SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment no. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the [X] Definitive
Proxy Statement Commission Only (as permitted by [ ] Definitive Additional
Materials Rule 14a-6(e)(2)) [ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
3Com Corporation
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date filed:
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<PAGE>
[3Com logo]
5400 Bayfront Plaza
Santa Clara, California 95052-8145
NOTICEOF ANNUAL MEETING OF STOCKHOLDERS To Be Held September
24, 1998
TO THE STOCKHOLDERS:
Please take notice that the Annual Meeting of the Stockholders of 3Com
Corporation, a Delaware corporation (the "Company"), will be held on Thursday,
September 24, 1998, at 10:30 a.m. at the Company's facility at 5400 Bayfront
Plaza, Building 5, Santa Clara, California for the following purposes:
1. To elect five (5) Class II directors to hold office for a two-year term.
2. To consider and vote upon a proposal to approve an amendment to the 1984
Employee Stock Purchase Plan to increase the share reserve thereunder by
two million (2,000,000) shares of Common Stock.
3. To consider and vote upon a proposal to approve an amendment to the
Director Stock Option Plan to increase the share reserve thereunder by one
million (1,000,000) shares of Common Stock.
4. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending May 28, 1999.
5. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on July 27, 1998 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose germane to the meeting during ordinary business
hours at the offices of the Company at 5400 Bayfront Plaza, Building 5, Santa
Clara, California 95052.
By Order of the Board of Directors,
/s/ MARK D. MICHAEL
------------------------------
MARK D. MICHAEL
Secretary
August 20, 1998
Santa Clara, California
IMPORTANT: Please (i) fill in, date, sign and promptly mail the enclosed proxy
card in the accompanying post-paid envelope or (ii) vote your shares
telephonically or via the Internet as described in the Proxy to assure that
your shares are represented at the meeting. If you attend the meeting, you may
choose to vote in person even if you have previously sent in your proxy card.
<PAGE>
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052-8145
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of 3Com
Corporation, a Delaware corporation (the "Company" or "3Com"), for use at the
Annual Meeting of Stockholders to be held on Thursday, September 24, 1998, at
10:30 a.m. local time or any adjournment thereof, for the purposes set forth in
the accompanying Notice of Annual Meeting. The meeting will be held at the
Company's principal executive offices at 5400 Bayfront Plaza, Building 5, Santa
Clara, California. The Company's telephone number is (408) 326-5000. The date of
this Proxy Statement is August 20, 1998, the approximate date on which this
Proxy Statement and the accompanying form of proxy were first sent or given to
stockholders.
GENERAL INFORMATION
Certain Financial Information. Please take note that the Company's
financial statements and related information are included with its 1998 Annual
Report to Stockholders, which is enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of business
on July 27, 1998 (the "Record Date") will be entitled to vote at the meeting and
any adjournment thereof. As of the Record Date, there were 358,558,817 shares of
Common Stock of the Company issued and outstanding. Stockholders may vote in
person or by proxy. Each holder of shares of Common Stock is entitled to one (1)
vote on the proposals presented in this Proxy Statement for each share of stock
held. There is no cumulative voting in the election of directors.
Solicitation of Proxies. The cost of soliciting proxies will be borne by
the Company. In addition to soliciting stockholders by mail and through its
regular employees, the Company will request banks and brokers, and other
custodians, nominees and fiduciaries to solicit their customers who have stock
of the Company registered in the names of such persons and will reimburse them
for their reasonable, out-of-pocket costs. The Company may use the services of
its officers, directors and others to solicit proxies, personally or by
telephone, facsimile or electronic mail, without additional compensation. The
Company has also retained Corporate Investor Communications, Inc. to assist in
obtaining proxies for the Annual Meeting from brokers, nominees of stockholders
and institutional investors. The estimated fee for such services, which is not
contingent upon the outcome of the voting, is $7,000 plus out-of-pocket
expenses.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted FOR all nominees,
FOR all other proposals described herein and as the proxy holders may determine
in their discretion with respect to any other matters that properly come before
the meeting. See "Transaction of Other Business." A stockholder giving a proxy
has the power to revoke his or her proxy, at any time prior to the time it is
voted, by delivering to the Secretary of the Company a written instrument
revoking the proxy or a duly executed proxy with a later date, or by attending
the meeting and voting in person.
Quorum. The required quorum for the transaction of business at the Annual
Meeting is a majority of the votes eligible to be cast by holders of shares of
Common Stock issued and outstanding on the Record Date. Shares that are voted
"FOR", "AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
Abstentions. While there is no definitive statutory or case law authority
in Delaware as to the proper treatment of abstentions, the Company believes
that abstentions should be counted for purposes
1
<PAGE>
of determining both (i) the presence or absence of a quorum for the transaction
of business and (ii) the total number of Votes Cast with respect to a proposal
(other than the election of directors). In the absence of controlling precedent
to the contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal.
Broker Non-Votes. Broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to the particular proposal on which the broker has expressly not
voted. Accordingly, broker non-votes will not affect the outcome of the voting
on a proposal that requires a majority of the Votes Cast (such as the approval
of a plan amendment).
<TABLE>
Stock Ownership of Certain Beneficial Owners and Management. The following
table sets forth certain information, as of the Record Date, with respect to the
beneficial ownership of the Company's Common Stock by (i) each director and
director-nominee of the Company; (ii) the Chief Executive Officer and each other
executive officer of the Company included in the Summary Compensation Table
(collectively, the "Named Officers"); and (iii) all current executive officers
and directors of the Company as a group.
<CAPTION>
Percent of
Amount and Nature of Common Stock
Name Beneficial Ownership(1) Outstanding
- ----------------------------------------------------- ------------------------- --------------
<S> <C> <C>
James L. Barksdale(2) 120,000 *
Gordon A. Campbell(3) 60,000 *
Casey G. Cowell(4)(5) 4,028,519 1.1
James E. Cowie(4)(6) 35,000 *
David W. Dorman(7) 76,000 *
Jean-Louis Gassee(8) 60,000 *
Philip C. Kantz(9) 194,004 *
Paul G. Yovovich(4)(10) 241,150 *
William F. Zuendt(11) 402,000 *
Eric A. Benhamou(12) 1,772,863 *
Ross W. Manire(13) 1,751,266 *
Christopher B. Paisley(14) 874,865 *
Alan J. Kessler(15) 128,840 *
Douglas C. Spreng(16) 702,366 *
John McCartney(17) 2,129,532 *
All current directors and executive officers as
a group (28 persons)(18) 14,644,282 4.0
<FN>
- ---------------------
* Less than 1%.
(1) To the Company's knowledge, except as indicated in the footnotes to this
table, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable.
(2) Includes 120,000 shares subject to options held by Mr. Barksdale that are
exercisable within 60 days of the Record Date.
(3) Includes 60,000 shares subject to options held by Mr. Campbell that are
exercisable within 60 days of the Record Date.
(4) Pursuant to the terms of the Amended and Restated Agreement and Plan of
Merger, as approved by the Company's Stockholders on June 11, 1997, in
which U.S. Robotics Corporation ("USR") merged with the Company, Messrs.
Cowell, Cowie and Yovovich were each appointed to the Board of Directors of
the Company.
(5) Includes 1,615,000 shares subject to options held by Mr. Cowell that are
exercisable within 60 days of the Record Date. Mr. Cowell is currently
serving as a consultant to the Company.
(6) Includes 35,000 shares subject to options held by Mr. Cowie that are
exercisable within 60 days of the Record Date.
2
<PAGE>
(7) Includes 76,000 shares subject to options held by Mr. Dorman that are
exercisable within 60 days of the Record Date.
(8) Includes 60,000 shares subject to options held by Mr. Gassee that are
exercisable within 60 days of the Record Date.
(9) Includes 184,000 shares subject to options held by Mr. Kantz that are
exercisable within 60 days of the Record Date.
(10) Includes 218,750 shares subject to options held by Mr. Yovovich that are
exercisable within 60 days of the Record Date.
(11) Includes 154,000 shares subject to options held by Mr. Zuendt that are
exercisable within 60 days of the Record Date.
(12) Includes 1,362,398 shares subject to options held by Mr. Benhamou that are
exercisable within 60 days of the Record Date.
(13) Includes 1,750,612 shares subject to options held by Mr. Manire that are
exercisable within 60 days of the Record Date.
(14) Includes 801,770 shares subject to options held by Mr. Paisley that are
exercisable within 60 days of the Record Date.
(15) Includes 128,840 shares subject to options held by Mr. Kessler that are
exercisable within 60 days of the Record Date.
(16) Includes 686,270 shares subject to options held by Mr. Spreng that are
exercisable within 60 days of the Record Date.
(17) Includes 213,297 shares that are owned by a foundation as to which Mr.
McCartney shares asset voting and disposition authority. Mr. McCartney does
not have a pecuniary interest in the shares held by the foundation. Also
includes 837,500 shares subject to options held by Mr. McCartney that are
exercisable within 60 days of the Record Date. Mr. McCartney resigned as an
employee of the Company on March 22, 1998 and is currently serving as a
consultant to the Company.
(18) Includes 9,981,541 shares subject to options held by 18 non-director
executive officers and 10 directors that are exercisable within 60 days of
the Record Date.
</FN>
</TABLE>
As of the Record Date, there were no persons known to the Company to be the
beneficial owners of more than 5% of the outstanding Common Stock of the
Company.
ELECTION OF DIRECTORS
The number of directors authorized by the Company's Bylaws is to be fixed
by the Board. The exact number is currently fixed at 10. The Company's Bylaws
provide that the directors shall be divided into two classes, with the classes
of directors serving for staggered two-year terms. Class II currently has five
members. A stockholder may not cast votes for more than five nominees. The five
Class II directors to be elected at the 1998 Annual Meeting are to be elected to
hold office until the year 2000 Annual Meeting and until their successors have
been elected and qualified.
The Company's nominees for election at the Annual Meeting of Stockholders
to Class II of the Board of Directors are Messrs. Barksdale, Benhamou, Campbell,
Cowie and Kantz. If a nominee declines to serve or becomes unavailable for any
reason (although the Board of Directors knows of no reason to anticipate that
this will occur), the proxies may be voted for such substitute nominee as the
Board of Directors may designate.
Vote Required
If a quorum is present and voting at the Annual Meeting, the five nominees
for Class II directors receiving the highest number of affirmative votes will be
elected as Class II directors. Votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum, but have no other
legal effect under Delaware law.
