. 3Com and USR conduct operations in a number of foreign
countries where regulatory filings or approvals and waiting periods may be
required in connection with the consummation of the Merger. The companies have
obtained clearance or other comparable favorable action for the Merger in
Germany and Ireland and have made filings and are currently in the process of
seeking approvals that may be required in the United Kingdom, Belgium and
Sweden. Based on information available to them, 3Com and USR believe that the
Merger can be effected in compliance with applicable requirements for foreign
approvals. However, certain approvals which are not as a matter of practice
required to be obtained prior to effectiveness of a merger transaction may not
be obtained prior to the date of the USR Special Meeting, the 3Com Special
Meeting or the Effective Time.
FEDERAL SECURITIES LAW COMPLIANCE
All shares of 3Com Common Stock received by USR stockholders in the Merger
will be freely transferable, except that shares of 3Com Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of USR prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of 3Com) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of USR or 3Com generally include individuals
or entities that control, are controlled by, or are under common control with,
such party and may include certain officers and directors of such party as well
as principal stockholders of such party. The Merger Agreement requires USR to
use its best efforts to cause each of its affiliates to execute a written
agreement to the effect that such person will not offer to sell or otherwise
dispose of any of the shares of 3Com Common Stock issued to such person in or
pursuant to the Merger in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
NASDAQ NATIONAL MARKET QUOTATIONS
It is a condition to the Merger that the shares of 3Com Common Stock to be
issued pursuant to the Merger Agreement and required to be reserved for issuance
in connection with the Merger be approved for listing on The Nasdaq National
Market. An application has been filed for listing the shares of 3Com Common
Stock on The Nasdaq National Market.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY THIS REFERENCE. SUCH SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS THE
SOLE AND EXCLUSIVE SOURCE OF THE PARTIES' RIGHTS AND OBLIGATIONS THEREUNDER.
STOCKHOLDERS OF USR AND SHAREHOLDERS OF 3COM ARE URGED TO READ THE MERGER
AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE MERGER AND
RELATED MATTERS.
THE MERGER
The Merger Agreement provides that, following the adoption and approval of
the Merger Agreement by the stockholders of USR and the shareholders of 3Com,
and the satisfaction or waiver of the other conditions to the Merger, Sub will
be merged with and into USR, with USR continuing as the surviving corporation
(the "Surviving Corporation"), which shall be a wholly-owned subsidiary of 3Com
or, if the Reincorporation is effected, 3Com Delaware.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the filing by the Surviving Corporation of a duly
executed Certificate of Merger with the Secretary of State of the State of
Delaware or at such time thereafter as is provided in such Certificate of Merger
(the "Effective Time").
CONVERSION OF SECURITIES
Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding share of USR Common Stock (other than shares owned by
3Com, 3Com Delaware, Sub or any other wholly-owned subsidiary of 3Com, all of
which will be canceled) will be converted into the right to receive 1.75 shares
of 3Com Common Stock. Based upon the capitalization of USR and 3Com as of May 1,
1997, the stockholders of USR immediately prior to the consummation of the
Merger will own approximately 47% of the outstanding shares of 3Com Common Stock
immediately following consummation of the Merger. If any holder of shares of USR
Common Stock would be entitled to receive a number of shares of 3Com Common
Stock that includes a fraction, then, in lieu of a fractional share, such holder
will be entitled to receive cash in an amount equal to such fractional part of a
share of 3Com Common Stock multiplied by the last reported sale price of 3Com
Common Stock, as reported on The Nasdaq National Market, on the trading day
immediately preceding the date of the Effective Time. Each share of Sub Common
Stock issued and outstanding immediately prior to the Effective Time will be
converted into one share of Common Stock of the Surviving Corporation.
Promptly after the Effective Time, the Exchange Agent will mail transmittal
forms and exchange instructions to each holder of record of USR Common Stock to
be used to surrender and exchange certificates evidencing shares of USR Common
Stock for certificates evidencing the shares of 3Com Common Stock to which such
holder has become entitled. After receipt of such transmittal forms, each holder
of certificates formerly representing USR Common Stock will be able to surrender
such certificates to the Exchange Agent, and each such holder will receive in
exchange therefor certificates evidencing the number of whole shares of 3Com
Common Stock to which such holder is entitled and any cash, which may be payable
in lieu of a fractional share of 3Com Common Stock. Such transmittal forms will
be accompanied by instructions specifying other details of the exchange. USR
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing USR Common Stock,
until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the number of whole shares of 3Com Common
Stock which the holder of such certificate is entitled to receive and the right
to receive any cash payment in lieu of a fractional share of 3Com Common Stock.
The holder of such unexchanged certificate will not be entitled to receive any
dividends or other distributions payable by 3Com (or 3Com Delaware, if the
Reincorporation has been effected) until the certificate has been
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exchanged. Subject to applicable laws, such dividends and distributions,
together with any cash payment in lieu of a fractional share of 3Com Common
Stock, will be paid without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things, (i) the due organization, valid existence and
good standing of each of 3Com, 3Com Delaware, USR and each of their respective
subsidiaries and certain similar corporate matters; (ii) the capital structure
of each of 3Com, 3Com Delaware and USR; (iii) the authorization, execution,
delivery and enforceability of the Merger Agreement, the consummation of the
transactions contemplated by the Merger Agreement and related matters; (iv) the
absence of conflicts under charters or by-laws, required consents or approvals
and violations of any instruments or law; (v) documents and financial statements
filed by each of 3Com and USR with the SEC and the accuracy of information
contained therein; (vi) the absence of undisclosed liabilities; (vii) the
absence of certain material adverse changes or events; (viii) taxes, tax returns
and audits; (ix) intellectual property; (x) agreements, contracts and
commitments; (xi) litigation; (xii) environmental matters, hazardous materials
and hazardous materials activities; (xiii) employee benefit plans; (xiv)
compliance with laws; (xv) matters affecting the availability of pooling of
interests accounting; (xvi) interested party transactions; (xvii) the accuracy
of information supplied by each of 3Com and USR in connection with the
Registration Statement and this Joint Proxy Statement/Prospectus; (xviii)
opinions of financial advisors; (xix) the absence of pending discussions with
other parties; (xx) Section 203 of the DGCL not being applicable to the
transactions contemplated by the Merger Agreement; (xxi) the USR Rights
Agreement and the 3Com Rights Agreement; and (xxii) the interim operations of
3Com Delaware and Sub.
CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Merger Agreement, each of USR and 3Com has agreed that,
during the period from the date of the Merger Agreement until the Effective
Time, except as otherwise consented to in writing by the other party or as
contemplated by the Merger Agreement, each of USR and 3Com will: (i) carry on
its business in the ordinary course in substantially the same manner as
previously conducted; (ii) pay its debts and taxes when due subject to good
faith disputes over such debts or taxes, and pay or perform other obligations
when due; (iii) preserve intact its present business organization; (iv) keep
available the services of its present officers and key employees; (v) preserve
its business relationships; (vi) not accelerate, amend or change the period of
exercisability of options granted under any employee stock plan, except as
required pursuant to the plan or any related agreement; (vii) not transfer or
license or otherwise extend, amend or modify any rights to its intellectual
property rights, other than in the ordinary course of business consistent with
past practices; (viii) not declare or pay any dividends on or make other
distributions, in respect of any of its capital stock, not effect certain other
changes in its capitalization, and not purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with the termination of service; (ix) not
issue, or authorize or propose the issuance of, any shares of its capital stock
(or capital stock of 3Com Delaware) or securities convertible into shares of its
capital stock (or capital stock of 3Com Delaware), or any subscriptions, rights,
warrants, or options to acquire, or other agreements obligating it to issue any
such shares or other convertible securities, subject to certain exceptions
relating to employee equity plans; (x) not engage in acquisitions (subject to
3Com's and 3Com Delaware's right to engage in acquisitions not involving more
than $250,000,000 individually or $500,000,000 in the aggregate and USR's right
to engage in acquisitions not involving consideration of more than $25,000,000
in the aggregate); (xi) not sell, lease, license or otherwise dispose of
material properties or assets, except in the ordinary course of business; (xii)
not increase the compensation payable to its officers or employees (except for
increases consistent with past practices), grant additional severance or
termination pay or enter into employment agreements with employees, enter into
any collective bargaining agreement, or establish, adopt, enter into or amend
any plan for the benefit of its directors, officers, or employees, subject to
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certain exceptions; (xiii) not revalue any material amount of its assets,
including writing down the value of inventory or writing off notes or accounts
receivable, other than in the ordinary course of business; (xiv) not incur
indebtedness for borrowed money (or guarantees thereof) other than indebtedness
incurred under existing lines of credit; (xv) not amend its charter documents,
except as contemplated by the Merger Agreement, the Reincorporation Agreement or
the Charter Amendment; (xvi) not incur, with certain exceptions, material
capital expenditures; (xvii) not take any action with respect to accounting
policies or procedures other than actions in the ordinary course of business and
consistent with past practices (xviii) not waive or release any material right
or claim; (xix) subject to certain exceptions, not make any tax election or
settle or compromise any material Federal, state, local or foreign tax
liability; (xx) not initiate any litigation or arbitration proceeding; (xxi) not
take any action that would or is reasonably likely to result in any of its
representations and warranties becoming untrue; (xxii) promptly notify the other
party of any event or occurrence not in the ordinary course of business where
such event or occurrence would result in a breach of any covenant of USR or 3Com
or cause any representation or warranty of USR or 3Com to be untrue; and (xxiii)
confer on a regular basis with each other on operational matters of materiality.
NO SOLICITATION
The Merger Agreement provides that each of USR and 3Com will not, directly
or indirectly, through any officer, director, employee, representative, agent or
affiliate, (i) solicit, initiate or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving such party or any of its subsidiaries,
other than the transactions contemplated by the Merger Agreement (any of the
foregoing inquiries or proposals being referred to in the Merger Agreement as a
"Competing Offer") (ii) engage in negotiations or discussions concerning, or
provide any nonpublic information to any person or entity relating to, any
Competing Offer, or (iii) agree to, approve or recommend any Competing Offer;
PROVIDED, HOWEVER, that nothing contained in the Merger Agreement shall prevent
USR or the USR Board or 3Com or the 3Com Board, as the case may be, from (A)
furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Competing Offer by such person or entity (including a new and
unsolicited Competing Offer received by USR or 3Com, as the case may be, after
the execution of the Merger Agreement from a person or entity whose initial
contact with USR or 3Com, as the case may be, may have been solicited by USR or
3Com, as the case may be, prior to the execution of the Merger Agreement) or
recommending such an unsolicited bona fide written Competing Offer to the
stockholders of USR or the shareholders of 3Com, if and only to the extent that
(1) the USR Board or the 3Com Board, as the case may be, believes in good faith
(after consultation with and based upon the advice of its financial advisor)
that such Competing Offer would, if consummated, result in a transaction more
favorable to USR's stockholders or 3Com's shareholders, as the case may be, than
the transaction contemplated by the Merger Agreement (any such more favorable
Competing Offer being referred to as a "Superior Proposal") and that the person
or entity making such Superior Proposal has the financial means, or the ability
to obtain the necessary financing, to conclude such transaction, (2) the USR
Board or the 3Com Board, as the case may be, determines in good faith (after
consultation with and based upon the advice of outside legal counsel) that the
failure to take such action would be inconsistent with the fiduciary duties of
the USR Board or the 3Com Board to the USR stockholders or the 3Com
shareholders, as the case may be, under applicable law and (3) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, the USR Board or the 3Com Board, as
the case may be, receives from such person or entity an executed confidentiality
agreement with terms no more favorable to such party than those contained in the
reciprocal non-disclosure agreement between 3Com and USR; or (B) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Competing Offer.
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Each of 3Com and USR is required to notify the other party (orally and in
writing) within 24 hours after receipt of a Competing Offer or request for
non-public information or access to its properties, books or records in
connection with a Competing Offer.
INDEMNIFICATION
The Merger Agreement provides that from and after the Effective Time, 3Com
(or 3Com Delaware, if the Reincorporation has been effected) and the Surviving
Corporation shall, to the fullest extent permitted under applicable law,
indemnify and hold harmless, each present and former director or officer of USR
and each subsidiary of USR and each such person who served at the request of USR
or any subsidiary of USR as a director, officer, trustee, partner, fiduciary,
employee or agent of USR or of another corporation, partnership, joint venture,
trust, pension, or other employee benefit plan or enterprise (collectively, the
"Indemnified Parties") against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), whether
civil, administrative or investigative, arising out of or pertaining to any
action or omission in their capacity as an officer, director, employee, agent or
other person to whom such indemnification rights apply, in each case occurring
before the Effective Time (including the transactions contemplated by the Merger
Agreement). After the Effective Time, 3Com (or 3Com Delaware, if the
Reincorporation has been effected) and the Surviving Corporation will fulfill
and honor in all respects the indemnification obligations of USR set forth in
the Certificate of Incorporation and Bylaws of USR and, prior to the Effective
Time, 3Com (or 3Com Delaware, if the Reincorporation has been effected) shall
cause the Bylaws of Sub to be amended to reflect certain such provisions.
In addition, 3Com (or 3Com Delaware, if the Reincorporation has been
effected) has agreed to maintain, or cause the Surviving Corporation to
maintain, in effect a policy or policies of directors and officers liability
insurance ("D&O Insurance") with coverage substantially equivalent to policies
in force as of February 26, 1997 covering the directors and officers of USR as
of the date of the Merger Agreement for a period of not less than six years
following the Effective Time; PROVIDED, HOWEVER, should comparable coverage at
any time be unavailable for aggregate annual premiums of less than 150% of USR's
current D&O Insurance premiums, 3Com, 3Com Delaware, and the Surviving
Corporation shall not be required to expend more than such amount annually and
the Surviving Corporation shall only be required to obtain such lesser coverage
as may be obtained for such amount.
The Merger Agreement also provides that if 3Com, 3Com Delaware or the
Surviving Corporation or any of their respective successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers all or substantially all its properties and assets to any person,
then, and in each case, proper provision shall be made so that the successors
and assigns of 3Com, 3Com Delaware or the Surviving Corporation, as the case may
be, honor the above-described indemnification obligations.
CONDITIONS
The consummation of the Merger is subject to the following conditions, among
others: (i) the Merger Agreement shall have been approved, by the stockholders
of USR and the shareholders of 3Com; (ii) the waiting periods applicable to the
consummation of the Merger under the HSR Act and applicable foreign laws shall
have expired or been terminated; (iii) all material governmental authorizations,
consents, orders or approvals shall have been obtained; (iv) the Registration
Statement shall have become effective under the Securities Act and shall not be
the subject of a stop order or proceedings seeking a stop order; (v) no
temporary restraining order, preliminary or permanent injunction or other order
or other legal or regulatory restraint prohibition shall be in effect that
prevents the consummation of the Merger or which limits the business of 3Com,
3Com Delaware or the Surviving Corporation after the consummation of the Merger,
except for any such order, injunction, restraint or prohibition which would not
be reasonably likely
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to have a material adverse effect on 3Com (or 3Com Delaware, if the
Reincorporation has been effected) or the Surviving Corporation; (vi) no action
shall be taken, or any statute, rule, regulation, or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal; (vii) 3Com (or 3Com Delaware, as the case may be) shall have
received letters from their respective independent accountants stating that they
know of nothing that would prohibit the business combination to be effected by
the Merger from qualifying as a pooling of interests transaction under generally
accepted accounting principles; (viii) the 3Com Common Stock to be issued in the
Merger shall have been approved for quotation on The Nasdaq National Market;
(ix) 3Com (or 3Com Delaware, as the case may be) shall have received a written
opinion from Gray Cary Ware & Freidenrich, A Professional Corporation, counsel
to 3Com and 3Com Delaware, and USR shall have received an opinion of Mayer,
Brown & Platt, counsel to USR, both to the effect that the Merger will be
treated for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code; (x) 3Com (or 3Com Delaware, as the case
may be) and USR shall have received accountant's "comfort" letters from their
respective public accountants in connection with the Registration Statement;
(xi) the representations and warranties of the other party set forth in the
Merger Agreement shall be true and correct except to the extent that such
inaccuracy would not have a material adverse effect on the other party and
except for changes contemplated by the Merger Agreement; and (xii) the other
party shall have performed in all material respects all obligations of such
party to be performed under the Merger Agreement. In addition, the obligation of
3Com to effect the Merger is subject to the additional condition that 3Com shall
have received all permits and other authorizations required under applicable
state "blue sky" laws for the issuance of 3Com Common Stock in the Merger.
STOCK PLANS AND OPTIONS
At the Effective Time, each USR Option outstanding under the USR Option
Plans shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such USR Option, the number of shares of
3Com Common Stock (rounded down to the nearest whole number) as the holder of
such USR Option would have been entitled to receive pursuant to the Merger had
such holder exercised such USR Option in full immediately prior to the Effective
Time, at a price per share (rounded up to the nearest whole cent) equal to (i)
the aggregate exercise price for the shares of USR Common Stock otherwise
purchasable pursuant to such USR Option divided by (ii) the number of full
shares of 3Com Common Stock deemed purchasable pursuant to such USR Option as
determined above as of Effective Time. In the case of any USR Stock Option to
which Section 422 of the Code applies ("incentive stock options"), the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code. As of May 1, 1997, USR Options to acquire an
aggregate of 18,128,524 shares of USR Common Stock were outstanding under the
USR Option Plans.
3Com and 3Com Delaware have agreed to reserve for issuance a sufficient
number of shares of 3Com Common Stock for delivery under the USR Option Plans
assumed as described above. At or before the Effective Time, 3Com (or 3Com
Delaware, as the case may be) shall file a registration statement on Form S-8
with respect to the shares of 3Com Common Stock subject to such options and
shall use its best efforts to maintain the effectiveness of such registration
statement(s) and the current status of the prospectus(es) contained therein for
so long as such options remain outstanding.
USR has agreed to take such action as is necessary to cause the ending date
of the then current offering period under the USR Purchase Plan to be the last
trading day on which the USR Common Stock is traded on The Nasdaq National
Market immediately prior to the Effective Time (the "Final USR Purchase Date");
provided that, such change in the offering period shall be conditioned upon the
consummation of the Merger. On the Final USR Purchase Date, USR shall apply the
funds credited as of such date under the USR Purchase Plan within each
participant's payroll withholding account to the purchase of whole shares of USR
Common Stock in accordance with the terms of the USR Purchase Plan.
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Employees of USR as of the Effective Time shall be permitted to participate
in the 3Com Employee Stock Purchase Plan commencing on the first enrollment date
following the Effective Time, subject to compliance with the eligibility
provisions of the plan. Employees of USR will each receive credit, for purposes
of such eligibility provisions, for prior service with USR.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of 3Com or the
stockholders of USR of the matters presented in connection with the Merger:
(a) by the mutual written consent of 3Com (or 3Com Delaware, if the
Reincorporation has been effected) and USR;
(b) by either 3Com (or 3Com Delaware, if the Reincorporation has been
effected) or USR, if the Merger shall not have been consummated by
September 15, 1997 (provided that such right to terminate the Merger
Agreement shall not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date,
and provided further that the Merger Agreement may be extended up to 90
days by either party by written notice to the other party if the Merger
would have been consummated but for the absence of one or more required
governmental approvals or third-party consents, and such approval(s) or
consent(s) can reasonably be expected to be obtained within such 90-day
period);
(c) by either 3Com (or 3Com Delaware, if the Reincorporation has been
effected) or USR, if a court of competent jurisdiction or other
Governmental Entity (as defined in the Merger Agreement) shall have
issued a nonappealable final order, decree or ruling, or taken any other
action, having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, except if the party relying on such
order, decree or ruling or other action has not complied with its
obligations under Section 6.7 (Legal Conditions to Merger) of the Merger
Agreement;
(d) by either 3Com (or 3Com Delaware, if the Reincorporation has been
effected) or USR, if, at the USR Special Meeting or 3Com Special Meeting
(including any adjournment or postponement), the requisite vote of the
stockholders of USR or shareholders of 3Com in favor of the Merger
Agreement and the Merger shall not have been obtained;
(e) by 3Com (or 3Com Delaware, if the Reincorporation has been effected), if
(i) the USR Board shall have withdrawn or modified its recommendation of
the Merger Agreement or the Merger in a manner adverse to 3Com or 3Com
Delaware or shall have resolved or publicly announced or disclosed to any
third party its intention to do so; (ii) an Alternative Transaction (as
defined in the Merger Agreement) involving USR shall have taken place or
the USR Board shall have recommended such an Alternative Transaction to
the stockholders of USR, or shall have resolved or publicly announced its
intention to recommend or engage in such an Alternative Transaction; or
(iii) a tender offer or exchange offer for 20% or more of the outstanding
shares of USR Common Stock is commenced or a registration statement with
respect thereto shall have been filed (other than by 3Com or an affiliate
of 3Com) and the USR Board shall have recommended or publicly announced
its intention to recommend that the stockholders of USR tender their
shares in such tender or exchange offer or resolved or publicly announced
its intention to take no position with respect to such tender or exchange
offer;
(f) by 3Com (or 3Com Delaware, if the Reincorporation has been effected), if
the 3Com Board (or the 3Com Delaware Board if the Reincorporation has
become effective) shall have determined, to recommend a Competing Offer
to its shareholders after determining that such Competing Offer
constitutes a Superior Proposal;
(g) by 3Com (or 3Com Delaware, if the Reincorporation has been effected) or
USR, if there has been a breach of any representation, warranty, covenant
or agreement on the part of the other
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party set forth in the Merger Agreement, which breach (i) causes the
conditions set forth in Sections 7.2(a) or (b) (in the case of
termination by 3Com or 3Com Delaware) or 7.3(a) or (b) (in the case of
termination by USR) of the Merger Agreement (relating to the accuracy of
representations and warranties of the other party and performance by the
other party of certain obligations) not to be satisfied and (ii) shall
not have been cured within 10 business days following receipt by the
breaching party of written notice of such breach from the other party;
(h) by USR if (i) the 3Com Board (or the 3Com Delaware Board, if the
Reincorporation has been effected) shall have withdrawn or modified its
recommendation of the Merger Agreement or the Merger in a manner adverse
to USR or shall have resolved or publicly announced or disclosed to any
third party its intention to do so; (ii) an Alternative Transaction
involving 3Com (or 3Com Delaware, if the Reincorporation has been
effected) shall have taken place or the 3Com Board (or the 3Com Delaware
Board, if the Reincorporation has been effected) shall have recommended
such an Alternative Transaction to the shareholders of 3Com (or the
stockholders of 3Com Delaware, as the case may be) or shall have resolved
or publicly announced its intention to recommend or engage in such an
Alternative Transaction; or (iii) a tender offer or exchange offer for
20% or more of the outstanding shares of 3Com Common Stock shall have
been commenced, and the 3Com Board (or the 3Com Delaware Board, if the
Reincorporation has been effected) shall have recommended or publicly
announced its intention to recommend that the shareholders of 3Com (or
the stockholders of 3Com Delaware, as the case may be) tender their
shares in such tender or exchange offer or resolved or publicly announced
its intention to take no position with respect to such tender offer; or
(i) by USR, if the USR Board shall have determined to recommend a Competing
Offer to its stockholders after determining that such Competing Offer
constitutes a Superior Proposal.
In the event of any termination of the Merger Agreement by either 3Com (or
3Com Delaware, as the case may be) or USR as provided above, there will be no
liability or obligation on the part of 3Com (or 3Com Delaware, if the
Reincorporation has become effective), USR, Sub or their respective officers,
directors, stockholders or affiliates, except to the extent that such
termination results from the willful breach by a party of any of its
representations, warranties, covenants or agreements set forth in the Merger
Agreement, provided that the provisions described below relating to the payment
of fees and expenses shall survive any such termination.
Except as described below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expenses, except that all fees and expenses, other than attorneys' and
accounting fees and expenses, incurred in connection with the printing and
filing of this Joint Proxy Statement/Prospectus and any filings under the HSR
Act shall be shared equally by 3Com and USR.
If the Merger Agreement is terminated (i) by 3Com or 3Com Delaware as a
consequence of the actions described in paragraph (e) above, (ii) by USR as a
consequence of the actions described in paragraph (d) above as a result of the
failure to receive the requisite vote for approval of the Merger Agreement and
the Merger by the stockholders of USR at the USR Special Meeting, (iii) by USR
as a consequence of the actions described in paragraph (i) above, or (iv) by
3Com or 3Com Delaware as a result of a breach by USR within the scope of
paragraph (g) above, AND, in each such case, at the time of such failure or
breach an Alternative Transaction involving USR shall have been announced which
shall not have been absolutely and unconditionally withdrawn and abandoned, USR
shall pay to 3Com (or 3Com Delaware, if the Reincorporation has been effected) a
termination fee of $75 million in cash or USR Common Stock (the "USR Initial
Termination Fee"), plus documented expenses of 3Com and 3Com Delaware relating
to the Merger Agreement and the transactions contemplated thereby in an amount
up to $10 million, within one business day after such termination. Expenses
relating solely to the Reincorporation will be the sole responsibility of 3Com
and 3Com Delaware and will not be paid by USR. If an
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Alternative Transaction involving USR is thereafter consummated, or USR enters
into a definitive agreement with respect to an Alternative Transaction, within
12 months after payment of the USR Initial Termination Fee, USR shall pay to
3Com (or 3Com Delaware, if the Reincorporation has been effected) an additional
fee (the "USR Additional Termination Fee") of $75 million in cash, at or prior
to the consummation of such Alternative Transaction, or within one business day
following the effective date of such definitive agreement, whichever is earlier.
If the Merger Agreement is terminated (i) by USR as a consequence of the
actions described in paragraph (h) above, (ii) by 3Com or 3Com Delaware pursuant
to paragraph (d) above as a result of the failure to receive the requisite vote
for approval of the Merger Agreement and the Merger by the shareholders of 3Com
at the 3Com Special Meeting, (iii) by 3Com or 3Com Delaware as a consequence of
the actions described in paragraph (f) above, or (iv) by USR as a result of a
breach by 3Com, 3Com Delaware or Sub within the scope of paragraph (g) above,
AND, in each such case, at the time of such failure or breach an Alternative
Transaction involving 3Com (or 3Com Delaware, if the Reincorporation has been
effected) shall have been announced which shall not have been absolutely and
unconditionally withdrawn and abandoned, 3Com (or 3Com Delaware, if the
Reincorporation has been effected) shall pay to USR a termination fee of $75
million in cash or 3Com Common Stock (the "3Com Initial Termination Fee"), plus
documented expenses of USR relating to the Merger Agreement and the transactions
contemplated thereby in an amount up to $10 million, within one business day
after such termination. If an Alternative Transaction involving 3Com (or 3Com
Delaware, if the Reincorporation has been effected) is thereafter consummated,
or 3Com (or 3Com Delaware, if the Reincorporation has been effected) enters into
a definitive agreement providing for an Alternative Transaction, within 12
months after payment of the 3Com Initial Termination Fee, 3Com (or 3Com
Delaware, if the Reincorporation has been effected) shall pay to USR an
additional fee (the "3Com Additional Termination Fee") of $75 million in cash,
at or prior to the consummation of such Alternative Transaction, or within one
business day following the effective date of such definitive agreement,
whichever is earlier.
An "Alternative Transaction" involving a party means (i) a transaction or
series of transactions pursuant to which any person or group (as such term is
defined under the Exchange Act) other than 3Com, 3Com Delaware, USR or Sub, or
any affiliate thereof, (a "Third Party"), acquires or would acquire (upon
completion of such transaction or series of transactions) shares (or securities
exercisable for or convertible into shares) representing more than 20% of the
outstanding shares of such party's common stock, pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger, consolidation, share exchange or
other business combination involving such party or any of its material
subsidiaries if, upon consummation of such merger, consolidation, share exchange
or other business combination such Third Party owns or would own more than 20%
of the outstanding equity securities of such party or any of its material
subsidiaries or the entity surviving such merger or business combination or
resulting from such consolidation, (iii) any other transaction or series of
transactions pursuant to which any Third Party acquires or would acquire (upon
completion of such transaction or series of transactions) control of assets of
such party or any of its material subsidiaries (including, for this purpose,
outstanding equity securities of subsidiaries of such party) having a fair
market value equal to more than 20% of the fair market value of all the
consolidated assets of such party immediately prior to such transaction or
series of transactions, or (iv) any transaction or series of transactions
pursuant to which any Third Party acquires or would acquire (upon completion of
such transaction or series of transactions) control of the Board of Directors of
such party or by which nominees of any Third Party are (or would be) elected or
appointed to a majority of the seats on the Board of Directors of such party.
Any expenses and fees payable as described above are required to be paid
within one business day after the first to occur of the relevant termination
events. In no event shall USR or 3Com (or 3Com Delaware, as the case may be) be
required to pay such expenses or fees as provided for above, if, immediately
prior to the termination of the Merger Agreement, the party to receive such
expenses or fees was in breach of any of its material obligations under the
Merger Agreement.
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AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of 3Com (or 3Com Delaware, as
the case may be) and USR, but after approval by the stockholders of USR or the
shareholders of 3Com of the matters presented in connection with the Merger to
them, no amendment shall be made which by law requires further approval by such
stockholders or shareholders, without such further approval. 3Com (or 3Com
Delaware, as the case may be) and USR, by action taken or authorized by their
respective Boards of Directors, may extend the time for performance of the
obligations or other acts of the other parties to the Merger Agreement, may
waive inaccuracies in the representations or warranties contained in the Merger
Agreement and may waive compliance with any agreements or conditions contained
in the Merger Agreement.
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STOCK OPTION AGREEMENTS
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE STOCK OPTION
AGREEMENTS, COPIES OF WHICH ARE ATTACHED AS ANNEX B AND ANNEX C TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY THIS REFERENCE. SUCH
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE STOCK OPTION
AGREEMENTS, WHICH ARE THE SOLE AND EXCLUSIVE SOURCE OF THE PARTIES RIGHTS AND
OBLIGATIONS THEREUNDER. STOCKHOLDERS OF USR AND SHAREHOLDERS OF 3COM ARE URGED
TO READ THE STOCK OPTION AGREEMENTS IN THEIR ENTIRETY FOR A MORE COMPLETE
DESCRIPTION OF THE RIGHTS AND OBLIGATIONS OF THE PARTIES THEREUNDER.
GENERAL
Pursuant to reciprocal stock option agreements dated February 26, 1997 (the
"Stock Option Agreements"), 3Com and USR have each granted to the other party an
option to acquire, under certain circumstances, a number of shares equivalent to
19.9% of its issued and outstanding common stock as of February 26, 1997.
The options are set forth in two agreements--the 3Com Stock Option Agreement
dated as of February 26, 1997 by and between 3Com and USR (the "3Com Option
Agreement") (Annex B hereto), and the USR Stock Option Agreement dated as of
February 26, 1997 by and between USR and 3Com (the "USR Option Agreement")
(Annex C hereto). Under the 3Com Option Agreement, USR has granted 3Com the
right, under certain circumstances, to acquire a number of shares of USR Common
Stock equal to 19.9% of the USR Common Stock issued and outstanding as of
February 26, 1997. Under the USR Option Agreement, 3Com has granted USR the
right, under certain circumstances, to acquire a number of shares of 3Com Common
Stock equal to 19.9% of the 3Com Common Stock issued and outstanding as of
February 26, 1997. With the exception of certain terms relating to the
applicable exercise price, the terms of the two Stock Option Agreements are
substantially parallel.
The exercise price per share under both Stock Option Agreements is payable
either in cash (a "Cash Exercise") or in shares of the exercising party's common
stock (a "Stock Exercise"). Under the 3Com Option Agreement, the exercise price
per share for a Cash Exercise is equal to $70.1094 (the product of the Exchange
Ratio and the average last sale price of 3Com Common Stock on the 10 trading
days immediately prior to the public announcement of the Merger Agreement (the
"3Com Average Pre-Announcement Price")), and the exercise price per share for a
Stock Exercise is equal to the Exchange Ratio (1.75 shares of 3Com Common Stock
for each share of USR Common Stock purchased by 3Com under the 3Com Option
Agreement). Under the USR Option Agreement, the exercise price per share for a
Cash Exercise is equal to $40.0625 (the 3Com Average Pre-Announcement Price),
and the exercise price per share for a Stock Exercise is an amount of USR Common
Stock with a dollar value equal to the 3Com Average Pre-Announcement Price. For
purposes of a Stock Exercise under the USR Option Agreement, USR Common Stock
will be valued at the average last sale price of USR Common Stock on the 10
trading days immediately prior to the closing of such Stock Exercise.
The number of shares issuable under the Stock Option Agreements, and the
exercise prices, are subject to adjustment in the event of changes in the
parties' capitalization.
Subject to certain limitations, each option is exercisable, in whole or in
part, at any time or from time to time after the occurrence of an event (a
"Trigger Event") which causes an Initial Termination Fee to become payable to
the option holder by the option grantor under the Merger Agreement. The options
terminate upon the earlier of the following: (1) the Effective Time of the
Merger, (ii) the termination of the Merger Agreement under circumstances which
do not constitute a Trigger Event, and (iii) 12 months after the option holder
receives written notice from the option grantor of the occurrence of a Trigger
Event. The option exercise period is automatically extended if exercise of the
option is prohibited or restrained for certain legal reasons. In addition,
neither option can be exercised by a party which is in material breach of its
material representations, warranties, covenants or agreements in the applicable
Stock Option Agreement or the Merger Agreement.
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Under both Stock Option Agreements, the option grantor's obligation to issue
shares is subject to a number of conditions, including expiration of all
applicable waiting periods under the HSR Act, the absence of any injunction or
order, receipt of any required governmental consents, approvals, orders,
authorizations and permits.
REPURCHASE RIGHTS AND OBLIGATIONS
At any time when the applicable option is exercisable, the option holder has
the right to "put" the option to the option grantor. Under these "put"
provisions, the option holder has the right to require the option grantor to
repurchase the option, either in whole or in part, at a price equal to (i) the
difference between the "Option Repurchase Market/Offer Price" and the applicable
exercise price, multiplied by (ii) the number of shares subject to purchase
under the option or the portion thereof specified in the repurchase notice. The
"Option Repurchase Market/Offer Price" is defined as the higher of the following
prices: (i) the highest price per share offered as of the date of the option
repurchase notice pursuant to any tender or exchange offer involving the option
grantor or any of its material subsidiaries as the target party which was made
prior to such date and not terminated or withdrawn as of such date, and (ii) the
average the last sale price of the option grantor's common stock for the ten
trading days immediately preceding the date of the option repurchase notice.
In addition, at any time prior to February 26, 2002 (the "Share Repurchase
Period"), the option holder has the right to "put" any or all shares purchased
under the Stock Option Agreement back to the option grantor. Under these stock
"put" provisions, the option holder has the right to require the option grantor
to repurchase any or all shares purchased by the option holder under the option,
at a price per share equal to the product of (i) the exercise price paid by the
option holder (or, if higher, the "Share Repurchase Market/Offer Price") and
(ii) the number of shares being "put" back to the option grantor. The "Share
Repurchase Market/Offer Price" is defined as the higher of the following prices:
(i) the highest price per share offered prior to delivery of the share
repurchase notice pursuant to any tender or exchange offer or other business
combination offer involving the option grantor as the target party during the
Share Repurchase Period, and (ii) the average of the last sale prices of the
option grantor's common stock for the ten trading days immediately preceding the
date of the share repurchase notice. In the option grantor's discretion, or if
specified by the option holder, all or part of the share repurchase price will
be paid by redelivery of the shares of option holder stock previously issued to
option grantor in a Stock Exercise. In such event, the option holder shares will
be valued at their average last sale price on the ten trading days prior to the
applicable date.
In the event that the payment of the repurchase price would subject the
repurchase to a vote of the option grantor's stockholders, the option holder may
reduce the repurchase price or the number of shares covered by the repurchase
request to any amount which would permit such repurchase without the need for a
stockholder vote.
During the six months immediately following the Share Repurchase Period, the
Stock Option Agreements give the option grantor certain "call" rights with
respect to the shares of the option grantor's common stock acquired by the
option holder under the applicable Stock Option Agreement. Under these "call"
rights, the option grantor has the right to repurchase all (but not less than
all) of the option grantor shares issued to the option holder under the Stock
Option Agreement, at a per-share price equal to (i) 110% of "Current Market
Price" (or, if greater, the sum of the option holder's exercise price and its
"Pre-Tax Carrying Cost") plus (ii) the documented out-of-pocket expenses
incurred by the option holder in connection with the Merger Agreement and the
Stock Option Agreement (to the extent not previously reimbursed). Under the
Stock Option Agreements, "Current Market Price" is defined as the average last
sale price of the option grantor's common stock for the ten trading days
immediately preceding the date of the repurchase request, and "Pre-Tax Carrying
Cost" is defined, in substance, as interest at the prime, base lending or
reference rate announced by Citibank, N.A., less the amount of any dividends
received.
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The Stock Option Agreements provide for the "call" rights to be suspended
and extended during any period when the exercise of such rights would subject
the option holder to liability or disgorgement of profits pursuant to Section
16(b) of the Exchange Act.
LIMITATIONS ON CERTAIN AMOUNTS PAYABLE
The aggregate amount payable by either party under the Stock Option
Agreements is capped, as are the aggregate net proceeds receivable by either
party from sales of shares received upon exercise of such options. The maximum
amount payable by USR to 3Com or by 3Com to USR under the termination fee
provisions of the Merger Agreement and the "put" provisions of the applicable
Stock Option Agreement may not exceed $150,000,000. In addition, if the
exercising party would receive net proceeds of more than $100,000,000 (over and
above the aggregate exercise price) from third-party sales or dispositions of
the shares acquired under the Stock Option Agreements, all net proceeds in
excess of such amount will be remitted to the other party.
VOTING RIGHTS, TRANSFER RESTRICTIONS AND REGISTRATION
Prior to February 26, 2002, the Stock Option Agreements require each party
to vote all shares of the other party (including shares acquired by the option
grantor from the option holder pursuant to a Stock Exercise) in the same manner
and in the same proportions as all other shares of the same class are voted on
each matter submitted to a stockholder vote. In addition, the Stock Option
Agreements require each party to execute written consents with respect to such
shares in the same proportion as written consents are executed by other holders
of shares of such class.
Under the Stock Option Agreements, each party's right to sell, assign,
pledge or otherwise dispose of or transfer shares of the other party is subject
to certain restrictions and first-refusal rights in favor of the other party,
which are set forth in Section 9 of each Stock Option Agreement.
In addition, the Stock Option Agreements give each party certain rights to
have the shares acquired from the other party registered under the Securities
Act for sale in a public offering. The registration rights take effect after the
termination of the Merger Agreement and are subject to certain conditions and
limitations. In lieu of registration, the Stock Option Agreements give the
registrant the option to agree to purchase, for cash, all or part of the
securities covered by the registration request, at a price equal to the average
last sale price of such securities for the preceding ten trading days. The Stock
Option Agreements allow each party to demand a total of two registrations, and
allow the registrant to defer the requested registrations for certain periods in
the following circumstances: (i) for up to 40 days when the registrant is in
possession of material non-public information which it reasonably believes would
be detrimental to be disclosed at such time and which, in the opinion of counsel
to the registrant, would be required to be disclosed in the registration
statement, and (ii) for up to 90 days when required audited financial statements
are not yet available or the registrant reasonably determines that registration
would interfere with a material financing, acquisition or other transaction.
EFFECT OF REINCORPORATION ON STOCK OPTION AGREEMENTS
In the amended and restated Merger Agreement, 3Com and USR agreed that the
Stock Option Agreements are deemed amended to reflect the proposed
reincorporation of 3Com in Delaware. To this end, the Merger Agreement provides
that references to the "Merger Agreement" in both Stock Option Agreements shall
be deemed to be references to the Merger Agreement as amended and restated as of
March 14, 1997, and that all references to "3Com" in the Stock Option Agreements
shall be deemed to refer to either 3Com or, if the 3Com Reincorporation Merger
shall have become effective, 3Com Delaware, to the extent necessary to
effectuate the purposes of the Stock Option Agreements. In addition, pursuant to
the Reincorporation Agreement, the Certificate of Incorporation of 3Com Delaware
will provide that 3Com Delaware will assume all options granted by 3Com, and
that such options will become options to purchase a like number of shares of
3Com Delaware stock on like terms.
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INFORMATION CONCERNING 3COM CORPORATION
BUSINESS
3Com was founded on June 4, 1979 and pioneered the networking industry. Over
the years, 3Com has evolved from a supplier of discrete networking products to a
broad-based supplier of LAN and network access systems for the large enterprise,
small business, home and network service provider markets. Today, 3Com is a
multi-billion dollar company offering customers a broad range of ISO
9000-compliant global data networking solutions that include routers, hubs,
switches and adapters for Ethernet, Fast Ethernet, Token Ring, FDDI, ATM and
other high speed networks. 3Com's products are distributed and serviced
worldwide through 3Com and its partners: principally systems integrators, VARs,
national resellers and dealers, distributors and OEMs.
3Com's name is derived from its focus on COMputer COMmunication
COMpatibility. Since its inception, 3Com has been a leader in defining, shaping
and promoting the growth of networking infrastructures that transmit data to all
parts of the world quickly and efficiently. 3Com's commitment to its customers
goes beyond point-product excellence to making data networks fundamentally
easier to design, install, maintain and evolve. 3Com's objective is to make the
network invisible to the individual end user as well as flexible and
unconstrained for the network manager. Thus, people who are connected to data
networks will enjoy access to information from anywhere at any time.
Since fiscal 1992, 3Com has augmented its internal growth by actively
pursuing a course of expanding its technologies and product offerings through
strategic acquisitions. Between fiscal 1992 and the first quarter of fiscal
1996, 3Com acquired nine companies in a series of transactions which added to
its capabilities and product offerings in the areas of structured wiring hubs,
token ring technology, LAN switching, ATM technology, ISDN transmission
products, network access for data and voice and remote access solutions.
In the second quarter of fiscal 1996, 3Com acquired Chipcom Corporation
("Chipcom"), a provider of integrated multifunction hub and switching platforms,
in a pooling-of-interests transaction valued at approximately $775 million on
the date the acquisition was announced. Chipcom's principal product lines, the
ONline hub and ONcore multifunction switching platforms, complemented 3Com's
switching, hub and routing products and enhanced 3Com's enterprise networking
solutions. Additionally, IBM resold Chipcom products under its own brand names.
The IBM relationship has continued and has been extended to include other 3Com
products. 3Com and IBM further capitalized on their relationship by forming,
together with Bay Networks, the Network Interoperability Alliance. This alliance
aligns the architectural strategies of the three companies so customers are
assured of interoperability between products, and provides for the pursuit of
common networking standards that allow customers to simplify, standardize and
enhance the design of interoperable switched networks, and facilitates the
migration to interoperable virtual local area networks (VLANs).
In the fourth quarter of fiscal 1996, 3Com acquired AXON Networks, Inc.
("AXON"), a technological leader in next-generation remote network management
and monitoring ("RMON2") which had been an OEM partner of embedded network
management capabilities for 3Com systems products. Specifically, AXON had
provided client/server products for enterprise traffic management, including
network management applications and network probes that enable central
management and troubleshooting of remote networks.
In the second quarter of fiscal 1997, the Company acquired OnStream
Networks, Inc. ("OnStream"), a leading provider of ATM and broadband WAN and
access products. OnStream's products are standards-based solutions that allow
customers to integrate traffic from data, video and voice networks, and adapt it
to ATM for transport over local and wide area ATM networks. The acquisition was
accounted for on a pooling of interests basis valued at approximately $245
million on the date the acquisition was announced.
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3Com believes that its principal competitive advantages lie in the depth and
breadth of its product lines, its ability to recognize and respond to new trends
in data networking, its focus on making all aspects of networking easier for
network managers and users, and a strong yet flexible business infrastructure.
3Com has strong brand recognition in Ethernet adapters, which it believes is
transferable to other product and technology areas and markets, such as
stackable networking systems, LAN switching and remote office and personal
office internetworking platforms. Additionally, 3Com believes its low-cost
manufacturing, worldwide presence, flexible distribution strategy, and
comprehensive service and support capabilities allow 3Com to take advantage of
market trends that are extending the reach, scope and performance of today's
data networks.
PRODUCTS
3Com is committed to making the complexities of networks invisible to end
users and to making networks easier to design, install, maintain and evolve. As
the cornerstone of this commitment, 3Com has developed Transcend Networking, a
unique framework that enables network managers to provide users with more
services at their expected response levels, at lower cost, with less risk and
with less effort.
The Transcend Networking framework takes a "three-vectored" approach to
evolving networks. Each vector consists of a host of innovative architectures,
networking technologies, platforms and specific products. The three vectors
include:
- - SCALING THE PERFORMANCE OF THE NETWORK: Switching and desktop connectivity
solutions which provide migration to increased LAN bandwidth/capacity by
meeting the distinct requirements of the core and boundary of the LAN;
- - EXTENDING THE REACH OF THE NETWORK: WAN routing and remote access solutions
which provide remote workgroups and individual users with connectivity to
resources on corporate backbones by meeting the specific requirements of
central and remote sites and of mobile and home users; and
- - MANAGING THE GROWTH OF THE NETWORK: Networking products with embedded,
scaleable management features and innovative distributed network monitoring,
analysis and management solutions.
PRINCIPLES OF THE TRANSCEND NETWORKING FRAMEWORK
3Com designs solutions by first developing platforms (e.g., types of
routers, switches, and remote access devices) that meet the distinct
requirements of each location in the network, then selecting/ developing the
networking technologies (e.g., high-speed technologies, management features) to
solve location-dependent needs and finally, packaging the solution (e.g.,
stackable or chassis form factor).
The driving principles of the Transcend Networking framework include:
- - TECHNOLOGY AND PLATFORM NEUTRALITY--no biases toward any network type (e.g.,
Ethernet, Fast Ethernet, Token Ring, FDDI, ATM) or kind of system (e.g.,
switch, router, stackable, chassis) in order to offer customers more
effective, economical and tailored solutions;
- - CENTRALIZING COMPLEXITY AND DISTRIBUTING SIMPLICITY--installing the more
complex systems and network functions required at the network core to take
advantage of central processing, support facilities and economies of scale,
while distributing the simplest, easiest to maintain and least expensive
systems to the network boundary where users are connected to the network;
- - STANDARDS-BASED, OPEN MULTI-VENDOR ARCHITECTURE--innovative solutions based
on industry standards to enable 3Com's systems to interoperate with any other
vendor's equipment;
- - INVESTMENT PROTECTION WITH INCREMENTAL EVOLUTION--solutions that allow
customers to upgrade their networks to new functionality and higher
performance technologies as their needs evolve; and
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- - LOW TOTAL COST OF OWNERSHIP--providing complete enterprise, multiplatform
solutions, combined with point-product excellence, which are optimized for
total price/performance and efficient, low-cost operations management.
Under the Transcend Networking framework, 3Com has introduced a number of
new and enhanced products, including new stackable Ethernet, Fast Ethernet (100
Mbps Ethernet) and Ethernet-to-ATM switches for connecting workgroups to
high-speed backbones, LAN emulation capabilities for its CELLplex family of ATM
switches, and Fast Ethernet and Token Ring capabilities for its LANplex family
of backbone and departmental switches, and enhanced security capabilities for
its AccessBuilder family of remote access servers. For the small office, 3Com
introduced the OfficeConnect system of "clippable" network components, the
industry's first network system designed specifically for the small office.
Additionally, 3Com's industry-leading family of EtherLink adapters have been
enhanced with DynamicAccess software, which allows the adapter to perform
sophisticated network management functions and provide superior multimedia
support, transforming the network adapter from a passive connectivity device to
an active network component.
NETWORK SYSTEMS PRODUCTS
LAN AND ATM SWITCHING PLATFORMS: 3Com switches provide cost-effective,
high-speed links between multiple network segments, simplifying network design
and reducing network latency in client/server networks. Switches can also
provide direct links to either the desktop or server, providing dedicated
capacity to high-bandwidth users. The development of custom ASICs for switching
is central to 3Com's switching strategy. Virtually all of 3Com's internally
developed switches are based on custom-designed ASICs, which 3Com believes will
dramatically improve performance and reliability while reducing costs. 3Com
switches are available in either chassis or stackable formats and are optimized
to meet the specific need of the network core and its boundaries.
High-function switches: High-function switches are designed to meet the
requirements of the network core (backbone) for high density connectivity,
scaleable capacity, reliability and network control, and to meet the migration
needs of the customer. In a collapsed backbone environment, high-function
switches might act as a high-performance, high-capacity switch connecting
multiple boundary switches or hubs, or both, depending on the network design and
bandwidth needs of the different network segments. 3Com's chassis (modular)
high-function switches include:
- - The CELLplex family of ATM switches for aggressive migration to cell-switched
network backbones. CELLplex switches include VLAN capabilities for the
creation of logical user groups and broadcast domains, as well as integrated
ATM forum LAN emulation for smooth Ethernet-to-ATM communications;
- - The ONcore line of integrated, multifunction switches for highly integrated
migration from shared LANs to packet-switched and cell-switched backbones.
The ONcore platform supports a full range of LAN technologies, including
shared and switched Ethernet, Token Ring, FDDI and ATM, as well as remote
access, routing and communication server functions; and
- - The LANplex family of LAN switches for migrating backbone router environments
to packet-switched LANs. The LANplex family of LAN switches offers
high-performance Ethernet, Fast Ethernet, FDDI and Token Ring switching for
data center and department applications.
Boundary switches: Boundary switches are designed to meet the requirements
of the LAN boundary to reduce network latency at the desktop by providing
increased bandwidth, and to provide simple, plug-and-play connectivity. These
switches can provide either a direct desktop or server connection, or provide
for greater network bandwidth by switching between Ethernet or Fast Ethernet
hubs and the network backbone. 3Com boundary switches are available in either
chassis or stackable format and provide for Ethernet-to-Ethernet,
Ethernet-to-Fast Ethernet, Ethernet-to-FDDI, and Ethernet-to-ATM connectivity.
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HUBS: Hubs act as concentrators of network traffic generated from the
desktop and define specific network segments, relaying the traffic either within
the workgroup or onto the network backbone. Unlike switches, each desktop
connected through a hub shares the total available bandwidth of the hub with
other users. Their relatively low cost per port, manageability and ease-of-use,
make hubs a popular choice for workgroup connectivity. Multiple hubs are
frequently connected to a switch, which acts as a "hub of a hub," to segment the
network and improve overall performance.
3Com designs, manufactures and markets a full range of Ethernet, Fast
Ethernet, Token Ring and FDDI hubs in either stackable or chassis-based
configurations. 3Com's SuperStack II stackable network solutions offer customers
significant capabilities such as routing, remote access, and network management.
ENTERPRISE INTERNETWORKING PLATFORMS: Internetworking devices link
multiprotocol LANs within the building/campus environment and provide WAN
connectivity to link multiple remote locations and provide access to the
Internet and other remote network resources. 3Com offers a variety of
internetworking solutions that extend the reach of the network, each tailored to
the specific needs of the application.
Backbone and remote office routers: For central sites needing
high-performance bridge/routing and a choice of Ethernet, Fast Ethernet, Token
Ring, FDDI, ATM and WAN connectivity, 3Com offers the high-density,
multiprotocol NETBuilder II bridge/router. Available in a range of compatible
chassis with the ability to add additional processing power over time, the
NETBuilder II offers a high degree of scaleability to handle evolving LAN and
WAN integration requirements. The NETBuilder II also provides the central site
connection for NETBuilder Remote Office routers running Boundary Routing"
software.
NETBuilder Remote Office routers, designed for the remote or branch office,
support Ethernet and Token Ring LANs, analog and ISDN lines, and System Network
Architecture ("SNA") applications over 3Com's Boundary Routing system
architecture. Available in either standalone configurations or as part of the
SuperStack network system, NETBuilder Remote Office routers simplify remote
office connectivity and offer extensive upgradeability and flexibility as remote
office routing needs evolve.
ATM and broadband access products: 3Com has recently introduced a new
generation of access devices, including the AccessBuilder 9000 Family and the
AccessBuilder 6200, which can deliver a combination of data, voice and video
traffic over high speed broadband LAN and WAN networks, including ATM networks.
Remote network access servers: Remote access servers provide central site
connectivity for mobile workers and telecommuters accessing Ethernet or Token
Ring networks from remote locations over public telephone lines.
REMOTE ACCESS CONCENTRATORS: For network service providers with large
dial-up networks and for enterprises building large-scale corporate intranets,
3Com offers the AccessBuilder 8000 and AccessBuilder 5000 network access
concentrators.
SMALL OFFICE SYSTEMS: In February 1996, 3Com introduced the OfficeConnect
network system, a full range of hubs, servers and remote connectivity devices
for the small office. The industry's first complete networking system designed
from the outset to meet the needs of small remote sites and small businesses,
the OfficeConnect system offers a unique "clippable" design, silent operation
and a very small footprint.
NETWORK MANAGEMENT: In September 1993, 3Com introduced Transcend Network
Management, a family of network management applications that represents a
significant advance in simplified and logical management of LANs and WANs. Using
Transcend applications on the network management platform of choice, network
administrators are able to create logical groups of hubs, routers, servers and
desktop devices, regardless of physical location, to obtain correlated
management information and control.
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NETWORK ADAPTERS
Network adapters, also known as network interface cards ("NICs"), are add-in
printed circuit boards that allow network servers, personal computers, laptop
computers and workstations to connect to the LAN. According to International
Data Corporation ("IDC"), a leading market research firm, 3Com is the leading
provider of Desktop Ethernet adapters with a 40 percent market share. According
to Dataquest, 3Com also leads the market in Ethernet LAN PC Card (formerly
PCMCIA) adapters with a 29 percent market share.
In fiscal 1993, 3Com began shipping its family of EtherLink III adapters
with Parallel Tasking technology, based on a 3Com-designed custom ASIC. Parallel
Tasking is an innovative architecture that speeds data transfers by allowing
separate tasks to be performed in parallel, resulting in higher overall adapter
efficiency and performance than would otherwise be possible. 3Com has applied
for and received patents on certain aspects of this technology. 3Com's EtherLink
III adapters are all designed around 3Com's custom ASIC, which results in
products that 3Com believes are inherently more reliable, easier to install and
configure, and less expensive to manufacture.
In fiscal 1995, 3Com introduced a new, higher performance, lower cost
version of its popular 10 Mbps EtherLink III adapters and extended the
technology to include the new Fast Ethernet (100 Mbps Ethernet) standard. 3Com
believes the Fast EtherLink family of adapters provides network managers with a
smooth upgrade path to higher speed workgroup connectivity.
In fiscal 1996, 3Com began developing further advancements to its NIC
technology and early in fiscal 1997, 3Com introduced EtherLink XL Ethernet and
Fast Ethernet NICs with DynamicAccess technology, which incorporates new
features that facilitate the migration to virtual networking and collaborative
computing. DynamicAccess software allows the adapter to perform sophisticated
network management and configuration functions at the desktop and provides for
superior multimedia support and transforms the NIC from a passive connectivity
device into an active network component.
In addition to Ethernet and Fast Ethernet adapters, 3Com offers Token Ring,
FDDI and ATM adapters.
PRODUCT DEVELOPMENT
3Com's product development efforts are focused exclusively on its strategic
product lines: network systems products and network adapters. 3Com's ownership
of core networking technologies creates opportunities to leverage its
engineering investments and develop more integrated products for simpler, more
innovative networking solutions for customers. 3Com plans to invest in emerging
technologies for use in existing and future products, as well as to improve and
enhance existing products to extend their lifecycles, reduce manufacturing costs
and increase functionality. In addition to the development of custom ASICs to
improve performance, increase reliability and reduce costs, 3Com is investing in
the following areas: network management, Fast Ethernet, ATM and other high speed
networking technologies, wireless LAN communications, VLAN capabilities, ISDN
and other remote access technologies, enhanced connectivity in IBM environments,
and remote access for single and mobile users (including data-over-cable and
Asymmetric Digital Subscriber Line ("ADSL") technologies).
MARKETS AND CUSTOMERS
3Com's customers are represented among the world's leading industries,
including finance, health care, manufacturing, government, education, and
service organizations. In fiscal 1994, 3Com began targeting specific vertical
markets, including health care, education, finance and government, and is in the
process of expanding its major accounts sales force.
Around the world, 3Com serves its customers through a variety of sales
channels including direct and indirect channels. Indirect channels include
systems integrators, VARs, distributors, national dealers and
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resellers, and OEMs. 3Com's multi-channel sales strategy encourages broad market
coverage by allowing 3Com sales personnel to create demand for 3Com's products
while giving customers the flexibility to choose the most appropriate delivery
channels. In fiscal 1995, 3Com began building an end user sales force to target
large enterprise accounts and established a separate sales force to market to
telephone carriers and network service providers. 3Com has also maintained and
expanded Chipcom's relationships with large, single-tier network integrators.
INTERNATIONAL OPERATIONS: 3Com distinguishes itself from many of its
competitors with its dedicated research and development, manufacturing, sales
and service organizations outside the United States. 3Com maintains sales
offices in over 45 countries, with new offices opened in fiscal 1996 in Eastern
Europe, Latin America and the Asia Pacific region. 3Com primarily markets its
products internationally through subsidiaries, sales offices and relationships
with local distributors in Europe, Canada, Asia Pacific and Latin America.
CUSTOMER SERVICE: Since global data networking infrastructures are becoming
increasingly complex, customers require vendors to help them manage and support
their networks' as well as design and build them. Additionally, as customers'
networking purchases transition from point-product to connectivity systems, a
more solutions-oriented approach to service and support is required. 3Com
recognized these trends early and has invested in a comprehensive worldwide
service and support organization capable of providing virtually around-the-clock
customer support regardless of geographic location. In fiscal 1996, 3Com
expanded its worldwide service and support capabilities to offer true 7 day/24
hour support to its customers by doubling the post-sale dedicated customer
service engineers in North America, opening additional support centers and
providing toll-free support service in Latin America, Europe and the Asia
Pacific, as well as adding interactive Internet-based customer support options.
Worldwide logistics include support and repair centers in the United States,
dedicated service organizations in Europe and Asia Pacific regions, "parts
banks" at more than 25 locations, and electronic bulletin boards throughout the
world. In addition to on-site training, 3Com also provides computer-based
courses that allow customers to learn networking technologies at their own pace
in their own environments.
MANUFACTURING AND SUPPLIERS
3Com's primary production activities are conducted at its Santa Clara,
California and Blanchardstown, Ireland facilities. Purchasing, mechanical
assembly, burn-in, testing, final assembly, and quality assurance functions are
performed at both of these facilities. 3Com also procures certain products and
subassemblies through subcontractors. Over the past several years, 3Com has been
investing in automating its manufacturing capabilities, decreasing the costs and
increasing the quality of both manufacturing design and production. To meet
increased demand for its global data networking products, 3Com added new
automated production lines in both its California and Ireland plants. In fiscal
1996, construction was completed on a new 225,000 square feet manufacturing
facility at its headquarters in Santa Clara, and the Ireland facility was
expanded to 120,000 square feet. The new Santa Clara facility, which produces
the EtherLink and TokenLink families of network adapters and the SuperStack
network system components, tripled the existing manufacturing square footage in
Santa Clara. In fiscal 1997, construction began on a new 325,000 square foot
manufacturing facility in Singapore which is scheduled to begin volume
manufacturing in the third quarter of fiscal 1998 and will produce NICs and
certain hub products primarily for distribution in the Asia Pacific region.
3Com is committed to being an environmentally conscious manufacturer, and
pioneered implementation of a chlorofluorocarbon ("CFC")-free semi-aqueous
cleaning process at its California plant with DuPont and Corpane Corporations.
The same process is used at the Ireland facility, and 3Com met its goal of being
CFC-free by the end of calendar year 1993.
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Components purchased by 3Com are generally available from multiple
suppliers. However, certain components may be available from sole sources. The
inability of 3Com to obtain certain components could require 3Com to redesign or
delay shipments of several of its data networking products. 3Com has sought to
establish close relationships with sole-source suppliers and/or to build up
inventory of such components; however, there can be no assurance that production
would not be interrupted due to the unavailability of components. 3Com believes
that its inventory levels of these components, combined with finished components
held by 3Com's suppliers, are adequate for its currently forecasted needs.
COMPETITION
Data networking is an emerging field within the information systems industry
encompassing both on-premises (e.g., desktop connectivity devices,
internetworking platforms, data network switching, and wiring hubs) and
off-premises (e.g., wide-area networking) technologies which may be deployed at
the edge or the core of the network. 3Com participates primarily in designing,
manufacturing and marketing on-premises equipment and has achieved its largest
market share of products installed at the edge of the network. 3Com's
competitors typically compete in one or more segments of the on-premises sector
of the data networking market. These companies are using their resources and
technical expertise to improve and expand their product lines in an effort to
gain market share. Several competitors are extending their product offerings
beyond a single market segment and are pursuing strategies more closely
resembling 3Com's global data networking strategy. The industry recently has
witnessed a wave of merger, acquisition and strategic partnering activity as
many of these companies seek to provide broader networking solutions. A number
of factors have contributed recently to increased competitive pressure,
particularly pricing pressure. These factors include continuing industry
consolidation, expansion by Intel and others of their networking product
offerings through acquisitions and investments, a slowdown in customer
purchasing decisions of large customers resulting in greater competition to
obtain those customer orders that are being made and aggressive pricing by Intel
on its Fast Ethernet adapters and recently announced Fast Ethernet switches and
hubs.
NETWORK SYSTEMS PRODUCTS: Competition in the network systems business,
formerly characterized by niche-based competitors focused on a single industry
segment, is shifting toward more broad-based suppliers offering multiple product
lines. This has been achieved through mergers and acquisitions, through joint
marketing agreements, and through internally developed products. This industry
consolidation, and the convergence of hub, switching and routing technologies on
single platforms, will likely continue, intensifying competition among a small
group of companies with broad product offerings. Principal competitors in the
network systems products market include Bay Networks, Cabletron and Cisco.
Additionally, shifting market trends that place a greater importance on
switching and remote access have allowed small niche-product companies such as
Shiva and Xylan to grow their revenues and gain additional market share.
3Com, through its Primary Access subsidiary, competes against various
manufacturers of the products mentioned above, as well as Ascend Communications,
Cisco and USR who manufacture integrated remote access concentrators used by
ISPs, carriers and other customers at the core of the network.
NETWORK ADAPTERS: The market for network adapters is highly competitive,
with companies offering products that support a range of Ethernet, Fast
Ethernet, Token Ring and FDDI media. Principal competitors in the traditional
desktop or mobile adapter market include Intel, IBM Corporation, Madge N.V.,
Olicom A/S, Standard Microsystems Corporation and Xircom.
3Com believes it competes favorably in the data networking market by
providing customers with a full breadth of products based on leading
technologies which, when combined under the Transcend Networking framework,
address central site and remote connectivity needs for enterprise customers, and
offer innovative solutions for small offices, network service providers and
individual users. Additionally, 3Com believes that its products enjoy a
reputation for both high quality and reliability.
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PATENTS, LICENSES AND RELATED MATTERS
3Com relies on U.S. and foreign patents, copyrights, trademarks and trade
secrets to establish and maintain proprietary rights in its technology and
products. 3Com has an active program to file applications for and obtain patents
in the United States and in selected foreign countries where a potential market
for 3Com's products exists. 3Com's general policy has been to seek patent
protection for those inventions and improvements likely to be incorporated in
its products or otherwise expected to be of value. 3Com has been issued 83
utility patents and six design patents in the U.S., and has been issued 11
foreign patents. Numerous other patent applications are currently pending which
relate to 3Com's research and development.
While 3Com believes that its patents and applications have value, it also
believes that its competitive position depends primarily on the innovative
skills, technological expertise and management abilities of its employees.
3Com has been granted licenses by others, including a fully paid, perpetual,
non-exclusive license to a patent held by Xerox covering a portion of the
Ethernet technology.
3Com has registered 50 trademarks in the United States and has registered 28
trademarks in one or more of 50 foreign countries. Numerous applications for
registration of domestic and foreign trademarks are currently pending.
Many of 3Com's products are designed to include software or other
intellectual property licensed from third parties. 3Com actively seeks to
license software that promotes the compatibility of its products with industry
standards, including standard protocols and architectures. The loss of rights in
software or other intellectual property licensed from a third party and designed
into a particular product might disrupt or delay 3Com's distribution of that
product. While it may be necessary in the future to seek or renew licenses
relating to various aspects of its products, 3Com believes that, based upon past
experience and standard industry practice, such licenses generally could be
obtained on commercially reasonable terms.
EMPLOYEES
As of February 28, 1997, 3Com had approximately 7,059 full-time employees,
of whom 1,593 were employed in engineering, 2,852 in sales, marketing and
customer service, 1,702 in manufacturing, and 912 in finance and administration.
None of 3Com's employees is represented by a labor organization, and 3Com
considers its employee relations to be excellent.
