<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997
or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number: 0-25630
U.S. ROBOTICS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3994412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 NORTH MCCORMICK BOULEVARD, SKOKIE, ILLINOIS 60076-2999
(Address of principal executive offices) (Zip Code)
(847) 982-5010
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE PER
SHARE, OUTSTANDING AS OF MAY 9, 1997 WAS 89,382,145.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements(Unaudited)
Condensed Consolidated Statement of Earnings . . . . . . . 3
Condensed Consolidated Balance Sheet . . . . . . . . . . . 4
Condensed Consolidated Statement of Stockholders' Equity . 5
Condensed Consolidated Statement of Cash Flows . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
-------------------- ---------------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $690,184 $454,505 $1,335,596 $819,317
Cost of goods sold 351,234 264,188 720,648 476,384
-------- -------- ---------- --------
Gross profit 338,950 190,317 614,948 342,933
Operating expenses
Selling and marketing 134,042 57,961 234,792 105,751
General and administrative 41,564 24,041 71,582 41,666
Research and development 44,434 28,378 78,664 51,831
-------- -------- ---------- --------
Total operating expenses 220,040 110,380 385,038 199,248
Operating profit 118,910 79,937 229,910 143,685
Interest income 274 2,554 466 5,825
Interest expense 2,446 1,453 4,225 2,673
Other income 149 244 480 26
-------- -------- ---------- --------
Earnings before income taxes 116,887 81,282 226,631 146,863
Income tax expense 25,428 29,677 66,143 53,613
-------- -------- ---------- --------
Net earnings $ 91,459 $ 51,605 160,488 $ 93,250
======== ======== ========== ========
Net earnings per share $ 0.95 $ 0.55 $ 1.67 $ 1.00
======== ======== ========== ========
Number of shares used
in per share calculation 95,944 94,168 96,139 93,568
======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
March 30, September 29,
1997 1996
---------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 49,888 $ 16,814
Accounts receivable, less allowances
of $16,722 and $11,573, respectively 718,410 490,040
Inventories 155,823 185,855
Deferred income taxes 57,371 45,493
Prepaid expenses and other current assets 13,694 12,407
---------- ----------
Total current assets 995,186 750,609
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization of
$83,189 and $59,366, respectively 346,613 276,591
OTHER ASSETS 65,466 40,083
---------- ----------
$1,407,265 $1,067,283
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 12,310 $ 12,174
Short-term obligations 60,700 32,500
Accounts payable 196,458 130,959
Accrued liabilities 175,725 138,747
Income taxes payable 43,474 19,324
---------- ----------
Total current liabilities 488,667 333,704
LONG-TERM OBLIGATIONS 55,066 54,044
DEFERRED INCOME TAXES - 7,665
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value; 10,000,000
shares authorized; issuable in series; none
issued - -
Common stock - $.01 par value; 250,000,000
shares authorized; 89,248,186 shares and
88,171,420 shares outstanding at March 30,
1997 and September 29, 1996, respectively 893 882
Additional contributed capital 392,781 356,265
Retained earnings 472,980 312,492
---------- ----------
866,654 669,639
Cumulative translation adjustment and other (3,122) 2,231
---------- ----------
Total stockholders' equity 863,532 671,870
---------- ----------
$1,407,265 $1,067,283
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Additional Translation Total
Common Contributed Retained Adjustment Stockholders'
Stock Capital Earnings and Other Equity
------- ----------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 29,
1996 $882 $356,265 $312,492 $2,231 $671,870
Net earnings for the
period - - 160,488 - 160,488
Issuances under
stock option and
purchase plans 11 14,704 - - 14,715
Tax benefits
relating to the
exercise of stock
options - 21,812 - - 21,812
Foreign currency
translation
adjustments and
other - - - (5,353) (5,353)
---- -------- -------- ------- --------
BALANCE AT MARCH 30,
1997 $893 $392,781 $472,980 $(3,122) $863,532
==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
March 30, March 31,
1997 1996
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $160,488 $ 93,250
Changes in assets and liabilities (111,035) (118,088)
Other adjustments to reconcile net earnings
to net cash from operating activities 22,562 (1,662)
-------- --------
Net cash provided (used) by operating
activities 72,015 (26,500)
Cash flows from investing activities:
Capital expenditures, net (94,826) (86,857)
Purchases of marketable securities - (161,809)
Sales and maturities of marketable securities - 184,463
Acquisitions of subsidiaries (6,910) -
Other, net (2,679) 708
-------- --------
Net cash used by investing activities (104,415) (63,495)
Cash flows from financing activities:
Borrowings under short-term obligations 28,200 -
Issuance of common stock including tax
benefits relating to the exercise of stock
options 36,527 45,130
Other, net (23) (3,036)
-------- --------
Net cash provided by financing
activities 64,704 42,094
Effect of exchange rate changes 770 (456)
-------- --------
Net increase(decrease)in cash and cash
equivalents 33,074 (48,357)
Cash and cash equivalents at beginning
of period 16,814 136,803
-------- --------
Cash and cash equivalents at end of period $ 49,888 $ 88,446
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of U.S. Robotics Corporation and its subsidiaries (the
"Company"). Such statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and pursuant
to the regulations of the Securities and Exchange Commission ("SEC");
accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation (consisting of normal recurring accruals) have been included. The
results of operations for the quarter and six months ended March 30, 1997 are
not necessarily indicative of the results for the fiscal year ending September
28, 1997. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended September 29, 1996.
Certain fiscal year 1996 amounts have been reclassified to conform to the
fiscal year 1997 basis of presentation.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method. The elements of cost include
materials, direct labor, factory overhead and outside processing charges. The
components of inventories were as follows:
<TABLE>
<CAPTION>
March 30, September 29,
1997 1996
--------- -------------
(In thousands)
<S> <C> <C>
Finished products $ 95,928 $116,802
Work-in-process 17,810 12,654
Raw materials 42,085 56,399
-------- --------
$155,823 $185,855
======== ========
</TABLE>
NOTE C - BUSINESS COMBINATIONS
On February 26, 1997, the Company executed a definitive merger agreement
(the "Merger Agreement") with 3Com Corporation ("3Com"), a broad-based supplier
of local area network ("LAN"), wide area network ("WAN") and network access
systems for the large enterprise, small business, home and network service
provider markets.
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Pursuant to the Merger Agreement, the Company will merge with, and become,
a wholly-owned subsidiary of 3Com. At the effective time of the
merger, each outstanding share of the Company's common stock will be converted
into the right to receive 1.75 shares of 3Com common stock. The respective
obligations of the Company and 3Com to effect the merger are subject to the
satisfaction of certain conditions, including, but not limited to, obtaining
requisite shareholder and regulatory approvals, the approval for quotation on
The Nasdaq National Market of the 3Com common stock to be issued pursuant to
the merger, the absence of any injunction prohibiting consummation of the
merger, the accuracy of the representations and warranties contained in the
Merger Agreement, the receipt of certain legal opinions with respect to tax
matters and the receipt and confirmation of certain accountants' letters with
respect to the qualification of the merger as a pooling of interests
transaction.
On May 8, 1997, 3Com's Registration Statement on Form S-4, as amended,(the
"Registration Statement"), containing a Joint Proxy Statement and Prospectus
related to the merger, was declared effective by the SEC. As indicated in the
Registration Statement, special meetings of the stockholders of the Company and
of the shareholders of 3Com for the purpose of considering and voting upon
proposals to approve the merger will be held on June 11, 1997. It is
anticipated that the merger will be effected during the Company's fiscal third
quarter ending June 29, 1997.
NOTE D - LITIGATION
The Company is a party to lawsuits in the normal course of its business.
The Company and its counsel believe that it has meritorious defenses in all
lawsuits in which the Company or its subsidiaries is a defendant. The Company
does not believe the outcome of these cases will have a material effect on its
financial condition or results of operations, but notes that (i) litigation in
general and patent litigation in particular can be expensive and disruptive to
normal business operations and (ii) the results of complex legal proceedings
can be very difficult to predict with any certainty.
On February 13, 1997, Motorola, Inc. filed suit against the Company in the
United States District Court for the District of Massachusetts, claiming
infringement of eight United States patents. The complaint alleges willful
infringement and prays for unspecified damages and injunctive relief. In a
separate statement announcing the filing of the lawsuit published on PRNewswire
on the same date, Motorola alleged that the patents at issue cover
"technologies essential to the International Telecommunications Union (ITU)
V.34 modem standard." In the same statement, a Motorola officer is quoted as
saying that Motorola is "committed" to making its technology incorporated in
standards available on a "fair, reasonable and non-discriminatory basis." The
Company has filed an answer to Motorola's claims setting forth its defenses and
asserting counterclaims which allege infringement of one of the Company's
patents, violation of antitrust laws, promissory estoppel and unfair
competition. Although the Company believes it has meritorious defenses to
Motorola's claims and intends to contest this lawsuit vigorously, an adverse
outcome of such litigation could have a material adverse effect on the
business, results of
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operations or financial condition of the Company or, after the merger
with 3Com, of the combined company.
Seven purported stockholder class action suits have been filed arising out
of the Company's proposed participation in the merger with 3Com.
On February 27, 1997, the day following the public announcement of the
proposed Merger, five purported stockholder class action suits were filed in
the Court of Chancery of the State of Delaware (MORGANSTERN V. U.S. ROBOTICS
CORPORATION, C.A. No. 15580; KLEIN V. COWELL, C.A. No. 15583;
MULHOLLAND V. U.S. ROBOTICS CORPORATION, C.A. No. 15584; GLICK V. U.S. ROBOTICS
CORPORATION, C.A. No. 15586; ROSEN V. U.S. ROBOTICS CORPORATION, C.A. No.
15587). On February 28, 1997, an additional purported stockholder class suit
was filed in the Court of Chancery of the State of Delaware (REISS V. COWELL,
C.A. No. 15588) (collectively, the "Delaware Actions").
The Delaware Actions generally name as defendants the Company and the
individual members of the Company's Board. 3Com has been named as a defendant
in five of the Delaware Actions (all but ROSEN V. U.S. ROBOTICS CORPORATION,
C.A. No. 15587). In general, the actions allege that the Company's directors
breached their fiduciary duties to the stockholders by agreeing to the proposed
merger for allegedly "unfair and grossly inadequate" consideration in light of
recent operating results of the Company, recent trading prices of the Company's
common stock and other alleged factors, by allegedly failing to properly inform
themselves of the Company's "highest transactional value" prior to agreeing to
the proposed merger and by allegedly failing to take all necessary steps to
ensure that stockholders will receive the maximum value realizable for their
shares (including allegedly failing to actively pursue the acquisition of the
Company by other companies, engage in a "meaningful auction" with third
parties, or conduct an adequate "market check"). In addition, the actions
allege that the Company's directors breached their fiduciary duties to
stockholders by allegedly failing to bargain for any price protection which
would alter the exchange ratio for the proposed merger in favor of the
Company's stockholders in the event 3Com's stock declines in value, by
allegedly failing to appoint or retain any "truly independent" person or entity
to negotiate for or on behalf of the Company's public stockholders, and by
agreeing to the proposed merger to allegedly enhance their compensation and
positions with the Company. Five of the six lawsuits further allege that 3Com
is responsible for aiding and abetting the alleged breach of fiduciary duty
committed by the Company's Board. The Delaware Actions seek certification of a
class action on behalf of the Company's stockholders. In addition, the Delaware
Actions seek injunctive relief against consummation of the merger and, in the
event that the merger is consummated, the rescission of the merger, an award of
compensatory or rescissory damages and other damages, including court costs and
attorneys' fees, an accounting by the defendants of all profits realized by
them as a result of the merger and various other forms of relief.
