-----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, LKwm5lU0Tmd+DskOTDXFKKQMLIeIGO/l2hrG2RZT4WtSOVMNujlen7waj1yFkN+N +m7ehKigbu2FG6Czwzm+EQ== 0000738076-94-000012.txt : 19940407 0000738076-94-000012.hdr.sgml : 19940406 ACCESSION NUMBER: 0000738076-94-000012 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940330 ITEM INFORMATION: 3 FILED AS OF DATE: 19940405 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: 8-K/A SEC ACT: 34 SEC FILE NUMBER: 000-12867 FILM NUMBER: 94520358 BUSINESS ADDRESS: STREET 1: 5400 BAYFRONT PLZ CITY: SANTA CLARA STATE: CA ZIP: 95052 BUSINESS PHONE: 4087645000 8-K/A 1 MAIN UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K/A AMENDMENT TO CURRENT REPORT Date of Report (Date of earliest event reported): January 14, 1994 3COM CORPORATION (Exact name of registrant as specified in its charter) California 0-12867 94-2605794 (State or other jurisdiction (Commission File Number) (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 The undersigned registrant hereby amends the following items of its Current Reports dated January 14, 1994 and February 2, 1994 on Form 8-K as set forth in the pages attached hereto: ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 3Com Corporation (Registrant) Dated: March 30, 1994 By: /s/Christopher B. Paisley Vice President Finance and Chief Financial Officer 3COM CORPORATION ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATI0N AND EXHIBITS (a) Financial statements of Synernetics, Inc. for the years ended January 2, 1994 and January 3, 1993, are attached hereto and filed herewith as Exhibit 7.3. (b) The attached unaudited pro forma condensed combining financial statements for the year ended May 31, 1993 and for the six months ended November 30, 1993 give effect to the acquisitions of Synernetics, Inc. and Centrum Communications, Inc., by 3Com Corporation accounted for on the purchase accounting basis. The pro forma condensed combining statements of operations assume that the acquisitions took place as of June 1, 1992, the beginning of the earliest period presented and combine 3Com's results of operations for the year ended May 31, 1993 and the six months ended November 30, 1993 with Synernetics' and Centrum's, respectively, results of operations for the year ended June 30, 1993 and six months ended January 2, 1994 and December 31, 1993, respectively. The unaudited pro forma condensed combining balance sheet combines 3Com's balance sheet as of May 31, 1993 with the Synernetics and Centrum balance sheets as of June 30, 1993, giving effect to the acquisitions as if they had occurred on May 31, 1993. The pro forma condensed combining financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred had the acquisitions been consummated at the beginning of the periods presented, nor is it necessarily indicative of future operating results or financial position. The pro forma condensed combining financial information should be read in conjunction with the historical consolidated financial statements and the related notes thereto of 3Com Corporation and Centrum Communications, Inc. previously filed and the historical financial statements and related notes thereto of Synernetics, Inc. included herein. (c) The following exhibits are attached hereto and filed herewith: 7.3 Financial statements of Synernetics, Inc. for the years ended January 2, 1994 and January 3, 1993. 7.4 Unaudited Pro Forma Condensed Combining Financial Statements of 3Com Corporation. 3COM CORPORATION INDEX TO EXHIBITS EXHIBIT DOCUMENT 7.3 Financial Statements of Synernetics, Inc. for the years ended January 2, 1994 and January 3, 1993 7.4 Unaudited Pro Forma Condensed Combining Financial Statements of 3Com Corporation EX-1 2 EX1SYNER SYNERNETICS INC. (A Wholly-Owned Subsidiary of 3COM Corporation) FINANCIAL STATEMENTS for the years ended January 2, 1994 and January 3, 1993 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Synernetics Inc., a wholly-owned subsidiary of 3Com Corporation: We have audited the accompanying balance sheets of Synernetics Inc., a wholly-owned subsidiary of 3Com Corporation, as of January 2, 1994 and January 3, 1993 and the related statements of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As explained in Note 1, 3Com Corporation purchased 100 percent of the stock of Synernetics, Inc. on January 14, 1994. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Synernetics Inc., a wholly-owned subsidiary of 3Com Corporation, as of January 2, 1994 and January 3, 1993, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Boston, Massachusetts January 27, 1994 SYNERNETICS INC. (A Wholly-Owned Subsidiary of 3COM Corporation) BALANCE SHEET _______ January 2, January 3, ASSETS 1994 1993 Current assets: Cash and cash equivalents $ 5,946,511 $ 7,301,445 Short-term investments - 14,000 Accounts receivable, (net of allowance for doubtful accounts of $135,463 and $91,343 at January 2, 1994 and January 3, 1993, respectively) 4,860,024 898,860 Inventories (Note 3) 4,982,570 2,582,583 Prepaid expenses and other current assets 244,850 254,171 Total current assets 16,033,955 11,051,059 Property and equipment, net (Note 4) 2,047,598 1,305,832 Other assets 76,317 51,388 Total assets $18,157,870 $12,408,279 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of