-----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, FFOEzRR6PhgFaaZJyBulZ3TWQqyf3lxnsBfxcyDMhPYCoPqkvBTTU404oeC06wLI o4suaF39Gz4QRqDY0F7CDg== 0000738076-94-000014.txt : 19940415 0000738076-94-000014.hdr.sgml : 19940415 ACCESSION NUMBER: 0000738076-94-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940414 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: 1934 Act SEC FILE NUMBER: 000-12867 FILM NUMBER: 94522697 BUSINESS ADDRESS: STREET 1: 5400 BAYFRONT PLZ CITY: SANTA CLARA STATE: CA ZIP: 95052 BUSINESS PHONE: 4087645000 10-Q 1 10-Q WITH MDA UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended February 28, 1994 Commission File No. 0-12867 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 XX 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 February 28, 1994, 31,989,245 shares of the Registrant's Common Stock were outstanding. 3COM CORPORATION Table of Contents Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets February 28, 1994 and May 31, 1993 Consolidated Statements of Operations Quarter and nine months ended February 28, 1994 and 1993 Consolidated Statements of Cash Flows Nine months ended February 28, 1994 and 1993 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) February 28, May 31, 1994 1993 (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 57,413 $ 40,046 Temporary cash investments 24,458 77,184 Trade receivables 121,501 83,481 Inventories 72,024 68,061 Deferred income taxes 21,992 19,805 Other 11,281 15,835 Total current assets 308,669 304,412 Property and equipment-net 58,823 55,248 Other assets 19,941 7,918 Total $387,433 $367,578 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 42,164 $ 40,212 Accrued payroll and related expenses 17,146 16,671 Accrued restructuring costs 2,884 3,682 Other accrued liabilities 75,580 37,958 Income taxes payable 9,917 8,637 Current portion of long-term obligations 378 1,021 Total current liabilities 148,069 108,181 Long-term obligations 1,128 610 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: February 28, 1994: 31,989,245; May 31, 1993: 30,850,377 204,183 154,958 Retained earnings 34,136 103,163 Accumulated translation adjustments (372) 142 Total shareholders' equity 237,947 258,263 TOTAL $387,433 $367,578 See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data) (unaudited) Quarter Ended Nine Months Ended February 28, February 28, February 28, February 28, 1994 1993 1994 1993 SALES $218,166 $161,396 $585,532 $449,710 Costs and expenses: Cost of sales 104,983 83,000 289,069 236,021 Sales and marketing 44,002 35,497 121,958 99,085 Research and development 19,369 16,077 53,410 48,051 General and administrative 8,534 7,746 25,427 24,563 Purchased in-process technology 134,481 - 134,481 - - Merger costs - 1,601 - 1,601 Total 311,369 143,921 624,345 409,321 Operating income (loss) (93,203) 17,475 (38,813) 40,389 Other expense_net (412) (570) (1,224) (879) Gain on sale of investment - - 17,746 - - Income (loss) before income taxes (93,615) 16,905 (22,291) 39,510 Income tax provision 9,845 6,745 33,592 14,220 NET INCOME (LOSS) $(103,460) $ 10,160 $(55,883) $ 25,290 Net income (loss) per share: Primary $(3.28) $0.31 $(1.80) $0.81 Fully-diluted $(3.28) $0.31 $(1.80) $0.79 Shares used in computing per share amounts: Primary 31,544 32,381 30,962 31,163 Fully-diluted 31,544 32,387 30,962 32,010 See notes to consolidated _nancial statements. CCONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine Months Ended February 28, February 28, 1994 1993 Cash flows from operating activities: Net income (loss) $( 55,883) $25,290 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 21,654 18,292 Gain on sale of investment (17,746) - - Deferred income taxes (3,894) (1,160) Purchased in-process technology 134,481 - - Adjustment to conform fiscal year of pooled entity - 1,398 Pro forma provision for income taxes - 2,345 Changes in assets and liabilities net of the effects of acquisitions: Trade receivables (32,893) (27,936) Inventories 975 (7,446) Other current assets 6,894 4,284 Accounts payable (777) 8,770 Accrued liabilities 3,908 8,308 Accrued restructuring costs (1,621) (7,151) Income taxes payable 16,837 7,715 NET CASH PROVIDED BY OPERATING ACTIVITIES 71,935 32,709 Cash flows from investing activities: Proceeds from sale of investment 18,066 - - Investment in property and equipment (20,765) (14,498) Purchase of temporary cash investments (35,327) (33,518) Proceeds from temporary cash investments 88,053 29,572 Businesses acquired in purchase transactions-net (98,128) - - Proceeds from partial disposition of joint venture - 498 Effect on cash of partial disposition of joint venture - (299) Other-net (4,213) 915 NET CASH USED FOR INVESTING ACTIVITIES (52,314) (17,330) Cash flows from financing activities: Sale of stock 16,080 12,561 Repurchases of common stock (16,645) (9,233) Repurchase of stock warrants - (1,300) Notes payable - 3,326 Repayments of long-term obligations (858) (113) Equity distributions of pooled entity - (5,073) Other-net (831) (1,900) NET CASH USED FOR FINANCING ACTIVITIES (2,254) (1,732) Increase in cash and cash equivalents 17,367 13,647 Cash and cash equivalents at beginning of period 40,046 34,694 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57,413 $48,341 See notes to consolidated financial statements. Notes to Consolidated Financial Statements 1. The consolidated financial statements include the accounts of 3Com Corporation and its wholly- and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. 