Also, on March 26, 1997, one additional purported stockholder class action
suit relating to the proposed merger with 3Com was filed in the Circuit Court
of Cook County, Illinois (FEILEN V. U.S. ROBOTICS
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CORPORATION, No. 97-CH-0003690). This action alleges that the
Company's directors breached their fiduciary duties to the stockholders by
"negotiating an unconscionably high termination or 'lock up' fee" in the Merger
Agreement. This action further alleges that the Company's directors, by
agreeing to these fee provisions, have "effectively deprived their shareholders
of their voting rights, since if they do not approve the merger, their company
will suffer stiff penalties." In addition, the action alleges that, as a result
of these fee provisions, the Merger Agreement violates Section 251 of the
Delaware General Corporation Law. This action seeks both declaratory and
injunctive relief, including enjoinder of a stockholder meeting, a declaration
that the Merger Agreement's "penalty fees" are "illegal and invalid," and an
award of the costs of the action, including reasonable attorneys' fees and
experts' fees.
The Company and 3Com believe that all of these lawsuits are meritless and
the Company intends to oppose them vigorously.
See Part II, Item 1 of this report for additional information regarding
legal proceedings.
NOTE E - EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards 128 (SFAS 128), "Earnings per
Share," which establishes new standards for computing and presenting earnings
per share. SFAS 128 will be effective for the Company's first quarter of
fiscal 1998 and requires restatement of all previously reported earnings per
share data that are presented. Early adoption of this Statement is not
permitted. SFAS 128 replaces primary and fully diluted earnings per share with
basic and diluted earnings per share, respectively. The Company expects that
basic earnings per share amounts will be accretive compared to the Company's
primary earnings per share amounts, and that diluted earnings per share amounts
will approximate the Company's primary earnings per share amounts.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
This information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the fiscal year ended September 29,
1996.
RESULTS OF OPERATIONS
The following table sets forth, for the second quarter and first six
months of fiscal year 1997 and the second quarter and first six months of
fiscal year 1996, respectively, the percentage of net sales and the percentage
change represented by items reflected in the Company's Condensed Consolidated
Statement of Earnings.
<TABLE>
<CAPTION>
% of % of
Net Sales % Change Net Sales % Change
---------------- -------- -------------- ----------
Second Quarter 1996 to Six Months 1996 to
1997 1996 1997 1997 1996 1997
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0 100.0 51.9 100.0 100.0 63.0
Cost of goods sold 50.9 58.1 32.9 54.0 58.1 51.3
----- ----- ----- -----
Gross profit 49.1 41.9 78.1 46.0 41.9 79.3
Operating expenses
Selling and marketing 19.4 12.8 131.3 17.6 12.9 122.0
General and administrative 6.0 5.3 72.9 5.3 5.1 71.8
Research and development 6.5 6.2 56.6 5.9 6.3 51.8
----- ----- ----- -----
Total operating expenses 31.9 24.3 99.3 28.8 24.3 93.2
Operating profit 17.2 17.6 48.8 17.2 17.6 60.0
Interest income - 0.6 (89.3) - 0.7 (92.0)
Interest expense 0.3 0.3 68.3 0.3 0.3 58.1
Other income - - (38.9) 0.1 - 1,746.2
----- ----- ----- -----
Earnings before income taxes 16.9 17.9 43.8 17.0 18.0 54.3
Income tax expense 3.6 6.5 14.3 5.0 6.5 23.4
----- ----- ----- -----
Net earnings 13.3 11.4 77.2 12.0 11.5 72.1
===== ===== ===== =====
</TABLE>
11
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SECOND QUARTER ENDED MARCH 30, 1997 AND MARCH 31, 1996:
NET EARNINGS
Net earnings for the second quarter of 1997, including the impact of a
$17.9 million non-recurring tax benefit related to the acquisition of Scorpio
Communications, were $91.5 million, an increase of 77.2% from the $51.6 million
recorded for the corresponding quarter of 1996. Net earnings per share for the
quarter were $.95 based on 95.9 million weighted average shares outstanding,
compared to $.55 on 94.2 million weighted average shares outstanding for the
second quarter of the prior year.
Factors contributing to the significant improvements in net earnings and
net earnings per share are discussed below.
NET SALES
Net sales for the second quarter of 1997 were $690.2 million, an increase
of 51.9% over the $454.5 million recorded for the corresponding quarter of
1996. The growth in net sales was driven primarily by higher overall worldwide
market demand for information access devices, with higher revenues from sales
of both systems and PC-related products, including products based upon the
Company's x2 technology, contributing to the increase. x2 technology increases
the top speed for downloading data from 28.8 or 33.6 Kbps (Kilobits per second)
for standard V.34 modems to over 50 Kbps.
Revenues from sales of systems products were $177.0 million in the second
quarter of fiscal 1997, approximately double the total for the corresponding
quarter of 1996. The increase in revenues was due primarily to higher unit
sales, which more than offset the impact of lower average selling prices.
Higher unit sales reflected significant investments in network expansion by
large internet service provider customers as well as continued growth in demand
for systems products by enterprise customers and smaller internet service
providers.
Revenues from sales of PC-related products were $513.2 million in the
second quarter of fiscal 1997, approximately 40% higher than the corresponding
quarter of 1996. The increase in revenues was due primarily to higher unit
sales, which more than offset the impact of lower average selling prices.
During the second quarter of 1997, revenues from the sale of PC-related
products continued to be attributable primarily to 33.6 Kbps and 28.8 Kbps
products; however, shipments of the Company's new x2 products, which had higher
average selling prices, began during that quarter.
International sales for the second quarter of 1997 increased by 80.8% to
$229.8 million or 33% of consolidated net sales, compared to $127.1 million or
28% of consolidated net sales for the corresponding quarter of 1996. The
increase in international sales resulted from higher revenues in both the
systems and PC-related product categories in all major geographic regions, and
was primarily the result of an expansion in the size of the Company's
international sales force. The Company has significantly
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expanded its presence in international markets in response to continued
growth in market demand for information access products.
International sales are denominated primarily in U.S. dollars. The
Company's operations were not significantly impacted by fluctuations in foreign
currency exchange rates.
GROSS PROFIT
Gross profit was $339.0 or 49.1% of net sales in the second quarter of
1997, compared to $190.3 million or 41.9% of net sales for the corresponding
quarter of 1996. The increase in gross profit dollar contribution reflected
significantly higher unit sales volumes offset by lower average selling prices.
The increase in gross profit margin was due primarily to a change in the mix
of products sold, reflecting a higher percentage of systems products, and
higher margins on the initial shipments of products featuring the Company's x2
technology. Improved gross margins associated with modem products
incorporating x2 technology reflected the Company's temporary "first to market"
advantage over its competitors.
OPERATING EXPENSES
Total operating expenses for the second quarter of 1997 were $220.0
million or 31.9% of net sales, compared to $110.4 million or 24.3% of sales for
the corresponding quarter of 1996.
Selling and marketing expenses were $134.0 million or 19.4% of net sales
for the second quarter of 1997, compared to $58.0 million or 12.8% of net sales
for the corresponding quarter of 1996. The increase in these expenses in
absolute dollars and as a percentage of net sales primarily reflects the costs
of two major initiatives. During the second quarter of 1997, the Company made
significant expenditures related to an extensive TV, print and on-line
advertising campaign associated with the introduction of its new x2 products.
Also, the Company continued to make investments to build its worldwide sales
force and expand market share, particularly in international markets. At the
end of the second quarter of 1997, the worldwide sales force was 58% larger
than it was at the end of the comparable prior period. Nearly half of the
selling and marketing personnel additions occurred in Europe and Asia.
General and administrative expenses for the second quarter of 1997 were
$41.6 million or 6.0% of net sales, compared to $24.0 million or 5.3% of net
sales for the corresponding quarter of 1996. The increase over the prior year
was attributable primarily to expenses associated with additional personnel,
systems and outside services necessary to support the Company's expanded level
of business activity.
Research and development expenses for the second quarter of 1997 were
$44.4 million or 6.5% of net sales, compared to $28.4 million or 6.2% of net
sales for the corresponding quarter of 1996. The increase resulted from
increases in the size of the Company's engineering staff and related costs to
support its continued commitment to new product and technology development.
The Company believes that continued investment in research
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and development activities is critical to future sales growth and
technological competitiveness.
OTHER EXPENSES - NET
Other expenses - net for the second quarter of 1997 were $2.0 million
compared to other income - net of $1.3 million for the corresponding quarter of
1996. The change was due primarily to higher net interest expense reflecting
lower average cash and investment balances and higher average short term
borrowings.
INCOME TAX EXPENSE
The provisions for income taxes were $25.4 million for the second quarter
of 1997 and $29.7 million for the corresponding quarter of 1996,
resulting in effective tax rates for these quarters of 21.8% and 36.5%,
respectively. The provision for the second quarter of 1997 reflected a
non-recurring tax benefit of $17.9 million related to the acquisition of
Scorpio Communications. The Company's reported results of operations for the
quarter ended September 29, 1996 reflected a $54.0 million write-off of
purchased in-process technology with no corresponding tax benefit, due to
uncertainty regarding the benefit's realizability. The uncertainty was
resolved by new income tax regulations which became effective in January, 1997
and which permitted the Company to make an election resulting in U.S. tax
deductions for the write-off of purchased in-process technology and other
intangible assets acquired in the Scorpio transaction. Excluding the impact of
the non-recurring benefit, the effective tax rate for the second quarter of
1997 was 37.1%.
OTHER
To date, inflation has not had a material impact on the Company's results
of operations.
SIX MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996:
NET EARNINGS
Net earnings for the six months ended March 30, 1997 ("First Six Months of
1997"), including the impact of a $17.9 million non-recurring tax benefit
related to the acquisition of Scorpio Communications, were $160.5 million, an
increase of 72.1% from the $93.3 million recorded for the six months ended
March 31, 1996 ("First Six Months of 1996"). Net earnings per share for the
First Six Months of 1997 were $1.67, based on 96.1 million weighted average
shares outstanding, compared to $1.00 on 93.6 million weighted average shares
outstanding for the First Six Months of 1996.
Factors contributing to the significant improvement in net earnings and
net earnings per share are discussed below.
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NET SALES
Net sales for the First Six Months of 1997 were $1,335.6 million, an
increase of 63.0% over the $819.3 million recorded for the corresponding period
of 1996. International sales for the First Six Months of 1997 increased by
87.1% to $423.3 million or 31.7% of consolidated net sales as compared to
$226.2 million or 27.6% of consolidated net sales for the corresponding prior
year period. The increases in total sales and International sales were
attributable primarily to higher unit sales of both systems and PC-related
products, reflecting continued growth in overall worldwide market demand for
information access devices. Partly offsetting the impacts of higher unit sales
were lower average selling prices for both systems and PC-related products.
GROSS PROFIT
Gross profit was $614.9 or 46.0% of net sales for the First Six Months of
1997, compared to $342.9 million or 41.9% of net sales for the corresponding
period of 1996. The increase in gross profit dollar contribution reflected
significantly higher sales volumes offset by lower average selling
prices. The increase in gross profit margin was due primarily to higher
margins on PC-related products, reflecting the introduction of the Company's
new x2 products and the associated temporary "first to market" advantage, as
well as a favorable change in the mix of products sold.
OPERATING EXPENSES
Total operating expenses for the First Six Months of 1997 were $385.0
million or 28.8% of net sales, compared to $199.2 million or 24.3% of sales for
the corresponding period of 1996.
Selling and marketing expenses were $234.8 million or 17.6% of net sales
for the First Six Months of 1997, compared to $105.8 million or 12.9% of net
sales for the corresponding period of 1996. The increase in these expenses in
absolute dollars and as a percentage of net sales reflects higher personnel
costs associated with the significant expansion of the Company's worldwide
sales force, as well as substantial expenditures for marketing and promotional
programs, particularly those related to the introduction of the Company's new
x2 products.
General and administrative expenses for the First Six Months of 1997 were
$71.6 million or 5.3% of net sales, compared to $41.7 million or 5.1% of net
sales for the corresponding period of 1996. The increase was attributable
primarily to expenses associated with the additional personnel, systems and
outside services necessary to support the Company's expanded level of business
activity.