notes payable (Note 7) 178,472 - Current portion of obligations under capital leases (Note 9) 265,309 108,560 Accounts payable 2,634,659 974,324 Accrued expenses 1,357,933 522,275 Accrued warranty 563,487 393,587 Deferred revenue 170,679 154,308 Total current liabilities 5,170,539 2,153,054 Notes payable (Note 7) 356,633 - Obligations under capital leases (Note 9) 390,357 133,248 Commitments (Note 9) Stockholders' equity (Note 10): Convertible preferred stock: Series A, convertible preferred stock, $0.01 $0.01 par value; authorized, issued and outstanding 3,871,143 shares (liquidating value $6,271,252) 6,223,337 6,223,337 Series B convertible preferred stock, $0.01 par value; 2,965,320 shares authorized; 2,946,484 shares issued and outstanding (liquidating value $6,452,800) 6,395,888 6,395,888 Series C convertible preferred stock, 0.01 par value; authorized, issued and outstanding 1,904,062 shares (liquidating value $5,636,024) 5,600,114 5,600,114 Preferred stock, $0.01 par value; 8,721,689 shares authorized; no shares issued and outstanding - - Class B convertible common stock, $0.01 par value; authorized, issued and outstanding 620,000 shares (liquidating value $341,000) (Note 10) - 315,968 Common stock, $0.01 par value; 14,000,000 shares authorized, 1,847,075 and 1,200,925 shares issued and outstanding at January 2, 1994 and January 3, 1993, respectively (Note 10) 18,493 12,009 Additional paid-in capital 322,066 8,012 Accumulated deficit (6,319,219) (8,433,351) 12,240,679 10,121,977 Less: treasury stock at cost, 2,250 and 0 shares in 1993 and 1992, respectively; (338) - Total stockholders' equity 12,240,341 10,121,977 Total liabilities and stockholders' equity $18,157,870 $12,408,279 The accompanying notes are an integral part of the financial statements. SYNERNETICS INC. (A Wholly-Owned Subsidiary of 3COM Corporation) STATEMENTS OF INCOME _______ For the years ended January 2, January 3, 1994 1993 Revenues (Note 5): Systems $25,663,112 $13,605,457 License 800,000 2,800,000 Service and other 849,201 333,616 Total revenues 27,312,313 16,739,073 Costs and expenses: Cost of sales 12,045,325 7,053,029 Research and development 5,826,175 3,326,724 Marketing and selling 5,585,461 3,483,610 General and administrative 1,406,493 1,249,338 Merger expenses (Note 1) 381,850 - Total costs and expenses 25,245,304 15,112,701 Income (loss) from operations 2,067,009 1,626,372 Other income (expense): Interest income 169,754 139,205 Interest expense (47,031) (28,900) Total other income, net 122,723 110,305 Income before income taxes 2,189,732 1,736,677 Provision for income taxes (Note 6) 75,600 32,000 Net income $ 2,114,132 $ 1,704,677 The accompanying notes are an integral part of the financial statements. SYNERNETICS INC. (A Wholly Owned Subsidiary of 3COM Corporation) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY for the years ended January 2, 1994 and January 3, 1993 _______
Series A Series B Series C Class B Convertible Convertible Convertible Convertible Preferred Stock Preferred Stock Preferred Stock Common Stock Number of Number of Number of Number of Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 29, 1991 3,871,143 $6,223,337 2,946,484 $6,395,888 620,000 $315,968 Issuance of 1,904,062 shares of Series C convertible preferred stock 1,904,062 $5,600,114 Issuance of 30,425 shares of common stock pursuant to exercise of stock options Net income Balance at January 3, 1993 3,871,143 6,223,337 2,946,484 6,395,888 1,904,062 5,600,114 620,000 315,968 Removal of Class B convertible common stock designation creating one class of common stock (Note 10) (620,000) (315,968) Issuance of 28,400 shares Common Stock pursuant to exercise of stock options Purchase of Treasury Stock Net income Balance at January 2, 1994 3,871,143 $6,223,337 2,946,484 $6,395,888 1,904,062 $5,600,114 - - Common Stock Additional Total Number of Paid-In Accumulated Treasury Stockholders' Shares Amount Capital Deficit Stock Equity Balance at December 29, 1991 1,170,500 $ 11,705 $ 3,621 $(10,138,028) $ 2,812,491 Issuance of 1,904,062 shares of Series C convertible preferred stock 5,600,114 Issuance of 30,425 shares of common stock pursuant to exercise of stock options 30,425 304 4,391 4,695 Net income 1,704,677 1,704,677 Balance at January 3, 1993 1,200,925 12,009 8,012 (8,433,351) 10,121,977 Removal of Class B convertible common stock designation creating one class of common stock (Note 10) 620,000 6,200 309,768 Issuance of 28,400 shares of Common Stock pursuant to exercise of stock options 28,400 284 4,286 4,570 Purchase of Treasury Stock (2,250) $(338) (338) Net income 2,114,132 - 2,114,132 Balance at January 2, 1994 1,847,075 $ 18,493 $322,066 $ (6,319,219) $(338) $12,240,341
