UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

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3COM CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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350 Campus Drive, Marlborough, Massachusetts 01752, U.S.A.

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held September 23, 2009

 

Dear Stockholder:

 

We cordially invite you to attend our Annual Meeting of Stockholders, which will be held on Wednesday, September 23, 2009 at 8:00 a.m. local time at the Company’s headquarters at 350 Campus Drive, Marlborough, Massachusetts, U.S.A. The purpose of the meeting is to:

 

1. Elect five directors, each to hold office for a two-year term (or a one-year term if Proposal No. 2 is approved at the meeting);

 

2. Approve the amendment and restatement of the Company’s Certificate of Incorporation to de-classify the Board of Directors so that all directors will be elected annually and to make additional changes to ensure consistency with the Bylaws;

 

3. Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending May 2010; and

 

4. Transact such other business as may properly come before the meeting in accordance with 3Com’s Bylaws.

 

We are pleased to be furnishing proxy materials to stockholders primarily over the Internet. We believe that this process expedites stockholders’ receipt of proxy materials, significantly lowers the costs of our annual meeting and conserves natural resources. On August 7, 2009, we mailed our stockholders a notice containing instructions on how to access our 2009 Proxy Statement, Notice of Annual Meeting and Annual Report on Form 10-K for the fiscal year ended May 29, 2009. The notice also includes instructions on how you can receive a paper copy of your annual meeting materials, including a proxy card, and explains how to vote. If you received your annual meeting materials by mail, the Notice of Annual Meeting, Proxy Statement, Annual Report and proxy card from our Board of Directors were enclosed. If you received your annual meeting materials via e-mail, the e-mail contained voting instructions and links to the proxy materials on the Internet, both of which are available at www.proxyvote.com.

 

You are entitled to vote your 3Com common stock if our records showed that you held your shares as of the close of business on July 27, 2009. For ten days before the meeting you can examine a list of the stockholders entitled to vote at the meeting for any purpose germane to the meeting during regular business hours at our headquarters, 350 Campus Drive, Marlborough, Massachusetts.

 

By Order of the Board of Directors,

 

 

Neal D. Goldman, Secretary
August 7, 2009
Marlborough, MA, U.S.A.

 

 

 

 

350 Campus Drive
Marlborough, Massachusetts 01752, U.S.A.

 

PROXY STATEMENT

 

***********************************

 

INTERNET AVAILABILITY OF PROXY MATERIALS

 

We are furnishing proxy materials to our stockholders primarily via the Internet. On August 7, 2009, we mailed to our stockholders a Notice of Internet Availability containing instructions on how to access our proxy materials, including our Proxy Statement and our Annual Report. The Notice of Internet Availability also instructs you on how to access your proxy material to be able to vote through the Internet or by telephone. Other stockholders, in accordance with their prior requests, have received e-mail notification of how to access our proxy materials and vote via the Internet, or have been mailed paper copies of our proxy materials and a proxy card.

 

Internet distribution of our proxy materials is designed to expedite receipt by stockholders, lower the cost of the annual meeting and conserve natural resources. If you would prefer to receive printed proxy materials, including a proxy card (which you can complete, date, sign and mail in order to have your vote represented at the meeting), please follow the instructions included in the Notice of Internet Availability. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.

 

Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on September 23, 2009. The Proxy Statement is available at www.proxyvote.com.

 

GENERAL INFORMATION

 

Your vote is very important. For this reason, our Board of Directors is requesting that you allow your common stock to be voted at the annual meeting by the proxies designated by the Board of Directors. This solicitation is being made in connection with the Board’s request. These materials have been prepared for the Board of Directors by our management.

 

The annual meeting of stockholders will be held on Wednesday, September 23, 2009 at 8:00 a.m. local time at the Company’s headquarters, 350 Campus Drive, Marlborough, Massachusetts, U.S.A. For directions to the annual meeting, please visit our website at www.3Com.com or call (508) 323-1198.

 

Our principal executive offices are located at 350 Campus Drive, Marlborough, Massachusetts 01752, U.S.A. and our telephone number is (508) 323-1000. We made this proxy statement available to stockholders beginning on August 7, 2009.

 

Our Financial Information.  Our financial statements and related information are included in our Annual Report on Form 10-K. The Notice of Internet Availability contains instructions on how to access our proxy materials, including the Annual Report. For holders receiving a paper copy of our proxy materials, the Annual Report is enclosed with the proxy statement.

 

Who Can Vote.  You are entitled to vote your 3Com common stock if our records showed that you held your shares as of the close of business on July 27, 2009. We refer to this date as the “Record Date.” At the close of business on the Record Date, a total of 391,070,154 shares of common stock were issued and outstanding (excluding treasury shares which will not be voted). You may vote in person or by proxy. Each

share of 3Com common stock is entitled to one vote. There is no cumulative voting in the election of our directors.

 

Cost of this Proxy Solicitation.  We will pay the cost of soliciting proxies. We intend to solicit stockholders (1) by making proxy materials available over the Internet and through the mail, (2) through our regular employees and (3) by requesting that banks, brokers and other nominees solicit their customers who hold our stock in street name (and will reimburse them for their reasonable, out-of-pocket costs in such efforts). We may also ask our employees, officers, directors and others to solicit proxies, personally or by telephone, facsimile or electronic mail. None of these individuals will receive any additional or special compensation for soliciting proxies. We may retain a proxy solicitation firm or firms to assist in the solicitation. If we do so, we will pay those firms their fees plus reasonable out-of-pocket expenses. In addition, we generally will indemnify such firms against any losses arising out of the proxy soliciting services they perform on our behalf.

 

Voting Your Proxy.  If you hold your common stock in street name through a bank, broker or other nominee, you will receive instructions from your bank, broker or other nominee that you must follow to vote your shares. If you hold your shares in your own name as a holder of record, the Notice of Internet Availability instructs you on how to access your proxy material to be able to vote through the Internet or by telephone. If you have received, or have requested to receive, a paper copy of the proxy materials, you may vote by completing, signing, dating and mailing the proxy card in the postage-paid envelope that will be provided to you with the proxy statement, or you can also submit your proxy by telephone or the Internet. If you attend the meeting, you may revoke your proxy and vote in person if you are a record holder or a beneficial holder with an acceptable omnibus proxy from the record holder. The proxy holders will vote your shares as you instruct. If you submit a proxy without specific voting instructions, your shares will be voted as recommended by our Board of Directors on all proposals described in this proxy statement and in the discretion of the proxy holders as to any other matters that may properly come before the annual meeting. The Board of Directors recommends that you vote “FOR” the election of Messrs. Ho, Mao, Sherman and Trempont and Ms. Cote, “FOR” the amendment and restatement of our Certification of Incorporation and “FOR” the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending May, 2010.

 

Revoking Your Proxy.  To revoke your proxy if you are a holder of record, you must advise our Secretary in writing before the meeting, deliver a validly executed proxy with a later date that we receive prior to the meeting, or attend the meeting and vote your shares in person. You may revoke your proxy at any time before your shares are voted. If you attend the meeting, you may revoke your proxy and vote in person if you are a record holder or a beneficial holder with an acceptable omnibus proxy from the record holder. If you hold your common stock in street name through a bank, broker or other nominee, please follow the instructions provided by your bank, broker or other nominee to revoke your voting instructions.

 

Quorum and Vote Required.  The annual meeting will be held if a majority of the outstanding common stock entitled to vote is represented at the meeting (a “quorum”). Shares that are voted “FOR,” “AGAINST,” “ABSTAIN” or “WITHHELD” on a matter, and broker non-votes, are treated as being present at the meeting for purposes of establishing a quorum.

 

The approval of Proposal one (election of directors) shall require the vote of a plurality of the shares of common stock represented at the meeting either in person or by proxy and entitled to vote on the election of directors. The approval of Proposal two (amendment and restatement of the Certificate of Incorporation) shall require the affirmative vote of 662/3rds of the voting power of the capital stock of the Company outstanding on the record date and entitled to vote generally in the election of directors, voting together as a single class. The approval of Proposal three (ratification of independent registered public accounting firm) shall require the affirmative vote of a majority of the shares of common stock represented at the meeting either in person or by proxy and entitled to vote on such matter.

 

Abstentions and Broker Non-Votes.  Except in the case of Proposal one (election of directors), shares may be voted “ABSTAIN” (“abstentions”). A broker non-vote occurs when a broker submits a proxy card with respect to shares of common stock held in a fiduciary capacity (typically referred to as being held in

“street name”), but cannot vote on a particular matter because the broker has not received voting instructions from the beneficial owner. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters, such as the proposals for the uncontested election of directors and ratification of independent auditors, but not on non-routine matters, such as the proposal to amend and restate the Certificate of Incorporation.

 

Abstentions and broker non-votes are considered present for determining whether a quorum exists.

 

Abstentions and broker non-votes have the effect of a vote “AGAINST” Proposal two (amendment and restatement of the Certificate of Incorporation). Abstentions and broker non-votes have no impact on Proposal one (election of directors) and Proposal three (ratification of independent registered public accounting firm).

 

Householding of Proxy Materials.  In an effort to reduce printing costs and postage fees, we have adopted a practice approved by the Securities and Exchange Commission called “householding.” Under this practice, stockholders who have the same address and last name and have requested to receive a paper copy will receive only one copy of our proxy materials, unless one or more of these stockholders notifies us that he or she wishes to continue receiving individual copies. Stockholders who participate in householding and request a paper copy will continue to receive separate proxy cards.