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 February 28, 1994, and the results of operations and cash flows for the quarters and nine months ended February 28, 1994 and February 28, 1993. The results of operations for the quarter and nine months ended February 28, 1994 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): February 28, May 31, 1994 1993 Finished goods $42,870 $41,331 Work-in-process 10,788 4,912 Raw materials 18,366 21,818 Total $72,024 $68,061 3. Business Combinations On January 14, 1994, the Company acquired all of the outstanding shares of Synernetics, Inc. ("Synernetics") and assumed all outstanding Synernetics stock options. The purchase price consisted of approximately $104.0 million plus $3.3 million of stock options. A substantial portion of the purchase price was paid using funds from the Company's working capital. Synernetics is engaged in the development, manufacturing and marketing of local area network hardware and software. On February 2, 1994, the Company acquired all of the outstanding shares of Centrum Communications, Inc. ("Centrum") and assumed all outstanding Centrum stock options. The purchase price consisted of approximately $36.0 million of which $16.0 million was paid in cash and $14.3 million is payable in August 1994 and the remainder was associated with the value of the assumed stock options. Centrum is engaged in the development, manufacturing and marketing of remote access products and technology. The acquisitions were accounted for as purchases and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market values at the dates of acquisitions. The aggregate purchase price of $143.3 million plus $13.1 million of costs directly attributable to the completion of the acquisitions has been allocated to the assets and liabilities acquired, including $12.2 million of purchased technology that will be amortized over two to four years. Approximately $132.1 million of the total purchase price represented in-process technology that had not yet reached technological feasibility and was charged to the Company's operations. The Company's consolidated results of operations include the operating results of the acquired companies from their acquisition dates. The following table summarizes the pro forma combined results of operations for the nine months ended February 28, 1994 and 1993 as if the acquisitions had occurred at the beginning of each of the periods presented (in thousands, except per share amounts): Nine Months Ended February 28 1994 1993 (unaudited) Sales $597,490 $457,236 Net income $68,316 $21,637 Net income per share: Primary $2.05 $0.69 Fully-diluted $2.00 $0.67 Shares used in computing per share amounts: Primary 33,291 31,560 Fully-diluted 34,201 32,175 The above table includes, on a pro forma basis, the Company's consolidated financial information for the nine months ended February 28, 1994 combined with the financial information of Synernetics and Centrum for the same nine months and the Company's consolidated financial information for the nine months ended February 28, 1993 combined with the financial information of Synernetics and Centrum for the nine months ended March 31, 1993. The above table excludes the one-time $132.1 million write-off of purchased in- process technology arising from these acquisitions as it was a material nonrecurring charge. This charge is included in the actual consolidated statement of operations for the nine months ended February 28, 1994. The pro forma combined results of operations are presented for illustrative purposes only and are not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of future operating results. 4. During the third quarter of fiscal 1994, the Company licensed certain in-process wireless technology from Pacific Monolithics, Inc. This technology is still under development and, accordingly, $2.4 million of the $2.5 million cost of obtaining this license represented in- process technology and was charged to operations during the third quarter. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ACQUISITIONS During the third fiscal quarter ended February 28, 1994, 3Com Corporation enhanced its High Performance Scaleable Networking architecture with several strategic acquisitions (see Note 3 of Notes to Consolidated Financial Statements). The Company completed the acquisitions of Synernetics, Inc. ("Synernetics"), a market leader in LAN switching on January 14, 1994, and Centrum Communications, Inc. ("Centrum"), an innovator of remote access products on February 2, 1994. The acquisitions were accounted for as purchases and accordingly, the acquired assets and liabilities were recorded at their estimated fair market values at the dates of acquisition. The aggregate purchase price consisted of approximately $140.0 million plus $3.3 million of costs attributed to the exchange of Synernetics options for 3Com options and $13.1 million of costs directly attributable to the completion of the acquisitions. Approximately $132.1 million of the total purchase price represented in-process technology and was charged to the Company's operations during the quarter. In December 1993, the Company also announced a technology licensing agreement with Pacific Monolithics, Inc., a pioneer in wireless communications (see Note 4 of Notes to Consolidated Financial Statements). The cost of the license agreement was $2.5 million, substantially all of which was charged to the Company's operations during the quarter as purchased in-process technology. Third quarter results included a $134.5 million pre-tax charge to operations for the combined effect of purchased in-process technology related to the acquisitions and the license agreement. The Company's consolidated results of operations for the third fiscal quarter ended February 28, 1994 included the operating results of Synernetics and Centrum from the dates of acquisition. References to the Company herein refer to 3Com and its subsidiaries. QUARTER ENDED FEBRUARY 28, 1994 Orders for the Company's products in the third quarter of fiscal 1994 totaled $216.9 million, an increase of 27 percent from the corresponding quarter a year ago, while sales were $218.2 million, an increase of 35 percent. Both orders and sales were at record levels for the Company. Compared with the second quarter of fiscal 1994, orders and sales for the third quarter of fiscal 1994 increased 7 percent and 6 percent, respectively. The Company believes that the year-over-year increase in third quarter orders and sales is due to several factors, including general market strength in the data networking market, rapid growth in sales outside the U.S., revenues from sales of key data networking products such as the EtherLink III Parallel Tasking network adapter, the NETBuilder II bridge/router and the LinkBuilder FMS stackable hub, 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. Revenue from the acquired businesses did not account for a significant portion of the year- over-year increase. Sales from products introduced in the last 12 months represented 26 percent of sales in the third quarter of fiscal 1994, a decline from 35 percent of sales represented by new products in the second quarter as several high volume selling products such as the EtherLink III network adapter and LinkBuilder FMS stackable hub met their one-year anniversary in the first half of fiscal 1994. Sales of the Company's network adapter products in the third quarter of fiscal 1994 represented 55 percent of total sales and increased 21 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 network adapter and the TokenLink III network adapter. Lower average selling prices were primarily attributable to a shift in demand to the lower-priced EtherLink III network adapter. Sales of the Company's systems products (internetworking, hub and switching products) in the third quarter of fiscal 1994 represented 39 percent of total sales and increased 73 percent from the year-ago quarter. The increase was led primarily by the high-performance NETBuilder II bridge/router, Boundary Routing systems architecture internetworking products, and the LinkBuilder FMS and TRi stackable hub. Sales of the Company's other products (terminal servers, customer service, protocols and other products) represented six percent of third quarter sales and continued to decrease from the third quarter of fiscal 1993, primarily reflecting a continuing decline in the sales of terminal server products. Sales outside the United States provided 56 percent of third quarter sales, compared to 50 percent for the same period last year. Growth in international sales was particularly strong in Europe and the Latin America region. The Company believes that the increase in international sales from a year ago reflected customer acceptance of the Company's products and the results of the Company's continued expansion globally and the opening of new sales