The accompanying notes are an integral part of the financial statements. SYNERNETICS INC. (A Wholly Owned Subsidiary of 3COM Corporation) STATEMENTS OF CASH FLOWS For the years ended January 2, January 3, 1994 1993 Cash flows from operating activities: Net income $2,114,132 $1,704,677 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,155,146 745,356 Loss on disposal of property and equipment 1,136 - Changes in operating assets and liabilities: Increase in accounts receivable, net (3,961,164) (17,098) (Increase) decrease in inventories (2,399,987) 121,402 (Increase) decrease in prepaid expense and other current assets 9,321 (190,256) Increase (decrease) in accounts payable 1,660,335 (293,028) Increase in accrued expenses 1,005,332 465,363 Increase (decrease) in deferred revenue 16,371 (1,655,702) Net cash provided by (used in) operating activities (399,378) 880,714 Cash flows from investing activities: Purchases of short-term investments - (92,000) Sales of short-term investments 14,000 128,090 Purchase of property and equipment (1,807,966) (978,883) Increase in security deposits 26,121 4,028 Net cash used in investing activities (1,767,845) (938,765) Cash flows from financing activities: Principal payments on obligations under capital leases (162,384) (110,468) Proceeds from notes payable 575,123 - Principal payments on notes payable (40,018) - Proceeds from issuance of convertible stock, net of issuance costs - 5,600,114 Proceeds from issuance of common stock 4,458 4,695 Proceeds from the sale and leaseback of property and equipment 435,110 - Net cash provided by financing activities 812,289 5,494,341 Net increase (decrease) in cash and cash equivalents (1,354,934) 5,436,290 Cash and cash equivalents at beginning of year 7,301,445 1,865,155 Cash and cash equivalents at end of year $5,946,511 $7,301,445 Supplemental disclosures of cash flow information: Cash paid (received) during the year for: Interest $45,829 $28,900 Income taxes 4,341 20,550 Supplemental disclosures of noncash financing activities: Capital lease obligations for computer and office equipment of $141,132 and $128,099 were incurred in fiscal 1993 and 1992, respectively. The accompanying notes are an integral part of the financial statements. SYNERNETICS INC. (a Wholly Owned Subsidiary of 3COM Corporation) NOTES TO FINANCIAL STATEMENTS _______ 1. Nature of Business: Synernetics Inc. (the "Company") was incorporated in the state of Delaware in 1988 and is engaged in the development, manufacturing and marketing of local area network hardware and software. On January 12, 1994 the shareholders of Synernetics, Inc. approved a Merger Agreement and Plan of Reorganization dated December 16, 1993 with its major customer, 3Com Corporation ("3Com") whereby the shareholders of Synernetics, Inc. received $104 million in cash, less certain amounts for severance packages and unexercised vested options and warrants. 3Com assumed certain other outstanding Synernetics options and these options will continue to be exercisable for a number of 3Com common stock subject to share price and vesting factors. Synernetics, Inc. remains to date as a separate legal entity wholly owned by 3Com Corporation. In connection with the merger, Synernetics incurred approximately $382,000 in expenses primarily relating to legal fees (see Note 5). 2. Summary of Significant Accounting Policies: The following is a summary of significant accounting policies employed by the Company in the preparation of its financial statements. Revenue Recognition The Company recognizes hardware revenue upon product shipment. Revenue from software product sales is recognized upon delivery unless there is uncertainty about customer acceptance, in which case revenue is recognized upon customer acceptance. Revenue from development and service agreements is recognized pursuant to the related agreements based on progress on those agreements. Payments received under these agreements prior to the completion of the related work are recorded as deferred revenue. Maintenance and support revenues are recognized ratably over the term of the agreements. Through July 1992, the Company operated a forum to further the development of technological standards relating to the Company's products. The Company charged forum members an annual membership fee which was recognized ratably over the term of the membership. Cash and Cash Equivalents The Company invests its excess cash in high grade money market accounts, commercial paper and treasury notes. These investments mature within three months of the initial investment. Accordingly, the investments are subject to minimal credit and market risk and are considered by the Company to be cash equivalents. The Company considers all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. Property and Equipment Property and equipment are recorded at cost and are depreciated over the estimated useful lives of the equipment using the straight-line method. When assets are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Maintenance and repairs are charged to expense as incurred. Income Taxes In fiscal 1992, the Company adopted the liability method of accounting for income taxes, in accordance with Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Tax credits are recorded as a reduction in income taxes when utilized. Fiscal Year The Company's fiscal year ends on the Sunday closest to December 31. The 1993 fiscal year ended on January 2, 1994 and the 1992 fiscal year ended on January 3, 1993. Intangible Assets The Company capitalizes expenses associated with obtaining patents on its products. The costs are being amortized over the lesser of their estimated useful life or seventeen years. 