 

If you share an address with another stockholder and requested and received only one set of proxy materials and would like to request a separate copy of these materials, please (1) mail your request to 3Com, 350 Campus Drive, Marlborough, MA 01752, Attn: Investor Relations, or (2) call our Investor Relations department at (508) 323-1198. Similarly, you may contact us if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future.

 

PROPOSAL 1:

 

ELECTION OF DIRECTORS

 

Our Bylaws authorize the Board of Directors to fix the number of directors at no less than 6 and no more than 12 members. The exact number of directors is currently fixed at nine (9). Our Board of Directors is divided into two classes (five members in Class I and four members in Class II), with the classes serving for staggered two-year terms. Proposal two set forth in this Proxy Statement is a proposal to amend and restate our Certificate of Incorporation to, among other things, de-classify the Board of Directors so that each member is up for election annually.

 

You may not vote for more than five (5) nominees at the annual meeting. Each of the five Class I directors to be elected at the 2009 annual meeting is to be elected to hold office until the 2011 annual meeting (or, if Proposal two passes, until the 2010 annual meeting) and until his or her successor has been duly elected and qualified or his or her earlier death, resignation or removal.

 

The Board of Directors’ nominees as Class I directors are Messrs. Ho, Mao, Sherman and Trempont and Ms. Cote. If a nominee declines to serve or becomes unavailable for any reason, the proxies may be voted for such substitute nominee as the Board of Directors may designate. The Board of Directors believes that all nominees are willing and able to serve if elected.

 

VOTE REQUIRED

 

Directors will be elected by a plurality of the shares of common stock represented at the meeting either in person or by proxy and entitled to vote on the election of directors. Votes withheld will not have an effect on this proposal. This means that the five nominees receiving the highest number of votes will be elected as directors. Assuming a quorum is present, abstentions and broker non-votes will have no effect on the election of directors. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” MESSRS. HO, MAO, SHERMAN AND TREMPONT AND MS. COTE.

 

NOMINEES AND OTHER DIRECTORS

 

The following table sets forth the name, age, principal occupation during the past five years and the period of service as a director of 3Com Corporation (the “Company” or “3Com”) of each (1) nominee and (2) director whose term of office will continue after the annual meeting. Each nominee currently serves as a director. There are no family relationships among any directors or executive officers.

 

Nominees for Election

 

 

PROPOSAL 2:

 

TO AMEND AND RESTATE OUR CERTIFICATE OF INCORPORATION TO DE-CLASSIFY OUR

BOARD OF DIRECTORS AND ENSURE CONSISTENCY WITH OUR BYLAWS

 

Our Board of Directors recommends that stockholders approve a proposed amendment and restatement of the Certificate of Incorporation of 3Com Corporation to de-classify our Board of Directors so that all directors are elected annually. The full text of the proposed amendment and restatement proposed to be filed with the Secretary of State of the State of Delaware, if stockholders approve Proposal two, is attached as Appendix A to this Proxy Statement.

 

Current Board Structure and Proposed De-classification

 

Our Board of Directors is currently divided into two classes. One class is elected each year, and members of each class hold office for two-year terms. Currently, the term of five directors expires at the 2009 annual meeting and the term of the other four directors expires at the 2010 annual meeting.

 

If stockholders approve Proposal two, the Board of Directors will be de-classified, stockholders will elect the directors up for election at the 2009 annual meeting for a one-year term and our entire Board of Directors will be up for election at the 2010 annual meeting for a one-year term. Thereafter, at each annual meeting of stockholders, the terms of all directors will expire and their successors will be elected for a one-year term that will expire at the next year’s annual meeting.

 

Reasons for the Proposed De-classification

 

Classified boards have been widely adopted and accepted, and they have a long history in corporate law. Proponents of classified boards assert they provide continuity and stability in the management of the business and affairs of a company because a majority of directors always have prior experience as directors of the company. Proponents further assert that classified boards may enhance stockholder value by forcing a potential acquirer to negotiate directly with the board of a target company because the acquirer is unable to replace the entire board in a single election.

 

Many investors and others have, however, begun to view classified boards as having the effect of reducing the accountability of directors. They argue that the election of directors is the primary means for stockholders to influence corporate governance policies and that a classified board structure reduces the accountability of directors because stockholders are unable to evaluate and elect all directors on an annual basis.

 

At our 2008 annual meeting of stockholders in September 2008, a non-binding stockholder proposal requesting that the Board of Directors be de-classified passed by a majority of shares cast and a majority of the shares outstanding.

 

Our Board of Directors has considered the advantages and disadvantages of its classified board structure, and the passage of the non-binding proposal at the 2008 annual meeting, and determined that the de-classification of our Board is in the best interests of the Company and our stockholders. Accordingly, the Board of Directors has recommended to our stockholders that they approve the amendment and restatement of our Certificate of Incorporation as contemplated by Proposal two. Should the stockholders approve Proposal two, the Amended and Restated Certificate of Incorporation will become effective upon filing with the Secretary of State of the State of Delaware, which filing will be made promptly following the stockholders’ meeting.

 

Additional Changes to the Certificate of Incorporation

 

In addition to the amendment to the certificate of incorporation to de-classify the Board, if Proposal two is approved, 3Com’s current Certificate of Incorporation will also be amended and restated to conform certain sections of the Amended and Restated Certificate of Incorporation to 3Com’s Bylaws and make other technical changes. We are not asking for separate approval of these additional amendments to our Certificate of Incorporation because these changes do not represent material changes in the rights of 3Com stockholders.

According to applicable SEC rules, corporations are only required to seek separate stockholder approval for amendments to their charter documents that materially affect the rights of their stockholders. We are not required to obtain separate stockholder approval for these additional amendments to the Certificate of Incorporation, but these amendments are part of the changes that are proposed to be made to 3Com’s Amended and Restated Certificate of Incorporation under Proposal two.

 

VOTE REQUIRED

 

The affirmative vote of 662/3rds of the voting power of the capital stock of the Company outstanding on the record date and entitled to vote generally in the election of directors, voting together as a single class, will be required to approve Proposal two. Assuming a quorum is present, abstentions and broker non-votes will have the effect of a vote “AGAINST” this proposal.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION.

 

CORPORATE GOVERNANCE

 

Board Independence

 

Our Board of Directors (the “Board”) has determined that each of Messrs. Benhamou, DiCamillo, Ho, Long, Sherman and Trempont and Ms. Cote is independent within the meaning of the listing standards of The NASDAQ Global Select Market (“NASDAQ”). Messrs. Mao and Sege do not qualify as independent directors because they are 3Com employees. The NASDAQ rules have both objective tests and a subjective test for determining who is an “independent director.” None of the directors was disqualified from “independent” status under the objective tests other than those individuals who are employees of 3Com. In assessing independence under the subjective test, the Board took into account the standards in the objective tests, and reviewed and discussed additional information provided by the directors and the Company with regard to each director’s business and personal activities as they may relate to 3Com and 3Com’s management. Based on the foregoing, as required by NASDAQ rules, the Board made a subjective determination as to each independent director that no relationship exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not established categorical standards or guidelines to make these subjective determinations, but considers all relevant facts and circumstances. In addition to the board-level standards for director independence, the directors who serve on the Audit and Finance Committee each satisfy additional standards established by the Securities and Exchange Commission (“SEC”).

 

In making its independence determinations, the Board considered transactions occurring since the beginning of fiscal 2007 between 3Com and organizations with which one or more of our independent directors is affiliated. In making its subjective determination, the Board considered the transactions in the context of the NASDAQ objective standards, the special standards established by the SEC for members of audit committees, and the SEC and Internal Revenue Service (IRS) standards for compensation committee members. In each case, the Board determined that, because of the nature of the director’s relationship with the entity and/or the amount involved, the relationship did not impair the director’s independence. The Board’s independence determinations included reviewing transactions with four 3Com suppliers and vendors. Messrs. Benhamou, Long and Trempont and Ms. Cote each serve on the board of directors of one of these suppliers, and Mr. Sherman is an executive officer of a vendor. In each instance, however, the transaction levels were below the limits established by the objective tests. Each director confirmed he or she did not participate in these business dealings or receive compensation based on them. Further, each director agreed to recuse him or herself from any future involvement in such transactions, and, other than Mr. Sherman, confirmed he or she was not employed by such supplier or vendor and had only minimal equity ownership in the supplier or vendor.

 

Board Meetings

 

During fiscal year 2009, our Board held nine (9) meetings of which four (4) were regularly scheduled quarterly meetings, one (1) was a regularly scheduled strategy meeting and four (4) were special meetings. Each director attended at least 75% of the total meetings of the Board and the committees on which he or she served.

 

Committees of the Board

 

The Board of Directors has established an Audit and Finance Committee, a Compensation Committee and a Nominating and Governance Committee. In addition, from time to time, the Board designates temporary committees to serve specific functions.

 

The Audit and Finance, Compensation, and Nominating and Governance committees are separately-designated standing committees and each committee consists of only “independent” directors (as independence is defined under applicable standards, including those of NASDAQ). In addition to being “independent” under NASDAQ’s general independence standards, the Board has determined that each member of the Audit and

Finance Committee meets the additional independence standards set forth by SEC rules. Current membership of each committee is listed below.