Research and development expenses for the First Six Months of 1997 were
$78.7 million or 5.9% of net sales, compared to $51.8 million or 6.3% of net
sales for the corresponding period of 1996. The increase resulted from
increases in the size of the Company's engineering staff and related
15
<PAGE> 16
costs to support its continued commitment to new products and
technology development.
OTHER EXPENSES - NET
Other expenses - net for the First Six Months of 1997 were $3.3 million
compared to other income - net of $3.2 million for the corresponding period of
1996. The change was due to higher net interest expense reflecting lower
average cash and investment balances and higher average short term borrowings.
INCOME TAX EXPENSE
The provision for income taxes were $66.1 million for the First Six Months
of 1997 and $53.6 million for the corresponding period of 1996, resulting in
effective tax rates for those periods of 29.2% and 36.5%, respectively. The
provision for the First Six Months of 1997 reflected a non-recurring tax
benefit of $17.9 million related to the acquisition of Scorpio Communications.
Excluding the impact of the non-recurring benefit, the effective tax rate for
the First Six Months of 1997 was 37.1%.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
March 30, September 29,
1997 1996
--------- -------------
<S> <C> <C>
Cash and cash equivalents $ 49.9 $ 16.8
Working capital $506.5 $416.9
Long-term obligations $ 55.1 $ 54.0
Availability under committed and uncommitted
lines of credit $329.3 $357.5
</TABLE>
The Company generated $183.1 million in cash flows from operating
activities, excluding changes in current assets and liabilities, during the
First Six Months of 1997 compared to $91.6 million for the corresponding period
of 1996. The improvement was due primarily to the $516.3 million increase in
net sales and the resultant higher net earnings.
Working capital was $506.5 million at March 30, 1997 compared to $416.9
million at September 29, 1996. The current ratio at March 30, 1997 was
approximately 2.0, down from 2.2 at September 29, 1996. Accounts receivable,
net of allowances, were $718.4 million at the end of the second quarter of 1997
compared to $490.0 million at the end of the fourth quarter of 1996. The
increase was attributable to several factors, including the overall growth in
net sales; growth in International sales, which tend to have longer collection
periods; and a greater skewing of shipments to late in the March quarter than
was the case in the two preceding quarters, reflecting the release of native x2
client products and deployments of x2 technology by systems products customers
late in the March quarter. Receivables are being collected in the normal
course of business based on specified trade terms. Inventories were $155.8
million at the end of the second quarter of 1997 compared to $185.9 million at
the end of the fourth quarter of 1996. Inventory turns increased 34%, from 6.8
times during the
16
<PAGE> 17
fourth quarter of 1996 to 9.1 times during the second quarter
of 1997. Accounts payable and accrued liabilities totaled $372.2 million at
the end of the second quarter of 1997, up from $269.7 million at the end of the
fourth quarter of 1996. This increase relates to higher accruals for marketing
promotions and programs associated with the introduction of the Company's new
x2 products, as well as to the Company's expanded level of activity overall and
timing differences related to normal trade accounts payable and routine
accruals. Short term borrowings totaled $60.7 million, up from $32.5 million
at the end of the fourth quarter of 1996.
Cash used in investing activities was $104.4 million during the First Six
Months of 1997 compared to $63.5 million for the corresponding period of 1996.
The majority of the current year expenditures related to the purchase and
continued development and outfitting of the Company's Mt. Prospect, Illinois
facility, as well as the purchase of additional manufacturing equipment and
office furniture and fixtures. Expenditures also were made in connection with
acquisitions of distributors in Australia, Japan and Sweden designed to broaden
the Company's local sales presence in these geographic areas.
Cash provided by financing activities totaled $64.7 million during the
First Six Months of 1997 compared to $42.1 million for the comparable period of
1996. In the 1997 period, proceeds from the exercise of stock options by
employees and issuances of common stock under the Company's employee stock
purchase plan totaled $14.7 million. Also, the Company realized tax benefits of
$21.8 million in the same period in connection with the exercise of stock
options by employees. The Company had $60.7 million in short term borrowings
outstanding at the end of the second quarter of 1997. These borrowings were
used to help finance the investments in working capital, capital expenditures
and acquisitions mentioned previously.
The Company expects to continue to make significant investments in the
future to support its overall growth. Currently, it is anticipated that
ongoing operations will be financed primarily from internally generated funds.
However, as indicated in the Company's most recent Annual Report on Form 10-K,
there are several factors that could affect the Company's ability to generate
cash from operations in the future, including general economic conditions,
market competition and changes in working capital requirements. The Company
believes its anticipated cash flows from operations and access to debt and
equity markets will permit the financing of its business requirements in an
orderly manner for the foreseeable future.
FUTURE OPERATING RESULTS
The preceding paragraph and the following discussion include
forward-looking statements regarding the Company's future financial position
and results of operations. Actual financial position and results of operations
may differ materially from these statements.
Demand in the second quarter continued to be strong for the Company's
expanding portfolio of information access products, including Total Control
17
<PAGE> 18
remote access concentrators and servers, Sportster modems, Megahertz PC cards,
OEM modem products and PalmPilot connected organizers. The Company expects
demand for all of its product lines to continue to grow substantially during
the remainder of the 1997 fiscal year as worldwide requirements for highly
integrated, cost-effective, end-to-end information access solutions increase.
In addition, the availability of the Company's x2 (56 Kbps) technology is
expected to have a widespread impact on Internet users by enabling them to have
a more satisfying on-line experience.
The Company does not expect revenue growth to occur ratably over the 1997
fiscal year; instead, the Company expects that the major impact of the x2 (56
Kbps) product introduction on revenues and earnings will occur during the
second half of the year. Revenue growth in the third and fourth quarters of
1997 will depend to a large extent on the rapidity with which its Internet and
on-line service provider customers continue to implement x2 technology in their
networks and the resultant consumer and corporate demand for x2-enabled
products.
Gross margin during the second quarter of 1997 increased 7.2 percentage
points from the comparable period in 1996; as competing 56 Kbps products are
introduced to the market, however, the Company expects gross margins to return
over time to levels more consistent with the Company's results in previous
quarters. The Company expects to reduce the costs of its products through
design and engineering improvements and increases in efficiency of the
manufacturing process. The Company also expects to remain highly competitive
in the pricing of all of its products as it seeks to continue to expand market
share.
The Company expects to grow international operations over the next several
years and estimates that approximately half of its total sales ultimately will
be derived from international operations. Total revenues attributable to sales
of systems products are expected to continue to increase over time, with
individual quarterly results fluctuating as a result of the ordering patterns
of the Company's major systems customers. The Company expects to continue
expanding its sales force, marketing efforts, and engineering and back office
support capabilities since these are instrumental to the Company's future
success. The Company intends to position itself to take advantage of
opportunities in the markets it serves by accelerating investments in new
technologies such as x2 (56 Kbps), wireless, switching and broadband access,
including xDSL and cable. The Company believes that continued investment in
research and development activities is critical to future sales growth and
technological competitiveness.
The Company's ability to achieve its revenue and profitability objectives
in fiscal 1997 will depend on many factors beyond the Company's control. These
include the timing and market acceptance of x2 and other new products and
features announced and introduced by the Company and its competitors, and the
extent to which the Company is successful in implementing its ongoing strategy
of continuously improving the performance/cost characteristics of its products
through improved designs and manufacturing efficiencies. Other factors include
rapid changes in
18
<PAGE> 19
technologies and standards relating to information access and
telecommunications.
The foregoing forward-looking statements involve a number of risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially are those listed
in the Company's most recent Annual Report on Form 10-K and in the definitive
Joint Proxy Statement/Prospectus related to the pending merger with 3Com
Corporation ("3Com") and included from time to time in other documents filed by
the Company with the Securities and Exchange Commission.
Because of the foregoing uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance. The use of historical trends to anticipate
results or trends in future periods may be inappropriate. In addition, the
Company's participation in a highly dynamic industry often results in
significant volatility in the price of the Company's common stock.
On February 26, 1997, the Company executed a definitive agreement to merge
with a wholly-owned subsidiary of 3Com. The Company anticipates that the
pending merger with 3Com will close prior to the completion of the Company's
fiscal third quarter ending June 29, 1997. Accordingly, the Company does not
expect to report its results of operations on a stand alone basis in the
future. See Note C of Notes to Condensed Consolidated Financial Statements for
additional information related to the pending merger.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issues
Statement of Financial Accounting Standard 128 (SFAS 128), "Earnings per
Share". SFAS 128 establishes new standards for computing and presenting
earnings per share. See Note E of Notes to Condensed Consolidated Financial
Statements for additional information related to the impact of SFAS 128 on the
Company's reported results of operations.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to lawsuits in the normal course of its business.
The Company and its counsel believe that it has meritorious defenses in all
lawsuits in which the Company or its subsidiaries is a defendant. The Company
does not believe the outcome of these cases will have a material effect on its
financial condition or results of operations, but notes that (i) litigation in
general and patent litigation in particular can be expensive and disruptive to
normal business operations and (ii) the results of complex legal proceedings
can be very difficult to predict with any certainty.
On February 13, 1997, Motorola, Inc. filed suit against the Company in the
United States District Court for the District of Massachusetts, claiming
infringement of eight United States patents. The complaint alleges willful
infringement and prays for unspecified damages and injunctive relief. In a
separate statement announcing the filing of the lawsuit published on PRNewswire
on the same date, Motorola alleged that the patents at issue cover
"technologies essential to the International Telecommunications Union (ITU)
V.34 modem standard." In the same statement, a Motorola officer is quoted as
saying that Motorola is "committed" to making its technology incorporated in
standards available on a "fair, reasonable and non-discriminatory basis." The
Company has filed an answer to Motorola's claims setting forth its defenses and
asserting counterclaims which allege infringement of one of the Company's
patents, violation of antitrust laws, promissory estoppel and unfair
competition. Although the Company believes it has meritorious defenses to
Motorola's claims and intends to contest this lawsuit vigorously, an adverse
outcome of such litigation could have a material adverse effect on the
business, results of operations or financial condition of the Company or the
combined company after the Merger.
Seven purported stockholder class action suits have been filed arising out
of the Company's proposed participation in the merger with 3Com.
On February 27, 1997, the day following the public announcement of the
proposed Merger, five purported stockholder class action suits were filed in
the Court of Chancery of the State of Delaware (MORGANSTERN V. U.S. ROBOTICS
CORPORATION, C.A. No. 15580; KLEIN V. COWELL, C.A. No. 15583; MULHOLLAND V.
U.S. ROBOTICS CORPORATION, C.A. No. 15584; GLICK V. U.S. ROBOTICS CORPORATION,
C.A. No. 15586; ROSEN V. U.S. ROBOTICS CORPORATION, C.A. No. 15587). On
February 28, 1997, an additional purported stockholder class suit was filed in
the Court of Chancery of the State of Delaware (REISS V. COWELL, C.A. No.
15588) (collectively, the "Delaware Actions").
The Delaware Actions generally name as defendants the Company and the
individual members of the Company's Board. 3Com has been named as a defendant
in five of the Delaware Actions (all but ROSEN V. U.S. ROBOTICS CORPORATION,
C.A. No. 15587). In general, the actions allege that the Company's directors
breached their fiduciary duties to the stockholders by
20
<PAGE> 21
agreeing to the proposed merger for allegedly "unfair and grossly inadequate"
consideration in light of recent operating results of the Company, recent
trading prices of the Company's common stock and other alleged factors, by
allegedly failing to properly inform themselves of the Company's "highest
transactional value" prior to agreeing to the proposed merger and by allegedly
failing to take all necessary steps to ensure that stockholders will receive
the maximum value realizable for their shares (including allegedly failing to
actively pursue the acquisition of the Company by other companies, engage in a
"meaningful auction" with third parties, or conduct an adequate "market
check"). In addition, the actions allege that the Company's directors breached
their fiduciary duties to stockholders by allegedly failing to bargain for any
price protection which would alter the exchange ratio for the proposed merger
in favor of the Company's stockholders in the event 3Com's stock declines in
value, by allegedly failing to appoint or retain any "truly independent" person
or entity to negotiate for or on behalf of the Company's public stockholders,
and by agreeing to the proposed merger to allegedly enhance their compensation
and positions with the Company. Five of the six lawsuits further allege that
3Com is responsible for aiding and abetting the alleged breach of fiduciary
duty committed by the Company Board. The Delaware Actions seek certification of
a class action on behalf of the Company's stockholders. In addition, the
Delaware Actions seek injunctive relief against consummation of the merger and,
in the event that the merger is consummated, the rescission of the merger, an
award of compensatory or rescissory damages and other damages, including court
costs and attorneys' fees, an accounting by the defendants of all profits
realized by them as a result of the merger and various other forms of relief.
