3Com 2008 Annual Report Download

Download and view the complete annual report

Please find the complete 2008 3Com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 228

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228

Dear Fellow Shareholders,
In fiscal 2008, 3Com made significant progress in several key areas and we believe
we are well positioned for future growth. As the new CEO of 3Com, I am optimistic
about our company’s future and have become increasingly confident about the value
of our organization. Let me share with you how I reached this conclusion in the
context of this year’s performance and outline my top priorities as we enter fiscal
year 2009.
3Com had revenue of approximately $1.3 billion and record gross margins of 54 percent
in fiscal 2008. We made progress toward our profitability goals and generated $63
million of cash from operations. These positive results were largely driven by growth
in our China, Europe, Middle East and Africa (EMEA), Latin America and Asia-
Pacific regions. Our strong cash position and the regional momentum we see are key
reasons for my optimism.
Also in FY08, we continued to execute our strategy of delivering cost-effective
solutions that help customers get more out of their networking budgets by enabling
them to integrate emerging technologies and applications. For example, we leveraged
our successful R&D organization in China to deliver a great price-performance
routing platform, the Multi-Service Router (MSR), which also enables us to offer
customers integrated third-party WAN application solutions. Partners such as VBrick
for digital video, Expand for WAN optimization and LineSider for virtualization,
teamed with us to deliver value within this platform.
We also had success building eco-friendly, sustainable networking solutions that use
less energy than rival products – helping to reduce operating costs and the impact on
the environment. Independent research firm In-Stat found that 3Com's local area
network (LAN) switches are up to 60 percent more energy efficient, or “green,” than
competitors' products.
On the security front, our TippingPoint division achieved record annual revenue of
$104 million. The team delivered a major new product in FY08, the TippingPoint
Core Controller, the industry’s first scalable, true 10-Gigabit IPS solution. Core
Controller helps TippingPoint capitalize on the growing demand for 10-Gigabit
network links and provides flexible deployment options that enable customers to add
capacity to their existing TippingPoint IPS solution as their bandwidth and security
requirements increase.
These are just a few of our positive accomplishments in FY08. The leadership team
is focused on accelerating the execution of our business plan and turning 3Com into
a growing, profitable company.
In terms of go-forward priorities, I have identified three key objectives for 3Com in FY09:
1. Increase top-line revenue;
2. Accelerate the integration of our worldwide operations to achieve further
operational efficiency; and
3. Generate additional cash.
Contents:
Letter to Shareholders
Notice of 2008 Annual
Meeting and Proxy
Statement
2008 Annual Report on
Form 10-K

Table of contents

  • Page 1
    ... of 3Com, I am optimistic about our company's future and have become increasingly confident about the value of our organization. Let me share with you how I reached this conclusion in the context of this year's performance and outline my top priorities as we enter fiscal year 2009. 3Com had revenue...

  • Page 2
    ...world with strong go-to-market plans and the innovation, value and breadth of the product lines that have been so successful in the large and competitive China market. In China, 3Com has achieved market share parity with Cisco. Based on independent reports, Cisco and 3Com together account for around...

  • Page 3
    Notice of 2008 Annual Meeting and Proxy Statement

  • Page 4

  • Page 5
    ... firm for the fiscal year ending May 2009; Take action on a stockholder proposal requesting stock options granted to senior executives be "performance-based", if properly presented at the meeting; Take action on a stockholder proposal related to the declassification of 3Com's board of directors, if...

  • Page 6

  • Page 7
    ... for the Board by our management. The annual meeting of stockholders will be held on Wednesday, September 24, 2008 at 7:00 a.m. local time at the Shangri-La Hotel, 29 Zizhuyuan Road, Beijing 100089, People's Republic of China. Remote participation for the annual meeting will be provided at our...

  • Page 8
    ... LLP as the Company's independent registered public accounting firm for the fiscal year ended May 2009, "AGAINST" the stockholder proposal requesting stock options granted to senior executives be "performance-based" and "AGAINST" the stockholder proposal requesting that 3Com's board of directors be...

  • Page 9
    ... applicable to the proposal for election of directors, and (2) broker non-votes are not...to receive separate proxy cards. If you share an address with another stockholder and received only... of these materials, please (1) mail your request to 3Com, 350 Campus Drive, Marlborough, MA 01752, Attn: Investor...

  • Page 10
    ...of his current term at the 2008 annual meeting due to the mandatory retirement provision set forth in the Board Guidelines on Corporate Governance Issues described in this Proxy Statement. Accordingly, our Board has taken action such that immediately prior to our 2008 Annual Meeting, the size of our...

  • Page 11
    ...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, (2) director whose term of office will continue after the annual meeting, and (3) director whose term of office will expire at the...

  • Page 12
    ... Holding Co., Ltd., a wireless value-added services provider. Mr. Trempont is currently a member of the Board of Directors and Audit Committee of Finisar Corporation, a position he has held since September 2005. Finisar is a public company that develops and markets optical components and modules for...

  • Page 13
    ... Not Continuing After the Annual Meeting Raj Reddy Director since 2001 Age 71 Dr. Reddy is the Mozah Bint Nasser University Professor of Computer Science and Robotics in the School of Computer Science at ...

  • Page 14
    ...The 2003 Stock Plan, in particular, allows us to provide key employees and directors of, and consultants to, 3Com and its subsidiaries with equity incentives that are competitive with those of companies with which we compete for talent. Without the amendment increasing the number of shares available...

  • Page 15
    ... nature of these annual grants. In order to facilitate approval of this proposal and address any stockholder concerns regarding the number of shares subject to equity awards we intend to grant in the next three fiscal years, our Board commits to our stockholders that for fiscal years 2009, 2010 and...