LEGAL PROCEEDINGS
3Com is a party to lawsuits in the normal course of its business. 3Com and
its counsel believe that it has meritorious defenses in all lawsuits in which
3Com or its subsidiaries is a defendant. 3Com does not believe the outcome of
these cases will have a material effect on its financial condition or results of
operations, but notes that (i) litigation in general and patent litigation in
particular can be expensive and disruptive to normal business operations and
(ii) the results of complex legal proceedings can be very difficult to predict
with any certainty.
On March 24, 1997, a putative shareholder class action lawsuit was filed
against 3Com and certain of its officers and directors in the California
Superior Court, Santa Clara County (Civil Action No. CV764977). The complaint
alleges, among other things, fraud, negligent misrepresentation and violations
of the California securities laws, including that during the putative class
period, sales of 3Com stock by officers and directors of 3Com and acquisitions
made with 3Com stock occurred at inflated prices in light of undisclosed
information. Specifically, the complaint alleges violations of Sections 25400
and 25500 of the California Corporations Code, Sections 1709 and 1710 of the
California Civil Code, and Sections 17200 et seq. and 17500 et seq. of the
California Business and Professions Code. The complaint, which covers a putative
period of September 24, 1996 through February 10, 1997, does not specify the
damages sought. 3Com believes that the action is not meritorious and intends to
vigorously contest it. An adverse resolution of the action could have a material
adverse effect on 3Com's results of operations and financial condition in the
quarter in which such adverse resolution occurs.
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USR and certain of its directors have been named as defendants in seven
lawsuits relating to the Merger. 3Com has been named as a defendant in five of
these actions. The lawsuits, which purport to be stockholder class actions
brought on behalf of all USR stockholders, allege that the directors of USR have
breached their fiduciary duties by approving the Merger Agreement, and that 3Com
has aided and abetted this alleged breach of duty. The lawsuits seek an
injunction against the Merger and unspecified damages. 3Com and USR believe that
these lawsuits are without merit and intend to contest them vigorously. See
"Information Concerning USR--Business--Legal Proceedings."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
BUSINESS COMBINATIONS
During the second quarter of fiscal 1997, 3Com extended its WAN product
solutions for enterprise organizations, network service provider and Internet
service provider markets with the acquisition of OnStream, a provider of ATM and
broadband WAN and access products. The acquisition was completed on October 31,
1996. 3Com issued approximately 3.4 million shares of 3Com Common Stock in
exchange for all the outstanding stock of OnStream. 3Com also assumed and
exchanged all outstanding options to purchase OnStream stock for options to
purchase approximately 400,000 shares of 3Com Common Stock. The acquisition was
accounted for as a pooling of interests, and financial data of 3Com for the
quarter ended August 31, 1996 has been restated to include the financial
information of OnStream for such period.
On February 26, 1997, 3Com announced a definitive agreement to merge with
USR. The merger is expected to be consummated in the first quarter of fiscal
1998. See Note 4 of Notes to Consolidated Financial Statements in 3Com's
Quarterly Report on Form 10-Q for the three-month period ended February 28,
1997, incorporated by reference in this Joint Proxy Statement/Prospectus, for
additional information concerning these business combinations.
RESULTS OF OPERATIONS
3Com achieved record sales for the first nine months of fiscal 1997 totaling
$2,317.2 million, an increase of $650.4 million or 39 percent from the
corresponding period a year ago. 3Com believes that the year-over-year increase
in sales is due to several factors, including growth in the data networking
market as the Internet, corporate Intranets, client server applications and
remote access services stimulate customers to migrate from shared to switched
media and to larger bandwidth and higher speed technologies, such as Fast
Ethernet and ATM, to support data, voice and video multimedia traffic. 3Com also
believes that the strength of 3Com's product offerings at the edge of the
network, including workgroup switches and hubs, the impact of a strong new
product cycle in systems and adapter products, the continuous expansion of
3Com's product offerings, and the ability to deliver complete data networking
solutions for different connectivity environments contributed to the increase in
sales for the first nine months of fiscal 1997 over the same period a year ago.
Sales of network systems products in the first nine months of fiscal 1997
represented 57 percent of total sales compared to 59 percent in the same period
a year ago, and increased 34 percent compared to the first nine months of fiscal
1996. The year-over-year increase in network systems product sales was led
primarily by the SuperStack II workgroup switching family, SuperStack II
stackable hubs, the CELLplex ATM High-Function switching family, and the ONcore
intelligent switching system. The increase in network systems products was
partially offset by declines in sales of the AccessBuilder 8000 access
concentrator. The increase in sales represented a significant increase in unit
volume in workgroup switching and Fast Ethernet stackable hubs, partially offset
by a decline in average selling prices of such products.
Sales of network adapters in the first nine months of fiscal 1997
represented 42 percent of total sales compared to 40 percent in the same period
a year ago, and increased 48 percent compared to the first nine months of fiscal
1996. The year-over-year increase in network adapter sales represented a
significant
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increase in unit volume, partially offset by a decline in average selling
prices. The increase in sales was led primarily by the Fast EtherLink PCI
adapters, the EtherLink III family of network adapters, and the EtherLink PC
Card adapters.
Sales of other products represented one percent of total sales in the first
nine months of fiscal 1997 compared to two percent in fiscal 1996, and are not
significant to 3Com's operations.
International sales for the first nine months of fiscal 1997 comprised 52
percent of total sales, compared to 53 percent in the first nine months of
fiscal 1996. International sales increased 37 percent in all major geographic
regions, with especially strong growth in the Asia Pacific and Latin America
regions, when compared to the same period a year ago. 3Com believes that the
growth in international sales is due primarily to 3Com's continued global
expansion through the opening of new sales offices, and the expansion of its
worldwide field sales, service and support programs. Substantially all of 3Com's
revenues are denominated in U.S. Dollars. 3Com's operations were not
significantly impacted by fluctuations in foreign currency exchange rates in the
first nine months of fiscal 1997 and 1996.
Sales in the United States for the first nine months of fiscal 1997
comprised 48 percent of total sales, compared to 47 percent in the first nine
months of fiscal 1996. Sales growth in the United States for the first nine
months of fiscal 1997 was 41 percent when compared to the first nine months of
fiscal 1996.
Cost of sales as a percentage of sales was 45.6 percent for the first nine
months of fiscal 1997, compared to 47.2 percent for the corresponding fiscal
1996 period. The corresponding increase in gross margin in the first nine months
of fiscal 1997 primarily reflected an increased shipment mix of higher margin
workgroup switching and stackable hub products, and lower product material costs
of certain adapter products. Factors causing the increase in gross margin were
partially offset by a higher mix of certain lower margin adapter products.
Total operating expenses in the first nine months of fiscal 1997 were $829.2
million compared to $649.8 million in the first nine months of fiscal 1996.
Excluding the acquisition-related charge of $6.6 million for OnStream, total
operating expenses in the first nine months of fiscal 1997 were $822.6 million,
or 35.5 percent of sales. Excluding the acquisition-related charge of $69.0
million for Chipcom, total operating expenses in the first nine months of fiscal
1996 were $580.8 million, or 34.8 percent of sales. Recurring operating expenses
increased $241.8 million, or 42 percent.
In the first nine months of fiscal 1997, sales and marketing expenses
increased $138.6 million or 40 percent from the prior year and increased to 20.8
percent of sales, compared to 20.6 percent of sales in the first nine months of
fiscal 1996. The increase in such expenses reflected increased costs associated
with higher sales volume, marketing promotions and customer support programs,
and a 54 percent year-over-year increase in sales and marketing personnel, as
3Com invested in the expansion of its direct sales force.
Research and development expenses increased $75.1 million or 45 percent in
the first nine months of fiscal 1997, and increased as a percentage of sales to
10.5 percent compared to 10.0 percent in the first nine months of fiscal 1996.
The increase in research and development expenses was primarily attributable to
the cost of developing 3Com's new products, primarily switching and network
management, and 3Com's expansion into new technologies and markets. 3Com
believes the timely introduction of new technologies and products is crucial to
its success, and plans to continue to make acquisitions or strategic investments
to accelerate time to market where appropriate. Most of the in-process research
and development projects acquired in connection with 3Com's business
acquisitions have been completed. 3Com estimates that the remaining costs in
connection with the completion of outstanding acquired research and development
projects are not significant, and are primarily made up of labor costs for
design, prototype development and testing.
General and administrative expenses increased $28.1 million, or 41 percent
in the first nine months of fiscal 1997, but remained flat as a percentage of
sales at 4.2 percent for the first nine months of fiscal 1997 and 1996. The
increase in general and administrative expenses reflected an expansion of 3Com's
infrastructure, including an increase in personnel of 43 percent compared to the
prior year.
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Other income (net) was $14.2 million for the first nine months of fiscal
1997, compared to $4.9 million in the corresponding period one year ago. The
increase in other income was due primarily to higher interest income on larger
cash balances in fiscal 1997.
3Com's effective income tax rate was 36.1 percent in the first nine months
of fiscal 1997 and 36.8 percent in the first nine months of fiscal 1996.
Excluding the merger costs associated with the OnStream acquisition, which were
not tax deductible, the effective tax rate was 35.6 percent for the first nine
months of fiscal 1997. Excluding the merger costs associated with the Chipcom
acquisition, which were not fully tax deductible, the effective tax rate was
34.9 percent for the first nine months of fiscal 1997.
Net income for the first nine months of fiscal 1997 was $284.8 million, or
$1.53 per share, compared to net income of $148.4 million, or $0.84 per share,
for the first nine months of fiscal 1996. Excluding the aforementioned $6.6
million charge associated with the acquisition of OnStream, net income was
$291.4 million, or $1.57 per share, for the first nine months of fiscal 1997.
Excluding the $69.0 million charge associated with the acquisition of Chipcom,
net income was $197.6 million, or $1.12 per share, for the first nine months of
fiscal 1996.
CURRENT OPERATING RESULTS
3Com experienced a decrease in sales of $33.5 million or 4 percent during
the third quarter of fiscal 1997 compared to the second quarter of fiscal 1997.
3Com believes its results reflect recent slowed growth in the networking
industry, in combination with increased competitive pricing pressures in the
form of aggressive price reductions and product promotions for certain products,
particularly network adapters, stackable hubs, and workgroup switches. 3Com also
experienced declines in its router business, which 3Com believes are primarily
due to delays in large enterprise customer orders. 3Com believes that the
industry is transitioning from shared to switched networks and more volume-based
pricing and distribution, and that these transitions may be adversely affecting
customer purchasing decisions. Competitive pricing pressures in adapters,
stackable hubs and workgroup switches have resulted in average selling prices
declining more rapidly than in the past. 3Com believes such pricing trends, as
well as the uncertainties created by the trend towards switched networks, may
adversely affect the industry's and 3Com's growth rates in the coming quarters,
and consequently, 3Com's historical growth rates should not be relied upon as an
indication of its future performance.
Sales of network systems products in the third quarter of fiscal 1997
decreased six percent compared to the second quarter of fiscal 1997. The
sequential decline was primarily due to decreases in sales of SuperStack II 10
Mbps Ethernet hubs and NETBuilder II routers, but was partially offset by
continued growth in the CELLplex ATM High-Function switching family. 3Com
experienced a decline in average selling prices resulting from increased
competition and pricing pressures in Fast Ethernet stackable hubs and workgroup
switching products, which was offset by an increase in unit volume.
Sales of network adapters in the third quarter of fiscal 1997 decreased two
percent compared to the second quarter of fiscal 1997. The sequential decline
resulted from declines in sales of EtherLink III adapters and from significant
price protection reserves taken on Fast Ethernet adapter products. During the
third quarter of fiscal 1997, a major competitor reduced its average selling
prices on Fast Ethernet adapter products by approximately 40 percent. 3Com
immediately responded with similar price cuts.
Cost of sales as a percentage of sales was 45.5 percent for the third
quarter of fiscal 1997, compared to 45.3 percent in the second quarter of fiscal
1997. The corresponding decline in gross margin in the third quarter of fiscal
1997 primarily reflected a decline in average selling prices for Fast Ethernet
adapters during the quarter due to competitive pricing pressures partially
offset by lower provisions for excess and obsolete inventories. The Company
believes that the competitive pricing pressures in the Fast Ethernet adapters,
stackable hub and workgroup switching products will most likely result in
declines in gross margins.
Total operating expenses in the third quarter of fiscal 1997 were $299.1
million or 38.0 percent of sales, compared to $286.5 million or 34.9 percent of
sales in the second quarter of fiscal 1997. Excluding
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the acquisition-related charge of $6.6 million for OnStream, total operating
expenses in the second quarter of fiscal 1997 were $279.9 million, or 34.1
percent of sales. Overall operating expenses as a percentage of sales increased
primarily due to the decline in sales growth. During the quarter, the Company
took steps to slow the growth in operating expense levels for future quarters.
Net income for the third quarter of fiscal 1997 was $87.6 million, or $0.47
per share, compared to net income of $105.6 million, or $.56 per share for the
second quarter of fiscal 1997. Excluding the $6.6 million acquisition-related
charge associated with the acquisition of OnStream, net income was $112.2
million, or $.60 per share for the second quarter of fiscal 1997.
FISCAL YEARS ENDED MAY 31, 1996, 1995 AND 1994
BUSINESS COMBINATIONS
During the fiscal year ended May 31, 1996, 3Com enhanced its enterprise-wide
networking solutions with two acquisitions. On March 12, 1996, 3Com acquired
AXON, a technological leader in remote network management and monitoring of data
network traffic. The purchase price consisted of cash, net of cash acquired, of
approximately $60.2 million, which was paid using funds from the Company's
working capital, and assumption of stock options with a fair value of
approximately $3.7 million. The acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair market values at the date of acquisition. The aggregate purchase
price of $65.3 million, including $1.4 million of costs directly attributable to
the completion of the acquisition, has been allocated to the assets acquired and
the liabilities assumed. Approximately $52.4 million of the total purchase price
represented the value of in-process technology that had not yet reached
technological feasibility, had no alternative future use and was charged to
3Com's operations in the fourth quarter of fiscal 1996. 3Com's consolidated
results of operations for the fiscal year ended May 31, 1996 include the
operating results of AXON from the date of acquisition.
On October 13, 1995, 3Com acquired Chipcom, a provider of computer
networking multifunction platforms, including hubs, switching and network
management products. 3Com issued approximately 18.3 million shares of 3Com
Common Stock in exchange for all the outstanding common stock of Chipcom. 3Com
also assumed and exchanged all outstanding options to purchase Chipcom common
stock for options to purchase approximately 2.4 million shares of 3Com Common
Stock. The acquisition was accounted for as a pooling of interests, and all
financial data of 3Com prior to the acquisition has been restated to include the
historical information of Chipcom. No significant adjustments were required to
conform the accounting policies of 3Com and Chipcom. In connection with the
acquisition of Chipcom, acquisition-related costs of $69.0 million were charged
to operations in the second quarter of fiscal 1996. These charges consisted
primarily of expenses for the elimination of duplicate and discontinued products
and facilities, related severance costs and direct transaction costs.
On June 9, 1995, 3Com extended its market presence to network service
providers and carriers with the acquisition of Primary Access Corporation
("Primary Access"), a provider of integrated network access systems. 3Com issued
approximately 4.6 million shares of 3Com Common Stock in exchange for all of the
outstanding stock of Primary Access. 3Com also assumed and exchanged all
outstanding options and warrants to purchase Primary Access stock for options
and warrants to purchase approximately 1.0 million shares of 3Com Common Stock.
The acquisition was accounted for as a pooling of interests, and all financial
data of 3Com prior to the acquisition has been restated to include the
historical information of Primary Access. No significant adjustments were
required to conform the accounting policies of 3Com and Primary Access.
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In fiscal 1995, 3Com acquired Sonix Communications, Ltd. ("Sonix"), a
provider of ISDN connectivity solutions in the United Kingdom, and Chipcom
acquired Artel Communications Corporation ("Artel"), a provider of
high-performance communication systems for the internetworking and video
distribution markets. 3Com issued an aggregate of approximately 3.6 million
shares of 3Com Common Stock in exchange for all the outstanding stock of the
acquired companies. Both acquisitions were accounted for as poolings of
interests. Also in fiscal 1995, 3Com acquired NiceCom, Ltd. ("NiceCom"), an
innovator of ATM technology, and Chipcom acquired DSI ExpressNetworks, Inc.
("DSI"), a developer of intelligent hubs and internetworking products. Both
acquisitions were accounted for as purchases. Fiscal 1995 results included a
$68.7 million pre-tax charge to operations for the effect of purchased
in-process technology related to fiscal 1995 purchase transactions.
In fiscal 1994, 3Com acquired Synernetics, Inc. ("Synernetics"), a market
leader in LAN switching products, and Centrum Communications, Inc. ("Centrum"),
an innovator of remote access products. Both acquisitions were accounted for as
purchases. 3Com also entered into a technology licensing agreement with Pacific
Monolithics, Inc., a developer of wireless communications. See Note 12 of Notes
to Consolidated Financial Statements in 3Com's Annual Report on Form 10-K for
the fiscal year ended May 31, 1996, incorporated by reference in this Joint
Proxy Statement/Prospectus. Fiscal 1994 results included a $134.5 million
pre-tax charge to operations for the combined effect of purchased in-process
technology related to the acquisitions and the license agreement.
See Notes 3 and 13 of Notes to Consolidated Financial Statements in 3Com's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996, incorporated
by reference in this Joint Proxy Statement/ Prospectus, for additional
information concerning the above business combinations.
RESULTS OF OPERATIONS
Fiscal 1996 sales increased 46 percent to $2.3 billion from $1.6 billion in
fiscal 1995. This compares to a 58 percent increase in sales in fiscal 1995 from
fiscal 1994 sales of $1.0 billion. 3Com believes that the increase in fiscal
1996 and 1995 sales is due to several factors, including continued strength in
the data networking market as customers migrate to new technologies such as LAN
switching and Fast Ethernet, increases in worldwide personal computer sales,
rapid growth in sales outside the U.S., and the continuous expansion 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, switching products and customer service) in fiscal 1996
represented 59 percent of total sales and increased 56 percent from fiscal 1995.
This followed a 72 percent increase in systems sales in fiscal 1995 from fiscal
1994. Sales of systems products in fiscal years 1995 and 1994 represented 55
percent and 51 percent of total sales, respectively. The increase in fiscal 1996
network systems product sales was led primarily by the LinkBuilder FMS II
stackable hub, the LANplex and LinkSwitch families of switching products, the
AccessBuilder 8000 integrated network access system and the ONcore intelligent
switching system. The increase in network systems products was partially offset
by declines in sales of certain product lines acquired from Chipcom. The
increase in fiscal 1995 network systems product sales was led primarily by the
aforementioned LinkBuilder FMS II stackable hub and the LANplex family of
switching products as well as the NETBuilder Remote Office internetworking
system and Chipcom's ONline family of intelligent switching systems. Customer
service revenue is included in network systems products (previously this revenue
was classified as other products), and accordingly, all sales composition and
growth percentages reflect this reclassification.
Sales of network adapters in fiscal 1996 represented 40 percent of total
sales and increased 35 percent from fiscal 1995. This followed a 45 percent
sales increase in network adapters in fiscal 1995 from fiscal 1994. Sales of
network adapters in fiscal years 1995 and 1994 represented 43 percent and 46
percent of total sales, respectively. The increase in fiscal 1996 network
adapter sales represented a significant increase
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in unit volume, primarily the result of increased sales of the EtherLink III
network adapter and the EtherLink PC Card adapter and the introduction of the
Fast EtherLink PCI adapter. The trend toward decreasing average selling prices
in all adapter products continued in fiscal 1996, but was mostly offset by the
increased mix of Fast Ethernet and PC Card products, which carry higher average
selling prices. The increase in fiscal 1995 network adapter sales represented an
increase in unit volume partially offset by continuation of the industry-wide
trend toward decreasing average selling prices, particularly in the Token Ring
market. The increase in unit volume primarily resulted from sales of the
EtherLink III network adapter, but was also favorably impacted by sales of the
EtherLink PC Card adapter.
Sales of other products represented one percent of total sales in fiscal
1996, two percent in fiscal 1995, and three percent of total sales in fiscal
1994. Sales of other products are not significant to 3Com's operations, as
expected.
Sales outside of the United States comprised 53 percent of total sales in
fiscal 1996, compared to 52 percent in fiscal 1995 and 49 percent in fiscal
1994. In fiscal 1996, international and U.S. sales increased 48 percent and 44
percent, respectively, from fiscal 1995. In fiscal 1995, international and U.S.
sales increased 66 percent and 49 percent, respectively, from fiscal 1994. 3Com
believes that the increase in international sales was a result of strong growth
in the Asia Pacific region, the breadth of 3Com's product offerings, its
continued global expansion through the opening of new sales offices in Asia,
Latin America and Europe, and the expansion of worldwide service and support
programs. 3Com's operations were not significantly impacted by fluctuations in
foreign currency exchange rates in fiscal years 1996, 1995 and 1994.
Cost of sales as a percentage of sales was 47.1 percent in fiscal 1996,
compared to 46.3 percent in fiscal 1995 and 48.0 percent in fiscal 1994. The 0.8
percentage point reduction in gross margin in fiscal 1996 resulted primarily
from a higher mix of certain lower margin adapter and network access system
products and increased provisions for obsolete and excess inventory, which taken
separately would have reduced gross margin by 2.2 percentage points. Factors
causing the decline in gross margin were partially offset by a favorable
shipment mix toward 3Com's switching products and reductions in adapter product
material costs, which taken separately would have improved gross margin by 1.4
percentage points. The improvement in gross margin in fiscal 1995 resulted
primarily from a favorable shipment mix of 3Com's switching products, reductions
in adapter product material costs and lower provisions for obsolete and excess
inventory, which taken separately would have improved gross margins by 1.7
percentage points.
SUMMARY OF OPERATING EXPENSES
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
--------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing................... $ 475,769 20.4% $ 319,310 20.0% $ 217,197 21.5%
Research and development.............. 233,107 10.0 166,327 10.4 101,085 10.0
General and administrative............ 97,395 4.2 66,462 4.2 49,733 4.9
Non-recurring charges:
Purchased in-process technology..... 52,353 2.2 68,696 4.3 134,481 13.3
Acquisition-related charges and
other............................. 69,950 3.0 10,125 0.6 -- --
--------- --- --------- --- --------- ---
Total operating expenses.......... $ 928,574 39.9% $ 630,920 39.6% $ 502,496 49.7%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
Total operating expenses excluding
non-recurring charges........... $ 806,271 34.6% $ 552,099 34.6% $ 368,015 36.4%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
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Total operating expenses in fiscal 1996 were $928.6 million, compared to
$630.9 million in fiscal 1995 and $502.5 million in fiscal 1994. Excluding the
acquisition-related charge of $69.0 million related to the acquisition of
Chipcom, the charge of $52.4 million for purchased in-process technology
associated with the acquisition of AXON (see Note 13 of Notes to Consolidated
Financial Statements in 3Com's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996 incorporated by reference in this Joint Proxy
Statement/Prospectus) and a charge of $1.0 million for a settlement of
litigation, total operating expenses in fiscal 1996 would have been $806.3
million, or 34.6 percent of sales. Excluding the charge of $68.7 million for
purchased in-process technology and a non-recurring charge of $10.1 million,
which consisted of approximately $11.2 million in merger transaction costs
associated with the acquisitions of Artel, Primary Access and Sonix and a credit
of $1.1 million for the reduction in accrued costs relating to the fiscal 1991
restructuring, total operating expenses in fiscal 1995 would have been $552.1
million, or 34.6 percent of sales. Excluding the charge of $134.5 million for
purchased in-process technology resulting from the acquisitions of Synernetics
and Centrum and the technology licensing agreement, total operating expenses in
fiscal 1994 would have been $368.0 million, or 36.4 percent of sales.
Sales and marketing expenses in fiscal 1996 increased $156.5 million or 49
percent from fiscal 1995. The increase in such expenses reflected increased
selling costs related to the 46 percent increase in sales volume, higher costs
associated with marketing promotions and sales support programs, and a
year-over-year increase in sales and marketing personnel of 35 percent. 3Com
believes the increase in sales and marketing expenses is also a direct result of
the Chipcom acquisition. Sales and marketing expenses in fiscal 1995 increased
$102.1 million or 47 percent from fiscal 1994. The increase in such expenses
reflected increased selling costs related to the 58 percent increase in sales
volume, the cost of introducing and promoting 3Com's new and existing products,
and a year-over-year increase in sales and marketing personnel of 32 percent. As
a percentage of sales, sales and marketing expenses were 20.4 percent in fiscal
1996, compared to 20.0 percent in fiscal 1995 and 21.5 percent in fiscal 1994.
Research and development expenses in fiscal 1996 increased $66.8 million or
40 percent from the prior year, compared to a fiscal 1995 increase of $65.2
million or 65 percent from fiscal 1994. The increase in research and development
expenses was primarily attributable to the cost of developing new products,
including 3Com's expansion into new technologies and markets. Full time research
and development personnel increased 27 percent and 35 percent in fiscal 1996 and
1995, respectively. The increase in research and development expenses is
consistent with 3Com's continued commitment to develop and introduce high
quality, innovative products. As a percentage of sales, research and development
expenses were 10.0 percent in fiscal 1996, compared to 10.4 percent in fiscal
1995 and 10.0 percent in fiscal 1994.
3Com believes the timely introduction of new technologies and products is
crucial to its success, and plans to continue to make acquisitions to accelerate
time to market where appropriate. Most of the in-process research and
development projects acquired in connection with businesses purchased by 3Com
prior to fiscal 1996 have been completed. Development work associated with
projects still in process is proceeding as expected. Such development activities
primarily include the development of products with remote monitoring
functionality for the enterprise market. The costs for the projects in process
are primarily labor costs for design, prototype development and testing. As of
May 31, 1996, 3Com estimates that an aggregate of approximately $7 to $13
million dollars will be expensed over the next 18 to 24 months in connection
with completion of such acquired research and development projects. 3Com
anticipates future research and development spending, including costs remaining
for the completion of these purchased in-process research and development
projects, will not significantly differ from the historical trend of research
and development expenses as a percent of sales.
General and administrative expenses in fiscal 1996 increased $30.9 million
or 47 percent from the prior year, compared to a fiscal 1995 increase of $16.7
million or 34 percent from fiscal 1994. The increase in general and
administrative expenses reflects the worldwide expansion of 3Com's
infrastructure through internal growth and acquisitions. As a percentage of
sales, such expenses remained flat at 4.2 percent in fiscal 1996 and 1995, and
decreased from 4.9 percent in fiscal 1994.
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Other income (net) was $6.8 million in fiscal 1996, compared to $4.9 million
in fiscal 1995 and $4.0 million in fiscal 1994. These amounts consist primarily
of interest income, which has increased $9.3 million and $7.2 million in fiscal
1996 and 1995, respectively, due primarily to larger cash and investment
balances and higher interest rates. Partially offsetting this increase in other
income was the issuance of $110.0 million of convertible subordinated notes in
the second quarter of fiscal 1995, which in addition to increasing cash
balances, contributed to increases in interest expense of $5.5 million and $6.5
million in fiscal 1996 and 1995, respectively.
Non-operating income was favorably impacted during fiscal 1994 as 3Com
realized a non-recurring gain of $17.7 million from the sale of 3Com's
investment in Madge N.V.
3Com's effective income tax rate was 42 percent in fiscal 1996. Excluding
the purchased in-process technology charge, which was not tax deductible, and
the nondeductible portion of the merger costs associated with the Chipcom
acquisition, the effective tax rate would have been 35 percent. 3Com's effective
income tax rate was 37 percent in fiscal 1995. Excluding the merger costs
associated with the Sonix and Primary Access acquisitions, which were not tax
deductible, the effective tax rate would have been 36 percent. In fiscal 1994,
3Com provided $57.1 million for income taxes on income before income taxes of
$45.2 million because a significant portion of the purchased in-process
technology charges were not tax deductible. In addition, the income tax rate in
fiscal 1994 reflected the recognition of a net benefit of $1.2 million, which
resulted from retroactive changes to the Revenue Reconciliation Act of 1993.
Excluding the effect of the non-recurring items in fiscal 1994, the effective
tax rate would have been 35 percent.
Net income for fiscal 1996 was $177.9 million, or $1.00 per share, compared
to net income of $144.6 million, or $0.84 per share for fiscal 1995 and a net
loss for fiscal 1994 of $11.9 million, or $0.08 per share. Net income for fiscal
1996 included the aforementioned acquisition-related charge of $69.0 million,
the $52.4 million charge for purchased in-process technology and the $1.0
million charge for a litigation settlement. Excluding these charges, 3Com would
have realized net income of $280.0 million, or $1.58 per share for fiscal 1996.
Net income for fiscal 1995 included the aforementioned $68.7 million charge for
purchased in-process technology, the $11.2 million charge for merger costs and
the $1.1 million credit for the reduction in the restructuring reserve.
Excluding these charges and gains, 3Com would have realized net income of $195.5
million, or $1.14 per share for fiscal 1995. Net income for fiscal 1994 included
the aforementioned $134.5 million charge for purchased in-process technology,
the $17.7 million gain from the sale of an investment and the $1.2 million tax
benefit. Excluding these charges and gains, 3Com would have realized net income
of $103.7 million, or $0.66 per share for fiscal 1994. Net income per share for
fiscal 1995 and net loss per share for fiscal 1994 have been restated to reflect
the two-for-one stock split on August 25, 1995.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that 3Com review for impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS 121 was effective for 3Com's fiscal year beginning June
1, 1996. The adoption of this statement did not have a material impact on 3Com's
financial position or results of operations.
The FASB also issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company adopted SFAS 123 for the fiscal year beginning June
1, 1996. This statement establishes accounting and disclosure requirements using
a fair value based method of accounting for stock-based employee compensation
plans. Under SFAS 123 3Com may either adopt the new fair value based accounting
method or continue the intrinsic value based method and provide pro forma
disclosures of net income and earnings
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per share as if the accounting provisions of this statement had been adopted.
3Com plans to adopt only the disclosure requirements of SFAS 123; therefore such
adoption had no effect on 3Com's financial position or results of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
Statement establishes and simplifies standards for computing and presenting
earnings per share. SFAS 128 will be effective for 3Com's third quarter of
fiscal 1998, and requires restatement of all previously reported earnings per
share data that are presented. Early adoption of this Statement is not
permitted. SFAS 128 replaces primary and fully diluted earnings per share with
basic and diluted earnings per share. 3Com expects that basic earnings per share
amounts will be accretive compared to 3Com's primary earnings per share amounts,
and diluted earnings per share amounts will not be materially different from
3Com's fully diluted earnings per share amounts.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and temporary cash investments at February 28, 1997
were $794.0 million, increasing $294.7 million from May 31, 1996.
For the nine months ended February 28, 1997, net cash generated from
operating activities was $443.3 million. Trade receivables at February 28, 1997
increased $145.5 million to $504.7 million from May 31, 1996. Days sales
outstanding in receivables was 58 days at February 28, 1997, compared to 49 days
at May 31, 1996, due in part to the shortened accounting period in February,
which has historically increased the days sales outstanding metric for
receivables. Inventory levels at February 28, 1997 increased $14.5 million from
the prior fiscal year-end to $255.5 million. Inventory turnover was 5.8 turns at
February 28, 1997, compared to 5.4 turns at May 31, 1996.
During the nine months ended February 28, 1997, 3Com made $182.0 million in
capital expenditures. Major capital expenditures included purchases of land in
Santa Clara, California, the U.K. and Ireland, purchases and upgrades of desktop
systems, upgrades and additions to product manufacturing lines and facilities in
Ireland and Santa Clara, purchase of a building in the U.K., and the continuing
development of 3Com's worldwide information systems.
During the first nine months of fiscal 1997, 3Com received cash of $52.7
million from the sale of its common stock to employees through its employee
stock purchase and option plans.
During the third quarter of fiscal 1997, 3Com signed a lease which combines
and replaces three prior agreements on 3Com's existing headquarters site and on
land adjacent to its existing headquarters site. The previous leases included
the Great America site and Phase I and II of land adjacent to the Great America
site. The Great America site represented 495,000 square feet of office and
manufacturing space and was initially occupied in the first quarter of fiscal
1991. Phase I represented 225,000 square feet of office and manufacturing space
adjacent to its existing headquarters, and was initially occupied in the first
quarter of fiscal 1996. Phase II represented 150,000 square feet of office and
manufacturing space and a parking garage built on land adjacent to its existing
headquarters, and was initially occupied in the third quarter of fiscal 1997.
The new combined lease includes approximately 870,000 square feet of office
and manufacturing space and a parking garage, and expires in November, 2001 with
an option to extend the lease term for two successive periods of five years
each. The new lease provides 3Com with an option to purchase the combined
property or at the end of the lease arrange for the sale of the property to a
third party with 3Com retaining a maximum obligation of up to $152.6 million to
the seller of the property. 3Com began lease payments on the new combined lease
in the third quarter of fiscal 1997, which are not materially different from the
payments on the previously separate leases.
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During the second quarter of fiscal 1997, 3Com Technologies, a wholly-owned
subsidiary of 3Com, signed a lease for seven acres of land in Changi, Republic
of Singapore. 3Com began construction of a 325,000 square foot office and
manufacturing facility in December of 1996, and plans to occupy the facility in
the third quarter of fiscal 1998.
During the second quarter of fiscal 1997, 3Com purchased a 14.25 acre parcel
of land and signed a two-year lease for an adjacent 57.75 acre parcel of land,
both of which are near its existing headquarters in Santa Clara. The lease
arrangement provides 3Com with an option to purchase the related property or at
the end of the lease arrange for the sale of the property to a third party with
3Com retaining a maximum obligation of up to $49.5 million to the seller of the
property.
The three aforementioned leases require 3Com to maintain specified financial
covenants, all of which 3Com was in compliance with as of February 28, 1997.
As of February 28, 1997, 3Com had outstanding approximately $65 million in
commitments primarily associated with the construction and expansion of office
and manufacturing space in Singapore, Ireland and the U.K.
3Com is generally not exposed to material foreign currency risk. However, in
certain cases, 3Com enters into foreign currency contracts to hedge exposures as
they arise (see Note 10 of Notes to the Consolidated Financial Statements in
3Com's Annual Report on Form 10-K for the fiscal year ended May 31, 1996
incorporated by reference in this Joint Proxy Statement/Prospectus).
3Com had a $40 million revolving bank credit agreement which expired
December 31, 1996. In December 1996, 3Com renegotiated the revolving bank credit
agreement, which now provides for borrowings of up to $100 million, and expires
December 20, 1999. Payment of cash dividends are permitted under the credit
agreement, subject to certain limitations based on net income levels of 3Com.
3Com has not paid and does not anticipate it will pay cash dividends on its
common stock. The credit agreement requires 3Com to maintain specified financial
covenants. As of February 28, 1997, no amount was outstanding under the credit
agreement and 3Com was in compliance with all required covenants.
Based on current plans and business conditions, 3Com believes that its
existing cash and equivalents, temporary cash investments, cash generated from
operations and the available revolving credit agreement will be sufficient to
satisfy anticipated operating cash requirements for at least the next twelve
months.
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MANAGEMENT
The directors and executive officers of 3Com and their ages as of February
28, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
- -------------------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Eric A. Benhamou........................................ 41 Chairman and Chief Executive Officer
Debra J. Engel.......................................... 44 Senior Vice President, Corporate Services
John H. Hart............................................ 51 Senior Vice President and Chief Technical
Officer
Richard W. Joyce........................................ 41 Senior Vice President, New Business
Operations
Alan J. Kessler......................................... 39 Senior Vice President, Global Systems Sales
and Services
Christopher B. Paisley.................................. 44 Senior Vice President, Finance and Chief
Financial Officer
Janice M. Roberts....................................... 41 Senior Vice President, Marketing
Douglas C. Spreng....................................... 53 Executive Vice President, 3Com Interface
Products
Thomas L. Thomas........................................ 48 Senior Vice President and Chief Information
Officer, Global Information Systems
James L. Barksdale...................................... 54 Director
Gordon A. Campbell...................................... 52 Director
David W. Dorman......................................... 43 Director
Jean-Louis Gassee....................................... 53 Director
Stephen C. Johnson...................................... 54 Director
Philip C. Kantz......................................... 53 Director
William F. Zuendt....................................... 50 Director
</TABLE>
- ------------------------
(1) In addition, as of February 28, 1997, Robert J. Finocchio was President,
3Com Systems. Mr. Finocchio announced his resignation from 3Com in April
1997, but currently remains an employee of 3Com.
Eric A. Benhamou has been 3Com's President and Chief Executive Officer since
April 1990 and September 1990, respectively. Mr. Benhamou became Chairman of the
Board of Directors of 3Com in July 1994. Mr. Benhamou served as 3Com's Chief
Operating Officer from April 1990 through September 1990. From October 1987
through April 1990, Mr. Benhamou held various general management positions
within 3Com. Prior to that, Mr. Benhamou was one of the founders of Bridge
Communications, Inc., in September 1981, and held various executive positions in
that company in the field of engineering and product development, most recently
as Vice President of Engineering, until that company merged with 3Com in
September 1987. Mr. Benhamou serves as a Director of Cypress Semiconductor,
Inc., Legato Systems, Inc. and Netscape Communications Corporation.
Debra J. Engel has been Senior Vice President, Corporate Services since
August 1996. From March 1990 through July 1996, Ms. Engel was Vice President,
Corporate Services. From the time Ms. Engel joined 3Com in November 1983 until
March 1990, she was Vice President, Human Resources. Prior to that, she was with
Hewlett-Packard Company for seven years, most recently as Corporate Staffing
Manager at Hewlett-Packard's Corporate Headquarters. Ms. Engel also serves as a
director of Aspect Telecommunications and California Strategic Human Resource
Partnership.
John H. Hart has been Senior Vice President and Chief Technical Officer
since August 1996. From the time Mr. Hart joined 3Com in September 1990 until
July 1996, he was Vice President and Chief Technical Officer. Prior to joining
3Com, Mr. Hart worked for Vitalink Communications Corporation for seven years,
where he held various executive positions in product engineering and
development. Mr. Hart's final position with Vitalink was Vice President of
Network Products.
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<PAGE>
Richard W. Joyce has been Senior Vice President, New Business Operations
since August 1996. From June 1995 through July 1996, Mr. Joyce was Vice
President, New Business Operations. From June 1993 to June 1995, Mr. Joyce
served as Vice President, Sales Europe and Asia/Pacific Rim (APR). From January
1990 to June 1995, Mr. Joyce served as President, 3Com Europe Limited. Mr. Joyce
joined 3Com in November 1987 as Sales Manager of 3Com (UK) Limited, a position
he held until September 1988. From September 1988 until January 1990, Mr. Joyce
served as Managing Director of 3Com (UK) Limited. Most recently prior to joining
3Com, Mr. Joyce held the position of Managing Director Europe for State Street
Trade Development Corporation from 1985 through 1987.
Alan J. Kessler became Senior Vice President, Global Systems Sales and
Services in August 1996. From June 1995 to July 1996, Mr. Kessler served as Vice
President, Customer Service Operations. From June 1993 through June 1995, Mr.
Kessler served as Vice President, Systems Sales-North America. From May 1991
through May 1993, Mr. Kessler served as Vice President and General Manager,
Network Systems Division. From April 1990 until May 1991, Mr. Kessler served as
Vice President and General Manager, Distributed Systems Division. Previously, he
served as Product Marketing Manager of the Distributed Systems Division from
November 1988 through April 1990 and as Product Line Manager from October 1985
through November 1988.
Christopher B. Paisley has been 3Com's Senior Vice President, Finance and
Chief Financial Officer since August 1996. From the time Mr. Paisley joined 3Com
in September 1985 until July 1996, he was Vice President, Finance and Chief
Financial Officer. Prior to joining 3Com, Mr. Paisley was Vice President,
Finance of Ridge Computers from May 1982 to September 1985. Previously, Mr.
Paisley was employed by Hewlett-Packard Company for five years in a variety of
accounting and finance positions. Mr. Paisley also serves as a director of
Applied Digital Access, Inc.
Janice M. Roberts has been Senior Vice President, Marketing since August
1996. From June 1992 through July 1996, Ms. Roberts was Vice President,
Marketing. From February 1994 to June 1995, Ms. Roberts also served as General
Manager, Personal Office Division. From February 1992 until June 1992, Ms.
Roberts was Vice President and General Manager of the Premises Distribution
Division. During the period January 1989 to February 1992, Ms. Roberts served as
Director of BICC Technologies Limited and President of BICC Technologies, Inc.
and BICC Communications, Inc. She was also Chairman and Managing Director of
BICC Data Networks Limited. From December 1986 through January 1989, Ms. Roberts
was Manager of Sales and Marketing of STC Components Ltd. located in Harlowe,
United Kingdom.
Douglas C. Spreng was promoted to Executive Vice President, 3Com Interface
Products in August 1996. From July 1995 to July 1996, Mr. Spreng served as Vice
President, Personal Connectivity Operations. He joined 3Com as Vice President
and General Manager of 3Com's Network Adapter Division in March 1992. Prior to
joining 3Com, Mr. Spreng was President and Chief Operations Officer of Domestic
Automation Company, a private communications system start-up company based in
San Carlos, California. Previously, Mr. Spreng spent 23 years with
Hewlett-Packard Company (HP) in a variety of key marketing, manufacturing and
general management positions, including General Manager of HP's Commercial
Systems Group. Most recently he served as General Manager of HP's Manufacturing
Applications Group. Mr. Spreng also serves as a director of Contango (previously
Creative Insights) and Com 21.
Thomas L. Thomas has been Senior Vice President and Chief Information
Officer, Global Information Systems since August 1996. From September 1995
through July 1996, Mr. Thomas was Vice President and Chief Information Officer,
Global Information Systems. Prior to joining 3Com, Mr. Thomas had been President
and Chief Information Officer of Dell Computer Corporation, a manufacturer of
personal computers, from 1993 to 1995. Prior to that, Mr. Thomas served as Vice
President of Management Information Systems at Kraft General Foods from 1987 to
1993, and at Sara Lee Corporation from 1981 to 1987.
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<PAGE>
James L. Barksdale has served on the 3Com Board since 1987. Mr. Barksdale
has been the President, CEO and a director of Netscape Communications
Corporation, a provider of internet software, since January 1995. Previously,
Mr. Barksdale had been President and Chief Executive Officer of AT&T Wireless
Services since September 1994. Prior to September 1994, Mr. Barksdale had been
employed as the President and Chief Operating Officer of McCaw Cellular
Communications, Inc. since January 1992 and by Federal Express Corporation since
1979. Mr. Barksdale served as a director of Bridge Communications, Inc. from
April 1986 until that company combined with 3Com in 1987. Mr. Barksdale also
serves as a director of Harrah's Entertainment Corporation, @ Home Corporation
and Robert Mondavi Corporation.
Gordon A. Campbell has served on the 3Com Board since 1990. He was a founder
and since 1993 has been President and Chairman of the Board of Techfarm, Inc., a
company formed to launch technology based start-up companies. Mr. Campbell was a
founder of Chips and Technologies, Inc. ("Chips"), a company that designs and
distributes very large scale integrated circuit products, and served as a
director of Chips from December 1984 until November 1995 and as Chairman of the
Board of Chips until November 1995. Mr. Campbell also served as the President
and Chief Executive Officer of Chips from January 1985 to July 1993. Mr.
Campbell was also a founder of Seeq Technology, Inc., and, from January 1981 to
October 1984, he served as that company's President and Chief Executive Officer.
Mr. Campbell also serves as a director of Bell Microproducts, Inc., and as
Chairman of the Board of Exponential Technology, Inc., 3d/Fx Interactive, Inc.,
Absolute Time Corporation, Game FX, IN4S, N*Able and Resonate, Inc.
David W. Dorman has served on the 3Com Board since 1995. He has been
President and Chief Executive Officer of Pacific Bell Corporation since July
1994 and Chairman of that company since March 1996. Prior to that, he was
associated with US Sprint Corporation for 13 years, during which time he held
several management positions, most recently as President of Sprint Business
Services from 1993 to 1994.
Jean-Louis Gassee has served on the 3Com Board since 1993. He is the
Chairman of the Board and Chief Executive Officer of Be Incorporated, a personal
computing technology company in the development stage, which he founded in
October 1990. Previously, Mr. Gassee held several management positions with
Apple Computer, Inc. ("Apple") for 10 years, most recently as the president of
Apple Products, the research and development and manufacturing division of
Apple. Prior to joining Apple, Mr. Gassee was President and General Manager of
the French subsidiary of Exxon Corp., held several management positions with
Data General Corporation, and spent six years at Hewlett-Packard Company.Mr.
Gassee is currently also a director of Electronics For Imaging, Inc. and
LaserMaster Technologies.
Stephen C. Johnson has served on the 3Com Board since 1989. He was a founder
and has been President and Chief Executive Officer of Komag, Incorporated, a
manufacturer of Winchester disk media, since 1983. Mr. Johnson served as a
director of 3Com from June 1982 to September 1987; he stepped down from the
Board when 3Com combined with Bridge Communications, Inc. and returned to the
Board in 1989. Mr. Johnson also serves as a director of Komag, Incorporated and
Uniphase Corporation.
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Philip C. Kantz has served on the 3Com Board since 1992. As of January, 1997
he is President, Chief Executive Officer and a director of TAB Products Co., a
provider of automated file management systems. He has also served as President,
Chief Operating Officer and a director of Trans Ocean Ltd., a privately held
transportation equipment leasing company, from October 1995 to October 1996. In
1995, he served as President and Chief Executive Officer of The Sandros
Enterprise, a private consulting firm. From February 1994 to January 1995, he
served as President, Chief Executive Officer and a director of Transcisco
Industries, Inc., an industrial services company. From October 1992 through
September 1993, Mr. Kantz served as President and Chief Executive Officer of
Genetrix, Inc., a biotechnology services company. Mr. Kantz was President and
Chief Executive Officer of Itel Containers International Corporation from 1988
through 1991. Previously, Mr. Kantz was President of Transportation and
Industrial Funding Corporation and Senior Vice President and General Manager of
GE Capital from 1986 to 1988. Mr. Kantz also serves as a director of Falcon
Building Products, Inc., ParcPlace-Digitalk, Inc., Search Systems Corporation
and Mine Reclamation Corporation.
Mr. Zuendt has served on the Board of Directors since 1988. He is President
and Chief Operating Officer of Wells Fargo & Company, a bank holding company,
and of Wells Fargo Bank. He joined Wells Fargo in 1973. Mr. Zuendt is also a
director of Wells Fargo & Company, a director of the Federal Advisory Council, a
member of the California Chamber of Commerce, the Stanford Advisory Board, and a
past chairman of MasterCard International and Golden Gate University.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 1, 1997, with
respect to the beneficial ownership of 3Com Common Stock by (i) each director of
3Com, (ii) the Chief Executive Officer and the four other most highly
compensated executive officers of 3Com and (iii) all executive officers and
directors of 3Com as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF COMMON PERCENT OF COMMON
NATURE OF STOCK OUTSTANDING STOCK OUTSTANDING
BENEFICIAL BEFORE THE AFTER THE
NAME OWNERSHIP(1) MERGER MERGER
- ------------------------------------------------------------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
James L. Barksdale................................................. 90,000 * *
Gordon A. Campbell................................................. 60,000 * *
David W. Dorman.................................................... 53,500 * *
Jean-Louis Gassee.................................................. 90,000 * *
Stephen C. Johnson................................................. 171,300 * *
Philip C. Kantz.................................................... 124,004 * *
William F. Zuendt.................................................. 357,000 * *
Eric A. Benhamou................................................... 1,697,817 * *
Robert J. Finocchio, Jr.(2)........................................ 613,195 * *
William G. Marr(3)................................................. 80,999 * *
Christopher B. Paisley............................................. 826,654 * *
Douglas C. Spreng.................................................. 570,287 * *
All directors and executive officers as a group (18 persons)(4).... 5,817,401 3.2%
</TABLE>
- ------------------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table, to 3Com's knowledge, the
persons named in the table have sole voting and investment power with
respect to all shares of 3Com Common Stock shown as beneficially owned by
them, subject to community property laws where applicable. Amounts shown
include shares of 3Com Common Stock issuable pursuant to outstanding options
exercisable within 60 days of May 1, 1997, including options to acquire
90,000 shares held by Mr. Barksdale, options to
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acquire 60,000 shares held by Mr. Campbell, options to acquire 53,500 shares
held by Mr. Dorman, options to acquire 90,000 shares held by Mr. Gassee,
options to acquire 132,000 shares held by Mr. Johnson, options to acquire
114,000 shares held by Mr. Kantz, options to acquire 169,000 shares held by
Mr. Zuendt, options to acquire 1,282,848 shares held by Mr. Benhamou,
options to acquire 561,212 shares held by Mr. Finocchio, options to acquire
70,000 shares held by Mr. Marr, options to acquire 744,995 shares held by
Mr. Paisley, options to acquire 554,540 shares held by Mr. Spreng, and
options to acquire 4,946,398 shares held by all directors and executive
officers of 3Com as a group.
(2) Mr. Finocchio announced his resignation from 3Com in April 1997, but
currently remains an employee of 3Com.
(3) Mr. Marr ceased to be an executive officer of 3Com in August 1996, but
remained an employee of 3Com.
(4) After the consummation of the Merger Casey Cowell, James E. Cowie and Paul
G. Yovovich will become members of the 3Com Board of Directors and Casey
Cowell, Ross W. Manire, John McCartney, Michael S. Seedman, Ronald A. Sege
and Jonathan N. Zakin will become executive officers of 3Com. Consequently,
after the consummation of the Merger, based on their ownership of 3Com and
USR Common Stock as of May 1, 1997 and taking into account the acceleration
of certain options held by former directors and officers of USR, the
existing officers and directors of 3Com (excluding Mr. Finocchio) together
with the new directors and officers of 3Com will beneficially hold
approximately 21,468,612 shares of 3Com Common Stock or 6.0% of the 3Com
Common Stock outstanding after the Merger.
The following table sets forth certain information, as of February 28, 1997,
with respect to the beneficial ownership of 3Com Common Stock by all persons
known by 3Com to be the beneficial owners of more than 5% of the currently
outstanding 3Com Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON STOCK PERCENT OF COMMON STOCK
BENEFICIAL OUTSTANDING OUTSTANDING
NAME OWNERSHIP(1) BEFORE THE MERGER AFTER THE MERGER
- --------------------------------------- ---------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Mutuelles AXA(2) 10,708,125 6.0% 3.2%
787 Seventh Avenue
New York, New York 10019
Chancellor LGT Asset Management, Inc. 10,154,966 5.7% 3.0%
1166 Avenue of the Americas
New York, New York 10036
</TABLE>
- ------------------------
(1) This information is based upon a review of 13G filings made with the SEC
during 1996 and 1997, and does not include the shares of 3Com Common Stock,
if any, that will be received by Mutuelles AXA and Chancellor LGT Asset
Management, Inc. and their affiliates as a result of the exchange of USR
Common Stock in connection with the Merger.
(2) Mutuelles AXA is a group that includes AXA Assurances I.A.R.D Mutuelle and
various related entities, together with the Equitable Companies
Incorporated.
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INFORMATION CONCERNING USR
BUSINESS
OVERVIEW
USR, through its operating subsidiaries, is one of the world's leading
suppliers of products and systems that provide access to information. USR
designs, manufactures, markets and supports remote access servers and
concentrators, enterprise communications systems and desktop and mobile client
products, including modems, ISDN terminal adapters, hand-held computing devices
and telephony products, that connect computers and other equipment over analog,
digital, wireless, and switched cellular networks, enabling users to gain access
to, manage, and share data, fax, voice, sound, and video information. USR offers
reliable, cost-effective solutions at all points of network access, from the
data communications center to the desktop to the mobile user. USR designs its
products to comply with all major international and domestic communications
standards and protocols which are applicable to its products. Many of USR's
products are designed using proprietary software and architectures which
facilitate greater functional integration at both the circuit board and systems
levels. This enables USR to be early to market with new and enhanced products as
technologies and standards evolve and to offer its customers flexible solutions
which both meet their immediate needs and provide them with a longer term
communications technology implementation path. Additionally, when USR-designed
products are present at both ends of a communications link, performance and
reliability can be enhanced.
USR's product lines include a wide variety of dial-up modems, ISDN terminal
adapters, flexible and scalable remote access servers and concentrators, LAN
access and switching products, telephony products, and hand-held electronic
connected organizers. USR's products are sold under the master corporate brand
name U.S. Robotics and under the product line brand names Courier, Megahertz,
Sportster, Total Control, EdgeServer, TOTALswitch, TOTALcell, NetServer,
LANLinker, ConferenceLink, PalmPilot and WorldPort. To provide the broadest
possible exposure to prospective purchasers and users of its products, USR is
active in all major domestic and international distribution channels, including
the major two-tier distributors and retail electronics chains. USR also sells
its remote access platforms directly to major information and online service
providers and telecommunications carriers. In addition, USR manufactures and
sells its products to selected OEM customers.
COMPANY STRATEGIES
Historically, USR focused its efforts on developing and marketing products
to allow personal computers to communicate over WANs (primarily the public
switched telephone network). As a result, USR developed significant expertise in
digital-to-analog and analog-to-digital signal conversion and in high speed data
transmission over the public switched telephone network ("PSTN"). This expertise
has become increasingly important with the advent of digital networks and
communications services which must interconnect with the existing analog
networks.
Anticipating the need for products which support communications in hybrid
analog/digital environments, USR developed a strategy based on providing
customers with seamless connectivity and a flexible, cost-effective approach to
rapidly changing technologies, standards and services. In order to provide such
solutions, USR decided to offer a broad range of products and systems targeted
at all of the key network access points -- in the data communications center, at
mobile sites and on the desktop. To complement its strength in desktop products,
USR developed its Total Control product line, starting with the Total Control
remote access platform, which was first shipped in fiscal 1993. The Total
Control chassis is designed to serve as a modular, scaleable, high density
platform for a wide range of existing and future communications interfaces and
applications.
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USR has also actively pursued business combinations and strategic alliances
with the objective of broadening its product lines and technological
capabilities so as to meet the needs of end-users for high performance products
for connecting with the network at all access points in the WAN and the LAN. In
1993 USR acquired P.N.B. S.A., a French mobile modem manufacturer. In 1995, USR
became a leader in the PC Card market for mobile computer users with its
acquisition of Megahertz Holding Corporation ("Megahertz"). Also, during 1995,
USR acquired ISDN Systems Corporation and Palm Computing, Inc. During 1996, USR
acquired Amber Wave Systems, Inc. and Scorpio Communications, Ltd. During fiscal
1997, USR acquired Interface Trading Gruppen AB (a Scandinavian distributor),
the data communications division of Integran, Inc. (a Japanese distributor) and
Modem Connection Pty. Ltd (an Australian distributor).
In October 1996, USR announced a key breakthrough in modem technology that
provides for Internet, on-line and remote access connections capable of
downloading information at speeds nearly twice as fast as those previously
available over regular analog telephone lines. This new technology, named x2,
increases the top speed for receiving "downstream" over the PTSN to levels in
the range of 52 to 56 Kbps without the need for expensive new central office
equipment required by other high-speed technologies and without modifications to
existing telephone wiring. This model is ideal for Internet or remote access
because information sent to the individual desktop is typically graphics-based
and requires a high-performance channel. User requests, such as http and
internet browser commands, require less bandwidth and can be transmitted quickly
"upstream" at the standard 28.8 or 33.6 Kbps speeds.
As with any data communications protocol, x2 technology must be present on
both ends of the call to achieve these high speed connections. By providing both
systems and client modem products that are x2 capable, USR offers an end-to-end
higher speed solution for both individuals and service providers. Client modem
products with x2 capabilities began shipping in February 1997. The entire
installed based of Total Control remote access platforms can be upgraded to x2
easily through a simple download of x2 software which was released in March 1997
following several weeks of intensive trials at major ISPs. Additionally, all
desktop modems shipped after August 15, 1996 can be upgraded through a memory
chip replacement and those shipped since January 1997 can be upgraded through a
simple software download.
USR strives to maintain and enhance its leadership position in the
information access market by leveraging its strengths in the areas of
communications technologies, customer driven product design, marketing and
distribution channel partnerships, international presence, manufacturing and
human and financial resources. Specifically, USR has historically pursued the
following key strategies:
- EMPHASIZE RESEARCH AND DEVELOPMENT. Continuous commitment to research and
development efforts to enable USR to (i) control key components of
technologies fundamental to its business, (ii) be early to market with
products that are responsive to customers' changing needs and (iii) reduce
manufacturing costs.
- PROVIDE A BROAD LINE OF ACCESS SOLUTIONS. Continuous expansion of product
offerings to address the large and growing markets for information access
and communications solutions at all levels and at all points of access,
from home and mobile users, to the corporate desktop, to the data
communication centers of businesses and information and communication
service providers.
- LEVERAGE AND EXPAND PRESENCE AT ALL POINTS OF INFORMATION
ACCESS. Leveraging USR's position as a provider of end-to-end access
solutions by continuing to offer products at all points of information
access, thereby providing enhanced performance, reliability, and value for
customers.
- MAINTAIN AND EXPAND DISTRIBUTION CHANNELS. Building upon distribution
channel presence, including USR's traditional two-tier distribution
channel partnerships, the retail channel, value added resellers, direct
corporate sales and OEMs.
- EXPAND INTERNATIONAL PRESENCE. Expanding USR's international presence by
establishing additional sales offices, entering into alliances with
distributors in geographic areas in which USR is not
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currently operating or represented and introducing mobile, client and
systems products on a global basis.
- PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. Pursuing strategic alliances
and acquisitions to further enhance USR's product offerings, markets or
capabilities, whenever such transactions or relationships are consistent
with USR's overall strategic direction.
- ENHANCE PRODUCT QUALITY AND VALUE. Continuously enhancing product quality
and value, as well as USR's operating efficiency and profitability, by
maintaining a well-trained and highly motivated work force and by
investing in state-of-the-art manufacturing capacity, generally located in
close proximity to USR's research and development and product and customer
support activities.
PRODUCTS
USR products fall into two general categories--systems products (remote
access servers and concentrators, modem pools, and LAN switching products sold
under the TOTALswitch and TOTALcell brand names) and personal computer related
("PC-related") products (high speed desktop and PC card modems, ISDN Terminal
adapters, ethernet adapter cards, hand-held connected electronic organizers, and
telephony products sold under the Sportster, Megahertz, Courier, WorldPort,
PalmPilot, and ConferenceLink brand names). USR's product development,
marketing, sales and support operations are generally organized to focus on
these categories.
SYSTEMS PRODUCTS
USR's systems products include scaleable remote access servers and
concentrators, modem pools and LAN switching devices which support a variety of
information access functions at major information service providers and
enterprise data centers, branch offices and small businesses. These products are
sold mainly under the Total Control brand name.
The Total Control remote access platform is a high density system for LAN
and WAN interface, which supports a wide variety of dial-up applications at a
low per port cost. Uses of the Total Control remote access platform range from
(i) providing central site or point-of-presence access to networks for Internet
service providers, on-line information services, interexchange carriers and
corporations to (ii) transaction processing applications such as credit card
verification. The Total Control remote access platform consists of a standard
chassis with a midplane and slots to accommodate up to 16 communications card
sets (each set consisting of either a network applications card and a network
interface card or a single network applications card, and referred to herein as
a "communications module") plus an SNMP (simple network management protocol)
network management card and dual power supplies. The communications modules
communicate with one another and with the management card over high speed buses
in the mid-plane.
The Total Control remote access products integrate the capabilities of
channel banks, DSU/CSUs, modems, ISDN equipment, routers, X.25 PADs, and
terminal servers in a single chassis. Its flexible platform provides ISDN or
analog dial access to asynchronous hosts, Frame Relay, X.25, Ethernet or Token
Ring networks. The modular design and flexible architecture of the Total Control
remote access platform allows USR to add new technologies and functionalities in
order to meet evolving customer needs. These communications modules can be
configured and managed remotely through the network management card, and the
functionality and features of the various communications modules can be upgraded
through software downloads. For example, internet service providers and other
businesses employing USR's Total Control products can easily add USR's new x2
technology through a downloadable software upgrade, thus satisfying their
subscribers' ever increasing need for fast information access and enhanced
functionality, while preserving the investment they have made in access
equipment.
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A recent addition to the Total Control product family is the EdgeServer Card
("EdgeServer"). The EdgeServer is an innovative, powerful front-end internet,
remote access and collaborative communications solution that integrates server
functionality, communications interfaces, and the high-performance capabilities
of Microsoft Windows NT in the Total Control remote access platform. EdgeServer
provides remote users with an organized way to access widely dispersed
information stored on multiple file servers on a LAN. The EdgeServer enables
access for remote users to services which are typically available to a LAN-
connected user and provides for quicker remote user access by bringing
application processing to the network edge.
In order to serve the needs of branch locations, bulletin boards and other
users and sites requiring 16 or fewer modem ports, USR offers 8 and 16 port
modem pools in its Total Control product line. USR also offers stand-alone 8 and
16 port versions of its Total Control NetServer product. Like the NETServer
module for the Total Control remote access server, these products offer
sophisticated, multi-port LAN access, but in a less powerful package for smaller
networks or offices. USR's MP/8 and MP/16 modem pool products integrate 8 or 16
USR V.Everything/V.34 modems in a compact, self-contained unit. The MP/8 and
MP/16 are designed to be connected to a variety of terminal servers,
communications processors and access servers.
USR works to continuously add functionality in its systems products, with
particular focus on leveraging the flexible architecture of the Total Control
remote access platform, by adding new technologies such as x2, wireless,
Ethernet and ATM switching, multimedia and broadband access, including xDSL and
data over cable. To supplement its own development efforts, USR has entered into
strategic alliances, technology licenses and business combinations with other
companies and will continue to explore such possibilities in the future.
PC-RELATED PRODUCTS
USR's PC-related products include a variety of high speed dial-up modems, in
internal and external desktop and PCMCIA ("PC Card") form factors, ISDN terminal
adaptors, LAN adapter PC Cards, hand-held connected electronic organizers, and
full-duplex conference telephones. These products are sold under the Sportster,
Courier, Megahertz, WorldPort, PalmPilot and ConferenceLink product brand names.
Desktop Products: USR's desktop modem products are sold under the Sportster
and Courier brand names and primarily consist of high speed dial-up modems in
both external and internal (for insertion into a personal desktop computer) form
factors. Most of these products are designed based upon USR's proprietary data
pump architectures, and they offer reliable connections in compliance with all
major international and domestic communications standards and protocols which
are applicable.
USR's largest selling brand is its entry level dial-up modem, Sportster.
Targeted at home office and professional users, Sportster products are available
with transmission speeds up to 28.8/33.6 Kbps and download speeds ranging up to
52-56 Kbps in internal and external form factors. USR's high speed Sportster
products are V.34-compliant and support other official and proprietary
transmission speed standards for data and fax. Most models also incorporate
industry standard fax capability, error control and data compression. As
described below, Sportster products shipped since August 1996 are upgradeable to
the new x2 technology and x2 capable Sportster modems have been shipping since
February, 1997. Sportster products shipped since January 1997 are upgradeable
through software downloads.
The Courier product family, targeted at corporate and advanced users,
features modems ranging up to the Courier V.Everything. The Courier V.Everything
modem provides universal compatibility at the highest available standard
transmission speed and supports all major high speed protocols, including V.34
(28.8/33.6 Kbps) and AT&T's V.32 terbo (19.2 Kbps), as well as V.17, the
international standard for fax communication at 14.4 Kbps. Newer models of the
Courier high speed modems may be upgraded, including upgrades by users in the
field, through a downloadable software upgrade. Using USR's proprietary data
pump architectures, these products contain unique features such as Quick Connect
and Adaptive
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Speed Leveling ("ASL"), which can improve connect time, transmission speed and
performance when two USR-designed modems communicate with each other. ASL
adjusts transmission speed dynamically and automatically in response to network
conditions. In addition, Courier modems include remote configuration and help
screen command summaries.
Some of the features available in USR's desktop modem products include voice
mail, speaker-phones, and simultaneous voice and data transmission over a single
analog line. USR anticipates adding new features and functionalities to its
desktop products. For example, recent product announcements have included the
BigPicture system which includes a USR 28.8/33.6 Kbps voice/video and fax-modem,
a color video camera, and a video capture card and allows users to make video
phone calls and send video e-mail. In the future, USR expects to explore other
opportunities to incorporate voice, sound and video capabilities into its
products as the personal computer comes to be viewed more as a multi-function
communications center.
Mobile Communications Products: USR's mobile communications products
consist primarily of high speed dial-up PC Card modems, including cellular
capable modems, sold under the Megahertz, Sportster, Courier and WorldPort brand
names.
