-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, reO/15hnBtYWCc6dUmNPzfj2V+sSQgYqs3i9dxOjJc+qkbTm+tPQF2bL+k9Ttrh9 aAEEYXBpn3ITjF5cIMCmdg== 0000738076-94-000002.txt : 19940118 0000738076-94-000002.hdr.sgml : 19940118 ACCESSION NUMBER: 0000738076-94-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19931130 FILED AS OF DATE: 19940114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3COM CORP CENTRAL INDEX KEY: 0000738076 STANDARD INDUSTRIAL CLASSIFICATION: 3577 IRS NUMBER: 942605794 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 000-12867 FILM NUMBER: 94501464 BUSINESS ADDRESS: STREET 1: 5400 BAYFRONT PLZ CITY: SANTA CLARA STATE: CA ZIP: 95052 BUSINESS PHONE: 4087645000 10-Q 1 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 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 November 30, 1993 Commission File No. 0-12867 OR / / TRANSITION REPORT PUSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to 3Com Corporation (Exact name of registrant as specified in its charter) California 94-2605794 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5400 Bayfront Plaza 95052 Santa Clara, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (408) 764-5000 Former name, former address and former fiscal year, if changed since last report: N/A Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuee's classes of common stock, as of the latest practicable date. As of November 30, 1993, 30,968,523 shares of the Registrant's Common Stock were outstanding. Part I. Financial Information Incorporated herein is the following unaudited financial information: Item 1. Financial Statements: Consolidated Balance Sheets as of November 30, 1993 and May 31, 1993 Consolidated Statements of Income for the quarter and six months ended November 30, 1993 and 1992 Consolidated Statements of Cash Flows for the Six months ended November 30, 1993 and 1992 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Part I. Financial Information Item 1. Financial Statements 3Com Corporation Consolidated Balance Sheets (dollars in thousands) November 30, May 31, 1993 1993 (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 62,862 $ 40,046 Temporary cash investments 97,897 77,184 Trade receivables 100,113 83,481 Inventories 57,761 68,061 Deferred income taxes 21,487 19,805 Other 19,561 15,835 Total current assets 359,681 304,412 Property and equipment - net 54,604 55,248 Other assets 8,577 7,918 Total $422,862 $367,578 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 45,806 $ 40,212 Accrued payroll and related expenses 14,271 16,671 Accrued restructuring costs 3,059 3,682 Other accrued liabilities 41,656 37,958 Income taxes payable 17,455 8,637 Current portion of long-term obligations 194 1,021 Total current liabilities 122,441 108,181 Long-term obligations 597 610 Accrued restructuring costs - non-current 289 524 Shareholders' Equity: Preferred stock, no par value, 3,000,000 shares authorized; none outstanding Common stock, no par value, 100,000,000 shares authorized; shares outstanding: November 30, 1993: 30,968,523; May 31, 1993: 30,850,377 162,365 154,958 Retained earnings 137,596 103,163 Accumulated translation adjustments (426) 142 Total shareholders' equity 299,535 258,263 Total $422,862 $367,578 See notes to consolidated financial statements. 3Com Corporation Consolidated Statements of Income (in thousands except per share data) (unaudited) Quarter Ended Six Months Ended November 30, November 30, 1993 1992 1993 1992 Sales $205,275 $152,697 $367,366 $288,314 Costs and expenses: Cost of sales 102,410 78,888 184,086 153,021 Sales and marketing 42,501 34,430 77,956 63,588 Research and development 18,163 16,271 34,041 31,974 General and administrative 8,689 8,484 16,893 16,817 Total 171,763 138,073 312,976 265,400 Operating income 33,512 14,624 54,390 22,914 Gain on sale of investment - - 17,746 - Other expense-net (492) (769) (812) (309) Income before income taxes 33,020 13,855 71,324 22,605 Provision for income taxes 11,557 4,575 23,747 7,475 Net income $ 21,463 $ 9,280 $ 47,577 $ 15,130 Earnings per share: Primary $.65 $.30 $1.46 $.50 Fully diluted $.65 $.29 $1.44 $.48 Shares used in computing per share amounts: Primary 32,869 31,155 32,692 30,554 Fully diluted 33,159 31,493 33,124 31,381 See notes to consolidated financial statements. 3Com Corporation Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) Six Months Ended November 30, 1993 1992 Cash flows from operating activities: Net income $ 47,577 $ 15,131 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 13,604 12,291 Gain on sale of investment (17,746) - Deferred income taxes (1,707) (934) Adjustment to conform fiscal year of pooled entity - 2,163 Pro forma provision for income taxes - 1,318 Changes in assets and liabilities: Trade receivables (16,632) (12,227) Inventories 10,205 (6,085) Other current assets (3,726) 4,876 Accounts payable 5,594 9,291 Accrued liabilities 1,299 1,676 Accrued restructuring costs (1,214) (4,207) Income taxes payable 12,392 2,522 Net cash provided by operating activities 49,646 25,815 Cash flows from investing activities: Proceeds from sale of investment 18,066 - Investment in property and equipment (11,903) (12,862) Purchase of temporary cash investments (35,327) (29,944) Proceeds from temporary cash investments 14,614 17,600 Other - net (1,567) (151) Net cash used for investing activities (16,117) (25,357) Cash flows from financing activities: Sale of common stock 7,334 8,117 Repurchases of common stock (16,645) (9,233) Notes payable - 3,329 Repayments of long-term obligations (830) (919) Equity distributions of pooled entity - (3,191) Repurchase of stock warrants - (1,300) Other - net (572) (1,601) Net cash used for financing activities (10,713) (4,798) Increase (decrease) in cash and cash equivalents 22,816 (4,340) Cash and cash equivalents at beginning of period 40,046 34,694 Cash and cash equivalents at end of period $62,862 $30,354 See notes to consolidated financial statements. 3Com Corporation Notes to Consolidated Financial Statements 1. In the opinion of management, these unaudited consolidated financial statements include all adjustments necessary for a fair presentation of the Company's financial position as of November 30, 1993, and the results of operations and cash flows for the quarters and six months ended November 30, 1993 and 1992. The results of operations for the quarter and six months ended November 30, 1993 may not necessarily be indicative of the results for the fiscal year ending May 31, 1994. These financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company's Annual Report to Shareholders for the year ended May 31, 1993. 