Also, on March 26, 1997, one additional purported stockholder class action
suit relating to the proposed merger with 3Com was filed in the Circuit Court
of Cook County, Illinois (FEILEN V. U.S. ROBOTICS CORPORATION, No.
97-CH-0003690). This action alleges that the Company's directors breached
their fiduciary duties to the stockholders by "negotiating an unconscionably
high termination or 'lock up' fee" in the Merger Agreement. This action further
alleges that the Company directors, by agreeing to these fee provisions, have
"effectively deprived their shareholders of their voting rights, since if they
do not approve the merger, their company will suffer stiff penalties." In
addition, the action alleges that, as a result of these fee provisions, the
Merger Agreement violates Section 251 of the Delaware General Corporation Law.
This action seeks both declaratory and injunctive relief, including enjoinder
of a stockholder meeting, a declaration that the Merger Agreement's "penalty
fees" are "illegal and invalid," and an award of the costs of the action,
including reasonable attorneys' fees and experts' fees.
The Company and 3Com believe that all of these lawsuits are meritless and
the Company intends to oppose them vigorously.
On April 21, 1997, the Company and three of its customers, Best Buy Co.,
Inc., Egghead, Inc. and Fry's Electronics, Inc., were sued in a purported
consumer class action filed in Superior Court in Marin County, California
(Bendall et al v. U.S. Robotics Corporation et al, No. 170441). The named
plaintiffs are residents of the states of Alabama, California,
21
<PAGE> 22
Tennessee and Washington and they purport to represent various classes of
persons who have purchased or otherwise acquired the Company's new x2 products
and products upgradeable to x2. Damages, including punitive damages, and other
relief are sought under the California Consumer Legal Remedies Act and the
California Song-Beverly Consumer Warranty Act, and under various common law
theories, including breach of contract, fraud and deceit, negligent
misrepresentation, breach of implied warranty and unjust enrichment.
Another lawsuit, purporting to be "For the interests of the General
Public" was filed against the Company in the same court on March 13, 1997 (Levy
v. U.S. Robotics Corporation, No. 170968). This action alleges that
the Company's promotion and advertising of x2 products constituted unfair
competition and deceptive, untrue and misleading advertising in violation of
the California Business and Professional Code, and seeks injunctive and other
relief, including "restitution of all revenues" and an award of attorney fees.
Additionally, a purported public interest plaintiff sued the Company on January
29, 1997 in California Superior Court in San Francisco (Intervention Inc. v.
U.S. Robotics Corporation, Case No. 984352) under the same statute, alleging
various misrepresentations in connection with the promotion and advertising of
the Company's x2 products, and seeking injunctive and other relief, including
attorneys' fees.
On April 28, 1997, Xerox Corporation filed suit against USR in the United
States District Court for the Western District of New York (XEROX CORPORATION
V.U.S. ROBOTICS CORPORATION AND U.S. ROBOTICS ACCESS CORP., No. 97-CV-6182T),
claiming infringement of one United States patent. The complaint alleges
willful infringement and prays for unspecified damages and injunctive relief.
In a press release dated April 30, 1997, Xerox alleged that its patent, issued
January 21, 1997, "covers the use and recognition of handwritten text using an
alphabet system designed especially for reliable recognition in pen computers,"
and that the Company's PalmPilot hand-held computer and "Graffiti" software
infringe the Xerox patent. The Company believes it has meritorious defenses to
Xerox's claims and intends to contest the lawsuit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the stockholders of U.S. Robotics Corporation on
March 5, 1997, the following matter was submitted to a vote of stockholders:
1. To elect two directors to the Board of Directors of the
Company, each to serve for a term of 3 years.
22
<PAGE> 23
The results of the voting are shown below:
<TABLE>
<CAPTION>
BROKER
PROPOSAL FOR AGAINST WITHHELD NON-VOTES
- ---------- --- ------- -------- ---------
<S> <C> <C> <C> <C>
Election of Mr. Zakin 76,351,011 0 1,222,302 0
Election of Mr. Cowie 76,350,699 0 1,222,614 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Description
------- -----------
2.1 Amended and Restated Agreement and Plan of Merger dated
as of March 14, 1997, by and among 3Com Corporation, TR
Acquisitions Corporation and 3Com (Delaware) Corporation
and U.S. Robotics Corporation (incorporated by reference
to Annex A of U.S. Robotics Corporation's definitive
Joint Proxy Statement/Prospectus, filed on May 12, 1997).
3.1 Certificate of Incorporation of U.S. Robotics Corporation
(f/k/a U.S. Robotics Holding corporation) (incorporated
by reference to Exhibit 3.1 of the 1996 Form 10-K).
3.2 By-laws of U.S. Robotics Corporation (incorporated by
reference to Exhibit 4.3 of the 1996 Form S-8).
4.1 Form of Certificate of Common Stock of U.S. Robotics
Corporation (incorporated by reference to Exhibit 4.1.1
of the 1995 Form S-4).
4.2 Rights Agreement between U.S. Robotics Corporation and
Harris Trust and Savings Bank, as Rights Agent, dated May
9, 1996 (incorporated by reference to Exhibit 1 of the
1996 Form 8-A).
10.1 3Com Stock Option Agreement dated as of February 26,
1997 by and between U.S. Robotics Corporation and 3Com
Corporation (incorporated by reference to Annex B of U.S.
Robotics Corporation's definitive Joint Proxy Statement/
Prospectus filed on May 12, 1997).
10.2 The Company Stock Option Agreement dated as of
February 26, 1997 by and between 3Com Corporation and
U.S. Robotics Corporation (incorporated by reference to
Annex C of U.S. Robotics Corporation's definitive Joint
Proxy Statement/Prospectus filed on May 12, 1997).
23
<PAGE> 24
10.3 Employment Agreement between U.S. Robotics
Corporation's subsidiary, U.S. Robotics Access Corp., and
Casey Cowell, dated January 1, 1997 (incorporated by
reference to Exhibit 10.1 of the 1997 First Quarter
10-Q).
10.4 Amendment #1 to Employment Agreement between U.S.
Robotics Access Corp. and Casey Cowell, dated February
26, 1997.
10.5 Employment Agreement between U.S. Robotics Access Corp.
and John McCartney, dated January 1, 1997 (incorporated
by reference to Exhibit 10.2 of the 1997 First Quarter
10-Q).
10.6 Amendment #1 to Employment Agreement between U.S.
Robotics Access Corp. and John McCartney, dated
February 26, 1997.
10.7 Employment Agreement between U.S. Robotics Access Corp.
and Jonathan N. Zakin, dated January 1, 1997
(incorporated by reference to Exhibit 10.3 of the 1997
First Quarter 10-Q).
10.8 Amendment #1 to Employment Agreement between U.S.
Robotics Access Corp. and Jonathan N. Zakin, dated
February 26, 1997.
10.9 Amendment #3 to Employee Stock Purchase Plan of U.S.
Robotics Corporation, dated November 14, 1996 and
effective as of January 1, 1997 (incorporated by
reference to Exhibit 10.5 of the 1997 First Quarter
10-Q).
11 Computation of Net Earnings per Share.
27 Financial Data Schedule (filed only electronically with
the Securities and Exchange Commission).
(b) Since the end of its most recent fiscal quarter on December 29, 1996,
U.S. Robotics Corporation has filed the following reports on Form 8-K:
Date of Report Item Reported
- ----------------- ------------------------------------------------------------
January 21, 1997 U.S. Robotics Corporation announced its results of
operations for its fiscal first quarter ended December 29,
1996.
February 13, 1997 U.S. Robotics Corporation announced that it believes it has
meritorious defenses to a suit filed against the Company by
Motorola, Inc. which claims infringement of eight United
States Patents and that it intends to mount a vigorous
defense to the lawsuit.
24
<PAGE> 25
February 26, 1997 U.S. Robotics Corporation announced that it had executed a
definitive merger agreement with 3Com Corporation whereby
the Company will become a wholly-owned subsidiary of 3Com.
Under the terms of the merger agreement, each outstanding
share of U.S. Robotics common stock will be converted into
the right to receive 1.75 shares of 3Com stock. In
connection with the merger agreement, each of 3Com and the
Company granted to each other an option, exercisable in
certain circumstances, to purchase stock amounting to up to
19.9% of its outstanding shares.
April 23, 1997 U.S. Robotics Corporation announced its results of
operations for the second quarter ended March 30, 1997.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. ROBOTICS CORPORATION
(Registrant)
DATE: May 14, 1997 /s/ Mark Remissong
----------------------------------------------
Mark Remissong,
Vice President and Chief Financial Officer
(Principal Financial Officer)
DATE: May 14, 1997 /s/ Steven T. Campbell
----------------------------------------------
Steven T. Campbell,
Vice President and Controller
(Principal Accounting Officer)
26
<PAGE> 1
EXHIBIT 10.4
U.S. ROBOTICS ACCESS CORP.
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the "Amendment"), dated as
of the 26th day of February, 1997, by and among U.S. Robotics Corporation, a
Delaware corporation (the "Parent Corporation"), U.S. Robotics Access Corp., a
Delaware corporation (the "Company"), 3COM Corporation, a California
corporation ("3COM"), and Casey Cowell ("Mr. Cowell").
RECITALS
WHEREAS, the Company and Mr. Cowell are parties to that certain Employment
Agreement, dated as of January 1, 1997 (as amended, the "Employment
Agreement");
WHEREAS, the Company is a wholly owned subsidiary of the Parent
Corporation;
WHEREAS, the Parent Corporation and 3COM are parties to that certain
Agreement and Plan of Merger, dated as of February 26, 1997 (the "Merger
Agreement"), pursuant to which TR Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of 3COM, shall merge with and into
the Parent Corporation (the "Merger"), with the Parent Corporation as the
surviving corporation, and, pursuant to the Merger, all issued and outstanding
common stock of the Parent Corporation shall be converted into shares of common
stock of 3COM;
WHEREAS, as a result of the Merger, the Parent Corporation shall become a
wholly owned subsidiary of 3COM, and the Company shall become an indirect
wholly owned subsidiary of 3COM;
WHEREAS, the Parent Corporation, the Company and 3COM desire that 3COM
shall assume all of the rights and obligations of the Company and the Parent
Corporation pursuant to the Employment Agreement following the effective time
of the Merger;
WHEREAS, the Parent Corporation, the Company and 3COM desire to obtain the
benefit of Mr. Cowell's knowledge, skill and experience for 3COM and its
affiliates following the Merger, and Mr. Cowell is willing to render services
to 3COM and its affiliates following the Merger on the terms set forth in the
Employment Agreement as modified by this Amendment; and
<PAGE> 2
WHEREAS, the Parent Corporation, the Company, 3COM and Mr. Cowell desire
to amend the Employment Agreement as provided herein;
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Parent Corporation, the Company, 3COM and Mr. Cowell hereby agree as
follows:
1. Section 1(c) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(c) TITLE AND DUTIES. Mr. Cowell's title shall be Vice Chairman of 3COM,
and he shall possess such powers and duties normally incident to such position,
as provided in the By-laws of 3COM and in accordance with applicable law. Mr.