  • Page 16
    ...that were outstanding at the end of each of the three fiscal years. For purposes of calculating the number of shares granted in a fiscal year hereafter, any shares of restricted stock or restricted stock units subject to an award with a purchase price less than fair market value on the date of grant...

  • Page 17
    ...discretion to, among other things: x x x x x x x select the employees, directors and consultants to whom Awards may be granted; determine the number of shares of common stock covered by each Award; approve forms of agreements for use under the 2003 Stock Plan; determine the terms and conditions, not...

  • Page 18
    ... Grants to Non-Employee Directors The 2003 Stock Plan provides for the automatic granting of nonqualified stock options to our nonemployee directors. These options will have a term of seven years and will have an exercise price per share equal to 100% of the fair market value per share on the date...

  • Page 19
    ... terminates more than six months after commencement of service as a non-employee director, then the option will immediately accelerate as to one year's additional vesting or, with respect to an annual grant, as to the number of shares that would have vested on the day prior to the next regularly...

  • Page 20
    ... to employees, consultants and to members of our Board of Directors. No participant may be granted stock appreciation rights covering more than 1,750,000 shares in any fiscal year of 3Com in the event the stock appreciation right's exercise price equals or exceeds 100% of the fair market value of...

  • Page 21
    ...the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option. Stock Appreciation Rights. No taxable income is reportable when a stock appreciation right (with an exercise price at least equal to the fair market value of the stock on the...

  • Page 22
    ... our 2008 fiscal year. (2) Represents the value of restricted stock, or restricted stock units, based upon the closing price of our common stock on May 30, 2008 as reported by The NASDAQ Global Select Market ($2.52), granted during our 2008 fiscal year. (3) 1.5 million shares represents shares of...

  • Page 23
    ...service providers of 3Com and help us to attract, retain and motivate people whose skills and performance are critical to our success. Our employees are our most valuable asset. We strongly believe that the 2003 Stock Plan is essential for us to compete for talent in the very difficult labor markets...

  • Page 24
    ... 3COM 1984 EMPLOYEE STOCK PURCHASE PLAN BY 8,000,000 SHARES Our Board has approved an increase in the number of shares of our common stock reserved under our 1984 Employee Stock Purchase Plan, as amended (the "ESPP") by 8,000,000 shares, and we are asking you to approve this increase at the Annual...

  • Page 25
    ... fair market value of our common stock on (a) the first day of the applicable offering period or (b) the last day of a six month purchase period. The closing price of 3Com's common stock as reported on The NASDAQ Global Select Market was $1.87 per share on August 1, 2008. Shares Purchased The number...

  • Page 26
    ... within twelve months of the adoption of the amendment is required to increase the number of shares authorized for issuance under the ESPP or to change the designation of corporations whose employees may purchase shares of 3Com common stock under the ESPP. The ESPP will terminate when all of the...

  • Page 27
    ...the fair market value of the shares on the date of disposition is less than the purchase price, there ...3Com and its stockholders for the reasons stated above. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF AN INCREASE IN THE SHARE RESERVE UNDER THE 3COM 1984 EMPLOYEE STOCK...

  • Page 28
    ... 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 all of the foregoing, as required by NASDAQ rules, the Board made a subjective determination as...

  • Page 29
    ...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. Compensation Committee. Our Compensation Committee met fifteen (15) times in fiscal year 2008. The Compensation Committee reviews...

  • Page 30
    ... reports to the Board of Directors on a regular basis. Technology Committee. Our Technology Committee met four times in fiscal year 2008. The Technology Committee was established to make recommendations to the Board of Directors regarding the long-term technology architecture and strategy that 3Com...

  • Page 31
    ... directors in office at the time (except Mr. Yovovich whose term ended at such meeting) attended the 2007 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...

  • Page 32
    ...or employee of 3Com or any of our subsidiaries. No interlocking relationship existed during fiscal year 2008 between our Board or Compensation Committee and the board of directors or compensation committee of any other company Board Guidelines on Corporate Governance Issues Our corporate governance...

  • Page 33
    ... 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...

  • Page 34
    ...Board of such matter. Directors must retire from the board at the conclusion of any term during which the director reaches the age of seventy years. Board and Committee Meetings In preparation for meetings of the Board... reports by committees. Presentations to the Board may rely on directors having...

  • Page 35
    ... and Board service with the Company. 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 (Fiscal Year 2008 Annual Compensation) Annual Board...

  • Page 36
    ... pursuant to the 2003 Stock Plan. 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 2008 Fiscal Year" table, below) to each non-employee director, with a maximum of...

  • Page 37
    ... holder continues to serve on the Board. During fiscal year 2008, options were granted to non-employee directors under the 2003 Stock Plan for the following number of shares and at the per share exercise prices shown in the table below. As described above, the annual renewal grant was not made in...

  • Page 38
    ... is the sum of the number of shares exercisable, unexercisable and exercised) vests over two years. (3) As of the 2008 fiscal year end, Mr. Yovovich did not have any options unvested because all of his unvested options received vesting acceleration upon his Qualified Board Retirement on September 26...

  • Page 39
    ...x each individual or entity whom we know to own beneficially more than five percent of our common stock; each director and nominee; each of the current and former executive officers listed in the "Summary Compensation Table for Fiscal Year 2008" table included in this proxy statement; and all of our...

  • Page 40
    ... Angela Goldman are trustees. (11) Does not include 133,333 shares underlying unvested restricted stock units granted to Dr. Zheng. (12) Mr. Dechant's employment with the Company ended on June 30, 2008. (13) Mr. Halsted is the Company's former Executive Vice President and Chief Financial Officer. He...

  • Page 41
    ... were approved by the respective security holders of the acquired companies. 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...

  • Page 42
    ... the Board of Directors 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...