2. Inventories consisted of (in thousands): November 30, May 31, 1993 1993 Finished goods $33,842 $41,331 Work-in-process 7,737 4,912 Raw materials 16,182 21,818 Total $57,761 $68,061 3Com Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Quarter ended November 30, 1993 Orders for the Company's products in the second quarter of fiscal 1994 totaled $202.1 million, an increase of 27 percent from the corresponding quarter a year ago, while sales were $205.3 million, an increase of 34 percent. Both orders and sales were at record levels for the Company. Compared with the first quarter of fiscal 1994, orders and sales for the second quarter of fiscal 1994 increased 29 percent and 27 percent, respectively. The Company believes that the year-over-year increase in second quarter orders and sales is due to several factors, including the success of the Company's key data networking platforms, revenues from sales of products introduced during last fiscal year, general market strength in the data networking industry, and the Company's ability to deliver complete data networking solutions for different connectivity environments. These growth factors were partially offset by the unfavorable impact of the strengthening U.S. dollar as compared to European currencies. During the first half of fiscal 1993, the Company entered into a strong new product cycle by introducing several key data networking platforms, including the industry-leading EtherLink(R) III Parallel Tasking-TM family of network adapters, the high-performance NETBuilder II(R) internetworking platform, and the LinkBuilder(R) family of stackable hubs. The growth in sales reflects customer acceptance of these platforms. Sales from products introduced in the last 12 months declined from 52 percent of sales in the first quarter of fiscal 1994 to 35 percent of sales in the second quarter of fiscal 1994, as certain key products met their one-year anniversary in the first half of fiscal 1994. Sales of the Company's network adapter products in the second quarter of fiscal 1994 increased 45 percent from the corresponding period in fiscal 1993. The increase in adapter sales represented an increase in unit volume partially offset by continuation of the industry-wide trend toward decreasing average selling prices. The increase in unit volume was seen in the sales of the EtherLink III Parallel Tasking network adapter and the TokenLink(R) III network adapter. Lower average selling prices were primarily attributable to a shift in demand to the lower-priced EtherLink III network adapter. Fiscal 1994 second quarter sales of the Company's systems products (internetworking and hub products) increased 30 percent from the year- ago quarter, led primarily by LinkBuilder stackable hubs, the LinkBuilder 3GH internetworking hub, the high-performance NETBuilder II bridge/router, and Boundary Routing-TM system architecture internetworking platforms. Sales of the Company's other products (terminal servers, customer service, protocols and other products) represented six percent of second quarter sales and decreased 11 percent from the second quarter of fiscal 1993, primarily reflecting a continuing decline in the sales of terminal server products. Sales outside of the United States provided 51 percent of second quarter sales, compared to 49 percent for the same period last year. During the quarter, the Company opened sales offices in Mexico City, Mexico and Tokyo, Japan. Cost of sales as a percentage of sales was 49.9 percent for the quarter compared to 51.7 percent for the second quarter of fiscal 1993. The improvement resulted primarily from increased utilization of production capacity as well as lower costs for product distribution, freight and duty. Such savings are due in part to the Company's increasing utilization of the Ireland manufacturing facility to serve European markets. Total operating expenses in the second quarter of fiscal 1994 were $69.4 million, or 34 percent of sales compared to $59.2 million, or 39 percent of sales for the second quarter of fiscal 1993. The $10.2 million, or 17 percent, increase in operating expenses reflected increased sales and marketing expenses as well as increased research and development costs. Sales and marketing expenses during the second quarter of fiscal 1994 increased 23 percent from $34.4 million in the second quarter of fiscal 1993 to $42.5 million, but declined as a percentage of sales from 23 percent in the prior-year quarter to 21 percent in the second quarter of fiscal 1994. The $8.1 million increase reflected increased selling costs related to higher sales volume, the cost of promoting the Company's systems products, and increased European cooperative advertising, partially offset by the favorable impact of the strengthening U.S. dollar as compared to European currencies. In the second quarter of fiscal 1994, research and development expenses were $18.2 million, or 9 percent of sales, compared to $16.3 million, or 11 percent of sales, in the comparable prior-year period. General and administrative expenses in the second quarter were $8.7 million, or 4 percent of sales, as compared to $8.5 million, or 6 percent of sales, for the same quarter in fiscal 1993. Other expense (net) was $492,000 for the quarter, compared with expense of $769,000 for the same quarter last fiscal year. The improvement from the prior year quarter represents more favorable foreign exchange results and higher interest income, partially offset by a higher provision for doubtful accounts. The Company's effective income tax rate in the second quarter of fiscal 1994 was 35 percent. Net income for the second quarter of fiscal 1994 was a record $21.5 million, or $0.65 per share, compared to $9.3 million, or $0.29 per share, reported a year ago. Six months ended November 30, 1993 Orders for the first half of fiscal 1994 were $359.1 million, a 24 percent increase from the $289.9 million in orders during the corresponding period in fiscal 1993. Sales totaled $367.4 million, a 27 percent increase from sales of $288.3 million in the first half of fiscal 1993. Cost of sales for the first half of fiscal 1994 was 50.1 percent of sales, a decrease from 53.1 percent of sales in the corresponding period during fiscal 1993. The improvement in cost of sales was primarily related to improved efficiency of the manufacturing operations and a favorable shipment mix with higher shipments of the lower-cost EtherLink III Parallel Tasking network