offices. Cost of sales as a percentage of sales was 48.1 percent for the quarter, compared to 51.4 percent for the third quarter of fiscal 1993. The 3.3 percentage points improvement in gross margin from the year-ago period resulted primarily from increased utilization of production capacity and increased manufacturing efficiencies, a favorable shipment mix of higher-margin Etherlink III adapters, and an improvement in intelligent hub margins. Total operating expenses in the third quarter of fiscal 1994 were $206.4 million, compared to $60.9 million in the third quarter of fiscal 1993. Excluding the one-time write-off of $134.5 million of purchased in-process technology in the third quarter of fiscal 1994 and $1.6 million of costs associated with the Company's acquisition of Star-Tek a year ago, total operating expenses in the third quarter of fiscal 1994 would have been $71.9 million, or 33.0 percent of sales, compared to $59.3 million, or 36.8 percent of sales, a year ago. The $12.6 million, or 21 percent increase in operating expenses reflected increased selling costs related to higher sales volume and increased cooperative advertising expenses, as well as continued investment in research and development activities. The Company provided $9.8 million for income taxes in the third quarter of fiscal 1994 because a significant portion of the purchased in-process technology costs was not tax deductible. The tax rate associated with continuing operations was 35 percent. Net loss for the third quarter of fiscal 1994 was $103.5 million, or $3.28 per share, compared to net income of $10.2 million, or $0.31 per share, reported a year ago. Excluding the effects of the one-time write-offs in the third quarters of fiscal 1994 and fiscal 1993, the Company would have realized net income of $0.72 per share in the third quarter of fiscal 1994, compared to $0.37 per share a year ago. NINE MONTHS ENDED FEBRUARY 28, 1994 Orders for the first nine months of fiscal 1994 were $576.0 million, a 25 percent increase from the $460.2 million in orders during the corresponding period in fiscal 1993. Sales totaled $585.5 million, a 30 percent increase from sales of $449.7 million in the first nine months of fiscal 1993. Cost of sales for the first nine months of fiscal 1994 was 49.4 percent of sales, which decreased from 52.5 percent of sales in the corresponding period during fiscal 1993. The 3.1 percentage points improvement in gross margin was primarily related to improved efficiency of the manufacturing operations, a favorable shipment mix with higher shipments of the lower-cost EtherLink III network adapter, and reduction in product material costs. Operating expenses in the first nine months of fiscal 1994 were $335.3 million compared to $173.3 million in the comparable prior- year period. Excluding the one-time write-off of purchased in- process technology in fiscal 1994 and merger costs in fiscal 1993, operating expenses in the first nine months of fiscal 1994 would have been $200.8 million, or 34.3 percent of sales, compared to $171.7 million, or 38.2 percent of sales a year ago. The $29.1 million, or 17 percent increase, was primarily due to increased selling costs related to higher sales volume, the cost of promoting the Company's systems products, and increased cooperative advertising expenses partially offset by the favorable impact of the strengthening U.S. dollar as compared to European currencies. Other expense-net was $1.2 million in the first nine months of fiscal 1994 compared with expense of $879,000 for the same period a year ago. The 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 loss was $55.9 million, or $1.80 per share, for the first nine months of fiscal 1994, compared to net income of $25.3 million, or $.79 per share, for the first nine months of fiscal 1993. Net loss for the first nine months of fiscal 1994 reflected the aforementioned $134.5 million pre-tax write-off associated with purchased in-process technology, an $11.5 million after-tax gain from the sale of the Company's investment in Madge, N.V. and a $1.2 million tax benefit due to retroactive components and the effect of changes in federal statutory rates of the Revenue Reconciliation Act of 1993. Excluding these one- time write-offs and gains, the Company would have realized net income of $1.75 per share for the first nine months of fiscal 1994. 