3. Inventories: Inventories consist of the following: January 4, January 3, 1994 1993 Raw materials $ 944,812 $ 781,159 Work in progress 3,105,750 839,909 Finished goods 705,854 834,305 Finished goods on loan to customers 226,154 127,210 $4,982,570 $2,582,583 4. Property and Equipment: Property and equipment consists of the following: Estimated useful lives January 4, January 3, (years) 1994 1993 Computer and office equipment 2-4 $4,482,039 $2,678,178 Furniture and fixtures 5 104,610 89,156 Leasehold improvements lesser of useful life or lease term 100,748 92,148 4,687,397 2,859,482 Less - accumulated depreciation and amortization (2,639,799) (1,553,650) $2,047,598 $1,305,832 At January 2, 1994 and January 3, 1993, computer and office equipment with an aggregate cost of $937,202 and $395,555, respectively and accumulated amortization of $299,075 and $170,770, respectively, were recorded under capital leases. 5. Agreement with Major Customer (see Note 1): During 1991, the company entered into an agreement with a major customer under which the Company received a total of $3.6 million for the licensing of a portion of the Company's technology. The Company received $1.7 million upon signing of the contract in 1991 and an additional $1.1 million upon the first anniversary date. Revenue associated with the first payment was deferred in 1991 pending delivery of the technology and subject to the lapsing of a contingent cancellation clause. The Company met these requirements in 1992 and has therefore recognized $2.8 million of revenue in fiscal 1992. A final payment of $800,000 was received in fiscal 1993 in connection with this contract and was recognized as revenue in fiscal 1993. The Company has also entered into an OEM agreement with this customer. In 1993, the Company received approximately $11.0 million from sales other than licensing to this customer. This customer accounted for approximately 43% and 56% of the Company's revenue in fiscal 1993 and 1992, respectively. 6. Income Taxes: Effective December 30, 1991, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." No cumulative effect adjustment was required for the adoption of SFAS No. 109 due to the Company's previous use of the liability method. Under this statement, deferred tax assets (net of any valuation allowance) and liabilities resulting from temporary differences, net operating loss carryforwards and tax credit carryforwards are recorded using a liability method. Deferred taxes relating to temporary differences and loss carryforwards are measured using the enacted tax rate expected to be in effect when they reverse or are realized. The provision for income taxes for fiscal 1993 and 1992 consists of the following: 1993 1992 Federal income taxes: Currently payable $63,000 $10,000 Deferred - - 63,000 10,000 State income taxes: Currently payable 12,600 22,000 Deferred - - 12,600 22,000 $75,600 $32,000 The provision for federal and state income taxes for the years ended January 2, 1994 and January 3, 1993 was reduced by the utilization of net operating loss carryforwards in the amount of approximately $2,955,000 and $442,000, respectively. The Company has tax credit carryforwards of approximately $660,000 expiring at various dates through 2008. Ownership changes may result in future limitations on the utilization of net operating loss and research and development tax credit carryforwards (see Note 1). A reconciliation of the statutory federal income tax rate to the Company's fiscal 1993 and 1992 effective tax rate is as follows: 1993 1992 Statutory federal income tax rate (benefit) 34% 34% Utilization of net operating loss carryforwards (31) (33) State taxes, net of federal tax benefit .5 1 Effective income tax rate 3.5% 2% The approximate tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is as follows: Year Ended January 2, 1994 Deferred tax assets: Net operating loss carryforwards $1,277,000 Inventory reserves and capitalization 350,000 Accounts receivable reserves 54,000 Vacation and benefits reserves 92,000 Other liabilities and reserves 63,000 Merger costs 153,000 Warranty reserves 225,000 Tax credit carryforwards 660,000 $2,874,000 Due to the uncertainty surrounding the timing of realizing the benefits of its favorable tax attributes in future tax returns, the Company has placed a 100% valuation allowance against its otherwise recognizable net deferred tax assets. 7. Notes Payable: The Company entered into a credit agreement with a bank which provided for up to $600,000 in borrowings to purchase fixed assets. The Company's related purchase of equipment is pledged as collateral under the agreement. The Company borrowed approximately $575,000 during fiscal 1993 with interest payable at 9% over 36 months. Scheduled maturities of notes payable is as follows: Fiscal Year 1994 $178,472 1995 195,304 1996 161,329 535,105 Less: current maturities (178,472) Noncurrent portion of notes payable $356,633 8.Line of Credit: In April 1993, the Company extended its $2,000,000 working capital line of credit agreement with a bank which matures in May 1994. All of the assets of the Company have been pledged as collateral in connection with this line of credit agreement reduced by assets purchased under the Company's equipment notes payable (see Note 7). In consideration of the original line of credit, the bank received a warrant to purchase up to 34,247 shares of the Company's Class A Common Stock at an initial exercise price of $2.19. The warrant is exercisable until April 10, 1997. The Company paid a one-time commitment fee of $10,000 to extend the agreement. Interest is charged at the bank's prime rate plus 1%. There were no outstanding borrowings under the line of credit during each of the fiscal years or at January 2, 1994 or January 3, 1993. 