adapter. Operating expenses in the first half of fiscal 1994 were $128.9 million, or 35 percent of sales, compared to $112.4 million, or 39 percent of sales, in the comparable prior-year period. The $16.5 million increase was primarily due to increased selling costs related to higher sales volume, the cost of promoting the Company's systems products, and increased European cooperative advertising partially offset by the favorable impact of the strengthening U.S. dollar as compared to European currencies. Other expense-net was $812,000 in the first half of fiscal 1994 compared with expense of $309,000 for the same period a year ago. The expense increase from fiscal 1993 resulted primarily from a higher provision for doubtful accounts partially offset by more favorable foreign exchange results and higher interest income. Net income was $47.6 million, or $1.44 per share, for the first half of fiscal 1994, compared to $15.1 million or $.48 per share, for the first half of fiscal 1993. Net income for the first half of fiscal 1994 included a $11.5 million ($0.35 per share) after-tax gain from the sale of the Company's investment in Madge, N.V. and a $1.2 million ($0.04 per share) tax benefit due to retroactive components of the recently enacted federal tax bill as well as the effect of changes in federal statutory rates. Excluding these gains, net income would have been $34.9 million or $1.05 per share, both record levels for the Company. Business Environment and Risk Factors The Company's future operating results may be affected by various trends and factors which are beyond the Company's control. These include adverse changes in general economic conditions, governmental regulation or intervention affecting communications or data networking, and fluctuations in foreign exchange rates, and also include factors listed below. Accordingly, past trends should not be used by investors to anticipate future results or trends. Further, the Company's prior performance should not be presumed to be an accurate indicator of future performance. The data networking industry has become increasingly competitive, and the Company's results may be adversely affected by the actions of existing or future competitors, including the development of new technologies, the introduction of new products, the assertion by third parties of patent or similar intellectual property rights, and the reduction of prices by competitors to gain or retain market share. The Company's manufacturing process requires components supplied by outside suppliers. There can be no assurance that in the future the Company's suppliers will be able to meet the Company's demand for such components in a timely and cost effective manner. The Company's operating results and customer relationships could be adversely affected by either an increase in prices for or an interruption or reduction in the supply of any key components. The market for the Company's products is characterized by rapidly changing technology. An unexpected change in the technologies affecting data networking could have a material adverse effect on the Company's operating results. The market price of the Company's common stock has been, and may continue to be, extremely volatile. Factors such as new product announcements by the Company or its competitors, quarterly fluctuations in the Company's operating results and general conditions in the data networking market may have a significant impact on the market price of the Company's common stock. These conditions, as well as factors which generally affect the market for stocks of high technology companies, could cause the price of the Company's stock to fluctuate substantially over short periods. Liquidity and Capital Resources The Company's financial position and its generation of cash from operations remains strong. Cash, cash equivalents and temporary cash investments at November 31, 1993 were a record $160.8 million, up $43.5 million from May 31, 1993. The announced acquisition of Synernetics, Inc. (described below) is expected to use a significant portion of the Company's cash, cash equivalents and temporary cash investments in the third quarter of fiscal 1994 For the six months ended November 30, 1993, net cash generated from operating activities was $49.6 million. Accounts receivable increased $16.6 million or 20 percent from May 31, 1993 to November 30, 1993 due primarily to a significant increase in sales over the same time period. Days sales outstanding in receivables decreased from 45 days at fiscal year end to 44 days at the end of the second quarter. Inventory levels declined $10.3 million from fiscal year end, with inventory turnover improved from 5.3 turns at May 31, 1993 to 6.7 turns at November 30, 1993. Investing activities for the first half of fiscal 1993 included $18.1 million of proceeds from the sale of the Company's investment in Madge N.V., offset by $11.9 million used for capital expenditures. During the first half of fiscal 1994, the Company repurchased 700,000 shares of its common stock at an average price of $23.78 per share, for a total cash outlay of $16.6 million. As of November 30, 1993, the Company was authorized to repurchase up to an additional 1.8 million shares of its common stock in the open market. In January 1994, the Company increased its revolving credit agreement with a bank from $20 million to $40 million and extended the expiration date to December 31, 1996. Subsequent Events On December 14, 1993, the Company announced a technology licensing agreement with Pacific Monolithics, Inc., a pioneer in wireless communications. The agreement gives the Company exclusive rights to develop, manufacture and sell wireless LAN products based on wireless radio communications technology developed by Pacific Monolithics, Inc. The licensing agreement was for $2.5 million, most of which will be charged to operating expenses as purchased technology in the third quarter of fiscal 1994. On December 16, 1993, the Company announced a definitive agreement to acquire Synernetics, Inc., located in North Billerica, Massachusetts. Synernetics, Inc., develops and markets intelligent switching systems for large-scale client/server production networks employing a combination of Ethernet switching, Ethernet-to-FDDI bridging, and FDDI concentration. The acquisition, for $104 million in cash plus assumption by the Company of certain stock options and additional transaction costs of approximately $15 million, will be accounted for as a purchase and is expected to be completed in January 1994. It is anticipated that in the third quarter of fiscal 1994 the Company will charge to expense approximately $103 million related to the acquisition. The source of funds for the acquisition of Synernetics is expected to be the Company's existing balances of cash, cash equivalents and temporary cash investments and as a result the Company expects to use approximately two thirds of those balances in the third quarter of fiscal 1994. The Company anticipates that it may undertake other transactions during the current fiscal year and thereafter which may require the use of cash. Based on current plans and business conditions, the Company believes that its existing cash balances, together with cash generated from operations, the established revolving credit agreement and other reasonable sources of capital, are sufficient to satisfy anticipated outlays for such transactions and operating cash requirements through fiscal 1994. 