Cowell shall report to the Chief Executive Officer of 3COM. Mr. Cowell's title
and duties may be changed at the discretion of the Board of Directors of 3COM.
During the Employment Term, Mr. Cowell shall faithfully discharge his duties
and responsibilities in a diligent manner, devoting substantially all of his
working time to the affairs of 3COM and its affiliates, provided that Mr.
Cowell shall not be required to change his principal place of residence from
the Chicago, Illinois area without his consent."
2. Section 2(a) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(a) SALARY. For services rendered by Mr. Cowell to 3COM and its
affiliates and upon the condition that Mr. Cowell fully and faithfully perform
all of his duties and obligations owed during the Employment Term under this
Agreement, 3COM shall pay Mr. Cowell a base salary during the Employment Term
at an annual rate not less than $650,000, payable in accordance with the
regular payroll practices and procedures of 3COM (but in no event shall such
salary be payable less frequently than on a monthly installment basis). This
base salary set forth herein shall be reviewed annually by the Compensation
Committee of the Board of Directors of 3COM, or any successor to such committee
(the "Compensation Committee"), at the end of each fiscal year (a "Fiscal
Year") of 3COM beginning with the end of the Fiscal Year in which the Merger
occurs, or at such other times as deemed appropriate by the Compensation
Committee, and may, at the sole discretion of the Compensation Committee, be
increased by an amount which it deems appropriate."
3. Section 2(b) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(b) BONUSES. Following the effective time of the Merger, 3COM shall pay
Mr. Cowell quarterly bonuses in the amounts and on the terms set forth on the
3COM proposed Bonus Program attached hereto as Exhibit A (the "Bonus Program")
for
2
<PAGE> 3
3COM's full Fiscal Year ending in 1998. The quarterly pre-tax income
thresholds and quarterly pre-tax income targets with respect to the Bonus
Program shall be determined by the Compensation Committee, in its sole
discretion. Following 3COM's 1998 Fiscal Year, Mr. Cowell's bonuses shall be
determined by the Compensation Committee."
4. Section 2(c) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(c) STOCK OPTIONS. Mr. Cowell shall be entitled to receive such options
to purchase the common stock of 3COM ("3COM Common Stock") as shall be granted
by the Compensation Committee pursuant to the applicable stock option plans of
3COM and its affiliates, provided that upon the first regular grant of stock
options by the Compensation Committee to senior executive officers of 3COM
following the effective time of the Merger, Mr. Cowell shall be entitled to
receive an option (a "3COM Option") to purchase at least that number of shares
of 3COM Common Stock which is equal to 90% of the number of shares of 3COM
Common Stock with respect to which is a 3COM Option is granted by the
Compensation Committee to any person holding the position of Chief Executive
Officer of 3COM."
5. Section 2(d) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(d) FRINGE BENEFITS. During the Employment Term, Mr. Cowell shall be
eligible to receive reasonable amounts (at least six weeks per year) of paid,
noncumulative vacation or personal time, as the case may be, per year, to be
taken at a time or times reasonably agreeable to both Mr. Cowell and 3COM, and
shall be eligible to participate in and receive coverage and benefits under all
group insurance, split dollar life insurance, pension, profit sharing, bonus,
stock option, stock ownership and other employee benefit plans, programs and
arrangements of 3COM and its affiliates which are now or hereafter adopted by
3COM and its affiliates for the benefit of its senior executive employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans, programs and arrangements. 3COM shall also
provide Mr. Cowell with certain perquisites, payable at the Company's expense,
which are offered to other senior executive employees and which are reasonable,
necessary and in the best interests of 3COM and its affiliates."
6. The following Section 2A is hereby added to and made a part of the
Employment Agreement, effective as of the effective time of the Merger:
"2A. REPRESENTATIONS, WARRANTIES, ACKNOWLEDGMENTS AND AGREEMENTS OF THE
PARENT CORPORATION, THE COMPANY AND 3COM. In order to induce Mr. Cowell to
execute and deliver this Amendment, the parties hereby represent, warrant,
acknowledge and agree as follows:
3
<PAGE> 4
(a) EXERCISABILITY OF OPTIONS. The Parent Corporation and the Company
hereby represent and warrant, and 3COM hereby acknowledges and agrees, that the
Board of Directors of the Parent Corporation has made a determination that the
consummation of the Merger shall constitute a "Change in Control" within the
meaning of the third paragraph of Section 11 of each of the 1991 Stock Option
Plan of U.S. Robotics, Inc., as amended, the Key Employee Stock Option Plan of
U.S. Robotics Corporation, as amended, and the Executive Officers and Directors
Stock Option Plan of U.S. Robotics Corporation, as amended (collectively, the
"Plans"), such that all unexpired and unexercised options to purchase common
stock of the Parent Corporation granted to Mr. Cowell under the Plans (which
options shall be converted by virtue of the Merger into options to purchase
3COM Common Stock) shall be immediately exercisable in full upon the
consummation of the Merger, except to the extent, if any, that Mr. Cowell
waives or rejects such immediate exercisability in a written notice given to
the Parent Corporation prior to the effective time of the Merger.
(b) CHANGE IN CONTROL.
(i) The Parent Corporation and the Company hereby represent and
warrant, and 3COM hereby acknowledges and agrees, that the Board of
Directors of the Parent Corporation has made a determination that the
consummation of the Merger shall constitute a "Change in Control" of the
Parent Corporation within the meaning of Section 5(d)(ii) of the
Employment Agreement. In addition, without limiting the generality of
the foregoing, with respect to the Change in Control resulting from the
consummation of the Merger, the parties hereby agree that the period
during which any termination of the Employment Term shall constitute
"Good Reason" within the meaning of Section 5(d)(i) of the Employment
Agreement shall be two years (rather than one year) following the
effective time of the Merger. The parties acknowledge and agree that
Section 5(d)(i) and Section 5(d)(ii) shall also apply by their terms to
any further Change in Control occurring after the Merger, in which event
all references to the Parent Corporation shall be deemed to be references
to 3COM as provided in Section 9 of this Amendment, and, accordingly,
that any termination of the Employment Term occurring within one year
following any such further Change in Control of 3COM shall constitute
"Good Reason" within the meaning of Section 5(d)(i) of the Employment
Agreement.
(ii) The Parent Corporation and the Company hereby represent and
warrant, and 3COM hereby acknowledges and agrees, that the Board of
Directors of the Parent Corporation has made a determination that the
execution of the Merger Agreement shall constitute a "Potential Change in
Control" within the meaning of Section 2.18 of the U.S. Robotics Split
Dollar Life Insurance Plan (the "Life Insurance Plan") and that the
consummation of the Merger shall constitute a "Change of Control" of the
Parent Corporation within the meaning of Section 2.4 of the Life
Insurance Plan and, accordingly, that the Parent Corporation shall
4
<PAGE> 5
establish and fund the Trust contemplated by Section 8.7 of the Life
Insurance Plan.
(c) GOOD REASON. The parties hereby acknowledge and agree that the
reference to "this Subsection (d)(i)" in the last sentence of Subsection
5(d)(i) of the Employment Agreement is intended and shall be deemed to refer
exclusively to Subsection 5(d)(i)(c) of the Employment Agreement.
(d) COMPENSATION COMMITTEE. Following the effective time of the Merger,
the Compensation Committee shall review and consider the adoption of an
incentive-based senior executive compensation plan to cover appropriate senior
executive personnel of 3COM and its affiliates, including Mr. Cowell, provided
that the compensation payable to Mr. Cowell under any such incentive-based
senior executive compensation plan shall not be less favorable than the
compensation payable to Mr. Cowell under the Bonus Program set forth as Exhibit
A attached hereto with respect to the 1998 Fiscal Year of 3COM. Mr. Cowell
hereby acknowledges and agrees that any salary and bonus amounts paid to Mr.
Cowell under the new incentive-based senior executive compensation plan shall
be credited against the salary and bonus amounts required to be paid to Mr.
Cowell pursuant to Section 2 of the Employment Agreement.
(e) ADDITIONAL TERMINATION BENEFITS. The Parent Corporation, the Company
and 3COM hereby agree that, upon the termination of the Employment Term for any
reason other than Mr. Cowell's death (i) Mr. Cowell shall be deemed to have
"retired" for purposes of all employee benefit plans of 3COM and its
affiliates, including without limitation health, retirement and any other plans
providing post-employment benefits, and (ii) for each of the three successive
twelve-month periods immediately following such termination, Mr. Cowell or his
designee shall be entitled to receive, and 3COM shall pay at the commencement
of each such period, a liquidated amount of $50,000 to reflect the anticipated
costs to Mr. Cowell or such designee of obtaining reasonable and appropriate
office space and support services.
7. Section 4(f)(ii) of the Employment Agreement is hereby amended as of
the effective time of the merger to read in its entirety as set forth below:
"(ii) TERMINATION BY COMPANY OR BY MR. COWELL FOR GOOD REASON. If 3COM
(or any of its affiliates) breaches this Agreement by terminating the
Employment Term, other than pursuant to Subsections (a) (cause), (b) (death) or
(c) (disability) of Section 5 herein, including but not limited to termination
without "cause" (as such term is defined in Subsection (a) of Section 5
herein), or if Mr. Cowell terminates the Employment Term for Good Reason, as
such term is defined in Subsection (d)(i) of Section 5 herein, then 3COM shall
pay as severance compensation to Mr. Cowell an amount equal to the sum of (1)
Mr. Cowell's annual base salary in effect as of the Date of Termination,
multiplied by three, plus (2) the greater of (A) the sum of all cash bonuses
actually received by Mr. Cowell with respect to the three full Fiscal Years of
the Parent
5
<PAGE> 6
Corporation and the Company ended on September 29, 1996 and (B) the sum of all
cash bonuses actually received by Mr. Cowell with respect to the then most
recent three full Fiscal Years of either 3COM or the Parent Corporation
(disregarding the partial Fiscal Year of the Parent Corporation in which the
Merger occurs), in each case less the amount of cash bonuses, if any,
theretofore paid to him with respect to the Fiscal Year in which such
termination occurs. Such severance compensation shall be payable in cash in a
lump on or before the fifteenth (15th) day following the Date of Termination;
provided, however, that where Sections 280G and Section 4999 of the Internal
Revenue Code of 1986, as amended, or any successor thereto (the "Code"), are
applicable, then such severance pay shall amount to one dollar less than the
maximum amount that Mr. Cowell may receive without having such payment be
treated as an excess parachute payment under Section 280G of the Code. Such
severance compensation shall not be subject to mitigation or offset due to
other earnings of Mr. Cowell."
8. Section 13(a) of the Employment Agreement is hereby amended as of the
effective time of the Merger to provide that the address designated with
respect to each of the Company, the Parent Corporation and 3COM shall be as set
forth below:
"3COM Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel"
9. 3COM hereby acknowledges and agrees that, by this Amendment, it shall
become a party to and fully responsible under the Employment Agreement,
effective as of the effective time of the Merger. The parties acknowledge and
agree that no provisions of this Amendment shall become effective until the
effective time of the Merger and that, effective as of the effective time of
the Merger, except as otherwise expressly provided herein, (a) 3COM shall
automatically, without any further action on its part, assume all of the
rights and obligations of the Company and the Parent Corporation pursuant to
the Employment Agreement, as amended hereby, (b) all references in the
Employment Agreement to "the Company," "the Parent Corporation" and "U.S.
Robotics" shall be deemed to be references to "3COM," (c) all references in the
Employment Agreement to the "Board of Directors of the Parent Corporation"
shall be deemed to be references to the "Board of Directors of 3COM," (d) all
references in the Employment Agreement to the "Stock Option and Compensation
Committee" shall be deemed to be references to the "Compensation Committee" of
3COM, (e) all references in the Employment Agreement to "Fiscal Year" shall be
deemed to be references to the "Fiscal Year of 3COM."