Most of USR's PC Card modems are sold under the Megahertz brand name. These
industry-leading modems feature the patented XJACK connector system. This
convenient RJ11 connector is built into the PC Card, eliminating the
inconvenience of a proprietary external connector. Megahertz modems are
currently built to comply with the V.34 standard using modem chipsets supplied
by Rockwell International or a proprietary USR architecture implemented on a
Texas Instruments DSP and are upgradeable to the new x2 technology. Other PC
card features include Digital Line Guard, which prevents the modem from
connecting to damaging high-voltage lines, and automatic installation and
configuration software for quick and easy initial setup.
USR has developed direct-connect PC Card modems that allow users to
communicate from their mobile computers through any of the largest selling
cellular phones. The cellular capable modems feature dual functionality,
offering a choice of connecting through a cellular phone or through a standard
land telephone line.
USR's AllPoints Wireless PC Card for notebook computers and hand-held
computing devices allows users to access the Internet, corporate LANs, and other
on-line services in order to send and receive e-mails, access databases, fax
documents, transfer files, and access news and other information without the use
of a standard telephone line. The antenna-equipped AllPoints card fits into a
type II PC Card slot, operates on a 9-volt NiCad battery and uses radio waves to
send and receive information. Operating over the radio-based RAM Mobile Data
Network, the AllPoints Wireless PC Card offers the freedom of nationwide
wireless communications to the majority of the urban business population.
In addition to modems, USR also offers Megahertz brand PC Card Ethernet
adapters for mobile users who have portable machines as their primary computers
and need network connectivity within an office environment. The Ethernet
adapters support all leading network operating systems. USR has also developed a
combination modem/Ethernet adapter card which offers the power and convenience
of a modem and a LAN adapter in one PC Card. The combination card features
simultaneous Ethernet and modem capability, driver support for all major network
operating systems, diagnostic LEDs and automatic installation and configuration
software.
USR's mobile communications product development efforts are focused on
understanding the mobile and wireless communications needs of customers in light
of emerging technologies, services and standards. USR anticipates adding new
features and functionalities to its PC Card product lines in order to enhance
the communications capabilities and ease of use of various mobile computers and
information access devices.
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Hand-held Electronic Connected Organizers: USR's PalmPilot connected
organizer, launched in the second quarter of fiscal 1996, is a hand-held
computing device designed to work as a companion product to desktop and laptop
computers, allowing personal information management both remotely and on the
desktop. The PalmPilot product includes a docking cradle which is connected to
the user's Windows PC or Macintosh computer and allows for automatic back-up and
seamless synchronization of information between the PalmPilot device and the
larger computer, thus ensuring that both systems have the most current
information. The PalmPilot product, which is based upon the proprietary Palm OS
(operating system) software, also includes character recognition software which
allows the user to add and edit information with a stylus while away from the
desktop. This combination means that users can carry and edit their personal
data, such as thousands of addresses, phone numbers, appointments, and personal
notes with them everywhere they go. The Palm OS has been made widely available
to independent software developers who are producing a variety of applications,
utilities and games for the PalmPilot platform.
Telephony Products: The introduction of telephony products during 1996
represents USR's application of its digital signal processing expertise into
telephone-based information access products that provide integrated
communications solutions. USR's telephony products are sold under the
ConferenceLink product brand name and consist of full-duplex conference
speakerphones featuring automatic gain control and Simulcom--technology which
allows users to speak and listen simultaneously for smooth, natural two-way,
conversation.
TECHNOLOGY AND PRODUCT DEVELOPMENT
USR believes that its product development and design strategy, which seeks
to incorporate existing standards and technologies into innovative products,
enables USR to develop and introduce products quickly in response to identified
market trends. USR uses information derived from participation in industry
organizations, internal research, third-party publications, customer
participation and OEM relationships to make design and product selection
decisions.
USR's research and development functions are divided among its advanced
development group and several product development and support groups. The
advanced development group focuses on the development of core product
architectures and computational algorithms that may have applications across
multiple product lines. This group concentrates on identifying trends in
semiconductor performance and features one to two years ahead of commercial
availability and creates and maintains the proprietary software programming that
is key to core data pump functions. The respective product development groups
work with product managers, sales and marketing personnel, manufacturing
engineers and customers to develop specific solutions for application in the
systems, mobile and desktop user environments and to adapt products for
international markets.
Most of USR's products are designed using proprietary software programs that
run on digital signal processors and microprocessors. These designs allow for
rapid modification or addition of product features. As a result, USR believes it
is well-positioned to exploit advances in semiconductor technology quickly,
introducing new features and improving performance faster and at a lower cost
than many of its competitors. Also, controlling the software content and
architecture of its products enables USR to offer upgrades through software
downloads to flash ROM (read only memory) components. For example, the Total
Control remote access platform is designed as a flexible, modular system to
accommodate the addition of new features and capabilities on a continuing basis
through software upgrades to the communications and management modules or
through insertion of new modules. Because USR's products are flexible and easy
to modify, USR believes it is well positioned to respond rapidly to emerging
trends in data networking and to be first to market with industry leading
innovations such as the EdgeServer and the new x2 technology. Internal
development of software programs and product architecting also allow USR to add
unique features to its products that provide superior performance when two USR
products communicate with each other.
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On December 29, 1996, USR's research and development organization included
1,193 people organized into several groups including advanced development,
systems product development (including subgroups working on DSL, cable,
wireless, WAN internetworking, and LAN access and network management), personal
communications product development, mobile and wireless product development,
hand-held computing product development, network systems product development,
international product development, communication systems and engineering
services. Research and development expenditures were $34.2 million, $109.4
million, $52.5 million and $29.3 million in the fiscal quarter ended December
29, 1996 and the fiscal years ended September 29, 1996, October 1, 1995, and
October 2, 1994, respectively.
MARKETING, SALES, DISTRIBUTION AND SUPPORT
USR's marketing and sales functions are divided among four operating
divisions and subsidiaries-- Network Systems, Personal Communications, Mobile
Communications and Palm Computing. The Network Systems Division is primarily
responsible for sales and marketing of systems products. The Personal
Communications Division is primarily responsible for selling and marketing
Sportster and Courier brand desktop modem products and telephony products as
well as international sales of PC Card products. USR's Mobile Communications
subsidiary is primarily responsible for marketing and selling PC Card products
in North America, and the Palm Computing subsidiary is primarily responsible for
PalmPilot connected organizer products.
USR believes that customer service and technical support, both during the
selling process and after a sale, are essential elements of its success.
Applications engineering and technical support services are especially important
for customers purchasing systems products which must function in complex
networking environments. The Network Systems Division engineering staff often
assists resellers and end users in designing connectivity solutions and
troubleshooting network performance problems. Engineering and technical support
are also important to OEM customers. USR provides telephone support and repair
or replacement warranty service for all of its products. Warranty periods for
hardware products range from one to five years.
INTERNATIONAL OPERATIONS
Most of USR's products are marketed under the same brand names domestically
and internationally. Some of USR's PC Card modem products are marketed
internationally under the WorldPort brand. Sales outside North America,
primarily in Europe, accounted for approximately 22%, 20% and 16% of net sales
in the fiscal years ended September 29, 1996, October 1, 1995, and October 2,
1994, respectively.
USR has established a European Coordination Center in Paris, France to
support and coordinate its European business operations. USR provides sales,
marketing and local technical support through its other European offices in
France, England, Germany, Italy, the Netherlands, Spain and Sweden. USR performs
final assembly and packaging at its warehouse facilities in Winnersh, England,
and Lesquin, France, the distribution centers for customers in the United
Kingdom and continental Europe, respectively. USR has also established a
multi-lingual systems support facility in Dublin, Ireland that supports all of
USR's European operations. With the acquisition of Scorpio, USR added research
and development and manufacturing operations in Israel. In addition, USR has
sales and support operations in Canada and Japan, and plans to open additional
offices in the Asia/Pacific Rim region during 1997.
USR's products are marketed, sold and serviced outside of North America (the
U.S. and Canada) by over 100 distributors. Generally, these distributors have
nonexclusive, country specific agreements enabling them to sell both directly to
large end users and through resellers. Many international distributors have
extensive data communication technical expertise and undertake first line
technical support to international customers.
Specific regulatory approvals must be obtained for each of USR's new
products as well as for many changes to existing products sold in foreign
countries. Approvals are granted by the appropriate regulatory
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agency in each respective country. By the end of 1996, PC-related products had
been homologated in 34 countries and systems products had been homologated in 38
countries.
MANUFACTURING AND SUPPLIERS
USR believes that its integrated manufacturing operations provide it with
greater control over product quality and greater understanding of design
technologies, resulting in an enhanced ability to bring high quality products to
market rapidly. In addition, Company manufacturing personnel are intensively
involved in product design to insure that manufacturability considerations are
addressed early in the design process and that manufacturing processes and
products meet USR's high quality control standards. The vast majority of USR's
manufacturing operations are carried out at its factories in Mount Prospect and
Morton Grove, Illinois, and Salt Lake City, Utah. The Salt Lake City facility is
International Standards Organization ("ISO") 9001 certified, the Morton Grove
facility is ISO-9002 certified for desktop modem manufacturing, the Mount
Prospect facility is ISO-9001 certified, and the Lesquin, France distribution
center is ISO-9002 certified. In order to balance manufacturing loads and
capacity, some subassemblies and products are manufactured by third party
contractors from time to time.
All components used in USR's products are acquired from third parties.
Certain components are available only from a single source and others are
available only from limited sources. In particular, most of USR's modem products
are designed and manufactured using DSPs supplied by Texas Instruments. USR is
dependent upon worldwide conditions in the semiconductor market.
COMPETITION
The data communications industry is intensely competitive and characterized
by rapid technological advances and emerging industry standards. These changes
result in frequent introductions of new products with added capabilities and
features and continuous improvements in the relative price/performance of
communications and networking products. Failure to keep pace with technological
advances would adversely affect USR's competitive position and results of
operations.
USR's products compete on the basis of product features, price, quality,
reliability, name recognition and technical support and service. Although USR
believes its products are competitive in each of these areas, there can be no
assurance that competitors will not introduce comparable or superior products
incorporating more advanced technology at lower prices.
USR's primary competitors with respect to network systems products
domestically include, among others, Ascend Communications, Cascade
Communications Corp., 3Com, Lucent, Motorola, Cisco, and Shiva. In Europe, the
primary competitors include Ascend Communications, 3Com, Cisco, Multitech,
Microcom, Motorola, Shiva, and Tricom(UK). USR's primary competitors with
respect to desktop products domestically include Hayes Microcomputer Products,
Zoom Telephonics Inc., Best Data, Cardinal, Diamond, Boca Research, Inc., and
Motorola. For desktop products internationally the list of competitors includes
SAT(Sagem), Zyxel, Creatix, Elsa, Lasat, Telebit, Multitech, Microcom, CPV, and
Motorola. USR's primary competitors with respect to mobile communications
products include Hayes, Motorola, Xircom, 3Com, and TDK. USR's primary
competitors with respect to hand-held electronic organizers are Casio,
Hewlett-Packard Co., Psion and Sharp. Some of USR's competitors and potential
competitors have more extensive financial, engineering, product development,
manufacturing and marketing resources than USR.
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INTELLECTUAL PROPERTY RIGHTS
USR relies upon its trade secret protection program and its patents and
copyrights to protect its proprietary technologies. USR currently holds 25 U.S.
patents and has numerous patent applications pending with the United States
Patent and Trademark Office covering portions of the technology employed in
USR's products. In addition, patents have been issued and patent applications
are pending for certain inventions in selected foreign countries. USR intends to
continue to seek patent protection for emerging technologies where appropriate.
In addition, USR has registered certain trademarks in the United States and a
number of foreign countries.
USR is a party to license and cross-license agreements with respect to
certain technologies used in its products. A majority of these licenses are
nonexclusive, fully paid and perpetual. In addition, USR is engaged in
negotiations with other parties to license or cross-license proprietary and
patented technologies that are required for implementation of certain
communications protocols and standards. In most instances the owners of
intellectual property rights covering technologies required for official
communications standards have undertaken to license such rights on fair,
reasonable and non-discriminatory terms. USR believes these other parties will
honor their undertakings, voluntarily or under legal compulsion and anticipates
that it will enter into such licenses on reasonable terms. See "-- Legal
Proceedings."
USR has received from time to time and may receive in the future
infringement claims from third parties relating to USR's products or
technologies. USR investigates these claims, and, if valid, responds through
licensing or other appropriate actions. If USR were unable to license necessary
technology on a cost-effective basis, USR could be prohibited from marketing
products incorporating that technology, incur substantial costs in redesigning
products incorporating that technology and incur substantial costs defending any
legal action taken against it.
EMPLOYEES
As of December 29, 1996, USR employed 6,189 people including 2,712 in
manufacturing, 1,193 in research and development, 1,302 in sales and marketing,
and 982 in general administration. None of USR's employees are represented by a
labor union. USR believes its relations with its employees are good. Competition
for qualified personnel in the information access industry is intense, and USR
believes that its prospects for future growth and success will depend, in
significant part, on its ability to retain and continue to attract highly
skilled and capable personnel in all areas of operations.
LEGAL PROCEEDINGS
USR is a party to lawsuits in the normal course of its business. USR and its
counsel believe that it has meritorious defenses in all lawsuits in which USR or
its subsidiaries is a defendant. USR does not believe the outcome of these cases
will have a material effect on its financial condition or results of operations,
but notes that (i) litigation in general and patent litigation in particular can
be expensive and disruptive to normal business operations and (ii) the results
of complex legal proceedings can be very difficult to predict with any
certainty.
On February 13, 1997, Motorola, Inc. filed suit against USR in the United
States District Court for the District of Massachusetts, claiming infringement
of eight United States patents. The complaint alleges willful infringement and
prays for unspecified damages and injunctive relief. In a separate statement
announcing the filing of the lawsuit published on PRNewswire on the same date,
Motorola alleged that the patents at issue cover "technologies essential to the
International Telecommunications Union (ITU) V.34 modem standard." In the same
statement, a Motorola officer is quoted as saying that Motorola is "committed"
to making its technology incorporated in standards available on a "fair,
reasonable and non-discriminatory basis." USR has filed an answer to Motorola's
claims setting forth its defenses and asserting counterclaims which allege
infringement of a USR patent, violation of antitrust laws, promissory estoppel
and unfair competition. Although USR believes it has meritorious defenses to
Motorola's claims and
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intends to contest this lawsuit vigorously, an adverse outcome of such
litigation could have a material adverse effect on the business, results of
operations or financial condition of USR or the combined company after the
Merger.
On April 28, 1997, Xerox Corporation filed suit against USR in the United
States District Court for the Western District of New York (XEROX CORPORATION V.
U.S. ROBOTICS CORPORATION AND U.S. ROBOTICS ACCESS CORP., No. 97-CV-6182T),
claiming infringement of one United States patent. The complaint alleges willful
infringement and prays for unspecified damages and injunctive relief. In a press
release dated April 30, 1997, Xerox alleged that its patent, issued January 21,
1997, "covers the use and recognition of handwritten text using an alphabet
system designed especially for reliable recognition in pen computers," and that
USR's PalmPilot hand-held computer and "Graffiti" software infringe the Xerox
patent. USR believes it has meritorious defenses to Xerox's claims and intends
to contest the lawsuit vigorously.
Seven purported stockholder class action suits have been filed arising out
of USR's proposed participation in the Merger with 3Com.
On February 27, 1997, the day following the public announcement of the
proposed Merger, five purported stockholder class action suits were filed in the
Court of Chancery of the State of Delaware (MORGANSTERN V. U.S. ROBOTICS
CORPORATION, C.A. No. 15580; KLEIN V. COWELL, C.A. No. 15583; MULHOLLAND V. U.S.
ROBOTICS CORPORATION, C.A. No. 15584; GLICK V. U.S. ROBOTICS CORPORATION, C.A.
No. 15586; ROSEN V. U.S. ROBOTICS CORPORATION, C.A. No. 15587). On February 28,
1997, an additional purported stockholder class suit was filed in the Court of
Chancery of the State of Delaware (REISS V. COWELL, C.A. No. 15588)
(collectively, the "Delaware Actions").
The Delaware Actions generally name as defendants USR and the individual
members of the USR Board. 3Com has been named as a defendant in five of the
Delaware Actions (all but ROSEN V. U.S. ROBOTICS CORPORATION, C.A. No. 15587).
In general, the actions allege that USR's directors breached their fiduciary
duties to the stockholders by agreeing to the proposed Merger for allegedly
"unfair and grossly inadequate" consideration in light of recent operating
results of USR, recent trading prices of USR's common stock and other alleged
factors, by allegedly failing to properly inform themselves of USR's "highest
transactional value" prior to agreeing to the proposed Merger and by allegedly
failing to take all necessary steps to ensure that stockholders will receive the
maximum value realizable for their shares (including allegedly failing to
actively pursue the acquisition of USR by other companies, engage in a
"meaningful auction" with third parties, or conduct an adequate "market check").
In addition, the actions allege that USR's directors breached their fiduciary
duties to stockholders by allegedly failing to bargain for any price protection
which would alter the exchange ratio for the proposed Merger in favor of USR's
stockholders in the event 3Com's stock declines in value, by allegedly failing
to appoint or retain any "truly independent" person or entity to negotiate for
or on behalf of USR's public stockholders, and by agreeing to the proposed
Merger to allegedly enhance their compensation and positions with USR. Five of
the six lawsuits further allege that 3Com is responsible for aiding and abetting
the alleged breach of fiduciary duty committed by the USR Board. The Delaware
Actions seek certification of a class action on behalf of USR's stockholders. In
addition, the Delaware Actions seek injunctive relief against consummation of
the Merger and, in the event that the Merger is consummated, the rescission of
the Merger, an award of compensatory or rescissory damages and other damages,
including court costs and attorneys' fees, an accounting by the defendants of
all profits realized by them as a result of the Merger and various other forms
of relief.
Also, on March 26, 1997, one additional purported stockholder class action
suit relating to the proposed Merger with 3Com was filed in the Circuit Court of
Cook County, Illinois (FEILEN V. U.S. ROBOTICS CORPORATION, No. 97-CH-0003690).
This action alleges that USR's directors breached their fiduciary duties to the
stockholders by "negotiating an unconscionably high termination or 'lock up'
fee" in the Merger Agreement. This action further alleges that the USR
directors, by agreeing to these fee provisions, have "effectively deprived their
shareholders of their voting rights, since if they do not approve the Merger,
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their company will suffer stiff penalties." In addition, the action alleges
that, as a result of these fee provisions, the Merger Agreement violates Section
251 of the Delaware General Corporation Law. This action seeks both declaratory
and injunctive relief, including enjoinder of a stockholder meeting, a
declaration that the Merger Agreement's "penalty fees" are "illegal and
invalid," and an award of the costs of the action, including reasonable
attorneys' fees and experts' fees.
USR and 3Com believe that all of these lawsuits are meritless and USR
intends to oppose them vigorously.
On April 21, 1997, USR and three of its customers, Best Buy Co., Inc.,
Egghead, Inc. and Fry's Electronics, Inc., were sued in a purported consumer
class action filed in Superior Court in Marin County, California (Bendall et al
v. U.S. Robotics Corporation et al, No. 170441). The named plaintiffs are
residents of the states of Alabama, California, Tennessee and Washington and
they purport to represent various classes of persons who have purchased or
otherwise acquired USR's new x2 products and products upgradeable to x2.
Damages, including punitive damages, and other relief are sought under the
California Consumer Legal Remedies Act and the California Song-Beverly Consumer
Warranty Act, and under various common law theories, including breach of
contract, fraud and deceit, negligent misrepresentation, breach of implied
warranty and unjust enrichment.
Another lawsuit, purporting to be "For the interests of the General Public"
was filed against USR in the same court on March 13, 1997 (Levy v. U.S. Robotics
Corporation, No. 170968). This action alleges that USR's promotion and
advertising of x2 products constituted unfair competition and deceptive, untrue
and misleading advertising in violation of the California Business and
Professional Code, and seeks injunctive and other relief, including "restitution
of all revenues" and an award of attorney fees. Additionally, a purported public
interest plaintiff sued USR on January 29, 1997 in California Superior Court in
San Francisco (Intervention Inc. v. U.S. Robotics Corporation, Case No. 984352)
under the same statute, alleging various misrepresentations in connection with
the promotion and advertising of USR's x2 products, and seeking injunctive and
other relief, including attorneys' fees.
USR believes it has meritorious defenses to the foregoing lawsuits pending
in California and intends to vigorously contest such lawsuits.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes included in USR's
Annual Report on Form 10-K for the fiscal year ended September 29, 1996 and in
USR's Quarterly Report on Form 10-Q for the three-month period ended December
29, 1996 incorporated by reference in this Joint Proxy Statement/Prospectus.
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FIRST QUARTERS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995
RESULTS OF OPERATIONS
The following table sets forth, for the first quarter of fiscal year 1997
and the first quarter of fiscal year 1996, respectively, the percentage of net
sales and the percentage change represented by items reflected in USR's
Condensed Consolidated Statement of Earnings.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------ PERCENTAGE
CHANGE
FIRST QUARTER ------------
------------------------ 1996 TO
1997 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net sales................................................................. 100.0% 100.0% 76.9%
Cost of goods sold........................................................ 57.2 58.2 74.1
----- -----
Gross profit............................................................ 42.8 41.8 80.8
Operating expenses
Selling and marketing................................................... 15.6 13.1 110.8
General and administrative.............................................. 4.7 4.8 70.3
Research and development................................................ 5.3 6.4 46.0
----- -----
Total operating expenses.............................................. 25.6 24.3 85.7
Operating profit.......................................................... 17.2 17.5 74.1
Interest income........................................................... 0.0 0.9 (94.1)
Interest expense.......................................................... 0.3 0.3 45.8
Other income (expense).................................................... 0.1 (0.1) 251.8
----- -----
Earnings before income taxes.............................................. 17.0 18.0 67.3
Income tax expense........................................................ 6.3 6.6 70.1
----- -----
Net earnings.............................................................. 10.7% 11.4% 65.8%
----- -----
----- -----
</TABLE>
NET EARNINGS. Net earnings for the first quarter of 1997 were $69.0
million, an increase of 65.8% from the $41.6 million recorded for the
corresponding quarter of 1996. Net earnings per share for the quarter were $.72,
based on 96.3 million weighted average shares outstanding, compared to $.45 on
92.9 million weighted average shares outstanding for the first quarter of the
prior year.
Factors contributing to the significant improvements in net earnings and net
earnings per share are discussed below.
NET SALES. Net sales for the first quarter of 1997 were $645.4 million, an
increase of 76.9% over the $364.8 million recorded for the corresponding quarter
of 1996. The revenue growth was driven primarily by higher overall worldwide
market demand for information access devices and increased demand for all
product lines in all of the markets currently being served. Increased revenues
from the sale of PC-related products, which includes desktop modems, PC card
modems and the Pilot connected organizer, were the primary reason for the
increase in total revenues from the first quarter of 1996.
Unit sales of USR's PC-related products in the first quarter of 1997 were up
80% as compared to the corresponding quarter of 1996, while overall average
selling prices were essentially unchanged. During the first quarter of 1997,
revenues from the sale of modem products were attributable primarily to 33.6
Kbps (Kilobits per second) and 28.8 Kbps products. During the corresponding
period of 1996, a significant portion of total revenues from the sale of modem
products was attributable to the sale of 14.4 Kbps products.
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International sales for the first quarter of 1997 increased by 95.1% to
$193.5 million or 30% of consolidated net sales as compared to $99.2 million or
27.2% of consolidated net sales for the corresponding quarter of 1996. The
increase in international sales resulted from higher revenues in both the
systems and PC-related product categories. Also, international sales of systems
products as a percentage of total sales of systems products increased
significantly during the first quarter of 1997 from the comparable period in
1996. These increases were primarily the result of an expansion in the size of
the international sales force. USR has significantly expanded its presence in
international markets in response to continued growth in market demand for
information access products, and has established a goal of increasing the
international portion of its business over time. Consistent with that goal, USR
acquired distributors in Australia, Japan and Sweden during the first quarter of
1997 in order to broaden its local sales presence in these geographic areas.
International sales are denominated primarily in U.S. dollars. USR's
operations were not significantly impacted by fluctuations in foreign currency
exchange rates.
GROSS PROFIT. Gross profit was $276.0 or 42.8% of net sales in the first
quarter of 1997, compared to $152.6 million or 41.8% of net sales for the
corresponding quarter of 1996. The increase in gross profit dollar contribution
reflected significantly higher unit sales volumes. The increase in gross profit
margin was due primarily to reductions in the manufactured cost of USR's
products, partially offset by changes in the mix of products sold in each of the
periods.
OPERATING EXPENSES. Total operating expenses for the first quarter of 1997
were $165.0 million or 25.6% of net sales, compared to $88.9 million or 24.3% of
sales for the corresponding quarter of 1996. The increase was related primarily
to increased selling and marketing costs.
Selling and marketing expenses were $100.8 million or 15.6% of net sales for
the first quarter of 1997, compared to $47.8 million or 13.1% of net sales for
the corresponding quarter of 1996. The dollar increase in these expenses over
the prior year reflected additional spending for personnel and programs
consistent with USR's expanded level of business activity. The increase in
selling and marketing expense as a percentage of net sales in part reflects
continuing investments to build the USR's sales force with particular emphasis
on expanding sales of network systems products worldwide. The worldwide sales
force headcount increased by 64% over the same prior year period. The increased
spending level in the first quarter of 1997 also reflected higher spending for
programs and promotions needed to generate and support continuing growth in net
sales, as well as substantial marketing expenditures made in connection with the
introduction of the company's new x2 (56Kbps) technology.
General and administrative expenses for the first quarter of 1997 were $30.0
million or 4.7% of net sales, compared to $17.6 million or 4.8% of net sales for
the corresponding quarter of 1996. The dollar increases over the prior year were
attributable primarily to expenses associated with additional administrative
staff, systems and outside services necessary to support the USR's expanded
level of business activity. General and administrative expenses decreased as a
percentage of net sales due to the significant growth in sales and the
semi-fixed nature of some of these expenses.
Research and development expenses for the first quarter of 1997 were $34.2
million or 5.3% of net sales, compared to $23.5 million or 6.4% of net sales for
the corresponding quarter of 1996. The dollar increases resulted from increases
in the size of USR's engineering staff and the related costs to support its
continued commitment to new product and technology development. USR believes
that continued investment in research and development activities is critical to
future sales growth and technological competitiveness.
INCOME TAX EXPENSES. The provisions for income taxes were $40.7 million in
the first quarter of 1997 and $23.9 million for the corresponding quarter of
1996, resulting in effective tax rates for those quarters of 37.1% and 36.5%,
respectively.
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OTHER. To date, inflation has not had a material impact on the Company's
results of operations.
FISCAL YEARS ENDED SEPTEMBER 29, 1996, OCTOBER 1, 1995 AND OCTOBER 2, 1994
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, the
percentage of net sales and the percentage change represented by items reflected
in USR's Consolidated Statement of Earnings.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
PERCENTAGE OF NET SALES --------------------
------------------------------- 1995 TO 1994 TO
1996 1995 1994 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 122.4% 78.2%
Cost of goods sold.......................................... 58.1 58.6 59.7 120.6 74.9
--------- --------- ---------
Gross profit................................................ 41.9 41.4 40.3 124.9 83.1
--------- --------- ---------
Operating expenses
Selling and marketing..................................... 13.7 15.4 17.2 98.8 59.2
General and administrative................................ 4.7 4.8 5.8 119.9 48.4
Research and development.................................. 5.6 5.9 5.9 108.5 79.2
Purchased in-process technology........................... 2.7 -- -- -- --
Non-recurring merger costs................................ -- 3.3 -- -- --
--------- --------- ---------
Total operating expenses................................ 26.7 29.4 28.9 102.5 81.6
--------- --------- ---------
Operating profit............................................ 15.2 12.0 11.4 179.6 87.0
Interest income............................................. 0.4 0.8 0.4 9.4 490.0
Interest expense............................................ 0.3 0.6 0.4 (8.6) 193.8
Other income (expense)...................................... -- -- (0.3) -- --
--------- --------- ---------
Earnings before income taxes................................ 15.3 12.2 11.1 177.2 96.7
Income tax expense.......................................... 6.7 4.8 3.9 206.9 123.2
--------- --------- ---------
Net earnings................................................ 8.6% 7.4% 7.2% 157.8% 82.6%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NET EARNINGS. Net earnings for 1996 were $170.0 million or $1.79 per share,
compared with $66.0 million or $0.77 per share and $36.1 million or $0.47 per
share for 1995 and 1994, respectively. Year-to-year comparisons of net earnings
were affected by significant non-recurring charges.
Reflected in 1996 net earnings was a non-recurring charge of $54.0 million
for purchased in-process technology incurred in connection with the acquisition
of Scorpio Communications, Ltd. ("Scorpio"). Reflected in 1995 net earnings were
non-recurring charges of $29.4 million associated with the merger with Megahertz
Holding Corporation ("Megahertz"). Excluding the effects of these items, net
earnings for 1996 would have been $224.0 million, an increase of 151% over the
corresponding 1995 total of $89.2 million, and net earnings per share for 1996
would have been $2.36, an increase of 125% over the corresponding 1995 level of
$1.05.
Factors contributing to the significant improvements in net earnings and
earnings per share are discussed below.
NET SALES. Net sales increased 122% to $1,977.5 million for 1996 from
$889.3 million for 1995. This increase was primarily the result of higher unit
sales in both the PC-related product categories (primarily high speed desktop
and PC Card modems sold under the Courier, Sportster, Megahertz and WorldPort
brand names) and the systems product category (network hubs, modem pools, remote
access servers and LAN switching products sold under the Total Control and
TOTALswitch brand names). An increase in the average selling price of PC-related
products also contributed to the increase in net sales during 1996.
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In general, the increases in unit sales in all product categories were
driven by strong market demand for devices that enable on-line access to
information through computers and computer networks, which demand reflected
continued growth of available on-line information and trends in organizational
and personal computing patterns and capabilities. In the PC-related product
categories, demand reflected overall growth in the personal computer market and
increased numbers of personal computer users employing modems for data, voice
and fax communications. Also influencing demand was the desire of existing modem
users to upgrade their equipment to utilize the V.34 standard, a high speed
protocol for data transmission at 28.8 to 33.6 Kbps; unit sales of
V.34-compliant products exceeded those of V.32bis-compliant products (14.4 Kbps)
for the first time during USR's 1996 first quarter. These same factors also
contributed to increased unit sales of USR's systems products as end users,
including several Internet and on-line service providers, expanded and upgraded
their networks to support the increased demand for on-line information and
communication services.
Increased unit sales of V.34-compliant products was the primary cause for
the rise in the average selling price of PC-related products during 1996. In the
intensely competitive market for information access products, competitive
pressures drive reductions in selling prices as products move through the
product life cycle. The timing and significance of price reductions are
dependent upon a number of factors, including market acceptance of new products,
technological advances and price reductions on competing products. In 1996, USR
experienced increased unit sales and relatively higher average selling prices
for its newer V.34-compliant products; however, these effects were partly offset
by significant declines in unit sales and average selling prices for
V.32bis-compliant products as these products approached the latter stages of
their life cycles.
Net sales of PC-related and systems products in 1996 increased by 108% and
156%, respectively, from the 1995 levels. As a result, net sales of systems
products increased slightly as a percentage of consolidated net sales. For 1996,
net sales of the chassis-based Total Control remote access products were
approximately $400.0 million.
International sales, concentrated in Canada and Europe, increased by 125% to
$517.2 million in 1996 compared to $230.4 million in 1995. International sales
in 1996 represented approximately 26% of consolidated net sales. USR has
significantly expanded its presence in international markets in response to
continued growth in market demand for information access products, and has
recently acquired or established new operations in Germany, Ireland, Israel,
Italy, Japan, The Netherlands, Spain and Sweden. By the end of 1996, PC-related
products had been homologated in 34 countries and systems products had been
homologated in 38 countries.
International sales are denominated primarily in U.S. dollars. USR's
operations were not significantly impacted by fluctuations in foreign currency
exchange rates.
In 1995, net sales increased 78% to $889.3 million from $499.1 million in
1994. The increase resulted from higher unit sales in both the PC-related and
systems products categories, reflecting strong market demand for information
access products as discussed above. Partly offsetting the effects of higher unit
sales during 1995 were modest declines in average selling prices.
International sales increased 110% to $230.4 million or 26% of consolidated
net sales in 1995, compared to $109.5 million or 22% of consolidated net sales
in 1994. The increase resulted primarily from increased unit sales of high speed
modem products, most notably V.34-compliant products. Also, 1995 sales volumes
included the initial international shipments of Total Control remote access
products following USR's establishment of a systems sales office in the United
Kingdom during the year.
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GROSS PROFIT. Gross profit was $828.1 million or 41.9% of net sales in
1996, compared to $368.2 million or 41.4% of net sales in 1995. The increase in
gross profit dollar contribution was due primarily to significantly higher unit
sales volumes and the continuing shift to higher priced V.34-compliant products.
The increase in gross profit margin reflected increased sales of higher margin
systems products as a percentage of consolidated net sales, partly offset by
lower gross margins on certain PC Card products as a result of component
shortages that existed in the first half of 1996. In 1996, the gross profit
margins on sales of the chassis-based Total Control remote access products were
approximately 60%.
Gross profit in 1995 was $368.2 million or 41.4% of net sales, compared to
$201.1 million or 40.3% of net sales in 1994. The increase in gross profit
margin was due primarily to proportionately higher sales of systems products,
which generate higher gross margins, and rapid market acceptance of new, higher
margin V.34-compliant modem products. Gross profit margins in 1995 also were
affected by declines in average selling prices, but these declines were offset
by reductions in component costs and the introduction of new, lower-cost product
architectures.
OPERATING EXPENSES. Selling and marketing expenses in 1996 were $271.6
million or 13.7% of net sales, compared to $136.6 million or 15.4% of net sales
in 1995 and $85.8 million or 17.2% of net sales in 1994. During both 1996 and
1995, USR increased spending for promotional programs designed to enhance demand
for USR's product offerings, for continued development of technical support
programs and for recruiting and training of additional resellers, particularly
for systems products. In addition, USR made substantial investments in building
its worldwide selling and marketing staff to take advantage of strong demand for
its products in international markets. During the 1996 fourth quarter, USR
expanded its worldwide sales force by approximately 20%. This commitment of
resources is critical to expanding international sales of systems products.
Selling and marketing expenses decreased as a percentage of net sales in each
year due to the significant growth in sales and the semi-fixed nature of some of
these expenses.
General and administrative expenses in 1996 were $93.7 million or 4.7% of
net sales, compared to $42.6 million or 4.8% of net sales in 1995 and $28.7
million or 5.8% of net sales in 1994. The dollar increases in 1996 and 1995 were
attributable primarily to expenses associated with additional administrative
staff, systems and outside professional and consulting services necessary to
support USR's expanded level of business activity. General and administrative
expenses decreased as a percentage of net sales due to the significant growth in
sales and the semi-fixed nature of some of these expenses.
Research and development expenses in 1996 were $109.4 million or 5.6% of net
sales, compared to $52.5 million or 5.9% of net sales in 1995 and $29.3 million
or 5.9% of net sales in 1994. The dollar increases from year-to-year mainly
resulted from increases in the size of USR's engineering staff and related costs
to support its emphasis on product development. USR believes that continued
investment in research and development activities is critical to future sales
growth and technological competitiveness.
In 1996, USR acquired Scorpio to gain state-of-the-art capability in
Asynchronous Transfer Mode ("ATM") switching. The acquisition was accounted for
as a purchase. As described more fully in Note C to the Consolidated Financial
Statements, the fair market value of purchased in-process technology was
determined to be $54.0 million. This amount was expensed upon acquisition during
USR's 1996 fourth quarter.
In 1995, in connection with the Megahertz acquisition, USR recorded
non-recurring charges of $29.4 million, primarily related to (i) the write-down
of inventory and goodwill due to the elimination of overlapping product lines,
(ii) transaction costs and (iii) the consolidation of certain facilities and
personnel.
INCOME TAX EXPENSE. The provisions for income taxes were $131.9 million in
1996, $43.0 million in 1995 and $19.2 million in 1994, resulting in effective
tax rates for those years of 43.7%, 39.5% and 34.8%, respectively. The higher
rate in 1996 was due mainly to the expensing of purchased in-process technology
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<PAGE>
in connection with the Scorpio acquisition with no corresponding tax benefit,
due to uncertainty regarding the benefit's realizability. The higher rate in
1995 was due mainly to the tax treatment of certain non-recurring costs
associated with the Megahertz merger. Excluding the effects of the Scorpio and
Megahertz items, the effective tax rates for 1996 and 1995 would have been 37.1%
and 35.6%, respectively. This increase was attributable to reduced research and
development tax credits as a result of expiration of the enabling legislation.
OTHER. To date, inflation has not had a material impact on USR's results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
DECEMBER 29, SEPTEMBER 29,
1996 1996
------------- -------------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 18.7 $ 16.8
Working capital..................................................................... $ 469.7 $ 416.9
Long term obligations............................................................... $ 54.9 $ 54.0
Availability under committed and uncommitted lines of credit........................ $ 340.0 $ 357.5
</TABLE>
USR generated $96.9 million in cash flows from operating activities,
excluding changes in assets and liabilities, during the first quarter of 1997
compared to $43.0 million for the corresponding quarter of 1996. The improvement
was due primarily to the $280.6 million increase in net sales and the resultant
higher net earnings. The current ratio at December 29, 1996 was approximately
2.2-to-1, unchanged from the September 29, 1996 level.
Working capital was $469.7 million at December 29, 1996 compared to $416.9
at September 29, 1996. Accounts receivable, net of allowances, were $631.2
million at the end of the first quarter of 1997 as compared to $490.0 million at
the end of the fourth quarter of 1996. The increase was attributable in part to
the overall growth in net sales and, to some extent, a shift in the customer
base resulting in a slightly longer average collection period. The shift is
partially related to the increase in international shipments. Another important
factor contributing to the increase in accounts receivable was the timing of
shipments during the quarter; on a comparative basis, a greater portion of the
sales occurred during the last month of the quarter. Receivables are being
collected in the normal course of business based on specified trade terms.
Inventories were $152.2 million at the end of the first quarter of 1997 as
compared to $185.9 million at the end of the fourth quarter of 1996. Inventory
turns increased 28%, from 6.8 times during the fourth quarter of 1996 to 8.7
times during the first quarter of 1997. Accounts payable and accrued liabilities
increased 8.5% during the first quarter of 1997 to $292.5 million reflecting
USR's expanded level of activity. Short term borrowings totaled $50.0 million,
up $17.5 million from the previous quarter.
Cash used by investing activities was $55.2 million for the first quarter of
1997 compared to $64.0 million during the comparable quarter of 1996. The
majority of the current year expenditures was related to the continued
development and outfitting of the Mt. Prospect, Illinois facility, as well as
for additional manufacturing equipment and office furniture and fixtures.
Expenditures also were made in connection with acquisitions of distributors in
Australia, Japan and Sweden designed to broaden the USR's local sales presence
in these geographic areas.
USR has no significant foreign currency contracts or other investments in
derivative instruments. USR is generally not exposed to material foreign
currency risk.
Cash provided by financing activities totaled $42.7 million during the first
quarter of 1997 compared to $13.8 for the comparable quarter of 1996. In the
1997 period, proceeds from the exercise of stock options by employees and
issuances of USR Common Stock under USR's employee stock purchase plan totaled
$10.3 million. Also, USR realized tax benefits of $15.1 million in the same
period in connection with the exercise of stock options by employees. USR had
$50.0 million in short term borrowings
114
<PAGE>
outstanding under its $90.0 million of uncommitted lines of credit at the end of
the first quarter of 1997. These borrowings were used to help finance the
investments in working capital, capital expenditures and acquisitions mentioned
previously. There were no borrowings outstanding under the $300 million
revolving Multicurrency Credit Agreement at the end of the first quarter of
1997.
USR expects to continue to make significant investments in the future to
support its overall growth. Currently, it is anticipated that ongoing operations
will be financed primarily from internally generated funds. However, as
indicated in USR's most recent Annual Report on Form 10-K, there are several
factors that could affect USR's ability to generate cash from operations in the
future, including general economic conditions, market competition and changes in
working capital requirements. USR believes its anticipated cash flows from
operations and access to debt and equity markets will permit the financing of
its business requirements in an orderly manner for the foreseeable future.
FUTURE OPERATING RESULTS
The preceding paragraph and the following discussion include forward-looking
statements regarding USR's future financial position and results of operations.
Actual financial position and results of operations may differ materially from
these statements.
Demand in the first quarter continued to be strong for USR's expanding
portfolio of information access products, including Total Control Enterprise
Network Hubs, Sportster modems, Megahertz PC cards, OEM modem products and Pilot
connected organizers. USR expects demand for all of its product lines to
continue to grow substantially during the remainder of the 1997 fiscal year as
worldwide requirements for highly integrated, cost-effective, end-to-end
information access solutions increase. In addition, the coming availability of
USR's x2 (56 Kbps) technology is expected to have a widespread impact on
Internet users by enabling them to have a more satisfying on-line experience.
USR does not expect revenue growth to occur ratably over the 1997 fiscal
year; instead, USR expects that the major impact of the x2 product introduction
on revenues and earnings will occur during the second half of the year. Revenue
growth in the second quarter of 1997 will depend to a large extent on the timing
of USR's Internet and on-line service provider customers making x2 service
available and the resultant consumer and corporate demand for x2 enabled
products.
Gross margin during the first quarter of 1997 increased 1.0% from the
comparable period in 1996; however, USR expects gross margins for 1997 as a
whole to remain consistent with the 1996 fiscal year. USR expects to reduce the
costs of its products through design and engineering improvements and increases
in efficiency of the manufacturing process. USR also expects to remain highly
competitive in the pricing of all of its products as it seeks to continue to
expand market share.
USR expects to grow international operations over the next several years and
estimates that approximately half of its total sales ultimately will be derived
from international operations. Total revenues attributable to sales of systems
products are expected to continue to increase over time, with individual
quarterly results fluctuating as a result of the ordering patterns of USR's
major systems customers. USR expects to continue expanding its sales force,
marketing efforts, and engineering and back office support capabilities since
these are instrumental to USR's future success. USR intends to position itself
to take advantage of opportunities in the markets it serves by accelerating
investments in new technologies such as x2 (56 Kbps), wireless, switching and
broadband access, including xDSL and cable. USR believes that continued
investment in research and development activities is critical to future sales
growth and technological competitiveness.
USR's ability to achieve its revenue and profitability objectives in fiscal
1997 will depend on many factors beyond USR's control. These include the timing
and market acceptance of x2 and other new products and features announced and
introduced by USR and its competitors, and the extent to which USR is successful
in implementing its ongoing strategy of continuously improving the
performance/cost
115
<PAGE>
characteristics of its products through improved designs and manufacturing
efficiencies. Other factors include rapid changes in technologies and standards
relating to information access and telecommunications.
The foregoing forward-looking statements involve a number of risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially are those listed in
USR's most recent Annual Report on Form 10-K and included from time to time in
other documents filed by the Company with the Securities and Exchange
Commission.
Because of the foregoing uncertainties affecting USR's future operating
results, past performance should not be considered to be a reliable indicator of
future performance. The use of historical trends to anticipate results or trends
in future periods may be inappropriate. In addition, USR's participation in a
highly dynamic industry often results in significant volatility in the price of
the USR Common Stock.
MANAGEMENT
The executive officers and directors of USR are set forth below, together
with certain other significant employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Casey Cowell........................ 44 Chairman of the Board, Chief Executive Officer and Director
John McCartney...................... 44 President, Chief Operating Officer and Director
Jonathan N. Zakin................... 47 Executive Vice President, Business Development and Corporate
Strategy, and Director
James E. Cowie...................... 41 Director
Terence M. Graunke.................. 37 Director
Peter I. Mason...................... 44 Director
Paul G. Yovovich.................... 43 Director
Michael S. Seedman.................. 40 Senior Vice President and General Manager, Personal Communications
Ross W. Manire...................... 44 Senior Vice President and General Manager, Network Systems
Steven T. Campbell.................. 45 Vice President and Controller
Richard L. Edson.................... 43 Vice President and General Manager, Manufacturing
Eugene L. Ferretti.................. 50 Vice President and General Manager, Mobile Communications
Jerome Johnston..................... 43 Vice President, Corporate Marketing and Communications
Mark Remissong...................... 44 Vice President, Finance and Chief Financial Officer
George A. Vinyard................... 47 Vice President, General Counsel and Secretary
CERTAIN SIGNIFICANT EMPLOYEES
Donna Dubinsky...................... 41 Vice President and General Manager, Palm Computing
Elizabeth S. Ryan................... 36 Vice President, Human Resources and Administration
Dale M. Walsh....................... 60 Vice President, Advanced Development
</TABLE>
Casey Cowell, founded USR in 1976. He has been Chairman of the Board, Chief
Executive Officer and a director of USR since 1983. He also served as President
of USR from 1983 until January 1997. Mr. Cowell also serves as a director of
Eagle River Interactive, Inc. and Northwestern Memorial Corp., parent company of
Northwestern Memorial Hospital. Mr. Cowell has a B.A. from the University of
Chicago.
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<PAGE>
John McCartney joined USR as a Vice President in 1984 and has been a
director since 1985. Mr. McCartney has served as President of USR since January
1997 and as Chief Operating Officer since January 1996. He held the positions of
Executive Vice President from 1988 until January 1997 and Vice President from
1984 to 1988. He held the position of Chief Financial Officer from 1984 to 1992
and Secretary from 1989 to 1993. Mr. McCartney has an M.B.A. from the Wharton
School of the University of Pennsylvania and a B.A. from Davidson College.
Jonathan N. Zakin joined USR as Vice President, Sales, in 1987. He served as
USR's Executive Vice President, Sales and Marketing from 1989 to April 1995,
when he was named Executive Vice President, Business Development and Corporate
Strategy. Mr. Zakin has been a director of USR since 1988. Prior to joining USR,
Mr. Zakin was Vice President and Chief Financial Officer of Winterhalter, Inc.,
a computer communications company. Before joining Winterhalter, he was President
of Cosma International, an international management consulting firm specializing
in marketing computer products. Mr. Zakin received a M.B.A. from Harvard
University and a B.S. from New York University.
James E. Cowie has served as a director of USR since March 1994. Mr. Cowie
has been a General Partner of Frontenac Company, a Chicago-based private equity
investment firm, since 1989. He also is a director of PLATINUM TECHNOLOGY, INC.,
Open Environment Corporation and U.S. Servis, Inc.
Terence M. Graunke has served as a director of USR since March 1996. He has
served as Chairman, President and Chief Executive Officer of Eagle River
Interactive, Inc., an interactive news media and services company, since May
1994. He was Chairman and Chief Executive Officer of Rapp Collins
Communications, an advertising agency owned by the Omnicom Group, Inc. from 1993
to 1994. From 1989 to 1992, he served as President and Chief Executive Officer
of U.S. Communications, a marketing agency.
Peter I. Mason has served as a director of USR since 1983. He is a founding
partner of the law firm of Freeborn & Peters and served as Chairman of its
Operating Committee from 1989 until 1996. Freeborn & Peters has provided legal
services to USR since 1983. He currently is a director of May & Speh, Inc. and
Eagle River Interactive, Inc., as well as several privately held companies.
Paul G. Yovovich has served as a director of USR since 1991. He served as
President of Advance Ross Corporation from 1993 to May 1996. Mr. Yovovich served
in several executive positions with Centel Corporation from 1982 to 1992, where
his last position was that of president of its Central Telephone Company
subsidiary. Additionally, he serves as a director of Comarco, Inc., Illinois
Superconductor Corporation, and APAC TeleServices, Inc., and is a certified
public accountant.
Ross W. Manire joined USR as Vice President, Finance, in August 1991 and was
named Chief Financial Officer in March 1992, holding that position until March
1995. He served as Secretary from March 1993 to February 1994. He served as
Senior Vice President, Operations, from August 1992 through March 1995. In April
1995, he was named General Manager, Network Systems. From 1989 to 1991, he was
Vice President of Ridge Capital Corporation, a private equity investment firm.
Prior to that he was a partner at Ernst & Young, a public accounting firm. He
serves as a director for several privately held companies. Mr. Manire has an
M.B.A. from the University of Chicago and a B.A. from Davidson College.
Steven T. Campbell joined USR as Vice President and Controller in November
1995. From 1990 to 1995, he held various financial management positions with
Amoco Corporation and its subsidiaries. Mr. Campbell has an M.M. from
Northwestern University and a B.S. from Quincy University. He is a certified
public accountant.
Richard L. Edson joined USR as Vice President and General Manager,
Manufacturing, in July 1995. From 1987 to 1995, Mr. Edson was with Thinking
Machines Corporation, where he held the position of Chief Operating Officer from
1994 to 1995, and held other management positions, including Vice President of
Core Products, Vice President of Manufacturing and Director of Manufacturing
from 1987 to 1993. Prior to 1987, he held management positions at Data General
Corporation and Digital Equipment
117
<PAGE>
Corporation. He holds an M.B.A. from Babson College, a B.S.B.A. from the
University of Lowell and. an A.S.E.E. from the University of Cincinnati.
Eugene L. Ferretti joined USR as Vice President, Finance, Mobile
Communications, in November 1995. In April 1996 he was named to the position of
Vice President and General Manager, Mobile Communications. Previously Mr.
Ferretti was with American Hawaii Cruises where he served as President from
April 1991 to August 1993 and Executive Vice President from April, 1987 to April
1991. Mr. Ferretti has an M.B.A. from the University of Chicago, a Ph.D. in
Physics from The Ohio State University and a B.A. degree from Lewis University.
Jerome Johnston joined USR as Vice President, Corporate Marketing and
Communications, in September 1996. From May 1994 to July 1996 he was Senior Vice
President and Director of Corporate Communications with Paine Webber, Inc. and
prior to that, he was with J. Walter Thompson Company from 1984 to 1994, where
he most recently served as Senior Vice President and Director of Client
Services. Mr. Johnston has a M.S.J. from Northwestern University and a B.A. from
Castleton State College.
Mark Remissong joined USR as Vice President, Finance, in March 1995. He was
named Chief Financial Officer in April 1995. From 1993 to 1994, he was Senior
Vice President and Chief Financial Officer of Collins and Aikman Corporation.
From 1989 to 1993 he was Vice President, Finance, of Burlington Industries, Inc.
Prior to that he was a partner at Ernst & Young, a public accounting firm. Mr.
Remissong has an M.B.A. from the University of Chicago and a B.S.S. from Cornell
College. He is a certified public accountant.
Michael S. Seedman joined USR as Vice President and General Manager,
Personal Communications, in June 1993 and was named Senior Vice President in
March 1997. Mr. Seedman previously served as President and Chief Executive
Officer of Practical Peripherals, Inc., a data communications company which he
founded, from 1981 to 1993. He attended the University of Southern California.
George A. Vinyard joined USR as Vice President, General Counsel and
Secretary in February 1994. From 1977 to 1994 he was a practicing attorney with
the Chicago law firm of Sachnoff & Weaver, Ltd., where he had been a principal
since 1981. He received his J.D. degree from the University of Michigan Law
School and holds a B.A. from Illinois Wesleyan University.
Donna Dubinsky joined USR as Vice President and General Manager, Palm
Computing in September 1995. From 1992 to 1995, Ms. Dubinsky served as President
and Chief Executive Officer of Palm Computing, Inc. Prior to 1992, Ms. Dubinsky
held various executive positions at Claris Corporation and Apple Computer. Ms.
Dubinsky has an M.B.A. from Harvard University and a B.A. from Yale University.
Elizabeth S. Ryan joined USR as Director, Human Resources in 1989 and was
elected a Vice President in October 1991. Prior to joining USR, Ms. Ryan was the
manager of personnel and training for Recycled Paper Products, Inc. Ms. Ryan has
a M.A. in Communications from Northwestern University and a B.A. from Mundelein
College.
Dale M. Walsh has been a Vice President of USR since 1983. He currently
serves as Vice President of Advanced Development, a position he has held since
1989. Prior to that, Mr. Walsh served as Vice President, Engineering. Before
joining USR, Mr. Walsh was senior scientist at General Datacomm, Inc.
Previously, he was manager for modem development at Paradyne. Mr. Walsh is a
member and past chairman of the Electronics Industry Association committee which
develops modem standards recommendations for the ITU-TS. Mr. Walsh holds a B.S.
from the University of Illinois, Urbana, and B.S.M.E. from the University of
South Florida.
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<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows with respect to each of the directors of USR, each
of the named executive officers and all directors and executive officers of USR
as a group: (i) the total number of shares of USR Common Stock beneficially
owned as of May 1, 1997, (ii) the percent of the USR Common Stock so owned as of
that date, (iii) the total number of shares of 3Com Common Stock to be
beneficially owned after the consummation of the Merger and (iv) the percent of
3Com Common Stock to be so owned after the consummation of the Merger. Unless
otherwise indicated below, the persons named in the table below have sole voting
and investment power with respect to all shares shown as beneficially owned by
them:
<TABLE>
<CAPTION>
AMOUNT AND
AMOUNT AND NATURE OF
NATURE OF BENEFICIAL
BENEFICIAL OWNERSHIP OF
OWNERSHIP OF USR PERCENT OF USR 3COM PERCENT OF 3COM
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
BEFORE THE OUTSTANDING AFTER THE OUTSTANDING
NAME MERGER(1) BEFORE THE MERGER MERGER(3) AFTER THE MERGER(3)
- ----------------------------------- ---------------- ----------------------- --------------- -------------------------
<S> <C> <C> <C> <C>
Casey Cowell....................... 1,819,154 2.0% 5,423,520 1.6%
John McCartney..................... 1,443,570 1.6 4,018,413 1.2
Jonathan N. Zakin.................. 970,388(2) 1.1 2,986,179 *
Ross W. Manire..................... 657,697 * 2,253,069 *
Michael S. Seedman................. 79,669 * 1,267,588 *
James E. Cowie..................... 20,000 * 105,000 *
Terence M. Graunke................. 41,895 * 108,316 *
Peter I. Mason..................... 69,328 * 147,574 *
Paul G. Yovovich................... 102,800 * 179,900 *
All directors and executive
officers as a group (14
persons)......................... 5,386,501(2) 5.8% 17,800,309 5.1%
</TABLE>
- --------------------------
* Less than 1.0%
(1) Includes options to acquire shares, exercisable within 60 days, as follows:
Mr. Cowell 440,000; Mr. McCartney 1,105,266; Mr. Zakin 949,548; Mr. Manire
657,693; Mr. Seedman 79,669; Mr. Cowie 20,000; Mr. Graunke 40,000; Mr. Mason
40,000; Mr. Yovovich 90,000; and certain executive officers not named above:
181,000 shares.
(2) Excludes currently exercisable options to purchase 93,016 shares held in an
irrevocable trust for Mr. Zakin's adult children, as to which he disclaims
beneficial interest.
(3) Includes options to acquire USR Common Stock which will accelerate and will
be converted into options to acquire 3Com Common Stock upon the consummation
of the Merger. The options on an as converted basis are as follows: Mr.
Cowell 3,010,000; Mr. McCartney 3,426,381; Mr. Zakin 2,949,709; Mr. Manire
2,253,062; Mr. Seedman 1,267,588; Mr. Cowie 105,000; Mr. Graunke 105,000;
Mr. Mason 96,250; Mr. Yovovich 157,500 and certain executive officers not
named 1,309,000.
The following table sets forth certain information, as of March 13, 1997,
with respect to the beneficial ownership of USR Common Stock by all persons
known by USR to be the beneficial owners of more than 5% of the outstanding USR
Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF 3COM COMMON STOCK
BENEFICIAL PERCENT OF USR COMMON STOCK OUTSTANDING AFTER THE
NAME OWNERSHIP(1) OUTSTANDING BEFORE THE MERGER MERGER(2)
- --------------------------------------- ---------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
American Century Companies, Inc. 6,926,000 7.8% 3.6%
4500 Main Street
P.O. Box 418210
Kansas City, MO
64141-9210
</TABLE>
- --------------------------
(1) This information is based on a 13-G filing made with the SEC on February 3,
1997.
(2) Does not include the shares of 3Com Common Stock, if any, currently held by
American Century Companies, Inc. and its affiliates.
119
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the proposed Merger of 3Com and USR on a pooling of interests basis. The
unaudited pro forma combined financial statements are based on the respective
historical consolidated financial statements and the notes thereto of 3Com and
USR, which are incorporated by reference in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined balance sheet assumes
that the Merger took place on February 28, 1997 and combines 3Com's February 28,
1997 unaudited consolidated balance sheet with USR's December 29, 1996 unaudited
consolidated balance sheet. The unaudited pro forma combined statements of
operations assume that the Merger took place as of the beginning of the periods
presented and combine 3Com's consolidated statements of operations for the nine
months ended February 28, 1997 (unaudited) and the fiscal years ended May 31,
1996, 1995 and 1994 with USR's consolidated results of operations for the nine
months ended December 29, 1996 (unaudited) and the fiscal years ended September
29, 1996, October 1, 1995 and October 2, 1994, respectively. This presentation
is consistent with the fiscal years expected to be combined after the date of
the closing of the Merger and has the effect of including USR's results of
operations for the six-month period ended September 29, 1996 in both the fiscal
year ended September 29, 1996 and the nine months ended December 29, 1996
included in the unaudited pro forma combined statements of operations.
The unaudited pro forma combined financial statements are based on the
estimates and assumptions set forth in the notes to such statements. The pro
forma adjustments made in connection with the development of the pro forma
information are preliminary and have been made solely for purposes of developing
such pro forma information for illustrative purposes necessary to comply with
the disclosure requirements of the Commission. The unaudited pro forma combined
financial statements do not purport to be indicative of the results of
operations for future periods or the combined financial position or the results
that actually would have been realized had the entities been a single entity
during these periods.
3Com and USR estimate that they will incur direct transaction costs of
approximately $35 million associated with the Merger which will be charged to
operations in the fiscal quarter in which the Merger is consummated. In
addition, it is expected that following the Merger, 3Com will incur cash and
non-cash restructuring charges to operations, currently estimated to be between
$290 and $340 million in the fiscal quarter in which the Merger is consummated.
These amounts are preliminary estimates only and are therefore subject to
change. There can be no assurance that 3Com will not incur additional charges in
subsequent quarters to reflect costs associated with the Merger.
These unaudited pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of 3Com and USR, which are incorporated by reference
herein.
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<PAGE>
3COM AND USR
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
3COM FEBRUARY 28, USR DECEMBER 29, PRO FORMA PRO FORMA
1997 1996 ADJUSTMENTS* COMBINED
----------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................. $ 279,329 $ 18,726 $ 298,055
Temporary cash investments................ 514,684 -- 514,684
Trade receivables--net.................... 504,718 631,185 1,135,903
Inventories............................... 255,531 152,164 $ (91,000)(2) 316,695
Deferred income taxes..................... 98,451 43,077 56,000(2) 197,528
Other..................................... 90,960 12,018 (8,000)(2) 94,978
----------------- ----------------- ----------------- ------------
Total current assets.................... 1,743,673 857,170 (43,000) 2,557,843
Property & equipment--net................... 342,760 311,674 (42,000)(2) 612,434
Other assets................................ 47,780 47,505 (42,000)(2) 53,285
Noncurrent deferred taxes................... -- -- 14,494(2) 14,494
----------------- ----------------- ----------------- ------------
Total....................................... $ 2,134,213 $ 1,216,349 $ (112,506) $ 3,238,056
----------------- ----------------- ----------------- ------------
----------------- ----------------- ----------------- ------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term obligations.................... $ -- $ 50,000 $ 50,000
Accounts payable.......................... 169,360 149,170 318,530
Accrued and other liabilities............. 279,396 143,336 $ 167,000(2) 589,732
Income taxes payable...................... 135,019 32,664 167,683
Current portion of long-term
obligations............................. -- 12,303 12,303
----------------- ----------------- ----------------- ------------
Total current liabilities............... 583,775 387,473 167,000 1,138,248
Long-term debt.............................. 110,000 52,546 162,546
Other long-term obligations................. 5,192 2,376 7,568
Noncurrent deferred taxes................... 28,865 8,641 (37,506)(2) --
Shareholders' Equity:
Preferred stock........................... -- -- --
Common stock (3Com: 177,531,438 shares;
USR: 88,940,525 shares; and 333,177,000
shares on a pro forma combined basis)... 761,338 889 381,639(3) 1,143,866
Additional contributed capital............ -- 381,639 (381,639)(3) --
Unamortized restricted stock grants....... (5,794) -- (5,794)
Retained earnings......................... 647,717 381,521 (242,000)(2) 787,238
Notes receivable from sale of stock....... (7) -- (7)
Net unrealized gain on available-for-sale
securities.............................. 4,516 -- 4,516
Accumulated translation adjustments....... (1,389) 1,264 (125)
----------------- ----------------- ----------------- ------------
Total shareholders' equity.............. 1,406,381 765,313 (242,000) 1,929,694
----------------- ----------------- ----------------- ------------
Total....................................... $ 2,134,213 $ 1,216,349 $ (112,506) $ 3,238,056
----------------- ----------------- ----------------- ------------
----------------- ----------------- ----------------- ------------
</TABLE>
* See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
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<PAGE>
3COM AND USR
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
3COM USR
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA PRO FORMA
FEBRUARY 28, 1997 DECEMBER 29, 1996 ADJUSTMENTS* COMBINED
------------------ ------------------ ------------- ------------
<S> <C> <C> <C> <C>
Sales....................................... $ 2,317,214 $ 1,803,607 $ 4,120,821
Cost of sales............................... 1,056,269 1,042,476 2,098,745
------------------ ------------------ ------------
Gross margin............................ 1,260,945 761,131 2,022,076
------------------ ------------------ ------------
Operating expenses:
Sales and marketing....................... 482,574 266,584 749,158
Research and development.................. 242,511 91,836 334,347
General and administrative................ 97,479 82,069 179,548
Purchased in-process technology........... -- 54,000 54,000
Acquisition-related charges............... 6,600 -- 6,600
------------------ ------------------ ------------
Total operating expenses................ 829,164 494,489 1,323,653
------------------ ------------------ ------------
Operating income............................ 431,781 266,642 698,423
Other income (expense)--net................. 14,234 (1,871) 12,363
------------------ ------------------ ------------
Income before income taxes.................. 446,015 264,771 710,786
Income tax provision........................ 161,229 118,972 280,201
------------------ ------------------ ------------
Net income.............................. $ 284,786 $ 145,799 $ 430,585
------------------ ------------------ ------------
------------------ ------------------ ------------
Net income per common and equivalent share:
Primary................................. $ 1.54 $ 1.52 $ 1.22
Fully diluted........................... $ 1.53 $ 1.51 $ 1.22
Common and equivalent shares used in
computing per share amounts:
Primary................................. 185,442 96,141 72,106(4) 353,689
Fully diluted........................... 185,842 96,239 72,179(4) 354,260
</TABLE>
* See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
122
<PAGE>
3COM AND USR
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
USR
3COM YEAR ENDED
YEAR ENDED SEPT. 29, PRO FORMA PRO FORMA
MAY 31, 1996 1996 ADJUSTMENTS* COMBINED
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
Sales.................................................. $2,327,101 $ 1,977,512 $ 4,304,613
Cost of sales.......................................... 1,096,846 1,149,446 2,246,292
------------ ------------- ------------
Gross margin....................................... 1,230,255 828,066 2,058,321
------------ ------------- ------------
Operating expenses:
Sales and marketing.................................. 475,769 271,585 747,354
Research and development............................. 233,107 109,437 342,544
General and administrative........................... 97,395 93,717 191,112
Purchased in-process technology...................... 52,353 54,000 106,353
Acquisition-related charges and other................ 69,950 -- 69,950
------------ ------------- ------------
Total operating expenses........................... 928,574 528,739 1,457,313
------------ ------------- ------------
Operating income....................................... 301,681 299,327 601,008
Other income--net...................................... 6,788 2,563 9,351
------------ ------------- ------------
Income before income taxes............................. 308,469 301,890 610,359
Income tax provision................................... 130,615 131,870 262,485
------------ ------------- ------------
Net income......................................... $ 177,854 $ 170,020 $ 347,874
------------ ------------- ------------
------------ ------------- ------------
Net income per common and equivalent share:
Primary............................................ $ 1.01 $ 1.79 $ 1.02
Fully diluted...................................... $ 1.00 $ 1.78 $ 1.01
Common and equivalent shares used in computing per
share amounts:
Primary............................................ 176,517 94,932 71,199(4) 342,648
Fully diluted...................................... 176,972 95,268 71,451(4) 343,691
</TABLE>
* See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
123
<PAGE>
3COM AND USR
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
USR
3COM YEAR ENDED
YEAR ENDED OCT. 1, PRO FORMA PRO FORMA
MAY 31, 1995 1995 ADJUSTMENTS* COMBINED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Sales.................................................... $1,593,469 $ 889,347 $ 2,482,816
Cost of sales............................................ 738,093 521,159 1,259,252
------------ ----------- ------------
Gross margin......................................... 855,376 368,188 1,223,564
------------ ----------- ------------
Operating expenses:
Sales and marketing.................................... 319,310 136,585 455,895
Research and development............................... 166,327 52,478 218,805
General and administrative............................. 66,462 42,614 109,076
Purchased in-process technology........................ 68,696 -- 68,696
Acquisition-related charges and other.................. 10,125 29,449 39,574
------------ ----------- ------------
Total operating expenses............................. 630,920 261,126 892,046
------------ ----------- ------------
Operating income......................................... 224,456 107,062 331,518
Other income--net........................................ 4,895 1,858 6,753
------------ ----------- ------------
Income before income taxes............................... 229,351 108,920 338,271
Income tax provision..................................... 84,792 42,969 127,761
------------ ----------- ------------
Net income........................................... $ 144,559 $ 65,951 $ 210,510
------------ ----------- ------------
------------ ----------- ------------
Net income per common and equivalent share:
Primary.............................................. $ 0.85 $ 0.77 $ 0.66
Fully diluted........................................ $ 0.84 $ 0.76 $ 0.65
Common and equivalent shares used in computing per share
amounts:
Primary.............................................. 169,443 85,304 63,978(4) 318,725
Fully diluted........................................ 171,079 86,679 65,009(4) 322,767
</TABLE>
* See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
124
<PAGE>
3COM AND USR
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
USR
3COM YEAR ENDED
YEAR ENDED OCT. 2, PRO FORMA PRO FORMA
MAY 31, 1994 1994 ADJUSTMENTS* COMBINED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Sales.................................................... $1,011,533 $ 499,075 $ 1,510,608
Cost of sales............................................ 485,540 297,992 783,532
------------ ----------- ------------
Gross margin......................................... 525,993 201,083 727,076
------------ ----------- ------------
Operating expenses:
Sales and marketing.................................... 217,197 85,799 302,996
Research and development............................... 101,085 29,284 130,369
General and administrative............................. 49,733 28,734 78,467
Purchased in-process technology........................ 134,481 -- 134,481
------------ ----------- ------------
Total operating expenses............................. 502,496 143,817 646,313
------------ ----------- ------------
Operating income......................................... 23,497 57,266 80,763
Other income (expense)--net.............................. 3,978 (1,897) 2,081
Gain on sale of investment............................... 17,746 -- 17,746
------------ ----------- ------------
Income before income taxes............................... 45,221 55,369 100,590
Income tax provision..................................... 57,091 19,248 76,339
------------ ----------- ------------
Net income (loss)........................................ $ (11,870) $ 36,121 $ 24,251
------------ ----------- ------------
------------ ----------- ------------
Net income (loss) per common and equivalent share:
Primary.............................................. $ (0.08) $ 0.47 $ 0.08
Fully diluted........................................ $ (0.08) $ 0.47 $ 0.08
Common and equivalent shares used in computing per share
amounts:
Primary.............................................. 145,139 76,368 68,123(4) 289,630
Fully diluted........................................ 145,139 76,520 70,089(4) 291,748
</TABLE>
* See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
125
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. PERIODS COMBINED
The 3Com consolidated balance sheet as of February 28, 1997 has been
combined with the USR consolidated balance sheet as of December 29, 1996.