3Com Corporation Part II. Other Information Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders (a) The Company held its annual meeting of shareholders on September 28, 1993. (b) Not applicable. (c) The following matter was voted upon at the meeting and the number of affirmative and negative votes cast with respect to such matter is as follows: 1. The following directors were elected: Total Vote For Total Vote Withheld Jean-Louis Gassee 26,570,595 149,906 Jack L. Hancock 26,572,538 147,963 Stephen C. Johnson 26,593,340 127,161 William F. Zuendt 26,592,190 128,311 2. The 3Com Corporation 1983 Stock Option Plan ("Plan") was amended by increasing the total number of shares of common stock reserved for issuance thereunder by 1,500,000 shares, to a total of 13,200,000 shares. The number of affirmative votes for this proposal was 20,153,881 and the number of negative votes was 5,841,321. The number of abstained votes was 330,199 and the number of no votes was 395,100. 3. The ratification and appointment of Deloitte & Touche as public accountants was approved with 26,552,846 affirmative votes, 34,430 negative votes and 133,225 abstained votes. (d) Not applicable. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 1983 Stock Option Plan, as amended (Exhibit 10.1 to Form 10-K) (10) 10.2 Amended and Restated Incentive Stock Option Plan (4) 10.3 License Agreement dated March 19, 1981 (1) 10.4 First Amended and Restated 1984 Employee Stock Purchase Plan, as amended (Exhibit 19.1 to Form 10-Q) (11) 10.5 License Agreement dated as of June 1, 1986 (Exhibit 10.16 to Form 10-K) (3) 10.6 3Com Corporation Director Stock Option Plan, as amended (Exhibit 19.3 to Form 10-Q) (11) 10.7 Bridge Communications, Inc. 1983 Stock Option Plan, as amended (Exhibit 4.7 to Form S-8) (2) 10.8 3Com Headquarters Lease dated December 1, 1988, as amended (Exhibit 10.14 to Form 10-K) (10) 10.9 Ground Lease dated July 5, 1989 (Exhibit 10.19 to Form 10-K) (5) 10.10 Sublease Agreement dated February 9, 1989 (Exhibit 10.20 to Form 10-K) (5) 10.11 Credit Agreement dated April 21, 1993 (Exhibit 10.11 to Form 10-K) (7) 10.12 Asset Purchase Agreement dated as of January 24, 1992 (Exhibit 2.1 to Form 8-K)(12) 10.13 3Com Corporation Restricted Stock Plan dated July 9, 1991 (Exhibit 19.2 to Form 10-Q) (11) 10.14 Agreement and Plan of Merger dated December 16, 1992 (Exhibit 3 to Form 8-K)(13) 10.15 Form of Indemnity Agreement for Directors and Officers 19.1 The 3Com Corporation 1983 Stock Option Plan 20.1 3Com Corporation First Quarter Report (1) Incorporated by reference to the corresponding Exhibit previously filed as an Exhibit to Registrant's Registration Statement on Form S-1 filed January 25, 1984 (File No. 2-89045). (2) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed October 13, 1987 (File No. 33-17848). (3) Incorporated by reference to the corresponding Exhibit or the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 10-K filed August 29, 1987 (File No. 0-12867). (4) Incorporated by reference to Exhibit 10.2 to Registrant's Registration Statement on Form S-4 filed on August 31, 1987 (File No. 33-16850). (5) Incorporated by reference to the corresponding Exhibit or the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 10-K filed on August 28, 1989 (File No. 0-12867). (6) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 10-K filed on August 27, 1991 (File No. 0-12867). (7) Incorporated by reference to the corresponding Exhibit or the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 10-K filed on August 27, 1993 (File No. 0-12867). (8) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 10-Q filed January 10, 1992 (File No. 0-12867). (9) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed on February 18, 1992 (File No. 0-12867). (10) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed on February 12, 1993 (File No. 0-12867). (b) Reports on Form 8-K None. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 3Com Corporation (Registrant) January 14, 1994 /s/ Christopher B. Paisley Dated: ---------------- By --------------------------- Christopher B. Paisley Vice President Finance and Chief Financial Officer EX-10 2 EXHIBIT 10.15 INDEMNITY AGREEMENT THIS AGREEMENT is made and entered into as of _____________, 19____, by and between 3Com Corporation, a California corporation ("Corporation"), and ___________________________ ("Agent"). RECITALS A. Agent performs a valuable service to the Corporation in his capacity as a director, officer or agent of the Corporation. B. The shareholders of the Corporation have adopted by- laws ("By-Laws") providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations of enterprises, as authorized by the California General Corporation Law, as amended ("Code"). C. The By-Laws and the Code, by their non-exclusive nature, permit contracts between the Corporation and its agents, officers, employees and other agents with respect to indemnification of such persons. D. In order to induce Agent to continue to serve in the capacity set forth above, the Corporation has determined and agreed to enter into this Agreement with Agent. NOW, THEREFORE, in consideration of Agent's continued service in the capacity set forth above after the date hereof, the parties hereto agree as follows: l. Service to the Corporation. Agent will serve, at the will of the Corporation or under separate contract, if any such contract exists, as a director, officer or agent of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of his ability so long as he is duly elected and qualified in accordance with the provisions of the By-Laws or other applicable charter documents of the Corporation or such affiliate; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual publication that Agent may have assumed apart from this Agreement) and that the Corporation or any affiliate shall have no publication under this Agreement to continue Agent in any such position. 