3
<PAGE>
Nominees and Other Directors
<TABLE>
The following table sets forth the name and age of each nominee and each
director of the Company whose term of office continues after the Annual Meeting,
the principal occupation of each during the past five years and the period
during which each has served as a director of the Company. Each nominee is
currently serving as a director of the Company.
Nominees for Election as Class II Directors for a Term Expiring in 2000
<CAPTION>
Principal Occupation Director
Name During Past Five Years Age Since
- -------------------- ------------------------------------------------------------------ ----- ----------
<S> <C> <C> <C>
James L. Barksdale Mr. Barksdale has been the President, Chief Executive Officer 55 1987
and a director of Netscape Communications Corporation, an
Internet browser company, since January 1995. Previously, Mr.
Barksdale had been President and Chief Executive Officer of
AT&T Wireless Services since September 1994. From 1992 to
September 1994, Mr. Barksdale had been employed as the
President and Chief Operating Officer of McCaw Cellular Com-
munications, Inc., and from 1979 to 1992 by Federal Express
Corporation. Mr. Barksdale also serves as a director of @Home
Corporation and Robert Mondavi Corporation.
Eric A. Benhamou Mr. Benhamou has been the Company's Chief Executive Of- 42 1990
ficer since September 1990 and also served as the Company's
President from April 1990 through August 1998. Mr. Benhamou
became Chairman of the Board of Directors of the Company in
July 1994. Mr. Benhamou served as the Company's Chief Op-
erating Officer from April 1990 through September 1990. From
October 1987 through April 1990, Mr. Benhamou held various
general management positions within the Company. Mr.
Benhamou also serves as Chairman of the Board of Cypress
Semiconductor, Inc., and as a director of Legato Systems, Inc.
and Netscape Communications Corporation. Mr. Benhamou is
a member of President Clinton's I.T. Advisory Council.
Gordon A. Campbell Mr. Campbell is the founder and, since 1993, has been President 54 1990
and Chairman of the Board of Techfarm, Inc., a company
formed to launch technology-based start-up companies. Mr.
Campbell was the founder of Chips and Technologies, Inc., a
company that designs and distributes very large scale integrated
circuit products, and served as its President and Chief Executive
Officer from December 1984 until November 1993, and as its
Chairman of the Board from December 1984 until November
1995. Mr. Campbell also serves as a director of Bell
Microproducts, Inc., and as Chairman of the Board of 3D/Fx
Interactive Inc.
James E. Cowie Mr. Cowie served as a director of U.S. Robotics Corporation 43 1997
("USR") from March 1994 until the Company's combination
with USR in June 1997, at which time he became a director of
the Company. Mr. Cowie has been a General Partner of
Frontenac Company, a private equity investment firm, since
1989. He is also a director of PLATINUM technology, inc. and
U.S. Servis, Inc.
</TABLE>
4
<PAGE>
<TABLE>
Nominees for Election as Class II Directors for a Term Expiring in 2000 (cont'd)
<CAPTION>
Principal Occupation Director
Name During Past Five Years Age Since
- ------------------- ------------------------------------------------------------------- ----- ----------
<S> <C> <C> <C>
Philip C. Kantz Mr. Kantz has been President, Chief Executive Officer and a 54 1992
director of TAB Products Co., a provider of automated file
management systems, since January 1997. He 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. Mr. Kantz also
serves as a director of Franklin Ophthalmic Instruments Co.,
Inc.
Incumbent Class I Directors Serving for a Term Expiring in 1999
Casey G. Cowell Mr. Cowell has been a private investor since June 1997. Mr. 45 1997
Cowell founded U.S. Robotics Corporation in 1976 and has
served as Vice Chairman of the Company from June 1997 to
November 1997. From 1978 until the Company's combination
with USR in June 1997, Mr. Cowell served as Chairman of the
Board, Chief Executive Officer and a director of USR. He also
served as President of USR from 1978 until January 1997. Mr.
Cowell also serves as a director of May & Speh, Inc. and System
Software Associates.
David W. Dorman Mr. Dorman has served as Chief Executive Officer and Presi- 44 1995
dent of PointCast, Inc., an Internet news service, since Novem-
ber 1997, and as Chairman of PointCast, Inc. since February
1998. Mr. Dorman served as Executive Vice President of SBC
Communications, Inc. ("SBC"), a diversified telecommunica-
tions company, from August 1997 to November 1997, after
which SBC merged with Pacific Bell Corporation. Mr. Dorman
had been President and Chief Executive Officer of Pacific Bell
Corporation from July 1994 to August 1997, and Chairman of
that company from March 1996 to August 1997. Prior to that,
Mr. Dorman was associated with Sprint Corporation for 13
years, during which time he held several management positions,
most recently as President of Sprint Business Services from 1993
to 1994. Mr. Dorman is also a director of Scientific Atlanta, Inc.
Jean-Louis Gassee Mr. Gassee is the Chairman of the Board and Chief Executive 54 1993
Officer of Be Incorporated, a personal computing technology
company which he founded in October 1990. Mr. Gassee is also
a director of Electronics For Imaging, Inc., Logitech Inc. and
VirtualFund.com, Inc.
</TABLE>
5
<PAGE>
<TABLE>
Incumbent Class I Directors Serving for a Term Expiring in 1999 (cont'd)
<CAPTION>
Principal Occupation Director
Name During Past Five Years Age Since
- ------------------- -------------------------------------------------------------- ----- ----------
<S> <C> <C> <C>
Paul G. Yovovich Mr. Yovovich is a private investor. Mr. Yovovich had been a 44 1997
director of USR from 1991 until USR's combination with the
Company in June 1997. Mr. Yovovich served as President of
Advance Ross Corporation, an international financial services
company, from 1993 to 1996. Mr. Yovovich also serves as a
director of Comarco, Inc., May & Speh, Inc. and APAC
TeleServices, Inc.
William F. Zuendt Mr. Zuendt retired from his position as President and Chief 51 1988
Operating Officer of Wells Fargo & Company and Wells Fargo
Bank in July 1997. Mr. Zuendt joined Wells Fargo in 1973. Mr.
Zuendt is also a director of Advent Software, Inc.
</TABLE>
Board and Committee Meetings
During the fiscal year ending May 31, 1998 (the "Last Fiscal Year"), the
Board held seven meetings. The Board has an Audit Committee and a Compensation
Committee. The Board does not have a nominating committee or a committee
performing the functions of a nominating committee.
During the Last Fiscal Year, the Company's Audit Committee met eleven
times. Its current members are James E. Cowie, David W. Dorman and William F.
Zuendt. The Audit Committee makes recommendations to the Board regarding
engagement of the Company's independent public accountants, approves services
rendered by such accountants, reviews the activities and recommendations of the
Company's internal audit department, and reviews and evaluates the Company's
accounting systems, financial controls and financial personnel.
During the Last Fiscal Year, the Compensation Committee met seven times.
Its current members are Philip C. Kantz and Paul G. Yovovich. Eric A. Benhamou,
Chief Executive Officer and Chairman of the Board of the Company, often attends
meetings of the Compensation Committee, but is not a member of the Committee and
is not entitled to vote. The Compensation Committee reviews salaries and other
compensation arrangements for officers and other key employees of the Company,
reviews the administration of the Company's stock option and stock purchase
plans, and advises the Board on general aspects of the Company's compensation
and benefit policies. For additional information concerning the Compensation
Committee, see "EXECUTIVE COMPENSATION AND OTHER MATTERS -- Compensation
Committee Interlocks and Insider Participation" and "REPORT OF THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION."
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
<TABLE>
Executive Compensation
The following table sets forth information concerning the compensation of
(i) the Chief Executive Officer of the Company, (ii) the four other most highly
compensated executive officers of the Company (based on salary plus bonus for
the Last Fiscal Year) who were serving as such at the end of the Last Fiscal
Year, and (iii) a former executive officer:
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- -------------
Other Securities All
Annual Underlying Other
Name and Fiscal Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($)(1) ($)(2) (#)(3) ($)(4)
- --------------------------------- -------- ---------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou 1998 $742,500 $ 75,008 -- 117,000 --
Chairman, President and 1997 645,789 42,381 -- 150,000 --
Chief Executive Officer(5) 1996 589,583 34,684 -- 320,000 --
Ross W. Manire(6) 1998 380,207 150,000 3,250 70,200 1,462
Senior Vice President, 1997 -- -- -- -- --
Carrier Systems 1996 -- -- -- -- --
Christopher B. Paisley 1998 392,500 27,268 -- 70,000 --
Senior Vice President, Finance 1997 307,916 22,801 -- 67,500 --
and Chief Financial Officer 1996 283,333 28,017 -- 144,000 --
Alan J. Kessler 1998 395,833 29,673 -- 52,000 --
Senior Vice President, 1997 330,476 21,158 -- 72,000 --
Global Customer Service 1996 248,168 16,189 -- 116,000 --
Douglas C. Spreng 1998 399,166 32,076 -- 70,200 --
Senior Vice President, 1997 377,831 25,178 -- 90,000 --
Client Access 1996 356,250 20,849 -- 192,000 --
John McCartney(7) 1998 505,275 225,000 96,193 87,500 6,289,170
Former President, 1997 -- -- -- -- --
Client Access 1996 -- -- -- -- --
<FN>
- ---------------------
(1) With the exception of amounts for Mr. Manire and Mr. McCartney, amount shown
includes payments made under the Company-wide profit-sharing plan known as
3Bonus or 3Share. Under that plan, the Company expensed approximately three
and one-half percent (3.5%), three percent (3%) and three percent (3%) of
its income before taxes in fiscal years 1998, 1997 and 1996, respectively,
after adjustments for certain unusual or non-recurring income or expense
items. These amounts were subsequently distributed at six-month intervals to
all employees worldwide (other than those who are paid commissions),
including executive officers, with the individual payments determined pro
rata based on salary level. Bonus payments for Mr. Manire and Mr. McCartney
were made pursuant to employment agreements.
(2) Amounts include pay out of personal time off ("PTO") and auto allowance. (3)
Amounts shown reflect the 2-for-1 stock split (payable in the form of a
100% stock dividend) effected in August 1995.
(4) Represents executive long term disability insurance premiums and, in the
case of Mr. McCartney, a severance payment in the amount of $6,286,124.