The 3Com consolidated statements of operations for the nine months ended
February 28, 1997 and for the fiscal years ended May 31, 1996, 1995 and 1994
have been combined with the USR consolidated statements of operations for the
nine months ended December 29, 1996, and for the fiscal years ended September
29, 1996, October 1, 1995, and October 2, 1994, respectively. This presentation
has the effect of including USR's results of operations for the six-month period
ended September 29, 1996 in both the fiscal year ended September 29, 1996 and
the nine months ended December 29, 1996 included in the unaudited pro forma
combined statements of operations.
NOTE 2. MERGER COSTS
3Com and USR estimate they will incur direct transaction costs of
approximately $35 million associated with the Merger, consisting primarily of
fees for investment banking, filings with regulatory agencies, legal,
accounting, financial printing and other related costs.
In addition, it is expected that as a direct result of the Merger, the
combined company will incur cash and non-cash restructuring charges estimated to
be between $290 and $340 million (of which between approximately $160 and $210
million will be non-cash). For the purposes of preparation of the unaudited pro
forma combined financial statements, an estimate of $350 million has been used
for the sum of the transaction and restructuring charges. The restructuring
charges are expected to include:
- $90-$115 million related to the closure and elimination of duplicate owned
and leased facilities, primarily corporate headquarters and domestic and
European sales offices;
- $85-$95 million related to the write-off of inventory associated primarily
with the elimination of duplicate wide area networking and PC Card
products, including a provision for the return of eliminated products in
the distribution channel;
- $80-$90 million related to the write-off of fixed assets (including
duplicate management information systems and other corporate assets),
purchased technology and goodwill associated with the elimination of
duplicate wide area networking and PC card products; and
- $35-$40 million for severance and outplacement costs specifically related
to the Merger.
These nonrecurring costs will be charged to operations in the fiscal quarter
in which the Merger is consummated. The unaudited pro forma combined balance
sheet gives effect to such charges as if they had been incurred as of February
28, 1997, but the effects of these costs have not been reflected in the
unaudited pro forma combined statements of operations as they are nonrecurring
in nature. It is expected that substantially all of the cash transaction and
restructuring charges will be paid out of existing cash reserves within six to
twelve months after the consummation of the Merger.
The income tax effect of these charges has also been reflected as a pro
forma adjustment. As a result of the restructuring charges, the noncurrent
deferred tax liability will become a noncurrent deferred tax asset.
NOTE 3. EXCHANGE OF STOCK
Entry reflects the reclassification of additional contributed capital of USR
to conform to the presentation of 3Com.
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<PAGE>
NOTE 4. PRO FORMA NET INCOME PER SHARE
The unaudited pro forma combined net income per common and equivalent share
is based upon the weighted average number of common and equivalent shares of
3Com and USR outstanding for each period at the Exchange Ratio of 1.75 shares of
3Com Common Stock for each share of USR Common Stock. The effect of the assumed
conversion of 3Com's convertible subordinated notes was antidilutive for the
periods presented.
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<PAGE>
COMPARISON OF SECURITYHOLDER RIGHTS
The following is a summary meant to outline for holders of USR Common Stock
certain of the material differences between their current rights as holders of
USR Common Stock and the rights they would receive following the Merger as
holders of Common Stock of either 3Com Delaware (assuming the Reincorporation is
effected) or 3Com as presently constituted under California law (assuming the
Reincorporation is not effected). Differences between the rights of holders of
USR Common Stock and 3Com Delaware Common Stock are due to differences in the
charter and bylaws proposed for 3Com Delaware and the current charter and bylaws
of USR. Since 3Com is organized under the laws of the State of California and
USR is organized under the laws of the State of Delaware, differences between
the rights of holders of USR Common Stock and 3Com Common Stock (assuming the
Reincorporation is not effected) arise from differences between various
provisions of the charter and bylaws of 3Com and USR as well as from the
differences between the California General Corporation Law ("CGCL") and the
Delaware General Corporation Law ("DGCL").
SIZE OF BOARD OF DIRECTORS. The DGCL permits the board of directors of a
Delaware corporation to change the authorized number of directors by amendment
to the corporation's bylaws or in the manner provided in the bylaws, unless the
number of directors is fixed in the corporation's certificate of incorporation,
in which case a change in the number of directors may be made only by amendment
to the certificate of incorporation, which requires stockholder approval. USR's
Bylaws provide that the number of directors of USR will not be less than three
nor more than twenty-five, with the number of directors initially fixed at
seven. Changes in the authorized number of directors, within the stated limits,
may be made either by resolution of the board of directors or by the
stockholders at the annual meeting. 3Com Delaware's Certificate of Incorporation
(the "3Com Delaware Certificate") provides that the initial number of directors
will be eleven, and that the number shall be changed exclusively by resolution
of a majority of the authorized number of directors.
Under the CGCL, the board of directors of a California corporation may fix
the number of directors within a stated range set forth in the corporation's
articles of incorporation or bylaws, if the stated range has been approved by
the shareholders. The 3Com Bylaws establish a range for the number of authorized
directors of from seven to eleven, and currently fix the authorized number of
directors at eight, with changes in the authorized number of directors permitted
by either the board of directors (within the current range) or the shareholders,
through amendment of the 3Com Bylaws or the 3Com Articles of Incorporation (the
"3Com Articles"). In addition, 3Com's Bylaws require that the Board include not
less than two "independent directors" who are not officers or employees of 3Com.
CLASSIFIED BOARD OF DIRECTORS. A classified board is one in which a certain
number, but not all, of the directors are elected on a rotating basis each year.
This method of electing directors makes a change in the composition of the board
of directors, and a potential change in control of a corporation, a lengthier
and more difficult process. The DGCL permits a classified board of directors,
with staggered terms under which the directors are elected for terms of two or
three years. USR's Bylaws provide for three classes of directors elected for
staggered three-year terms.
The 3Com Delaware Certificate and Bylaws and the 3Com Articles and Bylaws
provide for two classes of directors elected for staggered two-year terms.
REMOVAL OF DIRECTORS. Under the DGCL, any director or the entire board of
directors of a Delaware corporation with a classified board of directors may
only be removed with cause unless the certificate of incorporation provides
otherwise. USR's Bylaws provide that directors may be removed with cause by a
vote of 80% of the outstanding shares entitled to vote at an election of
directors, voting as a single class, or by the vote of a majority of the board
of directors. The 3Com Delaware Certificate provides that any director may be
removed with cause, by the vote of a majority of the outstanding shares at a
duly held annual or special meeting of the stockholders.
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<PAGE>
Under the CGCL, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no director may be removed (unless
the entire board is removed) if the number of shares voted against the removal
would be sufficient to elect the director under cumulative voting. See
"Cumulative Voting" below.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under the DGCL, vacancies on
the board of directors and newly created directorships may be filled by a
majority of the directors then in office (even though less than a quorum) unless
(i) otherwise provided in the certificate of incorporation or bylaws of the
corporation or (ii) the certificate of incorporation directs that a particular
class of outstanding stock is to elect such director, in which case any other
directors elected by such class, or a sole remaining director, shall fill such
vacancy. USR's Certificate of Incorporation (the "USR Certificate") does not
make special provision for filling vacancies. USR's Bylaws provide that if, at
the time of filling any vacancy or any newly created directorship, the directors
then in office constitute less than a majority of the whole board (as
constituted immediately prior to such increase), then any stockholder or
stockholders holding at least ten percent of the total number of outstanding
shares entitled to vote for such directors may make application to the Court of
Chancery of the State of Delaware for an order for an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office. The 3Com Delaware Certificate
provides that all vacancies on the board must be filled by a majority vote of
the directors then in office, though less than a quorum.
Under the CGCL, any vacancy on the board of directors other than one created
by removal of a director may be filled by the board of directors. If the number
of directors then in office is less than a quorum, a vacancy may be filled by
the unanimous written consent of the directors then in office, by the
affirmative vote of a majority of such directors at a meeting held pursuant to
notice or waivers of notice or by a sole remaining director. A vacancy created
by removal of a director may be filled by the board of directors only if so
authorized by a corporation's articles of incorporation or by a bylaw approved
by the corporation's shareholders. 3Com's Bylaws do not authorize its Board to
fill such a vacancy.
LIMITATIONS OF LIABILITY OF DIRECTORS; INDEMNIFICATION. The USR
Certificate, the 3Com Delaware Certificate and the 3Com Articles each include
provisions eliminating directors' liability for monetary damages to the maximum
extent permitted by applicable law, and the Bylaws of USR, 3Com Delaware and
3Com each include provisions requiring the corporation to indemnify its officers
and directors to the greatest extent permitted by applicable law. For a
discussion of the permitted scope of indemnification, the limitations on
elimination of director liability and the difference between the applicable
provisions of the DGCL and CGCL, see "The Reincorporation--Significant Changes
Caused by the Reincorporation-- Indemnification and Limitation of Liability."
ANNUAL MEETINGS. The USR Bylaws require that an annual meeting of
stockholders be held on the first Thursday in March at 10:00 a.m. (or on the
next business day at the same hour if such date is a legal holiday), or at such
other date and time as shall be designated from time to time by the Board of
Directors. The 3Com Delaware Bylaws provide that an annual meeting will be held
at the time designated by the Board. The 3Com Bylaws require that an annual
meeting of shareholders be held within three months following the close of
3Com's fiscal year.
SPECIAL SHAREHOLDER MEETINGS. Under the DGCL, a special meeting of
stockholders may be called by the board of directors or any other person
authorized to do so in the corporation's certificate of incorporation or bylaws.
USR's Bylaws provide that special meetings of stockholders may be called only by
the chairman of the board of directors, the president, by the USR Board of
Directors, or by the holders of a majority of the entire capital stock of USR
issued and outstanding and entitled to vote at the meeting. The 3Com Delaware
Certificate and Bylaws provide that special meetings may only be called by the
Board, the chairman, or the president. Both the USR Bylaws and the 3Com Delaware
Bylaws limit proper business at a special meeting to that presented in the
notice thereof.
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<PAGE>
Under the CGCL, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president, the holders of shares
entitled to cast not less than 10% of the votes at such meeting and such other
persons as are authorized to do so in the articles of incorporation or bylaws.
3Com's charter authorizes only the required parties to call a special meeting.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS. The DGCL permits stockholders
to act by written consent in lieu of a meeting of stockholders, unless a
corporation eliminates action by written consent in its certificate of
incorporation. The USR Certificate does not limit the rights of stockholders to
act by written consent. The 3Com Delaware Certificate eliminates this right.
Under the CGCL, unless otherwise provided in the articles of incorporation,
any action which may be taken at any annual or special meeting or shareholders
may be taken without a meeting by written consent of shareholders having the
requisite number of votes, subject to the requirement that ten days' advance
notice of shareholder approval of certain types of transactions and matters be
given where all shareholders' consents are not solicited. The 3Com Articles do
not limit the rights of shareholders to act by written consent.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSAL AND DIRECTOR
NOMINATIONS. Neither the USR Certificate nor the USR Bylaws expressly address
advance notice of stockholder nominations or proposals. Both 3Com Delaware's
Bylaws and 3Com's Bylaws provide that no director nomination and no matter
proposed by 3Com shareholders will be considered at an annual meeting or special
shareholder meeting unless (1) it is specified in the notice of meeting, (2) it
is brought by or at the direction of the Board of Directors or (3) written
notice of such matter is provided to 3Com no later than the date on which
shareholder proposals to be included in the 3Com proxy statement must be
received under federal securities laws.
VOTING REQUIREMENTS; SUPERMAJORITY APPROVAL. Unless otherwise specified in
a Delaware corporation's certificate of incorporation, an amendment to the
certificate of incorporation requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon. Furthermore, under the DGCL, the
holders of the outstanding shares of a class are entitled to vote as a class
upon any proposed amendment to the certificate of incorporation, whether or not
entitled to vote thereon by the provisions of the corporation's certificate of
incorporation, if the amendment would increase or decrease the aggregate number
of authorized shares of such class, increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences or special
rights of the shares of such class so as to adversely affect them.
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon. Under the CGCL, the holders of the outstanding shares of a class are
entitled to vote as a class if the proposed amendment would (i) increase or
decrease the aggregate number of authorized shares of such class, (ii) effect an
exchange, reclassification or cancellation or all or part of the shares of such
class, other than a stock split, (iii) effect an exchange, or create a right of
exchange, of all or part of the shares of another class into the shares of such
class, (iv) change the rights, preferences, privileges or restrictions of the
shares of such class, (v) create a new class of shares having rights,
preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares having
rights, preferences or privileges prior to the shares of such class, (vi) in the
case of preferred shares, divide the shares of any class into series having
different rights, preferences, privileges or restrictions or authorize the board
of directors to do so, or (vii) cancel or otherwise affect dividends on the
shares of such class which have accrued but have not been paid.
Under both the DGCL and the CGCL, with certain exceptions, any merger,
consolidation or sale of all or substantially all of a corporation's assets must
be approved by the corporation's board of directors and a majority of the
outstanding shares entitled to vote. In addition, the CGCL, but not the DGCL,
requires such transactions, among others, to be approved by a majority of the
outstanding shares of each
130
<PAGE>
class of stock (without regard to limitations on voting rights). See "Business
Combinations/Reorganizations" below.
Under the USR Certificate, the affirmative vote of the holders of 80% of the
outstanding shares entitled to vote is required to amend those provisions of the
USR Certificate addressing amendment of the Certificate of Incorporation, or to
amend certain provisions of the USR Bylaws, unless such amendment is approved by
the affirmative vote of at least 75% of the entire board of directors. See
"Amending the Bylaws" below. Approval of shareholders holding at least 66 2/3%
of the voting power of the then-outstanding shares of 3Com entitled to vote is
required to amend those provisions of the 3Com Articles addressing business
combinations and those provisions addressing amendment of the Articles of
Incorporation. The 3Com Delaware Certificate and Bylaws require approval by
holders of at least 66 2/3% of the voting stock to amend any of the governance
provisions of the Certificate of Incorporation or for the stockholders to amend
the Bylaws. The effect of such supermajority voting provisions is to make any of
these changes more difficult.
AMENDING THE BYLAWS. Under the DGCL, the authority to adopt, amend, or
repeal the bylaws of a Delaware corporation is held exclusively by the
stockholders unless such authority is conferred upon the board of directors in
the corporation's certificate of incorporation. Under the USR Certificate, USR's
Bylaws may be altered, amended or repealed by either a majority of its Board of
Directors or by holders of a majority of the voting shares; provided that the
provisions of the USR Bylaws relating to the removal of directors and the
filling of vacancies on the Board of Directors may be amended only by the vote
of 80% or more of the outstanding shares of USR entitled to vote unless such
amendment is approved by 75% of the entire USR Board of Directors. The 3Com
Delaware Certificate of Incorporation and Bylaws permit the Bylaws to be amended
with the approval of a majority of the authorized members of the board or by the
vote of at least 66 2/3% of the voting shares then outstanding.
Under the CGCL, a corporation's Bylaws may be adopted, amended or repealed
either by the board of directors or the shareholders of the corporation,
provided that only the shareholders may adopt a change to a fixed number of
directors or to alter an established range. 3Com's Bylaws provide that the
Bylaws may be changed either by the vote of the holders of a majority of the
outstanding shares entitled to vote or by the board of directors (subject to the
shareholders' ability to adopt a Bylaw provision restricting or eliminating the
Board's power to adopt, amend or repeal Bylaws); provided, however, that the
Board may not amend the Bylaws in order to change a fixed number of directors
(except to alter the authorized number of directors within the existing range of
a minimum of seven and a maximum of eleven directors) or to change from a fixed
to a variable board or vice versa. A Bylaw adopted by the shareholders may
restrict or eliminate the power of the Board to adopt, amend or repeal the
Bylaws.
CUMULATIVE VOTING. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A shareholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the shareholders may choose. Without cumulative voting, the holders of a
majority of the shares present at an annual meeting or any special meeting held
to elect directors would have the power to elect all the directors to be elected
at that meeting, and no person could be elected without the support of holders
of a majority of the shares voting at such meeting. Under the DGCL, there is no
right to cumulative voting unless the charter documents provide for it.
Under the CGCL, unless a corporation's charter documents specifically
eliminate cumulative voting, shareholders have a right to cumulate their votes
in the election of directors so long as at least one shareholder has given
notice of such shareholder's intent to cumulate his or her votes at the meeting
prior to the voting. The USR and 3Com Delaware charter documents do not provide
for cumulative voting, and 3Com's Bylaws eliminate that right.
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<PAGE>
SHAREHOLDER RIGHTS PLAN. The effectiveness and enforceability of
shareholder rights plans under California law remain uncertain and have not been
tested in the California courts. The effectiveness and enforceability of rights
plans under Delaware law have been established in numerous reported cases. The
Board of Directors of USR adopted a Stockholder Rights Agreement in May 1996,
which provides for distribution of rights to holders of outstanding shares of
USR Common Stock. The Board of Directors of 3Com adopted a Shareholder Rights
Plan in September 1989, as amended in December 1994, which provides for
distribution of rights to holders of outstanding shares of 3Com Common Stock. If
the Reincorporation is effected, 3Com Delaware will assume the existing 3Com
Rights Plan. See "The Reincorporation--Significant Changes Caused by the
Reincorporation--Common Share Purchase Rights Plan" and "Description of 3Com
Capital Stock--3Com Rights Plan."
"BLANK CHECK" PREFERRED STOCK. The USR Certificate, 3Com Delaware
Certificate, and 3Com Articles each grant the board authority to provide for the
issuance of one or more series of preferred stock, and to establish the relative
designation, rights, preferences and privileges of such preferred shares. USR
has presently designated 2,500,000 shares of Series B and 750,000 shares of
Series A Preferred Stock with certain rights and preferences senior to or on a
par with the USR Common Stock. No USR Preferred Stock is issued or outstanding,
but issuance thereof is subject to the outstanding rights distributed under the
USR Stockholder Rights Agreement. Neither 3Com Delaware nor 3Com has any
preferred stock designated, issued or outstanding.
BUSINESS COMBINATIONS/REORGANIZATIONS. A provision of the DGCL prohibits
certain transactions between a Delaware corporation and an "interested
stockholder." For purposes of this DGCL provision, an "interested stockholder"
is a stockholder that is directly or indirectly a beneficial owner of 15% or
more of the voting power of the outstanding voting stock of a Delaware
corporation (or its affiliate or associate). This provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock, unless (i) prior to the date the stockholder became an interested
stockholder the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the corporation's
board of directors; (ii) the interested stockholder acquired at least 85% of the
voting stock of the corporation in the transaction in which it became an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and the affirmative vote of two-thirds of the
shares held by disinterested stockholders. This provision applies equally to USR
and to 3Com Delaware.
The CGCL provides that, except where the fairness of the terms and
conditions of the transaction has been approved by the California Commissioner
of Corporations and except in a "short-form" merger (the merger of a parent
corporation with a subsidiary in which the parent owns at least 90% of the
outstanding shares of each class of the subsidiary's stock), if the surviving
corporation or its parent corporation owns, directly or indirectly, shares of
the target corporation representing more than 50% of the voting power of the
target corporation prior to the merger, the nonredeemable common stock of a
target corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the majority shareholder already
owns 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.
In addition, the CGCL requires that, in connection with certain transactions
between a corporation whose shares are held of record by 100 or more persons and
an "interested party," such interested party must deliver a written opinion as
to the fairness of the consideration to the shareholders of the corporation. An
"interested party" for purposes of this CGCL provision means a person who is a
party to the transaction and (i) directly or indirectly controls the
corporation, (ii) is an officer or director of the corporation, or (iii) is an
entity in which a material financial interest is held by any director or
executive officer of the corporation.
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The 3Com Articles include a "fair price provision" that prohibits certain
mergers, sales, licenses and other transactions with an "interested shareholder"
(in general, a party or group controlling 5% or more of the voting shares)
except with the approval of at least two thirds of all outstanding voting shares
and a majority of the outstanding shares held by shareholders other than the
interested shareholders.
RIGHTS OF DISSENTING SHAREHOLDERS. There are no statutory rights of
appraisal with respect to stockholders of a Delaware corporation whose shares of
stock are listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc.
There are no statutory rights of appraisal with respect to shareholders of a
California corporation whose shares of stock are not subject to restrictions on
transfer and are either (i) listed on a national securities exchange or (ii)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, unless demands for appraisal are filed with respect to
5% or more of the outstanding shares of stock. For a description of additional
differences between appraisal rights under the DGCL and CGCL, see "The
Reincorporation--Significant Changes Caused by the Reincorporation-- Appraisal
Rights" and "--Voting and Appraisal Rights in Certain Transactions."
INSPECTION OF STOCKHOLDERS LIST. Both the CGCL and the DGCL allow any
stockholder to inspect the stockholders list for a purpose reasonably related to
such person's interest as a stockholder. Additionally, the CGCL provides for an
absolute right to inspect and copy the corporation's shareholder list by a
person or persons holding at least 5% in the aggregate of the corporation's
outstanding voting shares, or any shareholder or shareholders holding 1% or more
of such shares who have filed a Schedule 14B with the Commission relating to the
election of directors. The DGCL does not provide for any such absolute right of
inspection.
DIVIDENDS. Under the USR Certificate, dividends may be paid on USR Common
Stock as and when determined by the USR Board, subject to any preferential
dividend rights of any then outstanding preferred stock. The 3Com Delaware
charter and bylaws make no special provision regarding payment of dividends. For
a summary of the differences between the dividend provisions of the DGCL and the
CGCL, see "The Reincorporation--Significant Changes Caused by the
Reincorporation--Dividends." Neither the 3Com Articles nor the 3Com Bylaws
contain any restrictions on the declaration or payment of dividends.
SHAREHOLDER DERIVATIVE SUITS. Under the DGCL, a stockholder may only bring
a derivative action on behalf of the corporation if the stockholder was a
stockholder of the corporation at the time of the transaction in question or the
stock thereafter devolved upon the stockholder by operation of law. The CGCL
provides that a shareholder bringing a derivative action on behalf of the
corporation need not have been a shareholder at the time of the transaction in
question, provided that certain tests are met. The CGCL also provides that the
corporation or the defendant in a derivative suit may make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond.
Delaware does not have a similar bonding requirement.
PREEMPTIVE RIGHTS. Stockholders of either a Delaware or a California
corporation have only such preemptive rights as may be provided in its
certificate or articles of incorporation. The USR Certificate, the 3Com Delaware
Certificate and the 3Com Articles do not grant any preemptive rights to
stockholders.
DISSOLUTION. Under the DGCL, a dissolution must be approved by stockholders
holding 100% of the total voting power or the dissolution must be initiated by
the board of directors and approved by the holders of a majority of the
outstanding voting shares of the corporation. Under the CGCL, shareholders
holding 50% or more of the total voting power may authorize a corporation's
voluntary dissolution, and this right may not be modified by its articles of
incorporation.
BOARD OF DIRECTORS MEETINGS. The DGCL imposes no requirements as to calling
board of directors meetings; such requirements are as set forth in a Delaware
corporation's certificate of incorporation or
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bylaws. The USR Bylaws provide that (i) the first meeting of the board of
directors following each annual meeting shall be held at such time and place as
shall be fixed by the vote of the stockholders at the annual meeting, or, if not
so fixed or held, at such time or place as shall be specified in a notice to the
directors or in a written waiver signed by all of the directors; (ii) regular
meetings of the board of directors may be held without notice at such time and
place as determined by the board; and (iii) special meetings of the board of
directors may be called by the chairman of the board, the president or any two
directors upon three days' notice to each director. The 3Com Delaware Bylaws
provide that regular meetings may be held at such times and places as are
determined by the board, and that special meetings may be called by the
chairman, the president, or a majority of the directors upon notice given 24
hours in advance by electronic communication or personal delivery (or 3 days'
notice by mail).
Under the CGCL, meetings of the board of directors of a California
corporation, unless otherwise provided in such corporation's articles of
incorporation or bylaws, may be called by the chairman of the board, the
president, any vice president, the secretary or any two (2) directors. The 3Com
Bylaws provide for a regular meeting of the board of directors to be held during
each quarter of 3Com's fiscal year, with one such meeting to take place
immediately following the annual meeting of shareholders.
DIRECTOR VOTING. Under the DGCL, a quorum of the board of directors is
equal to a majority of the total number of authorized directors unless the
certificate of incorporation or bylaws provides for a greater number or a lesser
number (which in no case can be less than one-third (1/3) of the total number of
directors). Under the CGCL, a quorum of a California corporation's board of
directors is equal to a majority of the authorized number of such corporation's
directors unless such corporation's articles of incorporation or bylaws provide
for a lesser number; PROVIDED, HOWEVER, that such lesser number cannot be less
than the larger of (i) one-third (1/3) of the authorized number of directors or
(ii) two (2). A California corporation's articles of incorporation may require
more than a majority of the authorized number of directors (up to and including
all of the directors) for a quorum. The USR Bylaws and the 3Com Bylaws each
provide that a majority of the directors then in office shall constitute a
quorum. The 3Com Delaware Bylaws provide that a majority of the number of
authorized directors constitutes a quorum, but provides for that number to be
reduced by one for each director disqualified to vote at any meeting (but in no
event to less than 1/3 the number of authorized directors).
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS. A Delaware corporation may
lend money to, or guarantee any obligation incurred by, its officers or
directors if, in the judgment of the board of directors, such loan or guarantee
may reasonably be expected to benefit the corporation. With respect to any other
contract or transaction between the corporation and one or more of its directors
or officers, such transactions are neither void nor voidable if either (i) the
director's or officer's interest is made known to the disinterested directors or
the stockholders of the corporation, who thereafter approve the transaction in
good faith, or (ii) the contract or transaction is fair to the corporation as of
the time it is approved or ratified by either the board of directors, a
committee thereof, or the stockholders. Neither USR nor 3Com Delaware make
special provision in this regard.
The CGCL permits shareholders of a corporation with 100 or more shareholders
of record to approve a bylaw authorizing the board of directors alone to approve
a loan or guarantee to or on behalf of an officer (whether or not a director) if
the board determines that such a loan or guarantee may reasonably be expected to
benefit the corporation. The 3Com Bylaws contain such a provision and allow its
Board of Directors to authorize 3Com to make a loan to or guarantee the
obligation of any officer of the corporation without obtaining shareholder
approval, provided that the Board determines such action may reasonably be
expected to benefit the corporation.
The CGCL also states that contracts or transactions between a corporation
and (i) any of its directors or (ii) a second corporation of which a director is
also a director are not void or voidable if the material facts as to the
transaction and as to the director's interest are fully disclosed and the
disinterested directors or a majority of the disinterested shareholders
represented and voting at a duly held meeting approve or
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ratify the transaction in good faith, or the person asserting the validity of
the contract or transaction sustains the burden of proving that the contract or
transaction was just and reasonable as to the corporation at the time it was
authorized, approved or ratified.
The foregoing summary does not purport to be a complete statement of the
rights of holders of USR Common Stock or holders of Common Stock of 3Com
Delaware or of 3Com, and is qualified in its entirety by reference to the CGCL
and the DGCL and the respective charter documents of and USR, 3Com Delaware and
3Com.
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DESCRIPTION OF 3COM CAPITAL STOCK
If the Charter Amendment is effected, the authorized capital stock of 3Com
immediately prior to the Effective Time of the Merger, whether or not the
Reincorporation occurs, will consist of 990,000,000 shares of Common Stock, par
value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01
per share. The current authorized capital stock of 3Com consists of 400,000,000
shares of Common Stock, par value $0.01 per share, and 3,000,000 shares of
Preferred Stock, without par value.
COMMON STOCK
As of May 1, 1997, there were approximately 178,200,471 shares of 3Com
Common Stock outstanding held of record by approximately 4,800 shareholders.
The following description is applicable to the 3Com Common Stock whether or
not the Reincorporation is approved and effected. Subject to preferences that
may be applicable to any outstanding Preferred Stock, holders of 3Com Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. Each holder of 3Com
Common Stock is entitled to one vote for each share held of record by him or her
and may not cumulate votes for the election of directors. In the event of a
liquidation, dissolution or winding up of 3Com, holders of 3Com Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any outstanding Preferred Stock. Holders of
3Com Common Stock have no preemptive rights, have no rights to convert their
Common Stock into any other securities, and there are no redemption provisions
with respect to such shares. All of the outstanding shares of 3Com Common Stock
are fully paid and non-assessable. As of the date hereof 3Com has not paid any
cash dividends on its Common Stock and is prohibited by certain of its borrowing
arrangements from paying cash dividends without prior approval from the lender.
If the Reincorporation is effected, 3Com Delaware intends to use the First
National Bank of Boston, 3Com's current transfer agent, as its transfer agent.
CERTAIN CHARTER PROVISIONS
If the Reincorporation is effected, 3Com Delaware's Certificate of
Incorporation and Bylaws will contain certain provisions that could have the
effect of delaying, deferring or preventing a change in control of 3Com
Delaware. These provisions include the following (i) a provision classifying the
Board of Directors into two classes; (ii) provisions eliminating stockholder
action by written consent and the right of stockholders to call special
meetings; (iii) provisions requiring advance notice of stockholder proposals or
director nominations; and (iv) provisions requiring supermajority stockholder
approval to effect certain charter amendments. The current 3Com Articles of
Incorporation and Bylaws include similar provisions, and in addition allow the
3Com Board to consider factors other than price per share when evaluating a
merger or consolidation or certain other types of proposed business combinations
and require the affirmative vote of at least two thirds ( 2/3) of all of the
outstanding shares of 3Com, and of at least a majority of the outstanding voting
shares other than shares held by interested shareholders, to approve certain
business combinations. For further description of the charter provisions of 3Com
and 3Com Delaware, see "Comparison of Securityholder Rights" and "The
Reincorporation."
PREFERRED STOCK
The proposed 3Com Delaware Certificate of Incorporation and the current 3Com
Articles of Incorporation both provide that Preferred Stock may be issued from
time to time in one or more series. 3Com's Board of Directors has authority to
fix the designation, preferences, and rights of each such series and the
qualifications, limitations and restrictions thereon and to increase or decrease
the number of shares of such series (but not below the number of shares of such
series then outstanding), without any further vote or action by the
stockholders. No 3Com Preferred Stock is currently issued or outstanding.
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3COM RIGHTS PLAN
In September 1989, the Board of Directors of 3Com declared a dividend
distribution of one Common Stock Purchase Right (each a "Right" and collectively
the "Rights") for each outstanding share of Common Stock, without par value
("Common Stock"), of 3Com. The distribution was paid as of September 20, 1989,
to shareholders of record on that date and subsequently to holders of shares
issued after that date. On December 13, 1994, the Board of Directors of 3Com
approved the amendment and restatement of the Rights Agreement. Each Right
entitles the registered holder to purchase from 3Com one share of 3Com Common
Stock at a purchase price of $250 per full share (the "Purchase Price").
The description and terms of the Rights are set forth in the Amended and
Restated Rights Agreement dated as of December 21, 1994 (the "3Com Rights Plan")
between 3Com and The First National Bank of Boston, as the Rights Agent, a copy
of which is attached to 3Com's Quarterly Report on Form 10-Q filed with the
Commission on January 13, 1995. If the Reincorporation is effected, 3Com
Delaware will assume the 3Com Rights Plan in accordance with its terms. The
Rights will expire December 13, 2004, unless earlier redeemed or exchanged, and
will become exercisable and transferable separately from the Common Stock only
(i) on the earlier of (A) the acquisition of, or the public announcement of the
intent of any person or group to acquire, without the approval of the Board of
Directors of 3Com, beneficial ownership of 20% or more of the outstanding 3Com
Common Stock ("Acquiring Person"), or (B) the 10th day (unless extended by the
Board prior to the time a person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to commence by any person or
group of persons, a tender offer which would result in the offeror owning 20% or
more of the outstanding 3Com Common Stock (the earlier of such dates being
referred to as the "First Distribution Date") or (ii) with respect to any shares
of Common Stock issuable upon conversion of certain convertible notes of 3Com
after the First Distribution Date, on the day immediately following the date on
which such notes are converted into shares of Common Stock (such date and the
First Distribution Date are collectively referred to as the Distribution Date).
If 3Com or more than 50% of its assets is acquired in a merger or other
business combination transaction after the Distribution Date, each holder of a
Right shall thereafter have the right to purchase, upon payment of the Purchase
Price, such number of shares of common stock of the acquiring company having a
current market value equal to twice the Purchase Price. If any person or group
acquires 20% or more of 3Com's Common Stock, or if such 20% shareholder engages
in certain self-dealing transactions (as specified in the 3Com Rights Plan) with
3Com, each holder of Rights other than such 20% shareholder will have the right
to purchase upon payment of the then current Purchase Price, in lieu of one
share of Common Stock per outstanding Right, such number of shares of Common
Stock having a market value at the time of the transaction equal to twice the
Purchase Price. After any of these events, 3Com may also exchange all or any
portion of the outstanding Rights, other than Rights held by such 20%
shareholder, for shares of 3Com's Common Stock at an exchange ratio of one-half
share of Common Stock per Right, subject to the provisions of the 3Com Rights
Plan. The Board of Directors may redeem the Rights for $.01 per Right at any
time prior to the day a person or group becomes a 20% shareholder and in certain
other instances. Additionally, the Purchase Price and the value of stock that
may be acquired for that price are subject to adjustment from time to time to
prevent dilution.
The Rights are designed to protect and maximize the value of the outstanding
equity interests in 3Com in the event of an unsolicited attempt by an acquiror
to take over 3Com in a manner or on terms not approved by the Board of
Directors. The Rights may have the effect of rendering more difficult or
discouraging an acquisition of 3Com deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire 3Com on terms or in a manner not approved by 3Com's Board of
Directors, except pursuant to an offer conditioned upon the negation, purchase
or redemption of the Rights.
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THE CHARTER AMENDMENT
The proposed Charter Amendment would increase the total number of shares of
stock that 3Com is authorized to issue by 597,000,000, to a total of
1,000,000,000, of which 990,000,000 shares would be authorized Common Stock, par
value $0.01 per share, and 10,000,000 shares would be authorized Preferred
Stock, par value $0.01 per share. The text of the proposed Charter Amendment is
attached as Annex G to this Joint Proxy Statement/Prospectus.
Pursuant to Article III of 3Com's Articles of Incorporation as presently in
effect, 3Com is authorized to issue 400,000,000 shares of Common Stock, par
value $0.01 per share, and 3,000,000 shares of Preferred Stock, without par
value. If the Charter Amendment is approved, the total number of authorized
shares will be increased to 1,000,000,000. As of May 1, 1997, approximately
178,200,471 shares of 3Com Common Stock were issued and outstanding and
approximately 38,274,395 additional shares of 3Com Common Stock were reserved
for issuance pursuant to employee stock option and stock purchase plans
(including approximately 28,269,105 shares reserved for issuance under
outstanding options). In addition, approximately 178,200,471 shares of 3Com
Common Stock were reserved for issuance pursuant to the 3Com Rights Plan. No
shares of 3Com Preferred Stock are currently issued, outstanding or reserved. It
is anticipated that an aggregate of approximately 156,342,842 additional shares
of 3Com Common Stock will be issued in the Merger and a like number of shares of
3Com Common Stock will need to be reserved for issuance under the 3Com Rights
Plan. In addition, approximately 31,724,917 additional shares of 3Com Common
Stock will need to be reserved following the Merger for issuance upon exercise
of USR stock options that will be assumed by 3Com. See "The Merger
Agreement--Stock Plans and Options." Unless the Charter Amendment is approved
and adopted, the combined company will have insufficient shares to complete the
Merger and at the same time meet its reserve obligations under the 3Com Rights
Plan. If the Charter Amendment is not approved, 3Com would need to amend the
3Com Rights Plan and eliminate the plan's reserve protections in order to
complete the Merger and at the same time maintain compliance with the plan's
requirements. Even then, the combined company would have only minimal shares
remaining for future option grants, issuance under stock purchase plans,
corporate acquisitions and other purposes.
REASONS FOR THE CHARTER AMENDMENT; RECOMMENDATION OF 3COM BOARD
In light of the considerations set forth in the immediately preceding
paragraph, the 3Com Board believes that 3Com's present authorized capital will
be inadequate to meet Merger-related needs and at the same time provide adequate
reserves and flexibility for employee compensation and incentive programs, the
3Com Rights Plan, and possible future corporate acquisitions. Accordingly, the
3Com Board believes that it is advisable and in the best interests of 3Com and
its shareholders to increase to 1,000,000,000 the number of shares of 3Com
capital stock which 3Com is authorized to issue.
THE 3COM BOARD HAS UNANIMOUSLY APPROVED THE PROPOSED CHARTER AMENDMENT AND
HAS DETERMINED THAT THE CHARTER AMENDMENT IS IN THE BEST INTERESTS OF 3COM AND
ITS SHAREHOLDERS. THE 3COM BOARD RECOMMENDS THAT THE SHAREHOLDERS OF 3COM VOTE
FOR APPROVAL AND ADOPTION OF THE CHARTER AMENDMENT.
INTENDED USES
3Com intends to use the additional authorized and unissued shares of 3Com
Common Stock and Preferred Stock for various corporate purposes, including but
not limited to reserves for issuance pursuant to options presently outstanding
or assumed in the Merger; reserves in connection with the 3Com Rights Plan;
possible future financings, business combinations and corporate acquisition
transactions; stock dividends and stock splits; other employee stock option,
stock purchase and other incentive and compensation programs; and other
corporate purposes. Authorized and unissued shares of 3Com Common Stock and
Preferred Stock may be issued for the foregoing purposes by the 3Com Board
without further 3Com shareholder approval unless the issuance is in connection
with a transaction for which shareholder
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approval is otherwise required under applicable law or by the rules of any stock
exchange or national market system on which 3Com securities are then listed.
Except as contemplated by the Merger Agreement, and except for the reserves
for 3Com's and USR's stock option and stock purchase plans and a reserve for the
3Com Rights Plan, there are no existing plans, arrangements or understandings to
issue shares of 3Com Common Stock.
The proposed increase in the number of authorized shares of 3Com Common
Stock and Preferred Stock will not alter the rights of the holders of 3Com
Common Stock. Neither the presently authorized shares of 3Com Common Stock and
Preferred Stock nor additional shares of 3Com Common Stock and Preferred Stock
that are to be authorized pursuant to the Charter Amendment carry preemptive
rights.
The 3Com Board's ability to approve the issuance of the increased number of
authorized shares of 3Com Common Stock and Preferred Stock might discourage a
takeover attempt because the issuance of additional shares could dilute the
voting power of the 3Com Common Stock then outstanding. 3Com is not aware of any
effort to accumulate 3Com Common Stock or to obtain control of 3Com by tender
offer or proxy fight and 3Com has no present intention to use the increased
number of shares of authorized 3Com Common Stock or Preferred Stock for
anti-takeover purposes other than to provide a reserve for the issuance of
shares of 3Com Common Stock pursuant to the 3Com Rights Plan. However, the 3Com
Board retains the right to use the newly authorized shares for such purpose, and
there can be no assurance that the 3Com Board will not do so.
TIMING OF THE CHARTER AMENDMENT; CONDITIONS
The proposed Charter Amendment, if adopted and approved by 3Com
shareholders, would become effective upon the filing of a Certificate of
Amendment of 3Com's Articles of Incorporation with the Secretary of State of the
State of California.
Because the increase in 3Com's authorized share capital will only be needed
if the Merger is completed, the Charter Amendment is contingent on, and will
only be effective if, the Merger is completed. In addition, if the
Reincorporation is approved and effected, the Charter Amendment will be
unnecessary, because the certificate of incorporation of 3Com Delaware will
provide for an initial authorized share capital of 1,000,000,000 shares of
capital stock. See "The Reincorporation."
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THE REINCORPORATION
GENERAL
The 3Com Board has unanimously approved a proposal to change 3Com's state of
incorporation from California to Delaware. In recent years, a number of major
public corporations have obtained the approval of their shareholders to
reincorporate in Delaware. The 3Com Board believes it is beneficial and
important that 3Com likewise obtain the advantages of Delaware law. The 3Com
Board believes the proposed change in domicile is in the best interests of 3Com
and its shareholders for several reasons, including: (i) the greater
predictability and flexibility afforded by Delaware corporate law and its
greater responsiveness to corporate needs, (ii) the more favorable and
predictable corporate environment afforded by Delaware to corporate directors
and officers, and (iii) the greater certainty afforded by Delaware law with
respect to directors' duties in the face of takeover offers and with respect to
anti-takeover measures.
REASONS FOR REINCORPORATION
PREDICTABILITY, FLEXIBILITY AND RESPONSIVENESS TO CORPORATE NEEDS. Delaware
has adopted comprehensive and flexible corporate laws which are revised
regularly to meet changing business circumstances. The Delaware Legislature is
particularly sensitive to issues regarding corporate law and is especially
responsive to developments in modern corporate law. In addition, Delaware offers
a system of specialized chancery courts to deal with corporate law questions.
These courts have developed considerable expertise in dealing with corporate
issues as well as a substantial and influential body of case law construing
Delaware's corporate law. In addition, the Delaware Secretary of State is
particularly flexible, expert and responsive in its administration of the
filings required for mergers, acquisitions and other corporate transactions.
Delaware has become a preferred domicile for most major American corporations
and Delaware law and administrative practices have become comparatively
well-known and widely understood. As a result of these factors, it is
anticipated that Delaware law will provide greater efficiency, predictability
and flexibility in 3Com's legal affairs than is presently available under
California law.
DIRECTORS AND OFFICERS. The 3Com Board believes that Reincorporation will
enhance 3Com's ability to attract and retain qualified directors and officers as
well as encourage directors and officers to continue to make independent
decisions in good faith on behalf of 3Com. The law of Delaware offers reduced
risk and greater certainty and stability from the perspective of those who serve
as corporate officers and directors. The intense competition that has
characterized the networking industry has greatly expanded the challenges and
risks facing the directors and officers of companies within the networking
industry. To date, 3Com has not experienced difficulty in retaining directors or
officers. However, as a result of the significant potential liability and
relatively small compensation associated with service as a director and recent
California political events, 3Com believes that the better understood, more
favorable, and comparatively stable corporate environment afforded by Delaware
will enable it to compete more effectively with other public companies, most of
which are incorporated in Delaware, in the recruitment of talented and
experienced directors and officers.
The parameters of director and officer liability are more extensively
addressed in Delaware court decisions and are therefore better defined and
better understood than under California law. In addition, the protection from
liability and ability to provide indemnification for directors and officers is
somewhat greater under Delaware law than under existing California law and
significantly greater than under an initiative submitted to the California
electorate in November 1996, Proposition 211. That initiative was designed to
increase the personal liability faced by individuals who serve as directors or
officers of corporations and to limit the ability of companies to indemnify
their directors and officers. Although the proposal was rejected by the
electorate, it is not unlikely that further initiatives or legislation of this
kind will be proposed in California in the future. Accordingly, the 3Com Board
believes that 3Com's corporate objectives can be better achieved by
reincorporating in Delaware, and by including provisions in the
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certificate of incorporation and by-laws of 3Com Delaware to eliminate personal
liability of directors and officers and to provide for their indemnification to
the maximum extent permitted by Delaware law.
The 3Com Board believes that Delaware law strikes an appropriate balance
with respect to personal liability of directors and officers, and that
reincorporation in Delaware will enhance 3Com's ability to recruit and retain
directors and officers in the future, while providing appropriate protection for
shareholders from possible abuses by directors and officers. In this regard, it
should be noted that directors' personal liability is not, and cannot be,
eliminated under Delaware law for intentional misconduct, bad faith conduct or
any transaction from which the director derives an improper personal benefit, or
for violations of federal laws such as the federal securities laws.
TAKEOVER RESPONSE. 3Com currently has in place a number of measures
designed to protect shareholder interests in the event of a hostile takeover
attempt against 3Com. 3Com proposes to include similar measures in the charter
and by-laws of 3Com Delaware. Many of these measures have not been as fully
tested in the California courts as in the Delaware courts. As a result, Delaware
law affords greater certainty that these measures will be interpreted, sustained
and applied in accordance with the intentions of the 3Com Board. In general,
Delaware case law provides a well developed body of law defining the proper
duties and decision making process expected of a board of directors in
evaluating potential and proposed corporate takeover offers and business
combinations. The 3Com Board believes that these measures and related Delaware
law will help the 3Com Board to protect 3Com's corporate strategies, to consider
fully any proposed takeover and alternatives, and, if appropriate, to negotiate
terms that maximize the benefit to 3Com shareholders.
REINCORPORATION PROCEDURE
The proposed Reincorporation would be accomplished by merging 3Com into 3Com
Delaware, a wholly owned Delaware subsidiary of 3Com (the "Reincorporation
Merger"), pursuant to an Agreement and Plan of Merger and Reincorporation (the
"Reincorporation Agreement") in substantially the form attached as Annex H to
this Joint Proxy Statement/Prospectus. When the Reincorporation Merger becomes
effective, 3Com Delaware's name will automatically be changed to 3Com
Corporation. The Reincorporation will not result in any change in 3Com's
business, assets or liabilities, will not cause its corporate headquarters to be
moved and will not result in any relocation of management or other employees.
On the effective date of the proposed Reincorporation, each outstanding
share of Common Stock of 3Com will automatically convert into one share of
Common Stock of 3Com Delaware, and shareholders of 3Com will automatically
become shareholders of 3Com Delaware. At the effective time of the
Reincorporation, the number of outstanding shares of common stock of 3Com
Delaware will be equal to the number of shares of Common Stock of 3Com
outstanding immediately prior to the effective time of the Reincorporation. In
addition, each outstanding option or right to acquire shares of Common Stock of
3Com will be converted into an option or right to acquire an equal number of
shares of Common Stock of 3Com Delaware, under the same terms and conditions as
the original options or rights. All of 3Com's employee benefit plans, including
the 1983 Stock Option Plan, 1994 Stock Option Plan, Restricted Stock Option
Plan, Directors Stock Option Plan and Employee Stock Purchase Plan, will be
adopted and continued by 3Com Delaware following the Reincorporation. 3Com
shareholders should recognize that approval of the proposed Reincorporation will
constitute approval of the adoption and assumption of those plans by 3Com
Delaware.
No action need be taken by 3Com shareholders to exchange their stock
certificates as a result of the Reincorporation. Certificates for shares of 3Com
stock will automatically represent an equal number of shares of 3Com Delaware
stock upon completion of the Reincorporation. 3Com intends to apply for the
listing and registration of 3Com Delaware Common Stock on The Nasdaq National
Market.
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VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of 3Com's
voting stock entitled to vote is required for approval of the Reincorporation.
If approved by the 3Com shareholders, it is anticipated that the Reincorporation
would be completed as soon thereafter as practicable. The Reincorporation may be
abandoned or the Reincorporation Agreement may be amended (with certain
exceptions), either before or after approval by 3Com shareholders if, in the
opinion of the 3Com Board, circumstances arise that make such action advisable.
The proposal to approve the Reincorporation is independent of the proposal to
approve the Merger. If the Reincorporation is approved, it will be effected
whether or not the Merger is approved or effected, unless doing so would
constitute a breach of the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The following discussion addresses certain federal income tax considerations
that are generally applicable to holders of Common Stock of 3Com who receive
Common Stock of 3Com Delaware in exchange for their Common Stock of 3Com in the
Reincorporation. This discussion does not address all of the tax consequences of
the Reincorporation that may be relevant to particular 3Com shareholders in
light of their particular circumstances, such as shareholders who are dealers in
securities, who are foreign persons or who acquired their Common Stock of 3Com
through stock option or stock purchase programs or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effected prior to or after the Reincorporation
(whether or not such transactions are in connection with the Reincorporation).
However, for a discussion of the federal income tax consequences of the Merger,
see "The Merger--Certain Federal Income Tax Consequences." Finally, no foreign,
state or local tax considerations are addressed herein. ACCORDINGLY, 3COM
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE REINCORPORATION AND RELATED TRANSACTIONS, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
REINCORPORATION AND SUCH RELATED TRANSACTIONS.
The following discussion is based on the interpretation of the Code,
applicable Treasury Regulations, judicial authority and administrative rulings
and practice, all as of the date hereof. The Internal Revenue Service (the
"IRS") is not precluded from adopting a contrary position. In addition, there
can be no assurance that future legislative, judicial or administrative changes
or interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the
Reincorporation to 3Com, 3Com Delaware and/or 3Com shareholders.
Subject to the limitations, qualifications and exceptions described herein,
and assuming the Reincorporation qualifies as a reorganization within the
meaning of Section 368(a) of the Code (a "Reorganization"), the following
federal income tax consequences will generally result:
(a) No gain or loss will be recognized by holders of the Common Stock
of 3Com upon receipt of Common Stock of 3Com Delaware pursuant to the
Reincorporation;
(b) The aggregate tax basis of the Common Stock of 3Com Delaware
received by each shareholder of 3Com in the Reincorporation will be equal to the
aggregate tax basis of the Common Stock of 3Com surrendered in exchange
therefor;
(c) The holding period of the Common Stock of 3Com Delaware received by
each shareholder of 3Com will include the period for which such shareholder held
the Common Stock of 3Com surrendered in exchange therefor, provided that such
Common Stock of 3Com was held by such shareholder as a capital asset at the time
of the Reincorporation; and
(d) No gain or loss will be recognized by 3Com or 3Com Delaware as a
result of the Reincorporation.
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Neither 3Com nor 3Com Delaware has requested a ruling from the IRS with
respect to the federal income tax consequences of the Reincorporation. 3Com and
USR will, however, each receive an opinion from its respective legal counsel,
Gray Cary Ware & Freidenrich, A Professional Corporation, and Mayer, Brown &
Platt, to the effect that the Reincorporation will constitute a Reorganization
(the "Tax Opinions"). The Tax Opinions will neither bind the IRS nor preclude
the IRS from asserting a contrary position. In addition, the Tax Opinions will
be subject to certain assumptions, exceptions and qualifications and will be
based upon the truth and accuracy of representations made by 3Com, 3Com Delaware
and possibly certain shareholders of 3Com.
A successful IRS challenge to the Reorganization status of the
Reincorporation would result in a 3Com shareholder recognizing gain or loss with
respect to each share of Common Stock of 3Com exchanged in the Reincorporation
equal to the difference between the shareholder's basis in such share and the
fair market value, as of the time of the Reincorporation, of the Common Stock of
3Com Delaware received in exchange therefor. In such event, a shareholder's
aggregate basis in the shares of Common Stock of 3Com Delaware received in the
exchange would equal their fair market value on such date, and the shareholder's
holding period for such shares would not include the period during which the
shareholder held Common Stock of 3Com.
Even if the Reincorporation qualifies as a Reorganization, a 3Com
shareholder would recognize gain if, and to the extent that, the shareholder
received (directly or indirectly) consideration other than Common Stock of 3Com
Delaware in exchange for the shareholder's Common Stock of 3Com or to the extent
that the Common Stock of 3Com Delaware were considered to be received in
exchange for services or property other than solely for Common Stock of 3Com.
All or a portion of such gain could be taxable as ordinary income. Under the
terms of the Reincorporation Agreement, no such consideration other than Common
Stock of 3Com Delaware will be issued in the Reincorporation.
3Com shareholders will be required to attach a statement to their tax
returns for the year of the Reincorporation that contains the information listed
in Treasury Regulation Section 1.368-3(b). Such statement must include the
shareholder's tax basis in the shareholder's Common Stock of 3Com and a
description of the Common Stock of 3Com Delaware received.
INTERESTS OF 3COM DIRECTORS AND OFFICERS
3Com shareholders should be aware that reincorporation in Delaware may be of
benefit to the 3Com directors by reducing the directors' potential personal
liability and increasing the scope of permitted indemnification, by
strengthening the directors' ability to resist a takeover bid, by limiting the
ability of stockholders to remove directors, and in other respects. The
Reincorporation is not intended to and will not affect the rights of any of the
parties to any of the lawsuits to which 3Com is a party, including, without
limitation, the putative shareholder class action filed against 3Com in the
California Superior Court. See "Information Concerning 3Com--Business--Legal
Proceedings." The interests of the 3Com Board in recommending the
Reincorporation may therefore be in conflict with the interests of the
shareholders, and the interests of the 3Com Board, management and affiliated
shareholders in voting on the Reincorporation proposal may not be the same as
those of unaffiliated shareholders. For a more complete discussion of the
principal differences between California and Delaware law and the charters and
bylaws of 3Com and 3Com Delaware as they affect shareholders, see "--Significant
Changes Caused by the Reincorporation" and "Comparison of Securityholder
Rights."
In considering the Reincorporation proposal, 3Com shareholders should be
aware that the overall effect of the Reincorporation may be to make it more
difficult for holders of a majority of the outstanding shares of 3Com Common
Stock to replace directors or to remove existing management in circumstances
where a majority of the shareholders may be dissatisfied with the performance of
the incumbent directors and management or otherwise desire to make changes. In
particular, the Reincorporation could make a proxy contest a less effective
means of removing or replacing existing directors or could make it more
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difficult to make a change in control of 3Com which is opposed by the 3Com
Board. This in turn could enable the 3Com Board to resist the desires of a
majority of the stockholders. However, the 3Com Board believes that 3Com
directors will be committed to, and will act in, the interests of the company
and its stockholders, and not for self-entrenchment.
3COM BOARD RECOMMENDATION
A vote FOR the approval and adoption of the Reincorporation Agreement will
constitute approval of the merger of 3Com with and into 3Com Delaware, approval
and adoption of the Certificate of Incorporation and By-Laws of 3Com Delaware,
and the form of the Delaware indemnification agreements, adoption and assumption
by 3Com Delaware of each of 3Com's stock option, stock purchase and other
employee benefit plans, and approval of all other aspects of the proposed
Reincorporation.
THE 3COM BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION
OF THE REINCORPORATION AGREEMENT.
SIGNIFICANT CHANGES CAUSED BY THE REINCORPORATION
In general, 3Com's corporate affairs are governed at present by the
corporate law of California, 3Com's state of incorporation, and by the Articles
of Incorporation and By-Laws of 3Com (the "3Com Articles" and the "California
Bylaws," respectively, and the "California Articles and Bylaws" collectively),
which have been adopted pursuant to California law. The 3Com Articles and
California Bylaws are available for inspection during business hours at the
principal executive offices of 3Com. In addition, copies may be obtained by
writing to 3Com Corporation, 5400 Bayfront Plaza, Santa Clara, California 95052.
Attention: Corporate Secretary.
If the Reincorporation Agreement is adopted and approved, 3Com will merge
into, and its business will be continued by, 3Com Delaware. Following the
Reincorporation, issues of corporate governance and control would be determined
under Delaware rather than California law. The 3Com Articles and California
Bylaws, will, in effect, be replaced by the Certificate of Incorporation and
By-Laws of 3Com Delaware (the "3Com Delaware Certificate" and the "Delaware
Bylaws," respectively, and the "Delaware Certificate and Bylaws" collectively),
copies of which are attached as Exhibits 1 and 2 to Annex H to this Joint Proxy
Statement/Prospectus. Accordingly, it is important for shareholders to
understand the differences among these documents and between Delaware and
California law in deciding whether to approve the Reincorporation.
A number of differences between California and Delaware law and among the
various charter documents of 3Com and 3Com Delaware are summarized below and in
the "Comparison of Securityholders Rights" elsewhere in this Joint Proxy
Statement/Prospectus. The following discussion summarizes the more important
differences in the corporation laws of Delaware and California and does not
purport to be an exhaustive discussion of all of the differences. Such
differences can only be determined in full by reference to the California
General Corporation Law (the "CGCL") and to the Delaware General Corporation Law
(the "DGCL") and to the case law interpretating these statutes. In addition,
both California and Delaware law provide that many of the statutory provisions
as they affect various rights of holders of shares may be modified by provisions
in the charter or bylaws of the corporation.
INDEMNIFICATION AND LIMITATION OF LIABILITY
LIMITATIONS ON DIRECTOR LIABILITY. Both California and Delaware permit a
corporation to limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of certain duties as a
director, but only if an amendment to the charter limiting such liability is
approved by a majority of the outstanding shares or limiting language is
included in the original charter.
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The 3Com Articles eliminate the liability of 3Com directors to the
corporation to the fullest extent permissible under California law. The CGCL
does not permit the elimination of monetary liability where such liability is
based on; (a) intentional misconduct or knowing and culpable violation of law;
(b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (c) receipt of an improper personal
benefit; (d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders; (f) interested
transactions between the corporation and a director in which a director has a
material financial interest: or (g) liability for improper distributions, loans
or guarantees.
The 3Com Delaware Certificate eliminates the monetary liability of directors
to the fullest extent permissible under Delaware law, as currently in effect or
as it may be amended in the future. Under current Delaware law, a
limitation-of-liability provision may not eliminate or limit director monetary
liability for: (a) breaches of the director's duty of loyalty to the corporation
or its stockholders; (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law; (c) the payment of unlawful
dividends or unlawful stock repurchases or redemptions; or (d) transactions in
which the director received an improper personal benefit. In addition, a
limitation-of-liability provision may not relieve directors from the obligation
to comply with any laws or from the availability of non-monetary remedies such
as injunctive relief or rescission.
3Com shareholders should recognize that the proposed Reincorporation and
associated measures have the effect of more fully shielding a director from
suits by 3Com Delaware or its stockholders for monetary damages for negligence
or gross negligence by the director in failing to satisfy the director's duty of
care. As a result, an action for monetary damages against a director would be
available only if 3Com Delaware or its stockholders were able to establish that
the director was disloyal in his conduct, failed to act in good faith, engaged
in intentional misconduct, knowingly violated the law, derived an improper
personal benefit or approved an illegal dividend or stock repurchase.
Consequently, the effect of such measures may be to limit or eliminate an
effective remedy otherwise available to a shareholder who is dissatisfied with
the 3Com Board's decisions. Although an aggrieved shareholder could sue to
enjoin or rescind an action taken or proposed by the 3Com Delaware Board, such
remedies may not be timely or adequate to prevent or redress injury in all
cases.
3Com believes that directors are motivated to exercise due care in managing
3Com's affairs primarily by concern for the best interests of 3Com and its
shareholders rather than by the fear of potential monetary damage awards. As a
result, 3Com believes that the Reincorporation would not diminish the 3Com
Board's high standard of corporate governance or the accountability of directors
to the company and its shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. Both the California Articles and
Bylaws and the Delaware Certificate and Bylaws relating to indemnification
require that 3Com and 3Com Delaware, respectively, indemnify its directors and
its executive officers to the fullest extent permitted by the respective state
law, provide that the extent of such indemnification may be modified by
individual contracts with directors and executive officers, and provide further
that neither 3Com nor 3Com Delaware will be required to indemnify any director
or executive officer in connection with a proceeding initiated by such person,
with certain exceptions. Both the California Articles and Bylaws and the
Delaware Certificate and Bylaws permit but do not require indemnification of
other officers, employees and agents. The Delaware Bylaws contain provisions
similar to the California Bylaws with respect to advancing defense costs and
related expenses. Under both the California Bylaws and the Delaware Bylaws, 3Com
is required to advance expenses related to any proceeding, contingent on the
indemnified person's commitment to repay any advances unless it is determined
ultimately that such person is entitled to be indemnified.
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California and Delaware both have similar laws respecting indemnification by
a corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
Indemnification is generally permitted by both the CGCL and DGCL provided
that the requisite standard of conduct is met, as determined by a majority vote
of a disinterested quorum of the directors, independent legal counsel (if a
quorum of independent directors is not obtainable), a majority vote of a quorum
of the shareholders (excluding shares owned by the indemnified party) or the
court handling the action.
The CGCL requires indemnification when the individual has successfully
defended the action on the merits. The DGCL requires indemnification when the
individual has been successful in the defense on the merits or otherwise.
The DGCL generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination that the person seeking indemnification acted in good faith and in
a manner reasonably believed to be in or (in contrast to California law) not
opposed to the best interests of the corporation. Without court approval,
however, no indemnification may be made in respect of any derivative action in
which such person is adjudged liable for negligence or misconduct in the
performance of his or her duty to the corporation.
The CGCL permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions no
indemnification may be made without court approval (a) when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, or (b) in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Both California and Delaware law allow corporations to provide
indemnification over and above what is required or expressly permitted, if
provision for extended indemnification is made in the governing corporate
documents. The 3Com Articles contain such an enabling provision. Under the DGCL
and the Delaware Bylaws, 3Com Delaware is permitted to indemnify its directors,
officers, employees and other agents, pursuant to an express contract, bylaw
provision, shareholder vote or otherwise, any or all of which could provide
indemnification rights broader than those currently available under the
California Articles and Bylaws or the California indemnification statutes.
3Com has entered into indemnification agreements with its officers and
directors. 3Com Delaware plans to enter into similar agreements with its
officers and directors upon completion of the proposed Reincorporation. If the
proposed Reincorporation is approved, the proposed Delaware indemnification
agreements will be approved by 3Com's shareholders. Thus a vote in favor of the
proposed Reincorporation will also constitute approval of the indemnification
agreements in substantially the form attached as Annex I to this Joint Proxy
Statement/Prospectus. Although the law in this regard is not certain,
shareholders who vote in favor of the Reincorporation proposal, and thereby
approve the indemnity agreements, may be prevented from challenging the validity
of the indemnity agreements in a subsequent court proceeding.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of 3Com made prior to the proposed Reincorporation. Nevertheless, the 3Com Board
has recognized in considering the Reincorporation proposal that the individual
directors have a personal interest in obtaining the application of Delaware law
to indemnity and limitation of liability issues affecting them and 3Com in the
event they arise in the future, and that the
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application of Delaware law, to the extent that any director or officer is
actually indemnified in circumstances where indemnification would not be
available under California law and the California Articles and Bylaws, would
result in expense to 3Com Delaware which 3Com would not incur without the
Reincorporation. The 3Com Board believes, however, that the primary purpose and
overall effect of the Reincorporation is to provide a corporate legal
environment that enhances 3Com's ability to attract and retain high quality
outside directors and thus on balance promotes the interests of 3Com and its
shareholders.