 

 

 

 

Audit and Finance Committee.  Our Audit and Finance Committee met thirteen (13) times in fiscal year 2009. The Audit and Finance Committee provides oversight over our accounting and financial reporting and audit process, internal control over financial reporting, disclosure controls and procedures and process for monitoring compliance with applicable laws and regulations and the Code of Ethics and Business Conduct. The Audit and Finance Committee reviews general accounting and financial matters, including press releases and SEC filings for quarterly and annual financial results, the annual audit, expense authorizations, capital structure and investments. The Audit and Finance Committee engages, approves services rendered by and oversees our independent registered public accounting firm. The Audit & Finance Committee establishes procedures for accounting-related complaints and reviews the activities and recommendations of our internal audit department. The Audit and Finance Committee also meets regularly with our independent registered public accounting firm and our director of internal audit without management present. The Board has determined that Messrs. Trempont, DiCamillo, Long and Sherman and Ms. Cote, independent members of our Board, is each an Audit Committee Financial Expert, as defined by Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934. The Board has determined that each member of the Audit and Finance Committee meets the required NASDAQ standards for membership on such committee. Our Audit and Finance Committee operates under a written charter, a copy of which is available on our website at http://www.3com.com/corpinfo/en_US/investor/audit_finance.html. The Audit and Finance Committee makes reports to the Board of Directors on a regular basis. Mr. Sherman joined, and Mr. Long exited, the Audit and Finance Committee on July 31, 2009.

 

Compensation Committee.  Our Compensation Committee met thirteen (13) times in fiscal year 2009. The Compensation Committee determines the total annual compensation arrangements for the Company’s Section 16 officers and directors, approves and administers our equity compensation and stock purchase plans, makes grants of equity awards and determines equity grant guidelines, approves and administers our cash incentive plans and reviews the Company’s overall compensation and benefit policies and programs. The Compensation Committee also evaluates the performance of our Chief Executive Officer and reports the results of such evaluation to the Board. Our Compensation Committee operates under a written charter which is available on our website at http://www.3com.com/corpinfo/en_US/investor/comp_com.html. The Compensation Committee makes reports to the Board on a regular basis.

 

Nominating and Governance Committee.  Our Nominating and Governance Committee met four (4) times in fiscal year 2009. The Nominating and Governance Committee focuses on the issues surrounding the size, composition and operation of the Board and the evaluation of the Company’s corporate governance. The Nominating and Governance Committee reviews and evaluates all candidates for nomination to the Board, whether submitted by stockholders or recommended by Board members, executives or outside advisors, and makes recommendations to the Board regarding all nominees for Board membership, including filling vacancies. The Nominating and Governance Committee makes recommendations to the Board concerning committee structure, appointment of directors to committees and committee chair positions. The Nominating and Governance Committee reviews issues and developments relating to corporate governance and makes recommendations to the Board for changes to the Company’s corporate governance principles. The Nominating and Governance Committee operates under a written charter which is available on our website at http://www.3com.com/corpinfo/en_US/investor/nom_gov.html. The Nominating and Governance Committee makes reports to the Board of Directors on a regular basis.

Code of Ethics and Business Conduct and Complaint Procedures

 

Our Code of Ethics and Business Conduct, which is available on our website at www.3com.com, complies with the rules of the SEC and the listing standards of NASDAQ.

 

The Audit and Finance Committee has adopted procedures for the receipt, treatment and retention of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. These procedures are in compliance with the rules of The NASDAQ Global Select Market and the SEC. Employees may submit complaints to the Company or directly to the Audit and Finance Committee by placing a phone call to a designated phone number referred to as the “Ethics and Compliance Line” or via the web-based alternative method provided by the Company. Our Code of Ethics and Business Conduct, and our internal and external web sites, provide phone numbers and other information on these methods, such as the toll-free phone number to call to make a complaint. Complaints may also be submitted to any member of our senior management team (in person, by email or by telephone) or directly to the Chair of our Audit and Finance Committee. Complaints may be made on an anonymous and confidential basis, if desired. Concerns relating to accounting, internal controls or auditing matters are brought to the attention of a member of our senior management, reviewed by the Audit and Finance Committee or one or more of its representatives, evaluated and (where appropriate) investigated. The Committee will determine what actions to take, if any. We will not retaliate against any person for making a complaint in good faith.

 

Nomination of Director Candidates

 

The Nominating and Governance Committee makes recommendations to the Board regarding director nominees. The Nominating and Governance Committee identifies potential director candidates from any outside advisors it may retain, as well as from members of the Board, executive officers and other contacts.

 

The Nominating and Governance Committee will also consider nominees recommended by any stockholder entitled to vote in the election of directors. The Nominating and Governance Committee uses the same criteria for stockholder-nominated candidates as for other candidates. Any stockholder wishing to nominate an individual for election to the Board must comply with our Bylaws, including the advance notice procedures described at the end of this Proxy Statement, and applicable laws, rules and regulations. A notice containing specified information must be delivered to our Secretary under the timelines specified in the Bylaws. The nomination notice must contain the following information about the nominee, as further set forth in the Bylaws: name; age; business and residence addresses; principal occupation or employment; number of 3Com shares held (including derivative positions); information concerning hedging, short sale or other risk mitigation measures taken with respect to 3Com stock; information concerning transfer of effective voting power (increase or decrease) in respect of 3Com stock; the information that would be required under SEC rules in a proxy statement soliciting proxies for the election of such nominee as a director; a description of all arrangements or understandings between the stockholder and each nominee and any other person pursuant to which the nominations are to be made by the stockholder; a written statement executed by the nominee acknowledging that as a director of the Company, the nominee will owe a fiduciary duty under Delaware law with respect to the Company and its stockholders; and a signed consent of the nominee to serve as a director of 3Com, if elected. At the request of the Board, any person nominated by a stockholder for election as a director must furnish to our Secretary updates to the information contained in the original notice and information reasonably required to determine eligibility to serve as an independent director. The stockholder giving notice also must provide certain specified information in the notice, as further set forth in the Bylaws. Without exception, no person shall be eligible for election or re-election as a director at a meeting of stockholders unless nominated in accordance with the provisions set forth in the Bylaws.

 

The Nominating and Governance Committee has not specified any minimum qualifications or specific qualities or skills necessary for serving on the Board. However, in its assessment of potential candidates, the Nominating and Governance Committee will review the candidate’s character, business experiences and understanding of the Company’s business environment, and ability to devote the time and effort necessary to fulfill his or her responsibilities, all in the context of the perceived needs of the Board at that time.

In fiscal 2009, the Nominating and Governance Committee retained a consulting firm to assist it in identifying and evaluating potential nominees for board membership. The function of this advisor is to meet with the Nominating and Governance Committee to discuss board needs in respect of new members, identify possible board candidates, screen, interview and evaluate the qualifications of these candidates and make presentations to the Nominating and Governance Committee regarding candidates under consideration. From time to time, the advisor also attends Nominating and Governance Committee meetings at which candidates are discussed and assists the Nominating and Governance Committee in its consideration of these possible nominees. During fiscal 2009, the advisor recommended both Mr. Ho and Ms. Cote as director nominees to be considered by the Nominating and Governance Committee and the full Board. During fiscal 2010, the advisor recommended Mr. Sherman as a director nominee to be considered by the Nominating and Governance Committee and the full Board.

 

Delegation to Committees

 

It is our general policy that all Board decisions should be approved by the Board as a whole, unless delegated to a committee. Currently the Board has delegated authority to three standing committees as follows: the Audit and Finance Committee, the Compensation Committee and the Nominating and Governance Committee. All members of the Audit and Finance Committee, Compensation Committee and Nominating and Governance Committee are “independent” within the meaning of the independence standards of NASDAQ, including, in the case of the Audit and Finance Committee, the heightened independence standards required for such committee members under NASDAQ and SEC rules and regulations. Each of these committees has adopted a written charter that is available on our website.

 

Stockholder Communication with the Board of Directors

 

Stockholders who wish to communicate with our Board, or with any individual member of the Board, may do so by sending such communication in writing to the attention of the Secretary at the address of our principal executive office with a request to forward the communication to the intended recipient. Stockholder communications must include confirmation that the sender is a stockholder of the Company. All such communications will be reviewed by the Company’s Secretary or Chief Financial Officer, as appropriate, in order to maintain a record of the communication, to assure director privacy and to determine whether the communication relates to matters that are appropriate for review by our Board or by any individual director. Communications will not be forwarded to Board members if they do not relate to the Company’s business, contain material that is not appropriate for review by the Board based upon the established practice and procedure of the Board or contain other improper or immaterial information.

 

Board Attendance at the Annual Meeting

 

Although we do not have a formal policy regarding attendance by members of the Board at our annual meetings of stockholders, directors are encouraged to attend annual meetings. In an effort to maximize director attendance at our annual meetings of stockholders, we attempt to schedule a meeting of the Board on the same day as the annual meeting of stockholders. All of our directors in office at the time (except Dr. Raj Reddy whose term ended at such meeting and did not continue after the meeting) attended the 2008 annual meeting of stockholders.

 

Audit and Finance Committee Pre-Approval Policies

 

The Audit and Finance Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally detailed as to the particular services or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management periodically report to the Audit and Finance Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and its fees for the services performed to date. The Audit and Finance Committee also pre-approves the provision of particular services on a case-by-case basis.