  • Page 43
    ..., World Wide Sales and Marketing Overview of Compensation Practices Role of the Compensation Committee. The Compensation Committee, (the "Committee") reviews salaries and other compensation arrangements for 3Com's directors and those officers subject to the reporting requirements of Section...

  • Page 44
    ...Dr. Zheng, who manages our China-based H3C business ...3Com's equity program. The Compensation Consultants work independently for the Compensation Committee and provide no other services to the Company. Role of Executives and Other Employees in Compensation Matters. The Chief Executive Officer annually...

  • Page 45
    ... judged as critical and pertinent by the Committee. While market data from 3Com's peer group is considered by the Committee to assist ...3Com's relative performance for much of fiscal year 2008, including relevant comparison metrics as of May, 2007, when the peer group was originally selected. Company...

  • Page 46
    ...-traded public Company, annual revenue, market capitalization and product and industry similarity. 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 2009, the Committee...

  • Page 47
    ... to the targeted market positioning (as discussed above). Individual responsibilities, individual performance and internal equity within 3Com are also considered in determining the value of each compensation element for each Executive. For both fiscal year 2008 and fiscal year 2009 the Committee...

  • Page 48
    ... 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 example, the Committee was able to set specific financial metrics for each half of fiscal year 2008...

  • Page 49
    ...semi-annual bonus program. For the fiscal year 2008 and the first half fiscal year 2009 programs,...provided that no payouts were permitted unless the non-GAAP operating profit metric was achieved at "threshold level" or higher. For the first half of fiscal year 2008, the Committee reviewed the Company...

  • Page 50
    ... the integration of H3C. Accordingly, Dr. Zheng's target annual bonus opportunity was split equally between (1) the 3Com consolidated metrics as described above for Messrs. Mao, Masri, Zager and Goldman and set for the second half of fiscal year 2008, and (2) specified H3C segment metrics. The H3C...

  • Page 51
    ... Bonus For H3C calendar fiscal year 2007, the Committee determined that it was in the Company's best interest to emphasize Dr. Zheng's focus on the performance of H3C. Accordingly, Dr. Zheng was not a participant in the 3Bonus Program through the end of 3Com's first half fiscal 2008 and was instead...

  • Page 52
    ...usually granted on an annual basis as part of a broader Company equity program, are typically in the form of stock options with time-based vesting and/or restricted stock (or restricted stock units) with time-based vesting. In fiscal year 2008 and in accordance with 3Com's policy for granting equity...

  • Page 53
    ... were issued in May, 2008 (see "Grants of Plan-Based Awards in 2008 Fiscal Year" table in the "Executive Compensation" section in this proxy statement). As with the previously described awards, the Committee analyzed the current expected value and various stock price appreciation scenarios of the...

  • Page 54
    ... 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. The restricted stock units are subject to annual vesting over three years on each anniversary of May 6, 2008...

  • Page 55
    ... "Summary Compensation Table for Fiscal Year 2008" 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 focus of 3Com's management team, the Executives...

  • Page 56
    ... as well as certain non-competition and non-solicitation covenants. In fiscal year 2008, DolmatConnell & Partners re-examined these 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...

  • Page 57
    ..., 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 30, 2008. Compensation Committee: Gary...

  • Page 58
    ... Company included in 3Com's Annual Report on Form 10-K for the fiscal year ended May 30, 2008 filed with the SEC on July 25, 2008. See the "Grants of Plan-Based Awards in 2008 Fiscal Year" table in this proxy statement for a detailed description of stock and option awards granted during fiscal year...

  • Page 59
    ...paid to Mr. Mao in connection with his service on our Board of Directors. (3) Consists of the fiscal year 2008 FAS123R expense for Mr. Mao's employee grants of $468,827 and (non-employee) Director grants of $63,666. (4) Represents Mr. Mao's semi-annual pro-rated cash incentive payment for the second...

  • Page 60
    ...) Consists of Mr. Dechant's first quarter fiscal year 2008 sales incentive compensation payment of $22,714, his first-half fiscal year 2008 3Bonus payment of $107,949, and his second-half fiscal year 2008 3Bonus payment of $59,313. (24) Represents company matching contributions to Mr. Dechant's 401...

  • Page 61
    ...Equity Awards at 2008 Fiscal Year-End" table below. Grants of Plan-Based Awards in 2008 Fiscal Year All Other Stock Awards: Number of Shares of Stock or Units (2) (#) All Other Option Awards: Number of Securities Underlying Options (3) (#) Grant Date Exercise Fair Value or Base of Stock Price of and...

  • Page 62
    ...by the named executive officers at the end of fiscal year 2008. Outstanding Equity Awards at 2008 Fiscal Year-End Option Awards Stock Awards Equity Incentive Equity Plan Awards: Incentive Market or Plan Payout Awards: Value of Number of Unearned Unearned Shares, Shares, Units or Units or Other Other...

  • Page 63
    ..., by the named executive officers during fiscal year 2008. Option Exercises and Stock Vested in Fiscal Year 2008 Option Awards Number of Shares Acquired on Exercise (#) Value Realized on Exercise ($)(2) Stock Awards Number of Value Shares Realized on Acquired on Vesting Vesting (#) ($)(2) (1) Name...

  • Page 64
    ...for Fiscal Year 2008" ...Board of Directors or the Compensation Committee, with an annual target of 100% of base salary and with a guaranteed target payment for FY09 (the "Target Annual Incentive"); An obligation of the Company to grant 7-year non-qualified stock options to purchase 2 million shares...

  • Page 65
    ...in accordance with the Company's normal payroll practices; o Two payments, each equal to 100% of Target Annual Incentive for the year in which termination occurs... Mr. Mao's intention to spend a significant time managing our operations in China, 3Com will pay the difference in taxes incurred as a ...