2. Maintenance of Liability Insurance. (a) The Corporation hereby covenants and agrees that, so long as the Agent shall continue to serve as an agent of the corporation and thereafter so long as the Agent shall be subject to any possible action, suit or proceeding by reason of the fact that the Agent was an agent of the Corporation, the Corporation, subject to Section 2(c), shall promptly obtain and maintain in full force and effect directors' and officers' liability insurance ("D&O Insurance") in reasonable amounts from established and reputable insurers. (b) In all policies of D&O Insurance the agent shall be named as an insured in such a manner as to provide the Agent the same rights and benefits as are accorded to the most favorably insured of the Corporation's directors, if the Agent is a director; or of the Corporation's officers, if the Agent is not a director of the Corporation but is an officer; or of the Corporation's key employees, if the Agent is not an officer or director but is a key employee. (c) Notwithstanding the foregoing, the Corporation shall have no obligation to obtain or maintain D&O Insurance if the Corporation determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or the Agent is covered by similar insurance maintained by a subsidiary of the Corporation. 3. Indemnity of Agent. The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provision of the By-Laws and the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits the corporation to provide broader indemnification rights than the By-Laws or the Code permitted prior to adoption of such amendment). 4. Additional Indemnity. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 4 hereof, the Corporation hereby further agrees to hold harmless and indemnify Agent: (a) against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of the Corporation) to which Agent is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Agent is, was or at any time becomes a director, officer, employee or other agent of the Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, or was a director, officer, employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation; and (b) otherwise to the fullest extent as may be provided to Agent by the Corporation under the non-exclusivity provisions of Section 29 of the By-Laws and the Code. 5. Limitations on Additional Indemnity. No indemnity pursuant to Section 4 hereof shall be paid by the Corporation: (a) on account of any claim against Agent for an accounting of profits made from the purchase or sale by Agent of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (b) for which payment is actually made to Agent under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, by-law or agreement, except in respect of any excess beyond payment under such insurance, clause, by-law or agreement; (c) in connection with any proceeding (or part thereof) initiated by agent, or any proceeding by Agent against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 10 hereof; (d) if indemnification is prohibited by law, in which regard both the Agent and the Corporation are aware that: (i) Section 204(a)(10) of the Code, at the time of this Agreement, would prohibit indemnification: (1) on account of Agent's acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (2) on account of Agent's acts or omissions that Agent believes to be contrary to the best interests of the Corporation or its shareholders or that involve the absence of good faith on the part of the Agent; (3) on account of any transaction from which Agent derived an improper personal benefit; (4) on account of Agent's acts or omissions that show a reckless disregard for the Agent's duty to the Corporation or its shareholders in circumstances in which Agent was aware, or should have been aware, in the ordinary course of performing Agent's duties, of a risk of serious injury to the Corporation or its shareholders; (5) on account of Agent's acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of Agent's duty to the Corporation or its shareholders; (6) on account of any liability of Agent under Section 310 of the Code; (7) on account of any liability of Agent under Section 316 of the Code; and (8) on account of any act or omission of Agent occurring prior to the date when a provision in the Corporation's Articles of Incorporation eliminating or limiting the personal liability of the Corporation's directors for monetary damages in actions brought by or in the right of the Corruption, as authorized by Section 204(a)(10) of the Code, first became effective; and that (ii) Section 317(c) of the Code, at the time of this Agreement, would prohibit indemnification in respect of any action by or in the right of the Corporation to procure a judgment in its favor: (1) in respect of any claim, issue or matter as to which Agent shall have been adjudged to be liable to the Corporation in the performance of Agent's duty to the Corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses and then only to the extent the court shall determine; (2) of amounts paid in settling or otherwise disposing of a pending action without court approval; and (3) of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. 6. Continuation of Indemnity. All Agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible claim or threatened, pending or competed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Agent was serving in the capacity referred to herein. 7. Partial Indemnification. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damage, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 4 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled. 8. Notification and Defense of Claim. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any action, suit or proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Agent otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof: (a) the Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any legal or other expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent unless (i) the employment of counsel by Agent has been authorized by the Corporation, (ii) Agent shall have reasonably concluded that there may be a conflict of interest between the Corporation and Agent in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Agent's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and (c) the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Agent without Agent's written consent. 