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee during fiscal year 2009 consisted of Messrs. DiCamillo (Chair), Benhamou, Ho and Trempont. None of these members is or has been an officer or employee of 3Com or any of our subsidiaries except Mr. Benhamou, who joined the Compensation Committee during the 2009 fiscal year, was our Chief Executive Officer from 1990-2001 and was employed as Chairman from 2001-2005. No interlocking relationship existed during fiscal year 2009 between our Board or Compensation Committee and the board of directors or compensation committee of any other company.

 

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Board Guidelines on Corporate Governance Issues

 

Our corporate governance principles are set forth in our “Board Guidelines on Corporate Governance Issues,” which is available on our website at http://www.3com.com. These guidelines cover the following topics, each of which is summarized below:

 

 

Primary Functions of the Board of Directors

 

The Board, which is elected by our stockholders, oversees the conduct of our business by management and reviews our financial objectives and major corporate plans, strategies, actions and capital expenditures. Our directors are expected to promote the best interests of our stockholders in terms of corporate governance, fiduciary responsibilities, compliance with laws and regulations and maintenance of accounting and financial controls.

 

CEO and Executive Officer Selection, Evaluation and Succession Planning

 

Our directors participate in the selection and, where appropriate, replacement of our Chief Executive Officer, and regularly approve a succession plan for our Chief Executive Officer and review a succession plan for other senior executives.

 

Led by the Compensation Committee, the Board conducts an annual performance review of the Chief Executive Officer. Directors also provide input to our Chief Executive Officer for the evaluation and recruitment of our other principal senior executives.

 

Authorization Guidelines

 

Consistent with the Board’s power to delegate management of the day-to-day operation of 3Com’s business, the Board exercises business judgment in establishing and revising guidelines for authorization of expenditures or other corporate actions, and these guidelines are periodically reviewed with management.

Board Access to Senior Management

 

Our directors have complete access to our senior executive officers. Our directors use their judgment to ensure that contact with our senior executive officers is not distracting to our business operation or management reporting structure. Our Board expects our Chief Executive Officer to bring into Board meetings managers who can provide additional insight into the matters being discussed or who have future potential that our Chief Executive Officer believes should be made visible to the Board.

 

Leadership of the Board

 

The leadership of the Board includes a Chairman of the Board and a lead independent director. The Chairman chairs meetings of the Board, works with the Chief Executive Officer to set the agenda for Board meetings and coordinates with the Secretary to disseminate materials to Board members. The lead independent director serves as the focal point for independent directors regarding resolving conflicts with the Chief Executive Officer, or other independent directors, and coordinating feedback to the Chief Executive Officer on behalf of independent directors regarding business issues and Board management. The lead independent director also serves as a special counsel to the Chief Executive Officer.

 

The independent directors meet regularly in executive session without the Chief Executive Officer or other employee-directors present.

 

Charters of Standing Committees

 

The current committee structure of the Board includes the following standing committees: Audit and Finance, Compensation and Nominating and Governance. The charters of each standing committee are reviewed periodically with a view to delegating to the committees the authority of the Board concerning specified matters appropriate to such committee.

 

Board Selection Process; Committee Membership and Rotation

 

It is expected that all directors will be alert to potential Board candidates with appropriate skills and characteristics and communicate information regarding board selection matters to the Nominating and Governance Committee. The Nominating and Governance Committee evaluates candidates, including any stockholder-nominated candidates whose nomination is submitted under the Bylaw provisions described elsewhere in the proxy statement. The Nominating and Governance Committee recommends to the Board candidates for directorships. The Board endorses the value of seeking qualified directors from diverse backgrounds otherwise relevant to the Company’s mission, strategy and business operations and perceived needs of the Board at a given time.

 

The Nominating and Governance Committee makes recommendations to the Board for Board committee assignments and committee chair positions. The Board endorses rotating members of the Committees periodically at a five-year interval, but the Board believes that such a rotation should not be mandated since there may be reasons to maintain an individual director’s committee membership for a longer or shorter period.

 

Director’s Term of Office, Other Activities and Retirement

 

As an alternative to term limits, the Chair of the Nominating and Governance Committee, in consultation with the Chair, will review each director’s continuation on the board at the conclusion of each term. This will also allow each director the opportunity to confirm his or her desire to continue as a member of the Board.

 

Each director is required to submit a letter of resignation upon a job change. Such letter is to be accepted or rejected at the discretion of the Chair. 3Com values the experience directors bring from other boards on which they serve and other activities in which they participate, but recognizes that those boards and activities may also present potential conflicts of interest. Accordingly, directors are asked to advise the Chair of the Nominating and Governance Committee before accepting membership on other boards of directors or establishing other significant relationships, particularly those that may result in a change in the director’s

relationship to 3Com. Directors may not serve on the board of directors of more than five other public companies and directors that are employed by 3Com may not serve on the board of directors of more than two other public companies. Directors must retire from the Board at the conclusion of any term during which the director reaches the age of seventy years.

 

Director Orientation and Continuing Education

 

3Com maintains an orientation program for new directors and provides continuing education for directors on topics relevant to 3Com and its business. 3Com encourages directors to attend appropriate external continuing education programs, and will reimburse directors for the cost of these programs. During every three-year period of service on the board, each director shall attend at least one external continuing education program that is accredited by a recognized corporate governance ratings agency, university or comparable independent body, provided that the Nominating and Governance Committee shall be permitted to waive this requirement in appropriate circumstances.

 

Board and Committee Meetings

 

In preparation for meetings of the Board and its committees, the Chairman consults with the Chief Executive Officer regarding the agenda and content and, with support from the Secretary, disseminates to directors on a timely basis briefing materials regarding matters to be included in the meeting agenda, as well as minutes from prior meetings and any written reports by committees. Presentations to the Board may rely on directors having reviewed and digested information set forth in the briefing materials, thus allowing more time for discussion, clarification and feedback. The format of each quarterly Board meeting includes an executive session with the directors and Chairman. In addition, the independent directors meet in executive session on a regular basis. Adequate time is scheduled for completion of matters placed on the agenda of each meeting, including an annual off-site meeting of the Board to review long-term strategy. The Board has the authority to hire its own advisors and to have them present at meetings, as it deems necessary.

 

Stock Ownership Guidelines for Non-Employee Directors

 

To further align the interests of non-employee directors and stockholders, each non-employee director is required to own 3Com shares having a value equal to at least two times the non-employee director’s regular annual cash retainer. Non-employee directors shall have five years from the date of commencement of service on the board to attain such ownership levels (or five years from June 17, 2009 for non-employee directors already on the Board at the time this provision was initially implemented). The Nominating and Governance Committee in its discretion may extend the period of time for attainment of such ownership levels in appropriate circumstances.

 

DIRECTOR COMPENSATION

 

The following text and tables provide information on 3Com’s annual compensation practices during fiscal year 2009 for our non-employee directors, as well as the actual compensation earned by non-employee directors who served during the 2009 fiscal year. The non-employee director compensation program for fiscal year 2010 is also described. The cash compensation described below is generally payable on a quarterly basis. Members of the Board are reimbursed for travel expenses to attend Board and committee meetings. During fiscal year 2009, our Chief Executive Officer and our President and Chief Operating Officer, each of whom serves on our Board of Directors, did not receive any separate compensation for Board activities and their compensation as 3Com employees is discussed in the section entitled “Executive Compensation.” The Compensation Committee retains the services of leading compensation consulting firms to present relevant market practices and trends regarding director compensation.

 

Non-Employee Director Compensation

 

Cash Component

 

For fiscal year 2009, the cash component of non-employee director compensation consisted of the following elements:

 

 

 

 

Fiscal Year 2010.  Other than as stated below, cash compensation for non-employee directors is expected to remain unchanged for fiscal year 2010:

 

 

Equity Component

 

During fiscal 2009, non-employee directors received options to purchase common stock pursuant to the provisions of our 2003 Stock Plan as follows.

 

Upon Joining the Board of Directors.  The 2003 Stock Plan provides for the initial grant of an option to purchase shares of our common stock (identified as the “Initial Grant” in the “Director Grants of Plan-Based Awards in 2009 Fiscal Year” table below) to each non-employee director, with a maximum of 120,000 shares to be subject to each such option (or 160,000 shares for the Chairman of the Board and the lead independent director). Additionally, at the time an initial grant is made to a new director, he or she also receives an option grant for a number of shares equal to the number of shares subject to the annual renewal grants made to continuing directors, described below, pro-rated to reflect the number of full months of service remaining prior

to the next annual stockholder meeting (identified as the “Pro Rata Grant” in the “Director Grants of Plan-Based Awards in 2009 Fiscal Year” table below).

 

Annual Grants for Continuing Directors.  For continuing directors, an annual renewal grant is made effective with each regularly scheduled annual stockholder meeting, subject to the same share limits described for initial grants (identified as the “Annual Grant” in the “Director Grants of Plan-Based Awards in 2009 Fiscal Year” table below).

 

General Provisions.  Subject to the caps described above, the actual number of shares underlying options to be granted for Board service upon joining the Board and annually for continuing directors is established by a committee consisting of all employee-directors. The committee typically acts annually to set its guidelines for the number of options to be granted under the 2003 Stock Plan. All options granted have a seven-year term, and the initial grant vests 25% on each anniversary date of the grant and the pro rata grant and annual renewal grant vest over two years with the first 50% vesting one year after grant and the remaining 50% vesting two years after grant as long as the option holder continues to serve on the Board.