  • Page 66
    ... for FY09 (the "Target Annual Incentive"); As an inducement to his employment with us, an obligation of the Company to grant 7-year nonqualified stock options to purchase 2 million shares of the Company's common stock at an exercise price equal to the closing price of our common stock on the first...

  • Page 67
    ...accordance with the Company's normal payroll practices; o Two payments, each equal to 100% of Target Annual Incentive for the year in which ...employee of the Company and an agreement not to disparage the Company, in each case during the term of his employment with the Company until the one year...

  • Page 68
    ... performance goals established by the Company, at a target annualized bonus of 65% of base salary; A one-time signing bonus of $200,000; An obligation of the Company to grant Mr. Zager stock options to purchase 500,000 shares of the Company's common stock , which stock options vest as to 25...

  • Page 69
    ... by the Board of Directors or the Compensation Committee of 3Com; Participation in H3C's senior executive benefits programs; An obligation of the Company to grant 200,000 restricted stock units, or RSUs, under the Company's 2003 Stock Plan, which RSUs vest as to one-third of the underlying shares on...

  • Page 70
    ...to: o a lump sum severance payment of one month's base salary for each year of service with H3C, provided Dr. Zheng signs a release of claims and a non-disparagement agreement; and o vesting and payout of any remaining EARP shares; In exchange for the non-hire and non-compete provisions in the final...

  • Page 71
    ...year of the participant's annualized base salary as of the termination date; and If earned, the participant's incentive bonus for the bonus period in which the termination date occurs, pro-rated based on number... for vested stock options to... provide ... individual management retention ... the Company. Messrs...

  • Page 72
    ... employee benefits until the earlier of two years...on stock options to the lesser of the original term of the option and one year ... sale or disposition of all or substantially all company assets...Board during any two consecutive years, such that a majority consists of persons who are not either directors...

  • Page 73
    ... Code, then, provided the excise tax ... the Company will modify...-year ...shares subject thereto if an executive or employee optionee is terminated without cause within 12 months after a "transfer of control" transaction. Options granted under the 3Com Corporation Director Stock Option Plan (the "Director...

  • Page 74
    ... last day of fiscal year 2008 and assuming a stock price equivalent to the closing stock price on the last day of fiscal year 2008. (5) Represents two years of base salary. (6) Represents two times Mr. Mao's current target annual incentive bonus. (7) Reflects company paid benefits continuation for...

  • Page 75
    ... PAVRS and performance shares) based on a termination date as of the last day of fiscal year 2008 and assuming a stock price equivalent to the closing stock price on the last day of fiscal year 2008. (5) Represents one year of base salary. (6) Represents one year of target annual incentive bonus and...

  • Page 76
    ...(i.e., excluding PAVRS and performance shares) based on a termination date as of the last day of fiscal year 2008 and assuming a stock price equivalent to the closing stock price on the last day of fiscal year 2008. (5) Represents one year of salary. (6) Represents one year of target incentive bonus...

  • Page 77
    ...annual basis). (7) Represents estimated two year contribution for Chinese Compulsory Social Insurance. (8) Reflects accelerated vesting of all outstanding equity based on a termination date as of the last day of 3Com's fiscal year 2008 and assuming a stock price equivalent to the closing stock price...

  • Page 78
    ... by management that the financial statements were prepared in accordance with generally accepted accounting principles, the Audit and Finance Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended May 30, 2008...

  • Page 79
    ... the audit of our annual financial statements, review of our quarterly financial statements, audit services provided in connection with statutory or regulatory filings and the audit of our internal control over financial reporting. (2) Audit-Related Fees for fiscal year 2008 consisted of audit work...

  • Page 80
    ...Votes Cast (which has the effect of reducing the number of "FOR" votes required to pass this proposal ...BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING MAY, 2009...

  • Page 81
    ... to furnish us with copies of all Section 16(a) reports that they file. Based on our review of reports furnished to us and written representations from our directors and executive officers, we believe that all filing requirements were complied with in a timely manner during fiscal year 2008. -76-

  • Page 82
    ... Street, Room 736, New York, N.Y. 10007-2341, beneficial owner of 402,613 shares. "RESOLVED: That the shareholders of 3Com Corporation, (the "Company") request the Board of Directors to adopt a policy requiring that stock options, which are granted to senior executives, as part of their compensation...

  • Page 83
    ... lower perceived value by executives than time-based stock options or time-based restricted shares, granting only performance-based stock options at 3Com is likely to hinder the Company's ability to retain and motivate the top executive talent needed to achieve 3Com's important corporate goals. This...

  • Page 84
    ...The Board of Directors strongly believes that 3Com's current executive compensation program is reasonable, appropriate, consistent with market practices for executives and structured in the best interests of shareholders and the Company alike in its current form. Options granted at fair market value...

  • Page 85
    the proposal will provide unnecessary challenges, inflexibility and hindrances to the increase of long-term value of our shareholders. FOR THESE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST PROPOSAL 5. -80-

  • Page 86
    ... two classes of directors with two-year staggered terms. The Board and the Nominating and Governance Committee each review the Company's selected corporate governance practices annually and have each concluded that the classified board structure continues to be in the best interests of 3Com and its...

  • Page 87
    ... 3Com's employees, shareholders, customers and suppliers, as well as others with whom the Company does business, are able to rely on the continuity and stability of the Company's corporate policies. Accountability to Shareholders. The Board further believes that annual elections for each director...

  • Page 88
    ... not paying fair value for, the business and assets of the Company. The classified board structure enhances the ability of the Board to negotiate the ... alternatives to provide maximum value for all shareholders, both large and small. FOR THESE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ...