9. Lease Commitments: In April 1991, the Company entered into a Master Lease and Warrant Agreement with Pacific Venture Finance, Inc. ("PVF"). In consideration of a master lease line of up to $550,000, PVF received a Preferred Stock Purchase Warrant to purchase up to 18,836 shares of the Company's Series B Preferred Stock. The warrant is exercisable for the longer of 10 years from the date of issuance or 5 years after an initial public offering of the Company's common stock. The Company leases office space in North Billerica, Massachusetts under a lease expiring in 1994. Annual rent is approximately $134,000. The Company has an option to extend the lease for an additional year at the then fair market value. In addition, various short-term, renewable leases have been entered into for sales office space. The Company also leases certain equipment under operating and capital leases. Operating lease rental expense for the years ended January 2, 1994 and January 3, 1993 was approximately $265,000 and $211,000, respectively. Total minimum lease payments are as follows: Capital Operating Leases Leases 1994 $333,355 $264,977 1995 261,543 74,610 1996 149,646 27,037 1997 - 12,198 1998 - 647 744,544 $379,469 Less - amount representing interest (88,878) Principal portion of minimum lease payments, including current portion of $265,309 $655,666 10. Stockholders' Equity: Series A, B and C Convertible Preferred Stock On October 30, 1992, the Company authorized and issued 1,904,062 shares of Series C convertible preferred stock (Series C preferred stock) at $2.96 per share in exchange for cash of $5,600,114, net of issuance costs. The Series A, B and C preferred stock are convertible into common stock on a share-for-share basis, subject to certain anti-dilution adjustments, at the option of the holder or automatically at the closing of an underwritten public offering of the Company's common stock in which the Company receives gross proceeds equal to or greater than $7,500,000 and in which the price per common share equals or exceeds $8.10 (as adjusted for stock dividends, stock splits and similar events). Until October 30, 1992, the Series B preferred stock contained a conversion feature, whereby if the Company did not meet certain performance goals during 1992, the Series B preferred stock conversion price would have been reduced. This conversion feature was eliminated on October 30, 1992. Until October 30, 1992, the Series A and B preferred stock contained a provision whereby upon receipt of written request at least sixty days prior to February 12, 1996 from the holders of at least two-thirds of the Series A and B preferred stockholders, respectively, the Company would be required to redeem 25% of the Series A and B shares, commencing on February 12, 1996 and on the anniversary of that date for the following three years, at a price of $1.62 and $2.19, respectively, per share plus any declared but unpaid dividends. This provision was canceled on October 30, 1992. The Series A, B and C preferred stockholders are entitled to one vote for each share of Class A common stock into which the shares of Series A, B and C are convertible. Dividends on Series A, B and C preferred stock are noncumulative and must be paid in full prior to payment of dividends on any other class of stock. Dividends can be declared at the discretion of the Board of Directors and become payable when declared. The holders of the Series A, B and C preferred shares have liquidation preferences over all other shareholders at $1.62, $2.19 and $2.96, respectively, per share plus any declared but unpaid dividends. Preferred Stock The Company has authorized 8,721,689 shares of preferred stock, $.01 par value, none of which are issued and outstanding. Class B Convertible Common Stock On November 4, 1993, the Board of Directors and stockholders amended its certificate of incorporation to remove all references to Class B Common Stock creating one class of common stock consisting of the former Class B and Class A common stock. Class A Common Stock On November 4, 1993, the Board of Directors and stockholders approved an amendment of the Company's certificate of incorporation to redesignate the Company's Class A common stock to common stock. The Company has reserved shares of common stock for future issuance to management, employees and consultants and for issuance upon conversion of the Series A, B and C preferred stock as well as the exercise of common stock and preferred stock purchase warrants and options as summarized in the table below: Issuance to management, employees and consultants 2,074,840 Conversion of Series A preferred stock 3,871,143 Conversion of Series B preferred stock 2,946,484 Conversion of Series C preferred stock 1,904,062 Exercise of common stock purchase warrants 34,247 Exercise of Convertible Series B preferred stock purchase warrants 18,836 Total common