 

Fiscal Year 2010.  For the period from May 30, 2009 to August 28, 2009, the equity component of director compensation will be the same as in fiscal year 2009. Consistent with recent industry trends and practice, and after considering the advice and recommendation of its independent compensation consultant and a review of comparable data from the peer group, the Compensation Committee has determined to grant restricted stock units to non-employee directors in lieu of stock options, as further described below. This change is effective August 29, 2009, the first day of our second fiscal quarter for our fiscal year 2010. In light of the Compensation Committee’s decision, it is expected that the committee of employee-directors, who administers the grant of options to non-employee directors under the 2003 Stock Plan, will determine to reduce their guidelines for option grants to zero.

 

 

Additionally, at the time an initial grant is made to a new director, he or she also receives a grant for a number of restricted stock units equal to the number of shares subject to the annual renewal grants described below, pro-rated to reflect the number of full months of service remaining prior to the next annual grant. Pro rata grants will vest in full in one installment on the first anniversary of the grant date, subject to continued Board service.

 

 

Director Compensation Tables for Fiscal 2009

 

The tables below set forth the director compensation, including cash and equity compensation, paid to each non-employee director during fiscal year 2009, including details regarding equity grants and a table showing all outstanding equity awards held at the end of fiscal year 2009.

 

Director Compensation in Fiscal Year 2009

 

 

 

 

Director Grants of Plan-Based Awards in 2009 Fiscal Year

 

 

 

 

Director Outstanding Equity Awards at 2009 Fiscal Year-End

 

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table contains information, as of July 27, 2009, with respect to the beneficial ownership of our common stock by:

 

 

 

Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission and generally includes those persons who have voting or investment power with respect to the securities. Unless otherwise indicated, all persons named as beneficial owners of common stock have sole voting power and sole investment power with respect to the shares indicated as beneficially owned. In addition, unless otherwise indicated, all persons named below can be reached at 350 Campus Drive, Marlborough, Massachusetts 01752.

 

 

 

 

 

 

 

The following table summarizes information related to our equity compensation plans as of May 29, 2009:

 

Equity Compensation Plan Information

 

 

 

 

Disclosure Regarding Non-Stockholder-Approved Plans.  The 1994 Stock Option Plan (“1994 Plan”) provided for the grant of stock options to employees other than officers and directors. The 1994 Plan, which was not approved by stockholders, was terminated as to future grants as of September 23, 2003. The 1994 Plan is administered by the Compensation Committee, which has the power to determine matters relating to outstanding option awards under the 1994 Plan, including conditions of vesting and exercisability. Options granted under the 1994 Plan expire no later than 10 years from the grant date. Options granted under the 1994 Plan generally vest two or four years from the date of grant. Options for Messrs. Sege, Zager and Gillai and

Ms. Nelson under their respective Stand Alone Stock Option Agreements have a term of 7 years from the date of grant and vest and become exercisable in four equal annual installments on the anniversary of the date of grant assuming continued employment. Messrs. Sege, Zager and Gillai and Ms. Nelson also received restricted stock under respective Stand Alone Restricted Stock Agreements, vesting in equal annual installments over three years assuming continued employment.

 

RELATED PERSON TRANSACTIONS

 

We have no “related party transactions” as defined by Item 404 of Regulation S-K.

 

It is the policy of the Board that all “related party transactions” be subject to approval or ratification in accordance with the procedures set forth below. In furtherance of relevant NASDAQ rules and 3Com’s commitment to corporate governance, the charter of the Audit and Finance Committee provides that the Audit and Finance Committee shall review all “related party transactions” for potential conflict of interest situations on an ongoing basis, and all such transactions must be approved by the Committee. The Audit and Finance Committee also adopted a separate policy intended to provide more detail as to the procedures to be followed in implementing the Audit and Finance Committee’s responsibilities under its charter. The material terms of the policy are as follows:

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Philosophy and Objectives

 

3Com operates in a rapidly changing, complex and extremely competitive business environment. As such, the need to attract, retain and motivate executive talent is paramount in accomplishing 3Com’s business objectives. 3Com’s executive compensation program is designed to drive organizational performance by delivering significant value to executives when the business achieves or exceeds its objectives. The goals of 3Com’s executive compensation program are to:

 

 

The following officers, each of whom is a “Named Executive Officer” (“NEO”) as defined in this Proxy Statement, are included in this analysis:

 

 

Overview of Compensation Practices

 

Role of the Compensation Committee.  The Compensation Committee, (the “Committee”) reviews salaries and other compensation arrangements for eligible members of our Board and those officers subject to the reporting requirements of Section 16 of the Securities Act of 1934, as amended (“Executives”). The Committee approves such compensation and advises the full Board on general aspects of 3Com’s compensation and benefit policies. Although the Committee receives and considers input from Company Executives, compensation consultants and legal advisers, it does not delegate decision-making authority on compensation for the Executives or Directors. A detailed discussion of the Committee’s structure, roles and responsibilities and related matters can be found above under the heading “Committees of the Board.” The Committee operates under a written charter that is available on 3Com’s website at http://www.3com.com/corpinfo/en_US/investor/comp_com.html. The Committee meets as often as necessary to discharge its responsibilities. In fiscal year 2009, the Committee met 13 times in a combination of regularly scheduled and special meetings, and met in executive session 10 times, 4 times with the Chief Executive Officer or Chief Operating Officer present for portions of the session. The Secretary and/or the Assistant Secretary were present in most executive sessions for purposes of transcribing the minutes.

 

At least annually, the Committee reviews 3Com’s Executive compensation programs and policies in light of the above philosophy and in relation to changes and trends in the marketplace. The Committee determines whether each Executive’s total compensation is consistent with the compensation philosophy and market data, and makes adjustments as necessary. When making compensation decisions, the Committee takes into account market data for Executives with comparable responsibilities at 3Com’s peer group companies and other factors, including each Executive’s individual performance (particularly over the past year), the scope of his role at the Company, his expected future contributions, financial and operational results attributable to each Executive, each Executive’s historical compensation, any retention concerns, and the Chief Executive Officer’s recommendations in the case of Executives other than himself. The Committee also takes into consideration input from stockholders, such as the 2008 stockholder proposal requesting performance elements be included in executive stock options. In designing compensation for individual Executives, the Committee may choose to

implement incentive programs that take into account the region or specific functional area for which the Executive is primarily responsible. In looking at historical compensation, the Committee looks at total compensation earned over time, including base salary, bonus payouts and the unvested and vested value inherent in equity awards, among other factors.

 

Role of the Compensation Consultants.  The Committee retains the services of leading compensation consulting firms (collectively, “Compensation Consultants or Consultants”) to advise on appropriate peer group firms, pay levels and mix, incentive plan design, performance measurement, and other relevant market practices and trends. The Compensation Consultants also collect and analyze relevant market data or “benchmarks” from peer group companies and industry-specific surveys in each of these areas. They prepare reports for, deliver presentations to and engage in discussions with the Committee about their observations and analysis of the information collected. Such reports, presentations, and discussions address topics ranging from the strategic considerations for compensation of the Company’s Executives and Directors to potential tax and accounting implications and dilutive impact of various compensation elements and specific adjustments of particular elements of both Executive and Director compensation. At the Committee’s direction, the Consultants’ reports and presentations contain extensive analysis of the Company’s historical Executive compensation programs, detail the various individual elements for each Executive, and compare elements of and overall compensation among the individual Executives and to comparable positions in the Company’s peer group when possible. The Consultants’ materials describe a range of alternative compensation structures and ranges, as well as certain recommendations for the Committee’s consideration. Similarly, the Consultants provide presentations on Director compensation that detail and compare both individual elements of and overall compensation with the Company’s peer group and set forth a range of alternatives and recommendations for the Committee’s consideration.

 

The Compensation Consultants also review and provide input and guidance into the development of the Company’s annual proxy statement regarding Executive and Director compensation matters. The Compensation Consultants provide a limited amount of other advice and consulting services for consideration by the Committee, primarily in the area of 3Com’s equity program. The Compensation Consultants work independently for the Compensation Committee and provide no other services to the Company. For fiscal year 2009, the Committee retained both Pearl Meyer & Partners and DolmatConnell & Partners. For fiscal year 2010, the Committee retained Pearl Meyer & Partners.

 

Role of Executives and Other Employees in Compensation Matters.  The Chief Executive Officer is not involved in the Committee’s determination of his compensation. He does, however, annually review the performance and contribution of the other Executives. The conclusions reached and recommendations based on these reviews, including salary adjustments, semi-annual or special bonus awards and equity grants, are presented to the Committee for its consideration. The Committee may and has in the past exercised its discretion in modifying, accepting or rejecting these recommendations. 3Com’s Chief Financial Officer participates with the Chief Executive Officer to provide information to enable the Committee to consider, evaluate and approve the financial metrics and targets used in 3Com’s cash incentive bonus plans and performance-based equity grants. 3Com’s Chief Administrative and Legal Officer and Secretary, 3Com’s General Counsel — Operations and Assistant Secretary and 3Com’s Senior Director of Human Resources assist in the development of the agenda and materials for the meetings, render advice to the Committee and facilitate the interaction between the Compensation Consultants and the Committee as the case warrants. These individuals attend parts of meetings of the Compensation Committee. The Committee regularly meets in executive session to discuss and decide elements of the compensation of the Chief Executive Officer and other Executives, sometimes with the presence of the Secretary and/or Assistant Secretary and sometimes without.