  • Page 89
    ...of shares of our stock that are beneficially owned by the stockholder; and (d) any material interest of the stockholder in such business. The presiding officer of the meeting may refuse to acknowledge any matter not made in compliance with the foregoing procedure. By Order of the Board of Directors...

  • Page 90

  • Page 91
    APPENDIX A 3COM CORPORATION 2003 STOCK PLAN, AS AMENDED

  • Page 92
    ..." ...2 "Common Stock" ...2 "Company" ...2 "Consultant"...2 "Director"...2 "Disability" ...2 "Discretionary Options" ...2 "Employee"...2 "Exchange Act" ...3 "Fair Market Value" ...3 "Incentive Stock Option"...3 "Independent Director"...3 "Inside Director"...3 "Nonstatutory Stock Option"...3 "Notice...

  • Page 93
    ... Independent Director Option Grants...7 Administration of the Plan ...5 Eligibility ...6 Limitations ...7 Term of Plan ...7 Stock Options...7 (a) (b) (c) (d) (e) Term of Option ...7 Option Exercise Price, Waiting Period and Consideration ...8 Termination of Relationship as a Service Provider...

  • Page 94
    ... 13. 14. Guidelines ...12 Initial Grant...13 Pro-Rata Grant ...13 Annual Grant...13 Other Option Terms ...13 Leaves of Absence ...14 Non-Transferability of... Upon Issuance of Shares ...17 (a) (b) 18. 19. 20. 21. Inability to Obtain Authority ...17 Reservation of Shares ...17 Stockholder Approval...

  • Page 95
    ... to Employees and Consultants, and to promote the success of the Company's business. The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock and Stock Appreciation Rights. In addition, the Plan provides for automatic option grants to Independent Directors...

  • Page 96
    ... means the common stock of the Company. "Company". means 3Com Corporation. (k) "Consultant". means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (l) "Director". means a member 3Com's Board of Directors. (m) "Disability". means...

  • Page 97
    ..., including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of determination...

  • Page 98
    ... Independent Director's death or Disability, if such termination follows ten full years of Board service or five full years of Board service and attainment of age 62 or greater. (dd) "Restricted Stock". means shares of Common Stock or units/rights to acquire shares of Common Stock granted pursuant...

  • Page 99
    ... and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price or are forfeited to the Company, such Shares shall become available for future grant under the Plan. For the avoidance of...

  • Page 100
    ... satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or SAR or upon the vesting or earlier tax recognition of Restricted Stock that number of Shares having a Fair Market Value equal to the amount required to be withheld...

  • Page 101
    ...apply to grants of Options and SARs with an exercise price equal to or exceeding 100% of Fair Market Value on the grant date: (i) No Service Provider shall be granted, in any fiscal year of the Company, Option or SARs to purchase more than 1,750,000 Shares. (ii) In connection with his or her initial...

  • Page 102
    ...power of all classes of stock of the Company or any Parent or Code Section 424(f) subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. b) granted to any Employee other than an Employee described in paragraph a) immediately above...

  • Page 103
    ... or Director to Employee, Consultant or Director (e.g., an Inside Director becoming an Independent Director), an Optionee's status as a Service Provider shall continue notwithstanding the change in status. However, in such event, an Incentive Stock Option held by the Optionee shall cease to be...

  • Page 104
    ... the Plan, Restricted Stock may be granted to Service Providers at any time and from time to time as shall be determined by the Administrator, in its sole discretion. The Administrator shall have complete discretion to determine (i) the number of Shares subject to a Restricted Stock award granted to...

  • Page 105
    ... shall be entitled to receive payment from the Company in an amount determined by multiplying: (i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times (ii) The number of Shares with respect to which the SAR is exercised. (d) Payment...

  • Page 106
    ... Company's Inside Directors; provided, however, that such committee shall not have any discretion to select which Independent Directors ... 11(d) and 11(f). The Guidelines must provide that on each grant date, the number of shares of Common Stock subject to each option automatically granted pursuant to...

  • Page 107
    ...each regularly scheduled Company annual stockholder meeting, each Independent Director shall be automatically granted an Option to purchase that number of shares equal to the Guideline Amount for service on the Board, not to exceed 120,000 shares of Common Stock, or 160,000 shares if the participant...

  • Page 108
    ... terminates more than six (6) months following the commencement of service as an Independent Director, then the Option shall immediately accelerate as to one year's additional vesting or, with respect to an Annual Grant, as to the number of shares that would have vested on the day prior to the...

  • Page 109
    ... successor corporation, provide for the consideration to be received upon the exercise of the SAR or Discretionary Option, for each Share of Optioned Stock subject to the SAR or Discretionary Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to...

  • Page 110
    ... successor corporation, provide for the consideration to be received, for each Share and each unit/right to acquire a Share subject to the Restricted Stock award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received...

  • Page 111
    ... as to which such requisite authority shall not have been obtained. 19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 20. Stockholder Approval. The...

  • Page 112

  • Page 113
    2008 Annual Report on Form 10-K

  • Page 114

  • Page 115
    ...SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 30, 2008 OR † TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number: 0-12867 3COM CORPORATION (Exact name of registrant as specified...

  • Page 116
    ... closing sale price as reported on The NASDAQ Global Select Market. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Common Stock, $0.01 par value per share Outstanding at July 18, 2008 405,288,012 shares DOCUMENTS...

  • Page 117
    3Com Corporation Form 10-K Annual Report For the Fiscal Year Ended May 30, 2008 Table of Contents Page Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Part II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item ...

  • Page 118
    ...are registered trademarks and H3C and VCX are trademarks of 3Com Corporation or one of its wholly owned subsidiaries. Other product and brand names may be trademarks or registered trademarks of their respective owners. This Annual Report on Form 10-K contains forward-looking statements made pursuant...