There is no pending or, to 3Com's knowledge, threatened litigation to which
any of its directors is a party in which the rights of 3Com or its shareholders
would be changed if 3Com currently were subject to the provisions of Delaware
law rather than California law.
By their terms, the CGCL and DGCL, the 3Com Articles and the California
Bylaws and the Delaware Certificate and Bylaws, and existing and proposed
indemnity agreements might permit indemnification for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The 3Com Board has been
advised that, in the opinion of the Commission, indemnification for liabilities
arising under the Securities Act or the Exchange Act is contrary to public
policy and is therefore unenforceable, absent a decision to the contrary by a
court of appropriate jurisdiction.
OTHER MATTERS RELATING TO DIRECTORS
NUMBER OF DIRECTORS. The CGCL allows the number of persons constituting the
board of directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors may
vary within a specified range. The CGCL further provides that, in the case of a
variable board, the maximum number of directors may not exceed two times the
minimum number minus one. The California Bylaws provide for a board of directors
that may vary between seven and eleven members, inclusive, and the exact number
of directors has been fixed at eight. The CGCL also requires that any change in
a fixed number of directors and any change in the range of a variable board of
directors specified in the articles and bylaws must be approved by a majority in
interest of the outstanding shares entitled to vote (or such greater proportion
of the outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
five cannot be adopted if votes cast against its adoption are equal to more than
16 2/3% of the outstanding shares entitled to vote. The California Bylaws
require the vote of a majority in interest of 3Com's outstanding voting power to
change the range of the board.
The DGCL permits a board of directors to change the authorized number of
directors by amendment to the bylaws unless the number of directors is fixed in
the certificate of incorporation or the manner of fixing the number of directors
is set forth in the certificate of incorporation, in which case the number of
directors may be changed only by amendment of the certificate of incorporation
or consistent with the manner specified in the certificate of incorporation, as
the case may be. The 3Com Delaware Certificate provides that the exact number of
directors shall be fixed from time to time exclusively by the board by
resolution. Thus, the size of the board of directors becomes a matter under
Board, not shareholder, control if the Reincorporation is effected.
ELECTIONS; CLASSIFIED BOARD OF DIRECTORS. The CGCL generally requires that
directors be elected annually but permits a "classified" board if (i) a
corporation is listed on a national stock exchange or (ii) the corporation's
shares are traded on The Nasdaq National Market and are held by at least 800
shareholders. The CGCL also allows the election of one or more directors by the
holders of a particular class or series of shares. The California Bylaws
currently provide for a classified board of directors divided into two classes,
elected for two-year terms.
The DGCL also permits the adoption of a classified board of directors with
staggered terms. A maximum of three classes of directors is permitted by the
DGCL , with members of one class to be elected each year for a maximum term of
three years. Like the 3Com Articles and the California Bylaws, the
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Delaware Certificate and Bylaws divide the 3Com Delaware Board into two classes,
elected for two-year terms.
Under both the 3Com Articles and the California Bylaws and the Delaware
Certificate and Bylaws, it may require two annual meetings of stockholders for a
majority of the stockholders to make a change in control of the board, since
only a portion of the directors will be elected at each meeting.
REMOVAL OF DIRECTORS. Under the CGCL, a director may be removed with or
without cause by the affirmative vote of a majority of the outstanding shares.
Under the DGCL, a director on a classified board of directors can be removed
from office during his term by the shareholders only for cause unless the
certificate of incorporation provides otherwise. The 3Com Delaware Certificate
provides that a 3Com Delaware director may be removed from office only for cause
at a duly held special or annual meeting and with the affirmative vote of the
holders of a majority of the voting power of the then outstanding shares of
voting stock of 3Com Delaware entitled to vote in the election of directors (the
"Voting Stock").
FILLING BOARD VACANCIES. Under the CGCL, if, after the filling of any
vacancy by the directors of a corporation, the directors then in office who have
been elected by the corporation's shareholders constitute less than a majority
of the directors then in office, then: (i) any holder of more than 5% of the
corporation's voting stock may call a special meeting of shareholders, or (ii)
the superior court of the appropriate county may order a special meeting of the
shareholders to elect the entire board of directors of the corporation. The DGCL
provides that if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the entire board of directors as constituted immediately prior to any increase,
the Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least 10% of the total number of shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships or
to replace the directors chosen by the directors then in office.
The Delaware Certificate and Bylaws eliminate action by stockholder written
consent and therefore prevent directors from being removed except at a duly
called annual or special meeting of stockholders. In addition, the Delaware
Certificate and Bylaws provide that all vacancies shall be filled exclusively by
the affirmative vote of a majority of directors then in office, even if such
directors comprise less than a quorum of the board.
CUMULATIVE VOTING TO ELECT DIRECTORS. The California Bylaws provide that
there is no right to invoke cumulative voting in the election of directors. The
Delaware Certificate and Bylaws likewise do not provide for cumulative voting.
For a description of cumulative voting, see "Comparison of Securityholder
Rights-- Cumulative Voting."
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS; CALLING FOR SPECIAL MEETINGS
Under California and Delaware law, shareholders may be permitted to take
action by written consent in lieu of a shareholder meeting. Both California and
Delaware law permit a corporation to eliminate the right to take action by
written consent in its charter. The California Articles do not limit the right
of shareholders to act by written consent. The 3Com Delaware Certificate
eliminates actions by written consent of stockholders.
Under the DGCL, if so provided in the certificate of incorporation or
bylaws, stockholders may call special meetings of stockholders. Under the CGCL,
holders of 10% or more of the Voting Stock have the power to call for a special
meeting of shareholders. The Delaware Certificate and Bylaws do not provide for
any stockholder right to call a special meeting.
Thus, if the Reincorporation is effected, 3Com shareholders will no longer
be permitted to take action by written consent or by demanding a special
meeting. Elimination of both the shareholders' right to act by written consent
and to call a special meeting significantly limits the ability of the
shareholders to quickly initiate action to change the composition of the Board
of Directors or otherwise affect the direction or
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management of 3Com's affairs. Actions by written consent are not subject to the
minimum notice requirement of a shareholders' meeting, whereas in the absence of
action by written consent, business proposed by a stockholder must wait until
the next annual or special meeting. The elimination of shareholder written
consents and ability to call special meetings may deter hostile takeover
attempts because of the lengthened shareholder approval process. Without the
ability to act by written consent or call a meeting, a holder or group of
holders controlling a majority in interest of 3Com Delaware's capital stock will
not be able to amend the Delaware Certificate or Bylaws or remove directors
quickly. Any such holder or group of holders would have to wait until an annual
stockholder's meeting was held or until management called a special
stockholders' meeting at which the desired matter was among the purposes for
which the meeting was called to take any such action. The 3Com Board believes
this provision, like the other provisions to be included in the Delaware
Certificate and Bylaws, reduces a hostile takeover suitor's ability to remove or
overrule the Board, and will therefore enhance the Board's ability to obtain the
time necessary to fully consider any takeover offer and alternatives and
effectively negotiate in the context of a takeover attempt.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in a publicly traded company's proxy
materials must be received not less than 120 days in advance of the calendar
date of the proxy statement released in connection with the previous year's
annual meeting.
Both the California Bylaws and the Delaware Bylaws provide that in order for
director nominations or shareholder proposals to be properly brought before the
meeting, the shareholder must have delivered timely notice to the Secretary of
the corporation. To be timely, in both cases, notice must be delivered not less
than 120 days prior to the date of 3Com's proxy statement released to
stockholders in connection with the previous year's annual meeting, except that,
if no annual meeting was held in the previous year or the date of the annual
meeting has been advanced by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, the Delaware Bylaws provide that
notice must be received not later than the close of business on the tenth day
following the day on which the date of the annual meeting is publicly announced.
These notice requirements help ensure that shareholders are aware of all
proposals to be voted on at the meeting and have the opportunity to consider
each proposal in advance of the meeting.
ANTI-TAKEOVER MEASURES
The 3Com Board believes that a hostile takeover attempt may have a negative
effect on 3Com and its shareholders. Takeover attempts that have not been
negotiated or approved by the board of a corporation can seriously disrupt the
business and management of a corporation and generally present the risk of terms
which are less favorable to all of the shareholders than would be available in a
negotiated, board-approved transaction. By contrast, board-approved transactions
can be carefully planned and undertaken at an opportune time in order to obtain
maximum value for the corporation and all of its shareholders, with due
consideration to matters such as capturing the value from longer term
strategies, the recognition or postponement of gain or loss for tax purposes and
the management and business of the acquiring corporation.
The California Articles and Bylaws already include certain provisions
available to 3Com under California law to deter hostile takeover attempts and to
help provide adequate opportunity for the board to consider and respond to a
takeover offer. These provisions include a classified board, elimination of
cumulative voting, and an advance notice requirement for shareholder proposals.
These provisions will also be included in the Delaware Certificate and Bylaws
following the Reincorporation.
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In addition, 3Com currently has a common share purchase rights plan (the
"3Com Rights Plan"), which would be assumed by 3Com Delaware upon completion of
the Reincorporation. For a description of the 3Com Rights Plan, see "Description
of 3Com Capital Stock--3Com Rights Plan."
3Com Delaware would also retain the rights currently available to 3Com under
California law to issue shares of its authorized but unissued capital stock.
Following the effectiveness of the proposed Reincorporation, shares of
authorized and unissued common stock and preferred stock of 3Com Delaware could
(within the limits imposed by applicable law) be issued, or preferred stock
could be created and issued with terms, provisions and rights, to make more
difficult, and therefore less likely, a takeover of 3Com Delaware. See
"Capitalization; Blank Check Preferred" below. Any such issuance of additional
stock could have the effect of diluting the earnings per share and book value
per share of existing shares of Common Stock and Preferred Stock, and such
additional shares could be used to dilute the stock ownership of persons seeking
to obtain control of 3Com Delaware.
In addition to specific anti-takeover measures, a number of differences
between California and Delaware law, which are effective without action by 3Com
Delaware, could have a bearing on unapproved takeover attempts. One such
difference is the existence of a DGCL provision regulating tender offers by
restricting permitted business combinations with "interested stockholders,"
which provision is intended to limit coercive takeovers of companies. Any
corporation may decide to opt out of the statute in its original certificate of
incorporation or, at anytime, by action of its shareholders. 3Com has no present
intention of opting out of the statute. The CGCL has no comparable provision,
but does have a statutory provision limiting the ability of majority (but less
than 90%) shareholders to cash out minority shareholders. For a description of
these Delaware and California statutory provisions, see "Comparison of
Securityholder Rights--Business Combinations/Reorganizations."
The 3Com Articles also contain provisions regarding takeover attempts that
are comparable to the Delaware statutory provisions. The 3Com Articles provide
that certain mergers or other specified transactions ("Business Combinations")
involving 3Com or a 3Com subsidiary and another corporation or individual which
owns or controls 5% or more of 3Com's capital stock (an "Interested
Shareholder") require approval by two-thirds of the outstanding capital stock of
3Com and approval of holders of a majority of the outstanding shares excluding
shares held by an Interested Shareholder and its affiliates and associates
unless (1) a majority of the members of the 3Com Board who are unaffiliated with
the Interested Shareholder approve the Business Combination, or (2) certain
minimum price and procedural requirements are satisfied. Under the minimum price
requirements, 3Com shareholders would be entitled to receive the higher of (a)
the highest price per share paid by the Interested Shareholder for shares
purchased during the five years prior to the consummation of the Business
Combination and (b) the fair market value per share of 3Com's capital stock on
either (i) the date such Interested Shareholder became an Interested
Shareholder, (ii) the date of the announcement of the Business Combination, or
(iii) the date the Business Combination is consummated.
More generally, Delaware law may permit a corporation greater flexibility in
governing its internal affairs and its relationships with shareholders and other
parties, including various anti-takeover measures, than do the laws of many
other states, including California. In addition to the measures described above,
certain types of "poison pill" defenses (such as shareholder rights plans) have
been upheld by Delaware courts, but have not yet been dispositively addressed by
California courts, thus rendering their effectiveness and interpretation in
California less certain.
There can be no assurance that the 3Com Board would or would not adopt any
further anti-takeover measures available under Delaware law (some of which may
not require stockholder approval). The availability of such measures under
Delaware law, whether or not implemented, may have the effect of discouraging a
future takeover attempt which a majority of 3Com Delaware's stockholders may
deem to be in their best interests or in which stockholders may receive a
premium for their shares over the then current market price. As a result,
stockholders who might desire to participate in such transactions may not have
the opportunity to do so. Although 3Com already has in place a number of
anti-takeover measures,
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3Com shareholders should recognize that, if the Reincorporation is adopted, the
effect of such measures, along with the possibility of further discouraging
takeover attempts, may be to limit in certain respects the rights of
stockholders of 3Com Delaware compared with the rights of shareholders of 3Com.
The 3Com Board recognizes that hostile takeover attempts do not always have
the unfavorable consequences or effects described above and may frequently be
beneficial to the shareholders, providing all of the shareholders with
considerable value for their shares. To the extent that the Reincorporation may
provide greater deterrence to takeover offers and greater defenses against
takeovers, the Reincorporation may have the effect of discouraging or defeating
future takeover attempts which a substantial number or majority of 3Com
Delaware's stockholders might wish to accept and which might provide a
substantial premium over market prices. However, the 3Com Board believes that
the potential suddenness and disadvantages of unapproved takeover attempts (such
as disruption of 3Com's business and the possibility of terms which may be less
favorable to all of the shareholders than would be available in a board-approved
transaction) are sufficiently great that, on balance, prudent steps to reduce
the likelihood of such takeover attempts and to help ensure that the 3Com Board
has adequate opportunity to fully consider and respond to any takeover attempt
and actively negotiate its terms, are in the best interests of 3Com and its
shareholders. The 3Com Board also believes that any additional defenses and
deterrence provided by the Reincorporation are incremental in light of 3Com's
existing takeover defenses.
CAPITALIZATION; BLANK CHECK PREFERRED
3Com's authorized capital currently consists of 400,000,000 authorized
shares of Common Stock, par value $0.01 per share, and 3,000,000 shares of
Preferred Stock, without par value. Assuming approval of the Charter Amendment,
3Com's authorized capital stock prior to the Merger will consist of
1,000,000,000 authorized shares (990,000,000 shares of Common Stock, par value
$0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per
share). As of May 1, 1997, approximately 216,474,866 shares of Common Stock were
issued and outstanding or reserved for issuance pursuant to 3Com stock option
plans and stock purchase plan (see "The Charter Amendment"). Except for the
foregoing reserves and the reserve under the 3Com Rights Plan, and except as
contemplated by the Merger Agreement, there are no existing arrangements or
understandings for the issuance of shares of 3Com Common Stock. 3Com currently
has no shares of Preferred Stock outstanding or reserved.
Upon the effectiveness of the Reincorporation, 3Com Delaware will have the
same number of outstanding shares of Common Stock that 3Com had outstanding
immediately prior to the Reincorporation. The authorized capital of 3Com
Delaware immediately following the Reincorporation would be identical to the
capitalization of 3Com as proposed in the Charter Amendment. In both cases, the
company would have an authorized capital stock of 1,000,000,000 shares
(including 990,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock).
Under the Delaware Certificate, the 3Com Delaware Board will have the same
authority as the 3Com Board now has under the 3Com Articles to determine or
alter the rights, preferences, privileges and restrictions to be granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the number
of shares constituting any such series and to determine the designation thereof.
In addition, the 3Com Delaware Board will have the same ability as the 3Com
Board to authorize the issuance of Preferred Stock for the purpose of adopting
shareholder rights plans and to authorize the issuance of Preferred Stock in
connection with corporate partnering arrangements and other corporate
transactions.
If so determined by the board, the holders of Preferred Stock may be
entitled to vote separately as a class in connection on certain extraordinary
corporate transactions in circumstances where Delaware or California law does
not ordinarily require such a class vote, or might be given a disproportionately
large number of votes. Such Preferred Stock could also be convertible into a
large number of shares of Common Stock under certain circumstances or have other
terms which might make acquisition of a controlling interest more difficult or
more costly, including the right to elect additional directors to the board.
Potentially, the Preferred Stock could be used to create voting impediments or
to frustrate persons seeking
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to effect a merger or otherwise to gain control of the corporation. Also, the
Preferred Stock could be privately placed with purchasers who might side with
the management in opposing a hostile tender offer or other attempt to obtain
control.
Future issuances of Preferred Stock as an anti-takeover device might
preclude shareholders from taking advantage of a situation which might otherwise
be favorable to their interests. In addition (subject to limitations under
applicable law), the board could authorize issuance of shares of Common Stock or
Preferred Stock to a holder who might thereby obtain sufficient voting power to
ensure that any proposal to alter, amend or repeal charter provisions
unfavorable to a suitor would not receive the vote required for adoption.
If the Reincorporation is approved, the 3Com Delaware Board would not be
obligated to seek stockholder approval prior to any issuance of Preferred Stock
or Common Stock, except as required by law, regulation or stock market listing
requirements. Frequently, opportunities arise that require prompt action, and it
is the belief of the 3Com Board that the delay necessary for shareholder
approval of a specific issuance would be a detriment to 3Com Delaware and its
shareholders. The 3Com Board is aware of no plan for the issuance of any shares
of Preferred Stock, either before or after the Reincorporation, by 3Com or 3Com
Delaware.
Except as contemplated by the Merger Agreement, and except for the reserves
for 3Com's and USR's stock option and stock purchase plans and a reserve for the
3Com Rights Plan, there are no existing plans, arrangements or understandings to
issue shares of 3Com Common Stock.
COMMON SHARE PURCHASE RIGHTS PLAN
The 3Com Rights Plan will be assumed by 3Com Delaware and upon consummation
of the Reincorporation the Rights will be converted into rights to purchase
shares of Common Stock of 3Com Delaware. Because of favorable court decisions in
Delaware, and a lack of dispositive court decisions in California, the validity
and interpretation of shareholder rights plans comparable to the 3Com Rights
Plan is substantially more certain under Delaware law. A vote in favor of the
proposed Reincorporation will result in the assumption of the 3Com Rights Plan
by 3Com Delaware.
Terms of the 3Com Rights Plan provide for a dividend distribution of one
common share purchase right (a "Right") for each outstanding share of common
stock of 3Com. Each Right entitles the registered holder to purchase from 3Com
one share of common stock, at an exercise price of $250 per share, subject to
adjustment, and a redemption price of $0.01 per Right. The principal terms of
the 3Com Rights Plan are set forth in the Amended and Restated Rights Agreement,
dated as of December 21, 1994, between 3Com and The First National Bank of
Boston, as Rights Agent. See "Description of 3Com Capital Stock--3Com Rights
Plan."
CHARTER AMENDMENTS
The 3Com Articles may be amended only with both board and shareholder
approval by a majority of the members of the 3Com Board and a majority of the
outstanding shares, except for certain provisions relating to business
combinations which require approval by two-thirds of the outstanding shares. The
3Com Delaware Certificate may also be amended only with both board and
shareholder approval. The amendment of certain provisions of the 3Com Delaware
Certificate requires the approval of two-thirds of the outstanding shares. Other
provisions of the 3Com Delaware Certificate--including changes to 3Com
Delaware's name, registered agent, purpose and capital structure--require
approval by only a majority of the outstanding shares.
AMENDMENT OF BYLAWS
The California Bylaws may be amended or repealed either by the 3Com Board or
by the holders of a majority in interest of the outstanding stock of 3Com,
except that the 3Com Board may not change the authorized range for the number of
directors. Upon the effectiveness of the proposed Reincorporation, the
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Delaware Bylaws may be adopted, amended or repealed by the 3Com Board or by the
holders of at least two-thirds of the outstanding shares of 3Com Delaware.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
As permitted by the CGCL, the California Bylaws provide that the 3Com Board
may authorize loans or guarantees to any officer without shareholder approval,
if the 3Com Board determines that such loan or guarantee may be reasonably
expected to benefit 3Com.
Under the DGCL, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, the CGCL requires that mergers, reorganizations,
certain sales of assets and similar transactions be approved by a majority vote
of each class of shares outstanding. The DGCL generally does not require class
voting for such transactions, except in certain situations involving an
amendment to the certificate of incorporation which adversely affects a specific
class of shares. See "Comparison of Securityholder Rights--Voting Requirements;
Supermajority Approval."
INSPECTION OF SHAREHOLDER LISTS
The CGCL provides for an absolute right of inspection of the shareholder
list for shareholders holding 5% or more of a corporation's outstanding voting
shares or shareholders holding 1% or more of such shares who have filed a
Schedule 14B with the SEC. The DGCL provides no such absolute right of
shareholder inspection. However, both California and Delaware law permit any
shareholder of record to inspect the shareholder list for any purpose reasonably
related to that person's interest as a shareholder.
APPRAISAL RIGHTS
Under both the CGCL and the DGCL, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. In general,
shareholders of a California corporation have broader dissenters' rights than
stockholders of a Delaware corporation.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have dissenters' rights unless the holders of at least 5% of the class of
outstanding shares assert dissenters' rights. In any reorganization in which one
corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders of such
corporations are denied dissenters' rights under California law. For this
reason, dissenters' rights will not be available to shareholders in connection
with the Reincorporation proposal.
Under Delaware law, dissenters' rights are not available to stockholders
with respect to a merger or consolidation by a corporation, the shares of which
are either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders, if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Dissenters' rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger, and certain other conditions are met.
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VOTING AND APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide parent company stockholders with voting or
dissenters' rights when a corporation acquires another business through the
issuance of its stock, or by purchase of assets or stock or by merger of the
company being acquired with a subsidiary of the acquiror (however, the corporate
governance rules of the major stock exchanges and The Nasdaq National Market
require in general that acquisitions involving issuance of stock having a total
voting power equal to 20% or more of the voting power outstanding immediately
prior to such issuance must be submitted for shareholder approval). The CGCL
treats these kinds of acquisitions in the same manner as a merger of the issuer
corporation directly with the business to be acquired, and provides dissenters'
rights in the circumstances described in the preceding section.
DIVIDENDS
Under the CGCL, any dividends or other distributions to shareholders, such
as redemptions, are limited to the greater of (i) retained earnings or (ii) an
amount which would leave the corporation with assets (excluding certain
intangible assets) equal to at least 125% of its liabilities (excluding certain
deferred items) and current assets equal to at least 100% (or, in certain
circumstances, 125%) of its current liabilities. The DGCL allows the payment of
dividends and redemption of stock out of surplus (including paid-in and earned
surplus) or out of net profits for the current and immediately preceding fiscal
years. To date 3Com has not paid cash dividends on its capital stock. It is the
present policy of the 3Com Board to retain earnings for use in the business and
3Com, therefore, does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
LEGAL MATTERS
The validity of the shares of 3Com Common Stock to be issued in connection
with the Merger and the Reincorporation will be passed upon for 3Com by Gray
Cary Ware & Freidenrich, A Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of 3Com Corporation as of May 31, 1996
and 1995 and for each of the three years in the period ended May 31, 1996 and
the related financial statement schedule incorporated elsewhere in this Joint
Proxy Statement/Prospectus have been audited by Deloitte & Touche LLP, as stated
in their reports dated June 24, 1996 and August 22, 1996, which are incorporated
by reference in this Joint Proxy Statement/Prospectus, except for the premerger
financial statements of Chipcom Corporation as of December 31, 1994 and for the
two years in the period ended December 31, 1994 which have been audited by Price
Waterhouse LLP, as stated in their report incorporated by reference herein
(which financial statements are not presented separately in the fiscal 1995 and
1994 consolidated financial statements of 3Com Corporation and only to the
extent that such financial statements have been included in the financial
statements of 3Com Corporation), and except for the premerger financial
statements of Primary Access Corporation for the fifty-three weeks ended October
3, 1993 which have been audited by KPMG Peat Marwick LLP as stated in their
reports incorporated by reference herein (which financial statements are
included in the fiscal 1994 consolidated financial statements of 3Com
Corporation), all of which financial statements have been so incorporated in
reliance upon the respective reports of such firms given upon their authority as
experts in accounting and auditing. All of the foregoing firms are independent
auditors.
The consolidated financial statements of U.S. Robotics Corporation at
October 1, 1995 and September 29, 1996 and for each of the three years in the
period ended September 29, 1996 incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Grant Thornton LLP, independent
auditors, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
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ANNEX A
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- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
by and among
3COM CORPORATION,
a California corporation,
TR ACQUISITIONS CORPORATION,
a Delaware corporation and wholly-owned
subsidiary of 3Com Corporation,
3COM (DELAWARE) CORPORATION,
a Delaware corporation and a wholly-owned
subsidiary of 3Com Corporation,
and
U.S. ROBOTICS CORPORATION,
a Delaware corporation
Dated as of February 26, 1997
and amended as of March 14, 1997
- --------------------------------------------------------------------------------
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C> <C> <C>
ARTICLE I THE MERGER........................................................................................... A-2
Section 1.1 Effective Time of the Merger.................................................. A-2
Section 1.2 Closing....................................................................... A-2
Section 1.3 Effects of the Merger......................................................... A-2
Section 1.4 Directors and Officers........................................................ A-3
ARTICLE II CONVERSION OF SECURITIES............................................................................ A-3
Section 2.1 Conversion of Capital Stock................................................... A-3
Section 2.2 Exchange of Certificates...................................................... A-4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF USR.............................................................. A-6
Section 3.1 Organization.................................................................. A-6
Section 3.2 USR Capital Structure......................................................... A-6
Section 3.3 Authority; No Conflict; Required Filings and Consents......................... A-7
Section 3.4 SEC Filings; Financial Statements............................................. A-8
Section 3.5 No Undisclosed Liabilities.................................................... A-8
Section 3.6 Absence of Certain Changes or Events.......................................... A-8
Section 3.7 Restrictions on Business Activities........................................... A-9
Section 3.8 Taxes......................................................................... A-9
Section 3.9 Intellectual Property......................................................... A-9
Section 3.10 Agreements, Contracts and Commitments......................................... A-10
Section 3.11 Litigation.................................................................... A-10
Section 3.12 Environmental Matters......................................................... A-10
Section 3.13 Employee Benefit Plans........................................................ A-11
Section 3.14 Compliance with Laws.......................................................... A-12
Section 3.15 Pooling of Interests.......................................................... A-12
Section 3.16 Interested Party Transactions................................................. A-12
Section 3.17 Registration Statement: Proxy Statement/Prospectus............................ A-12
Section 3.18 Opinion of Financial Advisor.................................................. A-12
Section 3.19 Section 203 of the DGCL Not Applicable........................................ A-12
Section 3.20 USR Rights Agreement.......................................................... A-13
Section 3.21 No Existing Discussions....................................................... A-13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF 3Com, 3Com DELAWARE AND SUB.......................................
A-13
Section 4.1 Organization.................................................................. A-13
Section 4.2 3Com and 3Com Delaware Capital Structure...................................... A-13
Section 4.3 Authority; No Conflict; Required Filings and Consents......................... A-15
Section 4.4 SEC Filings; Financial Statements............................................. A-15
Section 4.5 No Undisclosed Liabilities.................................................... A-16
Section 4.6 Absence of Certain Changes or Events.......................................... A-16
Section 4.7 Restrictions on Business Activities........................................... A-16
Section 4.8 Taxes......................................................................... A-16
Section 4.9 Intellectual Property......................................................... A-17
Section 4.10 Agreements, Contracts and Commitments......................................... A-17
Section 4.11 Litigation.................................................................... A-18
Section 4.12 Environmental Matters......................................................... A-18
Section 4.13 Employee Benefit Plans........................................................ A-18
Section 4.14 Compliance with Laws.......................................................... A-19
</TABLE>
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Section 4.15 Pooling of Interests.......................................................... A-19
Section 4.16 Interested Party Transactions................................................. A-19
Section 4.17 Registration Statement; Proxy Statement/Prospectus............................ A-19
Section 4.18 Opinion of Financial Advisor.................................................. A-20
Section 4.19 No Existing Discussions....................................................... A-20
Section 4.20 Interim Operations of 3Com Delaware and Sub................................... A-20
Section 4.21 3Com Rights Agreement......................................................... A-20
ARTICLE V CONDUCT OF BUSINESS.................................................................................. A-20
Section 5.1 Covenants of USR and 3Com..................................................... A-20
Section 5.2 Cooperation................................................................... A-22
ARTICLE VI ADDITIONAL AGREEMENTS............................................................................... A-22
Section 6.1 No Solicitation............................................................... A-22
Section 6.2 Proxy Statement/Prospectus; Registration Statement............................ A-23
Section 6.3 Consents...................................................................... A-23
Section 6.4 Current Nasdaq Quotation...................................................... A-24
Section 6.5 Access to Information......................................................... A-24
Section 6.6 Stockholders' Meetings........................................................ A-24
Section 6.7 Legal Conditions to Merger.................................................... A-24
Section 6.8 Public Disclosure............................................................. A-25
Section 6.9 Tax-Free Reorganization....................................................... A-25
Section 6.10 Pooling Accounting............................................................ A-25
Section 6.11 Letters from Accountants...................................................... A-25
Section 6.12 Update Disclosure: Breaches................................................... A-25
Section 6.13 Stockholder Agreements........................................................ A-26
Section 6.14 Nasdaq Quotation.............................................................. A-26
Section 6.15 Stock Plans and Options....................................................... A-26
Section 6.16 Brokers or Finders............................................................ A-27
Section 6.17 Indemnification of Directors and Officers..................................... A-27
Section 6.18 Additional Agreements; Reasonable Efforts..................................... A-28
Section 6.19 Stock Option Agreements....................................................... A-28
Section 6.20 3Com and 3Com Delaware Board of Directors..................................... A-28
Section 6.21 Employment and Noncompete Agreements.......................................... A-29
Section 6.22 Rights Plans.................................................................. A-29
ARTICLE VII CONDITIONS TO MERGER............................................................................... A-30
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.................... A-30
Section 7.2 Additional Conditions to Obligations of 3Com, 3Com Delaware and Sub........... A-30
Section 7.3 Additional Conditions to Obligations of USR................................... A-31
ARTICLE VIII TERMINATION AND AMENDMENT......................................................................... A-32
Section 8.1 Termination................................................................... A-32
Section 8.2 Effect of Termination......................................................... A-33
Section 8.3 Fees and Expenses............................................................. A-34
Section 8.4 Amendment..................................................................... A-36
Section 8.5 Extension; Waiver............................................................. A-36
</TABLE>
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ARTICLE IX MISCELLANEOUS....................................................................................... A-36
Section 9.1 Nonsurvival of Representations, Warranties and Agreements..................... A-36
Section 9.2 Notices....................................................................... A-36
Section 9.3 Interpretation................................................................ A-37
Section 9.4 Counterparts.................................................................. A-38
Section 9.5 Entire Agreement; No Third Party Beneficiaries................................ A-38
Section 9.6 Governing Law................................................................. A-38
Section 9.7 Assignment.................................................................... A-39
</TABLE>
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EXHIBITS
<S> <C> <C>
Exhibit A-1 -- 3Com Stock Option Agreement
Exhibit A-2 -- USR Stock Option Agreement
Exhibit B -- Form of USR Stockholder Agreement
Exhibit C -- Form of Employment Agreement
Exhibit D -- Form of Noncompete and Nonsolicitation Agreement
Exhibit E -- Form of Reincorporation Agreement
</TABLE>
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TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
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<S> <C>
Affiliate.................................................................................... Section 6.13
Agreement.................................................................................... Preamble
Alternative Transaction...................................................................... Section 8.3(e)
Approval..................................................................................... Section 6.7
Cash Satisfaction............................................................................ Section 8.3(d)
Certificate(s)............................................................................... Section 2.2(b)
Certificate of Merger........................................................................ Section 1.1
CGCL......................................................................................... Section 4.3(a)
Closing...................................................................................... Section 1.2
Closing Date................................................................................. Section 1.2
Code......................................................................................... Recitals
Competing Offer.............................................................................. Section 6.1(a)
Confidentiality Agreement.................................................................... Section 6.1(a)
Constituent Corporations..................................................................... Section 1.3(a)
DGCL......................................................................................... Section 1.1
Effective time............................................................................... Section 1.1
Environmental Permits........................................................................ Section 3.12(c)
ERISA........................................................................................ Section 3.13(a)
ERISA Affiliate.............................................................................. Section 3.13(a)
Exchange Act................................................................................. Section 3.3(c)(iv)
Exchange Agent............................................................................... Section 2.2(a)
Exchange Fund................................................................................ Section 2.2(a)
Exchange Ratio............................................................................... Section 2.1(c)
Governmental Entity.......................................................................... Section 3.3(c)
Hazardous Material........................................................................... Section 3.12(a)
Hazardous Materials Activities............................................................... Section 3.12(b)
HSR Act...................................................................................... Section 3.3(c)(i)
incentive stock options...................................................................... Section 6.15(a)
Indemnified Parties.......................................................................... Section 6.17(b)
Merger....................................................................................... Recitals
Original Merger Agreement.................................................................... Recitals
Paying Party................................................................................. Section 8.3(d)
Paying Party Common Stock.................................................................... Section 8.3(d)
Payment Date................................................................................. Section 8.3(d)(i)
Proxy Statement.............................................................................. Section 3.17
Registration Statement....................................................................... Section 3.17
Reincorporation Agreement.................................................................... Recitals
Returns...................................................................................... Section 3.8(b)
Rule 145..................................................................................... Section 6.13
SEC.......................................................................................... Section 3.3(c)(ii)
Securities Act............................................................................... Section 3.3(c)(ii)
Stock Option Agreements...................................................................... Recitals
Stock Satisfaction........................................................................... Section 8.3(d)
Stockholders' Meetings....................................................................... Section 3.17
Sub.......................................................................................... Preamble
Subsidiary................................................................................... Section 2.1(b)
Superior Proposal............................................................................ Section 6.1(a)
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
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<S> <C>
Surviving Corporation........................................................................ Section 1.3(a)
Tax(es)...................................................................................... Section 3.8(a)
Third Party.................................................................................. Section 8.3(e)
3Com......................................................................................... Preamble
3Com Additional Termination Fee.............................................................. Section 8.3(c)
3Com Balance Sheet........................................................................... Section 4.4(b)
3Com Board................................................................................... Section 6.20
3Com Charter Amendment....................................................................... Section 5.1(j)
3Com Common Stock............................................................................ Recitals
3Com Delaware................................................................................ Preamble
3Com Disclosure Schedule..................................................................... Article IV
3Com Employee Plans.......................................................................... Section 4.13(a)
3Com Initial Termination Fee................................................................. Section 8.3(c)
3Com Intellectual Property Rights............................................................ Section 4.9(a)
3Com Material Adverse Effect................................................................. Article IV
3Com Material Contracts...................................................................... Section 4.10
3Com Option Plans............................................................................ Section 4.2(a)
3Com Preferred Stock......................................................................... Section 4.2(a)
3Com Purchase Plan........................................................................... Section 4.2(a)
3Com Reincorporation Merger.................................................................. Recitals
3Com Restricted Stock Plan................................................................... Section 4.2(a)
3Com Rights Agreement........................................................................ Section 4.2(a)
3Com SEC Reports............................................................................. Section 4.4(a)
3Com Shareholders' Meeting................................................................... Section 3.17
3Com Stock Option Agreement.................................................................. Recitals
USR.......................................................................................... Preamble
USR Additional Termination Fee............................................................... Section 8.3(b)
USR Balance Sheet............................................................................ Section 3.4(b)
USR Common Stock............................................................................. Recitals
USR Option Plans............................................................................. Section 2.1(d)
USR Disclosure Schedule...................................................................... Article III
USR Employee Plans........................................................................... Section 3.13(a)
USR Initial Termination Fee.................................................................. Section 8.3(b)
USR Intellectual Property Rights............................................................. Section 3.9(a)
USR Material Adverse Effect.................................................................. Article III
USR Material Contracts....................................................................... Section 3.10
USR Preferred Stock.......................................................................... Section 3.2(a)
USR Purchase Plans........................................................................... Section 2.1(d)
USR Rights Agreement......................................................................... Section 3.2(a)
USR SEC Reports.............................................................................. Section 3.4(a)
USR Series B Preferred Stock................................................................. Section 3.2(a)
USR Stock Option............................................................................. Section 6.15(a)
USR Stock Option Agreement................................................................... Recitals
USR Stockholder Agreement.................................................................... Section 6.13
USR Stockholders' Meeting.................................................................... Section 3.17
</TABLE>
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of February 26,
1997 and amended as of March 14, 1997, by and among 3Com Corporation, a
California corporation ("3Com"), TR Acquisitions Corporation, a Delaware
corporation and a wholly-owned subsidiary of 3Com ("Sub"), 3Com (Delaware)
Corporation, a Delaware corporation and a wholly owned subsidiary of 3Com ("3Com
Delaware"), and U.S. Robotics Corporation, a Delaware corporation ("USR").
RECITALS
A. The Boards of Directors of 3Com, Sub, 3Com Delaware and USR deem it
advisable and in the best interests of each corporation and its respective
shareholders or stockholders that 3Com and USR combine in order to advance the
long-term business strategies, goals and interests of 3Com and USR;
B. To effect the combination of 3Com and USR, 3Com, Sub, and USR entered
into an Agreement and Plan of Merger dated as of February 26, 1997 (the
"Original Merger Agreement");
C. Since the execution of the Original Merger Agreement, the Board of
Directors of 3Com has adopted and approved a proposal for the reincorporation of
3Com as a Delaware corporation and has established 3Com Delaware to effect the
reincorporation of 3Com in Delaware;
D. If the reincorporation is approved by 3Com shareholders and other
applicable conditions are satisfied or waived, 3Com will be merged with and into
3Com Delaware, with 3Com Delaware to be the surviving corporation (the "3Com
Reincorporation Merger"), on the terms and subject to the conditions set forth
in an Agreement and Plan of Merger and Reincorporation in substantially the form
of Exhibit E hereto (the "Reincorporation Agreement");
E. To provide for the possibility of such reincorporation, the parties
hereto wish to make certain technical amendments to the Original Merger
Agreement and to restate the Original Merger Agreement, as so amended, in its
entirety;
F. As so amended, the combination of 3Com and USR shall be effected by the
terms of this Agreement through a transaction in which Sub will merge with and
into USR, USR will become a wholly-owned subsidiary of 3Com or 3Com Delaware,
and the stockholders of USR will become shareholders of 3Com or stockholders of
3Com Delaware (the "Merger");
G. Concurrently with the execution and delivery of the Original Merger
Agreement and as condition and inducement to 3Com's and USR's willingness to
enter into the Original Merger Agreement, 3Com and USR have entered into (i) a
Stock Option Agreement dated as of the date of the Original Merger Agreement and
attached hereto as EXHIBIT A-1 (the "3Com Stock Option Agreement"), pursuant to
which USR granted 3Com an option to purchase shares of Common Stock, $.01 par
value, of USR ("USR Common Stock"), and (ii) a Stock Option Agreement dated as
of the date of the Original Merger Agreement and attached hereto as EXHIBIT A-2
(the "USR Stock Option Agreement" and, together with the 3Com Stock Option
Agreement, the "Stock Option Agreements"), pursuant to which 3Com granted USR an
option to purchase shares of Common Stock, $.01 par value, of 3Com ("3Com Common
Stock");
H. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368 of the Code; and
I. The parties intend to cause the Merger to be accounted for as a pooling
of interests pursuant to APB Opinion No. 16, Staff Accounting Series Releases
130, 135 and 146 and Staff Accounting Bulletins Topic Two.
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NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, a certificate of merger (the "Certificate of Merger") in such
form as is required by the relevant provisions of the Delaware General
Corporation Law (the "DGCL") shall be duly prepared, executed and acknowledged
by the Surviving Corporation (as defined in Section 1.3) and thereafter
delivered to the Secretary of State of the State of Delaware for filing, as
provided in the DGCL, on the Closing Date (as defined in Section 1.2). The
Merger shall become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware (the "Effective Time").
Section 1.2 CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., California Time, on a date to be specified by 3Com (or 3Com
Delaware, if the 3Com Reincorporation Merger shall have become effective) and
USR, which shall be no later than the second business day after the satisfaction
or, if permissible, waiver of the conditions set forth in Article VII (the
"Closing Date"), at the offices of Gray Cary Ware & Freidenrich, 400 Hamilton
Avenue, Palo Alto, California, unless another date or place is agreed to in
writing by 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger shall have
become effective) and USR.
Section 1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time, (i) the separate existence of Sub shall cease
and Sub shall be merged with and into USR (Sub and USR are sometimes
referred to herein as the "Constituent Corporations" and USR is sometimes
referred to herein as the "Surviving Corporation"), (ii) the Certificate of
Incorporation of USR shall be amended to provide that Article 4 of such
Certificate of Incorporation shall read as follows: "The total number of
shares of all classes of stock which the Corporation shall have authority to
issue is 1,000, all of which shall consist of Common Stock, par value $.001
per share," and, as so amended, such Certificate of Incorporation shall be
the Certificate of Incorporation of the Surviving Corporation, and (iii) the
Bylaws of Sub as in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation.
(b) At and after the Effective Time, the effect of the Merger shall be
as provided in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, the Surviving Corporation
shall possess all the rights, privileges, powers and franchises of a public
as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all and
singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, and
all debts due to either of the Constituent Corporations on whatever account,
as well as for stock subscriptions and all other things in action or
belonging to each of the Constituent Corporations, shall be vested in the
Surviving Corporation, and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, in either of the Constituent Corporations, shall not revert or be
in any way impaired; but all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may
be enforced against it to the same extent as if such debts and liabilities
had been incurred by it.
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Section 1.4 DIRECTORS AND OFFICERS. The directors of Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of USR
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of USR Common Stock or capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $.001 par value, of the Surviving
Corporation.
(b) CANCELLATION OF TREASURY STOCK AND 3COM-OWNED STOCK. All shares of
USR Common Stock that are owned by USR as treasury stock and any shares of
USR Common Stock that are owned by 3Com, 3Com Delaware, Sub or any other
wholly-owned Subsidiary (as defined below) of 3Com shall be canceled and
retired and shall cease to exist and no stock of 3Com or 3Com Delaware or
other consideration shall be delivered in exchange therefor. As used in this
Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated,
of which (i) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority of
the voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly
or indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
(c) EXCHANGE RATIO FOR USR COMMON STOCK. Subject to Section 2.2, each
issued and outstanding share of USR Common Stock (other than shares to be
canceled in accordance with Section 2.1(b)) shall be converted into the
right to receive 1.75 (which amount will be adjusted for any stock split or
stock dividend effected between the date of this Agreement and the Effective
Time) (the "Exchange Ratio") fully paid and nonassessable shares of (i)
Common Stock, par value $0.01 per share, of 3Com ("3Com California Common
Stock"), if the 3Com Reincorporation Merger shall not have become effective
prior to the Effective Time, or (ii) Common Stock, par value $0.01 per
share, of 3Com Delaware ("3Com Delaware Common Stock"), if the 3Com
Reincorporation Merger shall have become effective prior to the Effective
Time. As used hereinafter, "3Com Common Stock" shall mean 3Com California
Common Stock if the 3Com Reincorporation Merger shall not have become
effective and shall mean 3Com Delaware Common Stock if the 3Com
Reincorporation Merger shall have become effective. All such shares of USR
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of 3Com
Common Stock and any cash in lieu of fractional shares of 3Com Common Stock
to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.2, without interest.
(d) USR STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLANS. At the
Effective Time, any outstanding options to purchase USR Common Stock issued
under any of USR's Key Employee Stock Option Plan, Executive Officers and
Directors Stock Option Plan and 1996 Stock Option Plan for Israeli Employees
(collectively, the "USR Option Plans") shall become exercisable in full due
to the
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occurrence of a "change in control" as defined in the USR Option Plans
(other than options granted under such plans in substitution for other
options that were not subject to such acceleration provision) and will be
assumed by 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger shall
have become effective) in accordance with Section 6.15. Immediately prior to
the Effective Time, all then outstanding rights to acquire shares of USR
Common Stock under USR's Employee Stock Purchase Plan (the "USR Purchase
Plan") will be exercised for the purchase of shares of USR Common Stock, as
provided in Section 6.15.
Section 2.2 EXCHANGE OF CERTIFICATES. The procedures for exchanging
outstanding shares of USR Common Stock for 3Com Common Stock pursuant to the
Merger shall be as follows:
(a) EXCHANGE AGENT. As of the Effective Time, 3Com (or 3Com Delaware,
if the 3Com Reincorporation Merger shall have become effective) shall
deposit with The First National Bank of Boston (the "Exchange Agent"), for
the benefit of the holders of shares of USR Common Stock, certificates
representing the shares of 3Com Common Stock (such shares of 3Com Common
Stock, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.1 in exchange for outstanding shares of USR Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of USR Common Stock (each a "Certificate"
and, collectively, the "Certificates") whose shares were converted pursuant
to Section 2.1 into the right to receive shares of 3Com Common Stock (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form
and have such other provisions as 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) and USR may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of 3Com Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by 3Com (or 3Com
Delaware, if the 3Com Reincorporation Merger shall have become effective),
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of 3Com Common Stock which such
holder has the right to receive pursuant to the provisions of this Article
II, and the Certificate so surrendered shall immediately be canceled. In the
event of a transfer of ownership of USR Common Stock which is not registered
in the transfer records of USR, a certificate representing the proper number
of shares of 3Com Common Stock may be issued to a transferee if the
Certificate representing such USR Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of 3Com Common Stock and cash in lieu of any fractional
shares of 3Com Common Stock as contemplated by this Section 2.2. The
instructions for effecting the surrender of the Certificates shall set forth
procedures that must be taken by the holder of any Certificate that has been
lost, destroyed or stolen. It shall be a condition to the right of such
holder to receive a certificate representing shares of 3Com Common Stock
that the Exchange Agent shall have received, along with the letter of
transmittal, a duly executed lost certificate affidavit, including an
agreement to indemnify 3Com (or 3Com Delaware, if the 3Com Reincorporation
Merger shall have become effective), signed exactly as the name or names of
the registered holder or holders appeared on the books of USR immediately
prior to the Effective Time, together with a customary bond and such other
documents as 3Com (or 3Com Delaware, if the 3Com
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Reincorporation Merger shall have become effective) or the Exchange Agent
may reasonably require in connection therewith.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect
to 3Com Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of 3Com Common Stock represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to subsection
(e) below until the holder of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of 3Com Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of 3Com Common
Stock to which such holder is entitled pursuant to subsection (e) below and
the amount of dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of 3Com
Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable
with respect to such whole shares of 3Com Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN USR COMMON STOCK. All shares of
3Com Common Stock issued upon the surrender for exchange of shares of USR
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to subsection (c) or (e) of this Section 2.2) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such
shares of USR Common Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or made
by USR on such shares of USR Common Stock in accordance with the terms of
this Agreement on or prior to the date hereof and which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of USR
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Section 2.2.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of 3Com Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to exercise any rights of a shareholder
of 3Com (or a stockholder of 3Com Delaware, as the case may be).
Notwithstanding any other provision of this Agreement, each holder of shares
of USR Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of 3Com Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of 3Com Common Stock multiplied by the last
reported sale price of 3Com Common Stock, as reported on The Nasdaq National
Market, on the trading day immediately preceding the date of the Effective
Time.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the stockholders of USR for one year after
the Effective Time shall be delivered to 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective), and any stockholders of
USR who have not previously complied with this Section 2.2 shall thereafter
look only to 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger
shall have become effective) for payment of their claim for 3Com Common
Stock, any cash in lieu of fractional shares of 3Com Common Stock, and any
dividends or distributions with respect to USR Common Stock or 3Com Common
Stock.
(g) NO LIABILITY. Neither 3Com (or 3Com Delaware, as the case may be)
nor USR shall be liable to any holder of shares of USR Common Stock or 3Com
Common Stock, as the case may be,
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for such shares (or dividends or distributions with respect thereto)
delivered to a public official as required by any applicable abandoned
property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF USR
USR represents and warrants to 3Com, 3Com Delaware and Sub that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule delivered by USR to 3Com on or before the date
of the Original Merger Agreement (the "USR Disclosure Schedule"). The USR
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III, and the
disclosure in any paragraph shall qualify only the corresponding paragraph in
this Article III. For purposes of this Agreement, the phrase "USR Material
Adverse Effect" means a material adverse effect on the business, operations,
properties, assets (including intangible assets), liabilities (contingent or
otherwise), financial condition or results of operations of USR and its
Subsidiaries, taken as a whole.
Section 3.1 ORGANIZATION. Each of USR and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a USR Material Adverse Effect. Except
as set forth in the USR SEC Reports (as defined in Section 3.4) or the USR
Disclosure Schedule, neither USR nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity, excluding securities in any
publicly traded company held for investment by USR and comprising less than one
percent (1%) of the outstanding stock of such company.
Section 3.2 USR CAPITAL STRUCTURE.
(a) The authorized capital stock of USR consists of 250,000,000 shares
of Common Stock, $.01 par value, and 10,000,000 shares of Preferred Stock,
$.01 par value ("USR Preferred Stock"), of which 2,500,000 shares have been
designated Series B Junior Participating Preferred Stock ("USR Series B
Preferred Stock"). As of February 21, 1997, (i) 89,180,758 shares of USR
Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) no shares of USR Common Stock were held
in the treasury of USR or by Subsidiaries of USR, (iii) 18,419,960 shares of
USR Common Stock were reserved for future issuance pursuant to stock options
granted and outstanding under the USR Option Plans, (iv) approximately
2,000,000 shares of USR Common Stock were reserved for future issuance under
the USR Purchase Plan and (v) shares of USR Series B Preferred Stock were
reserved for future issuance under the Rights Agreement, dated as of May 9,
1996, between USR and Harris Trust and Savings Bank, as amended (the "USR
Rights Agreement"). No change in such capitalization has occurred since such
date other than the exercise and termination of outstanding stock options
and the accrual of rights under the USR Purchase Plan. As of the date of
this Agreement, no shares of USR Preferred Stock are issued and outstanding.
All shares of USR Common Stock and USR Series B Preferred Stock subject to
issuance as specified above, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be
duly authorized, validly issued, fully paid and nonassessable. There are no
obligations, contingent or otherwise, of USR or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of USR Common Stock or
the capital stock of any USR Subsidiary or make any investment (in the form
of a loan, capital contribution or otherwise) in any such Subsidiary or any
other entity other than guarantees of bank obligations of such Subsidiaries
entered into in the ordinary course of business. All of the outstanding
shares of capital stock of each of USR's Subsidiaries are duly authorized,
validly issued, fully paid and nonassessable and all such shares (other than
directors'
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qualifying shares in the case of foreign Subsidiaries) are owned by USR or
another Subsidiary free and clear of all security interests, liens, claims,
pledges, agreements, limitations in USR's voting rights, charges or other
encumbrances of any nature.
(b) Except as set forth in this Section 3.2 or as reserved for future
grants of options under the USR Option Plans or future sale under the USR
Purchase Plan, there are no equity securities of any class of USR or any of
its Subsidiaries, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. Except as
set forth in this Section 3.2 or in the USR Disclosure Schedule, there are
no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which USR or any of its Subsidiaries is a
party or by which any of them are bound obligating USR or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of USR or any of its Subsidiaries
or obligating USR or any of its Subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security,
call, right, commitment or agreement. To the best knowledge of USR, there
are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of USR.
Section 3.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) USR has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of USR, subject only to the
approval of the Merger by USR's stockholders under applicable provisions of
USR's Certificate of Incorporation and the DGCL. This Agreement has been
duly executed and delivered by USR and constitutes the valid and binding
obligation of USR, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by USR does not, and
the consummation of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of any
provision of the Certificate of Incorporation or Bylaws of USR, (ii) result
in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material
benefit) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which USR or any of its Subsidiaries is a party or by which
any of them or any of their properties or assets may be bound, or (iii)
subject to the consents, approvals, orders, authorizations, filings and
registrations specified in Section 3.3(c), conflict with or violate any
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to USR or any of its
Subsidiaries or any of their properties or assets, except in the case of
clause (ii) for any such violations, breaches, defaults, terminations,
cancellations or accelerations which in the aggregate would not be
reasonably likely to have a USR Material Adverse Effect, or a material
adverse effect on the ability of USR to consummate the transactions
contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality ("Governmental Entity")
is required by or with respect to USR or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of the pre-merger notification report under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the
filing
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of the Registration Statement (as defined in Section 3.17) with the
Securities and Exchange Commission (the "SEC") in accordance with the
Securities Act of 1933, as amended (the "Securities Act"), (iii) the filing
of the Certificate of Merger with the Delaware Secretary of State in
accordance with the DGCL, (iv) the filing of the Proxy Statement (as defined
in Section 3.17) with the SEC in accordance with the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (v) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the laws of
any foreign country and (vi) such other consents, authorizations, filings,
approvals and registrations which, in the aggregate, if not obtained or
made, would not be reasonably likely to have a USR Material Adverse Effect
or a material adverse effect on the parties' ability to consummate the
transactions contemplated by this Agreement.
Section 3.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) USR has filed and made available to 3Com all forms, reports and
documents required to be filed by USR with the SEC since December 31, 1993,
other than registration statements on Form S-8 (collectively, the "USR SEC
Reports"). The USR SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act and
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated in
the USR SEC Reports or necessary in order to make the statements in the USR
SEC Reports, in the light of the circumstances under which they were made,
not misleading. None of USR's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the USR SEC Reports, including any USR
SEC Reports filed after the date of this Agreement until the Closing,
complied or will comply as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto,
was or will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes to such financial statements or, in
the case of unaudited statements, as permitted for presentation in Quarterly
Reports on Form 10-Q), and fairly presented or will fairly present the
consolidated financial position of USR and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The unaudited
balance sheet of USR as of December 29, 1996 is referred to herein as the
"USR Balance Sheet."
Section 3.5 NO UNDISCLOSED LIABILITIES. USR and its Subsidiaries do not
have any liabilities, either accrued or contingent (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate would be reasonably likely to have a USR Material Adverse
Effect, other than (i) liabilities reflected in the USR Balance Sheet, (ii)
liabilities specifically described in this Agreement, or in the USR Disclosure
Schedule, and (iii) normal or recurring liabilities incurred since December 29,
1996 in the ordinary course of business consistent with past practices.
Section 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
USR Balance Sheet, USR and its Subsidiaries have conducted their businesses only
in the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (i) any damage, destruction or loss (whether or
not covered by insurance) with respect to USR or any of its Subsidiaries having
a USR Material Adverse Effect; (ii) any material change by USR in its accounting
methods, principles or practices; (iii) any material revaluation by USR of any
of its assets, including, without limitation, writing down the value of
capitalized software or inventory or writing off notes or accounts receivable
other than in the ordinary course of
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business; (iv) any other event that constitutes a USR Material Adverse Effect;
or (v) any other action or event that would have required the consent of 3Com
pursuant to Section 5.1 of this Agreement had such action or event occurred
after the date of this Agreement and that would be reasonably likely to have a
USR Material Adverse Effect.
Section 3.7 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon USR or any of its
Subsidiaries which has the effect of prohibiting or materially impairing any
current or future business practice of USR or any of its Subsidiaries, any
acquisition of property by USR or any of its Subsidiaries or the conduct of
business by USR or any of its Subsidiaries as currently conducted or as proposed
to be conducted by USR or any of its Subsidiaries.
Section 3.8 TAXES.
(a) For the purposes of this Agreement, a "Tax" or, collectively,
"Taxes," means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed
with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
(b) USR has accurately prepared and timely filed all material federal,
state, local and foreign returns, estimates, information statements and
reports required to be filed at or before the Effective Time ("Returns")
relating to any and all Taxes concerning or attributable to USR or any of
its Subsidiaries or to their operations, and such Returns are true and
correct in all material respects and have been completed in all material
respects in accordance with applicable law.
(c) USR as of the Effective Time: (i) will have paid all Taxes it is
required to pay prior to the Effective Time and (ii) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, except for payments which in the
aggregate do not exceed $2,000,000.
(d) There are no Tax deficiencies, individually or in the aggregate in
excess of $1,000,000, outstanding, proposed or assessed against USR or any
of its Subsidiaries that are not reflected as liabilities on the USR Balance
Sheet nor has USR or any of its Subsidiaries executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(e) USR does not have any material liabilities for Taxes that have not
been accrued for or reserved on the USR Balance Sheet, whether asserted or
unasserted, contingent or otherwise.
(f) USR is not aware of any plan or intention on the part of
stockholders of USR to engage in a sale or sales of USR Common Stock such
that the aggregate fair market value, as of the Effective Time, of the
shares subject to such sales would exceed fifty percent (50%) of the
aggregate fair market value of all shares of USR capital stock outstanding
immediately prior to the Effective Time. For purposes of this Section
3.8(f), the term "sale" shall include any sale, exchange, transfer,
distribution, redemption or reduction in any way of the risk of ownership
(by short sale or otherwise), or other disposition, whether direct or
indirect.
Section 3.9 INTELLECTUAL PROPERTY.
(a) USR and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights and mask works, all applications for and
registrations of such patents, trademarks, trade names, service marks,
copyrights and mask works, and all processes, formulae, methods, schematics,
technology, know-how, computer software programs or applications and
tangible or intangible proprietary information or material that are
necessary to conduct the business of USR and its Subsidiaries as currently
conducted or planned
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to be conducted (the "USR Intellectual Property Rights") except to the
extent that the failure to have such rights has not had and would not be
reasonably likely to have USR Material Adverse Effect.
(b) Neither USR nor any of its Subsidiaries is or will be as a result of
the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the USR Intellectual Property Rights or any
license, sublicense or other agreement pursuant to which USR or any of its
Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software, which are used in the manufacture of,
incorporated in, or form a part of any product of USR or any of its
Subsidiaries, the breach of which would be reasonably likely to have a USR
Material Adverse Effect.
(c) To USR's knowledge, all patents, registered trademarks, service
marks and copyrights held by USR or any of its Subsidiaries which USR
considers to be material to its business are valid and enforceable. Neither
USR nor any of its Subsidiaries (i) has been sued in any suit, action or
proceeding which involves a claim of infringement of any patent, trademark,
service mark or copyright or the violation of any trade secret or other
proprietary right of any third party; or (ii) has any knowledge that the
manufacturing, importation, marketing, licensing, sale, offer for sale, or
use of any of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would be reasonably likely to have a USR Material Adverse
Effect.
Section 3.10 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither USR nor any of
its Subsidiaries has breached, or received in writing any claim or threat that
it has breached, any of the terms or conditions of any material agreement,
contract or commitment to which USR or any of its Subsidiaries is a party ("USR
Material Contracts") in such a manner as would permit any other party to cancel
or terminate the same or would permit any other party to collect material
damages from USR or any of its Subsidiaries thereunder. Each USR Material
Contract that has not expired or been terminated is in full force and effect and
is not subject to any material default thereunder of which USR is aware by any
party obligated to USR or any of its Subsidiaries pursuant to such USR Material
Contract.
Section 3.11 LITIGATION. Except as described in the USR SEC Reports, there
is no action, suit or proceeding, claim, arbitration, or, to the knowledge of
USR, investigation against USR or any USR Subsidiary pending or as to which USR
or any USR Subsidiary has received any written notice of assertion, which would
be reasonably likely to have a USR Material Adverse Effect, or a material
adverse effect on the parties' ability to consummate the transactions
contemplated by this Agreement. Except as disclosed in the USR SEC Reports,
neither USR nor any of its Subsidiaries is subject to any outstanding order,
writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, would have a USR Material Adverse Effect.
Section 3.12 ENVIRONMENTAL MATTERS.
(a) As of the date hereof, to the knowledge of USR, no underground
storage tanks are present under any property that USR or any of its
Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such tanks is reasonably likely to have a USR Material Adverse
Effect. As of the date hereof, no material amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws (a "Hazardous Material"), is present as a result of the actions
of USR or any of its Subsidiaries, or, to USR's knowledge, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water,
that USR or any of its Subsidiaries has at any
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time owned, operated, occupied or leased, where the presence of such
Hazardous Material is reasonably likely to have a USR Material Adverse
Effect.
(b) At no time has USR or any of its Subsidiaries transported, stored,
used, manufactured, disposed of, released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has USR or any of its Subsidiaries disposed of,
transported, sold, or manufactured any product containing a Hazardous
Material (collectively, "Hazardous Materials Activities") in violation of
any rule, regulation, treaty or statute promulgated by any Governmental
Entity to prohibit, regulate or control Hazardous Materials or any Hazardous
Materials Activity which has had or is reasonably likely to have a USR
Material Adverse Effect.
(c) USR currently holds all environmental approvals, permits, licenses,
clearances and consents (the "Environmental Permits") necessary for the
conduct of its Hazardous Materials Activities and other businesses of USR as
such activities and businesses are currently being conducted, the absence of
which would be reasonably likely to have a USR Material Adverse Effect.
(d) No action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending or, to the knowledge of USR, threatened
concerning any Environmental Permit or any Hazardous Materials Activity of
USR or any of its Subsidiaries which would be reasonably likely to have a
USR Material Adverse Effect. USR is not aware of any fact or circumstance
which could involve USR in any environmental litigation or impose upon USR
any environmental liability which would be reasonably likely to have a USR
Material Adverse Effect.
Section 3.13 EMPLOYEE BENEFIT PLANS.
(a) USR has made available to 3Com true and correct copies of all
material employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of USR or any trade or business
(whether or not incorporated) which is a member or which is under common
control with USR within the meaning of Section 414 of the Code (an "ERISA
Affiliate") (together, the "USR Employee Plans"). The term "USR Employee
Plans" shall be deemed to include any plan that would be an employee benefit
plan under Section 3(3) of ERISA but for the exclusion set forth in Section
4(b)(4) of ERISA.
(b) With respect to the USR Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of USR, there exists
no condition or set of circumstances in connection with which USR could be
subject to any liability that is reasonably expected to have a USR Material
Adverse Effect under ERISA, the Code or any other applicable law.
(c) With respect to the USR Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting
principles, on the financial statements of USR, which obligations are
reasonably expected to have a USR Material Adverse Effect.
(d) Except as set forth in Schedule 3.13 of the USR Disclosure Schedule,
neither USR nor any of its Subsidiaries is a party to any oral or written
(i) union or collective bargaining agreement, (ii) agreement with any
officer or other key employee of USR or any of its Subsidiaries, the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a change in control of USR or other
transaction involving USR of the nature contemplated by this Agreement,
(iii) agreement with any officer of USR or any of its Subsidiaries providing
any term of employment or compensation guarantee extending for a period
longer than one year from the date hereof or for the
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payment of compensation in excess of $100,000 per annum, or (iv) agreement
or plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
Section 3.14 COMPLIANCE WITH LAWS. USR and its Subsidiaries have complied
with, are not in violation of, and have not received any notices of violation
with respect to, any federal, state or local statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of its
business, except for failures to comply or violations which would not be
reasonably likely to have a USR Material Adverse Effect.
Section 3.15 POOLING OF INTERESTS. To its knowledge, neither USR nor any
of its Affiliates (as defined in Section 6.13) has, through the date of this
Agreement, taken or agreed to take any action which would prevent 3Com or 3Com
Delaware from accounting for the business combination to be effected by the
Merger as a pooling of interests.
Section 3.16 INTERESTED PARTY TRANSACTIONS. Except as set forth in the USR
SEC Reports, since the date of USR's last proxy statement to its stockholders,
no event has occurred that would be required to be reported by USR as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section 3.17 REGISTRATION STATEMENT: PROXY STATEMENT/PROSPECTUS. The
information supplied by USR for inclusion in the registration statement on Form
S-4 pursuant to which shares of 3Com Common Stock issuable in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by USR for
inclusion in the joint proxy statement/ prospectus (the "Proxy Statement") to be
sent to the stockholders of USR and the shareholders of 3Com in connection with
the meetings of their stockholders and shareholders to consider this Agreement
and the Merger (the "USR Stockholders' Meeting" and the "3Com Shareholders'
Meeting," respectively, and, collectively, the "Stockholders' Meetings") shall
not, on the date the Proxy Statement is first mailed to stockholders of USR and
the shareholders of 3Com, at the time of the Stockholders' Meetings and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it was made, is false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to make
the statements made in the Proxy Statement not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders'
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to USR or any of its Affiliates, officers or
directors should be discovered by USR which should be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement, USR shall
promptly inform 3Com.
Section 3.18 OPINION OF FINANCIAL ADVISOR. The financial advisor of USR,
Morgan Stanley & Co. Incorporated, has delivered to USR an opinion dated the
date of the Original Merger Agreement to the effect that the Exchange Ratio is
fair from a financial point of view to the stockholders of USR.
Section 3.19 SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of
Directors of USR has taken all necessary action so that the restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in Section 203) will not apply to the execution, delivery or performance
of this Agreement, the Original Merger Agreement or the USR Stock Option
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement, the Original Merger Agreement or the USR Stock
Option Agreement.