9. Expenses. The Corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by Agent in connection with such proceeding upon receipt of an undertaking by or on behalf of Agent to repay said amounts if it shall be determined ultimately by a court of last resort that Agent is not entitled to be indemnified under the provisions of this Agreement, the By-Laws, the Code or otherwise. 10. Enforcement. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf or Agent in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Agent, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under Section 4 hereof (other than an action brought to enforce a claim for expenses pursuant to Section 9 hereof, provided that the required undertaking has been tendered to the Corporation) that Agent is not entitled to indemnification because of the limitations set forth in Section 4 hereof, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of directors or its shareholder) to have made a determination prior to the commencement of such enforcement action that indemnification of Agent is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its shareholders) that such indemnification is improper shall be a defense to the action or create a presumption that Agent is not entitled to indemnification under this agreement or otherwise. 11. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 12. Non-Exclusivity of Rights. The rights conferred on Agent by this Agreement shall not be exclusive of any other right which Agent may have or hereafter acquire under any statute, provision of the Corporation's Articles of Incorporation or By-laws, agreement, vote of shareholders of directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. 13. Survival of Rights. (a) The rights conferred on Agent by this agreement shall continue after Agent has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent or another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Agent's heirs, executors and administrators. (b) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. 14. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to the Agent to the fullest extent permitted by law. 15. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Subject to the last sentence of this Section 15, the parties agree to use their best efforts to replace such invalid or unenforceable provision of this Agreement with a valid and enforceable provision which will achieve, to the extent possible, the economic, business and other purposes of this invalid or unenforceable provision. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Agent to the fullest extent provided by the By-Laws, the Code or any other applicable law. 16. Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto. 17. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California. 18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 19. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement. 20. Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 21. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid: (a) If to Agent, at the address indicated on the signature page hereof. (b) If to the Corporation, to 3Com Corporation 5400 Bayfront Plaza Santa Clara, CA 95052-8145 or to such other address as may have been furnished to Agent by the Corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. 3Com CORPORATION AGENT By_____________________________ _________________________ (Signature) (Signature) Title__________________________ Agent's Address: __________________________ __________________________ EX-19 3 EXHIBIT 19.1 3Com CORPORATION 1983 STOCK OPTION PLAN 1. Purpose. The 3Com Corporation 1983 Stock Option Plan (the "Plan") is established to create additional incentive for key employees of 3Com Corporation and any present or future parent and/or subsidiary corporation of such corporation (collectively referred to as the "Company") to promote the financial success and progress of the Company. For purposes of the Plan, a parent corporation and a subsidiary corporation shall be as defined in sections 425(e) and 425(f) of the Internal Revenue Code of 1954, as amended (the "Code"). 2. Administration. The Plan shall be administered by the Board of Directors (the "Board") and/or by a duly appointed committee of the Board having such powers as shall be specified by the Board. Any subsequent references to the Board shall also mean the committee if it has been appointed. All questions of interpretation of the Plan or of any options granted under the Plan (an "Option") shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan and/or any Option. Options may be either incentive stock options as defined in section 422A of the Code or nonqualified stock options. All incentive stock options and nonqualified stock options granted to an Optionee shall be set forth in separate Options. 3. Eligibility. (a) Eligible Persons. The Options may be granted only to employees (including officers) of the Company. The Board shall, in its sole discretion, determine which persons shall be granted Options (an "Optionee"). A director of the Company shall not be granted an Option unless the director is also an employee of the Company. An Optionee may, if he is otherwise eligible, be granted additional Options. (b) Fair Market Value Limitation. Notwithstanding any other provisions in the Plan to the contrary, any Option which is designated as an incentive stock option and is granted pursuant to the Plan on or after January 1, 1987 shall comply with the limitations set forth in section 422A(b)(7) of the Internal Revenue Code of 1986 (the "1986 Code") (i.e., shall not become exercisable at a rate faster than $100,000 per calendar year). In the event an Option is subsequently determined to have exceeded the foregoing limitation, the Option shall be amended, if necessary, in accordance with applicable Treasury Regulations and rulings to preserve, as the first priority, to the maximum possible extent, the status of the Option as an incentive stock option and to preserve, as a second priority, to the maximum possible extent, the total number of shares subject to the Option. Notwithstanding the above, the Board of Directors shall have the authority, in its sole discretion, to amend the Plan to eliminate the limitation set forth in the first sentence of this paragraph or any limitation set forth in the Plan setting forth or otherwise designed to comply with the provisions of section 422A(b)(8) of the Internal Revenue Code of 1954, as amended prior to the Tax Reform Act of 1986 (the "1954 Code"), and/or to grant Options which comply with either limitation referred to above but which do not comply with both such limitations. 