  • Page 119
    ...1997. Our corporate headquarters are located in Marlborough, Massachusetts. We have offices and sales capabilities in 35 countries and 60 locations worldwide. Our Web site address is www.3Com.com. We make available on our Web site, free of charge, our SEC filings (including our Annual Report on Form...

  • Page 120
    ... value added partners, distributors and direct sales representatives. We also work with service providers to deliver managed networking solutions for enterprise customers. In support of the above vision we co-founded a Chinese joint-venture called H3C in 2003 to penetrate the developing China market...

  • Page 121
    ... security, superior reliability and advanced QoS services. Æ' Æ' Network and Access Management System H3C offers a comprehensive network management solution designed to offer clients an end-to-end business management tool by providing a complete solution that integrates applications, resources...

  • Page 122
    ... and spare parts. H3C also offers high-end professional services and training to provide complete product plus service solutions for its customers. The portfolio of professional services includes assessment and design, project management, training and certifications, installation, and integration...

  • Page 123
    ... and spare parts. We also offer high-end professional services and training to provide complete product plus service solutions for our customers. Our portfolio of professional services includes assessment and design, project management, training and certifications, installation, and integration...

  • Page 124
    ...manage coherent, enterprise-wide security policies based on rules and thresholds set within the SMS. The SMS offers a rich reporting system, allowing customized reports... systems integrators, service providers and direct marketers. Additionally, we maintain a field sales organization targeting small...

  • Page 125
    ... forth in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7, and in Note 19 of the Notes to the Company's Consolidated Financial Statements, which appears in Item 8 of this Annual Report on Form 10-K for the fiscal year ended May 31, 2008. A significant...

  • Page 126
    ...reduce fixed costs and to quickly respond to changes in market demand. We have contract manufacturing arrangements with several companies, of which Jabil Circuits and Accton Technology Corp. were the two most significant during fiscal 2008 and fiscal 2007. Based on current and forecasted demand, our...

  • Page 127
    .... The DVBU, TippingPoint, and Corporate segments employee data is as of May 30, 2008 and the H3C segment employee data is as of March 31, 2008, the date of the H3C balance sheet we consolidated into our 2008 fiscal year end balance sheet. Please see "Management's Discussion and Analysis of Financial...

  • Page 128
    ...Board of Hurray! Holding Co., Ltd., a wireless value-added services provider. Ronald A. Sege has been our President and Chief Operating Officer and a member of our Board of Directors since April 2008... nine years at 3Com Corporation, from 1989 to 1998, serving in a variety of senior management roles ...

  • Page 129
    ... stock price. Risks Related to Historical Losses, Financial Condition and Substantial Indebtedness We have incurred significant net losses in recent fiscal periods, including $228.8 million for the fiscal year ended May 30, 2008, and we may not be able to return to profitability. We cannot provide...

  • Page 130
    ...capital, capital expenditures and other general corporate purposes; limit our flexibility in ... For the fiscal year ended May 30, 2008, H3C accounted ...market conditions; respond to changes in the regulatory environment; manage risks associated with intellectual property rights, particularly in China...

  • Page 131
    ... existing leading market share in China and the economic, political and social risks inherent in that country. Our sales are significantly dependent on China, with approximately 47 percent of our consolidated revenues attributable to sales in China for the fiscal year ended May 30, 2008. We expect...

  • Page 132
    ...in respect of H3C or 3Com. Further, former Huawei employees that work for H3C may retain financial interests in Huawei. In addition, due to our recent merger transaction with affiliates of Bain Capital Partners, LLC that did not close, and the recent decline in our stock price, we believe it will be...

  • Page 133
    ...markets where we compete with Huawei, which in turn could have a material adverse effect on our sales...Asia Pacific region and specifically in China, will be materially and negatively...'s senior managers, and other key H3C employees that originally...H3C or 3Com. Further, former Huawei employees that work ...

  • Page 134
    ...to broaden our sales channels, complement internal development of new technologies and enhancement of existing products, and exploit perceived market opportunities. For example, we intend to seek additional channel partners for the Chinese carrier market. If we fail to form the number and quality of...

  • Page 135
    ...ended May 30, 2008. If either of these distributors reduces its business with us, our sales...provide effective support to these resellers. If our sales, marketing or services capabilities are not sufficiently robust to provide...in integrating the acquired company's technology, employees, products or ...

  • Page 136
    ...these situations could adversely affect our market share, sales, and results of operations or ...market depends upon an effective planning and management process. We will need to continue to improve our financial and managerial control and our reporting systems and procedures in order to manage...

  • Page 137
    .... Calendar 2008 will be the final year of that 50 percent reduction. The new tax law provides for a reduced tax rate of 15 percent for companies which qualify as "new and high technology" enterprises. Based on the draft regulations, we believe that our H3C subsidiary in China will qualify for this...

  • Page 138
    ... effective January 1, 2008, imposes a withholding...in China. Approximately 47 percent of our sales and...service our U.S. dollar-denominated senior secured bank loan. More specifically, if the Renminbi appreciates in value as compared with the U.S. dollar, our reported... or loss of market acceptance of our...

  • Page 139
    ..., such as China, our rights...management...our sales, ...companies... Our Open Services Networking, or...employees nor contractors. Therefore, we cannot predict whether further developments and enhancements to OSS selected by us would be available. Furthermore, rival OSS applications often compete for market share...

  • Page 140
    ...past several years, the stock market has experienced significant price and volume fluctuations that have affected the stock prices of many technology companies. These factors, as well as general economic and political conditions or investors' concerns regarding the credibility of corporate financial...