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Section 3.20 USR RIGHTS AGREEMENT. Neither the execution or delivery of
this Agreement, the Original Merger Agreement or the 3Com Stock Option
Agreement, nor the consummation by 3Com, 3Com Delaware and Sub of the
transactions contemplated hereby and thereby will cause 3Com, 3Com Delaware or
any of their Affiliates to be within the definition of "Acquiring Person" as
defined in the USR Rights Agreement.
Section 3.21 NO EXISTING DISCUSSIONS. As of the date hereof, USR is not,
and since the date of the Original Merger Agreement USR has not, engaged,
directly or indirectly, in any negotiations or discussions with any other party
with respect to a Competing Offer (as defined in Section 6.1).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF 3COM, 3COM DELAWARE AND SUB
3Com, 3Com Delaware and Sub represent and warrant to USR that the statements
contained in this Article IV are true and correct, except as set forth in the
disclosure schedule delivered by 3Com to USR on or before the date of the
Original Merger Agreement (the "3Com Disclosure Schedule"). The 3Com Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article IV, and the disclosure in any
paragraph shall qualify only the corresponding paragraph in this Article IV. For
purposes of this Agreement, the phrase "3Com Material Adverse Effect" means a
material adverse effect on the business, operations, properties, assets
(including intangible assets), liabilities (contingent or otherwise), financial
condition, or results of operations of 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) and its Subsidiaries, taken
as a whole.
Section 4.1 ORGANIZATION. Each of 3Com, 3Com Delaware, Sub and 3Com's
other Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a 3Com
Material Adverse Effect. Except as set forth in the 3Com SEC Reports (as defined
in Section 4.4) or the 3Com Disclosure Schedule, neither 3Com nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by 3Com
or any of its Subsidiaries and comprising less than one percent (1%) of the
outstanding stock of such company.
Section 4.2 3COM AND 3COM DELAWARE CAPITAL STRUCTURE.
(a) The authorized capital stock of 3Com consists of 400,000,000 shares
of 3Com California Common Stock and 3,000,000 shares of Preferred Stock, no
par value ("3Com Preferred Stock"). As of February 25, 1997, (i) 177,469,588
shares of 3Com California Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (ii) no shares of
3Com California Common Stock were held in the treasury of 3Com or by
Subsidiaries of 3Com, (iii) 27,315,924 shares of 3Com California Common
Stock were reserved for future issuance pursuant to stock options granted
and outstanding under 3Com's stock option plans (the "3Com Option Plans"),
(iv) approximately 5,767,807 shares of 3Com California Common Stock were
reserved for future issuance pursuant to 3Com's employee stock purchase plan
(the "3Com Purchase Plan"), (v) 648,416 shares were reserved for future
issuance under 3Com's Restricted Stock Plan (the "3Com Restricted Stock
Plan") and (vi) shares of 3Com California Common Stock were reserved for
future issuance under the Amended and Restated Rights Agreement, dated as of
December 21, 1994, between 3Com and The First National Bank of Boston (the
"3Com Rights Agreement"). No change in such capitalization has occurred
since such date other than the exercise and termination of
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outstanding stock options and the accrual of rights under the 3Com Purchase
Plan. As of the date of this Agreement, no shares of 3Com Preferred Stock
are issued and outstanding. All shares of 3Com California Common Stock
subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable.
There are no obligations, contingent or otherwise, of 3Com or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of 3Com
California Common Stock or the capital stock of any 3Com Subsidiary or make
any investment (in the form of a loan, capital contribution or otherwise) in
any such Subsidiary or any other entity other than guarantees of bank
obligations of Subsidiaries entered into in the ordinary course of business.
All of the outstanding shares of capital stock of each of 3Com's
Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares
in the case of foreign Subsidiaries) are owned by 3Com or a Subsidiary of
3Com free and clear of all security interests, liens, claims, pledges,
agreements, limitations in 3Com's voting rights, charges or other
encumbrances of any nature.
(b) The initial authorized capital stock of 3Com Delaware consists of
1,000 shares of 3Com Delaware Common Stock, of which 100 shares were issued
and outstanding as of March 13, 1997, and the authorized capital stock of
3Com Delaware immediately following the consummation of the 3Com
Reincorporation Merger (and prior to the Effective Time) will be as set
forth in the form of Certificate of Incorporation attached to the form of
the Reincorporation Agreement annexed as Exhibit E hereto and will consist
of 1,000,000,000 shares of capital stock, of which 990,000,000 shares will
be 3Com Delaware Common Stock and 10,000,000 shares will be preferred stock,
par value $0.01 per share ("3Com Delaware Preferred Stock"). No change in
such capitalization has occurred since such date or will occur prior to the
Effective Time except as provided in or contemplated by this Agreement and
the Reincorporation Agreement. At the Effective Time, no capital stock of
3Com Delaware (and no options, warrants or other rights to acquire, and no
securities convertible into or exchangeable for, any such capital stock)
will be outstanding other than shares of 3Com Common Stock and any
associated rights issued pursuant to and as described in the Reincorporation
Agreement and this Agreement. As of March 13, 1997, no shares of 3Com
Delaware Preferred Stock were issued and outstanding. All shares of 3Com
Delaware Common Stock subject to issuance pursuant to the Reincorporation
Agreement shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of 3Com
Delaware to repurchase, redeem or (except as a consequence of the 3Com
Reincorporation Merger) otherwise acquire any shares of 3Com Common Stock or
the capital stock of any 3Com Subsidiary or make any investment (in the form
of a loan, capital contribution or otherwise) in any such Subsidiary or any
other entity other than guarantees of bank obligations of Subsidiaries
entered into in the ordinary course of business.
(c) Except as set forth in this Section 4.2 or as reserved for future
grants of options under the 3Com Option Plans or future sales under the 3Com
Purchase Plan, there are no equity securities of any class of 3Com, 3Com
Delaware or any of their respective Subsidiaries, or any security
exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as set forth in this Section
4.2 or in the 3Com Disclosure Schedule, there are no options, warrants,
equity securities, calls, rights, commitments or agreements of any character
to which 3Com, 3Com Delaware or any of their respective Subsidiaries is a
party or by which any of them are bound obligating 3Com, 3Com Delaware or
any of their respective Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of 3Com,
3Com Delaware or any of their respective Subsidiaries or obligating 3Com,
3Com Delaware or any of their respective Subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. To the best knowledge of
3Com, there are no voting trusts, proxies or other agreements or
understandings with respect to the shares of capital stock of 3Com or 3Com
Delaware.
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Section 4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) 3Com, 3Com Delaware and Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action on the part of 3Com,
3Com Delaware and Sub, subject only to the approval of the Merger by 3Com's
shareholders under applicable provisions of 3Com's Articles of Incorporation
and the California General Corporation Law (the "CGCL"). This Agreement has
been duly executed and delivered by 3Com, 3Com Delaware and Sub and
constitutes the valid and binding obligation of 3Com, 3Com Delaware and Sub,
enforceable in accordance with its terms, except as such enforceability may
be limited by (i) bankruptcy laws and other similar laws affecting
creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by 3Com, 3Com Delaware
and Sub does not, and the consummation of the transactions contemplated by
this Agreement will not, (i) conflict with, or result in any violation or
breach of any provision of the Articles of Incorporation or Bylaws of 3Com
or the Certificate of Incorporation or Bylaws of 3Com Delaware or Sub, (ii)
result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default (or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
material benefit) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which 3Com, 3Com Delaware or any of their
respective Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) subject to the consents,
approvals, orders, authorizations, filings and registrations specified in
Section 4.3.(c), conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to 3Com, 3Com Delaware or any of their respective
Subsidiaries or any of their properties or assets, except in the case of
clause (ii) for any such violations, breaches, defaults, terminations,
cancellations or accelerations which in the aggregate would not be
reasonably likely to have a 3Com Material Adverse Effect, or a material
adverse effect on the ability of 3Com, 3Com Delaware or Sub to consummate
the transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to 3Com, 3Com Delaware or any of their respective Subsidiaries in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of the pre-merger notification report under the HSR Act, (ii) the
filing of the Registration Statement with the SEC in accordance with the
Securities Act, (iii) the filing of the Certificate of Merger with the
Delaware Secretary of State in accordance with the DGCL, (iv) the filing of
the Proxy Statement with the SEC in accordance with the Exchange Act, (v)
such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and
state securities laws and the laws of any foreign country and (vi) such
other consents, authorizations, filings, approvals and registrations which
in the aggregate, if not obtained or made, would not be reasonably likely to
have a 3Com Material Adverse Effect or a material adverse effect on the
parties' ability to consummate the transactions contemplated by this
Agreement.
Section 4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) 3Com has filed and made available to USR all forms, reports and
documents required to be filed by 3Com with the SEC since December 31, 1993,
other than registration statements on Form S-8 (collectively, the "3Com SEC
Reports"). The 3Com SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act and
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior
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to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated in the 3Com SEC Reports or necessary in order to make
the statements in the 3Com SEC Reports, in the light of the circumstances
under which they were made, not misleading. None of 3Com's Subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the 3Com SEC Reports, including any
3Com SEC Reports filed after the date of this Agreement until the Closing,
complied or will comply as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto,
was or will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes to such financial statements or, in
the case of unaudited statements, as permitted for presentation in Quarterly
Reports on Form 10-Q), and fairly presented or will fairly present the
consolidated financial position of 3Com and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The unaudited
balance sheet of 3Com as of November 30, 1996 is referred to herein as the
"3Com Balance Sheet."
Section 4.5 NO UNDISCLOSED LIABILITIES. 3Com and its Subsidiaries do not
have any liabilities, either accrued or contingent (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate would be reasonably likely to have a 3Com Material Adverse
Effect, other than (i) liabilities reflected in the 3Com Balance Sheet, (ii)
liabilities specifically described in this Agreement, or in the 3Com Disclosure
Schedule, and (iii) normal or recurring liabilities incurred since November 30,
1996 in the ordinary course of business consistent with past practices.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
3Com Balance Sheet, 3Com and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any damage, destruction or loss (whether
or not covered by insurance) with respect to 3Com or any of its Subsidiaries
having a 3Com Material Adverse Effect; (ii) any material change by 3Com in its
accounting methods, principles or practices; (iii) any material revaluation by
3Com of any of its assets, including, without limitation, writing down the value
of capitalized software or inventory or writing off notes or accounts receivable
other than in the ordinary course of business; (iv) any other event that
constitutes a 3Com Material Adverse Effect; or (v) any other action or event
that would have required the consent of USR pursuant to Section 5.1 of this
Agreement had such action or event occurred after the date of this Agreement and
that would be reasonably likely to have a 3Com Material Adverse Effect.
Section 4.7 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon 3Com or any of its
Subsidiaries which has the effect of prohibiting or materially impairing any
current or future business practice of 3Com or any of its Subsidiaries, any
acquisition of property by 3Com or any of its Subsidiaries or the conduct of
business by 3Com or any of its Subsidiaries as currently conducted or as
proposed to be conducted by 3Com or any of its Subsidiaries.
Section 4.8 TAXES.
(a) 3Com has accurately prepared and timely filed all material Returns
relating to any and all Taxes concerning or attributable to 3Com or any of
its Subsidiaries or to their operations, and such Returns are true and
correct in all material respects and have been completed in all material
respects in accordance with applicable law.
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(b) 3Com as of the Effective Time: (i) will have paid all Taxes it is
required to pay prior to the Effective Time and (ii) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, except for payments which in the
aggregate do not exceed $2,000,000.
(c) There are no Tax deficiencies, individually or in the aggregate in
excess of $1,000,000, outstanding, proposed or assessed against 3Com or any
of its Subsidiaries that are not reflected as liabilities on the 3Com
Balance Sheet nor has 3Com or any of its Subsidiaries executed any waiver of
any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) 3Com does not have any material liabilities for Taxes that have not
been accrued for or reserved on the 3Com Balance Sheet, whether asserted or
unasserted, contingent or otherwise.
(e) 3Com is not aware of any plan or intention on the part of
shareholders of 3Com to engage in a sale or sales of 3Com Common Stock such
that the aggregate fair market value, as of the Effective Time, of the
shares subject to such sales would exceed fifty percent (50%) of the
aggregate fair market value of all shares of 3Com capital stock outstanding
immediately prior to the Effective Time. For purposes of this Section
4.8(e), the term "sale" shall include any sale, exchange, transfer,
distribution, redemption or reduction in any way of the risk of ownership
(by short sale or otherwise), or other disposition, whether direct or
indirect.
Section 4.9 INTELLECTUAL PROPERTY.
(a) 3Com and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights and mask works, all applications for and
registrations of such patents, trademarks, trade names, service marks,
copyrights and mask works, and all processes, formulae, methods, schematics,
technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or material that are
necessary to conduct the business of 3Com and its Subsidiaries as currently
conducted or planned to be conducted (the "3Com Intellectual Property
Rights"), except to the extent that the failure to have such rights has not
had and would not be reasonably likely to have a 3Com Material Adverse
Effect.
(b) Neither 3Com nor any of its Subsidiaries is or will be as a result
of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the 3Com Intellectual Property Rights or any
license, sublicense or other agreement pursuant to which 3Com or any of its
Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software, which are used in the manufacture of,
incorporated in, or form a part of any product of 3Com or any of its
Subsidiaries, the breach of which would be reasonably likely to have a 3Com
Material Adverse Effect.
(c) To 3Com's knowledge, all patents, registered trademarks, service
marks and copyrights held by 3Com or any of its Subsidiaries which 3Com
considers to be material to its business are valid and enforceable. Neither
3Com nor any of its Subsidiaries (i) has been sued in any suit, action or
proceeding which involves a claim of infringement of any patent, trademark,
service mark or copyright or the violation of any trade secret or other
proprietary right of any third party; or (ii) has any knowledge that the
manufacturing, importation, marketing, licensing, sale, offer for sale, or
use of any of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would be reasonably likely to have a 3Com Material Adverse
Effect.
Section 4.10 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither 3Com nor any
of its Subsidiaries has breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any material agreement,
contract or commitment to which 3Com or any of its Subsidiaries is a party
("3Com Material Contracts") in such a manner as would permit any other party to
cancel or terminate the
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same or would permit any other party to seek material damages from 3Com or any
of its Subsidiaries thereunder. Each 3Com Material Contract that has not expired
or been terminated is in full force and effect and is not subject to any
material default thereunder of which 3Com is aware by any party obligated to
3Com or any of its Subsidiaries pursuant to such 3Com Material Contract.
Section 4.11 LITIGATION. Except as described in the 3Com SEC Reports,
there is no action, suit or proceeding, claim, arbitration or, to the knowledge
of 3Com, investigation against 3Com or any 3Com Subsidiary pending or as to
which 3Com or any 3Com Subsidiary has received any written notice of assertion,
which would be reasonably likely to have a 3Com Material Adverse Effect, or a
material adverse effect on the parties' ability to consummate the transactions
contemplated by this Agreement. Except as disclosed in the 3Com SEC Reports,
neither 3Com nor any of its Subsidiaries is subject to any outstanding order,
writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, would have a 3Com Material Adverse Effect.
Section 4.12 ENVIRONMENTAL MATTERS.
(a) As of the date hereof, to the knowledge of 3Com, no underground
storage tanks are present under any property that 3Com or any of its
Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such tanks is reasonably likely to have a 3Com Material Adverse
Effect. As of the date hereof, no material amount of any Hazardous Material
is present as a result of the actions of 3Com or any of its Subsidiaries,
or, to 3Com's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that 3Com or any of its
Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such Hazardous Material is reasonably likely to have a 3Com
Material Adverse Effect.
(b) At no time has 3Com or any of its Subsidiaries engaged in Hazardous
Materials Activities in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Materials Activity which has had or is
reasonably likely to have a 3Com Material Adverse Effect.
(c) 3Com currently holds all Environmental Permits necessary for the
conduct of its Hazardous Materials Activities and other businesses of 3Com
as such activities and businesses are currently being conducted, the absence
of which would be reasonably likely to have a 3Com Material Adverse Effect.
(d) No action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending or, to the knowledge of 3Com,
threatened concerning any Environmental Permit or any Hazardous Materials
Activity of 3Com or any of its Subsidiaries which would be reasonably likely
to have a 3Com Material Adverse Effect. 3Com is not aware of any fact or
circumstance which could involve 3Com in any environmental litigation or
impose upon 3Com any environmental liability, which would be reasonably
likely to have a 3Com Material Adverse Effect.
Section 4.13 EMPLOYEE BENEFIT PLANS.
(a) 3Com has made available to USR true and correct copies of all
material employee benefit plans (as defined in Section 3(3) of ERISA) and
all bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar employee benefit plans,
and all unexpired severance agreements, written or otherwise, for the
benefit of, or relating to, any current or former employee of 3Com or any
ERISA Affiliate of 3Com (together, the "3Com Employee Plans"). The term
"3Com Employee Plans" shall be deemed to include any plan that would be an
employee benefit plan under Section 3(3) of ERISA but for the exclusion set
forth in Section 4(b)(4) of ERISA.
(b) With respect to the 3Com Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of 3Com, there exists
no condition or set of circumstances in
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connection with which 3Com could be subject to any liability that is
reasonably expected to have a 3Com Material Adverse Effect under ERISA, the
Code or any other applicable law.
(c) With respect to the 3Com Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting
principles, on the financial statements of 3Com, which obligations are
reasonably expected to have a 3Com Material Adverse Effect.
(d) Except as set forth in Schedule 4.13 of the 3Com Disclosure
Schedule, neither 3Com nor any of its Subsidiaries is a party to any oral or
written (i) union or collective bargaining agreement, (ii) agreement with
any officer or other key employee of 3Com or any of its Subsidiaries, the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a change in control of 3Com or other
transaction involving 3Com of the nature contemplated by this Agreement,
(iii) agreement with any officer of 3Com or any of its Subsidiaries
providing any term of employment or compensation guarantee extending for a
period longer than one year from the date hereof or for the payment of
compensation in excess of $100,000 per annum, or (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement.
Section 4.14 COMPLIANCE WITH LAWS. 3Com and its Subsidiaries have complied
with, are not in violation of, and have not received any notices of violation
with respect to, any federal, state or local statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of its
business, except for failures to comply or violations which would not be
reasonably likely to have a 3Com Material Adverse Effect.
Section 4.15 POOLING OF INTERESTS. To its knowledge, neither 3Com nor any
of its Affiliates (as defined in Section 6.13) has, through the date of this
Agreement, taken or agreed to take any action which would prevent 3Com or 3Com
Delaware from accounting for the business combination to be effected by the
Merger as a pooling of interests.
Section 4.16 INTERESTED PARTY TRANSACTIONS. Except as set forth in the
3Com SEC Reports, since the date of 3Com's last proxy statement to its
stockholders, no event has occurred that would be required to be reported by
3Com as a Certain Relationship or Related Transaction, pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
Section 4.17 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by 3Com (including information concerning Sub and 3Com
Delaware) for inclusion in the Registration Statement shall not at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by 3Com
(including information concerning Sub and 3Com Delaware) for inclusion in the
Proxy Statement shall not, on the date the Proxy Statement is first mailed to
the stockholders of USR and the shareholders of 3Com, at the time of the
Stockholders' Meetings and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it was made, is false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements made in the Proxy Statement not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meetings which has become false or misleading. If
at any time prior to the Effective Time any event
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relating to 3Com or any of its Affiliates, officers or directors should be
discovered by 3Com which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, 3Com shall promptly inform
USR.
Section 4.18 OPINION OF FINANCIAL ADVISOR. The financial advisor of 3Com,
Goldman, Sachs & Co., has delivered to 3Com an opinion dated the date of the
Original Merger Agreement to the effect that the Exchange Ratio is fair to 3Com.
Section 4.19 NO EXISTING DISCUSSIONS. As of the date hereof, 3Com is not,
and since the date of the Original Merger Agreement 3Com has not, engaged,
directly or indirectly, in any negotiations or discussions with any other party
with respect to a Competing Offer (as defined in Section 6.1).
Section 4.20 INTERIM OPERATIONS OF 3COM DELAWARE AND SUB. 3Com Delaware
was formed solely for the purposes of facilitating the reincorporation of 3Com
in Delaware and engaging in the 3Com Reincorporation Merger and the other
transactions contemplated by the Reincorporation Agreement, and Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement. Each of 3Com Delaware and Sub has engaged in no other business
activities and has conducted its respective operations only as contemplated by
this Agreement.
Section 4.21 3COM RIGHTS AGREEMENT. Neither the execution or delivery of
this Agreement, the Original Merger Agreement or the USR Stock Option Agreement,
nor the consummation by USR of the transactions contemplated hereby and thereby
will cause USR or any of its Affiliates to be within the definition of
"Acquiring Person" as defined in the 3Com Rights Agreement or any similar term
of any similar rights agreement of 3Com Delaware.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 COVENANTS OF USR AND 3COM. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, USR and 3Com each agrees as to itself and its
Subsidiaries (except to the extent that the other party shall otherwise consent
in writing), to carry on its business in the usual, regular and ordinary course
in substantially the same manner as previously conducted, to pay its debts and
taxes when due, subject to good faith disputes over such debts or taxes, to pay
or perform its other obligations when due, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and key employees and (iii)
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it. USR and 3Com shall each
promptly notify the other of any event or occurrence not in the ordinary course
of business of USR or 3Com, respectively, where such event or occurrence would
result in a breach of any covenant of USR or 3Com, respectively, set forth in
this Agreement or cause any representation or warranty of USR or 3Com,
respectively, set forth in this Agreement to be untrue as of the date of, or
giving effect to, such event or occurrence. Except as expressly contemplated by
this Agreement or the Reincorporation Agreement, subject to Section 6.1, each of
USR and 3Com shall not (and shall not permit any of its Subsidiaries to),
without the prior written consent of the other party:
(a) Accelerate, amend or change the period of exercisability of options
or restricted stock granted under any employee stock plan of such party or
authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement;
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(b) Transfer or license to any person or entity or otherwise extend,
amend or modify any material rights to the USR Intellectual Property Rights,
in the case of USR, or the 3Com Intellectual Property Rights, in the case of
3Com, other than the grant of non-exclusive licenses in the ordinary course
of business substantially consistent with past practices;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock,
or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements,
in effect as of the date of this Agreement, providing for the repurchase of
shares in connection with any termination of service by such party;
(d) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or the capital stock of
3Com Delaware or securities convertible into shares of its capital stock or
the capital stock of 3Com Delaware, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than (i) the grant by USR of options to new USR employees, other than
officers, hired subsequent to February 15, 1997 to purchase up to an
aggregate of 600,000 shares of USR Common Stock; (ii) the grant by 3Com or
3Com Delaware of options (A) to existing 3Com employees to purchase up to an
aggregate of 7,000,000 shares of 3Com Common Stock and (B) to new 3Com
Employees, other than officers, hired subsequent to February 15, 1997 to
purchase up to an aggregate of 1,300,000 shares of 3Com Common Stock; or
(iii) the issuance of (A) rights to purchase shares of USR Common Stock or
shares of 3Com Common Stock under the USR Purchase Plan or 3Com Purchase
Plan, respectively, or (B) shares of USR Common Stock or 3Com Common Stock
issuable upon the exercise of options granted under or pursuant to rights
under the USR Option Plans or the USR Purchase Plan or the 3Com Option
Plans, the 3Com Purchase Plan or the 3Com Restricted Stock Plan,
respectively;
(e) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise acquire
or agree to acquire any assets other than, in the case of 3Com or 3Com
Delaware, acquisitions not involving consideration of more than $250,000,000
individually or $500,000,000 in the aggregate (PROVIDED, HOWEVER, that 3Com
(or 3Com Delaware, as the case may be) will consult with USR before
undertaking any acquisition involving consideration of more than
$50,000,000), or (B) in the case of USR, acquisitions not involving
consideration of more than $25,000,000 in the aggregate;
(f) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of such party and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business;
(g) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees in the ordinary course in accordance with past
practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, officers, (iii)
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any employee, except in settlement of dispute with
terminated employees, (iv) enter into any collective bargaining agreement,
or (v) establish, adopt, enter into or amend in any material respect any
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the benefit
of any directors, officers or employees;
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(h) Revalue any material amount of its assets, including writing down
the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business, consistent with past practices;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others,
other than indebtedness incurred under outstanding lines of credit;
(j) Execute the Reincorporation Agreement in any form other than
substantially in the form attached hereto as Exhibit E or amend or propose
to amend its Certificate or Articles of Incorporation or Bylaws, except as
contemplated by this Agreement or the Reincorporation Agreement, and except
that 3Com may amend its Articles of Incorporation to increase the number of
authorized shares of 3Com capital stock, up to an aggregate authorized
capital stock of 1,000,000,000 shares (the "3Com Charter Amendment");
(k) Incur or commit to incur aggregate capital expenditures in an amount
in excess of $50,000,000 except, in the case of USR, for capital
expenditures relating to USR's Mt. Prospect facility and, in the case of
3Com or 3Com Delaware, for capital expenditures relating to 3Com's Singapore
facility;
(l) Take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice;
(m) Waive, release, assign, settle or compromise any material claims or
litigation;
(n) Except as described in the USR Disclosure Schedule, make any tax
election or settle or compromise any material federal, state, local or
foreign tax liability; or
(o) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (n) above, or any action which is
reasonably likely to make any of such party's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
Section 5.2 COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of 3Com and USR shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations and shall promptly provide the other party or its counsel with copies
of all filings made by such party with any Governmental Entity in connection
with this Agreement, the Merger and the transactions contemplated hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 NO SOLICITATION.
(a) USR and 3Com each agree that it shall not, directly or indirectly,
through any officer, director, employee, representative, agent or affiliate,
(i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, business combination, sale of substantial
assets, sale of shares of capital stock (including without limitation by way
of a tender offer) or similar transactions involving such party, other than
the transactions contemplated or permitted by this Agreement (any of the
foregoing inquiries or proposals being referred to in this Agreement as a
"Competing Offer"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to,
any Competing Offer, or (iii) agree to, approve or recommend any Competing
Offer; PROVIDED, HOWEVER,
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that nothing contained in this Agreement shall prevent USR or 3Com or their
respective Boards of Directors from (A) furnishing non-public information
to, or entering into discussions or negotiations with, any person or entity
in connection with an unsolicited bona fide written Competing Offer by such
person or entity (including a new and unsolicited Competing Offer received
by such party after the execution of this Agreement from a person or entity
whose initial contact with such party may have been solicited by such party
prior to the execution of this Agreement) or recommending such an
unsolicited bona fide written Competing Offer to the stockholders of such
party, if and only to the extent that (1) the Board of Directors of such
party determines in good faith (after consultation with and based upon the
advice of its financial advisor) that such Competing Offer would, if
consummated, result in a transaction more favorable to such party's
stockholders than the transaction contemplated by this Agreement (any such
more favorable Competing Offer being referred to in this Agreement as a
"Superior Proposal") and that the person or entity making such Superior
Proposal has the financial means, or the ability to obtain the necessary
financing, to conclude such transaction, (2) the Board of Directors of such
party determines in good faith (after consultation with and based upon the
advice of its outside legal counsel) that the failure to take such action
would be inconsistent with the fiduciary duties of such Board of Directors
to its stockholders under applicable law, and (3) prior to furnishing such
non-public information to, or entering into discussions or negotiations
with, such person or entity, such Board of Directors receives from such
person or entity an executed confidentiality agreement with confidentiality
provisions not materially less favorable to such person or entity than those
contained in Section 2 of the Confidentiality and Standstill Agreement dated
February 9, 1997 between 3Com and USR (the "Confidentiality Agreement"); or
(B) complying with Rule 14e-2 promulgated under the Exchange Act with regard
to a Competing Offer.
(b) USR and 3Com shall each notify the other party no later than 24
hours after receipt by USR or 3Com (or its advisors), respectively, of any
Competing Offer or any request for nonpublic information in connection with
a Competing Offer or for access to the properties, books or records of such
party by any person or entity that informs such party that it is considering
making, or has made, a Competing Offer. Such notice to the other party shall
be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal,
inquiry or contact.
Section 6.2 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
3Com and USR shall prepare and file with the SEC the Proxy Statement, and
3Com shall prepare and, together with 3Com Delaware, file with the SEC the
Registration Statement, in which the Proxy Statement will be included. 3Com
and USR shall use their best efforts to cause the Registration Statement to
become effective as soon after such filing as practicable. The Proxy
Statement shall include the recommendations of the Board of Directors of USR
and 3Com, respectively, in favor of this Agreement and the Merger; provided
that the Board of Directors of either party may withdraw such recommendation
if such Board of Directors determines in good faith (after consultation with
and based on the advice of its outside counsel) that the failure to withdraw
such recommendation would be inconsistent with the fiduciary duties of such
Board of Directors to its stockholders under applicable law.
(b) 3Com, 3Com Delaware and USR shall make all necessary filings with
respect to the Merger under the Securities Act and the Exchange Act and
applicable state blue sky laws and the rules and regulations thereunder.
Section 6.3 CONSENTS. Each of 3Com and USR shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under their
respective material agreements, contracts, licenses or leases as may be
necessary or advisable to consummate the Merger and the other transactions
contemplated by this Agreement.
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Section 6.4 CURRENT NASDAQ QUOTATION. Each of 3Com and USR agrees to
continue the quotation of 3Com Common Stock and USR Common Stock, respectively,
on The Nasdaq National Market during the term of this Agreement to the extent
necessary so that appraisal rights will not be available to stockholders of USR
under Section 262 of the DGCL.
Section 6.5 ACCESS TO INFORMATION. Upon reasonable notice and subject to
applicable law and other legal obligations, USR and 3Com shall each (and shall
cause each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of the other, access, during
normal business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of USR and 3Com shall (and shall cause each of its Subsidiaries to) furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Unless otherwise required by law, the parties will hold any
such information which is nonpublic in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 6.5 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the Merger.
Section 6.6 STOCKHOLDERS' MEETINGS. USR and 3Com shall each call a meeting
of its respective stockholders to be held as promptly as practicable for the
purpose of voting upon this Agreement and the Merger. Subject to Sections 6.1
and 6.2, USR and 3Com will, through their respective Boards of Directors,
recommend to their respective stockholders approval of such matters and will
coordinate and cooperate with respect to the timing of such meetings and shall
use their best efforts to hold such meetings on the same day and as soon as
practicable after the date hereof. Unless otherwise required to comply with the
applicable fiduciary duties of the directors of USR and 3Com, respectively, as
determined by such directors in good faith (after consultation with and based
upon the advice of its outside legal counsel) USR and 3Com shall each use their
reasonable efforts to solicit from its stockholders proxies in favor of such
matters.
Section 6.7 LEGAL CONDITIONS TO MERGER. Each of 3Com, 3Com Delaware and
USR will take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
under the HSR Act and in connection with approvals of or filings with any other
Governmental Entity) and will promptly cooperate with and will use their best
efforts to furnish information to each other in connection with any such
requirements imposed upon any of them or any of their Subsidiaries in connection
with the Merger. Each of 3Com, 3Com Delaware and USR will, and will cause its
Subsidiaries to, (i) take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other third party,
required to be obtained or made by USR, 3Com, 3Com Delaware or any of their
Subsidiaries in connection with the Merger (any of the foregoing an "Approval")
or the taking of any action contemplated thereby or by this Agreement (ii)
diligently oppose or pursue any rehearing, appeal or other challenge which may
be available to it of any refusal to issue any Approval or of any order or
ruling of any Governmental Entity which may adversely affect the ability of the
parties hereto to consummate the Merger or to take any action contemplated by
any Approval or by this Agreement until such time as such refusal to issue any
Approval or any order or ruling has become final and non-appealable, and (iii)
diligently oppose any objections to, appeals from or petitions to reconsider or
reopen any Approval or the taking of any action contemplated thereby or by this
Agreement. Notwithstanding the foregoing, none of USR, 3Com or 3Com Delaware
shall be required to agree, as a condition to any Approval, to divest itself of
or hold separate any Subsidiary, division or business unit which is material to
the business of such party and its Subsidiaries, taken as a whole, or the
divestiture or holding separate of which would be reasonably likely to have a
material adverse effect on (A) the business, properties, assets, liabilities,
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financial condition or results of operations of such party and its Subsidiaries,
taken as a whole or (B) the benefits intended to be derived as a result of the
Merger.
Section 6.8 PUBLIC DISCLOSURE. 3Com, 3Com Delaware, and USR shall consult
with each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or by the rules of the NASD.
Section 6.9 TAX-FREE REORGANIZATION. 3Com, 3Com Delaware and USR shall
each use its best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a) of the Code and to obtain an opinion of its
respective counsel to such effect as contemplated by Sections 7.2(c) and 7.3(c),
respectively. 3Com shall not consummate the 3Com Reincorporation Merger unless
each of 3Com and USR shall have received an opinion of its respective counsel
(which each party shall use its best efforts to obtain) to the effect that the
3Com Reincorporation Merger will be treated for federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
Section 6.10 POOLING ACCOUNTING. 3Com, 3Com Delaware and USR shall each
use its best efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of 3Com, 3Com
Delaware and USR shall use its best efforts (i) to cause its respective
Affiliates (as defined in Section 6.13) not to take any action that would
adversely affect the ability of 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) to account for the business
combination to be effected by the Merger as a pooling of interests and (ii) to
cause its respective Affiliates to sign and deliver to 3Com (or to 3Com
Delaware, as the case may be) a customary "pooling letter" in form and substance
agreed upon by USR and 3Com to the extent that receipt of such letter is
required to assure the availability of pooling of interests accounting
treatment.
Section 6.11 LETTERS FROM ACCOUNTANTS.
(a) USR shall use its best efforts to cause to be delivered to 3Com (or
to 3Com Delaware, if the 3Com Reincorporation Merger shall have become
effective) "cold comfort" letters of Grant Thornton LLP, its independent
public accountants, dated the date on which the Registration Statement shall
become effective and as of the Effective Time, respectively, and addressed
to 3Com (or to 3Com Delaware, as the case may be), in form and substance
reasonably satisfactory to 3Com (or to 3Com Delaware, as the case may be),
and comparable in scope and substance to letters customarily delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and transactions such as those
contemplated by this Agreement.
(b) 3Com (or 3Com Delaware, as the case may be) shall use its best
efforts to cause to be delivered to USR "cold comfort" letters of Deloitte &
Touche LLP, its independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time,
respectively, and addressed to USR in form and substance reasonably
satisfactory to USR and comparable in scope and substance to letters
customarily delivered by independent public accountants in connection with
registration statements similar to the Registration Statement and
transactions such as those contemplated by this Agreement.
Section 6.12 UPDATE DISCLOSURE: BREACHES. From and after the date of this
Agreement until the Effective Time, each party hereto shall promptly notify the
other party, by written update to its Disclosure Schedule, of (i) the occurrence
or non-occurrence of any event which would be likely to cause any condition to
the obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied, or (ii) the failure of USR,
3Com or 3Com Delaware, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would be likely to result in any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied. The delivery of any notice
pursuant to this Section 6.12 shall not cure any breach of any representation or
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warranty requiring disclosure of such matter prior to the date of this Agreement
or otherwise limit or affect the remedies available hereunder to the party
receiving such notice, provided that such party, within ten days after receipt
of such notice, advises the other party of its objection to the matter disclosed
in such notice and the nature of such objection.
Section 6.13 STOCKHOLDER AGREEMENTS. Upon the execution of this Agreement,
3Com and USR will provide each other with a list of those persons who are, in
3Com's or USR's respective reasonable judgment, "affiliates" of 3Com or USR,
respectively, within the meaning of Rule 145 under the Securities Act ("Rule
145"). Each such person who is an "affiliate" of 3Com or USR within the meaning
of Rule 145 is referred to herein as an "Affiliate." 3Com and USR shall provide
each other such information and documents as USR or 3Com shall reasonably
request for purposes of reviewing such list and shall notify the other party in
writing regarding any change in the identity of its Affiliates prior to the
Closing Date. USR shall use its best efforts to deliver or cause to be delivered
to 3Com by March 21, 1997 from each of the Affiliates of USR, an executed
agreement, in the form attached hereto as EXHIBIT B ("USR Stockholder
Agreement"). 3Com and 3Com Delaware shall be entitled to place appropriate
legends on the certificates evidencing any 3Com Common Stock to be received by
Affiliates of USR pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the 3Com Common
Stock, consistent with the terms of the USR Stockholder Agreement.
Section 6.14 NASDAQ QUOTATION. 3Com and 3Com Delaware shall use their best
efforts to cause the shares of 3Com Common Stock to be issued in the Merger to
be approved for quotation on The Nasdaq National Market, subject to official
notice of issuance, prior to the Closing Date.
Section 6.15 STOCK PLANS AND OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares of
USR Common Stock (a "USR Stock Option") under the USR Option Plans, shall be
deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such USR Stock Option, the same number of shares of
3Com Common Stock as the holder of such USR Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (rounded down to the
nearest whole number), at a price per share (rounded up to the nearest whole
cent) equal to (i) the aggregate exercise price for the shares of USR Common
Stock otherwise purchasable pursuant to such USR Stock Option divided by
(ii) the number of full shares of 3Com Common Stock deemed purchasable
pursuant to such 3Com Stock Option in accordance with the foregoing;
PROVIDED, HOWEVER, that, in the case of any USR Stock Option to which
Section 422 of the Code applies ("incentive stock options"), the option
price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in order
to comply with Section 424(a) of the Code.
(b) As soon as practicable after the Effective Time, 3Com (or 3Com
Delaware, if the 3Com Reincorporation Merger shall have become effective)
shall deliver to the participants in the USR Option Plans appropriate notice
setting forth such participants' rights pursuant thereto and the grants
pursuant to the USR Option Plans shall continue in effect on the same terms
and conditions (subject to the adjustments required by this Section 6.15
after giving effect to the Merger). 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) shall comply with the
terms of the USR Option Plans and ensure, to the extent required by, and
subject to the provisions of, such USR Option Plans, that USR Stock Options
which qualified as incentive stock options prior the Effective Time continue
to qualify as incentive stock options after the Effective Time.
(c) 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger shall
have become effective) shall take all corporate action necessary to reserve
and make available for issuance a sufficient number of shares of 3Com Common
Stock for delivery under USR Stock Options assumed in accordance with this
Section 6.15. At or prior to the Effective Time, 3Com (or 3Com Delaware, if
the 3Com Reincorporation Merger shall have become effective) shall file a
registration statement on
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Form S-8 (or any successor or other appropriate forms) with respect to the
shares of 3Com Common Stock subject to such options and shall use its best
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus
or prospectuses contained therein) for so long as such options remain
outstanding.
(d) USR shall take such action as is necessary to cause the ending date
of the then current offering period under the USR Purchase Plan (as such
term is defined therein) to be the last trading day on which the USR Common
Stock is traded on The Nasdaq National Market immediately prior to the
Effective Time (the "Final USR Purchase Date"); provided, that, such change
in the offering period shall be conditioned upon the consummation of the
Merger. On the Final USR Purchase Date, USR shall apply the funds credited
as of such date under the USR Purchase Plan within each participant's
payroll withholding account to the purchase of whole shares of USR Common
Stock in accordance with the terms of the USR Purchase Plan.
(e) Employees of USR as of the Effective Time shall be permitted to
participate in the 3Com Purchase Plan commencing on the first enrollment
date of such plan following the Effective Time, subject to the eligibility
provisions of such plan (with employees receiving credit, for purposes of
such eligibility provisions, for service with USR or 3Com).
Section 6.16 BROKERS OR FINDERS. Each of 3Com and USR represents, as to
itself, its Subsidiaries and its Affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except Morgan
Stanley & Co. Incorporated, whose fees and expenses will be paid by USR in
accordance with USR's agreement with such firm (a copy of which has been
delivered by USR to 3Com prior to the date of this Agreement), and Goldman,
Sachs & Co., whose fees and expenses will be paid by 3Com in accordance with
3Com's agreement with such firm (a copy of which has been delivered by 3Com
prior to the date of this Agreement), and each of 3Com and USR agrees to
indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any other fees, commissions or
expenses asserted by any person on the basis of any act or statement alleged to
have been made by such party or its Affiliate.
Section 6.17 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) 3Com, 3Com Delaware and the Surviving Corporation agree that the
indemnification obligations set forth in USR's Certificate of Incorporation
and Bylaws, in each case as of the date of this Agreement, shall survive the
Merger and the Reincorporation Merger (and, prior to the Effective Time,
3Com shall cause the Bylaws of Sub to reflect such provisions) and shall not
be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of the individuals who on or prior to the Effective Time were
directors, officers, employees or agents of USR or its Subsidiaries.
(b) After the Effective Time, 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) and the Surviving
Corporation shall, to the fullest extent permitted under applicable law,
indemnify and hold harmless, each present and former director or officer of
USR and each Subsidiary of USR and each such person who served at the
request of USR or any Subsidiary of USR as a director, officer, trustee,
partner, fiduciary, employee or agent of USR or of another corporation,
partnership, joint venture, trust, pension, or other employee benefit plan
or enterprise (collectively, the "Indemnified Parties") against all costs
and expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil,
administrative or investigative, arising out of or pertaining to any action
or omission in their capacity as an officer, director, employee, agent or
other person to whom this Section 6.17 applies, in each case occurring
before the Effective Time (including the transactions contemplated by this
Agreement). Without limiting the foregoing, in the event of any such claim,
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action, suit, proceeding or investigation, 3Com (or 3Com Delaware, if the
3Com Reincorporation Merger shall have become effective) or the Surviving
Corporation, shall pay the fees and expenses of counsel selected by any
Indemnified Party, which counsel shall be reasonably satisfactory to 3Com
(or 3Com Delaware, if the 3Com Reincorporation Merger shall have become
effective) and the Surviving Corporation, as the case may be, promptly after
statements therefor are received (unless the Surviving Corporation shall
elect to defend such action).
(c) For a period of six years from the Effective Time, 3Com (or 3Com
Delaware, if the 3Com Reincorporation Merger shall have become effective)
shall provide or cause the Surviving Corporation to provide to USR's current
directors and officers liability insurance protection substantially
equivalent in kind and scope as that provided by USR's current directors'
and officers' liability insurance policies (copies of which have been made
available to 3Com); PROVIDED, HOWEVER, that in no event shall the Surviving
Corporation be required to expend in any one year an amount in excess of
150% of the annual premiums currently paid by USR for such insurance; and,
PROVIDED, FURTHER, that if during such period the annual premiums for such
comparable insurance coverage exceed such amount, the Surviving Corporation
shall be obligated to obtain a policy which, in the reasonable judgment of
the Surviving Corporation, provides the best coverage available for a cost
not exceeding such amount.
(d) In the event 3Com, 3Com Delaware or the Surviving Corporation or any
of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving
corporation or entity in such consolidation or merger or (ii) transfers all
or substantially all its properties and assets to any person, then, and in
each case, proper provision shall be made so that the successors and assigns
of 3Com, 3Com Delaware or the Surviving Corporation, as the case may be,
honor the indemnification obligations set forth in this Section 6.17.
(e) The obligations of USR, the Surviving Corporation, 3Com and 3Com
Delaware under this Section 6.17 shall not be terminated or modified in such
a manner as to adversely affect any director, officer, employee, agent or
other person to whom this Section 6.17 applies without the consent of such
affected director, officer, employee, agent or other person (it being
expressly agreed that each such director, officer, employee, agent or other
person to whom this Section 6.17 applies shall be a third-party beneficiary
of this Section 6.17).
Section 6.18 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the
terms and conditions of this Agreement, each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, subject to the appropriate vote of the
stockholders of USR and the shareholders of 3Com described in Section 6.6,
including cooperating fully with the other party, including by provision of
information and making all necessary filings under the HSR Act. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Constituent Corporations, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
Section 6.19 STOCK OPTION AGREEMENTS. USR, 3Com and, if the 3Com
Reincorporation Merger shall have become effective, 3Com Delaware agree to fully
perform their respective obligations under the Stock Option Agreements, as
amended pursuant to Section 9.3(b) of this Agreement.
Section 6.20 3COM AND 3COM DELAWARE BOARD OF DIRECTORS.
(a) 3Com and 3Com Delaware shall take all actions necessary (subject to
any necessary stockholder approval) to cause the number of directors
comprising the full Board of Directors of 3Com or, if the 3Com
Reincorporation Merger shall have become effective, 3Com Delaware at the
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Effective Time (the "3Com Board") to be comprised of 11 directors, to elect
James Cowie as a member of the 3Com Board with a term expiring in 1998 and
to elect Casey Cowell and Paul Yovovich as members of the 3Com Board with
terms expiring in 1999, all such elections to be effective as of the
Effective Time. If, prior to the Effective Time, any of Messrs. Cowie,
Cowell or Yovovich shall decline or be unable to serve as a member of the
3Com Board, USR shall designate another person, reasonably acceptable to the
3Com Board, to serve in such person's stead.
(b) 3Com (or 3Com Delaware, as the case may be) shall take all action
necessary to cause the Compensation Committee of the 3Com Board, as of the
Effective Time to be comprised of two members, one of which shall be Mr.
Yovovich.
(c) The foregoing members of the 3Com Board and Compensation Committee
shall hold their respective positions until their resignation or removal or
the election or appointment of their respective successors in the manner
provided by the applicable charter documents of 3Com or 3Com Delaware, as
the case may be, and applicable law.
Section 6.21 EMPLOYMENT AND NONCOMPETE AGREEMENTS. 3Com and USR shall each
use its reasonable efforts to cause each of the USR employees listed in Schedule
6.21 of the USR Disclosure Schedule to enter into (a) Employment Agreements,
substantially in the form of EXHIBIT C hereto providing for the compensation
specified in said Schedule 6.21 for each such employee and (b) Noncompete and
Nonsolicitation Agreements, substantially in the form of EXHIBIT D hereto.
Section 6.22 RIGHTS PLANS.
(a) USR covenants and agrees that it shall either (i) redeem, effective
immediately prior to the Effective Time, all the then outstanding Rights (as
defined in the USR Rights Agreement) for cash pursuant to and in compliance
with Section 23 of the USR Rights Agreement or (ii) take such other action
to terminate the USR Rights Agreement as of that time, as USR and 3Com may
mutually agree. USR shall not redeem the Rights issued under the USR Rights
Agreement, or terminate the USR Rights Agreement, prior to the Effective
Time (other than in accordance with the preceding sentence) unless required
to do so by a court of competent jurisdiction; PROVIDED, HOWEVER, that USR
may take any of the foregoing actions if the Board of Directors of USR shall
have determined to recommend a Competing Offer to its stockholders after
determining, pursuant to Section 6.1, that such Competing Offer constitutes
a Superior Proposal.
(b) Neither 3Com nor 3Com Delaware shall redeem the rights issued under
the 3Com Rights Plan or a 3Com Delaware Rights Plan (as defined below) or
terminate the 3Com Rights Plan or a 3Com Delaware Rights Plan prior to the
Effective Time unless required to do so by a court of competent
jurisdiction; PROVIDED, HOWEVER, that 3Com and 3Com Delaware may take any of
the foregoing actions if its respective Board of Directors shall have
determined to recommend a Competing Offer to its stockholders after
determining, pursuant to Section 6.1, that such Competing Offer constitutes
a Superior Proposal and; PROVIDED FURTHER, that 3Com Delaware may adopt a
replacement rights plan substantially similar to the 3Com Rights Plan (a
"3Com Delaware Rights Plan") for the benefit of 3Com Delaware stockholders
following the effectiveness of the 3Com Reincorporation Merger and may
terminate the 3Com Rights Plan or redeem outstanding rights thereunder upon
adoption of such a 3Com Delaware Rights Plan.
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ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of USR Common Stock entitled to vote
thereon and the holders of a majority of the outstanding shares of 3Com
Common Stock entitled to vote thereon.
(b) WAITING PERIODS. The waiting period applicable to the consummation
of the Merger under the HSR Act and any other waiting periods under
applicable foreign laws shall have expired or been terminated.
(c) APPROVALS. Other than the filing provided for by Section 1.1, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
the absence or nonoccurrence of which would be reasonably likely to have a
USR Material Adverse Effect or a 3Com Material Adverse Effect shall have
been filed, occurred or been obtained.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting the conduct or operation by 3Com or 3Com Delaware of the
business of 3Com, 3Com Delaware or the Surviving Corporation after the
Merger shall have been issued, except for any such order, injunction
restraint or prohibition which would not be reasonably likely to have a
material adverse effect on 3Com (or 3Com Delaware, as the case may be), the
Surviving Corporation and their respective Subsidiaries, taken as a whole;
nor shall there be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger by any
Governmental Entity which makes the consummation of the Merger illegal.
(f) POOLING LETTERS. 3Com (or 3Com Delaware, as the case may be) and
USR shall have received letters from Deloitte & Touche LLP and Grant
Thornton LLP, respectively, each dated the date of the Proxy Statement and
confirmed in writing as of the Closing Date and addressed to 3Com (or 3Com
Delaware, as the case may be) and USR, respectively, stating that they know
of nothing that would prohibit the business combination to be effected by
the Merger from qualifying as a pooling of interests transaction under
generally accepted accounting principles.
(g) NASDAQ. The shares of 3Com Common Stock to be issued in the Merger
shall have been approved for quotation on The Nasdaq National Market.
Section 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF 3COM, 3COM DELAWARE AND
SUB. The obligations of 3Com, 3Com Delaware and Sub to effect the Merger are
subject to the satisfaction of each of the following conditions, any of which
may be waived in writing exclusively by 3Com, 3Com Delaware and Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of USR set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except (i) for
changes contemplated by this
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Agreement and (ii) where the failure to be true and correct would not be
reasonably likely to have a USR Material Adverse Effect or a material
adverse effect upon the parties' ability to consummate the transactions
contemplated hereby; and 3Com shall have received a certificate signed on
behalf of USR by the chief executive officer and the chief financial officer
of USR to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF USR. USR shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date; and 3Com shall have received a
certificate signed on behalf of USR by the chief executive officer and the
chief financial officer of USR to such effect.
(c) TAX OPINION. 3Com (or 3Com Delaware, as the case may be) shall
have received a written opinion from Gray Cary Ware & Freidenrich, A
Professional Corporation, counsel to 3Com and 3Com Delaware, to the effect
that the Merger will be treated for federal income tax purposes as a tax-
free reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, such counsel may rely upon reasonable
representations and certificates of 3Com, 3Com Delaware, Sub, USR and
certain stockholders or shareholders of USR, 3Com and 3Com Delaware; and
3Com, 3Com Delaware, Sub and USR will make, and each of them agrees to use
reasonable efforts to cause such of its respective stockholders or
shareholders to make, such representations and deliver such certificates.
(d) ACCOUNTANTS' LETTER. 3Com (or 3Com Delaware, as the case may be)
shall have received from Grant Thornton LLP the letters described in Section
6.11(a).
(e) BLUE SKY LAWS. 3Com (or 3Com Delaware, as the case may be) shall
have received all permits and other authorizations required under applicable
state blue sky laws for the issuance of shares of 3Com Common Stock pursuant
to the Merger.
Section 7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF USR. The obligation of
USR to effect the Merger is subject to the satisfaction of each of the following
conditions, any of which may be waived, in writing, exclusively by USR:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of 3Com, 3Com Delaware and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and
(except to the extent such representations speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except (i)
for changes contemplated by this Agreement (including changes resulting from
the 3Com Reincorporation Merger or the 3Com Charter Amendment) and (ii)
where the failure to be true and correct would not be reasonably likely to
have a 3Com Material Adverse Effect or a material adverse effect upon the
parties' ability to consummate the transactions contemplated hereby; and USR
shall have received a certificate signed on behalf of 3Com (or 3Com
Delaware, as the case may be) by the chief executive officer and the chief
financial officer of 3Com (or 3Com Delaware, as the case may be) to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF 3COM, 3COM DELAWARE AND SUB. 3Com,
3Com Delaware and Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Closing Date; and USR shall have received a certificate signed
on behalf of 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger
shall have become effective) by the chief executive officer and the chief
financial officer of 3Com (or 3Com Delaware, as the case may be) to such
effect.
(c) TAX OPINION. USR shall have received the opinion of Mayer, Brown &
Platt, counsel to USR, to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization within the meaning
of Section 368(a) of the Code. In rendering such opinions, such counsel may
rely upon reasonable representations and certificates of 3Com, 3Com
Delaware, Sub, USR and certain stockholders or shareholders of USR, 3Com and
3Com Delaware; and 3Com, 3Com Delaware, Sub and USR will make, and each of
them agrees to use reasonable efforts to cause such of its respective
stockholders or shareholders to make, such representations and deliver such
certificates.
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(d) ACCOUNTANTS' LETTER. USR shall have received from Deloitte &
Touche LLP the letters described in Section 6.11(b).
(e) REINCORPORATION. If effected, the 3Com Reincorporation Merger
shall have been effected substantially in accordance with the Agreement and
Plan of Merger and Reincorporation annexed hereto as Exhibit E and the
Certificate of Incorporation and By-Laws of 3Com Delaware immediately
following the effectiveness of the 3Com Reincorporation Merger shall be
substantially as set forth in the exhibits thereto.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(h), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of 3Com or the stockholders of USR;
(a) by mutual written consent of 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) and USR; or
(b) by either 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger
shall have become effective) or USR if the Merger shall not have been
consummated by September 15, 1997 (PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 8.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of or resulted in the failure of the Merger to occur on or
before such date, and PROVIDED FURTHER, that this Agreement may be extended
up to 90 days by either party by written notice to the other party if the
Merger would have been consummated but for the absence of one or more
required Approvals or third-party consents, and such Approval(s) or
consent(s) can reasonably be expected to be obtained within such 90-day
period); or
(c) by either 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger
shall have become effective) or USR if a court of competent jurisdiction or
other Governmental Entity shall have issued a final order, decree or ruling,
or taken any other action, having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, and all appeals with respect
to such order or action have been exhausted or the time for appeal of such
order, decree, ruling or action shall have expired (PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 8.1(c) shall not be
available to any party which has not complied with its obligations under
Section 6.7); or
(d) by either 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger
shall have become effective) or USR if, at the USR Stockholders' Meeting or
the 3Com Shareholders' Meeting (including any adjournment or postponement
thereof), the requisite vote of stockholders of USR or shareholders of 3Com
in favor of this Agreement and the Merger shall not have been obtained
(PROVIDED, HOWEVER, that the right to terminate this Agreement under this
Section 8.1(d) shall not be available to any party which has not complied
with its obligations under Sections 6.2 and 6.6, and no termination shall be
effective by any party which has not complied with its obligations under
Section 8.3(b) or (c), as the case may be, of this Agreement); or
(e) by 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger shall
have become effective) if (i) the Board of Directors of USR shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
a manner adverse to 3Com or 3Com Delaware or shall have resolved or publicly
announced or disclosed to any third party its intention to do so; (ii) an
Alternative Transaction (as defined in Section 8.3(e)) involving USR shall
have taken place or the Board of Directors of USR shall have recommended
such an Alternative Transaction to the stockholders of
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USR or shall have resolved or publicly announced its intention to recommend
or engage in such an Alternative Transaction; or (iii) a tender offer or
exchange offer for twenty percent (20%) or more of the outstanding shares of
USR Common Stock shall have been commenced or a registration statement with
respect thereto shall have been filed (other than by 3Com, 3Com Delaware or
an affiliate thereof), and the Board of Directors of USR shall have (A)
recommended (or shall have resolved or publicly announced its intention to
recommend) that the stockholders of USR tender their shares in such tender
or exchange offer or (B) resolved or publicly announced its intention to
take no position with respect to such tender or exchange offer; or
(f) by 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger shall
have become effective), if the Board of Directors of 3Com (or 3Com Delaware,
if the 3Com Reincorporation Merger shall have become effective) shall have
determined, to recommend a Competing Offer to its shareholders after
determining, pursuant to Section 6.1, that such Competing Offer constitutes
a Superior Proposal;
(g) by 3Com (or 3Com Delaware, if the 3Com Reincorporation Merger shall
have become effective) if a breach of any representation, warranty, covenant
or agreement on the part of USR set forth in this Agreement shall have
occurred which would cause the conditions set forth in Sections 7.2(a) or
7.2(b) not to be satisfied, and such breach is incapable of being cured or,
if capable of being cured, shall not have been cured within ten business
days following receipt by USR of written notice of such breach from 3Com or
3Com Delaware; or
(h) by USR if (i) the Board of Directors of 3Com (or 3Com Delaware, if
the 3Com Reincorporation Merger shall have become effective) shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
a manner adverse to USR or shall have resolved or publicly announced or
disclosed to any third party its intention to do so; (ii) an Alternative
Transaction (as defined in Section 8.3(e)) involving 3Com (or 3Com Delaware,
if the 3Com Reincorporation Merger shall have become effective) shall have
taken place or the Board of Directors of 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) shall have recommended
such an Alternative Transaction (or a proposal or offer therefor) to the
shareholders of 3Com (or the stockholders of 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) or shall have resolved
or publicly announced its intention to recommend or engage in such an
Alternative Transaction; or (iii) a tender offer or exchange offer for
twenty percent (20%) or more of the outstanding shares of 3Com Common Stock
shall have been commenced or a registration statement with respect thereto
shall have been filed (other than by USR or an affiliate thereof), and the
Board of Directors of 3Com (or the Board of Directors of 3Com Delaware, if
the 3Com Reincorporation Merger shall have become effective) shall have (A)
recommended (or shall have resolved or publicly announced its intention to
recommend) that the stockholders of 3Com (or the stockholders of 3Com
Delaware, if the 3Com Reincorporation Merger shall have become effective)
tender their shares in such tender or exchange offer or (B) resolved or
publicly announced its intention to take no position with respect to such
tender or exchange offer;
(i) by USR, if the Board of Directors of USR shall have determined to
recommend a Competing Offer to its stockholders after determining, pursuant
to Section 6.1, that such Competing Offer constitutes a Superior Proposal;
or
(j) by USR, if a breach of any representation, warranty, covenant or
agreement on the part of 3Com, 3Com Delaware or Sub set forth in this
Agreement shall have occurred which would cause the conditions set forth
Sections 7.3(a) or 7.3(b) not to be satisfied, and such breach is incapable
of being cured or, if capable of being cured, shall not have been cured
within ten (10) business days following receipt by 3Com of written notice of
such breach from USR.
Section 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 8.1, there shall be no liability or obligation on
the part of 3Com, 3Com Delaware, USR, Sub, or
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their respective officers, directors, stockholders or Affiliates, except as set
forth in Section 8.3 and further except to the extent that such termination
results from the willful breach by a party of any of its representations,
warranties, covenants or agreements in this Agreement; and PROVIDED, that the
provisions of Sections 6.19 and 8.3 of this Agreement and the Confidentiality
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
Section 8.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not
the Merger is consummated; PROVIDED, HOWEVER, that 3Com (or 3Com Delaware,
as the case may be) and USR shall share equally all fees and expenses, other
than attorneys' and accounting fees and expenses, incurred in relation to
the printing and filing of the Proxy Statement (including any related
preliminary materials) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto and the
fee(s) required to be paid in connection with the filing(s) required under
the HSR Act in connection with the transactions contemplated by this
Agreement.
(b) If this Agreement is terminated (i) by 3Com or 3Com Delaware
pursuant to Section 8.1(e), (ii) by USR pursuant to Section 8.1(d) as a
result of the failure to receive the requisite vote for approval of this
Agreement and the Merger by the stockholders of USR at the USR Stockholders'
Meeting, (iii) by USR pursuant to Section 8.1(i), or (iv) by 3Com or 3Com
Delaware as a result of a breach by USR within the scope of Section 8.1(g),
AND, in each such case, at the time of such failure or breach an Alternative
Transaction involving USR shall have been announced which shall not have
been absolutely and unconditionally withdrawn and abandoned, USR shall pay
to 3Com (or to 3Com Delaware, if the 3Com Reincorporation Merger shall have
become effective) a termination fee of $75 million in cash or USR Common
Stock, as provided in Section 8.3(d), (the "USR Initial Termination Fee"),
plus documented expenses of 3Com and 3Com Delaware relating to this
Agreement and the transactions contemplated hereby (other than expenses
relating solely to the 3Com Reincorporation Merger, which shall be solely
for the account of 3Com and 3Com Delaware) in an amount up to $10 million,
within one business day after such termination. If an Alternative
Transaction involving USR is thereafter consummated, or USR enters into a
definitive agreement with respect to an Alternative Transaction, within 12
months after payment of the USR Initial Termination Fee, USR shall pay to
3Com (or to 3Com Delaware, if the 3Com Reincorporation Merger shall have
become effective) an additional fee (the "USR Additional Termination Fee")
of $75 million in cash, at or prior to the consummation of such Alternative
Transaction, or within one business day following the effective date of such
definitive agreement, whichever is earlier.
(c) If this Agreement is terminated (i) by USR pursuant to Section
8.1(h) or (ii) by 3Com or 3Com Delaware pursuant to Section 8.1(d) as a
result of the failure to receive the requisite vote for approval of this
Agreement and the Merger by the shareholders of 3Com at the 3Com
Shareholders' Meeting, (iii) by 3Com or 3Com Delaware pursuant to Section
8.1(f), or (iv) by USR as a result of a breach by 3Com, 3Com Delaware or Sub
within the scope of Section 8.1(j), AND, in each such case, at the time of
such failure or breach an Alternative Transaction involving 3Com (or 3Com
Delaware, if the 3Com Reincorporation Merger shall have become effective)
shall have been announced which shall not have been absolutely and
unconditionally withdrawn and abandoned, 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) shall pay to USR a
termination fee of $75 million in cash or 3Com Common Stock, as provided in
Section 8.3(d), (the "3Com Initial Termination Fee"), plus documented
expenses of USR relating to this Agreement and the transactions contemplated
hereby in an amount up to $10 million, within one business day after such
termination. If an Alternative Transaction involving 3Com (or 3Com Delaware,
if the 3Com Reincorporation Merger shall have become effective) is
thereafter consummated, or 3Com (or 3Com Delaware, if the 3Com
Reincorporation Merger shall have become effective) enters into a definitive
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agreement providing for an Alternative Transaction, within 12 months after
payment of the 3Com Initial Termination Fee, 3Com (or 3Com Delaware, if the
3Com Reincorporation Merger shall have become effective) shall pay to USR an
additional fee (the "3Com Additional Termination Fee") of $75 million in
cash, at or prior to the consummation of such Alternative Transaction, or
within one business day following the effective date of such definitive
agreement, whichever is earlier.
(d) The USR Initial Termination Fee and the 3Com Initial Termination Fee
shall be payable in cash (a "Cash Satisfaction") or, at the election of the
paying party (the "Paying Party") and subject to the prior satisfaction or
waiver of the conditions set forth in clause (i) below, in shares (a "Stock
Satisfaction") of the paying party's common stock (the "Paying Party Common
Stock").
(i) CONDITIONS TO STOCK SATISFACTION. The Paying Party's right to
elect a Stock Satisfaction shall be subject to, and conditioned upon: (A)
the expiration or early termination, prior to the date on which payment
of the applicable Initial Termination Fee is due (the "Payment Date"), of
all waiting periods, if any, under the HSR Act applicable to the
transactions necessary to effect such Stock Satisfaction; (B) the
effectiveness, on the Payment Date, of a registration statement covering
the shares of Paying Party Common Stock to be issued in such Stock
Satisfaction and the absence of any stop order with respect thereto, or,
alternatively, the receipt of a registration rights agreement in form
acceptable to the recipient of the applicable Initial Termination Fee;
(C) the admission, prior to the Payment Date, of the shares of Paying
Party Common Stock to listing or quotation on the applicable national
securities exchange or national market system; (D) the absence, on the
Payment Date, of any preliminary or permanent injunction or other order
by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance; and (E) the receipt, prior to the Payment
Date, of all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any Governmental Entity, if
any, required in connection with the transactions necessary to effect
such Stock Satisfaction.
(ii) PROCEDURE FOR STOCK SATISFACTION. In the event of a Stock
Satisfaction, the Paying Party shall: (A) issue to the other party a
number of shares of Paying Party Common Stock equal to the quotient
obtained by dividing the applicable Initial Termination Fee by the
average closing price of Paying Party Common Stock as reported on the
applicable national securities exchange or national market system for the
20 days ending on the fifth trading day prior to the date hereof; (B)
deliver to the other party a single certificate in definitive form
representing the number of shares of Paying Party Common Stock registered
in the name of the other party; and (C) pay all expenses, and any and all
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates
pursuant to a Stock Satisfaction.
(iii) VOTING OF SHARES ISSUED PURSUANT TO A STOCK
SATISFACTION. Until the earlier of the third anniversary of the Payment
Date or the transfer of the Paying Party Common Stock by the initial
recipient thereof to an unaffiliated third party, the holder of the
Paying Party Common Stock shall vote and execute stockholder written
consents with respect to such shares, on each matter submitted to the
Paying Party's stockholders for a vote or action by stockholder written
consent, for and against such matter in the same proportion(s) as the
votes and consents of all other shareholders of the Paying Party (whether
by proxy or otherwise).