(5) In August 1998, Mr. Benhamou ceased serving as President of the Company, but
still serves as Chairman of the Board and Chief Executive Officer. Effective
August 10, 1998, Bruce Claflin began serving as President of the Company.
(6) Mr. Manire joined the Company as an executive officer in June 1997. (7) Mr.
McCartney joined the Company as an executive officer in June 1997 and
resigned as an employee of the Company on March 22, 1998. Mr. McCartney is
currently a consultant to the Company. Mr. McCartney's "Other Annual
Compensation" includes $86,293 as pay out for PTO.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the Last Fiscal Year to the
Named Officers:
OPTION GRANTS IN FISCAL YEAR 1998
<CAPTION>
Individual Grants
-----------------------------------------------------------
% of Total
Options Potential Realizable Value at
Number of Granted to Assumed Annual Rates of
Securities Employees Stock Price Appreciation for
Underlying in Fiscal Exercise Option Term(4)
Options Year Price Per Expiration ----------------------------------
Name Granted(#)(1) 1998(2) Share ($/sh)(3) Date 5% ($) 10% ($)
- ------------------------ --------------- ------------ ----------------- ------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou 117,000 * $56.625 7/24/07 $ 4,166,506 $ 10,558,743
Ross W. Manire 70,200 * $56.625 7/24/07 2,499,903 6,335,246
Christopher B. Paisley 70,000 * $56.625 7/24/07 2,492,781 6,317,197
Alan J. Kessler 52,000 * $56.625 7/24/07 1,851,780 4,692,775
Douglas C. Spreng 70,200 * $56.625 7/24/07 2,499,903 6,335,246
John McCartney(5) 87,500 * $56.625 3/22/98 3,115,976 7,896,496
All Stockholders(6) 36,701,706 N/A N/A N/A 5,719,900,146 14,495,350,004
<FN>
- ---------------------
* Less than 1%
(1) All of the above options are subject to the terms of the Company's 1983
Stock Option Plan (the "1983 Option Plan") and are exercisable only as they
vest. The options granted to each executive officer vest and become
exercisable in equal annual increments over a four (4) year period provided
the optionee continues to be employed by the Company.
(2) Aggregate option grants include options to purchase 20,850,071 shares, which
options were repriced by the Board of Directors in January 1998.
(3) All options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant.
(4) Potential realizable values are net of exercise price, but before deduction
of taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only, based on the Securities and Exchange Commission
rules, and do not represent the Company's estimate of future stock prices.
No gain to an optionee is possible without an increase in stock price, which
will benefit all stockholders commensurately. A zero percent gain in stock
price will result in zero dollars for the optionee. Actual realizable
values, if any, on stock option exercises are dependent on the future
performance of the Common Stock, overall market conditions and the option
holders' continued employment through the vesting period.
(5) Mr. McCartney's stock option grant was cancelled March 22, 1998, concurrent
with his resignation as no shares had vested as of the date of resignation.
(6) Represents potential appreciation in aggregate stockholder value at the
assumed annual rates of stock price appreciation over a ten-year period
beginning May 31, 1998 (fiscal year end) based on the number of shares then
outstanding, and using as a base value the $25.375 per share closing price
of 3Com Common Stock at fiscal year end.
</FN>
</TABLE>
8
<PAGE>
The following table provides the specified information concerning option
exercises during the Last Fiscal Year and the exercisable and unexercisable
options held as of May 31, 1998, by the Named Officers:
<TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL
YEAR 1998 AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Aquired Options at 5/31/98 (#) Options at 5/31/98(1) ($)
on Value ------------------------------- -------------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ -------------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou 140,000 6,495,649 1,142,848 462,300 17,534,559 885,539
Ross W. Manire 520,000 23,002,885 1,733,062 70,200 23,579,738 0
Christopher B. Paisley 40,000 2,027,718 704,995 229,025 12,077,219 442,770
Alan J. Kessler 71,840 3,005,195 47,000 185,840 0 265,662
Douglas C. Spreng 0 0 554,540 277,380 7,580,364 531,324
John McCartney 1,888,881 71,337,331 837,500 0 2,221,189 0
<FN>
- ---------------------
(1) Based on a fair market value of $25.375 per share as of May 31, 1998, the
closing sale price of the Company's Common Stock on that date as reported by
the NASDAQ National Market System.
</FN>
</TABLE>
Employment, Severance and Change-of-Control Arrangements
The Company became a party to an employment agreement with Ross W. Manire,
an employee of U.S. Robotics Corporation ("USR"), upon the merger of the Company
with USR. The employment agreement dated January 1, 1997, as amended, provides
for a two-year employment period and contains provisions for automatic renewals
for successive one-year terms following the initial term, absent notice of
non-renewal by either the Company or Mr. Manire. The employment agreement
originally provided for a minimum annual base salary of $375,000 and a bonus
based on the Company's results. In the event of termination of Mr. Manire's
employment prior to June 11, 1999, the employment agreement provides for
severance compensation in an amount equal to the sum of Mr. Manire's current
salary and an amount equal to the average annual cash bonus received by Mr.
Manire with respect to the previous three fiscal years of U.S. Robotics
Corporation (the "Change of Control Severance"). After June 11, 1999, Mr. Manire
will be entitled to receive the Change of Control Severance in the event of
termination of his employment for any reason within one hundred eighty (180)
days after a "Change of Control" as defined in his employment agreement. Mr.
Manire's employment agreement also provides that he may serve as an independent
consultant of the Company, which consulting relationship would extend the period
during which certain of Mr. Manire's options would remain exercisable but would
not extend vesting of such options. Mr. Manire's severance compensation is
limited to an amount that is less than the maximum amount that Mr. Manire could
receive without it being deemed an "excess parachute payment" under Section 280G
of the Internal Revenue Code.
In the Last Fiscal Year, the Company made severance payments pursuant to
employment agreements to the following former employees of USR: John McCartney,
Casey G. Cowell, Jonathan N. Zakin, Michael S. Seedman, Mark Remissong,
Elizabeth S. Ryan, Henry W. Jones III and Eugene L. Ferretti.
Options granted under the 1994 Option Plan contain provisions pursuant to
which outstanding options must either become fully vested and immediately
exercisable prior to a "transfer of control" transaction or must be assumed in
the transaction, and all unexercised options terminate to the extent they are
not assumed upon such "transfer of control" as defined under the 1994 Option
Plan. For purposes of the 1994 Option Plan, a transfer of control is a change in
ownership in which the stockholders of the Company before such ownership change
do not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after the ownership change.
Options granted under the 3Com Corporation Director Stock Option Plan (the
"Director Plan") contain provisions pursuant to which all outstanding options
granted under the Director Plan will become fully vested and immediately
exercisable upon a merger or acquisition of the Company where the Company is not
the survivor or upon the sale of substantially all of the assets of the Company.
9
<PAGE>
Compensation of Directors
Members of the Board who are not employees of the Company received an
annual retainer during the Last Fiscal Year as follows: lead director: $30,000;
committee members: $25,000 each; other directors: $20,000 each; plus
reimbursement of travel expenses for travel by members of the Board who reside
outside of the local area.
Outside directors receive options to purchase Common Stock pursuant to the
Director Plan. The Director Plan provides for the initial automatic grant of an
option to purchase 30,000 shares of the Company's Common Stock to each director
of the Company who is not an employee of the Company ("Outside Director"), or
45,000 shares to the "lead" director. In addition, each Outside Director is
automatically granted an option to purchase 5,000 shares of the Company's
Common Stock upon becoming a member of the Audit or Compensation Committee. The
actual number of shares to be subject to the options granted for Board and
committee service is established by the administrator of the Plan. For the Last
Fiscal Year, the options granted to Outside Directors for service on the Board
of Directors were set at 30,000 shares, or 35,000 shares including service on
Board committees. All options have a five-year term, are immediately
exercisable (subject to the Company's right to repurchase any unvested shares)
and vest over two years as long as the option holder continues to serve on the
Board or the Committee. An additional option to purchase the number of shares
of the Company's Common Stock then established by the Committee is
automatically granted to each Outside Director following the vesting in full of
the option previously received. During the Last Fiscal Year, options were
granted under the Director Plan for the following number of shares and at the
exercise prices shown: Mr. Barksdale: 30,000 shares at a per share exercise
price of $51.25; Mr. Cowell: 45,000 shares at a per share exercise price of
$40.94; Mr. Cowie: 35,000 shares at a per share exercise price of $46.97; Mr.
Dorman: 22,500 shares at a per share exercise price of $55.44; Mr. Gassee:
30,000 shares at a per share exercise price of $51.75; Mr. Kantz: 35,000 shares
at a per share exercise price of $32.75 and 35,000 shares at a per share
exercise price of $37.25; Mr. Yovovich: 35,000 shares at a per share exercise
price of $46.97; Mr. Zuendt: 45,000 shares at a per share exercise price of
$35.13. See "Proposal to Approve an Increase in the Shares Reserved Under the
Director Stock Option Plan."
Casey G. Cowell also received the following compensation in connection with
his service as Vice Chairman of the Company: annual salary of $412,885; auto
expense of $6,875; executive long-term disability insurance premium of $2,078;
paid-out personal time off of $6,093; bonus of $844,615; and a severance payment
of $9,169,965. Mr. Cowell resigned as an employee of the Company in November
1997 and is currently serving as a consultant to the Company. Mr. Cowell's
employment agreement also provides for reimbursement of office expenses up to a
maximum of $50,000 per year until the third anniversary of his resignation. Mr.
Cowell is also the beneficiary of a Split Dollar Life Insurance Plan, the annual
premium of which is paid by a trust that was fully funded by USR. For the Last
Fiscal Year, the annual premium was $240,250. The Company owns the trust and is
granted a security interest in any payout on the plan for all premiums paid by
the trust. Currently, 18 years remain on the 20-year plan.
Compensation Committee Interlocks and Insider Participation
During the Last Fiscal Year, Messrs. Campbell (until June 12, 1997), Kantz
and Yovovich (since June 12, 1997) served as members of the Compensation
Committee of the Company's Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers, directors and persons who
beneficially own more than 10% of the Company's Common Stock to file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by such
persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% Stockholders were complied with during the Last
Fiscal Year with the following exceptions: one report on Form 3 was filed late
for Edgar Masri, an executive officer of the Company.