10. This Amendment may be executed in one or more counterparts (including
by means of telecopied signature pages), all of which shall be considered one
and the same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
parties. This Amendment,
6
<PAGE> 7
and all matters or disputes relating to the validity, construction, performance
or enforcement hereof, shall be governed, construed and controlled by and under
the laws of the State of Illinois without regard to principles of conflicts of
law.
11. All provisions of the Employment Agreement shall at all times remain
in full force and effect, as amended hereby, and as so amended each of the
parties hereto hereby acknowledges and confirms all of its respective rights
and obligations thereunder.
* * * * * *
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
U.S. ROBOTICS CORPORATION
/ s / George A. Vinyard
---------------------------------
Name: George A. Vinyard
Title: Vice President
U.S. ROBOTICS ACCESS CORP.
/ s / George A. Vinyard
---------------------------------
Name: George A. Vinyard
Title: Vice President
3COM CORPORATION
/ s / Janice M. Roberts
---------------------------------
Name: Janice M. Roberts
Title: Senior Vice President
/ s / Casey Cowell
---------------------------------
Casey Cowell
8
<PAGE> 9
EXHIBIT A
BONUS PROGRAM
The Parent Corporation's current bonus will be closed out at the time of the
Merger. In the quarter of the Merger, the bonus will be paid as though analyst
estimates were achieved. The payment will be pro-rated for the performance
period in the quarter.
From the time of the Merger until 5/31/98, the bonus will be based on quarterly
pre-tax income targets without quarterly holdbacks. The first quarter will be
pro-rated based on the time of the Merger.
<TABLE>
<CAPTION>
Quarter Pre-tax income Threshold
<S> <C>
Q1 75%
Q2 80%
Q3 85%
Q4 85%
</TABLE>
For purposes of determining the pre-tax income thresholds and targets, "pre-tax
income" means the net income of 3COM, determined before the payment of federal
and state income taxes, calculated in accordance with GAAP, excluding any
extraordinary and other non-recurring items.
Between the threshold and the target the bonus will be paid at the minimum
level indicated below.
For every percentage point the target earnings are exceeded the bonus will grow
1.6%.
No targets below current financial expectations.
EMPLOYMENT TERMS
<TABLE>
<CAPTION>
Name Current Base Min Base ($000) Min Bonus/ Qtr Non-Comp.
($000) ($000)
<S> <C> <C> <C> <C>
Mr. Cowell $950 $650 $375 2 yrs
</TABLE>
9
<PAGE> 1
EXHIBIT 10.6
U.S. ROBOTICS ACCESS CORP.
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the "Amendment"), dated as
of the 26th day of February, 1997, by and among U.S. Robotics Corporation, a
Delaware corporation (the "Parent Corporation"), U.S. Robotics Access Corp., a
Delaware corporation (the "Company"), 3COM Corporation, a California
corporation ("3COM"), and John McCartney ("Mr. McCartney").
RECITALS
WHEREAS, the Company and Mr. McCartney are parties to that certain
Employment Agreement, dated as of January 1, 1997 (as amended, the "Employment
Agreement");
WHEREAS, the Company is a wholly owned subsidiary of the Parent
Corporation;
WHEREAS, the Parent Corporation and 3COM are parties to that certain
Agreement and Plan of Merger, dated as of February 26, 1997 (the "Merger
Agreement"), pursuant to which TR Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of 3COM, shall merge with and into
the Parent Corporation (the "Merger"), with the Parent Corporation as the
surviving corporation, and, pursuant to the Merger, all issued and outstanding
common stock of the Parent Corporation shall be converted into shares of common
stock of 3COM;
WHEREAS, as a result of the Merger, the Parent Corporation shall become a
wholly owned subsidiary of 3COM, and the Company shall become an indirect
wholly owned subsidiary of 3COM;
WHEREAS, the Parent Corporation, the Company and 3COM desire that 3COM
shall assume all of the rights and obligations of the Company and the Parent
Corporation pursuant to the Employment Agreement following the effective time
of the Merger;
WHEREAS, the Parent Corporation, the Company and 3COM desire to obtain the
benefit of Mr. McCartney's knowledge, skill and experience for 3COM and its
affiliates following the Merger, and Mr. McCartney is willing to render
services to 3COM and its affiliates following the Merger on the terms set forth
in the Employment Agreement as modified by this Amendment; and
<PAGE> 2
WHEREAS, the Parent Corporation, the Company, 3COM and Mr. McCartney
desire to amend the Employment Agreement as provided herein;
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Parent Corporation, the Company, 3COM and Mr. McCartney hereby agree as
follows:
1. Section 1(c) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(c) TITLE AND DUTIES. Mr. McCartney's title shall be President, 3COM
Discreet Products, and he shall possess such powers and duties normally
incident to such position, as provided in the By-laws of 3COM and in accordance
with applicable law. Mr. McCartney shall report to the Chief Executive Officer
of 3COM. Mr. McCartney's title and duties may be changed at the discretion of
the Board of Directors of 3COM. During the Employment Term, Mr. McCartney
shall faithfully discharge his duties and responsibilities in a diligent
manner, devoting substantially all of his working time to the affairs of 3COM
and its affiliates, provided that Mr. McCartney shall not be required to change
his principal place of residence from the Chicago, Illinois area without his
consent."
2. Section 2(a) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(a) SALARY. For services rendered by Mr. McCartney to 3COM and its
affiliates and upon the condition that Mr. McCartney fully and faithfully
perform all of his duties and obligations owed during the Employment Term under
this Agreement, 3COM shall pay Mr. McCartney a base salary during the
Employment Term at an annual rate not less than $500,000, payable in accordance
with the regular payroll practices and procedures of 3COM (but in no event
shall such salary be payable less frequently than on a monthly installment
basis). This base salary set forth herein shall be reviewed annually by the
Compensation Committee of the Board of Directors of 3COM, or any successor to
such committee (the "Compensation Committee"), at the end of each fiscal year
(a "Fiscal Year") of 3COM beginning with the end of the Fiscal Year in which
the Merger occurs, or at such other times as deemed appropriate by the
Compensation Committee, and may, at the sole discretion of the Compensation
Committee, be increased by an amount which it deems appropriate."
3. Section 2(b) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(b) BONUSES. Following the effective time of the Merger, 3COM shall pay
Mr. McCartney quarterly bonuses in the amounts and on the terms set forth on
the 3COM
2
<PAGE> 3
proposed Bonus Program attached hereto as Exhibit A (the "Bonus Program") for
3COM's full Fiscal Year ending in 1998. The quarterly pre-tax income
thresholds and quarterly pre-tax income targets with respect to the Bonus
Program shall be determined by the Compensation Committee, in its sole
discretion. Following 3COM's 1998 Fiscal Year, Mr. McCartney's bonuses shall
be determined by the Compensation Committee."
4. Section 2(c) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(c) STOCK OPTIONS. Mr. McCartney shall be entitled to receive such
options to purchase the common stock of 3COM ("3COM Common Stock") as shall be
granted by the Compensation Committee pursuant to the applicable stock option
plans of 3COM and its affiliates, provided that upon the first regular grant of
stock options by the Compensation Committee to senior executive officers of
3COM following the effective time of the Merger, Mr. McCartney shall be
entitled to receive an option (a "3COM Option") to purchase at least that
number of shares of 3COM Common Stock which is equal to 100% of the number of
shares of 3COM Common Stock with respect to which a 3COM Option is granted by
the Compensation Committee to any person holding the position of President,
3COM Systems."
5. Section 2(d) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(d) FRINGE BENEFITS. During the Employment Term, Mr. McCartney shall be
eligible to receive reasonable amounts (at least six weeks per year) of paid,
noncumulative vacation or personal time, as the case may be, per year, to be
taken at a time or times reasonably agreeable to both Mr. McCartney and 3COM,
and shall be eligible to participate in and receive coverage and benefits under
all group insurance, split dollar life insurance, pension, profit sharing,
bonus, stock option, stock ownership and other employee benefit plans, programs
and arrangements of 3COM and its affiliates which are now or hereafter adopted
by 3COM and its affiliates for the benefit of its senior executive employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans, programs and arrangements. 3COM shall also
provide Mr. McCartney with certain perquisites, payable at the Company's
expense, which are offered to other senior executive employees and which are
reasonable, necessary and in the best interests of 3COM and its affiliates."
6. The following Section 2A is hereby added to and made a part of the
Employment Agreement, effective as of the effective time of the Merger:
"2A. REPRESENTATIONS, WARRANTIES, ACKNOWLEDGMENTS AND AGREEMENTS OF THE
PARENT CORPORATION, THE COMPANY AND 3COM. In order to induce Mr. McCartney to
execute and deliver this Amendment, the parties hereby represent, warrant,
acknowledge and agree as follows:
3
<PAGE> 4
(a) EXERCISABILITY OF OPTIONS. The Parent Corporation and the Company
hereby represent and warrant, and 3COM hereby acknowledges and agrees, that the
Board of Directors of the Parent Corporation has made a determination that the
consummation of the Merger shall constitute a "Change in Control" within the
meaning of the third paragraph of Section 11 of each of the 1991 Stock Option
Plan of U.S. Robotics, Inc., as amended, the Key Employee Stock Option Plan of
U.S. Robotics Corporation, as amended, and the Executive Officers and Directors
Stock Option Plan of U.S. Robotics Corporation, as amended (collectively, the
"Plans"), such that all unexpired and unexercised options to purchase common
stock of the Parent Corporation granted to Mr. McCartney under the Plans (which
options shall be converted by virtue of the Merger into options to purchase
3COM Common Stock) shall be immediately exercisable in full upon the
consummation of the Merger, except to the extent, if any, that Mr. McCartney
waives or rejects such immediate exercisability in a written notice given to
the Parent Corporation prior to the effective time of the Merger.
(b) CHANGE IN CONTROL. The Parent Corporation and the Company hereby
represent and warrant, and 3COM hereby acknowledges and agrees, that the Board
of Directors of the Parent Corporation has made a determination that the
consummation of the Merger shall constitute a "Change in Control" of the Parent
Corporation within the meaning of Section 5(d)(ii) of the Employment Agreement.
In addition, without limiting the generality of the foregoing, with respect to
the Change in Control resulting from the consummation of the Merger, the
parties hereby agree that the period during which any termination of the
Employment Term shall constitute "Good Reason" within the meaning of Section
5(d)(i) of the Employment Agreement shall be two years (rather than one year)
following the effective time of the Merger. The parties acknowledge and agree
that Section 5(d)(i) and Section 5(d)(ii) shall also apply by their terms to
any further Change in Control occurring after the Merger, in which event all
references to the Parent Corporation shall be deemed to be references to 3COM
as provided in Section 9 of this Amendment, and, accordingly, that any
termination of the Employment Term occurring within one year following any such
further Change in Control of 3COM shall constitute "Good Reason" within the
meaning of Section 5(d)(i) of the Employment Agreement.
(c) GOOD REASON. The parties hereby acknowledge and agree that the
reference to "this Subsection (d)(i)" in the last sentence of Subsection
5(d)(i) of the Employment Agreement is intended and shall be deemed to refer
exclusively to Subsection 5(d)(i)(c) of the Employment Agreement.
(d) COMPENSATION COMMITTEE. Following the effective time of the Merger,
the Compensation Committee shall review and consider the adoption of an
incentive-based senior executive compensation plan to cover appropriate senior
executive personnel of 3COM and its affiliates, including Mr. McCartney,
provided that the compensation payable to Mr. McCartney under any such
incentive-based senior executive compensation plan shall not be less favorable
than the compensation payable to Mr. McCartney under the Bonus Program set
forth as Exhibit A attached hereto with respect
4
<PAGE> 5
to the 1998 Fiscal Year of 3COM. Mr. McCartney hereby acknowledges and agrees
that any salary and bonus amounts paid to Mr. McCartney under the new
incentive-based senior executive compensation plan shall be credited against
the salary and bonus amounts required to be paid to Mr. McCartney pursuant to
Section 2 of the Employment Agreement.