stock reserved for issuance 10,849,612 At January 2 1994, 1,847,075 of the Company's common shares are outstanding of which 1,100,000 are classified as founders shares, 62,500 as incentive shares and 66,825 as incentive stock option shares. Founders and incentive shares are subject to stock restriction and repurchase agreements, which provide the Company an option to repurchase at the original issuance price a portion of an individual's shares upon termination of employment with the Company, based on a vesting schedule over a period of five years. The repurchase rights on the founders' shares lapsed in fiscal 1992 and the repurchase rights on the incentive shares lapse through April 24, 1994. At January 2, 1994, 187,500 incentive shares were restricted. In fiscal 1994, the Company repurchased 2,250 shares of its common stock for $338. These shares are classified as treasury stock at January 2, 1994. Stock Option Plan In August 1989, the Company adopted the 1989 Stock Option Plan (the "Stock Plan") under which incentive stock options to purchase shares of common stock may be issued to key employees and officers of the Company. The Stock Plan is administered by the Company's Board of Directors and terminates at the earlier of August 11, 1999 or when all options issuable under the Plan have been exercised. The Company has designated 2,532,600 shares of common stock less 62,500 restricted shares which have previously been issued to employees, for use in the Stock Plan. Stock Plan transactions during 1993 and 1992 were as follows: 1993 1992 Number Price Number Price Options outstanding at beginning of year 1,702,160 $ .15- .50 1,234,050 $.15 Granted 442,190 .50-4.00 628,535 . 25-.50 Exercised (28,400) .15- .25 (30,425 .15-.25 Canceled or expired (41,110) .15- .75 (130,000 .15-.50 Options outstanding at end of year 2,074,840 $.15-4.00 1,702,160 $.15-.50 At January 2, 1994, there were 898,511 shares exercisable. Under the terms of the Stock Plan, the option price per share for incentive stock options may not be less than the fair market value (110% of the fair market value for employees possessing more than 10% of the total voting power of all classes of stock), as defined in the Plan, on the date of the grant. Incentive stock options will expire on dates specified by the Board of Directors, but no more than ten years from the date of grant (five years for employees possessing more than 10% of the total combined voting power of all classes of stock). Each eligible employee may be granted incentive stock options which would entitle that employee to purchase up to a maximum of $100,000 in fair market value (determined at the time of grant) of common stock in any one year. Pursuant to the Stock Plan, nonqualified stock options, which are not incentive options, may be issued to employees, consultants and directors of the Company. The option price per share for nonqualified options may not be less than the lesser of (1) book value per share as of the end of the fiscal year immediately preceding the date of grant or (2) 50% of the fair market value on the date of grant. Nonqualified options expire no later than ten years plus one day from the date of grant. The exercise date of options granted is determined by the Board of Directors. The Company has a right of first refusal to repurchase shares acquired under the stock plan should an employee receive an offer, and desire to sell such shares. The price per share that the Company would pay to repurchase the shares would be equal to the offered price per share. The Company's right of first refusal will expire should the Company receive at least $5,000,000 in a public offering of its common stock. 11. Defined Contribution Plan: During 1989, the Company adopted a defined contribution plan under Section 401(k) of the Internal Revenue Code. All full- time employees of the Company who are at least 21 years of age are eligible to participate in the Plan. The Plan allows employees to contribute up to 20% of their salaries on a pre-tax basis. Company contributions to the Plan are at the discretion of management. All contributions vest immediately except for Company contributions in which employees are 20% vested after three years of service and an additional 20% for each year of service thereafter. The Company made no contributions to the Plan during the fiscal years ended January 4, 1994 and January 3, 1993. EX-2 3 EX23COM Exhibit 7.4 3COM CORPORATION PRO FORMA CONDENSED COMBINING BALANCE SHEET as of May 31, 1993 (unaudited) (dollars in thousands) Pro forma Pro forma 3Com Synernetics Centrum Adjustments Combined ASSETS Current Assets: Cash,cash equivalents and temporary cash investments $117,230 $ 5,353 $ 193 $(107,921)(1) $ 14,855 Trade receivables 83,481 2,546 524 (1,108)(2) 85,443 Inventories 68,061 2,524 466 (529)(3) 70,522 Deferred income taxes 19,805 - - - 19,805 Other 15,835 222 49 (190)(2) 15,916 Total current assets 304,412 10,645 1,232 (109,748) 206,541 Property and equipment-net 55,248 1,356 202 - 56,806 Other assets 7,918 59 28 12,160(4) 20,165 Total $367,578 $12,060 $1,462 $(97,588) $283,512 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 40,212 $ 688 $ 974 $ (1,108)(2) $ 40,766 Notes payable - - 300 - 300 Accrued and other liabilities 58,311 1,556 