10
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Summary of Compensation Policies for Executive Officers
The goals of the Company's compensation program are to: (i) enable the
Company to attract, retain and motivate highly-qualified employees and executive
officers who contribute to the long-term success of the Company; (ii) align
compensation with business objectives and performance; and (iii) align
incentives for executive officers with the interests of stockholders in
maximizing stockholder value. The Company emphasizes performance-based
compensation that is competitive with the marketplace, and the importance of
clearly communicating performance objectives. The Company annually reviews its
compensation practices by comparing them to surveys of relevant competitors and
sets objective compensation parameters based on this review. Compensation
policies also reflect the competition for executive talent and the unique
challenges and opportunities facing the Company in the global data networking
market.
The Company's compensation program for all employees includes both cash-
and equity-based elements. Because it is directly linked to the interests of our
stockholders, equity-based compensation is emphasized in the design of the
Company's compensation programs. Consistent with competitive practices, the
Company also utilizes a cash bonus plan based on achievement of financial
performance objectives although, as more fully discussed below, executives will
not participate in such cash bonus plan during fiscal year 1999 because the
executive bonus plan will be entirely equity-based.
In the Last Fiscal Year, the Company failed to meet its annual performance
objectives and its quarterly targets in all but the first quarter of the fiscal
year. Thus, cash bonuses were not earned by employees, including executives,
during the final three quarters of the year. Likewise, no executive bonus option
grants were awarded for the Last Fiscal Year. However, in January 1998, the
Company repriced certain stock options held by non-executive employees, subject
to restriction on exercising repriced options during the ensuing nine months. At
the time of this action, voluntary turnover had increased substantially above
the historical average, exacerbated by the fact that the majority of
non-executive employee options had exercise prices well above the then current
market price. The Company had not repriced any stock options in the preceding
5-year period and deemed it necessary and in the best interest of the Company's
stockholders to take such extraordinary action in the Last Fiscal Year in order
to retain and motivate key employees, engineers, sales people, Global
Information Systems specialists and management. No options held by senior
executives or directors were repriced.
Cash Compensation
Salary. The Company sets a base salary range for each executive officer,
including the Chief Executive Officer, by reviewing the base salary for
comparable positions of a broad peer group, including companies similar in size
and business which compete with the Company in the recruitment and retention of
senior personnel. Base pay is targeted at the midpoint of market on the basis of
external salary data from independent surveys. Individual salaries for each
executive officer are set relative to this target based on sustained individual
performance and contribution to the Company's results. Although total
compensation, including equity-based compensation, is targeted at the market
average for comparable positions, for fiscal year 1999, the Company has adopted
a risk-based compensation structure for executives in which the cash bonus
opportunity was eliminated and performance-based target stock option levels were
increased correspondingly. This structure is discussed in further detail below.
Cash Bonus. Non-executive employees of the Company are eligible to
participate in the Company's cash bonus plan, known as 3Bonus. This plan
provides cash awards for meeting quarterly revenue and earnings per share goals,
based on a matrix in which 100% of target may be achieved only if the Company's
results are consistent with its targeted long-term financial model. Targets for
quarterly cash bonus awards range from five to thirty-five percent of employees'
eligible base salary for such period. Awards may range from zero to 150% of
target and can be earned quarterly, based on achievement of stated performance
objectives. The Company will not provide any cash bonus program for executives
in fiscal year 1999.
11
<PAGE>
Equity-Based Compensation
To enhance retention, options granted to executive officers are subject to
vesting restrictions that lapse in annual increments. Performance options
granted by the Company after the end of a fiscal period at the then-current fair
market value become valuable and exercisable only if the executive officer
continues to serve the Company and the price of the Company's stock subsequently
increases. Initial or "new-hire" options are granted to executive officers when
they first join the Company. Thereafter, options may be granted to each
executive officer as an equity bonus if specified performance goals are achieved
("performance options"). The relevant performance goals and range of potential
option grants are established by the Board of Directors and communicated at the
beginning of each fiscal year. The amount of actual options granted depends upon
the percentage of the Company's and the officer's performance objectives that
are achieved. Performance options focus the efforts of executive officers on
achieving the critical Company operational targets for revenue performance and
earnings per share that will enhance the Company's credibility in the
marketplace.
In order to minimize its vulnerability to losing key executives during
fiscal year 1999, the Company will change the timing of performance option
grants. Half of the equity for this bonus program will be awarded at the
beginning of the first quarter, based on an objective assessment of past
individual performance. The remainder of the target bonus in the form of
performance grants may be earned and will be awarded on the basis of achieving
revenue and earnings per share targets for each quarter during fiscal year 1999.
In designing executive compensation for fiscal year 1999, the Company
retained an outside consultant to perform a comprehensive assessment of
compensation for its Chief Executive Officer and to other executive officers.
The services rendered by the consultant to the Compensation Committee included
surveying competitors' practices, assessing the mix of pay relative to
competitive practices, evaluating the linkage between pay and performance, and
recommending compensation strategies.
The Committee has considered the potential impact of Section 162(m) (the
"Section") of the Internal Revenue Code adopted under the Federal Revenue
Reconciliation Act of 1993. The Section disallows a tax deduction for any
publicly-held corporation for individual compensation exceeding $1 million in
any taxable year for any of the named executive officers, other than
compensation that is performance-based. Since the targeted cash compensation of
the majority of the named executive officers is below the $1 million threshold
and the Company believes that any options granted under the 1983 Option Plan
will meet the requirement of being performance-based under the transition
provisions provided in the regulations under the Section, the Committee
concluded that the Section should not materially reduce the tax deductions
available to the Company and that no changes to the Company's compensation
program were needed in this regard.
CEO Compensation
The Chief Executive Officer's salary and performance stock option grants
follow the policies set forth above. Mr. Benhamou's base annual salary for
fiscal year 1998 of $742,500 reflects his position, duties and responsibilities.
The CEO's salary increase in fiscal year 1998 was based on the Compensation
Committee's evaluation of his performance and the Company's performance. In
addition, Mr. Benhamou received a cash bonus of $75,008 during fiscal year 1998
pursuant to the bonus plan in effect for all employees. The Company did not meet
its objectives set forth in the fiscal year 1998 plan, and Mr. Benhamou did not
receive a performance option grant for such period.
THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Philip C. Kantz
Paul G. Yovovich
12
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the cumulative total return on
the Company's Common Stock with the cumulative total return of the Standard &
Poor's 500 Stock Index and the Standard & Poor's Technology Sector Index(1) for
the period commencing on May 31, 1993 and ending on May 31, 1998.
Comparison of Cumulative Total Return from May 31, 1993 to May 31, 1998(2)
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG 3Com CORPORATION, THE S&P 500 INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
DATA POINTS FOR PERFORMANCE GRAPH
May 31,
---------------------------------------------------
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
3Com $100 $174 $474 $730 $719 $376
S&P 500 100 104 125 161 208 272
S&P Technology Sector 100 112 162 214 311 388
- ---------------------
(1) The S&P Technology Sector Index was previously called the S&P High Tech
Composite Index.
(2) Assumes that $100.00 was invested on May 31, 1993 in the Company's Common
Stock and each index, and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Stock. On August 16,
1994, the Company effected a 2-for-1 stock split (payable in the form of a
100% stock dividend) on each outstanding share. On August 4, 1995, the
Company effected a further 2-for-1 stock split (payable in the form of a
100% stock dividend) on each outstanding share. The Company's cumulative
total return for the fiscal years prior to the stock split have been
adjusted to take into account the stock splits. Stockholder returns over the
indicated period should not be considered indicative of future stockholder
returns.
13
<PAGE>
PROPOSAL TO APPROVE AN INCREASE IN THE SHARE RESERVE UNDER THE
1984 EMPLOYEE STOCK PURCHASE PLAN
As a result of a recent change in the financial accounting rules regarding
employee stock purchase plans, the Board of Directors has determined that it is
in the best interests of the Company and its stockholders to increase the shares
reserved under the 1984 Employee Stock Purchase Plan ("Purchase Plan"). On July
22, 1998, the Board of Directors approved (subject to stockholder approval) the
amendment to the Purchase Plan and reserved two million (2,000,000) shares of
Common Stock for issuance thereunder for a total of 22,000,000 shares.
At the Annual Meeting, the stockholders are being asked to approve the
amendment to the Purchase Plan. No options have been granted pursuant to the
Purchase Plan to purchase the shares added to the Purchase Plan by this
amendment.
Vote Required
The affirmative vote of a majority of the Votes Cast is required for
approval of this proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" APPROVAL OF THE AMENDMENT TO THE 1984 EMPLOYEE STOCK PURCHASE PLAN.
Summary of Provisions of the Purchase Plan
The summary of the Purchase Plan included in this Proxy Statement is
qualified in its entirety by the specific language of the Purchase Plan, as
amended. Copies of the Purchase Plan are available to any stockholder upon
request addressed to Mark D. Michael, Senior Vice President, General Counsel and
Secretary, 3Com Corporation, 5400 Bayfront Plaza, Santa Clara, CA 95052-8145.
Administration and Share Reserve. The Purchase Plan is administered by the
Board of Directors or a committee of the Board. Since its inception, a total of
20,000,000 shares of the Company's Common Stock (without giving effect to the
proposed amendment) have been reserved for issuance under the Purchase Plan and
15,985,152 shares have been issued under the plan as of the Record Date. This
proposal seeks stockholder approval to increase the number of shares reserved
for issuance under the Purchase Plan by two million (2,000,000) shares.
Eligibility. Any employee of the Company or any present or future
subsidiary corporation of the Company (including any officer or director who is
also an employee) is eligible to participate in the Purchase Plan as long as the
employee is customarily employed for at least 20 hours per week. No person who
owns or holds options to purchase, or who as a result of participation in the
Purchase Plan would own or hold options to purchase, 5% or more of the Company's
Common Stock is entitled to participate in the Purchase Plan. As of May 31,
1998, approximately 6,500 employees were participating in the Purchase Plan out
of the approximately 13,000 employees eligible to participate in the Purchase
Plan.
Participation In An Offering. Offerings under the Purchase Plan
("Offering(s)") are six months long and commence on the first day of October and
the first day of April of each year. Participation in the Purchase Plan is
limited to eligible employees who authorize payroll deductions pursuant to the
Purchase Plan. At present, such payroll deductions may not exceed 10% of base
pay. Once an employee becomes a participant in the Purchase Plan, the employee
will automatically participate in each successive Offering until such time as
the employee withdraws from the Purchase Plan or the employee's employment
terminates.