(e) As used in this Agreement, an "Alternative Transaction" involving a
specified party to this Agreement means (i) a transaction or series of
transactions pursuant to which any person or group (as such term is defined
under the Exchange Act) other than 3Com, 3Com Delaware, USR or Sub, or any
affiliate thereof, (a "Third Party") acquires or would acquire (upon
completion of such transaction or series of transactions) shares (or
securities exercisable for or convertible into shares) representing more
than twenty percent (20%) of the outstanding shares of such party's common
stock, pursuant to a tender offer or exchange offer or otherwise, (ii) a
merger, consolidation, share exchange or other
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business combination involving such party or any of its material
Subsidiaries if, upon consummation of such merger, consolidation, share
exchange or other business combination such Third Party owns or would own
more than twenty percent (20%) of the outstanding equity securities of such
party or any of its material Subsidiaries or the entity surviving such
merger or business combination or resulting from such consolidation, (iii)
any other transaction or series of transactions pursuant to which any Third
Party acquires or would acquire (upon completion of such transaction or
series of transactions) control of assets of such party or any of its
material Subsidiaries (including, for this purpose, outstanding equity
securities of Subsidiaries of such party) having a fair market value equal
to more than twenty percent (20%) of the fair market value of all the
consolidated assets of such party immediately prior to such transaction or
series of transactions, or (iv) any transaction or series of transactions
pursuant to which any Third Party acquires or would acquire (upon completion
of such transaction or series of transactions) control of the Board of
Directors of such party or by which nominees of any Third Party are (or
would be) elected or appointed to a majority of the seats on the Board of
Directors of such party.
(f) In no event shall USR, 3Com or 3Com Delaware, as the case may be, be
required to pay any termination fee to the other party if, immediately prior
to the applicable termination of this Agreement, the party that would
otherwise be entitled to receive such termination fee pursuant to Section
8.3 was in material breach of any of its obligations under this Agreement.
(g) If one party fails to promptly pay to the other any fee or expense
due hereunder, the defaulting party shall pay the costs and expenses
(including reasonable documented legal fees and expenses) in connection with
any action, including the filing of any lawsuit or other legal action, taken
to collect payment, together with interest on the amount of any unpaid fee
at the publicly announced prime rate of Citibank, N.A. from the date such
fee was required to be paid.
Section 8.4 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of USR or the shareholders of 3Com, but, after
any such approval, no amendment shall be made which by law requires further
approval by such stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
Section 8.5 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing and the Effective Time, except for covenants and agreements
which, by their terms, are to be performed after the Effective Time and the
agreements of the Affiliates of USR delivered pursuant to Section 6.13. The
Confidentiality Agreement shall survive the execution and delivery of this
Agreement.
Section 9.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or
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certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to 3Com, 3Com Delaware or Sub, to
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
Attention: Mark Michael, General Counsel
Facsimile No.: (408) 764-6434
with a copy to:
Gray Cary Ware & Freidenrich,
A Professional Corporation
400 Hamilton Avenue
Palo Alto, CA 94301-1825
Attention: J. Howard Clowes
Facsimile No.: (415) 327-3699
(b) if to USR, to:
U.S. Robotics Corporation
8100 North McCormick Boulevard
Skokie, IL 60076
Attention: George Vinyard
Facsimile No.: (847) 982-9118
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603-3441
Attention: Richard Millard
Facsimile No.: (312) 701-7711
Section 9.3 INTERPRETATION.
(a) When a reference is made in this Agreement to a section, such
reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to
be followed by the words "without limitation." The phrase "made available"
in this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available. The phrase "to the knowledge of" a party shall mean the actual
knowledge of any of the executive officers of such party after due inquiry
of those employees of the party who could reasonably be expected to have
information relating to the subject matter of the representation. The
phrases "the date of this Agreement", "the date hereof," and terms of
similar import, unless otherwise specified, shall be deemed to refer to
February 26, 1997, and all representations made herein and in the Original
Merger Agreement shall be deemed to be made as of February 26, 1997 (other
than representations by or concerning 3Com Delaware, which shall be deemed
to be made as of March 14, 1997), unless otherwise specified.
(b) 3Com and USR hereby agree that the 3Com Stock Option Agreement and
the USR Stock Option Agreement are amended as follows: (i) the recitals to
each of the 3Com Stock Option
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Agreement and the USR Stock Option Agreement are deemed amended to reflect
the revised structure of the Merger as set forth in this Agreement; (ii)
references in each of the 3Com Stock Option Agreement and the USR Stock
Option Agreement to the "Merger Agreement" shall be deemed to be references
to this Agreement; and (iii) all references to "3Com" in the 3Com Stock
Option Agreement and the USR Stock Option Agreement shall be deemed to refer
to either 3Com or, if the 3Com Reincorporation Merger shall have become
effective, 3Com Delaware, to the extent necessary to effectuate the purposes
of such agreements.
(c) The form of USR Stockholder Agreement attached as Exhibit B and the
related form of 3Com Shareholder Agreement are deemed amended to reflect the
revised structure of the Merger as set forth in this Agreement; all
references therein to "3Com" shall be deemed to refer to either 3Com or, if
the 3Com Reincorporation Merger shall become effective, 3Com Delaware, to
the extent necessary to effectuate the purposes of such agreement; and to
the extent requested by 3Com or 3Com Delaware, USR agrees, and to the extent
requested by USR, 3Com and 3Com Delaware agree, to use reasonable efforts to
cause an amendment to such agreements to be executed by the other parties
thereto to reflect the foregoing.
(d) The forms of Employment Agreement and Noncompete and Nonsolicitation
Agreement attached as Exhibits C and D are deemed amended to reflect to
revised structure of the Merger as set forth in this Agreement; all
references therein to "3Com" shall be deemed to refer to either 3Com or, if
the 3Com Reincorporation Merger shall have become effective, 3Com Delaware,
to the extent necessary to effectuate the purposes of such agreements; and
to the extent requested by 3Com or 3Com Delaware, USR agrees, and to the
extent requested by USR, 3Com and 3Com Delaware agree, to use reasonable
efforts to cause an amendment to such agreements to be executed by the other
parties thereto to reflect the foregoing.
Section 9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and the instruments referred to herein) (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 6.17 is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
Section 9.6 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules. Each party hereto irrevocably and
unconditionally consents and submits to the jurisdiction of the courts of the
State of Delaware and of the United States of America located in the State of
Delaware for any actions, suits or proceedings arising out of or relating to
this agreement and the transactions contemplated hereby, and further agrees that
service of any process, summons, notice or document by U.S. registered or
certified mail to the party at the address specified in Section 9.2, shall be
effective service of process for any action, suit or proceeding brought against
such party in any such court. Each party hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this agreement or the transactions contemplated
hereby, in the courts of the State of Delaware located in Wilmington, Delaware
or the United States of America located in Wilmington, Delaware, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. If any provision of this
Agreement is held to be unenforceable for any reason, it shall be modified
rather than voided, if possible, in order to achieve the intent of the parties
to the extent possible. In any event, all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
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Section 9.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties (other than by 3Com to 3Com Delaware pursuant to
the 3Com Reincorporation Merger), and any attempted assignment thereof without
such consent shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
IN WITNESS WHEREOF, 3Com, Sub and USR have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
U.S. ROBOTICS CORPORATION 3Com CORPORATION
By: /s/ JOHN MCCARTNEY By: /s/ JANICE M. ROBERTS
------------------------------------ ------------------------------------
Title: President Title: Senior Vice President,
Marketing
3Com (DELAWARE) CORPORATION TR ACQUISITIONS CORPORATION
By: /s/ MARK D. MICHAEL By: /s/ JANICE M. ROBERTS
------------------------------------ ------------------------------------
Title: President Title: President
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ANNEX B
3COM STOCK OPTION AGREEMENT
THIS 3Com STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
as of February 26, 1997 by and between U.S. Robotics Corporation, a Delaware
corporation ("USR"), and 3Com Corporation, a California corporation ("3Com").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, USR,
3Com, and TR Acquisitions Corporation, a Delaware corporation and a wholly-owned
subsidiary of 3Com ("Sub"), are entering into an Agreement and Plan of Merger,
dated as of February 26, 1997 (the "Merger Agreement"), which provides, among
other things, upon the terms and subject to the conditions thereof, for the
merger of Sub with and into USR in accordance with the laws of the State of
Delaware (the "Merger"); and
B. As a condition and inducement to 3Com's willingness to enter into the
Merger Agreement, 3Com has requested that USR agree, and USR has agreed, to
grant to 3Com an option to acquire certain shares of USR's authorized but
unissued common stock, $.01 par value per share, together with any associated
rights under the Rights Agreement dated as of May 9, 1996 between USR and Harris
Trust and Savings Bank ("USR Common Stock"), on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, to induce 3Com to enter into the Merger Agreement and in
consideration of the representations, warranties, covenants and agreements
contained herein and in the Merger Agreement, the parties hereto, intending to
be legally bound, hereby agree as follows. Capitalized terms used herein but not
defined herein shall have the meanings ascribed to them in the Merger Agreement.
1. GRANT OF OPTION. USR hereby grants to 3Com an irrevocable option (the
"USR Option") to purchase a number of shares of USR Common Stock equal to the
Option Number (as defined in Section 2(d)), on the terms and subject to the
conditions set forth below.
2. EXERCISE AND TERMINATION OF THE USR OPTION.
(a) EXERCISE. The USR Option may be exercised by 3Com, in whole or in
part, at any time or from time to time after the occurrence of an event
which causes the USR Initial Termination Fee (as defined in the Merger
Agreement) to become payable (a "Trigger Event") and prior to the
termination of 3Com's right to exercise the USR Option by the terms of this
Agreement. USR shall notify 3Com promptly in writing of the occurrence of
any Trigger Event; however, such notice shall not be a condition to the
right of 3Com to exercise the USR Option. Notwithstanding the foregoing, the
USR Option may not be exercised if 3Com is in material breach of any of its
material representations, warranties, covenants or agreements in this
Agreement or the Merger Agreement.
(b) EXERCISE PROCEDURE. In the event that 3Com wishes to exercise the
USR Option, 3Com shall deliver to USR written notice (an "Exercise Notice")
specifying the total number of shares of USR Common Stock that 3Com wishes
to purchase. To the extent permitted by law and the Certificate of
Incorporation of USR (the "USR Charter") and provided that the conditions
set forth in Section 3 to USR's obligation to issue the shares of USR Common
Stock to 3Com hereunder have been satisfied or waived, 3Com shall, upon
delivery of the Exercise Notice and tender of the applicable aggregate
Exercise Price, immediately be deemed to be the holder of record of the
shares of USR Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of USR shall then be closed or that certificates
representing such shares of USR Common Stock shall not theretofore have been
delivered to 3Com. Each closing of a purchase of shares of USR Common Stock
hereunder (a "Closing") shall occur at a place, on a date, and at a time
designated by 3Com in an Exercise Notice delivered at least two (2) business
days prior to the date of such Closing.
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(c) TERMINATION OF THE USR OPTION. 3Com's right to exercise the USR
Option shall terminate upon the earliest to occur of: (i) the Effective Time
of the Merger; (ii) the termination of the Merger Agreement other than under
circumstances which also constitute a Trigger Event under this Agreement; or
(iii) twelve (12) months following the receipt by 3Com of written notice
from USR of the occurrence of a Trigger Event. Notwithstanding the
foregoing, if the USR Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, the USR Option shall remain
exercisable and shall not terminate until the earlier of (x) the date on
which such impediment shall become final and not subject to appeal and (y)
5:00 p.m., Pacific Standard Time, on the tenth (10th) business day after
such impediment shall have been removed. The rights of 3Com set forth in
Sections 7 and 10 shall not terminate upon termination of 3Com's right to
exercise the USR Option, but shall extend to the time provided in such
sections. Notwithstanding the termination of the USR Option, 3Com shall be
entitled to purchase the shares of USR Common Stock with respect to which
3Com had exercised the USR Option prior to such termination.
(d) OPTION NUMBER. The Option Number shall initially be the number of
shares equal to nineteen and nine-tenths percent (19.9%) of the total number
of shares of USR Common Stock issued and outstanding as of the date of this
Agreement, and shall be adjusted hereafter to reflect changes in USR's
capitalization occurring after the date hereof in accordance with Section
11. Notwithstanding any other provision of this Agreement, in no event shall
the Option Number exceed nineteen and nine-tenths percent (19.9%) of the
total number of shares of USR Common Stock issued and outstanding as of the
date of this Agreement, adjusted in accordance with Section 11.
(e) EXERCISE PRICE. The purchase price per share of USR Common Stock
pursuant to the USR Option (the "Exercise Price") shall be payable, at
3Com's election, in cash (a "Cash Exercise") or in shares (a "Stock
Exercise") of 3Com common stock, $.01 par value per share ("3Com Common
Stock"). The Exercise Price, (i) in the case of a Cash Exercise, shall be a
cash amount equal to the product of the Exchange Ratio (as defined in the
Merger Agreement) and the average of the last sale prices of 3Com Common
Stock on the ten (10) trading days immediately prior to the announcement of
the Merger (the "Cash Exercise Price"), and (ii) in the case of a Stock
Exercise, shall be a number of shares (or fraction of a share) of 3Com
Common Stock equal to the Exchange Ratio (the "Stock Exercise Price"),
subject in each case to adjustment pursuant to Section 11.
(f) CERTAIN LIMITATIONS. In the event 3Com would receive Net Proceeds
(as defined below) of more than one hundred million dollars ($100,000,000)
in connection with the sale or other disposition of the shares of USR Common
Stock acquired pursuant to the USR Option (other than a sale of such shares
to USR pursuant to Section 7), all Net Proceeds in excess of such amount
shall be remitted to USR promptly upon receipt. "Net Proceeds" shall mean
the aggregate proceeds of such sale or disposition in excess of the product
of the Exercise Price multiplied by the number of shares of USR Common Stock
included in such sale or disposition. Notwithstanding anything in this
Agreement or in the Merger Agreement to the contrary, the maximum aggregate
amount payable by USR to 3Com and its affiliates pursuant to Section 7 of
this Agreement and the provisions of Section 8.3(b) of the Merger Agreement
shall not exceed the sum of one hundred fifty million dollars ($150,000,000)
plus expenses pursuant to Section 8.3(b) of the Merger Agreement plus, in
the case of payments pursuant to Sections 7(a)(ii) and 7(b)(ii) of this
Agreement, the aggregate Exercise Price for the shares of USR Common Stock
repurchased by USR from 3Com pursuant to Section 7 of this Agreement, it
being understood that the limitation contained in this sentence shall not
limit the amounts receivable by 3Com from persons other than USR, including
without limitation amounts receivable pursuant to a tender offer or other
sale.
3. CONDITIONS TO CLOSING. The obligation of USR to issue the shares of USR
Common Stock to 3Com hereunder is subject to the conditions that (a) all waiting
periods, if any, under the Hart Scott Rodino Antitrust Improvements Act of 1975,
as amended (the "HSR Act"), applicable to the issuance of the shares of USR
Common Stock by USR and the acquisition of such shares by 3Com hereunder (and,
in
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the case of a Stock Exercise, the issuance of shares of 3Com Common Stock by
3Com and the acquisition of such shares by USR) shall have expired or have been
terminated; (b) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect; and (c) all consents, approvals, orders,
authorizations and permits of any federal, state, local or foreign governmental
authority, if any, required in connection with the issuance of the shares of USR
Common Stock and the acquisition of such shares by 3Com hereunder (and, in the
case of a Stock Exercise, the issuance of shares of 3Com Common Stock and the
acquisition of such shares by USR) shall have been obtained.
4. CLOSING. At any Closing:
(a) USR shall deliver to 3Com or its designee a single certificate in
definitive form representing the number of shares of USR Common Stock
designated by 3Com in its Exercise Notice, such certificate to be registered
in the name of 3Com and to bear the legend set forth in Section 12;
(b) 3Com shall deliver to USR the aggregate Exercise Price for the
shares of USR Common Stock so designated and being purchased by (i) wire
transfer of immediately available funds to the account or accounts specified
in writing by USR (in the case of a Cash Exercise), or (ii) subject to the
satisfaction of applicable conditions, delivery of a certificate or
certificates representing the number of shares of 3Com Common Stock being
issued by 3Com in consideration thereof (in the case of a Stock Exercise);
(c) USR shall pay all expenses, and any and all federal, state and local
taxes and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section 4;
and
(d) USR shall cause the shares of USR Common Stock being delivered at
the Closing to be approved for quotation on The Nasdaq National Market and
shall pay all expenses in connection with the application for approval of
such quotation.
5. REPRESENTATIONS AND WARRANTIES OF USR. USR represents and warrants to
3Com that:
(a) USR is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all corporate power
and authority required to enter into this Agreement and to carry out its
obligations hereunder;
(b) the execution and delivery of this Agreement by USR and the
consummation by USR of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of USR and no other
corporate proceedings on the part of USR and no action of USR stockholders
are necessary to authorize this Agreement or any of the transactions
contemplated hereby; this Agreement has been duly and validly executed and
delivered by USR, and, assuming the due authorization, execution and
delivery hereof by 3Com and the receipt of all required governmental
approvals, constitutes the valid and binding obligation of USR, enforceable
against USR in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, and except that
the availability of equitable remedies, including specific performance, may
be subject to the discretion of any court before which any proceeding
therefor may be brought;
(c) USR has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the USR
Option, and at all times from the date hereof through the expiration of the
USR Option will have reserved, a number of authorized and unissued shares of
USR Common Stock not less than the Option Number, such amount being subject
to adjustment as provided in Section 11, all of which, upon their issuance
and delivery in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable;
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(d) the shares of USR Common Stock issued to 3Com upon the exercise of
the USR Option will be, upon delivery thereof to 3Com, free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) the execution and delivery of this Agreement by USR does not, and,
subject to compliance with applicable law, the consummation by USR of the
transactions contemplated hereby will not, violate, conflict with, or result
in a breach of any provision of, or constitute a default (with or without
notice or lapse of time, or both) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security interest or other
encumbrance on assets (any such violation, conflict, breach, default,
termination, acceleration, right of termination, cancellation or
acceleration, loss, or creation, a "Violation") of USR or any of its
subsidiaries, pursuant to (i) any provision of the USR Charter or the Bylaws
of USR, (ii) any provision of any material loan or credit agreement, note,
mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license (a "Material Contract")
of USR or any of its subsidiaries or to which any of them is a party or by
which any of them or their properties or assets are bound, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to USR or any of its subsidiaries or any of their properties or
assets;
(f) the execution and delivery of this Agreement by USR does not, and
(except for the expiration or early termination of the waiting period under
the HSR Act and except as contemplated by Sections 10(e), (f) and (j)) the
performance of this Agreement by USR and the consummation of the
transactions contemplated hereby will not, require any consent, approval,
order, authorization or permit of, filing with, or notification to any
governmental or regulatory authority;
(g) none of USR or any of its affiliates or anyone acting on its or
their behalf has issued, sold or offered any security of USR to any person
under circumstances that would cause the issuance and sale of shares of USR
Common Stock hereunder to be subject to the registration requirements of the
Securities Act as in effect on the date hereof, and, assuming the
representations and warranties of 3Com contained in Section 6(g) are true
and correct, the issuance, sale and delivery of the shares of USR Common
Stock hereunder would be exempt from the registration and prospectus
delivery requirements of the Securities Act, as in effect on the date
hereof, and USR shall not take any action which would cause the issuance,
sale, and delivery of shares of USR Common Stock hereunder not to be exempt
from such requirements; and
(h) any shares of 3Com Common Stock acquired by USR pursuant to this
Agreement will be acquired for USR's own account, for investment purposes
only, and will not be acquired by USR with a view to the public distribution
thereof in violation of any applicable provision of the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF 3COM. 3Com represents and warrants to
USR that:
(a) 3Com is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all corporate
power and authority required to enter into this Agreement and to carry out
its obligations hereunder;
(b) except as set forth in Section 6(c), the execution and delivery of
this Agreement by 3Com and the consummation by 3Com of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of 3Com, and no other corporate proceedings on the part
of 3Com and no action of its shareholders are necessary to authorize this
Agreement or any of the transactions contemplated hereby; this Agreement has
been duly and validly executed and delivered by 3Com and, assuming the due
authorization, execution and delivery hereof by USR and the receipt of all
required governmental approvals, constitutes the valid and binding
obligation of 3Com, enforceable against 3Com in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors'
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rights generally, and except that the availability of equitable remedies,
including specific performance, may be subject to the discretion of any
court before which any proceeding may be brought;
(c) prior to any delivery of shares of 3Com Common Stock in
consideration of the purchase of shares of USR Common Stock pursuant hereto,
3Com will have taken all necessary corporate action to authorize for
issuance and to permit it to issue such shares of 3Com Common Stock, all of
which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable;
(d) the shares of 3Com Common Stock (if any) issued to USR in
consideration of the purchase of shares of USR Common Stock pursuant hereto
will be, upon delivery thereof to USR, free and clear of all claims, liens,
charges, encumbrances and security interests of any nature whatsoever;
(e) the execution and delivery of this Agreement by 3Com does not, and
the consummation by 3Com of the transactions contemplated hereby will not,
violate, conflict with, or result in the breach of any provision of, or
constitute a default (with or without notice or a lapse of time, or both)
under, or result in any Violation by 3Com or any of its subsidiaries,
pursuant to (i) any provision of the Articles of Incorporation or Bylaws of
3Com, (ii) any Material Contract of 3Com or any of its subsidiaries or to
which any of them is a party or by which any of them or any of their
properties or assets are bound, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to 3Com or its
properties or assets, which Violation, in the case of each of clauses (ii)
or (iii), would have an 3Com Material Adverse Effect;
(f) the execution and delivery of this Agreement by 3Com does not, and
(except for the expiration or early termination of the waiting period under
the HSR Act and except as contemplated by Sections 10(e), (f) and (j)) the
performance of this Agreement by 3Com and the consummation of the
transactions contemplated hereby will not, require any consent, approval,
order, authorization or permit of, filing with, or notification to any
governmental or regulatory authority; and
(g) any shares of USR Common Stock acquired by 3Com upon exercise of the
USR Option will be acquired for 3Com's own account, for investment purposes
only and will not be, and the USR Option is not being, acquired by 3Com with
a view to the public distribution thereof, in violation of any applicable
provision of the Securities Act.
7. CERTAIN REPURCHASES.
(a) 3COM "PUT". Subject to the limitations set forth in Section 2(f),
upon written notice to USR by 3Com (the "Repurchase Notice"):
(i) at any time during which the USR Option is exercisable pursuant
to Section 2 (the "Repurchase Period"), USR and its successors in
interest shall repurchase from 3Com all or any portion of the USR Option,
as specified by 3Com, at the Option Repurchase Price set forth in Section
7(b)(i); and
(ii) at any time prior to the Expiration Date (as defined in Section
8), USR and its successors in interest shall repurchase from 3Com all or
any portion of the shares of USR Common Stock purchased by 3Com pursuant
to the USR Option, as specified by 3Com, at the Share Repurchase Price
set forth in Section 7(b)(ii).
(b) CERTAIN DEFINITIONS. For purposes of this Section 7, the following
definitions shall apply:
(i) OPTION REPURCHASE PRICE. "Option Repurchase Price" shall mean
(A) the difference between the Option Repurchase Market/Offer Price (as
defined below) for shares of USR Common Stock as of the date of the
applicable Repurchase Notice and the Exercise Price, multiplied by (B)
the number of shares of USR Common Stock purchasable pursuant to the USR
Option or the portion thereof covered by the applicable Repurchase
Notice, but only if the
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Option Repurchase Market/Offer Price is greater than the Exercise Price.
"Option Repurchase Market/Offer Price" shall mean, as of any date, the
higher of (X) the highest price per share offered as of such date
pursuant to any tender or exchange offer or other offer with respect to a
business combination offer involving USR or any of its material
subsidiaries as the target party which was made prior to such date and
not terminated or withdrawn as of such date, and (Y) the Fair Market
Value (as defined in Section 7(b)(iii)) of USR Common Stock as of such
date.
(ii) SHARE REPURCHASE PRICE. "Share Repurchase Price" shall mean the
product of (A) the sum of (I) the Exercise Price paid by 3Com per share
of USR Common Stock acquired pursuant to the USR Option and (II) if the
Share Repurchase Market/Offer Price (as defined below) is greater than
the Exercise Price, the difference between the Share Repurchase
Market/Offer Price and the Exercise Price, and (B) the number of shares
of USR Common Stock to be repurchased pursuant to this Section 7. "Share
Repurchase Market/Offer Price" shall mean, as of any date, the higher of
(X) the highest price per share offered pursuant to a tender or exchange
offer or other business combination offer involving USR as the target
party during the Repurchase Period prior to the delivery by 3Com of a
notice of repurchase, and (Y) the Fair Market Value (as defined in
Section 7(b)(iii)) of USR Common Stock as of such date.
(iii) FAIR MARKET VALUE. As used in this Agreement, "Fair Market
Value" shall mean, with respect to any security, the per share average of
the last sale prices on The Nasdaq National Market (or such other
national stock exchange or national market system as shall then be the
primary trading market for such security) for the ten (10) trading days
immediately preceding the applicable date.
(c) REDELIVERY OF SHARES OF 3COM COMMON STOCK. In USR's discretion or
if specified by 3Com in the Repurchase Notice, all or a portion of the Share
Repurchase Price shall be paid by USR in shares of 3Com Common Stock, by
redelivery to 3Com of the shares of 3Com Common Stock (and the
certificate(s) representing such shares) previously delivered by 3Com to USR
pursuant to a Stock Exercise. For purposes of this Section 7(c), each share
of 3Com Common Stock redelivered to 3Com shall be valued at the Fair Market
Value thereof. If fewer than all of the shares of USR Common Stock purchased
by 3Com pursuant to a Stock Exercise are to be repurchased by USR pursuant
to Section 7(a)(ii), 3Com shall issue to USR new certificates representing
those shares of 3Com Common Stock which are not due to be redelivered to
3Com pursuant to this Section 7(c) to the extent that excess shares of 3Com
Common Stock are included in the certificates redelivered to 3Com by USR.
All shares of 3Com Common Stock redelivered to 3Com hereunder shall be free
and clear of all claims, liens, charges, encumbrances and security interests
of any nature whatsoever.
(d) PAYMENT AND REDELIVERY OF USR OPTIONS OR SHARES. In the event that
3Com exercises its rights under this Section 7, USR shall, within ten (10)
business days thereafter, pay the required amount to 3Com in immediately
available funds and 3Com shall surrender to USR the USR Option or the
certificate or certificates evidencing the shares of USR Common Stock
purchased by 3Com pursuant hereto, and 3Com shall warrant that it has sole
beneficial ownership of the USR Option or such shares and that the USR
Option or such shares are then free and clear of all claims, liens, charges,
encumbrances and security interests of any nature whatsoever.
(e) REPURCHASE PRICE REDUCED AT 3COM'S OPTION. In the event that
payment of the repurchase price specified in Section 7(a) would subject the
repurchase of the USR Option or the shares of USR Common Stock purchased by
3Com pursuant to the USR Option to a vote of the stockholders of USR
pursuant to applicable law, regulations, or requirements of a national
securities exchange or national market system or the USR Charter, then 3Com
may, at its election, reduce the repurchase price or the number of shares
covered by the 3Com repurchase request to an amount which would permit such
repurchase without the necessity for such a vote.
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(f) REPURCHASE AT THE ELECTION OF USR.
(i) Except to the extent that 3Com shall have previously exercised
its rights under Section 7(a), at the request of USR during the six-month
period immediately following the Repurchase Period, USR may repurchase
from 3Com, and 3Com shall sell to USR, all (but not less than all) the
shares of USR Common Stock acquired by 3Com pursuant hereto and with
respect to which 3Com has beneficial ownership at the time of such
repurchase, at a price equal to the sum of (A) the greater of (I) one
hundred ten percent (110%) of the Current Market Price (as defined in
Section 7(f)(iii)) or (II) the sum of (X) the Purchase Price in respect
of the shares so acquired plus (Y) 3Com's Pre-Tax Carrying Cost (as
defined in Section 7(f)(iii)), multiplied in either case by the number of
shares so acquired, and (B) the amount of the documented out-of-pocket
expenses (to the extent not previously reimbursed or compensated for
pursuant hereto or pursuant to the Merger Agreement) incurred by 3Com in
connection with the Merger Agreement and this Agreement and the
transactions contemplated thereby and hereby, including reasonable
accounting, investment banking and legal fees (the "Section 7(f)
Repurchase Consideration"); provided, that USR's rights under this
Section 7(f) shall be suspended (with any such rights being extended
accordingly) during any period when the exercise of such rights would
subject 3Com to liability or disgorgement of profits pursuant to Section
16(b) of the Exchange Act.
(ii) If USR exercises its rights under this Section 7(f), USR shall,
within ten (10) business days pay the Section 7(f) Repurchase
Consideration in immediately available funds and 3Com shall surrender to
USR certificates evidencing the shares of USR Common Stock purchased
hereunder with respect to which 3Com then has beneficial ownership, and
3Com shall warrant that it has sole beneficial ownership of such shares
and that all such shares are then free and clear of all claims, liens,
charges, encumbrances and security interests of any nature whatsoever.
(iii) As used in Section 7(f)(i), (A) "Current Market Price" shall
mean the average of the last sale prices per share of USR Common Stock on
The Nasdaq National Market for the ten (10) trading days immediately
preceding the date of USR's request for repurchase pursuant to this
Section 7(f), and (B) "Pre-Tax Carrying Cost" shall mean an amount equal
to the interest on the aggregate purchase price paid by 3Com for the
shares of USR Common Stock purchased pursuant to the USR Option from the
date of purchase to the date of repurchase at the rate of interest
announced by Citibank, N.A. as its prime or base lending or reference
rate during such period, less any dividends received on the shares so
purchased, divided by the number of shares so purchased.
8. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "Expiration Date"), (a) each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("Restricted Shares"), including any shares of 3Com
Common Stock issued pursuant to a Stock Exercise, or otherwise beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) by
such party, on each matter submitted to a vote of the stockholders of such other
party for and against such matter in the same proportion as all other shares of
the same class of capital stock of such other party are voted (whether by proxy
or otherwise) for and against such matter, and (b) each party shall execute
written consents with respect to the Restricted Shares in the same proportion as
written consents are executed by other holders of such class of capital stock.
Before acquiring any Restricted Shares hereunder, 3Com shall execute and deliver
a proxy to USR authorizing USR to vote and execute written consents with respect
to all Restricted Shares acquired by 3Com hereunder, and before acquiring any
Restricted Shares in payment therefor, USR shall execute and deliver a proxy to
3Com authorizing 3Com to vote and execute written consents with respect to all
Restricted Shares acquired by USR hereunder, in each case in accordance with the
provisions of this Section 8.
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9. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or
(ii) in accordance with Sections 9(b), 9(c) or 10.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the holders of common
stock of the other party, by a majority of the members of the Board of
Directors of such other party.
(c) USR'S RIGHT OF FIRST REFUSAL. At any time after the first
occurrence of a Trigger Event and prior to the expiration of twenty-four
(24) months immediately following the first purchase of shares of USR Common
Stock pursuant to the USR Option, if 3Com shall desire to sell, assign,
transfer or otherwise dispose of all or any of the shares of USR Common
Stock or other securities acquired by it pursuant to the USR Option, it
shall give USR written notice of the proposed transaction (a "3Com Offer
Notice"), identifying the proposed transferee, accompanied by a copy of a
binding offer to purchase such shares or other securities signed by such
transferee and setting forth the terms of the proposed transaction. A 3Com
Offer Notice shall be deemed an offer by 3Com to USR, which may be accepted
within five (5) business days of the receipt of such 3Com Offer Notice, on
the same terms and conditions and at the same price at which 3Com is
proposing to transfer such shares or other securities to such transferee.
The purchase of any such shares or other securities by USR shall be settled
within five (5) business days of the date of the acceptance of the offer and
the purchase price shall be paid to 3Com in immediately available funds. In
the event of the failure or refusal of USR to purchase all the shares or
other securities covered by a 3Com Offer Notice, 3Com may sell all, but not
less than all, of such shares or other securities to the proposed transferee
at no less than the price specified and on terms no more favorable to the
transferee than those set forth in the 3Com Offer Notice; provided that the
provisions of this sentence shall not limit the rights 3Com may otherwise
have in the event USR has accepted the offer contained in the 3Com Offer
Notice and wrongfully refuses to purchase the shares or other securities
subject thereto. The requirements of this Section 9(c) shall not apply to
(i) any disposition as a result of which the proposed transferee would own
beneficially not more than three percent (3%) of the outstanding voting
power of USR, (ii) any disposition of USR Common Stock or other securities
by a person to whom 3Com has assigned its rights under the USR Option with
the consent of USR, (iii) any sale by means of a public offering registered
under the Securities Act, or (iv) any transfer to a wholly-owned subsidiary
of 3Com which agrees in writing to be bound by the terms hereof.
(d) 3COM'S RIGHT OF FIRST REFUSAL. At any time after the first
occurrence of a Trigger Event and prior to the expiration of twenty-four
(24) months immediately following the first transfer of shares of 3Com
Common Stock from 3Com to USR in connection with a Stock Exercise of the USR
Option, if USR shall desire to sell, assign, transfer or otherwise dispose
of all or any of the shares of 3Com Common Stock or other securities
acquired by it pursuant to a Stock Exercise of the USR Option by 3Com, it
shall give 3Com written notice of the proposed transaction (a "USR Offer
Notice"), identifying the proposed transferee, accompanied by a copy of a
binding offer to purchase such shares or other securities signed by such
transferee and setting forth the terms of the proposed transaction. A USR
Offer Notice shall be deemed an offer by USR to 3Com, which may be accepted
within five (5) business days of the receipt of such USR Offer Notice, on
the same terms and conditions and at the same price at which USR is
proposing to transfer such shares or other securities to such transferee.
The purchase of any such shares or other securities by 3Com shall be settled
within five (5) business days of the date of the acceptance of the offer and
the purchase price shall be paid to USR in immediately available funds. In
the event of the failure or refusal of 3Com to purchase all the
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shares or other securities covered by a USR Offer Notice, USR may sell all,
but not less than all, of such shares or other securities to the proposed
transferee at no less than the price specified and on terms no more
favorable to the transferee than those set forth in the USR Offer Notice;
provided that the provisions of this sentence shall not limit the rights USR
may otherwise have in the event 3Com has accepted the offer contained in the
USR Offer Notice and wrongfully refuses to purchase the shares or other
securities subject thereto. The requirements of this Section 9(d) shall not
apply to (i) any disposition as a result of which the proposed transferee
would own beneficially not more than three percent (3%) of the outstanding
voting power of 3Com, (ii) any sale by means of a public offering registered
under the Securities Act, or (iii) any transfer to a wholly-owned subsidiary
of USR which agrees in writing to be bound by the terms hereof.
10. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "Holder") may by written notice (the
"Registration Notice") to the other party (the "Registrant") request the
Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Holder (the "Registrable
Securities") pursuant to a bona fide firm commitment underwritten public
offering, in which the Holder and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use their best efforts to prevent any person (including any "group" as
used in Rule 13d-5 under the Exchange Act)) and its affiliates from
purchasing through such offering Restricted Shares representing more than
three percent (3%) of the outstanding shares of common stock of the
Registrant on a fully diluted basis (a "Permitted Offering").
(b) The Registration Notice shall include a certificate executed by the
Holder and its proposed managing underwriter, which underwriter shall be an
investment banking firm of nationally recognized standing (the "Manager"),
stating that (i) they have a good faith intention to commence promptly a
Permitted Offering, and (ii) the manager in good faith believes that, based
on the then-prevailing market conditions, it will be able to sell the
Registrable Securities to the public in a Permitted Offering within one
hundred twenty (120) days at a per share price equal to at least eighty
percent (80%) of the then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Holder within five (5) business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price equal to
the product of (i) the number of Registrable Securities to be so purchased
by the Registrant and (ii) the then Fair Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 10(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty (20) business days after delivery
of such notice, and any payment for the shares to be so purchased shall be
made by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
Section 10(c) with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; provided, however, that (i) neither party shall be entitled to
demand more than an aggregate of two (2) effective registration statements
hereunder, and (ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed forty (40)
days after such request in the case of clause (A) below or ninety (90) days
after such request in the case of clauses (B) and (C) below) when (A) the
Registrant is in possession of material non-public information which it
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reasonably believes would be detrimental to be disclosed at such time and,
in the opinion of counsel to the Registrant, such information would be
required to be disclosed if a registration statement were filed at that
time; (B) the Registrant is required under the Securities Act to include
audited financial statements for any period in such registration statement
and such financial statements are not yet available for inclusion in such
registration statement; or (C) the Registrant determines, in its reasonable
judgment, that such registration would interfere with any financing,
acquisition or other transaction involving the Registrant or any of its
material subsidiaries and that such transaction is material to the
Registrant and its subsidiaries taken as a whole. If consummation of the
sale of any Registrable Securities pursuant to a registration hereunder does
not occur within one hundred twenty (120) days after the effectiveness of
the initial registration statement, the provisions of this Section 10 shall
again be applicable to any proposed registration.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 10 to be
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as the Holder may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; provided,
however, that the Registrant shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason
of this provision.
(g) The registration rights set forth in this Section 10 are subject to
the condition that the Holder shall provide the Registrant with such
information with respect to its Registrable Securities, the plans for the
distribution thereof, and such other information with respect to the Holder
as, in the reasonable judgment of counsel for the Registrant, is necessary
to enable the Registrant to include in such registration statement all
material facts required to be disclosed with respect to a registration
thereunder.
(h) A registration effected under this Section 10 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Holder, and the Registrant
shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 10,
the parties agree (i) to indemnify each other and the underwriters in the
customary manner, (ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and the
other underwriters participating in such offering, and (iii) to take all
further actions which shall be reasonably necessary to effect such
registration and sale (including if the Manager deems it necessary,
participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) Without limiting any restriction on USR contained in this Agreement
or in the Merger Agreement, in the event of any change in USR Common Stock
by reason of any stock dividend, stock split, merger (other than the
Merger), recapitalization, combination, exchange of shares or any similar
transaction, the type and number of shares or securities subject to the USR
Option, and the Exercise Price per share provided herein, shall be adjusted
appropriately and proper provision shall be made in the agreements governing
such transaction so that 3Com shall receive, upon exercise of the USR
Option, the number and class of securities or property that 3Com would have
received in respect of the shares of USR Common Stock issuable to 3Com if
the USR Option had been exercised immediately prior to such event or the
record date therefor, as applicable.
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(b) In the event that USR shall enter into an agreement: (i) to
consolidate with or merge into any person, other than 3Com or one of its
subsidiaries, and shall not be the continuing or surviving corporation of
such consolidation or merger; (ii) to permit any person, other than 3Com or
one of its subsidiaries, to merge into USR and USR shall be the continuing
or surviving corporation, but, in connection with such merger, the
then-outstanding shares of USR Common Stock shall be changed into or
exchanged for stock or other securities of USR or any other person or cash
or any other property; or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than 3Com or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that upon the consummation of
such transaction and upon the subsequent exercise of the USR Option, 3Com
shall be entitled to receive, for each share of USR Common Stock with
respect to which the USR Option has not theretofore been exercised, an
amount of consideration in the form of and equal to the per share amount of
consideration that would be received by the holder of one share of USR
Common Stock (and, in the event of an election or similar arrangement with
respect to the type of consideration to be received by the holders of USR
Common Stock, subject to the foregoing, proper provision shall be made so
that the holder of the USR Option would have the same election or similar
rights as would the holder of the number of shares of USR Common Stock for
which the USR Option is then exercisable).
12. RESTRICTIVE LEGENDS. Each certificate representing shares of USR
Common Stock issued to 3Com hereunder, and shares of 3Com Common Stock, if any,
delivered to USR pursuant to a Stock Exercise, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE 3COM
STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 26, 1997, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that (i) the reference to the resale restrictions of
the Securities Act and state securities or Blue Sky laws in the foregoing legend
shall be removed by delivery of substitute certificate(s) without such reference
if 3Com or USR, as the case may be, shall have delivered to the other party a
copy of a letter from the staff of the Securities and Exchange Commission, or an
opinion of counsel, in form and substance reasonably satisfactory to the other
party, to the effect that such legend is not required for purposes of the
Securities Act or such laws; (ii) the reference to the provisions of this
Agreement in the foregoing legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law. Certificates representing
shares sold in a registered public offering pursuant to Section 10 shall not be
required to bear the legend set forth in this Section 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as expressly
provided for in this Agreement, neither this Agreement nor the rights or
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party, and any such attempted
assignment in violation of this Agreement shall be void and of no force or
effect. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever. Any
Restricted Shares sold by a party in compliance with the provisions of Section
10 shall, upon consummation of such sale, be free of the restrictions imposed
with respect to such shares by this
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Agreement, unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not be
entitled to the registration rights of such party.
14. SPECIFIC PERFORMANCE. The parties hereto recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, whether at law or in equity, the other party shall be entitled to an
injunction to prevent or restrain any violation or threatened violation of the
provisions of this Agreement, and to enforce specifically the terms and
provisions hereof, in any court of the State of Delaware or of the United States
of America located in the State of Delaware. In the event that any action should
be brought in equity to enforce the provisions of this Agreement, neither party
will allege, and each party hereby waives the defense, that there is an adequate
remedy at law. Each party hereto irrevocably and unconditionally consents and
submits to the jurisdiction of the courts of the State of Delaware and of the
United States of America located in the State of Delaware for any actions, suits
or proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby, and further agrees that service of any process, summons,
notice or document by U.S. registered or certified mail to U.S. Robotics
Corporation at 8100 North McCormick Blvd., Skokie, Illinois 60076, Attention:
George Vinyard, General Counsel, or to 3Com Corporation at 5400 Bayfront Plaza,
Santa Clara, California 95052-8145, Attention: Mark Michael, General Counsel,
shall be effective service of process for any action, suit or proceeding brought
against such party in any such court. Each party hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit,
or proceeding arising out of this Agreement or the transactions contemplated
hereby, in the courts of the State of Delaware or of the United States of
America located in Wilmington, Delaware, and hereby further irrevocable and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
15. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other governmental or regulatory
authority holds any provisions of this Agreement to be null, void or
unenforceable, the parties hereto shall negotiate in good faith the
execution and delivery of an amendment to this Agreement in order, as nearly
as possible, to effectuate, to the extent permitted by law, the intent of
the parties hereto with respect to such provision and the economic effects
thereof.
(c) If for any reason any such court or other governmental or
regulatory authority determines that 3Com is not permitted to acquire, or
USR is not permitted to repurchase pursuant to Section 7, the full number of
shares of USR Common Stock provided in this Agreement (as the same may be
adjusted), it is the express intention of USR to allow 3Com to acquire or to
require USR to repurchase such lesser number of shares as may be permissible
without any other amendment or modification hereof.
(d) Each party agrees that, should any court or other governmental or
regulatory authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith, or not take any action required herein, the other
party shall not be entitled to specific performance of such provision or
part hereof or to any other remedy, including but not limited to money
damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
16. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
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mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
If to 3Com, to:
By Mail, Overnight Courier or Hand:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
Attention: Mark Michael, General Counsel
By Fax:
3Com Corporation
408/764-6434
Attention: Mark Michael, General Counsel
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94302
Fax: 415/327-3699
Attention: J. Howard Clowes & Rod J. Howard
If to USR, to:
By Mail, Overnight Courier or Hand:
U.S. Robotics Corporation
8100 North McCormick Blvd.
Skokie, IL 60076-2999
Attention: George Vinyard, General Counsel
By Fax:
U.S. Robotics Corporation
847/982-9118
Attention: George Vinyard, General Counsel
with a copy to:
Mayer Brown & Platt
190 South LaSalle Street
Chicago, IL 60603-3441
Fax: 312/701-7711
Attention: Richard S. Millard
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17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles.
18. INTERPRETATION. The headings contained in this Agreement are for
reference purposes and shall not affect in any way the meaning or interpretation
of the Agreement. When reference is made in this Agreement to a Section, such
reference shall be to a Section of this Agreement, unless otherwise indicated.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense. The words "herein," "hereby," "hereof," "hereto,"
"hereunder" and words of similar import refer to this Agreement.
19. COUNTERPARTS; EFFECT. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights hereunder shall be extended (but in no event by more than six (6)
months): (a) to the extent necessary to obtain all governmental approvals for
the exercise of such rights, and for the expiration of all statutory waiting
periods; and (b) to the extent necessary to avoid any liability or disgorgement
of profits under Section 16(b) of the Exchange Act by reason of such exercise.
23. FURTHER ASSURANCE. Each party agrees to execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
U.S. ROBOTICS CORPORATION
By: /s/ CASEY COWELL
------------------------------------------
Name: Casey Cowell
Title: Chairman
3Com CORPORATION
By: /s/ JANICE M. ROBERTS
------------------------------------------
Name: Janice M. Roberts
Title: Senior Vice President, Marketing
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ANNEX C
USR STOCK OPTION AGREEMENT
THIS USR STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
as of February 26, 1997 by and between 3Com Corporation, a California
corporation ("3Com"), and U.S. Robotics Corporation, a Delaware corporation
("USR").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, 3Com,
USR, and TR Acquisitions Corporation, a Delaware corporation and a wholly-owned
subsidiary of 3Com ("Sub"), are entering into an Agreement and Plan of Merger,
dated as of February 26, 1997 (the "Merger Agreement"), which provides, among
other things, upon the terms and subject to the conditions thereof, for the
merger of Sub with and into USR in accordance with the laws of the State of
Delaware (the "Merger"); and
B. As a condition and inducement to USR's willingness to enter into the
Merger Agreement, USR has requested that 3Com agree, and 3Com has agreed, to
grant to USR an option to acquire certain shares of 3Com's authorized but
unissued common stock, par value $.01 per share, together with any associated
rights under the Amended and Restated Rights Agreement dated as of December 21,
1994 between 3Com and The First National Bank of Boston ("3Com Common Stock"),
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, to induce USR to enter into the Merger Agreement and in
consideration of the representations, warranties, covenants and agreements
contained herein and in the Merger Agreement, the parties hereto, intending to
be legally bound, hereby agree as follows. Capitalized terms used herein but not
defined herein shall have the meanings ascribed to them in the Merger Agreement.
1. GRANT OF OPTION. 3Com hereby grants to USR an irrevocable option (the
"3Com Option") to purchase a number of shares of 3Com Common Stock equal to the
Option Number (as defined in Section 2(d)), on the terms and subject to the
conditions set forth below.
2. EXERCISE AND TERMINATION OF THE 3COM OPTION.
(a) EXERCISE. The 3Com Option may be exercised by USR, in whole or in
part, at any time or from time to time after the occurrence of an event
which causes the 3Com Initial Termination Fee (as defined in the Merger
Agreement) to become payable (a "Trigger Event") and prior to the
termination of USR's right to exercise the 3Com Option by the terms of this
Agreement. 3Com shall notify USR promptly in writing of the occurrence of
any Trigger Event; however, such notice shall not be a condition to the
right of USR to exercise the 3Com Option. Notwithstanding the foregoing, the
3Com Option may not be exercised if USR is in material breach of any of its
material representations, warranties, covenants or agreements in this
Agreement or the Merger Agreement.
(b) EXERCISE PROCEDURE. In the event that USR wishes to exercise the
3Com Option, USR shall deliver to 3Com written notice (an "Exercise Notice")
specifying the total number of shares of 3Com Common Stock that USR wishes
to purchase. To the extent permitted by law and the Amended and Restated
Articles of Incorporation of 3Com (the "3Com Charter") and provided that the
conditions set forth in Section 3 to 3Com's obligation to issue the shares
of 3Com Common Stock to USR hereunder have been satisfied or waived, USR
shall, upon delivery of the Exercise Notice and tender of the applicable
aggregate Exercise Price, immediately be deemed to be the holder of record
of the shares of 3Com Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of 3Com shall then be closed
or that certificates representing such shares of 3Com Common Stock shall not
theretofore have been delivered to USR. Each closing of a purchase of shares
of 3Com Common Stock hereunder (a "Closing") shall occur at a place, on a
date, and at a time designated by USR in an Exercise Notice delivered at
least two (2) business days prior to the date of such Closing.
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(c) TERMINATION OF THE 3COM OPTION. USR's right to exercise the 3Com
Option shall terminate upon the earliest to occur of: (i) the Effective Time
of the Merger; (ii) the termination of the Merger Agreement other than under
circumstances which also constitute a Trigger Event under this Agreement; or
(iii) twelve (12) months following the receipt by USR of written notice from
3Com of the occurrence of a Trigger Event. Notwithstanding the foregoing, if
the 3Com Option cannot be exercised by reason of any applicable judgment,
decree, order, law or regulation, the 3Com Option shall remain exercisable
and shall not terminate until the earlier of (x) the date on which such
impediment shall become final and not subject to appeal and (y) 5:00 p.m.,
Pacific Standard Time, on the tenth (10th) business day after such
impediment shall have been removed. The rights of USR set forth in Sections
7 and 10 shall not terminate upon termination of USR's right to exercise the
3Com Option, but shall extend to the time provided in such sections.
Notwithstanding the termination of the 3Com Option, USR shall be entitled to
purchase the shares of 3Com Common Stock with respect to which USR had
exercised the 3Com Option prior to such termination.
(d) OPTION NUMBER. The Option Number shall initially be the number of
shares equal to nineteen and nine-tenths percent (19.9%) of the total number
of shares of 3Com Common Stock issued and outstanding as of the date of this
Agreement, and shall be adjusted hereafter to reflect changes in 3Com's
capitalization occurring after the date hereof in accordance with Section
11. Notwithstanding any other provision of this Agreement, in no event shall
the Option Number exceed nineteen and nine-tenths percent (19.9%) of the
total number of shares of 3Com Common Stock issued and outstanding as of the
date of this Agreement, adjusted in accordance with Section 11.
(e) EXERCISE PRICE. The purchase price per share of 3Com Common Stock
pursuant to the 3Com Option (the "Exercise Price") shall be payable, at
USR's election, in cash (a "Cash Exercise") or in shares (a "Stock
Exercise") of USR common stock, $.01 par value per share ("USR Common
Stock"). The Exercise Price, (i) in the case of a Cash Exercise, shall be a
cash amount equal to the average of the last sale prices of 3Com Common
Stock on the ten (10) trading days immediately prior to the announcement of
the Merger (the "Cash Exercise Price"), and (ii) in the case of a Stock
Exercise, shall be a number of shares (or fraction of a share) of USR Common
Stock with a value (based on the average of the last sale prices of USR
Common Stock on the ten (10) trading days immediately prior to the
applicable Closing) equal to the Cash Exercise Price (the "Stock Exercise
Price").
(f) CERTAIN LIMITATIONS. In the event USR would receive Net Proceeds
(as defined below) of more than one hundred million dollars ($100,000,000)
in connection with the sale or other disposition of the shares of 3Com
Common Stock acquired pursuant to the 3Com Option (other than a sale of such
shares to 3Com pursuant to Section 7), all Net Proceeds in excess of such
amount shall be remitted to 3Com promptly upon receipt. "Net Proceeds" shall
mean the aggregate proceeds of such sale or disposition in excess of the
product of the Exercise Price multiplied by the number of shares of 3Com
Common Stock included in such sale or disposition. Notwithstanding anything
in this Agreement or in the Merger Agreement to the contrary, the maximum
aggregate amount payable by 3Com to USR and its affiliates pursuant to
Section 7 of this Agreement and the provisions of Section 8.3(c) of the
Merger Agreement shall not exceed the sum of one hundred fifty million
dollars ($150,000,000) plus expenses pursuant to Section 8.3(c) of the
Merger Agreement plus, in the case of payments pursuant to Sections 7(a)(ii)
and 7(b)(ii) of this Agreement, the aggregate Exercise Price for the shares
of 3Com Common Stock repurchased by 3Com from USR pursuant to Section 7 of
this Agreement, it being understood that the limitation contained in this
sentence shall not limit the amounts receivable by USR from persons other
than 3Com, including without limitation amounts receivable pursuant to a
tender offer or other sale.
3. CONDITIONS TO CLOSING. The obligation of 3Com to issue the shares of
3Com Common Stock to USR hereunder is subject to the conditions that (a) all
waiting periods, if any, under the Hart Scott Rodino Antitrust Improvements Act
of 1975, as amended (the "HSR Act"), applicable to the issuance of the
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shares of 3Com Common Stock by 3Com and the acquisition of such shares by USR
hereunder (and, in the case of a Stock Exercise, the issuance of shares of USR
Common Stock by USR and the acquisition of such shares by 3Com) shall have
expired or have been terminated; (b) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect; and (c) all consents, approvals,
orders, authorizations and permits of any federal, state, local or foreign
governmental authority, if any, required in connection with the issuance of the
shares of 3Com Common Stock and the acquisition of such shares by USR hereunder
(and, in the case of a Stock Exercise, the issuance of shares of USR Common
Stock and the acquisition of such shares by 3Com) shall have been obtained.
4. CLOSING. At any Closing:
(a) 3Com shall deliver to USR or its designee a single certificate in
definitive form representing the number of shares of 3Com Common Stock
designated by USR in its Exercise Notice, such certificate to be registered
in the name of USR and to bear the legend set forth in Section 12;
(b) USR shall deliver to 3Com the aggregate Exercise Price for the
shares of 3Com Common Stock so designated and being purchased by (i) wire
transfer of immediately available funds to the account or accounts specified
in writing by 3Com (in the case of a Cash Exercise), or (ii) subject to the
satisfaction of applicable conditions, delivery of a certificate or
certificates representing the number of shares of USR Common Stock being
issued by USR in consideration thereof (in the case of a Stock Exercise);
(c) 3Com shall pay all expenses, and any and all federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section 4;
and
(d) 3Com shall cause the shares of 3Com Common Stock being delivered at
the Closing to be approved for quotation on The Nasdaq National Market and
shall pay all expenses in connection with the application for approval of
such quotation.
5. REPRESENTATIONS AND WARRANTIES OF 3COM. 3Com represents and warrants to
USR that:
(a) 3Com is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all corporate
power and authority required to enter into this Agreement and to carry out
its obligations hereunder;
(b) the execution and delivery of this Agreement by 3Com and the
consummation by 3Com of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of 3Com and no
other corporate proceedings on the part of 3Com and no action of 3Com
shareholders are necessary to authorize this Agreement or any of the
transactions contemplated hereby; this Agreement has been duly and validly
executed and delivered by 3Com, and, assuming the due authorization,
execution and delivery hereof by USR and the receipt of all required
governmental approvals, constitutes the valid and binding obligation of
3Com, enforceable against 3Com in accordance with its terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) 3Com has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the 3Com
Option, and at all times from the date hereof through the expiration of the
3Com Option will have reserved, a number of authorized and unissued shares
of 3Com Common Stock not less than the Option Number, such amount being
subject to adjustment as provided in Section 11, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
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(d) the shares of 3Com Common Stock issued to USR upon the exercise of
the 3Com Option will be, upon delivery thereof to USR, free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) the execution and delivery of this Agreement by 3Com does not, and,
subject to compliance with applicable law, the consummation by 3Com of the
transactions contemplated hereby will not, violate, conflict with, or result
in a breach of any provision of, or constitute a default (with or without
notice or lapse of time, or both) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security interest or other
encumbrance on assets (any such violation, conflict, breach, default,
termination, acceleration, right of termination, cancellation or
acceleration, loss, or creation, a "Violation") of 3Com or any of its
subsidiaries, pursuant to (i) any provision of the 3Com Charter or the
Bylaws of 3Com, (ii) any provision of any material loan or credit agreement,
note, mortgage, indenture, lease, benefit plan or other agreement,
obligation, instrument, permit, concession, franchise or license (a
"Material Contract") of 3Com or any of its subsidiaries or to which any of
them is a party or by which any of them or their properties or assets are
bound, or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to 3Com or any of its subsidiaries or any of their
properties or assets;
(f) the execution and delivery of this Agreement by 3Com does not, and
(except for the expiration or early termination of the waiting period under
the HSR Act and except as contemplated by Sections 10(e), (f) and (j)) the
performance of this Agreement by 3Com and the consummation of the
transactions contemplated hereby will not, require any consent, approval,
order, authorization or permit of, filing with, or notification to any
governmental or regulatory authority;
(g) none of 3Com or any of its affiliates or anyone acting on its or
their behalf has issued, sold or offered any security of 3Com to any person
under circumstances that would cause the issuance and sale of shares of 3Com
Common Stock hereunder to be subject to the registration requirements of the
Securities Act as in effect on the date hereof, and, assuming the
representations and warranties of USR contained in Section 6(g) are true and
correct, the issuance, sale and delivery of the shares of 3Com Common Stock
hereunder would be exempt from the registration and prospectus delivery
requirements of the Securities Act, as in effect on the date hereof, and
3Com shall not take any action which would cause the issuance, sale, and
delivery of shares of 3Com Common Stock hereunder not to be exempt from such
requirements; and
(h) any shares of USR Common Stock acquired by 3Com pursuant to this
Agreement will be acquired for 3Com's own account, for investment purposes
only, and will not be acquired by 3Com with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF USR. USR represents and warrants to
3Com that:
(a) USR is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all corporate power
and authority required to enter into this Agreement and to carry out its
obligations hereunder;
(b) except as set forth in Section 6(c), the execution and delivery of
this Agreement by USR and the consummation by USR of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of USR, and no other corporate proceedings on the part of
USR and no action of its stockholders are necessary to authorize this
Agreement or any of the transactions contemplated hereby; this Agreement has
been duly and validly executed and delivered by USR and, assuming the due
authorization, execution and delivery hereof by 3Com and the receipt of all
required governmental approvals, constitutes the valid and binding
obligation of USR, enforceable against USR in accordance with its terms,
except as may be limited by applicable bankruptcy,
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insolvency, reorganization, or other similar laws affecting the enforcement
of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, may be subject to the
discretion of any court before which any proceeding may be brought;
(c) prior to any delivery of shares of USR Common Stock in consideration
of the purchase of shares of 3Com Common Stock pursuant hereto, USR will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such shares of USR Common Stock, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) the shares of USR Common Stock (if any) issued to 3Com in
consideration of the purchase of shares of 3Com Common Stock pursuant hereto
will be, upon delivery thereof to 3Com, free and clear of all claims, liens,
charges, encumbrances and security interests of any nature whatsoever;
(e) the execution and delivery of this Agreement by USR does not, and
the consummation by USR of the transactions contemplated hereby will not,
violate, conflict with, or result in the breach of any provision of, or
constitute a default (with or without notice or a lapse of time, or both)
under, or result in any Violation by USR or any of its subsidiaries,
pursuant to (i) any provision of the Certificate of Incorporation or Bylaws
of USR, (ii) any Material Contract of USR or any of its subsidiaries or to
which any of them is a party or by which any of them or any of their
properties or assets are bound, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to USR or its
properties or assets, which Violation, in the case of each of clauses (ii)
or (iii), would have an USR Material Adverse Effect;
(f) the execution and delivery of this Agreement by USR does not, and
(except for the expiration or early termination of the waiting period under
the HSR Act and except as contemplated by Sections 10(e), (f) and (j)) the
performance of this Agreement by USR and the consummation of the
transactions contemplated hereby will not, require any consent, approval,
order, authorization or permit of, filing with, or notification to any
governmental or regulatory authority; and
(g) any shares of 3Com Common Stock acquired by USR upon exercise of the
3Com Option will be acquired for USR's own account, for investment purposes
only and will not be, and the 3Com Option is not being, acquired by USR with
a view to the public distribution thereof, in violation of any applicable
provision of the Securities Act.
7. CERTAIN REPURCHASES.
(a) USR "PUT". Subject to the limitations set forth in Section 2(f),
upon written notice to 3Com by USR (the "Repurchase Notice"):
(i) at any time during which the 3Com Option is exercisable pursuant
to Section 2 (the "Repurchase Period"), 3Com and its successors in
interest shall repurchase from USR all or any portion of the 3Com Option,
as specified by USR, at the Option Repurchase Price set forth in Section
7(b)(i); and
(ii) at any time prior to the Expiration Date (as defined in Section
8), 3Com and its successors in interest shall repurchase from USR all or
any portion of the shares of 3Com Common Stock purchased by USR pursuant
to the 3Com Option, as specified by USR, at the Share Repurchase Price
set forth in Section 7(b)(ii).
(b) CERTAIN DEFINITIONS. For purposes of this Section 7, the following
definitions shall apply:
(i) OPTION REPURCHASE PRICE. "Option Repurchase Price" shall mean (A)
the difference between the Option Repurchase Market/Offer Price (as
defined below) for shares of 3Com Common Stock as of the date of the
applicable Repurchase Notice and the Exercise Price, multiplied by (B)
the number of shares of 3Com Common Stock purchasable pursuant to the
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3Com Option or the portion thereof covered by the applicable Repurchase
Notice, but only if the Option Repurchase Market/Offer Price is greater
than the Exercise Price. "Option Repurchase Market/Offer Price" shall
mean, as of any date, the higher of (X) the highest price per share
offered as of such date pursuant to any tender or exchange offer or other
offer with respect to a business combination offer involving 3Com or any
of its material subsidiaries as the target party which was made prior to
such date and not terminated or withdrawn as of such date, and (Y) the
Fair Market Value (as defined in Section 7(b)(iii)) of 3Com Common Stock
as of such date.
(ii) SHARE REPURCHASE PRICE. "Share Repurchase Price" shall mean the
product of (A) the sum of (I) the Exercise Price paid by USR per share of
3Com Common Stock acquired pursuant to the 3Com Option and (II) if the
Share Repurchase Market/Offer Price (as defined below) is greater than
the Exercise Price, the difference between the Share Repurchase
Market/Offer Price and the Exercise Price, and (B) the number of shares
of 3Com Common Stock to be repurchased pursuant to this Section 7. "Share
Repurchase Market/Offer Price" shall mean, as of any date, the higher of
(X) the highest price per share offered pursuant to a tender or exchange
offer or other business combination offer involving 3Com as the target
party during the Repurchase Period prior to the delivery by USR of a
notice of repurchase, and (Y) the Fair Market Value (as defined in
Section 7(b)(iii)) of 3Com Common Stock as of such date.
(iii) FAIR MARKET VALUE. As used in this Agreement, "Fair Market
Value" shall mean, with respect to any security, the per share average of
the last sale prices on The Nasdaq National Market (or such other
national stock exchange or national market system as shall then be the
primary trading market for such security) for the ten (10) trading days
immediately preceding the applicable date.
(c) REDELIVERY OF SHARES OF USR COMMON STOCK. In 3Com's discretion or
if specified by USR in the Repurchase Notice, all or a portion of the Share
Repurchase Price shall be paid by 3Com in shares of USR Common Stock, by
redelivery to USR of the shares of USR Common Stock (and the certificate(s)
representing such shares) previously delivered by USR to 3Com pursuant to a
Stock Exercise. For purposes of this Section 7(c), each share of USR Common
Stock redelivered to USR shall be valued at the Fair Market Value thereof.
If fewer than all of the shares of 3Com Common Stock purchased by USR
pursuant to a Stock Exercise are to be repurchased by 3Com pursuant to
Section 7(a)(ii), USR shall issue to 3Com new certificates representing
those shares of USR Common Stock which are not due to be redelivered to USR
pursuant to this Section 7(c) to the extent that excess shares of USR Common
Stock are included in the certificates redelivered to USR by 3Com. All
shares of USR Common Stock redelivered to USR hereunder shall be free and
clear of all claims, liens, charges, encumbrances and security interests of
any nature whatsoever.
(d) PAYMENT AND REDELIVERY OF 3COM OPTIONS OR SHARES. In the event
that USR exercises its rights under this Section 7, 3Com shall, within ten
(10) business days thereafter, pay the required amount to USR in immediately
available funds and USR shall surrender to 3Com the 3Com Option or the
certificate or certificates evidencing the shares of 3Com Common Stock
purchased by USR pursuant hereto, and USR shall warrant that it has sole
beneficial ownership of the 3Com Option or such shares and that the 3Com
Option or such shares are then free and clear of all claims, liens, charges,
encumbrances and security interests of any nature whatsoever.
(e) REPURCHASE PRICE REDUCED AT USR'S OPTION. In the event that
payment of the repurchase price specified in Section 7(a) would subject the
repurchase of the 3Com Option or the shares of 3Com Common Stock purchased
by USR pursuant to the 3Com Option to a vote of the stockholders of 3Com
pursuant to applicable law, regulations, or requirements of a national
securities exchange or national market system or the 3Com Charter, then USR
may, at its election, reduce the repurchase price or the number of shares
covered by the USR repurchase request to an amount which would permit such
repurchase without the necessity for such a vote.
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(f) REPURCHASE AT THE ELECTION OF 3COM.