7. Section 4(f)(ii) of the Employment Agreement is hereby amended as of
the effective time of the merger to read in its entirety as set forth below:
"(ii) TERMINATION BY COMPANY OR BY MR. MCCARTNEY FOR GOOD REASON. If 3COM
(or any of its affiliates) breaches this Agreement by terminating the
Employment Term, other than pursuant to Subsections (a) (cause), (b) (death) or
(c) (disability) of Section 5 herein, including but not limited to termination
without "cause" (as such term is defined in Subsection (a) of Section 5
herein), or if Mr. McCartney terminates the Employment Term for Good Reason, as
such term is defined in Subsection (d)(i) of Section 5 herein, then 3COM shall
pay as severance compensation to Mr. McCartney an amount equal to the sum of
(1) Mr. McCartney's annual base salary in effect as of the Date of Termination,
multiplied by three, plus (2) the greater of (A) the sum of all cash bonuses
actually received by Mr. McCartney with respect to the three full Fiscal Years
of the Parent Corporation and the Company ended on September 29, 1996 and (B)
the sum of all cash bonuses actually received by Mr. McCartney with respect to
the most recent three full Fiscal Years of either 3COM or the Parent
Corporation (disregarding the partial Fiscal Year of the Parent Corporation in
which the Merger occurs), in each case less the amount of cash bonuses, if
any, theretofore paid to him with respect to the Fiscal Year in which such
termination occurs. Such severance compensation shall be payable in cash in a
lump sum on or before the fifteenth (15th) day following the Date of
Termination; provided, however, that where Sections 280G and Section 4999 of
the Internal Revenue Code of 1986, as amended, or any successor thereto (the
"Code"), are applicable, then such severance pay shall amount to one dollar
less than the maximum amount that Mr. McCartney may receive without having such
payment be treated as an excess parachute payment under Section 280G of the
Code. Such severance compensation shall not be subject to mitigation or offset
due to other earnings of Mr. McCartney."
8. Section 13(a) of the Employment Agreement is hereby amended as of the
effective time of the Merger to provide that the address designated with
respect to each of the Company, the Parent Corporation and 3COM shall be as set
forth below:
"3COM Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel"
5
<PAGE> 6
9. 3COM hereby acknowledges and agrees that, by this Amendment, it shall
become a party to and fully responsible under the Employment Agreement,
effective as of the effective time of the Merger. The parties acknowledge and
agree that no provisions of this Amendment shall become effective until the
effective time of the Merger and that, effective as of the effective time of
the Merger, except as otherwise expressly provided herein, (a) 3COM shall
automatically, without any further action on its part, assume all of the
rights and obligations of the Company and the Parent Corporation pursuant to
the Employment Agreement, as amended hereby, (b) all references in the
Employment Agreement to "the Company," "the Parent Corporation" and "U.S.
Robotics" shall be deemed to be references to "3COM," (c) all references in the
Employment Agreement to the "Board of Directors of the Parent Corporation"
shall be deemed to be references to the "Board of Directors of 3COM," (d) all
references in the Employment Agreement to the "Stock Option and Compensation
Committee" shall be deemed to be references to the "Compensation Committee" of
3COM, (e) all references in the Employment Agreement to "Fiscal Year" shall be
deemed to be references to the "Fiscal Year of 3COM."
10. This Amendment may be executed in one or more counterparts (including
by means of telecopied signature pages), all of which shall be considered one
and the same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
parties. This Amendment, and all matters or disputes relating to the validity,
construction, performance or enforcement hereof, shall be governed, construed
and controlled by and under the laws of the State of Illinois without regard to
principles of conflicts of law.
11. All provisions of the Employment Agreement shall at all times remain
in full force and effect, as amended hereby, and as so amended each of the
parties hereto hereby acknowledges and confirms all of its respective rights
and obligations thereunder.
* * * * * *
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
U.S. ROBOTICS CORPORATION
/ s / George A. Vinyard
---------------------------------
Name: George A. Vinyard
Title: Vice President
U.S. ROBOTICS ACCESS CORP.
/ s / George A. Vinyard
---------------------------------
Name: George A. Vinyard
Title: Vice President
3COM CORPORATION
/ s / Janice M. Roberts
---------------------------------
Name: Janice M. Roberts
Title: Senior Vice President
/ s / John McCartney
---------------------------------
John McCartney
7
<PAGE> 8
EXHIBIT A
BONUS PROGRAM
The Parent Corporation's current bonus will be closed out at the time of the
Merger. In the quarter of the Merger, the bonus will be paid as though analyst
estimates were achieved. The payment will be pro-rated for the performance
period in the quarter.
From the time of the Merger until 5/31/98, the bonus will be based on quarterly
pre-tax income targets without quarterly holdbacks. The first quarter will be
pro-rated based on the time of the Merger.
<TABLE>
<CAPTION>
Quarter Pre-tax income Threshold
<S> <C>
Q1 75%
Q2 80%
Q3 85%
Q4 85%
</TABLE>
For purposes of determining the pre-tax income thresholds and targets, "pre-tax
income" means the net income of 3COM, determined before the payment of federal
and state income taxes, calculated in accordance with GAAP, excluding any
extraordinary and other non-recurring items.
Between the threshold and the target the bonus will be paid at the minimum
level indicated below.
For every percentage point the target earnings are exceeded the bonus will grow
1.6%.
No targets below current financial expectations.
EMPLOYMENT TERMS
<TABLE>
<CAPTION>
Name Current Base Min Base ($000) Min Bonus/ Qtr Non-Comp.
($000) ($000)
<S> <C> <C> <C> <C>
Mr. McCartney $500 $500 $225 2 yrs
</TABLE>
Plan is renewable after one year for one additional year.
8
<PAGE> 1
EXHIBIT 10.8
U.S. ROBOTICS ACCESS CORP.
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the "Amendment"), dated as
of the 26th day of February, 1997, by and among U.S. Robotics Corporation, a
Delaware corporation (the "Parent Corporation"), U.S. Robotics Access Corp., a
Delaware corporation (the "Company"), 3COM Corporation, a California
corporation ("3COM"), and Jonathan N. Zakin ("Mr. Zakin").
RECITALS
WHEREAS, the Company and Mr. Zakin are parties to that certain Employment
Agreement, dated as of January 1, 1997 (as amended, the "Employment
Agreement");
WHEREAS, the Company is a wholly owned subsidiary of the Parent
Corporation;
WHEREAS, the Parent Corporation and 3COM are parties to that certain
Agreement and Plan of Merger, dated as of February 26, 1997 (the "Merger
Agreement"), pursuant to which TR Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of 3COM, shall merge with and into
the Parent Corporation (the "Merger"), with the Parent Corporation as the
surviving corporation, and, pursuant to the Merger, all issued and outstanding
common stock of the Parent Corporation shall be converted into shares of common
stock of 3COM;
WHEREAS, as a result of the Merger, the Parent Corporation shall become a
wholly owned subsidiary of 3COM, and the Company shall become an indirect
wholly owned subsidiary of 3COM;
WHEREAS, the Parent Corporation, the Company and 3COM desire that 3COM
shall assume all of the rights and obligations of the Company and the Parent
Corporation pursuant to the Employment Agreement following the effective time
of the Merger;
WHEREAS, the Parent Corporation, the Company and 3COM desire to obtain the
benefit of Mr. Zakin's knowledge, skill and experience for 3COM and its
affiliates following the Merger, and Mr. Zakin is willing to render services to
3COM and its affiliates following the Merger on the terms set forth in the
Employment Agreement as modified by this Amendment; and
<PAGE> 2
WHEREAS, the Parent Corporation, the Company, 3COM and Mr. Zakin desire to
amend the Employment Agreement as provided herein;
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Parent Corporation, the Company, 3COM and Mr. Zakin hereby agree as
follows:
1. Section 1(c) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(c) TITLE AND DUTIES. Mr. Zakin's title shall be Senior Vice President,
Special Projects of 3COM, and he shall possess such powers and duties normally
incident to such position, as provided in the By-laws of 3COM and in accordance
with applicable law. Mr. Zakin shall report to the Vice Chairman of 3COM. Mr.
Zakin's title and duties may be changed at the discretion of the Board of
Directors of 3COM. During the Employment Term, Mr. Zakin shall faithfully
discharge his duties and responsibilities in a diligent manner, devoting
substantially all of his working time to the affairs of 3COM and its
affiliates, provided that Mr. Zakin shall not be required to change his
principal place of residence from the Chicago, Illinois area without his
consent."
2. Section 2(a) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(a) SALARY. For services rendered by Mr. Zakin to 3COM and its
affiliates and upon the condition that Mr. Zakin fully and faithfully perform
all of his duties and obligations owed during the Employment Term under this
Agreement, 3COM shall pay Mr. Zakin a base salary during the Employment Term at
an annual rate not less than $400,000, payable in accordance with the regular
payroll practices and procedures of 3COM (but in no event shall such salary be
payable less frequently than on a monthly installment basis). This base salary
set forth herein shall be reviewed annually by the Compensation Committee of
the Board of Directors of 3COM, or any successor to such committee (the
"Compensation Committee"), at the end of each fiscal year (a "Fiscal Year") of
3COM beginning with the end of the Fiscal Year in which the Merger occurs, or
at such other times as deemed appropriate by the Compensation Committee, and
may, at the sole discretion of the Compensation Committee, be increased by an
amount which it deems appropriate."
3. Section 2(b) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(b) BONUSES. Following the effective time of the Merger, 3COM shall pay
Mr. Zakin quarterly bonuses in the amounts and on the terms set forth on the
3COM proposed Bonus Program attached hereto as Exhibit A (the "Bonus Program")
for
2
<PAGE> 3
3COM's full Fiscal Year ending in 1998. The quarterly pre-tax income
thresholds and quarterly pre-tax income targets with respect to the Bonus
Program shall be determined by the Compensation Committee, in its sole
discretion. Following 3COM's 1998 Fiscal Year, Mr. Zakin's bonuses shall be
determined by the Compensation Committee."
4. Section 2(c) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(c) STOCK OPTIONS. Mr. Zakin shall be entitled to receive such options to
purchase the common stock of 3COM ("3COM Common Stock") as shall be granted by
the Compensation Committee pursuant to the applicable stock option plans of
3COM and its affiliates, provided that upon the first regular grant of stock
options by the Compensation Committee to senior executive officers of 3COM
following the effective time of the Merger, Mr. Zakin shall be entitled to
receive an option (a "3COM Option") to purchase at least that number of shares
of 3COM Common Stock which is equal to 100% of the number of shares of 3COM
Common Stock with respect to which a 3COM Option is granted by the Compensation
Committee to any person holding the position of Executive Vice President and
General Manager."
5. Section 2(d) of the Employment Agreement is hereby amended as of the
effective time of the Merger to read in its entirety as set forth below:
"(d) FRINGE BENEFITS. During the Employment Term, Mr. Zakin shall be
eligible to receive reasonable amounts (at least six weeks per year) of paid,
noncumulative vacation or personal time, as the case may be, per year, to be
taken at a time or times reasonably agreeable to both Mr. Zakin and 3COM, and
shall be eligible to participate in and receive coverage and benefits under all
group insurance, split dollar life insurance, pension, profit sharing, bonus,
stock option, stock ownership and other employee benefit plans, programs and
arrangements of 3COM and its affiliates which are now or hereafter adopted by
3COM and its affiliates for the benefit of its senior executive employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans, programs and arrangements. 3COM shall also
provide Mr. Zakin with certain perquisites, payable at the Company's expense,
which are offered to other senior executive employees and which are reasonable,
necessary and in the best interests of 3COM and its affiliates."