Purchase Price. The purchase price per share at which the shares of the
Company's Common Stock are sold under the Purchase Plan generally will be equal
to 85% of the lesser of the fair market value of the Common Stock on (a) the
first day of the applicable six-month offering period or (b) the last day of the
six-month offering period.
Shares Purchased. The number of shares of the Company's Common Stock a
participant purchases in each Offering is determined by dividing the total
amount of payroll deductions withheld from the participant's compensation by the
purchase price per share. Participants may not purchase shares of the Company's
Common Stock having a fair market value exceeding $25,000 in any calendar year.
For this
14
<PAGE>
purpose, the fair market value of the Company's Common Stock purchased in a
given Offering is determined as of the first day of that Offering. Furthermore,
a participant may not purchase more than 1,000 shares in a single Offering,
although this limit may be adjusted by the Board of Directors from time to time
to reflect fluctuations in the fair market value of the Company's Common Stock
to the extent permitted by law. Any cash not applied to the purchase of shares
is returned to the participant (except for cash insufficient to purchase a
single share of the Company's Common Stock) at the end of the Offering.
Withdrawal. A participant may withdraw from an Offering at any time
without affecting his or her eligibility to participate in future Offerings.
Adjustment Upon Change in Capitalization. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other change in the capital structure
of the Company, or in the event of any merger, sale or reorganization,
appropriate adjustments shall be made in the number and shares of stock subject
to the Purchase Plan, the number of shares of stock subject to options
outstanding under the Purchase Plan, and the exercise price of any such
outstanding options.
Amendment or Termination. The Board of Directors may at any time amend or
terminate the Purchase Plan, except that approval of the Company's stockholders
within 12 months of the adoption of such amendment is required to increase the
number of shares authorized for issuance under the Purchase Plan or to change
the designation of corporations whose employees may purchase shares of the
Company's Common Stock under the Purchase Plan. The Purchase Plan will terminate
when all of the shares reserved for issuance under the Purchase Plan have been
issued or when earlier terminated by the Board of Directors.
Federal Income Tax Information for Purchase Plan
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code (the "Code"). Under these provisions, no income
will be taxable to a participant until the shares purchased under the Purchase
Plan are sold or otherwise disposed of. Upon sale or other disposition of the
shares, the participant will generally be subject to tax and the amount of the
tax will depend upon the holding period. If the shares are sold or otherwise
disposed of more than two (2) years from the first day of the Offering Period,
then the participant will recognize ordinary income measured as the lesser of
(i) the excess of the fair market value of the shares at the time of such sale
or disposition over the purchase price or (ii) an amount equal to 15% of the
fair market value of the shares as of the first day of the Offering Period. Any
additional gain will be treated as long-term capital gain. If the shares are
sold or otherwise disposed of before the expiration of this holding period, the
participant will recognize ordinary income generally measured as the excess of
the fair market value of the shares on the date the shares are purchased over
the purchase price. Any additional gain or loss on such sale or disposition will
be long-term or short-term capital gain or loss, depending on the holding
period. Net capital gains on shares held between 12 and 18 months may be taxed
at a maximum federal rate of 28%, while net capital gains on shares held for
more than 18 months may be taxed at a maximum federal rate of 20%. Capital
losses are allowed in full against capital gains and up to $3,000 against other
income. Unless limited by Section 162(m) of the Code, the Company is entitled to
a deduction to the extent ordinary income is recognized by participants upon a
sale or disposition of shares prior to the expiration of the holding period(s)
described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
15
<PAGE>
Participation in the Purchase Plan
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Non-employee directors are not eligible to
participate in the Purchase Plan. No purchases have been made under the Purchase
Plan since its amendment by the Board. However, purchases were made under the
Purchase Plan prior to such amendment. The following table sets forth certain
information regarding shares purchased under the Purchase Plan during the Last
Fiscal Year and the payroll deductions accumulated at the end of the Last Fiscal
Year in accounts under the Purchase Plan for each of the Named Officers, for all
current executive officers as a group and for all other employees who
participated in the Purchase Plan as a group:
<TABLE>
AMENDED PLAN BENEFITS
1984 Employee Stock Purchase Plan
<CAPTION>
Payroll
Name of Individual Number of Deductions
or Identity of Group and Shares Dollar Value as of Fiscal
Position Purchased (#) ($)(1) Year End ($)
- ------------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
Eric A. Benhamou, Chairman, President
and Chief Executive Officer(2) 496 2,674 0
Ross W. Manire, Senior Vice President 647 3,488 6,358
Christopher B. Paisley,
Senior Vice President 495 2,668 0
Alan J. Kessler, Senior Vice President 0 0 0
Douglas C. Spreng, Senior Vice President 199 1,515 5,333
John McCartney, Former President,
Client Access 0 0 0
All current executive officers as a group 9,317 100,455 39,143
All other employees as a group 1,258,504 16,881,275 5,990,299
<FN>
- ---------------------
(1) Market value of shares on date of purchase, minus the purchase price under
the Purchase Plan.
(2) In August 1998, Mr. Benhamou ceased serving as President of the Company, but
still serves as Chairman of the Board and Chief Executive Officer. Effective
August 10, 1998, Bruce Claflin began serving as President and Chief
Operating Officer of the Company.
</FN>
</TABLE>
PROPOSAL TO APPROVE AN INCREASE IN THE SHARES RESERVED UNDER THE
DIRECTOR STOCK OPTION PLAN
The Board of Directors has determined that it is in the best interests of
the Company and its stockholders to increase the shares reserved under the
Director Stock Option Plan ("Director Plan"). On July 22, 1998, the Board of
Directors approved (subject to stockholder approval) the amendment to the
Director Plan and reserved an additional one million (1,000,000) shares of
Common Stock for issuance thereunder, for a total of 3,000,000 shares.
At the Annual Meeting, the stockholders are being asked to approve the
amendment to the Director Plan. No options have been granted pursuant to the
Director Plan to purchase the shares added to the Director Plan by the
amendment.
Vote Required
The affirmative vote of a majority of the Votes Cast is required for
approval of this proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" APPROVAL OF THE AMENDMENT TO THE DIRECTOR STOCK OPTION PLAN.
16
<PAGE>
Summary of Provisions of the Director Plan
The summary of the Director Plan included in this Proxy Statement is
qualified in its entirety by the specific language of the Director Plan, as
amended. Copies of the Director Plan are available to any stockholder upon
request addressed to Mark D. Michael, Senior Vice President, General Counsel and
Secretary, 3Com Corporation, 5400 Bayfront Plaza, Santa Clara, CA 95052-8145.
Administration and Share Reserve. The Director Plan is to be administered
by the full Board of Directors or by a committee of the Board consisting of
those directors who are employees of the Company (the "Administrator"). All
options granted under the Director Plan are "nonqualified stock options."
Eligible participants are limited to the directors who are not employees of the
Company ("Outside Directors"). A total of 3,000,000 shares of Common Stock have
been reserved for issuance under the Director Plan (of which 1,000,000 are
subject to Stockholder approval), subject to proportionate adjustment in the
event of subdivisions or combinations of the Company's Common Stock. As of the
Record Date, options to purchase 769,000 shares remain outstanding and
unexercised and options to purchase 1,064,000 shares have been exercised.
Option Grants. Each Outside Director is automatically granted an option to
purchase shares of the Company's Common Stock at the first Board meeting
following the date upon which he or she first becomes eligible in an amount
established under the guidelines then in effect as adopted by the Administrator.
The maximum number of shares that may be subject to each such option is 60,000
shares, except that if the eligible director is the Chairman of the Board, then
the maximum is 80,000 shares. Each eligible member of the Audit or Compensation
Committees is automatically granted an additional option to purchase shares of
Common Stock at the first Board meeting occurring on or after the date such
member first joins either committee; the maximum number of shares that may be
subject to each option for committee service is 24,000 shares. The maximum
number of shares that may be subject to options granted under the Director Plan,
the numbers of shares to be granted within those maximum limits under the
Administrator's guidelines in effect from time to time, and the number of shares
subject to outstanding options (and the exercise price of such options), are all
subject to proportionate adjustment in the event of stock dividends,
subdivisions or combinations of the Company's Common Stock. From time to time,
but not more than once every six months, the Administrator may establish
guidelines to specify the number of shares to be subject to each automatically
granted option (subject to the maximum limits set forth above), which guidelines
are intended to be in accordance with the Company's other compensation policies.
On each grant date, the number of shares subject to each option granted for
service on the Board of Directors or the Audit or Compensation Committees, as
the case may be, may not vary among Outside Directors, except that an Outside
Director who is the Chairman of the Board or who is designated as the "lead"
Outside Director may be granted an option for more shares than the other Outside
Directors. During the fiscal year ending May 31, 1998, the guidelines
established standard option grant amounts as 30,000 shares for service as an
outside director and 35,000 shares for board and committee service.
Terms and Conditions of Options. Options granted under the Director Plan
have a per share exercise price equal to the fair market value of a share of the
Company's Common Stock on the date of the option grant. Options are immediately
exercisable and vest in 24 equal monthly increments, so long as the optionee
continues to serve on the Board or the committee. No option is exercisable more
than five years from the date of grant. Options may be exercised by payment of
the exercise price (a) in cash or check, (b) by tender of shares of the
Company's Common Stock having a fair market value equal to the exercise price or
(c) by delivery of a promissory note payable to the Company. During the lifetime
of the optionee, the option may only be exercised by the optionee. In the event
of the death of the optionee, to the extent the option has not yet been
exercised, the optionee's estate, or any person who has acquired the right to
exercise the option by bequest or inheritance, may exercise the option at any
time within six months following the date of death. Following the vesting in
full of an option previously received, an additional option to purchase shares
of the Company's Common Stock is automatically granted to each eligible
participant in accordance with the option grant provisions described above.
Company Repurchase Right. Unless otherwise provided by the Committee,
unvested shares of the Company's Common Stock purchased pursuant to the
exercise of an option granted under the Director
17
<PAGE>
Plan may be repurchased by the Company at the initial purchase price of such
unvested shares upon termination of the optionee's service as a director of the
Company for any reason other than death.