 

Market Positioning.  The Committee targets Executive compensation with respect to the relevant competitive market. The competition among high technology companies for qualified executives is intense, and 3Com’s strategic plans depend heavily on a committed (in both the short-term and the long-term) and highly qualified Executive team. In addition, due to the significance of the Company’s China operations, the fact we operate globally and our status as a U.S. public company, attracting and retaining qualified Executives that have expertise in the high technology market in China, understand global business requirements in our relevant markets and/or possess bi-cultural skills with respect to China and the U.S. is particularly important. The pool of available Executive talent that meets one or more of these criteria is more limited, and,

consequently, the competition for these individuals can be more intense. In consideration of the foregoing factors, the Committee generally targets Executive total direct compensation, which includes base salary, bonus, and long-term incentives, at the 65^th to 75^th percentile of the peer group described below. Compensation for any Executive may vary from target, up or down, based on performance, tenure, experience, prior compensation and other factors that may be judged as critical and pertinent by the Committee. While market data from 3Com’s peer group is considered by the Committee to assist in setting a range for the individual and combined elements of compensation for Executives, it is not solely determinative. For instance, the Committee has exercised its discretion to exceed a bench-marked component when it deems necessary to recruit, retain or reward a key Executive or to set a component below the bench-mark when appropriate (such as setting a base salary lower than the targeted percentile in recognition of the higher upside potential of incentive compensation). Also, the peer group data does not always contain appropriate comparables for certain positions. In such circumstances, the Committee considers the scope of the role and responsibilities, the individual’s performance and how the compensation compares to that of other Executives.

 

Peer Group.  Periodically, the Committee, working with its Compensation Consultants, reviews its peer group to ensure that the companies selected are appropriate for compensation and performance comparison purposes. The table below presents the peer group used by the Committee for pay comparisons and for evaluating 3Com’s relative performance for much of fiscal year 2009, including relevant comparison metrics as of May 2008, when the peer group was originally selected. These peer companies were selected using the following criteria: status as a U.S.-based actively-traded public Company, annual revenue, market capitalization and product and industry similarity.

 

 

At the end of fiscal year 2009 the Committee, with the assistance of Pearl Meyer & Partners, reevaluated the peer companies using the following criteria: status as a U.S.-based actively-traded public Company, annual revenue, market capitalization, product and industry similarity, global presence, and with respect to any ownership and/or business model changes (i.e. acquisition, divestitures, etc.) among the 2008 peer group. The Committee then altered the composition of the peer group to better reflect the market for executive talent in which 3Com competes. Based on this analysis, for fiscal year 2010, the Committee selected a peer group to be used for pay comparisons, including base salary, total target cash (i.e., base salary + target incentive bonus),

and long-term incentives (e.g., equity) and for evaluating 3Com’s relative performance and equity dilution. The peer group is presented in the table below, including relevant comparison metrics as of April 4, 2009.

 

 

Components of Executive Compensation

 

Executive compensation at 3Com consists of base salary, a short-term performance-based cash incentive opportunity, a long-term incentive opportunity (consisting primarily of equity-based vehicles and, in limited cases, cash-based programs such as the program for Dr. Shusheng Zheng for fiscal year 2009), and a limited number of perquisites and other benefits. 3Com has selected these elements of compensation because each is considered useful and/or necessary to meet one or more of the principal objectives of 3Com’s compensation philosophy and is typically provided throughout the industry. The table below describes how these elements of Executive compensation link to the compensation philosophy.

 

 

In determining the value of each compensation element for each Executive, the Committee considers available competitive market data based on the established peer group and relative to the targeted market positioning (as discussed above). Individual responsibilities, individual performance, and criticality of the

Executives’ function are also considered in determining the value of each compensation element for each Executive. The Committee may also alter one or more components of an Executive’s compensation to ensure comparable treatment with respect to another Executive’s compensation in certain cases where it deems such treatment to be appropriate or desired to reward the Executive or for retentive purposes. For both fiscal year 2009 and fiscal year 2010 the Committee conducted Executive compensation reviews and made determinations regarding the appropriateness of each element of each Executive’s compensation as described below.

 

Base Salary.  Base salaries provide a fixed amount of compensation for the Executive’s work responsibilities. In determining each Executive’s base salary, the Committee considers competitive market data based on the established peer group, individual roles, responsibilities and performance, promoting longevity and equal or comparable treatment among certain Executives. In June 2008 and again in June and July 2009, the Committee conducted its annual Executive compensation review. For fiscal year 2009, based upon the peer group data, appropriate supplemental data, and 3Com’s overall performance, as well as the Committee’s assessment that equity grants to Executives provided more direct alignment than cash compensation with stockholder interests and the principles of pay-for-performance, the Committee did not increase base salary levels. In fiscal year 2010, the Committee again determined that a greater emphasis on equity compensation than cash compensation best aligns the interests of the Executives with the stockholders, but did make adjustments to the base salary of two Executives. The Committee determined that an increase to Dr. Zheng’s base salary from $351,288 to $431,792 was appropriate in consideration of both his increased responsibilities as an Executive Vice President of the Company (including his oversight of our entire Asia-Pacific region, the global engineering function and the global supply chain function), the resulting promotion to Executive Vice President, 3Com and Chief Executive Officer, H3C, and the notable over-performance in our China subsidiary’s calendar year 2008 and the continued growth in 3Com’s second half of fiscal year 2009 of the China-based business for which he was and is directly responsible. Also, in recognition that Mr. Zager’s total cash compensation was below the targeted 65th percentile, and noting the intensifying upward market pressure on Chief Financial Officer cash compensation, Mr. Zager’s base salary was increased from $400,000 to $430,000. The Committee did not adjust the base salaries of the other Executives, and noted that the Chief Executive Officer, Mr. Mao, and President and Chief Operating Officer, Mr. Sege, had joined the Company in mid 2008, at which time their initial base salaries had been considered at some length and no adjustment was warranted as a result of the current year evaluation.

 

Cash Incentive Bonus.  3Com’s Cash Incentive Bonus program (3Bonus) is designed to place a significant portion of each Executive’s cash compensation “at risk” relative to the Company’s short-term performance. To this end, the Company has established a target annual performance-based cash incentive opportunity for each Executive expressed as a percentage of base salary. In establishing the amount of target incentive, the Committee evaluates the total target cash compensation (base salary + target incentive) relative to cash compensation delivered to incumbent executive officers in similar roles within the peer group, individual responsibilities and whether comparable treatment among certain Executives is desired or appropriate. The actual award earned may be higher or lower than this target incentive amount based on Company performance, regional and/or individual performance and considerations of comparable treatment among Executives. Based on its annual review conducted in June 2008 and again in July 2009, the Committee determined that changes to the target bonus percentages for Executives were not necessary or appropriate in

view of the above criteria. The table below indicates the percentage of base salary associated with target bonuses for each Executive under the 3Bonus Program during fiscal year 2009.

 

 

 

 

The Committee believes that the Company’s annual business plan and near-term business objectives are best supported by a cash incentive plan for Executives tied to performance goals established for a period of one year or less. Because of the rapidly changing industry in which 3Com competes, the Committee believes that annual or semi-annual goals can be established with greater specificity and linkage to the operating plan objectives and with less risk of error or misalignment than would be the case with a longer measurement period. The Committee also believes that goals that can be achieved over an annual or semi-annual period play an important role in motivating performance and promoting retention. Moreover, the Committee believes that establishing annual or semi-annual plans provides the Company with the flexibility to adjust the structure and objectives of its plan to meet changes in the Company’s business and competitive environment.

 

For fiscal year 2009, the Committee determined that 3Bonus for Executives would be a semi-annual program as it related to the consolidated metrics. In order to transition Dr. Zheng’s compensation from a structure that was in part dependent on the China-based business to one that more completely aligned with the Company-wide business, the Committee structured a portion of his incentive compensation for the first half of fiscal year 2009 on a China-based program and a portion on consolidated metrics, but shifted him completely to a Company-wide plan in the second half.

 

The Committee selected financial metrics and established performance targets for each metric, with input from the Chief Executive Officer and Chief Financial Officer, for each 3Com fiscal half and, in the case of Dr. Zheng, for the China-based portion of his program for our China subsidiary’s calendar year 2008. The metrics used were revenue, cash from operations and non-GAAP operating profit. The Company defines non-GAAP operating profit to exclude restructuring, amortization, stock-based compensation expense and special items the Committee believes are unusual and outside of the Company’s on-going operations. These metrics were selected based on their criticality to near-term and mid-term business performance. Accordingly these metrics establish a set of concrete financial goals and priorities for Executives and, by extension, their various organizations and teams. In addition, these metrics were intended to emphasize the priorities of growth, profitability and cash generation. The Committee believes that these metrics, appropriately weighted, prioritize and promote responsible risk-taking, efficiency and expense management, and are designed to align Executive compensation with stockholder value creation.

 

The performance targets for each selected metric are set such that they are attainable only with significant effort while at the same time still making them achievable with various degrees of difficulty reflected in the various payout levels: threshold, target and maximum. The threshold level reflects the minimum acceptable performance meriting bonus, based on the Board-approved internal financial plan for the period (“Financial Plan”); the target level reflects performance at the levels established by the Company’s Financial Plan; and the maximum level reflects performance substantially above the Company’s Financial Plan. For the 3Bonus plans occurring in fiscal year 2009 (as described above), the “target” for each metric was based on the Financial Plan for each fiscal half and, in the case of the China-based metrics, for the China subsidiary’s calendar year 2008. The threshold level reflected sustained or increased business performance relative to previous

performance periods. The target level was set at a level deemed challenging but achievable considering historical business performance and other contextual factors at the time these metrics were set.