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 other 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. Such actions may include the development or acquisition 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. Industry consolidation or alliances may also affect the competitive environment. Some key components of the Company's products are sole-sourced from 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 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 Cash, cash equivalents and temporary cash investments at February 28, 1994 were $81.9 million, down $35.4 million from May 31, 1993. During the quarter ended February 28, 1994, the Company spent approximately $98.1 million in net cash for the acquisitions of Synernetics and Centrum. For the nine months ended February 28, 1994, net cash generated from operating activities was $71.9 million. Trade receivables at February 28, 1994 increased $38.0 million from May 31, 1993 due primarily to a significant increase in sales over the same time period and, to a lesser extent, trade receivables from acquired businesses. Days sales outstanding in receivables ended at 50 days at the end of the third quarter, compared to 45 days at May 31, 1993. Inventory levels increased $4.0 million from the prior fiscal year end, with inventory turnover improved from 5.3 turns at May 31, 1993 to 6.5 turns at February 28, 1994. Other assets increased $12.0 million from May 31, 1993, which primarily resulted from acquired technology related to the Synernetics and Centrum businesses. Investing activities for the first nine months of fiscal 1994 included $18.1 million of proceeds from the sale of the Company's investment in Madge N.V., offset by $20.8 million used for capital expenditures. In addition, the Company liquidated temporary cash investments to fund its third quarter acquisitions. As of February 28, 1994, the Company has an outstanding payment obligation of $14.3 million related to the Centrum acquisition which is payable in August 1994. During the first nine months 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. In the same period, the Company received cash of $16.1 million from sale of its common stock to employees through its employee stock purchase and option plans. As of February 28, 1994, 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. 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 operating cash requirements through calendar year 1994. 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 None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 1983 Stock Option Plan, as amended 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 (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 (Exhibit 10.15 to Form 10-Q) (13) 10.16 Agreement and Plan of Reorganization dated December 16, 1993 among 3Com Corporation, 3Sub Corporation and Synernetics, Inc. (Exhibit 7.1 to Form 8-K) (11) 10.17 Side Agreement Regarding Agreement and Plan of Reorganization dated January 14, 1993 among 3Com Corporation, 3Sub Corporation and Synernetics, Inc. (Exhibit 7.2 to Form 8-K) (11) 10.18 Agreement and Plan of Reorganization dated January 18, 1994. (Exhibit 7.2 to Form 8-K) (12) 10.19 Indemnity and Escrow Agreement dated February 2, 1994. (Exhibit 7.3 to Form 8-K) (12) 10.20 Amendment to Credit Agreement 10.21 Second Amendment to Credit Agreement 20.1 3Com Corporation Second 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 filed 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). (11) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed on January 31, 1994 (File No. 0-12867). (12) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's Form 8-K filed on February 11, 1994 (File No. 0-12867). (13) Incorporated by reference to the Exhibit identified in parentheses previously filed as an Exhibit to Registrant's 10-Q filed on January 14, 1994 (File No. 0-12867). (b) Reports on Form 8-K The Company filed two Reports on Form 8-K during the fiscal quarter covered by this report, as follows: (i) Report on Form 8-K filed on January 31, 1994, reporting under Item 2 the completion of the acquisition of Synernetics, Inc. effective January 14, 1994. (ii) Report on Form 8-K filed on February 11, 1994, reporting under Item 2 the completion of the acquisition of Centrum Communications, Inc. effective February 2, 1994, and filing the following financial statements: Audited financial statements of Centrum Communications, Inc. for the years ended September 30, 1993 and September 30, 1992. A Report on Form 8-K/A amending the two Reports on form 8-K referenced above was filed on March 30, 1994, and included the following financial statements: Financial statements of Synernetics, Inc. for the years ended January 2, 1994 and January 3, 1993. Unaudited Pro Forma Condensed Combining Financial Statements of 3Com Corporation 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) Dated: By: April 13, 1994 /s/ Christopher B. Paisley Vice President Finance and Chief Financial Officer EX-1 2 STOCK OPTION PLAN EXH. 1 Exhibit 10.1 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 (a--s 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-2 3 FIRST AMENDMNET CREDIT Exhibit 10.20 AMENDMENT TO CREDIT AGREEMENT THIS AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of January 11, 1994, is entered into by and between 3COM CORPORATION (the "Company") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank"). RECITALS A. The Bank and the Company are parties to a Credit Agreement dated as of April 21, 1993 (the "Credit Agreement") pursuant to which the Bank has extended certain credit facilities to and for the benefit of the Company. B. The Company has requested that the Bank agree to certain amendments of the Credit Agreement. C. The Bank is willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. (a) Section 1.01 of the Credit Agreement shall be amended as follows: (i) The definition of "Assessment Rate" as set forth in the definition of "CD Rate" shall be amended by deleting the word "Agent" in the third line thereof and inserting "Bank" in lieu thereof, and by adding the following to the end of such definition: "or, in the event that the FDIC shall at any time hereafter cease to assess time deposits based upon such classifications or successor classifications, equal to the maximum annual assessment rate in effect on such day that is payable to the FDIC by commercial banks (whether or not applicable to the Bank) for insuring time deposits at offices of such banks in the United States". (ii) The definition of "Commitment" shall be replaced in its entirety with the following: ""Commitment" means Forty Million Dollars ($40,000,000)." (iii) The definition of "Revolving Termination Date" shall be replaced in its entirety with the following: ""Revolving Termination Date means the last Business Day on or preceding December 31, 1996." (b) Subsection 6.01(a) of the Credit Agreement shall be amended by inserting "(i)" after "Company," in the second line thereof, and by inserting the following after the word "years" in the last line of such subsection: ", and (ii) a copy of an unaudited consolidating balance sheet of the Company and each of its Subsidiaries as at the end of such fiscal year and the related consolidating statement of income for such fiscal year, all in reasonable detail, certified by an appropriate Responsible Officer of the Company as having been used in connection with the preparation of the financial statements refereed to in clause (i) of this subsection 6.01(a)". (c) Subsection 7.03(c) of the Credit Agreement shall be amended by deleting the proviso thereto and inserting in lieu thereof the following: "provided that immediately prior to and immediately after giving effect thereto, no Default or Event of Default exists or would exist.". (d) Section 7.07 of the Credit Agreement shall be amended by (i) adding the following after the end of the parenthetical in the seventh line of such Section: "and, commencing with the fiscal quarter ending February 28, 1994, the amount of all letters of credit and bank guarantees extended by the Bank to the Company or any of the Company's Subsidiaries", and (ii) adding the following after "1.00" in the penultimate line of such Section: "through and including the fiscal quarter ending November 30, 1993, 1.00 to 1.00 through and including the fiscal quarter ending February 28, 1995, and 1.25 to 1.00 thereafter". (e) Section 7.08 of the Credit Agreement shall be amended in its entirety to read as follows: "7.08. Tangible Net Worth. The Company shall not permit its Tangible Net Worth, on a consolidated basis, at the end of any fiscal quarter to be less than the sum of (i) the greater of (A) 90% of the Company's consolidated Tangible Net Worth as of February 28, 1994, or (B) $200,000,000, plus (ii) 75% of the Company's consolidated net income (but without deducting any net losses for any period) earned in each fiscal quarter, starting with the quarter ended May 31, 1994, and ending with the quarter which, at such time, is the most recently ended fiscal quarter, plus (iii) 100% of the net proceeds (whether in cash, other property, or in kind) of equity securities issued by the Company after the fiscal quarter ended February 28, 1994, and up to the end of such fiscal quarter, less (iv) 100% of the amount of capital stock repurchased after the fiscal quarter ended February 28, 1994, and up to the end of such fiscal quarter.". (f) Subsection 7.10(b) shall be amended by inserting at the end of such subsection the following: "; provided that solely for the fiscal quarter ended February 28, 1994, the Company may have, on a consolidated basis, Net Income and/or operating income which is below $0.00 by more than 5% of Tangible Net Worth as of the end of the immediately preceding fiscal quarter, but not below $0.00 by more than $90,000,000 for either or both of Net Income or operating income". 3. Representations and Warranties. The Company hereby represents and warrants to the Bank as follows: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct. (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Bank or any other Person. 