Amendment or Termination. The Board generally has the power to amend,
suspend or terminate the Director Plan at any time and to amend individual
options with the approval of the affected optionee to the extent permitted by
governing law. However, the terms of the Director Plan require the approval of
the Company's stockholders of any amendment to the Director Plan that increases
the number of shares issuable thereunder or expands the class of persons
eligible to receive options.
Summary of United States Federal Income Tax Consequences of the Director Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to
participation in the Director Plan, and does not attempt to describe all
possible federal or other tax consequences of such participation. The tax
consequences are complex and subject to change, and a taxpayer's particular
situation may be such that some variation of the described rules is applicable.
Optionees should consult their own tax advisors prior to the disposition of any
shares of Common Stock acquired pursuant to the Director Plan.
An optionee will recognize no taxable income at the time a nonqualified
stock option is granted under the Director Plan. The optionee will recognize
ordinary income on the determination date (as defined below) in an amount equal
to the excess of the fair market value on the determination date of the shares
acquired over the option exercise price. The determination date will be the
later of (a) the date on which the nonqualified stock option is exercised (with
respect to the shares acquired), (b) the date on which the shares acquired vest
or (c) the date on which the sale of the shares at a profit would no longer
subject the optionee to suit under Section 16(b) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (generally, six months after the date
of grant). Notwithstanding the foregoing, if the determination date is after the
exercise date, the optionee may elect pursuant to Section 83(b) of the Code to
have the determination date be the exercise date by filing an election with the
Internal Revenue Service not later than 30 days after the date the option is
exercised.
In general, upon the sale or exchange of shares acquired by the exercise of
a nonqualified stock option, any gain or loss, based on the difference between
the amount realized upon such disposition and the fair market value of the
shares on the determination date, will be taxed as a capital gain or loss. Net
capital gains on shares held between 12 and 18 months may be taxed at a maximum
federal rate of 28%, while net capital gains on shares held for more than 18
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income. There are
no federal income tax consequences to the Company upon the grant of a
nonqualified stock option. The Company will generally be entitled to a tax
deduction equal to the amount of ordinary income recognized by the optionee with
respect to shares acquired upon exercise of a nonqualified stock option.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Deloitte & Touche LLP as the independent public
accountants of the Company for the fiscal year ending May 28, 1999. Deloitte &
Touche LLP has acted in such capacity since its appointment for fiscal year
1980. A representative of Deloitte & Touche LLP will be present at the Annual
Meeting, will be given the opportunity to make a statement, if he or she so
desires, and will be available to respond to appropriate questions.
In the event ratification by the stockholders of the appointment of
Deloitte & Touche LLP as the Company's independent public accountants is not
obtained, the Board will reconsider such appointment.
Vote Required
The affirmative vote of a majority of the Votes Cast is required for
approval of this proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MAY 28, 1999.
18
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STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders that are intended for inclusion in the Company's
proxy statement relating to the 1999 Annual Meeting of the Stockholders of the
Company must be received by the Company at its offices at 5400 Bayfront Plaza,
Santa Clara, California 95052-8145, not later than April 22, 1999 and must
satisfy the conditions established by the Securities and Exchange Commission for
stockholder proposals in order to be included in the Company's proxy statement
for that meeting. Stockholder proposals that are not intended to be included in
the Company's proxy materials for such meeting but that are intended to be
presented by the stockholder from the floor are subject to the advance notice
procedures described below under "Transaction of Other Business."
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
Any stockholder may present a matter from the floor for consideration at a
meeting so long as certain procedures are followed. Under the Company's Bylaws,
in order for a matter to be deemed properly presented by a stockholder, timely
notice must be delivered to, or mailed and received by, the Company not later
than 90 days prior to the next Annual Meeting (under the assumption that the
next Annual Meeting will occur on the same calendar day as the day of the most
recent Annual Meeting). The stockholder's notice must set forth, as to each
proposed matter, the following: (a) a brief description of the business desired
to be brought before the meeting and reasons for conducting such business at the
meeting; (b) the name and address, as they appear on the Company's books, of the
stockholder proposing such business; (c) the class and number of shares of the
Company that are beneficially owned by the stockholder; and (d) any material
interest of the stockholder in such business. The presiding officer of the
meeting may refuse to acknowledge any matter not made in compliance with the
foregoing procedure.
VOTING VIA THE INTERNET OR BY TELEPHONE
The Company is offering its stockholders the opportunity to vote using the
telephone or the Internet as an alternative to voting by mail.
To vote by telephone, use a touch-tone phone to call the toll-free number
shown on the voting instruction form. Enter the 12 digit Control Number on the
voting instruction form and follow the instructions.
To vote via the Internet, go to the website www.proxyvote.com and enter the
12 digit Control Number on the voting instruction form and follow the
instructions.
Votes submitted by telephone or via the Internet must be received no later
than 11:59 p.m. (EDT) September 23, 1998.
The giving of such proxy will not affect your right to vote in person
should you decide to attend the Annual Meeting.
19
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The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. Stockholders voting via the Internet should understand that there may
be costs associated with electronic access, such as usage charges from Internet
access providers and telephone companies, that must be borne by the stockholder.
By Order of the Board of Directors
/s/ MARK D. MICHAEL
----------------------------------------
MARK D. MICHAEL
Secretary
August 20, 1998
20
<PAGE>
Appendix A
3Com CORPORATION
DIRECTOR STOCK OPTION PLAN
(As Amended by the Board on July 22, 1998)
1. Purpose. It is the purpose of this Director Stock Option Plan (the
"Plan") to enable 3Com CORPORATION (the "Company") and its subsidiaries to
retain and provide incentives to outside directors by offering them an
opportunity to acquire a proprietary interest in the Company.
2. Eligibility and Administration. Eligible participants shall be
limited to outside directors of the Company and its subsidiaries. The Plan shall
be administered by a committee of the Company's Board of Directors (the "Board")
consisting of its directors who are also employees of the Company. The Board and
such committee are both referred to as the Board and the committee shall have
all the powers of the Board hereunder, including, without limitation, the
authority to, from time to time, establish guidelines (the "Guidelines") that
determine the number of shares to be subject to the options granted under the
Plan, subject to the per option limits set forth in Sections 4(b) and 4(c) and
the restriction on amendment of the Guidelines set forth in Section 9. The
Guidelines must (i) provide that on each grant date, the number of shares of
Common Stock subject to each option automatically granted pursuant to Section
4(b) or 4(c), as the case may be, shall be equal for each eligible participant,
subject to distinctions based on the outside director's position as Chairman of
the Board, designation as the "lead" outside director, and service on Board
committees, and (ii) not cause an outside director who receives an option under
the Plan to cease to be a "disinterested person" for purposes of Rule 16b-3
under the Securities Exchange Act of 1934, as amended. All questions of
interpretation of the Plan or of any option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such option.
3. Shares Subject to Plan.
(a) Subject to adjustment as provided in Section 3(b), the
maximum number of shares of the Company's common stock ("Common Stock") and
rights to acquire Common Stock that may be issued pursuant to this Plan shall be
3,000,000 shares. Options or shares that are issued to participants under the
Plan and terminate without being exercised shall revert to the status of
authorized but unissued options or shares under the Plan.
(b) In the event of any stock dividend, stock split, reverse
stock split, recapitalization, combination, reclassification or similar change
in the capital structure of the Company, appropriate adjustments shall be made
in the number and class of shares subject to the Plan, the Guidelines and the
per option limits set forth in Section 4, and to
1
<PAGE>
any outstanding options granted under the Plan, and in the exercise price of
such outstanding options.
4. Rights Issuable Under the Plan.
(a) During the term of the Plan, eligible participants shall be
granted options to acquire shares of the Common Stock of the Company ("Options")
as provided in this Section 4. Each Option shall be exercisable immediately as
to all shares of Common Stock subject to the Option and shall vest in 24 monthly
increments. All Options shall be subject to the terms and conditions set forth
in the form of Nonqualified Stock Option Agreement attached hereto as Exhibit 1;
provided, however, that the Board may at the time of grant of any Option make
such modifications to such terms and conditions as are otherwise in compliance
with the restrictions contained in the Plan.
(b) The Board shall grant an Option to purchase that number of
shares as may be specified in the Guidelines then currently in effect (the
"Guideline Amount") for service on the Board, not to exceed 60,000 shares of
Common Stock (or 80,000 shares if the participant is the Chairman of the Board
on the date of grant), to each eligible participant at the first Board meeting
following the date upon which he or she first becomes eligible. Thereafter, the
Board shall grant an additional Option to purchase that number of shares equal
to the Guideline Amount for service on the Board, not to exceed 60,000 shares of
Common Stock (or 80,000 shares if the participant is the Chairman of the Board
on the date of grant), to an eligible participant following the vesting in full
of the Option of that eligible participant most recently granted under this
Section 4(b) for service on the Board. Such additional grant shall be made at
the first Board meeting following the vesting in full of such most recently
granted Option.
(c) In addition to the Options granted by the Board pursuant to
Section 4(b), the Board shall grant an Option to purchase that number of shares
equal to the Guideline Amount for service on a Standing Committee, not to exceed
24,000 shares of Common Stock, to each eligible participant serving on a
Standing Committee of the Board at the first meeting of the Board occurring on
or after the date on which he or she begins to serve on a Standing Committee. A
Standing Committee shall mean either the Audit Committee or the Compensation
Committee of the Board. Thereafter, the Board shall grant an additional Option
to purchase that number of shares equal to the Guideline Amount for service on a
Standing Committee, not to exceed 24,000 shares of Common Stock, to each
eligible participant who continues to serve on a Standing Committee following
the vesting in full of the Option of that eligible participant most recently
granted under this Section 4(c). Such additional grant shall be made at the
first Board meeting following the vesting in full of such most recently granted
Option.
5. Consideration. The exercise price for Options shall be payable by
(i) delivery of cash or check, (ii) tender of shares of Common Stock having a
fair market value equivalent to the purchase or exercise price, or (iii)
delivery of a promissory note payable to the Company; provided, however, that
the Board may impose at the time of any grant
2
<PAGE>
of rights hereunder such restrictions on the exchange of Common Stock or
delivery of a promissory note as the Board may deem appropriate or necessary and
that any promissory note shall be secured by such collateral as is required by
the attached form of Nonqualified Stock Option Agreement, or as the Board shall
otherwise determine at the time of grant.
6. Exercise Price. The exercise price payable upon exercise of any
Option shall be equal to the fair market value of a share of Common Stock as
determined by the Board on the date of grant.