 

Total 3Bonus payout potential ranges from 0% - 200% of target amounts. For each metric included in the two semi-annual program cycles, the achievement of the threshold value would result in a payout of 50% of target bonus amounts, the achievement of the target value would result in a payout of 100% of target bonus amounts and the achievement of the maximum value would result in a maximum payout of 200% of target bonus amounts. The program calls for actual payout to be based on a sliding scale for achievement attained in between specific levels, although no payout results unless, at a minimum, the threshold achievement level is attained for a specific metric. The total period payout is comprised of the payout values for each individual metric. For each metric included in the calendar year program cycle solely for Dr. Zheng (i.e., China-based metrics), the achievement of the threshold value would result in a payout of 50% of target bonus amounts, the achievement of the first target value would result in a payout of 64% of target bonus amounts, the achievement of the second target value would result in a payout of 100% of target bonus amounts, and the achievement of the maximum value would result in a maximum payout of 200% of target bonus amounts. Again, the actual payout is based on a sliding scale for achievement attained in between specified levels, although no payout results unless, at a minimum, the first threshold achievement level is attained for a specific metric. The total period payout is comprised of the payout values for each individual metric. Each financial goal can be met individually and independently of attainment of other metrics. The Committee believes the sliding scale and independence of the metrics serve to encourage maximum achievement of the various metrics within the relevant fiscal periods and allowing for appropriate prioritization as financial and business conditions change. The Committee has expressly reserved the right to alter payouts for Executives, up or down, based on factors in addition to these metrics including degree of attainment of specific performance goals as well as overall contribution to and leadership of the Company by individual Executives.

 

The Company believes that disclosure of the actual performance targets for its cash incentive program (and its equity program described below) would cause substantial harm to its competitive position. Such disclosure would essentially inform competitors of Company expectations, both historically and for the current fiscal year, for its business, financial and operational strategies. The disclosure of such performance targets would provide significant visibility into, and allow the Company’s competitors to reach significant conclusions about, our plans and priorities, including: designated plans for growth, profitability, cash flow, investment or increased operational focus; allocation of resources; and changes in direction. The Company believes this would give competitors an unfair advantage and could result in a materially adverse impact on our stock price and negatively affect our stockholders.

 

All of the NEOs participated in the 3Bonus program during fiscal year 2009. Bonus opportunities were established for each participant within each performance period based on the weighted results for various metrics as indicated in the table below. The bonus opportunity for Robert Y.L. Mao, Mr. Zager, Ronald A. Sege and Neal D. Goldman was based exclusively on 3Com consolidated metrics for both the first and second fiscal halves, though changes in the weighting for the second half were made to further emphasize the importance of top-line growth to 3Com’s business. Dr. Zheng’s bonus for the first fiscal half was based equally on 3Com consolidated metrics and China-based metrics that were tracked and paid based on the China subsidiary’s calendar year plan as the China subsidiary operates on a calendar year. As explained above,

Dr. Zheng’s bonus opportunity for the second fiscal half was exclusively based on 3Com consolidated metrics in order to more completely align him with the Company-wide business.

 

 

 

 

For both the first and second halves of fiscal year 2009, the Committee reviewed 3Com’s consolidated financial performance for each metric relative to the pre-established financial targets and determined that the calculated results were appropriate given the actual performance levels achieved and therefore did not exercise its discretion to alter the derived payouts for the participating Executives. In determining the payout for the portion of Dr. Zheng’s bonus based on the calendar year 2008 China-based metrics, the Committee compared year-over-year financial performance relative to the established China budget, Dr. Zheng’s individual performance, and his payout for the previous year. In consideration of these factors, which the Committee deemed to reflect favorably on Dr. Zheng’s performance and contribution, the Committee established a payout level for this portion of Dr. Zheng’s bonus of 176% of target, as shown in the table below. The calculated payout absent the exercise of the Committee discretion would have been 168% of target. The Executive Summary Compensation Table contains the full calendar year China bonus payout for Dr. Zheng.

 

 

For fiscal year 2010, the Committee adopted a new 3Bonus plan for Executives that sets forth a list of performance goals and criteria to choose from in setting each fiscal period’s specific metrics. For the first half of fiscal year 2010, the Committee chose the metrics of revenue, cash from operations and Non-GAAP Operating Profit for the consolidated business, with weighting of 50%, 25% and 25%, respectively, each of which can be met individually and independent of attainment of other metrics. To maintain continued alignment among the Executives to the overall financial performance of 3Com, each Executive’s calculated bonus opportunity is based exclusively on these metrics.

Special Bonus.  In July 2009, the Committee granted a special bonus to Dr. Zheng in the amount of $70,000 in recognition of his contribution to 3Com’s overall fiscal year 2009 results through his leadership of the China-based business.

 

Long-Term Incentives.  The compensation mix for 3Com Executives emphasizes long-term incentives, particularly in the form of equity incentives which reinforce team performance and tie wealth accumulation to overall Company and stock performance. The Committee believes that equity compensation, and especially performance-contingent equity, most directly links Executive to stockholder interests. Equity compensation is targeted for each Executive at the 65^th percentile of the peer group in order to attract, retain and reward qualified Executives in a market that competes intensely for Executive talent. The Committee, with the assistance of its Compensation Consultants, determines Executive equity grants by reviewing a composite set of data which includes valuation estimates of disclosed grants made by 3Com’s peer group, survey data from companies in the broader technology industry, individual performance, equity grant history, whether comparable treatment among certain Executives is desired or appropriate, potential incremental share dilution, and the FAS 123(R) costs associated with equity grants.

 

3Com’s equity incentives at the Executive level, which usually are granted on an annual basis as part of a broader Company equity program, are typically in the form of stock options and/or restricted stock-based equity. All such grants are issued in accordance with 3Com’s policy for granting equity awards and are effective on the fifth NASDAQ trading day following the month of either start date (in the case of new hires) or approval (in the case of existing employees). Stock options are issued at an exercise price equal to the closing price of the Company’s common stock on the effective date of the grant. Stock options are utilized to most directly link Executives’ long-term compensation to stockholder value appreciation. Restricted stock-based equity is typically issued as both a means to tie the Executive’s potential for value appreciation to stockholder interests and to assist in the retention of Executives by efficiently providing some certainty of value of the grants if they remain with the Company over the vesting period. In recent years, both stock options and restricted stock-based equity granted to Executives have typically vested at regular intervals over a period of two to four years.

 

The Committee has not granted and does not intend in the future to grant, equity awards to Executives in anticipation of the release of material nonpublic information that is likely to result in changes to the price of the Company’s common stock. Similarly, the Committee has not timed, nor does it intend in the future to time, the release of material nonpublic information based on equity award grant dates.

 

In fiscal year 2009, no equity was granted to Executives with the exception of Mr. Mao, whose May 2008 new-hire restricted stock was cancelled and reissued in June 2008 as restricted stock units in the same amount. This followed an agreement between Mr. Mao and 3Com that his initial grant should be in the form of restricted stock units rather than shares to facilitate easier and more efficient administration given Mr. Mao’s residence in China. When determining the new-hire grants for Messrs. Mao and Sege in April 2008, the Committee intended that these grants be in lieu of annual equity grants for fiscal year 2009. In view of the replacement of 3Com’s Chief Executive Officer and the hiring of a new President and Chief Operating Officer and following the termination of the intended acquisition of 3Com by affiliates of Bain Capital Partners — all of which created significant organizational uncertainties — the Committee resolved to grant fiscal year 2009 annual equity to Messrs. Zager and Goldman slightly ahead of schedule and issue it in May of fiscal year 2008, as described in the Company’s fiscal year 2008 proxy statement. Furthermore, in lieu of 3Com equity, the Committee determined to include Dr. Zheng in the China cash-based long-term incentive (“LTI”) plan for calendar year 2008. Overall, the Committee sought to balance the elements of Dr. Zheng’s compensation with elements aligned with China-based performance. In view of the criticality of the China-based business to the Company’s value and potential, the Committee decided that it was important to align Dr. Zheng with that business for this aspect of his compensation. The Committee determined a payout under the calendar year 2008 LTI plan of $475,000 based on its assessment of a variety of factors, including achievement against established earnings-based performance metrics for the China-based division’s calendar year 2008. The Committee also considered Dr. Zheng’s contribution and individual performance during calendar year 2008 and payouts under previous China-based LTI plans. As 3Com continues to make progress in the consolidation of all of its operations (China-based and non-China-based), and as it has continued to enhance the global

responsibilities of Dr. Zheng (e.g., Global Engineering, Global Supply Chain, and APR Sales), the Committee intends that Dr. Zheng’s LTI program more closely align with that of executives both within 3Com and within 3Com’s peer group. Therefore, given Dr. Zheng’s continued and significant influence on 3Com’s overall performance, the Committee has determined that going forward his LTI be delivered in the form of 3Com equity consistent with that of other 3Com Executives.