6. The following Section 2A is hereby added to and made a part of the
Employment Agreement, effective as of the effective time of the Merger:
"2A. REPRESENTATIONS, WARRANTIES, ACKNOWLEDGMENTS AND AGREEMENTS OF THE
PARENT CORPORATION, THE COMPANY AND 3COM. In order to induce Mr. Zakin to
execute and deliver this Amendment, the parties hereby represent, warrant,
acknowledge and agree as follows:
3
<PAGE> 4
(a) EXERCISABILITY OF OPTIONS. The Parent Corporation and the Company
hereby represent and warrant, and 3COM hereby acknowledges and agrees, that the
Board of Directors of the Parent Corporation has made a determination that the
consummation of the Merger shall constitute a "Change in Control" within the
meaning of the third paragraph of Section 11 of each of the 1991 Stock Option
Plan of U.S. Robotics, Inc., as amended, the Key Employee Stock Option Plan of
U.S. Robotics Corporation, as amended, and the Executive Officers and Directors
Stock Option Plan of U.S. Robotics Corporation, as amended (collectively, the
"Plans"), such that all unexpired and unexercised options to purchase common
stock of the Parent Corporation granted to Mr. Zakin under the Plans (which
options shall be converted by virtue of the Merger into options to purchase
3COM Common Stock) shall be immediately exercisable in full upon the
consummation of the Merger, except to the extent, if any, that Mr. Zakin
waives or rejects such immediate exercisability in a written notice given to
the Parent Corporation prior to the effective time of the Merger.
(b) CHANGE IN CONTROL. The Parent Corporation and the Company hereby
represent and warrant, and 3COM hereby acknowledges and agrees, that the Board
of Directors of the Parent Corporation has made a determination that the
consummation of the Merger shall constitute a "Change in Control" of the Parent
Corporation within the meaning of Section 5(d)(ii) of the Employment Agreement.
In addition, without limiting the generality of the foregoing, with respect to
the Change in Control resulting from the consummation of the Merger, the
parties hereby agree that the period during which any termination of the
Employment Term shall constitute "Good Reason" within the meaning of Section
5(d)(i) of the Employment Agreement shall be two years (rather than one year)
following the effective time of the Merger. The parties acknowledge and agree
that Section 5(d)(i) and Section 5(d)(ii) shall also apply by their terms to
any further Change in Control occurring after the Merger, in which event all
references to the Parent Corporation shall be deemed to be references to 3COM
as provided in Section 9 of this Amendment, and, accordingly, that any
termination of the Employment Term occurring within one year following any such
further Change in Control of 3COM shall constitute "Good Reason" within the
meaning of Section 5(d)(i) of the Employment Agreement.
(c) GOOD REASON. The parties hereby acknowledge and agree that the
reference to "this Subsection (d)(i)" in the last sentence of Subsection
5(d)(i) of the Employment Agreement is intended and shall be deemed to refer
exclusively to Subsection 5(d)(i)(c) of the Employment Agreement.
(d) COMPENSATION COMMITTEE. Following the effective time of the Merger,
the Compensation Committee shall review and consider the adoption of an
incentive-based senior executive compensation plan to cover appropriate senior
executive personnel of 3COM and its affiliates, including Mr. Zakin, provided
that the compensation payable to Mr. Zakin under any such incentive-based
senior executive compensation plan shall not be less favorable than the
compensation payable to Mr. Zakin under the Bonus Program set forth as Exhibit
A attached hereto with respect to the
4
<PAGE> 5
1998 Fiscal Year of 3COM. Mr. Zakin hereby acknowledges and agrees that any
salary and bonus amounts paid to Mr. Zakin under the new incentive-based senior
executive compensation plan shall be credited against the salary and bonus
amounts required to be paid to Mr. Zakin pursuant to Section 2 of the
Employment Agreement.
(e) ADDITIONAL TERMINATION BENEFITS. The Parent Corporation, the Company
and 3COM hereby agree that, upon the termination of the Employment Term for any
reason other than Mr. Zakin's death (i) Mr. Zakin shall be deemed to have
"retired" for purposes of all employee benefit plans of 3COM and its
affiliates, including without limitation health, retirement and any other plans
providing post-employment benefits, and (ii) for each of the three successive
twelve-month periods immediately following such termination, Mr. Zakin or his
designee shall be entitled to receive, and 3COM shall pay at the commencement
of each such period, a liquidated amount of $50,000 to reflect the anticipated
costs to Mr. Zakin or such designee of obtaining reasonable and appropriate
office space and support services.
7. Section 4(f)(ii) of the Employment Agreement is hereby amended as of
the effective time of the merger to read in its entirety as set forth below:
"(ii) TERMINATION BY COMPANY OR BY MR. ZAKIN FOR GOOD REASON. If 3COM (or
any of its affiliates) breaches this Agreement by terminating the Employment
Term, other than pursuant to Subsections (a) (cause), (b) (death) or (c)
(disability) of Section 5 herein, including but not limited to termination
without "cause" (as such term is defined in Subsection (a) of Section 5
herein), or if Mr. Zakin terminates the Employment Term for Good Reason, as
such term is defined in Subsection (d)(i) of Section 5 herein, then 3COM shall
pay as severance compensation to Mr. Zakin an amount equal to the sum of (1)
Mr. Zakin's annual base salary in effect as of the Date of Termination,
multiplied by three, plus (2) the greater of (A) the sum of all cash bonuses
actually received by Mr. Zakin with respect to the three full Fiscal Years of
the Parent Corporation and the Company ended on September 29, 1996 and (B) the
sum of all cash bonuses actually received by Mr. Zakin with respect to the most
recent three full Fiscal Years of either 3COM or the Parent Corporation
(disregarding the partial Fiscal Year of the Parent Corporation in which the
Merger occurs), in each case less the amount of cash bonuses, if any,
theretofore paid to him with respect to the Fiscal Year in which such
termination occurs. Such severance compensation shall be payable in cash in a
lump on or before the fifteenth (15th) day following the Date of Termination;
provided, however, that where Sections 280G and Section 4999 of the Internal
Revenue Code of 1986, as amended, or any successor thereto (the "Code"), are
applicable, then such severance pay shall amount to one dollar less than the
maximum amount that Mr. Zakin may receive without having such payment be
treated as an excess parachute payment under Section 280G of the Code. Such
severance compensation shall not be subject to mitigation or offset due to
other earnings of Mr. Zakin."
5
<PAGE> 6
8. Section 13(a) of the Employment Agreement is hereby amended as of the
effective time of the Merger to provide that the address designated with
respect to each of the Company, the Parent Corporation and 3COM shall be as set
forth below:
"3COM Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel"
9. 3COM hereby acknowledges and agrees that, by this Amendment, it shall
become a party to and fully responsible under the Employment Agreement,
effective as of the effective time of the Merger. The parties acknowledge and
agree that no provisions of this Amendment shall become effective until the
effective time of the Merger and that, effective as of the effective time of
the Merger, except as otherwise expressly provided herein, (a) 3COM shall
automatically, without any further action on its part, assume all of the
rights and obligations of the Company and the Parent Corporation pursuant to
the Employment Agreement, as amended hereby, (b) all references in the
Employment Agreement to "the Company," "the Parent Corporation" and "U.S.
Robotics" shall be deemed to be references to "3COM," (c) all references in the
Employment Agreement to the "Board of Directors of the Parent Corporation"
shall be deemed to be references to the "Board of Directors of 3COM," (d) all
references in the Employment Agreement to the "Stock Option and Compensation
Committee" shall be deemed to be references to the "Compensation Committee" of
3COM, (e) all references in the Employment Agreement to "Fiscal Year" shall be
deemed to be references to the "Fiscal Year of 3COM."
10. This Amendment may be executed in one or more counterparts (including
by means of telecopied signature pages), all of which shall be considered one
and the same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
parties. This Amendment, and all matters or disputes relating to the validity,
construction, performance or enforcement hereof, shall be governed, construed
and controlled by and under the laws of the State of Illinois without regard to
principles of conflicts of law.
11. All provisions of the Employment Agreement shall at all times remain
in full force and effect, as amended hereby, and as so amended each of the
parties hereto hereby acknowledges and confirms all of its respective rights
and obligations thereunder.
* * * * * *
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
U.S. ROBOTICS CORPORATION
/ s / George A. Vinyard
---------------------------------
Name: George A. Vinyard
Title: Vice President
U.S. ROBOTICS ACCESS CORP.
/ s / George A. Vinyard
---------------------------------
Name: George A. Vinyard
Title: Vice President
3COM CORPORATION
/ s / Janice M. Roberts
---------------------------------
Name: Janice M. Roberts
Title: Senior Vice President
/ s / Jonathan N. Zakin
---------------------------------
Jonathan N. Zakin
7
<PAGE> 8
EXHIBIT A
BONUS PROGRAM
The Parent Corporation's current bonus will be closed out at the time of the
Merger. In the quarter of the Merger, the bonus will be paid as though analyst
estimates were achieved. The payment will be pro-rated for the performance
period in the quarter.
From the time of the Merger until 5/31/98, the bonus will be based on quarterly
pre-tax income targets without quarterly holdbacks. The first quarter will be
pro-rated based on the time of the Merger.
<TABLE>
<CAPTION>
Quarter Pre-tax income Threshold
<S> <C>
Q1 75%
Q2 80%
Q3 85%
Q4 85%
</TABLE>
For purposes of determining the pre-tax income thresholds and targets, "pre-tax
income" means the net income of 3COM, determined before the payment of federal
and state income taxes, calculated in accordance with GAAP, excluding any
extraordinary and other non-recurring items.
Between the threshold and the target the bonus will be paid at the minimum
level indicated below.
For every percentage point the target earnings are exceeded the bonus will grow
1.6%.
No targets below current financial expectations.
EMPLOYMENT TERMS
<TABLE>
<CAPTION>
Name Current Base Min Base ($000) Min Bonus/ Qtr Non-Comp.
($000) ($000)
<S> <C> <C> <C> <C>
Mr. Zakin $400 $400 $187.5 2 yrs
</TABLE>
9
<PAGE> 1
COMPUTATION OF NET EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended Six Months Ended
-------------------- --------------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Weighted average common shares
outstanding 89,126 86,390 88,831 85,508
Common equivalent shares 6,818 7,778 7,308 8,060
------- ------- -------- --------
Shares used in per share
calculations 95,944 94,168 96,139 93,568
======= ======= ======== ========
Net earnings $91,459 $51,605 $160,488 $93,250
======= ======= ======== ========
Net earnings per share $ 0.95 $ 0.55 $ 1.67 $ 1.00
======= ======= ======== ========
FULLY DILUTED EARNINGS PER SHARE
Weighted average common shares
outstanding 89,126 86,390 88,831 85,508
Common equivalent shares 6,818 8,496 7,308 8,898
------- ------- -------- --------
Shares used in per share
calculations 95,944 94,886 96,139 94,406
======= ======= ======== ========
Net earnings $91,459 $51,605 $160,488 $93,250
======= ======= ======== ========
Net earnings per share $ 0.95 $ 0.55 $ 1.67 $ 0.99
======= ======= ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 30, 1997 (unaudited) and the
Condensed Consolidated Statement of Earnings for the Six Months Ended March 30,
1997 (unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 49,888
<SECURITIES> 0
<RECEIVABLES> 735,132
<ALLOWANCES> 16,722
<INVENTORY> 155,823
<CURRENT-ASSETS> 995,186
<PP&E> 429,802
<DEPRECIATION> 83,189
<TOTAL-ASSETS> 1,407,265
<CURRENT-LIABILITIES> 488,667
<BONDS> 55,066
0
0
<COMMON> 893
<OTHER-SE> 862,632
<TOTAL-LIABILITY-AND-EQUITY> 1,407,265
<SALES> 1,335,596
<TOTAL-REVENUES> 1,335,596
<CGS> 720,648
<TOTAL-COSTS> 720,648
<OTHER-EXPENSES> 385,038
<LOSS-PROVISION> 4,187
<INTEREST-EXPENSE> 4,225
<INCOME-PRETAX> 226,631
<INCOME-TAX> 66,143
<INCOME-CONTINUING> 160,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160,488
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
</TABLE>