7. Limitation on Exercisability. No right granted hereunder shall be
exercisable for a period of more than five years after the date of grant.
8. Restriction on Transfer of Options. No Option may be transferred in
any manner whatsoever, other than by the laws of descent and distribution.
Options may be exercised during the lifetime of the optionee only by the
optionee.
9. Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan at any time; provided,
however, that without the approval of the shareholders of the Company, there
shall be (a) no increase in the total number of shares of stock covered by the
Plan (except by operation of the provision of Section 3, above), and (b) no
expansion in the class of persons eligible to receive Options; and provided,
further, that the provisions of the Plan addressing eligibility to participate
in the Plan and the amount, price and timing of grants of Options (including
changes to the Guidelines) shall not be amended more than once every six (6)
months, other than to comport to changes in the Internal Revenue Code of 1986,
as amended, or the rules thereunder. In any event, no amendment may adversely
affect any then outstanding Option, or any unexercised portion thereof, without
the consent of the optionee.
3
<PAGE>
Appendix B
AMENDED AND RESTATED
3COM CORPORATION
1984 EMPLOYEE STOCK PURCHASE PLAN
(As Amended By the Board on July 22, 1998)
1. Purpose. The 3Com Corporation 1984 Employee Stock Purchase Plan (the
"Prior Plan") was established to provide eligible employees of 3Com Corporation
("3Com") and any current or future subsidiary corporation(s) of 3Com
(collectively referred to as the "Company") with an opportunity, through payroll
deductions, to acquire common stock of 3Com. The Prior Plan has been amended
from time to time. On September 28, 1995, the Board of Directors of 3Com (the
"Board") amended and restated the Prior Plan as amended in order to make various
changes to the Prior Plan considered beneficial for continuing to carry out the
purposes of such plan, all in the form set forth herein (the "Plan"). For
purposes of the Plan, a parent corporation and a subsidiary corporation shall be
as defined in sections 424(e) and 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Company intends that the Plan shall qualify as an
"employee stock purchase plan" under section 423 of the Code (including any
future amendments or replacements of such section), and the Plan shall be so
construed. Any term not expressly defined in the Plan but defined for purposes
of section 423 of the Code shall have the same definition herein. Because an
eligible employee who participates in the Plan (a "Participant") may withdraw
the Participant's accumulated payroll deductions and terminate participation in
the Plan or any Offering (as defined below) therein at any time during an
Offering Period (as defined below), the Participant is, in effect, given an
option which may or may not be exercised during any Offering Period.
2. Share Reserve. The maximum number of shares which may be issued under
the Plan shall be 22,000,000 shares of 3Com's authorized but unissued common
stock (the "Shares"). In the event that any option granted under the Plan (an
"Option") for any reason expires or is
<PAGE>
terminated, the Shares allocable to the unexercised portion of such Option may
again be subjected to an Option.
3. Administration. The Plan shall be administered by the Board and/or by a
duly appointed committee of the Board having such powers as shall be specified
by the Board. Any subsequent references to the Board shall also mean the
committee if it has been appointed. All questions of interpretation of the Plan
or of any Options shall be determined by the Board and shall be final and
binding upon all persons having an interest in the Plan and/or any Option.
Subject to the provisions of the Plan, the Board shall determine all of the
relevant terms and conditions of Options granted pursuant to the Plan; provided,
however, that all Participants granted Options pursuant to the Plan shall have
the same rights and privileges within the meaning of section 423(b)(5) of the
Code. All expenses incurred in connection with the administration of the Plan
shall be paid by the Company.
4. Eligibility. Any regular employee of the Company is eligible to
participate in the Plan and any Offering (as hereinafter defined) under the Plan
except the following:
(a) employees who are customarily employed by the Company for less
than twenty (20) hours a week;
(b) employees who own or hold options to purchase or who, as a
result of participation in the Plan, would own or hold options to purchase stock
of the Company possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company within the meaning of
section 423(b)(3) of the Code; and
(c) with respect to participation in the Additional Chipcom
Offering described in paragraph 5(a) below, employees who were not employed by
the Company or Chipcom Corporation ("Chipcom") as of October 2, 1995.
5. Offerings.
(a) Offering Periods Beginning On or After October 1, 1995.
Effective for offerings commencing on or after October 1, 1995, the Plan shall
be implemented by sequential offerings (individually, an "Offering") of
approximately six (6) months duration (an "Offering
<PAGE>
Period"). Effective October 1, 1995, Offerings shall commence on April 1 and
October 1 of each year and end on the first September 30 and March 31,
respectively, occurring thereafter. An additional Offering shall commence upon
the date immediately following the Effective Time (as defined in the Agreement
and Plan of Merger dated as of July 26, 1995 by and among 3Com, Chipcom
Acquisition Corporation, a wholly-owned subsidiary of 3Com and Chipcom) and
shall end on March 31, 1996 (the "Additional Chipcom Offering"). An additional
Offering shall commence upon the date immediately following the Effective Time
(as defined in 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, TR
Acquisitions Corporation, a wholly-owned subsidiary of 3Com, 3Com (Delaware)
Corporation, a wholly-owned subsidiary of 3Com and U.S. Robotics Corporation
(the "USR Merger Agreement")) and shall end on September 30, 1997 (the
"Additional USR Offering"). Notwithstanding the foregoing, the Board may
establish a different term for one or more Offerings and/or different commencing
and/or ending dates for such Offerings; provided, however, that no Offering may
exceed a term of twenty-seven (27) months. An employee who becomes eligible to
participate in the Plan after an Offering Period has commenced shall not be
eligible to participate in such Offering but may participate in any subsequent
Offering provided such employee is still eligible to participate in the Plan as
of the commencement of any such subsequent Offering. The first day of an
Offering Period shall be the "Offering Date" for such Offering Period. The last
day of each Offering Period shall be the "Purchase Date" for such Offering
Period. In the event the first and/or last day of an Offering Period is not a
business day, the Company shall specify the business day that will be deemed the
first or last day, as the case may be, of the Offering Period.
(b) Offering Periods Beginning Prior to October 1, 1995. Offering
Periods which began prior to October 1, 1995 and were in effect on the date of
this amendment shall continue in effect, subject to the terms and conditions of
the Plan as in effect immediately prior to this amendment.
<PAGE>
(c) Governmental Approval; Shareholder Approval. Notwithstanding
any other provision of the Plan to the contrary, any Option granted pursuant to
the Plan shall be subject to (i) obtaining all necessary governmental approvals
and/or qualifications of the sale and/or issuance of the Options and/or the
Shares, and (ii) in the case of Options with an Offering Date after an amendment
to the Plan, obtaining any necessary approval of the shareholders of the Company
required in paragraph 17.
6. Participation in the Plan.
(a) Initial Participation. An eligible employee may elect to
become a Participant effective as of the first Offering Date after satisfying
the eligibility requirements set forth in paragraph 4 above by delivering a
subscription agreement authorizing payroll deductions (a "Subscription
Agreement") to the Company's Stock Administration office not later than fifteen
(15) calendar days, or such other period as the Company may determine in its
sole discretion, prior to such Offering Date. Such Subscription Agreement shall
state the eligible employee's election to participate in the Plan and the rate
at which payroll deductions shall be accumulated. An eligible employee who does
not deliver a Subscription Agreement to the Company's Stock Administration
office at least fifteen (15) calendar days, or such period as the Company may
determine in its sole discretion, prior to the first Offering Date after
becoming eligible to participate in the Plan, shall not participate in the Plan
for that Offering Period or for any subsequent Offering Period unless such
employee subsequently enrolls in the Plan by filing a Subscription Agreement
with the Company in accordance with this paragraph 6(a).
(b) Automatic Participation in Subsequent Offerings. A Participant
shall automatically participate in each subsequent Offering Period until such
time as such Participant ceases to be eligible as provided in paragraph 4, the
Participant withdraws from the Plan pursuant to paragraph 10 below, or the
Participant terminates employment as provided in paragraph 11 below. A
Participant is not required to file an additional Subscription Agreement for
such Offering Periods in order to automatically participate therein. Unless
otherwise indicated in a subsequently filed Subscription Agreement, the rate at
which payroll deductions
<PAGE>
shall be accumulated with respect to any such subsequent Offering Period shall
equal the rate applicable to the immediately preceding Offering Period.
7. Purchase Price. The purchase price at which Shares may be acquired in
any Offering Period under the Plan shall be eighty-five percent (85%) of the
lesser of (a) the fair market value of the Shares on the Offering Date of such
Offering Period or (b) the fair market value of the Shares on the Purchase Date
of such Offering Period. For purposes of the Plan, the fair market value of the
Shares at any point in time shall be determined by the Board based on such
factors as the Board deems relevant; including, without limitation, the mean of
the bid and asked price of the Shares on the date in question as reported by the
National Association of Securities Dealers Automated Quotation System.
8. Payment of Purchase Price; Payroll Deductions.
(a) Accumulation of Payroll Deductions. The purchase price of
Shares to be acquired in an Offering Period shall be accumulated only by payroll
deductions over the Offering Period. Payroll deductions from a Participant's
compensation on each payday during the Offering Period (i) shall not exceed ten
percent (10%) of such Participant's base pay per month reduced by any payroll
deductions from such Participant's compensation to purchase stock under any
other plan of the Company intended to qualify as an "employee stock purchase
plan" under section 423 of the Code, and (ii) shall not be less than one percent
(1%) of the Participant's base pay per month. For purposes hereof, a
Participant's "base pay" from the Company is an aggregate that (i) shall include
all salaries and commissions, and (ii) shall not include annual awards or
incentive bonuses and any other payments not specifically referenced in (i)
above, except to the extent that the inclusion of any such item with respect to
all Participants on a non-discriminatory basis is specifically approved by the
Board. Payroll deductions shall commence on the first payday following the first
day of a Offering Period or as soon as administratively feasible thereafter and
shall continue to the end of such Offering Period unless sooner altered or
terminated as provided in the Plan.
<PAGE>
(b) Election to Change Payroll Deduction Rate. A Participant may
decrease (but not increase) the rate of payroll deductions with respect to an
Offering Period only on or before and effective as of the date three (3) months
after the beginning of such Offering Period by filing an amended Subscription
Agreement with the Company. A Participant may increase or decrease the rate of
payroll deductions for any subsequent Offering Period by filing a new
Subscription Agreement with the Company not later than fifteen (15) calendar
days, or such other period as the Company may determine in its sole discretion,
prior to the beginning of such subsequent Offering Period.