  • Page 141
    ... geographic region for each of the last two fiscal years, see Note 20 to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. The following table summarizes our significant leased real estate properties as of May 30, 2008: Location Sq. Ft. Owned/Leased Primary Use...

  • Page 142
    ... common stock trades on The NASDAQ Global Select Market under the symbol COMS and has been traded on NASDAQ since our initial public offering on March 21, 1984. The following table sets forth the high and low sale prices as reported on NASDAQ during the last two fiscal years. As of July 18, 2008, we...

  • Page 143
    ...of the Standard & Poor's 500 Stock Index, our New Peer Group (1) and our Old Peer Group (1) for the period commencing on May 30, 2003 and ending on May 30, 2008 (fiscal year end)(2)(3). We historically have constructed our peer group based on comparable market offerings, revenue composition and size...

  • Page 144
    ... related consolidated statements of operations and cash flows for each of the three years in the period ended May 31, 2008 and notes thereto appear elsewhere in this Annual Report on Form 10-K. During our fiscal 2006 we acquired a majority ownership of our then H3C joint-venture. Effective with the...

  • Page 145
    ... through a combination of value added partners and direct sales representatives. We also work with service providers to deliver managed networking solutions for enterprise customers. Headquartered in Marlborough, Massachusetts, we have worldwide operations, including sales, marketing, research and...

  • Page 146
    ... for sales growth, profitability and the generation of increased cash flow from operations. Such factors and trends include: Æ' Æ' Æ' Intense competition in the market for higher end, enterprise core routing and switching products; Aggressive product pricing by competitors targeted at gaining share...

  • Page 147
    ... internally managing our business. This change breaks-out the SCN segment into the Data and Voice business unit ("DVBU"), our TippingPoint security division ("TippingPoint") and corporate expenses ("Corporate"). BASIS OF PRESENTATION Our fiscal year ends on the Friday closest to May 31. Fiscal 2008...

  • Page 148
    ...provided that all other revenue recognition criteria have been met. Also, sales arrangements may contain customer-specific acceptance requirements for both products and services... value can be established. We assess collectability based on a number of factors, including general economic and market ...

  • Page 149
    ... lives of these assets are no longer appropriate. In the fourth quarter of fiscal 2008 we conducted an additional impairment test of our goodwill and intangible assets due to the decline of our stock price which resulted in a $158.0 million impairment charge to our TippingPoint goodwill as discussed...

  • Page 150
    .... The fair value of stock options and employee stock purchase plan shares is determined by using the Black-Scholes option pricing model and applying the single-option approach to the stock option valuation. The options generally have vesting on an annual basis over a vesting period of four years. We...

  • Page 151
    ... ENDED MAY 31, 2008, 2007, AND 2006 In prior fiscal years we reported two segments, SCN and H3C. In fiscal 2008, we have realigned our internal reporting and, as a result, we have changed our segment reporting, to four reporting segments, to be in line with the way we are now internally managing...

  • Page 152
    ... from products categories in absolute dollars and as a percentage of total sales for fiscal 2008 and fiscal 2007 (in millions): Fiscal Year 2008 2007 Networking Security Voice Services Legacy connectivity products Total $ 1,058.5 133.4 60.7 39.6 2.7 $ 1,294.9 81.7% 10.3 4.7 3.1 0.2 $ $ 1,028...

  • Page 153
    ... component interconnect offerings. At the end of fiscal 2008 sales of these products are negligible with continued revenue only expected to be from royalty arrangements. Sales by geographic region are as follows (in millions): Fiscal Year 2008 2007 China Europe, Middle East, and Africa...

  • Page 154
    ...percent in fiscal 2008 from 32.9 percent in the previous fiscal year. The decline is primarily explained by costs associated with our change from an outsourced service provider to a hybrid of outsourced and in-house performance of services to our customers and increased inter-company pricing, offset...

  • Page 155
    ...$51.5 million in the year ended May 31, 2007. A more detailed discussion of the factors affecting each major component of total operating expenses is provided below. Sales and Marketing. Sales and marketing expenses in fiscal 2008 decreased $3.7 million compared to fiscal 2007. This decrease was due...

  • Page 156
    ... to our H3C subsidiary in China. The net effect of these revaluations was an increase in our tax provision for fiscal 2008 of $6.1 million. Under the new PRC tax law, effective January 1, 2008, companies which qualify as "new and high technology" companies will pay corporate income tax at a reduced...

  • Page 157
    ... the extent available is reported based on the customer's designated delivery point, except in the case of H3C's OEM sales which are based on the hub locations of H3C's OEM partners. China sales increased 597 percent primarily due to the inclusion of H3C results for the full year in fiscal 2007. 41

  • Page 158
    ... in the year ended May 31, 2007, which were not incurred in the previous fiscal year. This increase was partially offset by significant cost reduction in our DVBU segment as compared to the previous year. The full year inclusion of H3C was the primary contributor to increases in sales and marketing...

  • Page 159
    ... incurred in the 2006 fiscal year and were partially offset by a reduction in the DVBU sales and marketing expenses. The reduction of the DVBU sales and marketing expenses were primarily related to the reduction of programmatic marketing expenses, and a reduction in employee related expenses due to...

  • Page 160
    ... of our consolidated statements of cash flows for the last three fiscal years: (in millions) 2008 Years Ended May 31, 2007 2006 Cash and equivalents, beginning of period Net cash provided by (used in) operating activities Net cash (used in) provided by investing activities Net cash (used in...

  • Page 161
    ... prepayment due to excess operating cash flows from our H3C segment. During fiscal 2008, we also repurchased shares of restricted stock valued at $3.2 million upon vesting of awards from employees consisting of shares to satisfy the tax withholding obligations that arise in connection with such...