4. Effective Date. This Amendment will become effective as of January 11, 1994 (the "Effective Date"), provided that each of the following conditions precedent has been satisfied: (a) The Bank has received from the Company a duly executed original of this Amendment. (b) The Bank has received from the Company a copy of a resolution passed by the board of directors of such corporation, certified by the Secretary or an Assistant Secretary of such corporation as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Amendment. (c) The Bank has received from the Borrower such other approvals, opinions or documents as the Bank may reasonably request. 5. Reservation of Rights. The Company acknowledges and agrees that the execution and delivery by the Bank of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Bank to forbear or execute similar amendments under the same or similar circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 9.03 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) Company covenants to pay to or reimburse the Bank, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. 3COM CORPORATION By: /s/Christopher B. Paisley Title: CFO BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/Kevin McMahon Title: Vice President EX-3 4 2ND AMENDMENT CREDIT Exhibit 10.21 SECOND AMENDMENT TO CREDIT AGREEMENT This Second Amendment to Credit Agreement (the "Amendment"), dated as of January 25, 1994, is entered into by and between 3COM CORPORATION (the "Company") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank"). RECITALS A. The Bank and the Company are parties to a Credit Agreement dated as of April 21, 1993, as amended by that certain Amendment to Credit Agreement dated as of January 11, 1994 (the "First Amendment") (the Original Agreement, as amended by the First Amendment, the "Credit Agreement") pursuant to which the Bank has extended certain credit facilities to and for the benefit of the Company. B. The Company has requested that the Bank agree to certain amendments of the Credit Agreement. C. The Bank is willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. (a) Section 7.08 of the Credit Agreement shall be amended by replacing the amount"$200,000,000" with the amount "$161,000,000". (b) The reference to "section 7.10(b)" in Section 3(f) of the First Amendment shall first be replaced with "Section 7.10(a)" and Section 7.10(a) of the Credit Agreement shall then be amended by replacing the amount "$90,000,000" with the amount "$129,000,000". 3. Representations and Warranties. The Company hereby represents and warrants to the Bank as follows: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery, and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any governmental authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid, and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct. (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Bank or any other Person. 4. Effective Date. This Amendment will become effective as of January 25, 1994 (the" Effective Date") provided that each of the following conditions precedent has been satisfied: (a) The Bank has received from the Company a duly executed original of this Amendment. (b) All representations and warranties contained herein are true and correct as of the Effective Date. 5. Reservation of Rights. The Company acknowledges and agrees that the execution and delivery by the Bank of this amendment shall not be deemed to create a course of dealing or otherwise obligate the Bank to forbear or execute similar amendments under the same or similar circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants, and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 9.03 of the Credit Agreement.writing executed by both of the parties hereto. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) Company covenants to pay to or reimburse the Bank, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in the connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. 