(c) Participant Accounts. Individual accounts shall be maintained
for each Participant. All payroll deductions from a Participant's compensation
shall be credited to the Participant's account under the Plan and shall be
deposited with the general funds of the Company. No interest shall accrue on
such payroll deductions. All payroll deductions received or held by the Company
may be used by the Company for any corporate purpose.
9. Purchase of Shares.
(a) Purchase. On the Purchase Date of each Offering Period, each
remaining Participant shall automatically purchase, subject to the limitations
set forth in paragraphs 9(b) and 9(c) below, that number of whole Shares arrived
at by dividing the total amount theretofore credited to the Participant's
account pursuant to paragraph 8(c) by the purchase price established for such
Offering Period pursuant to paragraph 7. Any cash balance remaining in the
Participant's Plan account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole Share, such amount shall continue to be credited
to the Participant's Plan account and shall be applied toward the purchase of
Shares in the immediately subsequent Offering Period. No Shares shall be
purchased in a given Offering Period on behalf of a Participant whose
participation in the Plan has terminated prior to the Purchase Date for such
Offering Period.
<PAGE>
(b) Share Limitation. Subject to the adjustments set forth in
paragraph 13 below, no Participant shall be entitled to purchase more than 1,000
Shares in a single Offering.
(c) Fair Market Value Limitation. Notwithstanding any other
provision of the Plan, no Participant shall be entitled to purchase Shares under
the Plan (or any other employee stock purchase plan which is intended to meet
the requirements of section 423 of the Code sponsored by 3Com or a parent
corporation or subsidiary corporation of 3Com) at a rate which exceeds $25,000
in fair market value (or such other limit as may be imposed by section 423 of
the Code) for each calendar year in which the Participant participates in the
Plan or any other employee stock purchase plan described in this sentence, as
determined in accordance with section 423(b)(8) of the Code.
(d) Pro Rata Allocation. In the event the number of Shares which
might be purchased by all Participants in the Plan exceeds the number of Shares
available in the Plan, the Company shall make a pro rata allocation of the
remaining Shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable.
(e) Rights as a Shareholder and Employee. A Participant shall have
no rights as a shareholder by virtue of the Participant's participation in the
Plan until the date of issuance of a stock certificate(s) for the Shares being
purchased pursuant to the exercise of the Participant's Option. No adjustment
shall be made for dividends or distributions or other rights for which the
record date is prior to the date such stock certificate(s) are issued. Nothing
herein shall confer upon a Participant any right to continue in the employ of
the Company or interfere in any way with any right of the Company to terminate
the Participant's employment at any time.
(f) The Company may, from time to time, establish or change (i)
limitations on the frequency and/or number of changes in the amount withheld
during an Offering, (ii) an exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, (iii) procedures for permitting unequal
percentages of payroll withholding from a Participant's compensation in order to
accommodate the Company's established payroll procedures or mistakes or delays
in following those procedures when processing Participants' withholding
<PAGE>
elections, and (iv) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion which are consistent with the Plan
and section 423 of the Code.
(g) Any portion of a Participant's Option remaining unexercised
after the end of the Offering Period to which such right relates shall expire
immediately upon the end of such period.
10. Withdrawal.
(a) Withdrawal From the Plan. A Participant may withdraw from the
Plan by signing and delivering to the Company's payroll office, a written notice
of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time, and if prior to the end of an Offering
Period shall be effective for that Offering Period. A Participant is prohibited
from again participating in an Offering upon withdrawal from the Plan during
such Offering. A Participant who elects to withdraw from the Plan may again
participate in the Plan by filing a new Subscription Agreement in the same
manner as set forth in paragraph 6(a) above for initial participation in the
Plan. The Company may impose, from time to time, a requirement that the notice
of withdrawal be on file with the Company for a reasonable period of time prior
to the effectiveness of the Participant's withdrawal from the Plan.
(b) Return of Payroll Deductions. Upon withdrawal from the Plan,
the accumulated payroll deductions credited to a withdrawing Participant's
account shall be returned to the Participant and the Participant's interest in
the Plan shall terminate. No interest shall accrue on the payroll deductions of
a Participant.
11. Termination of Employment. Termination of a Participant's employment
with the Company for any reason, including retirement or death, or the failure
of a Participant to remain an eligible employee, shall terminate the
Participant's participation in the Plan immediately. Upon such termination, the
payroll deductions credited to the Participant's account shall be returned to
the Participant (or in the case of the Participant's death, to the Participant's
legal representative) and all of the Participant's rights under the Plan shall
terminate. A Participant
<PAGE>
whose participation has been so terminated may again become eligible to
participate in the Plan by again satisfying the requirements of paragraphs 4 and
6.
12. Repayment of Payroll Deductions Without Interest. In the event a
Participant's interest in the Plan is terminated, the Company shall deliver to
the Participant (or in the case of the Participant's death or incapacity, to the
Participant's legal representative) the payroll deductions credited to the
Participant's account. No interest shall accrue on the payroll deductions of a
Participant.
13. Capital Changes. In the event of changes in the common stock of the
Company due to a stock split, reverse stock split, stock dividend, combination,
reclassification or like change in the Company's capitalization, or in the event
of any merger, sale or reorganization, appropriate adjustments shall be made by
the Company in (a) the number and class of Shares of stock subject to the Plan
and to any outstanding Option, (b) the purchase price per Share of any
outstanding Option and (c) the Share limitation set forth in paragraph 9(b)
above.
14. Nonassignability. Only the Participant may elect to exercise the
Participant's Option during the Participant's lifetime, and no rights or
accumulated payroll deductions of any Participant under the Plan may be pledged,
assigned or transferred for any reason, except by will or the laws of descent
and distribution, and any such attempt may be treated by the Company as an
election by the Participant to withdraw from the Plan.
15. Reports. Each Participant shall receive after the last day of each
Offering Period a report of the Participant's account setting forth the total
payroll deductions accumulated, the number of Shares purchased and the remaining
cash balance to be carried over and/or refunded pursuant to paragraph 9(a)
above, if any.
16. Plan Term. This Plan shall continue until terminated by the Board or
until all of the Shares reserved for issuance under the Plan have been issued.
17. Amendment or Termination of the Plan. The Board may at any time
amend or terminate the Plan, except that such termination cannot affect Options
previously granted under the Plan except as otherwise permitted by the Plan, nor
may any amendment make any change in an Option previously granted under the Plan
which would adversely affect the right of any Participant except as otherwise
permitted by the Plan, nor may any amendment be made without
<PAGE>
approval of the shareholders of the Company within twelve (12) months of the
adoption of such amendment if such amendment would authorize the sale of more
shares than are authorized for issuance under the Plan or would change the
designation of corporations whose employees may be offered Options under the
Plan. Notwithstanding any other provision of the Plan to the contrary, in the
event of an amendment to the Plan which affects the rights or privileges of
Options to be offered under the Plan, each Participant with an outstanding
Option shall have the right to exercise such outstanding Option on the effective
date of the amendment and to participate in the Plan for the remaining term of
such outstanding Option pursuant to the terms and conditions of the Plan as
amended. If in accordance with the preceding sentence a Participant elects to
exercise such outstanding Option and to commence participation in the Plan as
amended on the effective date of such amendment, the Participant shall be deemed
to have received a new Option on such effective date, and such effective date
shall be deemed the Offering Date for such Option.
<PAGE>
Appendix C
3COM CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints Eric A. Benhamou and Mark D. Michael, and
either of them, as proxyholders and attorneys-in-fact of the undersigned, with
full power of substitution, to vote all shares of stock that the undersigned is
entitled to vote at the Annual Meeting of Stockholders of 3Com Corporation, to
be held at 5400 Bayfront Plaza, Building 5, Santa Clara, California 95052-8145
on Thursday, September 24, 1998 at 10:30 a.m., local time, and at any
continuation or adjournment thereof, with all the powers that the undersigned
would have if personally present at the meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
and Proxy Statement, dated August 20, 1998, and a copy of the Company's 1998
Annual Report to Stockholders. The undersigned hereby expressly revokes any and
all proxies heretofore given or executed by the undersigned with respect to the
shares of stock represented by this Proxy and, by filling this Proxy with the
Secretary of the Company, gives notice of such revocation.
WHERE NO CONTRARY CHOICE IS INDICATED BY THE STOCKHOLDER, THIS PROXY, WHEN
RETURNED, WILL BE VOTED FOR EACH NOMINEE SET FORTH BELOW, FOR THE AMENDMENT TO
THE EMPLOYEE STOCK PURCHASE PLAN, FOR THE AMENDMENT TO THE DIRECTOR STOCK OPTION
PLAN, FOR THE RATIFICATION OF ACCOUNTANTS AND WITH DISCRETIONARY AUTHORITY UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THIS PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
-23-
<PAGE>
[X] Plese mark votes as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING:
1. ELECTION OF FIVE CLASS II
DIRECTORS TO SERVE A TWO-
YEAR TERM EXPIRING IN 2000
<TABLE>
Nominees:
James L. Barksdale
Eric A. Benhamou
Gordon A. Campbell
James E. Cowie
Philip C. Kantz
FOR WITHHELD
all nominees from all
nominees
[ ] [ ]
<CAPTION>
<S> <C> <C> <C> <C>
2. To approve an amendment to the FOR AGAINST ABSTAIN
Company's 1984 Employee Stock [ ] [ ] [ ]
Purchase Plan to increase the share
reserve thereunder by two million
[ ] (2,000,000) shares of Common Stock.
For all nominees except those written on the line above. 3. To approve an amendment to the Director FOR AGAINST ABSTAIN
Stock Option Plan to increase the share [ ] [ ] [ ]
reserve thereunder by one million
(1,000,000) shares of Common Stock.
4. To ratify the appointment of Deloitte & FOR AGAINST ABSTAIN
Touche LLP as independent public [ ] [ ] [ ]
accountants for the fiscal year ending
May 28, 1999.
5. With discretionary authority, upon such
other matters as may properly come
before the meeting.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
Please date and sign exactly as your name or names Signature Date:
appear herein. Corporate or partnership proxies should
be signed in full corporate or partnership name by an
authorized person. Persons signing in a fiduciary Signature Date:
capacity should indicate their full title in such capacity
</TABLE>