4. Shares Subject to Option. The maximum number of shares which may be issued under the Plan shall be 9,700,000 shares of the Company's authorized but unissued common stock, subject to adjustment as provided in paragraph 7. In the event that any outstanding Option for any reason expires or is terminated and/or shares subject to repurchase are repurchased by the Company, the shares of common stock allocable to the unexercised portion of such Option or so repurchased may again be subjected to an Option. 5. Time for Granting Options. All Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company. 6. Terms, Conditions and Form of Options. Subject to the provisions of the Plan, the Board shall determine for each Option (which need not be incidental) the number of shares for which the Option shall be granted, the option price of the Option, the exercisability of the Option, whether the Option is a nonqualified stock option or an incentive stock option, and all other terms and conditions of the Option not inconsistent with this paragraph 6. Options granted pursuant to the Plan shall be evidenced by written agreements specifying the number of shares covered thereby, in such form as the Board shall from time to time establish, and shall comply with and be subject to the following terms and conditions: (a) Option Price. (i) The option price for any incentive stock option shall be not less than the fair market value as determined by the Board of the shares of common stock of 3Com on the date of the granting of such Option, except that, as to an Optionee who at the time the Option is granted owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company within the meaning of section 422A(b)(6) of the Code (a "Ten Percent Owner Optionee"), the option price for any incentive stock option granted to the Ten Percent Owner Optionee shall not be less than 110% of the fair market value of the shares on the date the Option is granted. (ii) The option price for any nonqualified stock option shall be not less than 85% of the fair market value as determined by the Board of the shares of common stock of 3Com on the date of granting of such Option. (b) Exercise Period of Options. The Board shall have the power to set the time or times within which each Option shall be exercisable or the event or events upon the occurrence of which all or a portion of each Option shall be exercisable and the term of each Option; provided, however, that no Option shall be exercisable after the expiration of ten (10) years from the date such Option is granted, and provided further that no Option granted to a Ten Percent Owner Optionee which is intended to be an incentive stock option shall be exercisable after the expiration of five (5) years from the date such Option is granted. (c) Stockholder Approval. An Option is not exercisable until such time as the Plan is duly approved by the stockholders of the Company. (d) Payment of Option Price. Payment of the option price for the number of shares being purchased shall be made (1) in cash, (2) by tender to the Company of shares of the Company's common stock which (a) either has been owned by the Optionee for more than one (1) year or was not acquired, directly or indirectly from the Company, and (b) has a fair market value not less than the option price, or (3) by such other consideration (including, without limitation, the Optionee's promissory note) as the Board may approve at the time the Option is granted. Notwithstanding the foregoing, the Option may not be exercised by the tender of the Company's common stock to the extent such tender of stock would constitute a violation of the provisions of section 500 et seq. of the California Corporations Code, or the corresponding provisions of other applicable law. In the event the Board permits the exercise of an Option in whole or in part by means of the Optionee's promissory note, the Board shall determine the provisions of such note; provided, however, that the note shall not represent more than ninety- five (95%) of the option price, the principal shall be due and payable not more than four (4) years after the Option is exercised and interest shall be payable at least annually and be at least equal to the minimum interest rate to avoid imputed interest pursuant to section 483 of the Code. (e) Sequential Exercise Limitation. Notwithstanding any other provision of the Plan to the contrary, the Board of Directors shall have the authority, in its sole discretion, to grant Options on or after January 1, 1987 designated as incentive stock options which are subject to any restrictions on exercise set forth in the Plan setting forth or otherwise designed to comply with the provisions of section 422A(b)(7) of the 1954 Code. (f) Options Non-Transferable. During the lifetime of the Optionee, the Option shall be exercisable only by said Optionee. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. (g) Standard Option Terms. (i) Incentive Stock Options. Unless otherwise provided for the Board in the grant of an Option, an Option designated by the Board as an incentive stock option shall comply with and be subject to terms and conditions set forth in the form of Incentive Stock Option Agreement attached hereto as Exhibit A and incorporated herein by reference. (ii) Nonqualified Stock Options. Unless otherwise provided for by the Board in the grant of an Option, an Option designated by the Board as a nonqualified stock option shall comply with and be subject to the terms and conditions set forth in the form of Nonqualified Stock Option Agreement attached hereto as Exhibit B and incorporated herein by reference. (iii) Authority to Vary Terms. The Board shall have the authority from time to time to vary the terms of the option agreements set forth as Exhibits A and/or B either in connection with the grant of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of such option agreements shall be in accordance with the terms of the Plan. Such authority shall include, but not by way of limitation, the authority to grant Options which are not immediately exercisable. 7. Effect of Change in Stock Subject to Plan. Appropriate adjustments shall be made in the number and class of shares of stock subject to this Plan and to any outstanding Options and in the exercise price of any outstanding Options in the event of a stock dividend, stock split, reverse stock split or like change in the capital structure of the Company. 