3COM CORPORATION By: /s/Christopher B. Paisley Title: CFO BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/Kevin McMahon Title: Vice President EX-4 5 Q2 REPORT 3Com Corporation November 30, 1993 Second Quarter Report To Our Shareholders For the second quarter of fiscal 1994, we are pleased to report record orders, sales and net income. Sales and orders were $205.3 million and $202.1 million, respectively. Net income of $21.5 million ($.65 per share) grew 60% sequentially, excluding non-recurring gains from the August quarter, and 131% from the prior year. These results reflected the company's focus on providing complete desktop-to-WAN connectivity systems, as well as our ability to leverage investments in sales, marketing, and engineering to improve our operating model. Sales of the company's systems products, including internetworking platforms and hubs, represented 35% of total sales, increased 24% sequentially and 30% from the year-earlier quarter. Sales of network adapters accounted for 59% of total sales, and grew 31% sequentially and 45% from a year ago. Communication servers and customer service accounted for most of the remaining 6% of the company's business, increasing 11% sequentially but declining 11% from last year. Additionally, sales outside the U.S. represented 51% of total sales this quarter. During the quarter we strengthened our leadership position in global data networking with expanded geographic coverage, increased investments in emerging technologies and new alliances. We opened a new office in Mexico City and formed 3Com Japan to respond to the unique data networking requirements of these growing regions. We also strengthened our relationship with Anixter, Inc., one of the world's largest integrators of networking and wiring systems with 150 locations worldwide. As the latest addition to our network systems integration program, Anixter now provides their customers with comprehensive networking systems using the full breadth of 3Com products. In a move to bring 100 megabits-per-second (Mbps) Ethernet products to market quickly, 3Com joined with AT&T Microelectronics to codevelop silicon for 100Base-T applications. The new silicon, based on 3Com's pioneering Parallel Tasking technology, will ultimately allow users to migrate smoothly from 10 Mbps to 100 Mbps Ethernet networks. Following the close of the quarter, we announced two strategic moves that position 3Com squarely at the forefront of key emerging markets. In December, the company announced a definitive agreement to acquire Synernetics, Inc., the leader in Ethernet and FDDI switching technologies, for $104 million. LAN switching is an important technology which strengthens our High Performance Scalable Networking strategy as well as our position in the hub and internetworking markets. The two companies have worked together since 1991 to develop the switching market and the agreement is the natural culmination of these efforts. The transaction is expected to close in January. We also announced an exclusive licensing agreement with Pacific Monolithics, inc. to develop, manufacture and sell wireless LAN products based on radio technology utilizing gallium arsenide. Incorporating this innovative e technology with 3Com's Parallel Tasking technology will allow seamless integration of mobile users into existing Ethernet LANs, extending the full-wire functionality and speed of 10 Mbps Ethernet into the portable domain for the first time. The recent months have been very exciting and rewarding for 3Com. As we look forward to the second half of fiscal 994, we will continue to focus our efforts on providing customers with the complete connectivity solutions they need to support their businesses both today and in the future. Eric A. Benhamou President and CEO CONSOLIDATED STATEMENT OF INCOME QUARTER ENDED AUGUST 31, SIX MONTHS ENDED NOVEMBER 30, 1993 1992 1993 1992 in thousands, except per share data (unaudited) 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 income (expense)_net (492) (769) (812) (309) Income before taxes 33,020 13,855 71,324 22,605 Income tax provision 11,557 4,575 23,747 7,475 _______ _______ _______ _______ Net income $ 21,463 $ 9,280 $ 47,577 $ 15,130 _______ _______ _______ _______ Earnings per share $ 0.65 $ 0.29 $ 1.44 $ 0.48 Shares used in computing per share amount 33,159 31,493 33,124 31,381 _______ _______ _______ _______ CONSOLIDATED BALANCE SHEET QUARTER ENDED NOVEMBER 30, 1993 1992 in thousands, except per share data (unaudited) Assets Current Assets: Cash, cash equivalents and temporary cash investments $160,759 $ 87,416 Trade receivable 100,113 80,498 Inventories 57,761 59,727 Other 41,048 26,915 _______ _______ Total current assets 359,681 254,556 Property and equipment_net 54,604 55,879 Other assets 8,577 11,984 _______ _______ Total $422,862 $332,419 _______ _______ Liabilities and Shareholders' Equity Current Liabilities: Notes payable $ - $ 8,227 Accounts payable and accruals 101,733 83,935 Accrued restructuring costs 3,059 7,790 Income taxes payable 17,455 2,986 Current portion of long-term obligations 194 244 _______ _______ Total current liabilities 122,441 103,162 Long-term obligations 597 1,413 Accrued restructuring costs_non-current 289 1,516 Shareholders' Equity: Common stock 162,365 134,240 Retained earnings 137,596 81,561 Accumulated translation adjustments (426) 527 _______ _______ Total shareholders' equity 299,535 216,328 _______ _______ Total $422,862 $322,419 -----END PRIVACY-ENHANCED MESSAGE-----