(i) Except to the extent that USR shall have previously exercised its
rights under Section 7(a), at the request of 3Com during the six-month
period immediately following the Repurchase Period, 3Com may repurchase
from USR, and USR shall sell to 3Com, all (but not less than all) the
shares of 3Com Common Stock acquired by USR pursuant hereto and with
respect to which USR has beneficial ownership at the time of such
repurchase, at a price equal to the sum of (A) the greater of (I) one
hundred ten percent (110%) of the Current Market Price (as defined in
Section 7(f)(iii)) or (II) the sum of (X) the Purchase Price in respect
of the shares so acquired plus (Y) USR's Pre-Tax Carrying Cost (as
defined in Section 7(f)(iii)), multiplied in either case by the number of
shares so acquired, and (B) the amount of the documented out-of-pocket
expenses (to the extent not previously reimbursed or compensated for
pursuant hereto or pursuant to the Merger Agreement) incurred by USR in
connection with the Merger Agreement and this Agreement and the
transactions contemplated thereby and hereby, including reasonable
accounting, investment banking and legal fees (the "Section 7(f)
Repurchase Consideration"); provided, that 3Com's rights under this
Section 7(f) shall be suspended (with any such rights being extended
accordingly) during any period when the exercise of such rights would
subject USR to liability or disgorgement of profits pursuant to Section
16(b) of the Exchange Act.
(ii) If 3Com exercises its rights under this Section 7(f), 3Com
shall, within ten (10) business days pay the Section 7(f) Repurchase
Consideration in immediately available funds and USR shall surrender to
3Com certificates evidencing the shares of 3Com Common Stock purchased
hereunder with respect to which USR then has beneficial ownership, and
USR shall warrant that it has sole beneficial ownership of such shares
and that all such shares are then free and clear of all claims, liens,
charges, encumbrances and security interests of any nature whatsoever.
(iii) As used in Section 7(f)(i), (A) "Current Market Price" shall
mean the average of the last sale prices per share of 3Com Common Stock
on The Nasdaq National Market for the ten (10) trading days immediately
preceding the date of 3Com's request for repurchase pursuant to this
Section 7(f), and (B) "Pre-Tax Carrying Cost" shall mean an amount equal
to the interest on the aggregate purchase price paid by USR for the
shares of 3Com Common Stock purchased pursuant to the 3Com Option from
the date of purchase to the date of repurchase at the rate of interest
announced by Citibank, N.A. as its prime or base lending or reference
rate during such period, less any dividends received on the shares so
purchased, divided by the number of shares so purchased.
8. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "Expiration Date"), (a) each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("Restricted Shares"), including any shares of USR
Common Stock issued pursuant to a Stock Exercise, or otherwise beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) by
such party, on each matter submitted to a vote of the stockholders of such other
party for and against such matter in the same proportion as all other shares of
the same class of capital stock of such other party are voted (whether by proxy
or otherwise) for and against such matter, and (b) each party shall execute
written consents with respect to the Restricted Shares in the same proportion as
written consents are executed by other holders of such class of capital stock.
Before acquiring any Restricted Shares hereunder, USR shall execute and deliver
a proxy to 3Com authorizing 3Com to vote and execute written consents with
respect to all Restricted Shares acquired by USR hereunder, and before acquiring
any Restricted Shares in payment therefor, 3Com shall execute and deliver a
proxy to USR authorizing USR to vote and execute written consents with respect
to all Restricted Shares acquired by 3Com hereunder, in each case in accordance
with the provisions of this Section 8.
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9. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or
(ii) in accordance with Sections 9(b), 9(c) or 10.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the holders of common
stock of the other party, by a majority of the members of the Board of
Directors of such other party.
(c) 3COM'S RIGHT OF FIRST REFUSAL. At any time after the first
occurrence of a Trigger Event and prior to the expiration of twenty-four
(24) months immediately following the first purchase of shares of 3Com
Common Stock pursuant to the 3Com Option, if USR shall desire to sell,
assign, transfer or otherwise dispose of all or any of the shares of 3Com
Common Stock or other securities acquired by it pursuant to the 3Com Option,
it shall give 3Com written notice of the proposed transaction (a "USR Offer
Notice"), identifying the proposed transferee, accompanied by a copy of a
binding offer to purchase such shares or other securities signed by such
transferee and setting forth the terms of the proposed transaction. A USR
Offer Notice shall be deemed an offer by USR to 3Com, which may be accepted
within five (5) business days of the receipt of such USR Offer Notice, on
the same terms and conditions and at the same price at which USR is
proposing to transfer such shares or other securities to such transferee.
The purchase of any such shares or other securities by 3Com shall be settled
within five (5) business days of the date of the acceptance of the offer and
the purchase price shall be paid to USR in immediately available funds. In
the event of the failure or refusal of 3Com to purchase all the shares or
other securities covered by a USR Offer Notice, USR may sell all, but not
less than all, of such shares or other securities to the proposed transferee
at no less than the price specified and on terms no more favorable to the
transferee than those set forth in the USR Offer Notice; provided that the
provisions of this sentence shall not limit the rights USR may otherwise
have in the event 3Com has accepted the offer contained in the USR Offer
Notice and wrongfully refuses to purchase the shares or other securities
subject thereto. The requirements of this Section 9(c) shall not apply to
(i) any disposition as a result of which the proposed transferee would own
beneficially not more than three percent (3%) of the outstanding voting
power of 3Com, (ii) any disposition of 3Com Common Stock or other securities
by a person to whom USR has assigned its rights under the 3Com Option with
the consent of 3Com, (iii) any sale by means of a public offering registered
under the Securities Act, or (iv) any transfer to a wholly-owned subsidiary
of USR which agrees in writing to be bound by the terms hereof.
(d) USR'S RIGHT OF FIRST REFUSAL. At any time after the first
occurrence of a Trigger Event and prior to the expiration of twenty-four
(24) months immediately following the first transfer of shares of USR Common
Stock from USR to 3Com in connection with a Stock Exercise of the 3Com
Option, if 3Com shall desire to sell, assign, transfer or otherwise dispose
of all or any of the shares of USR Common Stock or other securities acquired
by it pursuant to a Stock Exercise of the 3Com Option by USR, it shall give
USR written notice of the proposed transaction (a "3Com Offer Notice"),
identifying the proposed transferee, accompanied by a copy of a binding
offer to purchase such shares or other securities signed by such transferee
and setting forth the terms of the proposed transaction. A 3Com Offer Notice
shall be deemed an offer by 3Com to USR, which may be accepted within five
(5) business days of the receipt of such 3Com Offer Notice, on the same
terms and conditions and at the same price at which 3Com is proposing to
transfer such shares or other securities to such transferee. The purchase of
any such shares or other securities by USR shall be settled within five (5)
business days of the date of the acceptance of the offer and the purchase
price shall be paid to 3Com in immediately available funds. In the event of
the failure or refusal of USR to purchase all the
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shares or other securities covered by a 3Com Offer Notice, 3Com may sell
all, but not less than all, of such shares or other securities to the
proposed transferee at no less than the price specified and on terms no more
favorable to the transferee than those set forth in the 3Com Offer Notice;
provided that the provisions of this sentence shall not limit the rights
3Com may otherwise have in the event USR has accepted the offer contained in
the 3Com Offer Notice and wrongfully refuses to purchase the shares or other
securities subject thereto. The requirements of this Section 9(d) shall not
apply to (i) any disposition as a result of which the proposed transferee
would own beneficially not more than three percent (3%) of the outstanding
voting power of USR, (ii) any sale by means of a public offering registered
under the Securities Act, or (iii) any transfer to a wholly-owned subsidiary
of 3Com which agrees in writing to be bound by the terms hereof.
10. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "Holder") may by written notice (the
"Registration Notice") to the other party (the "Registrant") request the
Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Holder (the "Registrable
Securities") pursuant to a bona fide firm commitment underwritten public
offering, in which the Holder and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use their best efforts to prevent any person (including any "group" as
used in Rule 13d-5 under the Exchange Act)) and its affiliates from
purchasing through such offering Restricted Shares representing more than
three percent (3%) of the outstanding shares of common stock of the
Registrant on a fully diluted basis (a "Permitted Offering").
(b) The Registration Notice shall include a certificate executed by the
Holder and its proposed managing underwriter, which underwriter shall be an
investment banking firm of nationally recognized standing (the "Manager"),
stating that (i) they have a good faith intention to commence promptly a
Permitted Offering, and (ii) the manager in good faith believes that, based
on the then-prevailing market conditions, it will be able to sell the
Registrable Securities to the public in a Permitted Offering within one
hundred twenty (120) days at a per share price equal to at least eighty
percent (80%) of the then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Holder within five (5) business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price equal to
the product of (i) the number of Registrable Securities to be so purchased
by the Registrant and (ii) the then Fair Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 10(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty (20) business days after delivery
of such notice, and any payment for the shares to be so purchased shall be
made by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
Section 10(c) with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; provided, however, that (i) neither party shall be entitled to
demand more than an aggregate of two (2) effective registration statements
hereunder, and (ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed forty (40)
days after such request in the case of clause (A) below or ninety (90) days
after such request in the case of clauses (B) and (C) below) when (A) the
Registrant is in possession of material non-public information which it
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reasonably believes would be detrimental to be disclosed at such time and,
in the opinion of counsel to the Registrant, such information would be
required to be disclosed if a registration statement were filed at that
time; (B) the Registrant is required under the Securities Act to include
audited financial statements for any period in such registration statement
and such financial statements are not yet available for inclusion in such
registration statement; or (C) the Registrant determines, in its reasonable
judgment, that such registration would interfere with any financing,
acquisition or other transaction involving the Registrant or any of its
material subsidiaries and that such transaction is material to the
Registrant and its subsidiaries taken as a whole. If consummation of the
sale of any Registrable Securities pursuant to a registration hereunder does
not occur within one hundred twenty (120) days after the effectiveness of
the initial registration statement, the provisions of this Section 10 shall
again be applicable to any proposed registration.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 10 to be
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as the Holder may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; provided,
however, that the Registrant shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason
of this provision.
(g) The registration rights set forth in this Section 10 are subject to
the condition that the Holder shall provide the Registrant with such
information with respect to its Registrable Securities, the plans for the
distribution thereof, and such other information with respect to the Holder
as, in the reasonable judgment of counsel for the Registrant, is necessary
to enable the Registrant to include in such registration statement all
material facts required to be disclosed with respect to a registration
thereunder.
(h) A registration effected under this Section 10 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Holder, and the Registrant
shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 10,
the parties agree (i) to indemnify each other and the underwriters in the
customary manner, (ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and the
other underwriters participating in such offering, and (iii) to take all
further actions which shall be reasonably necessary to effect such
registration and sale (including if the Manager deems it necessary,
participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) Without limiting any restriction on 3Com contained in this Agreement
or in the Merger Agreement, in the event of any change in 3Com Common Stock
by reason of any stock dividend, stock split, merger (other than the
Merger), recapitalization, combination, exchange of shares or any similar
transaction, the type and number of shares or securities subject to the 3Com
Option, and the Exercise Price per share provided herein, shall be adjusted
appropriately and proper provision shall be made in the agreements governing
such transaction so that USR shall receive, upon exercise of the 3Com
Option, the number and class of securities or property that USR would have
received in respect of the shares of 3Com Common Stock issuable to USR if
the 3Com Option had been exercised immediately prior to such event or the
record date therefor, as applicable.
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(b) In the event that 3Com shall enter into an agreement: (i) to
consolidate with or merge into any person, other than USR or one of its
subsidiaries, and shall not be the continuing or surviving corporation of
such consolidation or merger; (ii) to permit any person, other than USR or
one of its subsidiaries, to merge into 3Com and 3Com shall be the continuing
or surviving corporation, but, in connection with such merger, the
then-outstanding shares of 3Com Common Stock shall be changed into or
exchanged for stock or other securities of 3Com or any other person or cash
or any other property; or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than USR or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that upon the consummation of
such transaction and upon the subsequent exercise of the 3Com Option, USR
shall be entitled to receive, for each share of 3Com Common Stock with
respect to which the 3Com Option has not theretofore been exercised, an
amount of consideration in the form of and equal to the per share amount of
consideration that would be received by the holder of one share of 3Com
Common Stock (and, in the event of an election or similar arrangement with
respect to the type of consideration to be received by the holders of 3Com
Common Stock, subject to the foregoing, proper provision shall be made so
that the holder of the 3Com Option would have the same election or similar
rights as would the holder of the number of shares of 3Com Common Stock for
which the 3Com Option is then exercisable).
12. RESTRICTIVE LEGENDS. Each certificate representing shares of 3Com
Common Stock issued to USR hereunder, and shares of USR Common Stock, if any,
delivered to 3Com pursuant to a Stock Exercise, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE USR STOCK
OPTION AGREEMENT DATED AS OF FEBRUARY 26, 1997, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that (i) the reference to the resale
restrictions of the Securities Act and state securities or Blue Sky laws in the
foregoing legend shall be removed by delivery of substitute certificate(s)
without such reference if USR or 3Com, as the case may be, shall have delivered
to the other party a copy of a letter from the staff of the Securities and
Exchange Commission, or an opinion of counsel, in form and substance reasonably
satisfactory to the other party, to the effect that such legend is not required
for purposes of the Securities Act or such laws; (ii) the reference to the
provisions of this Agreement in the foregoing legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law. Certificates
representing shares sold in a registered public offering pursuant to Section 10
shall not be required to bear the legend set forth in this Section 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as expressly
provided for in this Agreement, neither this Agreement nor the rights or
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party, and any such attempted
assignment in violation of this Agreement shall be void and of no force or
effect. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever. Any
Restricted Shares sold by a party in compliance with the provisions of Section
10 shall, upon consummation of such sale, be free of the restrictions imposed
with respect to such shares by this
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Agreement, unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not be
entitled to the registration rights of such party.
14. SPECIFIC PERFORMANCE. The parties hereto recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, whether at law or in equity, the other party shall be entitled to an
injunction to prevent or restrain any violation or threatened violation of the
provisions of this Agreement, and to enforce specifically the terms and
provisions hereof, in any court of the State of Delaware or of the United States
of America located in the State of Delaware. In the event that any action should
be brought in equity to enforce the provisions of this Agreement, neither party
will allege, and each party hereby waives the defense, that there is an adequate
remedy at law. Each party hereto irrevocably and unconditionally consents and
submits to the jurisdiction of the courts of the State of Delaware and of the
United States of America located in the State of Delaware for any actions, suits
or proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby, and further agrees that service of any process, summons,
notice or document by U.S. registered or certified mail to U.S. Robotics
Corporation at 8100 North McCormick Blvd., Skokie, Illinois 60076, Attention:
George Vinyard, General Counsel, or to 3Com Corporation at 5400 Bayfront Plaza,
Santa Clara, California 95052-8145, Attention: Mark Michael, General Counsel,
shall be effective service of process for any action, suit or proceeding brought
against such party in any such court. Each party hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit,
or proceeding arising out of this Agreement or the transactions contemplated
hereby, in the courts of the State of Delaware or of the United States of
America located in Wilmington, Delaware, and hereby further irrevocable and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
15. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other governmental or regulatory authority
holds any provisions of this Agreement to be null, void or unenforceable,
the parties hereto shall negotiate in good faith the execution and delivery
of an amendment to this Agreement in order, as nearly as possible, to
effectuate, to the extent permitted by law, the intent of the parties hereto
with respect to such provision and the economic effects thereof.
(c) If for any reason any such court or other governmental or regulatory
authority determines that USR is not permitted to acquire, or 3Com is not
permitted to repurchase pursuant to Section 7, the full number of shares of
3Com Common Stock provided in this Agreement (as the same may be adjusted),
it is the express intention of 3Com to allow USR to acquire or to require
3Com to repurchase such lesser number of shares as may be permissible
without any other amendment or modification hereof.
(d) Each party agrees that, should any court or other governmental or
regulatory authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith, or not take any action required herein, the other
party shall not be entitled to specific performance of such provision or
part hereof or to any other remedy, including but not limited to money
damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
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16. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
If to 3Com, to:
By Mail, Overnight Courier or Hand:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
Attention: Mark Michael, General Counsel
By Fax:
3Com Corporation
408-764-6434
Attention: Mark Michael, General Counsel
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94302
Fax: 415-327-3699
Attention: J. Howard Clowes & Rod J. Howard
If to USR, to:
By Mail, Overnight Courier or Hand:
U.S. Robotics Corporation
8100 North McCormick Blvd.
Skokie, IL 60076-2999
Attention: George Vinyard, General Counsel
By Fax:
U.S. Robotics Corporation
847-982-9118
Attention: George Vinyard, General Counsel
with a copy to:
Mayer Brown & Platt
190 South LaSalle Street
Chicago, IL 60603-3441
Fax: 312-701-7711
Attention: Richard S. Millard
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<PAGE>
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles.
18. INTERPRETATION. The headings contained in this Agreement are for
reference purposes and shall not affect in any way the meaning or interpretation
of the Agreement. When reference is made in this Agreement to a Section, such
reference shall be to a Section of this Agreement, unless otherwise indicated.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense. The words "herein," "hereby," "hereof," "hereto,"
"hereunder" and words of similar import refer to this Agreement.
19. COUNTERPARTS; EFFECT. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights hereunder shall be extended (but in no event by more than six (6)
months): (a) to the extent necessary to obtain all governmental approvals for
the exercise of such rights, and for the expiration of all statutory waiting
periods; and (b) to the extent necessary to avoid any liability or disgorgement
of profits under Section 16(b) of the Exchange Act by reason of such exercise.
23. FURTHER ASSURANCE. Each party agrees to execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
3Com CORPORATION
By: /s/ JANICE M. ROBERTS
------------------------------------------
Name: Janice M. Roberts
Title: Senior Vice President, Marketing
U.S. ROBOTICS CORPORATION
By: /s/ CASEY COWELL
------------------------------------------
Name: Casey Cowell
Title: Chairman
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[GRAPHIC]
ANNEX D
May 8, 1997
Board of Directors
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
Gentlemen:
You have requested our opinion as to the fairness to 3Com
Corporation (the "Company") of the exchange ratio (the "Exchange
Ratio") of 1.75 shares of common stock, par value $.01 per share
of the Company ("Company Common Stock"), to be exchanged by the
Company for each share of common stock, par value $.001 per
share (the "Common Stock"), of U.S. Robotics Corporation ("U.S.
Robotics") in a merger (the "Merger") pursuant to the Agreement
and Plan of Merger dated as of February 26, 1997, as amended, by
and among the Company, TR Acquisitions Corporation, a wholly
owned subsidiary of the Company, and U.S. Robotics (the
"Agreement").
Goldman, Sachs & Co., as part of its investment banking
business, is continually engaged in the valuation of businesses
and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and
other purposes. We are familiar with the Company having provided
certain investment banking and financial advisory services to
the Company from time to time and having acted as its financial
advisor in connection with, and having participated in certain
of the negotiations leading to, the Agreement.
In connection with this opinion, we have reviewed, among other
things, the Agreement; the Registration Statement on Form S-4,
including the Joint Proxy Statement--Prospectus relating to the
Special Meetings of the Stockholders of the Company and U.S.
Robotics to be held in connection with the Agreement; Annual
Reports to Stockholders and Annual Reports on Form 10-K of U.S.
Robotics for the five fiscal years ending September 30, 1996 and
of the Company for the five fiscal years ending May 31, 1996;
certain interim reports to stockholders and Quarterly Reports on
Form 10-Q for U.S. Robotics and the Company; certain other
communications from U.S. Robotics and the Company to their
stockholders; certain unaudited interim financial reports of
U.S. Robotics and the Company and certain internal financial
analyses and forecasts for U.S. Robotics and the Company
prepared by their respective managements. We also have held
discussions with members of the senior management of U.S.
Robotics and the Company regarding the strategic rationale, cost
savings, operating synergies and other benefits of the Merger
and the
D-1
<PAGE>
3Com Corporation
May 8, 1997
Page Two
past and current business operations, financial condition and
future prospects of their respective companies without, and
after, giving effect to the Merger. In addition, we have
reviewed the reported price and trading activity for the Company
Common Stock and the Common Stock, compared certain financial
and stock market information for U.S. Robotics and the Company
with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the networking
and data communications industry and performed such other
studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the
financial and other information reviewed by us and assumed such
accuracy and completeness for purposes of rendering this
opinion. In that regard, we have assumed with your consent that
the financial forecasts provided to us and discussed with us
with respect to the Company and the financial forecasts provided
to us with respect to U.S. Robotics, as adjusted to reflect the
views of the Company's management, in each case on a standalone
basis and after giving effect to the Merger, including, without
limitation, the projected cost savings and operating synergies
resulting from the Merger, were reasonably prepared on a basis
reflecting the best currently available estimates and judgments
of the Company and that such forecasts will be realized in the
amounts and at the times contemplated thereby. In addition, we
have not made an independent evaluation or appraisal of the
assets and liabilities of U.S. Robotics or the Company or any of
their subsidiaries and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion
expressed herein are provided for the information and assistance
of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement
and such opinion does not constitute a recommendation as to how
any holder of Company Common Stock should vote with respect to
such transaction.
Based upon and subject to the foregoing and based upon such
other matters as we consider relevant, it is our opinion that as
of the date hereof the Exchange Ratio pursuant to the Agreement
is fair to the Company.
Very truly yours,
/s/ Goldman, Sachs & Co.
-------------------------
GOLDMAN, SACHS & CO.
D-2
<PAGE>
ANNEX E
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
May 8, 1997
Board of Directors
U.S. Robotics Corporation
8100 North McCormick Blvd.
Skokie, IL 60076-299
Members of the Board:
We understand that 3Com Corporation ("3Com"), U.S. Robotics Corporation ("U.S.
Robotics") and TR Acquisitions Corporation ("Merger Sub"), a wholly-owned
subsidiary of 3Com, have entered into an Agreement and Plan of Merger, dated as
of February 26, 1997 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Merger Sub with and into U.S. Robotics.
Pursuant to the Merger, U.S. Robotics will become a wholly-owned subsidiary of
3Com and each issued and outstanding share of common stock, par value $0.01 per
share, of U.S. Robotics (the "U.S. Robotics Common Stock"), other than shares
held in treasury or held by 3Com or any subsidiary of 3Com or U.S. Robotics,
shall be converted into the right to receive 1.750 (the "Exchange Ratio") shares
of common stock, par value $0.01 per share, of 3Com (the "3Com Common Stock").
The terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of shares
of U.S. Robotics Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of 3Com and U.S. Robotics, respectively;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning U.S. Robotics and 3Com prepared by the
managements of U.S. Robotics and 3Com, respectively;
(iii) discussed the past and current operations and financial condition and the
prospects of 3Com, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger, with
senior executives of 3Com;
(iv) discussed the past and current operations and financial condition and the
prospects of U.S. Robotics, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of U.S. Robotics;
(v) reviewed the pro forma impact of the Merger on the earnings per share and
consolidated capitalization of 3Com and U.S. Robotics, respectively;
(vi) reviewed the reported prices and trading activity for the 3Com Common
Stock and the U.S. Robotics Common Stock;
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<PAGE>
(vii) compared the financial performance of 3Com and U.S. Robotics and the
prices and trading activity of the 3Com Common Stock and the U.S.
Robotics Common Stock with that of certain other publicly-traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) reviewed and discussed with the senior managements of 3Com and U.S.
Robotics the strategic rationale for the Merger and certain alternatives
to the Merger;
(x) participated in discussions and negotiations among representatives of 3Com
and U.S. Robotics and their financial and legal advisors;
(xi) reviewed the Merger Agreement and certain related agreements; and
(xii) considered such other factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the internal financial statements and other financial
and operating data including estimates of the strategic, financial and
operational benefits anticipated from the Merger provided by U.S. Robotics and
3Com, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the prospects
of 3Com and U.S. Robotics, respectively. We have relied upon the assessment by
the managements of 3Com and U.S. Robotics of their ability to retain key
employees of both 3Com and U.S. Robotics. We have also relied upon, without
independent verification, the assessment by the managements of 3Com and U.S.
Robotics of the strategic and other benefits expected to result from the Merger.
We have also relied upon, without independent verification, the assessment by
the managements of 3Com and U.S. Robotics of 3Com's and U.S. Robotics'
technologies and products, the timing and risks associated with the integration
of U.S. Robotics with 3Com, and the validity of, and risks associated with,
3Com's and U.S. Robotics' existing and future products and technologies. We have
not made any independent valuation or appraisal of the assets, liabilities or
technology of 3Com or U.S. Robotics, respectively, nor have we been furnished
with any such appraisals. We have assumed that the Merger will be accounted for
as a "pooling-of-interests" business combination in accordance with U.S.
Generally Accepted Accounting Principles and the Merger will be treated as a
tax-free reorganization and/or exchange pursuant to the Internal Revenue Code of
1986 and will be consummated in accordance with the terms set forth in the
Merger Agreement. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. In arriving at our opinion, we were not authorized to solicit, and
did not solicit, interest from any third party with respect to an acquisition,
business combination or other extraordinary transaction involving U.S. Robotics,
nor did we negotiate with any parties other than 3Com.
We have acted as financial advisor to the Board of Directors of U.S. Robotics in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for 3Com and have received fees for
the rendering of these services. In addition, in the ordinary course of our
business we may actively trade the securities of 3Com and U.S. Robotics for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of U.S. Robotics and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by 3Com with the Securities and Exchange Commission with
respect to the transactions contemplated by the Merger Agreement. In addition,
this opinion does not in any manner address the prices at which the 3Com Common
Stock will actually trade at any time and we express no recommendation or
opinion as to how the holders of U.S. Robotics Common Stock should vote at the
shareholders' meeting held in connection with the Merger.
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<PAGE>
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of U.S. Robotics Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
-----------------------------------------
Charles R. Cory
Managing Director
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<PAGE>
ANNEX F
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
SECTION1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; PROVIDED, HOWEVER, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and PROVIDED,
FURTHER, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; PROVIDED, HOWEVER, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the
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<PAGE>
corporation to purchase their shares for cash, such corporation shall mail to
each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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SECTION1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION1306. DISSENTING SHAREHOLDERS' STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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SECTION1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal
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terms of the reorganization are approved pursuant to subdivision (b) of Section
1202, is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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ANNEX G
CERTIFICATE OF AMENDMENT
OF THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
3COM CORPORATION
The undersigned, Eric A. Benhamou and Mark D. Michael, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of 3Com Corporation, a California corporation (the "Corporation").
2. Article III of the Amended and Restated Articles of Incorporation of the
Corporation is hereby amended to read in full as follows:
"ARTICLE III
STOCK
This corporation is authorized to issue two classes of shares, designated
"Common Stock" and "Preferred Stock." The number of shares of Common Stock which
this Corporation is authorized to issue is 990,000,000, and the number of shares
of Preferred Stock which this Corporation is authorized to issue is 10,000,000.
All the authorized shares of Common Stock shall have a par value of one cent
($0.01). All the authorized shares of Preferred Stock shall have a par value of
one cent ($0.01).
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of this Corporation is authorized to determine the
designation of any series, to fix the number of shares of any series, to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, and within the
limits or restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series."
3. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the Board of Directors of the
Corporation in accordance with section 902 of the California Corporations Code
4. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the required vote of the shareholders of
the Corporation in accordance with sections 902 and 903 of the California
Corporations Code.
The total number of outstanding shares of the Corporation entitled to vote
with respect to the foregoing amendment was 178,200,471 shares of Common Stock.
The number of shares voting in favor of the amendment equalled or exceeded the
vote required, such required vote being a majority of the outstanding shares of
Common Stock as of May 1, 1997, the record date established by the Board of
Directors of the Corporation therefor.
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Executed at Santa Clara, California, on the day of , 1997.
______________________________________
Eric A. Benhamou, President
______________________________________
Mark D. Michael, Secretary
The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true and correct of their own knowledge.
Executed at Santa Clara, California, on the day of , 1997.
______________________________________
Eric A. Benhamou, President
______________________________________
Mark D. Michael, Secretary
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ANNEX H
AGREEMENT AND PLAN OF MERGER AND REINCORPORATION
THIS AGREEMENT AND PLAN OF MERGER AND REINCORPORATION (the "Agreement") is
entered into as of this 14th day of March, 1997 by and between 3Com Corporation,
a California corporation ("3Com California"), and 3Com (Delaware) Corporation, a
Delaware corporation ("3Com Delaware").
WITNESSETH:
WHEREAS, 3Com Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, 3Com California is a corporation duly organized and existing under
the laws of the State of California;
WHEREAS, on the date of this Agreement, 3Com Delaware has authority to issue
1,000 shares of Common Stock, par value $.001 per share (the "3Com Delaware
Common Stock"), of which 100 shares are issued and outstanding and owned by 3Com
California;
WHEREAS, 3Com California as of the date hereof has authority to issue (i)
400,000,000 shares of Common Stock, par value $0.01 (the "3Com California Common
Stock"), of which approximately 178,000,000 shares were issued and outstanding
as of March 14, 1997, and (ii) 3,000,000 shares of Preferred Stock, without par
value, of which no shares are issued and outstanding;
WHEREAS, the Board of Directors of 3Com California has adopted and approved
a proposal to amend the Articles of Incorporation of 3Com California to increase
from 403,000,000 to 1,000,000,000 the number of shares of 3Com California stock
which 3Com California is authorized to issue;
WHEREAS, the respective Boards of Directors of 3Com Delaware and 3Com
California have determined that, for the purpose of effecting the
reincorporation of 3Com California in the State of Delaware, it is advisable, to
the advantage of and in the best interests of 3Com California and its
shareholders and 3Com Delaware and its stockholder that 3Com California merge
with and into 3Com Delaware upon the terms and subject to the conditions herein
provided;
WHEREAS, the parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the merger described herein to
qualify as a reorganization under the provisions of Section 368 of the Code; and
WHEREAS, the respective Boards of Directors of 3Com Delaware and 3Com
California and the sole stockholder of 3Com Delaware have unanimously adopted
and approved this Agreement, and the Board of Directors of 3Com California has
directed that this Agreement be submitted to the shareholders of 3Com California
for their consideration;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, 3Com California and 3Com Delaware hereby agree as follows:
1. MERGER. Subject to the approval of the shareholders of 3Com California
in accordance with the California General Corporation Law (the "CGCL"), at such
time thereafter as the parties hereto shall mutually agree, 3Com California
shall be merged with and into 3Com Delaware (the "Merger"), and 3Com Delaware
shall be the surviving corporation (the "Surviving Corporation") in the Merger.
The Merger shall be effective upon (a) the filing of this Agreement together
with the requisite officers' certificates with the Secretary of State of the
State of California in accordance with the provisions of the CGCL and (b) the
filing of a duly certified counterpart of this Agreement (or a duly executed
certificate of
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merger) with the Secretary of State of the State of Delaware in accordance with
the applicable provisions of the Delaware General Corporation Law (the "DGCL"),
the date and time of the later of such filings being hereinafter referred to as
the "Effective Time".
2. GOVERNING DOCUMENTS. At the Effective Time: (a) the Certificate of
Incorporation of 3Com Delaware shall be amended and restated as in the form
attached hereto as Exhibit 1, and shall be the Certificate of Incorporation of
the Surviving Corporation, and (b) the Bylaws of 3Com Delaware shall be amended
and restated as in the form attached hereto as Exhibit 2 and shall be the Bylaws
of the Surviving Corporation.
3. DIRECTORS AND OFFICERS. The directors (including their respective
denomination as Class I or Class II directors) and officers of 3Com California
shall be the directors (denominated in like manner by class) and officers of the
Surviving Corporation from and after the Effective Time until their respective
successors are duly elected or appointed.
4. SUCCESSION. At the Effective Time, 3Com Delaware shall succeed to 3Com
California in the manner of and as more fully set forth in Section 259 of the
General Corporation Law of the State of Delaware.
5. FURTHER ASSURANCES. From time to time, as and when required by 3Com
Delaware or by its successors and assigns, there shall be executed and delivered
on behalf of 3Com California such deeds and other instruments, and there shall
be taken or caused to be taken by it such further and other action, as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in 3Com Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of 3Com California, and otherwise to carry out the purposes of this
Agreement, and the officers and directors of 3Com Delaware are fully authorized
in the name and on behalf of 3Com California or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
6. STOCK OF 3COM CALIFORNIA. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, each share of
3Com California Common Stock outstanding immediately prior thereto shall be
changed and converted into one fully paid and nonassessable share of 3Com
Delaware Common Stock.
7. STOCK CERTIFICATES. From and after the Effective Time, all of the
outstanding certificates which prior to that time represented shares of 3Com
California stock shall be deemed for all purposes to evidence ownership, and to
represent the shares, of 3Com Delaware stock into which the shares of 3Com
California stock represented by such certificates have been converted as herein
provided. The registered owner on the books and records of 3Com Delaware or its
transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to 3Com Delaware or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividend and other
distributions upon the shares of 3Com Delaware stock evidenced by such
outstanding certificate as above provided.
8. OPTIONS. At the Effective Time, each outstanding option or other right
to purchase shares of 3Com California stock, including options granted and
outstanding under the option plans of 3Com California (the "3Com Option Plans"),
shall be converted into and become an option or right to purchase the same
number of shares of 3Com Delaware stock at a price per share equal to the
exercise price of the option or right to purchase 3Com California stock and upon
the same terms and subject to the same conditions as set forth in the 3Com
Option Plans and the other agreements entered into by 3Com California pertaining
to such options or rights. A number of shares of 3Com Delaware stock shall be
reserved for purposes of such options and rights equal to the number of shares
of 3Com California stock so reserved immediately prior to the Effective Time. As
of the Effective Time, 3Com Delaware shall assume all obligations of 3Com
California under agreements pertaining to such options and rights, including the
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3Com Option Plans, and the outstanding options or other rights, or portions
thereof, granted pursuant thereto.
9. OTHER EMPLOYEE BENEFIT PLANS. As of the Effective Time, 3Com Delaware
hereby assumes all obligations of 3Com California under any and all employee
benefit plans in effect as of said date or with respect to which employee rights
or accrued benefits are outstanding as of said date.
10. RIGHTS PLAN. At the Effective Time, 3Com Delaware shall assume all
obligations of 3Com California under the Amended and Restated Rights Agreement
dated as of December 21, 1994 between 3Com California and The First National
Bank of Boston, as the Rights Agent, in accordance with the terms thereof. Each
Common Stock Purchase Right with respect to shares of 3Com California Common
Stock outstanding immediately prior to the Effective Time shall, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holder thereof, be changed and converted into an equivalent right to
purchase 3Com Delaware Common Stock. A number of shares of 3Com Delaware Common
Stock shall be reserved for purposes of such Common Stock Purchase Rights equal
to the number of shares of 3Com California Common Stock so reserved immediately
prior to the Effective Time.
11. OUTSTANDING COMMON STOCK OF 3COM DELAWARE. At the Effective Time, the
one hundred (100) shares of 3Com Delaware Common Stock presently issued and
outstanding in the name of 3Com California shall be canceled and retired and
resume the status of authorized and unissued shares of 3Com Delaware Common
Stock, and no shares of 3Com Delaware Common Stock or other securities of 3Com
Delaware shall be issued in respect thereof.
12. COVENANTS OF 3COM DELAWARE. 3Com Delaware covenants and agrees that,
effective not later than the Effective Time, it will:
(a) qualify to do business as a foreign corporation in the State of
California and in all other states in which 3Com California is so qualified
and in which the failure so to qualify would have a material adverse effect
on the business or financial condition of 3Com Delaware and its
subsidiaries, taken together as a whole, and, in connection therewith, shall
irrevocably appoint an agent for service of process as required under the
provisions of Section 2105 of the California Corporations Code and under
applicable provisions of state law in other states in which qualification is
required hereunder; and
(b) file any and all documents with the California Franchise Tax Board
necessary to the assumption by 3Com Delaware of all of the franchise tax
liabilities of 3Com California.
13. BOOK ENTRIES. As of the Effective Time, entries shall be made upon the
books of 3Com Delaware in accordance with the following:
(a) The assets and liabilities of 3Com California shall be recorded at
the amounts at which they were carried on the books of 3Com California
immediately prior to the Effective Time, with appropriate adjustments to
reflect the retirement of the one hundred (100) shares of 3Com Delaware
Common Stock presently issued and outstanding.
(b) There shall be credited to the capital stock of 3Com Delaware the
aggregate amount of the par value of all shares of 3Com Delaware stock
resulting from the conversion of the outstanding California Common Stock
pursuant to the Merger.
(c) There shall be credited to the capital surplus account of 3Com
Delaware the aggregate of the amounts shown in the capital stock and capital
surplus accounts of 3Com California immediately prior to the Effective Time,
less the amount credited to the common stock account of 3Com Delaware
pursuant to Paragraph (b) above.
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(d) There shall be credited to the retained earnings account of 3Com
Delaware an amount equal to that carried in the retained earning account of
3Com California immediately prior to the Effective Time.
14. CONDITION. It shall be a condition precedent to the consummation of
the Merger and the other transactions contemplated by this Merger and the other
transactions contemplated by this Agreement that the shares of Delaware Common
Stock to be issued by 3Com Delaware shall, upon official notice of issuance, be
listed on The Nasdaq National Market as of the Effective Time.
15. AMENDMENT. At any time prior to the Effective Time, whether before or
after approval and adoption of this Agreement by the shareholders of 3Com
California, this Agreement may be amended in any manner as may be determined in
the judgment of the respective Boards of Directors of 3Com Delaware and 3Com
California to be necessary, desirable or expedient in order to clarify the
intention of the parties hereto or to effect or facilitate the purposes and
intent of this Agreement; provided, that (a) no such amendment shall be made
without the consent of U.S. Robotics Corporation and (b) any amendment made
subsequent to the approval or adoption of this Agreement by the stockholders of
3Com Delaware or the shareholders of 3Com California shall be subject to all
applicable limitations of the applicable provisions of the DGCL and the CGCL.
16. ABANDONMENT. At any time before the Effective Time, this Agreement may
be terminated and the Merger may be abandoned by the Board of Directors of
either 3Com California or 3Com Delaware or both, notwithstanding any approval of
this Agreement by the sole stockholder of 3Com Delaware and the shareholders of
3Com California.
17. COUNTERPARTS. In order to facilitate the filing and recording of this
Agreement, this Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original.
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IN WITNESS WHEREOF, this Agreement, having first been duly approved by
resolutions of the respective Boards of Directors of 3Com California and 3Com
Delaware, is hereby executed on behalf of each of said two corporations by their
respective officers thereunto duly authorized.
3Com CORPORATION,
a California corporation
By: /s/ ERIC A. BENHAMOU______________
Eric A. Benhamou, PRESIDENT
ATTEST:
/s/ MARK D. MICHAEL___________________
Mark D. Michael, SECRETARY
3Com (DELAWARE) CORPORATION,
a Delaware corporation
By: /s/ ERIC A. BENHAMOU______________
Eric A. Benhamou, PRESIDENT
ATTEST:
/s/ MARK D. MICHAEL___________________
Mark D. Michael, SECRETARY
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EXHIBIT 1 TO ANNEX H
CERTIFICATE OF INCORPORATION
OF 3COM CORPORATION
<TABLE>
<S> <C>
FIRST: The name of the Corporation is 3Com Corporation (hereinafter sometimes referred
to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the State of
Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of
Dover, County of Kent. The name of the registered agent at that address is
Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of the
State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the Corporation shall
have authority to issue is One Billion Shares (1,000,000,000) consisting of:
1. Nine Hundred Ninety Million (990,000,000) shares of Common Stock, par value
one cent ($0.01) per share (the "Common Stock"); and
2. Ten Million (10,000,000) shares of Preferred Stock, par value one cent
($0.01) per share (the "Preferred Stock").
B. The Board of Directors is authorized, subject to any limitations prescribed by
law, to provide for the issuance of shares of Preferred Stock in one or more
series and, by filing a certificate pursuant to the applicable law of the State
of Delaware, from time to time to determine the designation of any series, to
fix the number of shares of any series, to determine or alter the rights,
preferences, privileges and powers granted to any wholly unissued series of
Preferred Stock and any qualifications, limitations or restrictions imposed
thereon, and, within the limits or restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number of
shares of any such series then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series.
FIFTH: The following provisions are inserted for the management of the business and
the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of
Incorporation or the By-Laws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot unless
the By-Laws so provide.
C. Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
</TABLE>
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<TABLE>
<S> <C>
D. Special meetings of stockholders of the Corporation may be called only by
either the Board of Directors, the Chairman of the Board of Directors or the
President.
SIXTH:
A. The number of directors shall initially be eleven (11) and thereafter shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption). As of the effective time of the merger of 3Com
Corporation, a California corporation, with and into the Corporation (the
"Effective Time") the directors shall be divided into two classes with the term
of office of the first class to expire at the first annual meeting of the
stockholders following the Effective Time and the term of office of the second
class to expire at the second annual meeting of stockholders held following the
Effective Time, and thereafter for each such term to expire at each second
succeeding annual meeting of stockholders after such election. All directors
shall hold office until the expiration of the term for which elected, and until
their respective successors are elected, except in the case of the death,
resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause (including removal from office
by a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, or by a sole remaining
director, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of office of the class to
which they have been elected expires, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director.
C. Subject to the rights of the holders of any series of Preferred Stock then
outstanding, any directors, or the entire Board of Directors, may be removed
from office at any duly called annual or special meeting, but only for cause
and only by the affirmative vote of the holders of at least a majority of the
voting power of all of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or repeal By-Laws
of the Corporation. The stockholders shall also have power to adopt, amend or
repeal the By-Laws of the Corporation. Any adoption, amendment or repeal of
By-Laws of the Corporation by the stockholders shall require, in addition to
any vote of the holders of any class or series of stock of the Corporation
required by law or by this Certificate of Incorporation, the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
EIGHTH: A director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
If the General Corporation Law of the State of Delaware is hereafter amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
Any repeal or modification of the foregoing provisions of this Article EIGHTH
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
NINTH: The Corporation reserves the right to amend or repeal any provision contained
in this Certificate of Incorporation in the manner prescribed by the laws of
the State of Delaware and all rights conferred upon stockholders are granted
subject to this reservation; PROVIDED, HOWEVER, that, notwithstanding any other
provision of this Certificate of Incorporation or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to any vote of
the holders of any class or series of the stock of this Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal this Article
NINTH, Article FIFTH, Article SIXTH, Article SEVENTH or Article EIGHTH.
</TABLE>
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<PAGE>
EXHIBIT 2 TO ANNEX H
BYLAWS
OF
3COM CORPORATION
(DELAWARE)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
Article 1. Stockholders.......................................................................... H-2-1
1.1 Place of Meetings..................................................................... H-2-1
1.2 Annual Meeting........................................................................ H-2-1
1.3 Special Meetings...................................................................... H-2-1
1.4 Notice of Meetings.................................................................... H-2-1
1.5 Voting List........................................................................... H-2-1
1.6 Quorum................................................................................ H-2-1
1.7 Adjournments.......................................................................... H-2-2
1.8 Voting and Proxies.................................................................... H-2-2
1.9 Action at Meeting..................................................................... H-2-2
1.10 Notice of Stockholder Business........................................................ H-2-2
1.11 Conduct of Business................................................................... H-2-3
1.12 No Stockholder Action Without Meeting................................................. H-2-3
Article 2. Board of Directors.................................................................... H-2-3
2.1 General Powers........................................................................ H-2-3
2.2 Number and Term of Office............................................................. H-2-4
2.3 Vacancies and Newly Created Directorships............................................. H-2-4
2.4 Resignation........................................................................... H-2-4
2.5 Regular Meetings...................................................................... H-2-4
2.6 Special Meetings...................................................................... H-2-4
2.7 Notice of Special Meetings............................................................ H-2-4
2.8 Participation in Meetings by Telephone Conference Calls............................... H-2-4
2.9 Quorum................................................................................ H-2-5
2.10 Action at Meeting..................................................................... H-2-5
2.11 Action by Consent..................................................................... H-2-5
2.12 Removal............................................................................... H-2-5
2.13 Committees............................................................................ H-2-5
2.14 Compensation of Directors............................................................. H-2-5
2.15 Nomination of Director Candidates..................................................... H-2-5
Article 3. Officers.............................................................................. H-2-6
3.1 Enumeration........................................................................... H-2-6
3.2 Election.............................................................................. H-2-6
3.3 Qualification......................................................................... H-2-6
3.4 Tenure................................................................................ H-2-6
3.5 Resignation and Removal............................................................... H-2-7
3.6 Chairman of the Board................................................................. H-2-7
3.7 President............................................................................. H-2-7
3.8 Vice Presidents....................................................................... H-2-7
3.9 Secretary and Assistant Secretaries................................................... H-2-7
3.10 Chief Financial Officer............................................................... H-2-7
3.11 Salaries.............................................................................. H-2-8
3.12 Delegation of Authority............................................................... H-2-8
Article 4. Capital Stock......................................................................... H-2-8
4.1 Issuance of Stock..................................................................... H-2-8
4.2 Certificates of Stock................................................................. H-2-8
4.3 Transfers............................................................................. H-2-8
</TABLE>
H-2-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
4.4 Lost, Stolen or Destroyed Certificates................................................ H-2-8
4.5 Record Date........................................................................... H-2-8
Article 5. General Provisions.................................................................... H-2-9
5.1 Fiscal Year........................................................................... H-2-9
5.2 Corporate Seal........................................................................ H-2-9
5.3 Waiver of Notice...................................................................... H-2-9
5.4 Actions with Respect to Securities of Other Corporations.............................. H-2-9
5.5 Evidence of Authority................................................................. H-2-9
.6 Certificate of Incorporation.......................................................... H-2-9
5.7 Severability.......................................................................... H-2-9
5.8 Pronouns.............................................................................. H-2-9
5.9 Notices............................................................................... H-2-9
5.10 Reliance Upon Books, Reports and Records.............................................. H-2-10
5.11 Time Periods.......................................................................... H-2-10
5.12 Facsimile Signatures.................................................................. H-2-10
Article 6. Amendments............................................................................ H-2-10
6.1 By the Board of Directors............................................................. H-2-10
6.2 By the Stockholders................................................................... H-2-10
Article 7. Indemnification of Directors and Officers............................................. H-2-10
7.1 Right to Indemnification.............................................................. H-2-10
7.2 Right of Claimant to Bring Suit....................................................... H-2-11
7.3 Indemnification of Employees and Agents............................................... H-2-11
7.4 Non-Exclusivity of Rights............................................................. H-2-11
7.5 Indemnification Contracts............................................................. H-2-11
7.6 Insurance............................................................................. H-2-11
7.7 Effect of Amendment................................................................... H-2-12
</TABLE>
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<PAGE>
BYLAWS
OF
3COM CORPORATION
1. STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President and Chief Executive Officer or,
if not so designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President and Chief Executive Officer at the time and place to
be fixed by the Board of Directors or the President and stated in the notice of
the meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the Board of Directors, the Chairman of the Board or the President
and Chief Executive Officer. Business transacted at any special meeting of
stockholders shall be confined to the purpose or purposes stated in the notice
of meeting.
1.4 NOTICE OF MEETINGS. Written notice of each meeting of stockholders,
whether annual or special, shall be given not less than ten (10) nor more than
sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or as required by law (meaning here and hereafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation). The notices of all meetings shall state the place, date and hour
of the meeting. The notice of a special meeting shall state, in addition, the
purpose or purposes for which the meeting is called. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least ten (10) days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
1.6 QUORUM. Except as otherwise provided by law or these Bylaws, the
holders of a majority of the shares of the capital stock of the corporation
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
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<PAGE>
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these Bylaws by the holders of a majority of the shares of stock present
or represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as Secretary of such meeting. When a meeting is adjourned to another place,
date or time, written notice need not be given of the adjourned meeting if the
place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date, and time of the adjourned meeting shall be
given in conformity herewith. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law. Each stockholder of record entitled to vote at a meeting of
stockholders, may vote in person or may authorize any other person or persons to
vote or act for him by written proxy executed by the stockholder or his
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the corporation. No stockholder may authorize more than one proxy
for his shares. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile transmission or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, any
election shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election, and all other matters shall be
determined by a majority of the votes cast affirmatively or negatively on the
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, a majority of each such
class present or represented and voting affirmatively or negatively on the
matter) shall decide such matter, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these Bylaws.
All voting, including on the election of directors, but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting. The corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
corporation may designate one or more persons as an alternate inspector to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting may, and
to the extent required by law, shall, appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability.
1.10 NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) properly brought before an annual meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder
H-2-2
<PAGE>
proposal to be presented at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been advanced by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, notice by the stockholders to be timely must be received
not later than the close of business on the tenth day following the day on which
the date of the annual meeting is publicly announced.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
1.11 CONDUCT OF BUSINESS. At every meeting of the stockholders, the
Chairman of the Board, if there is such an officer, or if not, the person
appointed by the Board of Directors, shall act as Chairman. The Secretary of the
corporation or a person designated by the Chairman of the meeting shall act as
Secretary of the meeting. Unless otherwise approved by the Chairman of the
meeting, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 1.8 of these Bylaws to
act by proxy, and officers of the corporation.
The Chairman of the meeting shall call the meeting to order, establish the
agenda, and conduct the business of the meeting in accordance therewith or, at
the Chairman's discretion, it may be conducted otherwise in accordance with the
wishes of the stockholders in attendance. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.11 and
Section 1.10 above. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that any proposed item of business was not
brought before the meeting in accordance with the provisions of this Section
1.11 and Section 1.10, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
1.12 NO STOCKHOLDER ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing by such stockholders.
2. BOARD OF DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
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<PAGE>
2.2 NUMBER AND TERM OF OFFICE. The number of directors shall initially be
eleven (11) and, thereafter, shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board for adoption). Upon the effective date of the Agreement and Plan of
Merger and Reincorporation between the Corporation and 3Com Corporation, a
California corporation (the "Effective Date"), the directors shall be divided
into two classes, with the term of office of the first class to expire at the
first annual meeting of stockholders held after the Effective Date; the term of
office of the second class to expire at the second annual meeting of
stockholders held after the Effective Date; and thereafter for each such term to
expire at each second succeeding annual meeting of stockholders after such
election. All directors shall hold office until the expiration of the term for
which elected and until their respective successors are elected, except in the
case of the death, resignation or removal of any director.
2.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the rights of
the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (including removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
the term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2.4 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, the President and Chief Executive
Officer, a majority of the whole Board of Directors, or by one director in the
event that there is only a single director in office.
2.7 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone or electronic voice
message system at least 24 hours in advance of the meeting, (ii) by sending a
telegram, telecopy or telex, or delivering written notice by hand, to his last
known business or home address at least 24 hours in advance of the meeting, or
(iii) by mailing written notice to his last known business or home address at
least three (3) day in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
2.8 PARTICIPATION IN MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or
any members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
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<PAGE>
2.9 QUORUM. A majority of the total number of authorized directors shall
constitute a quorum at any meeting of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third (1/3) of the number
so fixed constitute a quorum. In the absence of a quorum at any such meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting, until a quorum
shall be present. Interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or at a meeting of a
committee which authorizes a particular contract or transaction.
2.10 ACTION AT MEETING. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these Bylaws.
2.11 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing. Any such
written consents shall be filed with the minutes of proceedings of the Board or
committee.
2.12 REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any Director may be removed from office prior
to the expiration of such Director's term at any duly called annual or special
meeting, but only for cause and only by the affirmative vote of the holders of
at least a majority of the voting power of all of the outstanding shares of
capital stock entitled to vote generally in the election of directors, voting
together as a single class.
2.13 COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, with such lawfully delegated powers and duties as it therefor
confers, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these Bylaws for the
Board of Directors.
2.14 COMPENSATION OF DIRECTORS. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to the determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.15 NOMINATION OF DIRECTOR CANDIDATES. Subject to the rights of holders
of any class or series of Preferred Stock then outstanding, nominations for the
election of Directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of Directors generally. However, any stockholder entitled to vote
in the election of Directors generally may nominate one or more persons for
election as Directors at a meeting only if timely notice of such stockholder's
intent to make such nomination or nominations has been given in writing to the
Secretary of the Corporation. To be timely, a stockholder nomination for a
director to be elected at an
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<PAGE>
annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a nomination for director to be elected at a special meeting,
notice by the stockholders to be timely must be received not later than the
close of business on the tenth day following the day on which such notice of the
date of the special meeting was mailed or such public disclosure was made. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Corporation if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.15 and shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.15 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines that
a nomination of any candidate for election as a Director at such meeting was not
made in accordance with the applicable provisions of this Section 2.15, such
nomination shall be void; provided, however, that nothing in this Section 2.15
shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
3. OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President and Chief Executive Officer, a Secretary, a Chief Financial Officer
and such other officers with such other titles as the Board of Directors shall
determine, including, at the discretion of the Board of Directors, a Chairman of
the Board, and one or more Vice Presidents and Assistant Secretaries. The Board
of Directors may appoint such other officers as it may deem appropriate.
3.2 ELECTION. Officers shall be elected annually by the Board of Directors
at its first meeting following the annual meeting of stockholders. Officers may
be appointed by the Board of Directors at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote appointing him, or until his earlier death, resignation or removal.
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3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. Any officer may be removed at any time, with or without cause, by
the Board of Directors.
3.6 CHAIRMAN OF THE BOARD. The Board of Directors may appoint a Chairman
of the Board. If the Board of Directors appoints a Chairman of the Board, he
shall perform such duties and possess such powers as are assigned to him by the
Board of Directors. Unless otherwise provided by the Board of Directors, he
shall preside at all meetings of the stockholders, and, if he is a director, at
all meetings of the Board of Directors.
3.7 PRESIDENT. The President shall, subject to the direction of the Board
of Directors, have responsibility for the general management and control of the
business and affairs of the Corporation and shall perform all duties and have
all powers which are commonly incident to the office of chief executive or which
are delegated to him or her by the Board of Directors. The President shall be
the Chief Executive Officer of the corporation. The President shall perform such
other duties and shall have such other powers as the Board of Directors may from
time to time prescribe. He or she shall have power to sign stock certificates,
contracts and other instruments of the Corporation which are authorized and
shall have general supervision and direction of all of the other officers,
employees and agents of the Corporation, other than the Chairman of the Board.
3.8 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have at the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.9 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the Secretary,
including, without limitation, the duty and power to give notices of all
meetings of stockholders and special meetings of the Board of Directors, to keep
a record of the proceedings of all meetings of stockholders and the Board of
Directors, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers as
the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate a
temporary secretary to keep a record of the meeting.
3.10 CHIEF FINANCIAL OFFICER. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer shall be the Treasurer. The Chief
Financial Officer shall perform such duties and shall have such powers as may
from time to time be assigned to him by the Board of Directors or the President.
In addition, the Chief Financial Officer shall perform such duties and have such
powers as are incident to the office of chief financial officer, including
without limitation, the duty and power to keep and be responsible for all funds
and securities of the corporation, to maintain the financial records of the
Corporation, to deposit funds of the corporation in depositories as authorized,
to disburse such funds as
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authorized, to make proper accounts of such funds, and to render as required by
the Board of Directors accounts of all such transactions and of the financial
condition of the corporation.
3.11 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.12 DELEGATION OF AUTHORITY. The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
4. CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice-Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Chief Financial
Officer, or the Secretary or an Assistant Secretary of the corporation. Any or
all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable
securities laws or any agreement among any number of shareholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or authenticity of signature
as the corporation or its transfer agent may reasonably require. Except as may
be otherwise required by law, by the Certificate of Incorporation or by the
Bylaws, the corporation shall be entitled to treat the record holder of stock as
shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to vote with respect to such stock,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been transferred on the books of the corporation in accordance with
the requirements of these Bylaws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously saved certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, concession or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not
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be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action to which such
record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
5. GENERAL PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the corporation shall be as fixed by
the Board of Directors.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy, telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice.
5.4 ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Except as
the Board of Directors may otherwise designate, the President or any officer of
the corporation authorized by the President shall have the power to vote and
otherwise act on behalf of the corporation, in person or proxy, and may waive
notice of, and act as, or appoint any person or persons to act as, proxy or
attorney-in-fact to this corporation (with or without power of substitution) at
any meeting of stockholders or shareholders (or with respect to any action of
stockholders) of any other corporation or organization, the securities of which
may be held by this corporation and otherwise to exercise any and all rights and
powers which this corporation may possess by reason of this corporation's
ownership of securities in such other corporation or other organization.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 SEVERABILITY. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
5.8 PRONOUNS. All pronouns used in these Bylaws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
5.9 NOTICES. Except as otherwise specifically provided herein or required
by law, all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be effectively
given by hand delivery to the recipient thereof, by depositing such notice in
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the mails, postage paid, or by sending such notice by prepaid telegram,
mailgram, telecopy or commercial courier service. Any such notice shall be
addressed to such stockholder, director, officer, employee or agent at his or
her last known address as the same appears on the books of the Corporation. The
time when such notice shall be deemed to be given shall be the time such notice
is received by such stockholder, director, officer, employee or agent, or by any
person accepting such notice on behalf of such person, if hand delivered, or the
time such notice is dispatched, if delivered through the mails or be telegram or
mailgram.
5.10 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member
of any committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
5.11 TIME PERIODS. In applying any provision of these Bylaws which require
that an act be done or not done a specified number of days prior to an event or
that an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
5.12 FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
6. AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in these
Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the affirmative vote of Directors constituting a majority of the
whole Board of Directors.
6.2 BY THE STOCKHOLDERS. Except as otherwise set forth in these Bylaws,
these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by
the affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the shares of the capital stock of the corporation issued
and outstanding and entitled to vote at any annual meeting of stockholders, or
at any special meeting of stockholders, provided that due notice of such
alteration, amendment, repeal or adoption of new Bylaws shall have been stated
in the notice of such special meeting.
7. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
7.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by Delaware law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than Delaware law permitted the Corporation to provide
prior to such amendment) against all expenses, liability and loss reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 7.2 of this Article 7, the Corporation
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shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that, unless the Delaware General Corporation
Law then so prohibits, the payment of such expenses incurred by a director or
officer of the Corporation in his or her capacity as a director or officer (and
not in any other capacity in which service was or is tendered by such person
while a director or officer, including, without limitation. service to an
employee benefit plan) in advance of the final disposition of such proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director or officer is not entitled to
be indemnified under this Section or otherwise.
7.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 7.1 is not
paid in full by the Corporation within ninety (90) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if such suit is not frivolous or brought in bad faith, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other then an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
7.3 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of related expenses, to any employee or
agent of the Corporation to the fullest extent of the provisions of this Article
with respect to the indemnification of and advancement of expenses to directors
and officers of the Corporation.
7.4 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person in
Sections 7.1 and 7.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7.5 INDEMNIFICATION CONTRACTS. The Board of Directors is authorized to
enter into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article 7.
7.6 INSURANCE. The Corporation shall maintain insurance to the extent
reasonably available, at its expense, to protect itself and any such director,
officer, employee or agent of the Corporation or another
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corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
7.7 EFFECT OF AMENDMENT. Any amendment, repeal or modification of any
provision of this Article 7 by the stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
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ANNEX I
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of , 199 , is made by and
between 3Com Corporation, a Delaware corporation (the "Company"), and
(the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiaries to assume the
risk of huge judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of Directors
of the Company (the "Board") has concluded that, to retain and attract talented
and experienced individuals to serve as directors, officers and agents of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its directors, officers
and agents and the directors, officers and agents of its subsidiaries, and to
assume for itself maximum liability for expenses and damages in connection with
claims against such directors, officers and agents in connection with their
service to the Company and its subsidiaries, and has further concluded that the
failure to provide such contractual indemnification could result in great harm
to the Company and its subsidiaries and the Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
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H. The Company desires and has requested the Indemnitee to serve or continue
to serve as a director, officer or agent of the Company and/or one or more
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
(a) AGENT. For the purposes of this Agreement, "agent" of the Company
means any person who is or was a director, officer, employee or other agent
of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the
Company or a subsidiary of the Company as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise; or was a director, officer, employee or
agent of a foreign or domestic corporation which was a predecessor
corporation of the Company or a subsidiary of the Company, or was a
director, officer, employee or agent of another enterprise at the request
of, for the convenience of, or to represent the interests of such
predecessor corporation.
(b) EXPENSES. For purposes of this Agreement, "expenses" include all
out-of-pocket costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification under this Agreement or Section 145 or
otherwise; provided, however, that "expenses" shall not include any
judgments, fines, ERISA excise taxes or penalties, or amounts paid in
settlement of a proceeding.
(c) PROCEEDING. For the purposes of this Agreement, "proceeding" means
any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) SUBSIDIARY. For purposes of this Agreement, "subsidiary" means any
corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. LIABILITY INSURANCE.
(a) MAINTENANCE OF D&O INSURANCE. The Company hereby covenants and
agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to
any possible proceeding by reason of the fact that the Indemnitee was an
agent of the Company, the Company, subject to Section 3(c), shall promptly
obtain and maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") in reasonable amounts from established
and reputable insurers.
(b) RIGHTS AND BENEFITS. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if the Indemnitee is a
director; or of the
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Company's officers, if the Indemnitee is not a director of the Company but
is an officer; or of the Company's key employees, if the Indemnitee is not a
director or officer but is a key employee.
(c) LIMITATION ON REQUIRED MAINTENANCE OF D&O
INSURANCE. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in
good faith that such insurance is not reasonably available, the premium
costs for such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is limited by exclusions
so as to provide an insufficient benefit, or the Indemnitee is covered by
similar insurance maintained by a subsidiary of the Company.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
shall indemnify the Indemnitee as follows:
(a) SUCCESSFUL DEFENSE. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding
(including, without limitation, an action by or in the right of the Company)
to which the Indemnitee was a party by reason of the fact that he is or was
an Agent of the Company at any time, against all expenses of any type
whatsoever actually and reasonably incurred by him in connection with the
investigation, defense or appeal of such proceeding.
(b) THIRD PARTY ACTIONS. If the Indemnitee is a person who was or is a
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is
or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, the Company shall indemnify the Indemnitee against
any and all expenses and liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and
amounts paid in settlement) actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding, provided the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and its stockholders, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
(c) DERIVATIVE ACTIONS. If the Indemnitee is a person who was or is a
party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such
capacity, the Company shall indemnify the Indemnitee against all expenses
actually and reasonably incurred by him in connection with the
investigation, defense, settlement, or appeal of such proceeding, provided
the Indemnitee acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company and its
stockholders; except that no indemnification under this subsection 4(c)
shall be made in respect to any claim, issue or matter as to which such
person shall have been finally adjudged to be liable to the Company by a
court of competent jurisdiction unless and only to the extent that the court
in which such proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such amounts which the court shall deem proper.
(d) ACTIONS WHERE INDEMNITEE IS DECEASED. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company,
or by reason of anything done or not done by him in any such capacity, and
if prior to, during the pendency of after completion of such proceeding
Indemnitee becomes deceased, the Company shall indemnify the Indemnitee's
heirs, executors and administrators against any and all expenses and
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred to the extent Indemnitee would
have been entitled to indemnification pursuant to Sections 4(a), 4(b), or
4(c) above were Indemnitee still alive.
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(e) Notwithstanding the foregoing, the Company shall not be obligated to
indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 8(a) below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement, notify
the Company of the commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement of a
proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in
the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee,
all amounts payable as a result of such proceeding in accordance with the
terms of such policies.
(c) In the event the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by
the Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel
by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any
fees of counsel subsequently incurred by the Indemnitee with respect to the
same proceeding, provided that (i) the Indemnitee shall have the right to
employ his counsel in any such proceeding at the Indemnitee's expense; and
(ii) if (A) the employment of counsel by the Indemnitee has been previously
authorized by the Company, (B) the Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
the Indemnitee in the conduct of any such defense, or (C) the Company shall
not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at
the expense of the Company.
8. EXCEPTIONS. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of
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defense, unless (i) such indemnification is expressly required to be made by
law, (ii) the proceeding was authorized by the Board, (iii) such
indemnification is provided by the Company, in its sole discretion, pursuant
to the powers vested in the Company under the General Corporation Law of
Delaware or (iv) the proceeding is brought to establish or enforce a right
to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 145.
(b) LACK OF GOOD FAITH. To indemnify the Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
or
(c) UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. NON-EXCLUSIVITY. The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or Bylaws, the vote of the Company's stockholders
or disinterested directors, other agreements, or otherwise, both as to action in
his official capacity and to action in another capacity while occupying his
position as an agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an agent of the Company and
shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee.
10. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. SURVIVAL OF RIGHTS.
(a) All agreements and obligations of the Company contained herein shall
continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible
claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform if no such
succession had taken place.
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13. INTERPRETATION OF AGREEMENT. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
17. GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
3Com CORPORATION
By ___________________________________
Title ________________________________
Address: _____________________________
________________________________
INDEMNITEE:
[Indemnitee's Printed Name]
Address: _____________________________
________________________________
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