389 31,440(5) 91,696 Income taxes payable 8,637 - - - 8,637 Current portion of long-term obligations 1,021 97 - - 1,118 Total current liabilities 108,181 2,341 1,663 30,332 142,517 Long-term obligations 610 99 - - 709 Accrued restructuring costs-noncurrent 524 - - - 524 Shareholders' Equity: Preferred stock - 18,218 - (18,218)(6) - Common stock 154,958 339 2,100 18,649 (6) 176,046 Retained earnings 103,163 (8,937) (2,301) (128,351)(7) (36,426) Accumulated translation adjustments 142 - - - 142 Total shareholders' equity 258,263 9,620 (201) (127,920) 139,762 TOTAL $367,578 $12,060 $1,462 $(97,588) $283,512 3COM CORPORATION PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS Fiscal Year Ended May 31, 1993 (in thousands except per share data) (unaudited) 3Com Synernetics Centrum Year Year Year Ended Ended Ended Pro Forma Pro Forma 5/31/93 6/30/93 6/30/93 Adjustments Combined Sales $617,168 $15,241 $1,142 $(5,005)(8) $628,546 Costs and expenses: Cost of sales 320,386 6,328 601 237(8)(10)327,552 Sales and marketing 137,021 4,273 1,236 - 142,530 Research and development 64,346 4,295 850 (1,736)(8) 67,755 General and administrative 33,176 1,222 401 - 34,799 Non-recurring items 1,316 - - - 1,316 Total 556,245 16,118 3,088 (1,499) 573,952 Operating income (loss) 60,923 (877) (1,946) (3,506) 54,594 Other income (expense)-net (677) 138 8 - (531) Income (loss) before income taxes 60,246 (739) (1,938) (3,506) 54,063 Provision for income taxes 21,685 15 1 (1,262)(9) 20,439 Net income (loss) $ 38,561 $ (754)$(1,939) $(2,244) $ 33,624 Net income (loss) per common and equivalent share: Primary $1.22 - - - $1.05 Fully-diluted $1.20 - - - $1.04 Common and equivalent shares used in computing per share amounts: Primary 31,624 - - - 32,066 Fully-diluted 32,146 - - - 32,309 See notes to pro forma condensed combining financial statements. 3COM CORPORATION PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS Six Months Ended November 30, 1993 (in thousands except per share data) (unaudited) 3Com Synernetics Centrum 6 mos. 6 mos. 6 mos. Ended Ended Ended Pro Forma Pro Forma 11/30/93 1/2/94 12/31/93 Adjustments Combined SALES $367,366 $17,816 $723 $(8,095)(8) $377,810 Costs and expenses: Cost of sales 184,086 7,816 549 (4,008)(8)(10) 188,443 Sales and marketing 77,956 3,099 1,298 - 82,353 Research and development 34,041 3,302 514 - 37,857 General and administrative 16,893 805 528 - 18,226 Total 312,976 15,022 2,889 (4,008) 326,879 Operating income (loss) 54,390 2,794 (2,166) (4,087) 50,931 Other income (expense) -net (812) (332) 1 - (1,143) Gain on sale of investments 17,746 - - - 17,746 Income (loss) before income taxes 71,324 2,462 (2,165 (4,087) 67,534 Provision for income taxes 23,747 19 1 (1,430)(9) 22,337 NET INCOME (LOSS) $ 47,577 $ 2,443 $(2,166) $(2,657) $ 45,197 Net income (loss) per common and equivalent share: Primary $1.46 - - - $1.37 Fully-diluted $1.44 - - - $1.35 Common and equivalent shares used in computing per share amounts: Primary 32,692 - - - 32,961 Fully diluted 33,124 - - - 33,396 See notes to pro forma condensed combining financial statements. 3COM CORPORATION NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS 1. Acquisitions SYNERNETICS, INC. On January 14, 1994, pursuant to an Agreement and Plan of Reorganization dated December 16, 1993 ("Synernetics Agreement") among 3Com Corporation (the "Company"), 3Sub Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("3Sub"), and Synernetics, Inc., a Delaware corporation ("Synernetics"), 3Sub was merged with and into Synernetics, which became a wholly owned subsidiary of the Company. The holders of capital stock of Synernetics received cash at the rate of approximately $8.4402 per share. The negotiated value for the outstanding shares of Synernetics stock was approximately $104,000,000 less (i) the value of the Company's stock reserved for issuance in connection with the post-merger exercise of vested Synernetics stock options assumed by 3Com (including options that accelerated and became vested in connection with the merger), (ii) severance payments made to certain employees of Synernetics, and (iii) approximately $385,000 attributable to stock options granted by Synernetics to three of its employees in December 1993 after the terms of the merger had been substantially negotiated. The purchase price of $104,000,000 was paid using funds from the Company's working capital. Under the terms of the Synernetics Agreement, a portion of such amount was deposited into an escrow account as security for the indemnification of the Company by Synernetics for breaches of the representations, warranties and covenants of Synernetics set forth in the Agreement. Such account is the sole and exclusive source of compensation for any claim by the Company against Synernetics or its stockholders in connection with the merger. Subject to reduction based on outstanding or resolved claims, the funds in such account shall be distributed to the Synernetics stockholders on a pro rata basis in the future. In addition to the purchase price for outstanding shares of Synernetics' stock, 3Com assumed all outstanding options held by Synernetics' employees. CENTRUM COMMUNICATIONS, INC. On February 2, 1994, pursuant to an Agreement and Plan of Reorganization dated January 18, 