 

The Committee determined that all Executives will have equity-based long-term incentives in fiscal year 2010, and shifted the emphasis towards equity with performance-contingent features. In order to ensure each Executive’s commitment to the Company’s financial goals for the year and to further promote a pay-for-performance mindset, the Committee determined that, with the exception of a grant of Time-Vesting Restricted Stock Units (TRS) to Dr. Zheng, all of the annual equity grants for fiscal year 2010 to Executives would be performance-contingent, specifically performance-restricted stock units (PRS) and performance-accelerated stock options (PASO). The Committee believes that making the most significant component of each Executive’s compensation for the fiscal year dependent on meeting financial goals directly aligns with stockholder interests.

 

In establishing Executive equity grants for fiscal year 2010, the Committee considered ranges set by market data for comparable positions (or approximations and extrapolations where no comparable positions were identifiable), survey data from companies in the broader technology industry, individual performance, equity grant history, internal comparisons, potential incremental share dilution, and the FAS 123(R) costs associated with equity grants. The equity grants for each Executive for fiscal year 2010 are listed in the table below.

 

 

 

 

Target PRS units are shown in the table above. The actual number of earned units will be determined based on the Company’s performance for fiscal year 2010, of which 50% will be based on consolidated revenue and 50% will be based on consolidated Non-GAAP Operating Profit margin percent. A “threshold,” “target,” and “maximum” level has been established for each metric. Achievement of the “threshold” performance level will result in 50% of the associated target being earned. Achievement of the “target” performance level will result in 100% of the associated target being earned. Achievement of the “maximum” performance level will result in 150% of the associated target being earned. Achievement below the “threshold” performance level will result in zero shares being earned. If performance levels fall between the Threshold levels and the Target levels, or between the Target levels and Maximum levels, then the earned units will be calculated by interpolating, in a linear progression, between the respective performance levels. The “target” for each metric was based on the Financial Plan for fiscal year 2010. The thresholds were generally established with a theoretical probability of achievement more than half the time. The maximums were set at levels that were viewed as very difficult to achieve considering historical business performance and other contextual factors at the time these metrics were set. The total number of earned units, if any, will vest in three equal increments on the first three anniversaries of the grant date. The Committee believes the additional vesting period will serve to retain and further incent Executives after the PRSs are earned. Upon a change-in-control prior to the one-year anniversary of the grant date, units will automatically be earned at “target” level, or at the level resulting from actual performance metrics if they are known at such time.

The vesting of the PASO will occur three years from the date of the grant, except that vesting will be accelerated upon the meeting of a consolidated revenue target and a consolidated non-GAAP operating profit margin percent target for fiscal year 2010. Each of these targets was set at a level viewed as very difficult but attainable, such that vesting acceleration would theoretically occur less than half the time. Again, historical business performance and other contextual factors were considered at the time these targets were set. Both targets must be met for the accelerated vesting to occur, such vesting to occur in three equal increments on the first three anniversaries of the grant date.

 

Consistent with the Committee’s philosophy, the individual grant amounts were set at the midpoint of the 65^th percentile of market composite value, with two exceptions. Dr. Zheng’s PASO grant amount was increased, and he was granted a TRS grant not provided to other Executives, in recognition of his promotion to Executive Vice President, 3Com and Chief Executive Officer, H3C and of the associated increase in his responsibilities and impact. In addition, the Committee intended that this special grant would significantly increase Dr. Zheng’s previously minimal equity position in an effort to bring his overall compensation portfolio more in line with internal and external peer executives. Mr. Goldman’s grant was increased on the basis that the available market data did not contain a precisely comparable role to that of Mr. Goldman’s and in recognition of Mr. Goldman’s high level of contribution to the Company, as well as his performance in the past fiscal year.

 

Perquisites and Other Benefits.  Historically, the Company has made available to Executives benefits that are available to other employees of the Company. Executives are entitled to participate on the same basis and in the same medical, dental, vision, disability, life insurance, and other plans and programs made available to other full time employees in the applicable country of residence. The Company provides certain additional perquisites only on a very limited basis and only if the Company and the Committee believe they are critical to enable the Company to attract and retain qualified individuals for certain Executive positions.

 

The Company has a 401(k) tax-qualified retirement savings plan pursuant to which all U.S.-based employees are entitled to participate. Employees can make contributions to the plan on a before-tax basis to the maximum amounts prescribed by the Internal Revenue Service. The Company will match 3% of the amount contributed by the employee. The Company matching contributions vest annually in thirds through the first three years of employment with 3Com and are fully vested thereafter. Participants in the Company’s 401(k) plan direct their own investments, which does not include Company stock. Other than these generally available plans, there are no other deferred savings plans in which the Executives participate.

 

The Compulsory Social Insurance Plan is the only pension plan that 3Com sponsors and in which an NEO participates, and it is a government-mandated plan that applies to all employees of H3C residing in China. H3C cannot exercise discretion with respect to amounts it contributes to Dr. Zheng or any of its employees, but instead must make contributions required by Chinese regulations.

 

Attributed costs of the personal benefits described above for the Executives for the fiscal year ended May 29, 2009, are included in the column entitled “All Other Compensation” in the “Summary Compensation Table for Fiscal Year 2009” table in this proxy statement.

 

Severance and Change-of-Control Benefits

 

Consistent with market practice as reviewed and reported on by the Committee’s Compensation Consultants and to retain and promote the focus of 3Com’s management team, the Executives are covered by arrangements which specify payments in the event the Executive’s employment is terminated under certain circumstances, including instances of constructive discharge resulting in the Executive’s resignation for certain specified reasons. Messrs. Mao and Sege are entitled to severance and change-of-control benefits under certain circumstances set forth in their respective employment agreements which were entered into during the 2008 fiscal year and described in the corresponding proxy statement. Messrs. Zager and Goldman, and Dr. Zheng are each subject to the terms of the Company’s Section 16 Officer Severance Plan (the “Section 16 Severance Plan”) and corresponding severance benefits agreements. Dr. Zheng’s employment agreement also entitles him to special statutory benefits under Chinese law that in some cases offset against the Section 16 Severance Plan benefits to which he is also entitled. Messrs. Zager and Goldman and Dr. Zheng are also entitled to

change-of-control benefits in Management Retention Agreements executed with the Company. Severance benefits under the Section 16 Severance Plan were approved by the Committee in September 2006 in consultation with Pearl Meyer & Partners and the recommendation of the then Chief Executive Officer. Details of these plans and agreements are set forth elsewhere in this proxy statement under the heading “Severance and Change-of-Control Benefits.”

 

In fiscal year 2008, DolmatConnell & Partners examined the Section 16 Severance Plan benefits and related severance arrangements and concluded that they were at the low end of the range among the Company’s peer group, but were appropriate as part of the overall compensatory packages of 3Com’s Executives. The Committee did not make any adjustments to the severance or change-of-control arrangements in fiscal year 2009 other than as set forth below.

 

In December 2008, the Section 16 Severance Plan and the applicable severance benefits agreement were updated to comply with Internal Revenue Code Section 409A, and the regulations promulgated thereunder (“IRC Section 409A”). IRC Section 409A imposes strict timing and form of payment requirements for all covered deferred compensation. The Section 16 Severance Plan and form agreement were amended to require that the payment of the base pay and pro ration of earned incentive bonus be paid by the date certain specified in the Section 16 Severance Plan or agreement in order to qualify for IRC Section 409A’s short-term deferral exemption. Also, pursuant to these amendments, for all equity awards that are subject to accelerated vesting upon termination, the transfer of shares, payment of cash, or removal of restrictions on shares must occur within 60 days of the Executive’s termination date.

 

Employment Agreement with Dr. Zheng

 

In July 2009, the Company renewed its employment agreement with Dr. Zheng on principally the same terms and conditions in place under the existing agreement, provided that the changes to Dr. Zheng’s title, base salary and bonus, each of which has been described above, has been reflected in the new agreement, and the term is for three years as opposed to two years.

 

Impact of Tax and Accounting Treatment

 

Section 162(m) of the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to a public corporation for compensation of more than $1 million paid to the corporation’s Chief Executive Officer and three other most highly compensated Executives, excluding the Chief Financial Officer. Qualifying performance-based compensation will not be subject to the cap if certain requirements are met. The Committee has reviewed 3Com’s 3Bonus Program and has weighed the benefits of compliance against the burdens. While the Committee’s intent is to maximize the deductibility of Executive compensation to the extent reasonable, the Committee has chosen not to qualify the 3Bonus Program at this time in order to maintain flexibility. The Committee believes that any loss of deductibility will not be material to 3Com’s results and that the burdens of compliance outweigh the benefits. 3Com’s stock option plans, however, are designed to comply with Section 162(m), so stock option grants under the plans are generally tax deductible upon exercise.

 

COMPENSATION COMMITTEE REPORT

 

We, the Compensation Committee of the Board of Directors of 3Com Corporation, have reviewed and discussed the Compensation Discussion and Analysis set forth above with the management of the Company, and, based on such review and discussion, have recommended to the Board of Directors inclusion of the Compensation Discussion and Analysis in this proxy statement and, through incorporation by reference from this proxy statement, the Company’s Annual Report on Form 10-K for the year ended May 29, 2009.

 

Compensation Committee:
Gary T. DiCamillo, Chair
Eric Benhamou
David Ho
Dominique Trempont

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table contains information concerning the compensation of our Chief Executive Officer, our Chief Financial Officer and, in alphabetical order, our three other most highly compensated executive officers who were serving as executive officers at the end of fiscal year 2009.

 

Summary Compensation Table