8. Termination or Amendment of Plan. The Board may at any time terminate or amend the Plan, provided that without approval of stockholders there shall be (i) no increase in the total number of shares covered by the Plan (except by operation of the provisions of paragraph 7 above, and (ii) no change in the class of persons eligible to receive Options. In any case, no amendment may adversely affect any then outstanding Options or any unexercised portions thereof without the consent of the Optionee unless such amendment is required to enable the Option to qualify as an incentive stock option (as defined in the Code). 9. Effect of Prior Plan as to Outstanding Options. The Company has heretofore adopted the 3Com Corporation Amended and Restated Incentive Stock Option Plan (the "Earlier Plan"). The Plan in all respects is independent of and not a continuation or amendment of the Earlier Plan. Accordingly, the terms of the Earlier Plan shall remain in effect and apply to Options granted pursuant to the Earlier Plan. EX-20 4 EXHIBIT 20.1 3Com Corporation August 31, 1993 First Quarter Report To Our Shareholders For the quarter ended August 31, 1993, we are pleased to report continuing progress toward an improved financial operating model. Net income of $26.1 million ($.80 per share) reflected record earnings from operations of $13.4 million ($.41 per share). Also included in net income were $1.2 million ($.04 per share) resulting from retroactive changes in the tax laws and an $11.5 million ($.35 per share) gain on the sale of shares in Madge N.V. We believe these results are tangible evidence that our global data networking strategy is working, our customer relationships continue to strengthen worldwide, and our operations continue to gain efficiency. Orders and sales increased 20% from the prior year to $157.0 million and $162.1 million, respectively, reflecting strength in all key product platforms. Our systems business (internetworking and hubs) grew 20% year-over-year to $58.1 million, and our adapter business increased 25% from last year to $92.7 million. Geographically, sales in the Americas, Europe, and Intercontinental region accounted for 56%, 35%, and 9% of total sales, respectively. Sales of products introduced in the last 12 months were 52% of total sales, reflecting market acceptance of our new products, including LinkBuilder stackable hubs, EtherLink III Parallel Tasking-TM and TokenLink III adapters, and NETBuilder II and Boundary Routing-TM System Architecture internetworking platforms. Additionally, we began shipping our LinkBuilder MSH and LinkBuilder FDDI chassis hubs for Ethernet, Token Ring and FDDI environments. Early in the quarter, the NETBuilder II router was awarded Communications Week's Mixed-LAN Max Award for achieving the first-ever perfect score in processing multi-protocol data traffic. In July, we introduced our High Performance Scalable Networking strategy. This comprehensive blueprint of the future of data networks allows customers to incrementally increase the bandwidth and reduce the complexity of their networks using hub and internetworking platforms available from 3Com today. We also announced a strategic alliance with Fore Systems, a leader in ATM (asynchronous transfer mode) technology, to incorporate ATM switching in our connectivity systems. Additionally, we extended our partnership with Novell, Inc. to ensure interoperability of our complementary router technologies. Further, we were the first to demonstrate 100 Mbps Fast Ethernet technology and we also introduced the first applications of our new Transcend-TM network management architecture, a unique management scheme that manages complete, logical connectivity systems rather than single devices. At our September annual meeting of shareholders, Jean-Louis Gassee, Jack L. Hancock, Stephen C. Johnson, and William F. Zuendt were elected to two-year board terms. Additionally, we acknowledge the many contributions of former Chairman L. William Krause who, after more than 12 years of service to 3Com, has decided not to seek re-election to the Board. Shareholders also approved a 1.5 million share reserve increase under the company's 1983 Stock Option Plan and ratified the appointment of Deloitte & Touche as the company's independent public accountants for the 1994 fiscal year. The industry is shifting its focus from point products to comprehensive connectivity systems and solutions. We are leading this trend and are, we believe, positioned to further increase our market share and improve our operating results. On behalf of all 1,995 3Com employees, we thank you for your continued support. Eric A. Benhamou President and CEO Consolidated Statements of Income Quarter Ended August 31, 1993 1992 in thousands, except per share data (unaudited) Sales $162,091 $135,617 Costs and Expenses: Cost of sales 81,676 74,133 Sales and marketing 35,455 29,158 Research and development 15,878 15,703 General and administrative 8,204 8,333 Total 141,213 127,327 Operating income 20,878 8,290 Gain on sale of investment 17,746 - Other income (expense)-net (320) 460 Income before taxes 38,304 8,750 Income tax provision 12,190 2,900 Net income $ 26,114 $ 5,850 Earnings per share $0.80 $0.20 Shares used in computing per share amount 32,656 29,954 Consolidated Balance Sheet Quarter Ended August 31, 1993 1992 in thousands, except per share data (unaudited) Assets Current Assets: Cash, cash equivalents and temporary cash investments $145,298 $ 76,893 Trade receivables 84,911 72,622 Inventories 63,331 55,639 Other 27,283 31,766 Total current assets 320,823 236,920 Property and equipment-net 55,517 57,093 Other assets 7,438 11,235 Total $383,778 $305,248 Liabilities and Shareholders' Equity Current Liabilities: Notes payable $ - $ 8,336 Accounts payable and accruals 89,248 75,683 Accrued restructuring costs 3,321 7,941 Income taxes payable 20,184 5,171 Current portion of long-term obligations 191 317 Total current liabilities 112,944 97,448 Long-term obligations 456 1,401 Accrued restructuring costs-noncurrent 524 2,518 Shareholders' Equity: Common stock 153,921 126,697 Unamortized restricted stock grants and notes receivable from sale of common stock - (112) Retained earnings 116,256 73,363 Accumulated translation adjustments (323) 3,933 Total shareholders' equity 269,854 203,881 Total $383,778 $305,248 -----END PRIVACY-ENHANCED MESSAGE-----