1994, (the "Centrum Agreement") among 3Com Corporation , 3Sub Acquisition Corporation, a California corporation and wholly owned subsidiary of the Company ("Sub"), and Centrum Communications, Inc., a California corporation ("Centrum"), Sub was merged with and into Centrum, which became a wholly owned subsidiary of the Company. The negotiated value for all the shares of Centrum stock outstanding was approximately $30,200,000. Such amount was paid using funds from the Company's working capital. In addition, the Company assumed all outstanding options to acquire Centrum stock, which became exercisable for shares of Company Common Stock. The holders of capital stock of Centrum received cash at the rate of approximately $1.567 per share. Such cash amount will be payable in two (2) installments, (i) 19/36ths was paid during the month of February 1994 and (ii) 17/36ths shall be paid on August 2, 1994 or as promptly as is practicable thereafter. Under the terms of the Centrum Agreement, a portion of such amount was deposited into an escrow account as security for the indemnification of the Company by Centrum for breaches of the representations, warranties and covenants of Centrum set forth in the Agreement. Such account is the sole and exclusive source of compensation for any claim by the Company against Centrum or its stockholders in connection with the merger. Subject to reduction based on outstanding or resolved claims, the funds in such account shall be distributed to the Centrum stockholders on a pro rata basis in the future. 2. Pro forma adjustments The accompanying pro forma financial statements are presented in accordance with Article 11 of Regulations S-X. 3COM CORPORATION NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS The unaudited pro forma condensed combining balance sheet has been prepared as if the acquisitions, which are being accounted for as purchases, were completed as of May 31, 1993. The aggregate purchase price of $140 million, plus $3.3 million of costs attributed to the exchange of Synernetics and Centrum options for 3Com options and $13.1 million of costs directly attributable to the completion of the acquisition have been allocated to assets and liabilities acquired. The allocation of the purchase price among the identifiable intangible assets was based on independent appraisals of the fair market value of those assets. Such appraisals allocated $132.1 million to purchased research and development, which has not yet reached technological feasibility and does not have alternative future uses. This amount has been written off as a pro forma adjustment in accordance with generally accepted accounting principles. To prepare the pro forma unaudited condensed combining statement of operations, the 3Com statement of operations for the year ended May 31, 1993 has been combined with the statements of operations of Synernetics and Centrum for the year ended June 30, 1993. Also, the 3Com statement of operations for the six months ended November 30, 1993 has been combined with the statements of operations of Synernetics and Centrum for the six months ended January 2, 1994 and December 31, 1993, respectively. This method of combining the companies is for the presentation of unaudited condensed combining financial statements only. Actual statements of operations of the companies will be combined from the effective date of the acquisitions, with no retroactive restatement. The unaudited pro forma condensed combining financial statements should be read in conjunction with the historical financial statements of 3Com, Synernetics and Centrum. The unaudited pro forma condensed combining statements of operations do not include the one-time $132.1 million write-off of purchased research and development in process arising from these acquisitions, as it is a material nonrecurring charge. This charge will be included in the actual consolidated statement of income of 3Com Corporation in the third quarter of fiscal 1994. The following pro forma adjustments have been made to the pro forma condensed combining financial statements. (1) Reflects cash paid to stockholders of Synernetics and Centrum (2) Reflects elimination of intercompany receivables and payables (3) Reflects the elimination of intercompany profit in ending inventory (4) Reflects the allocation of purchase price to the intangible assets identified in the purchase price allocation (5) Reflects accrual of second payment due on Centrum acquisition and the accrual of costs directly attributable to the completion of the acquisitions (6) Reflects the elimination of Synernetics' and Centrum's shareholders' equity and assumption of stock options outstanding under the Synernetics and Centrum stock option plans (7) Includes the one-time write-off of purchased in-process research and development identified in the purchase price allocation (8) Reflects elimination of intercompany sales, cost of sales and other transactions between 3Com and Synernetics (9) Reflects the tax effect of the pro forma adjustments at the effective tax rate (10) Also reflects pro forma amortization of the purchased intangibles of $5.3 million for the year ended May 31, 1993 and $2.6 million for the six months ended November 30, 1993. -----END PRIVACY-ENHANCED MESSAGE-----