  • Page 162
    During fiscal 2008, we issued approximately 3.6 million shares of our common stock in connection with our employee stock purchase and option plans with total proceeds from such issuances of $12.9 million. As of May 31, 2008, our outstanding stock options as a percentage of outstanding shares were 11...

  • Page 163
    ...the fiscal 2008 EARP plan which is expected to be paid in the first quarter of fiscal year 2009. We expect the unvested portion amounting to $44 million will be accrued in H3C operating segment over the next 3 fiscal years serving as a continued retention and incentive program for H3C employees. The...

  • Page 164
    ..., during fiscal 2008 we experienced a benefit from the positive currency fluctuations of our Renminbi sales in China which had the effect of increasing our revenues. Should the Renminbi depreciate against the US dollar, or if other currency rates change against the Company's reported currency, such...

  • Page 165
    ...INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations for the years ended May 31, 2008, 2007, and 2006 Consolidated Balance Sheets as of May 31...

  • Page 166
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of 3Com Corporation Marlborough, Massachusetts: We have audited the accompanying consolidated balance sheets of 3Com Corporation and subsidiaries (3Com) as of May 30, 2008 and June 1, 2007, and the ...

  • Page 167
    3COM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) 2008 Years Ended May 31, 2007 2006 Sales Cost of sales Gross profit Operating expenses: Sales and marketing Research and development General and administrative Amortization Goodwill impairment In-...

  • Page 168
    3COM CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) May 31, 2008 2007 ASSETS Current assets: Cash and ...equity: Preferred stock, $0.01 par value, 10,000 shares authorized; none outstanding Common stock, $0.01 par value, 990,000 shares authorized; shares issued: ...

  • Page 169
    3COM CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Accumulated Unamortized Common Stock Shares Balances, May 31, 2005 Components of comprehensive loss: Net loss Unrealized gain on available-for-sale securities, net of tax Accumulated translation adjustments Total ...

  • Page 170
    3COM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended May 31, 2007 2008 2006 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization Loss (gain) on property ...

  • Page 171
    ..., including sales, marketing, research and development, and customer service and support capabilities. Note 2: Significant Accounting Policies Fiscal year Our fiscal year ends on the Friday closest to May 31. Fiscal 2008 consisted of 52 weeks and ended on May 30, 2008. Fiscal 2007 consisted...

  • Page 172
    ... and accounts receivable. For our cash and equivalents in China we maintain a minimum BBB+ rating and for the period ended March 31, 2008 the average rating was A. Inventories Inventories are stated at the lower of standard cost or market, which approximates actual cost. Cost is determined using the...

  • Page 173
    ...annually during our third fiscal quarter. In the fourth quarter of fiscal 2008 we conducted an additional impairment test of our goodwill due to the decline in our stock price...fair value can be established. We assess collectability based on a number of factors, including general economic and market ...

  • Page 174
    .... Sales of services, including professional services, system integration, project management, and training, are recognized upon delivery of the service. Royalty revenue is generally recognized when any performance by 3Com is complete and payment has been received. Product warranty We provide limited...

  • Page 175
    ...number...the Financial Accounting Standards Board ("FASB") issued FASB ...returns. FIN 48 provides guidance on derecognition of... earnings. As of May 31, 2008 the Company had unrecognized tax benefits of $18...fiscal years 2009 and 2028, substantially all of which expire between fiscal years...for-sale securities...

  • Page 176
    .... The fair value of stock options and employee stock purchase plan shares is determined by using the Black-Scholes option pricing model and applying the single-option approach to the stock option valuation. The options generally have vesting on an annual basis over a vesting period of four years. We...

  • Page 177
    ...effective for fiscal years beginning after November 15, 2007 and is required to be adopted by 3Com in the first quarter of fiscal 2009. We have not applied fair value accounting as of the adoption date. In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" to improve reporting and...

  • Page 178
    ...) switches and routers; engineering, sales and marketing resources and personnel; and licenses to its related intellectual property - in exchange for a 51 percent ownership interest. Huawei's contributed assets were valued at $178.2 million at the time of formation. Two years after formation of H3C...

  • Page 179
    ...the consolidated statements of operations for the year ended June 2, 2007. Of the total 2007 purchase price, approximately $409.9 million was allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill amounts are not amortized...

  • Page 180
    ... were net of credits of $0.5 million in fiscal 2008, $13.3 million in fiscal 2007, and $0.1 million in fiscal 2006, related primarily to revisions of previous estimates of employee separation expenses, lease obligation costs and values on held for sale properties. Accrued liabilities associated with...

  • Page 181
    ...expenses include severance pay, outplacement services, medical and other related benefits. The reduction in workforce affected employees involved in research and development, sales and marketing, customer support, and general and administrative functions. Through May 31, 2008, the total reduction in...

  • Page 182
    ...expenses include severance pay, outplacement services, medical and other related benefits. The reduction in workforce affected employees involved in research and development, sales and marketing, customer support, and general and administrative functions. Through May 31, 2008, the total reduction in...

  • Page 183
    ... 2005 period for the fiscal year 2005 in our results of operations for fiscal 2006 and 2005. This represents reporting two months in arrears. Summarized information from the statement of operations for H3C for the ten month period ended January 31, 2006 (in thousands): Sales Gross profit Income from...

  • Page 184
    ... equity securities $ $ 467 467 Publicly traded corporate equity securities are included in other current assets. The following table provides gross realized gains and losses related to our investments (in thousands): Years Ended May 31, 2007 2008 2006 Gross realized gains Gross realized losses...

  • Page 185
    ..., in mid-March 2008, subsequent to the end of the third fiscal quarter, a significant reduction in our market value occurred. As a result, we concluded that we needed to evaluate whether an impairment in the fair value of our reporting units had occurred subsequent to our annual test. As a result...

  • Page 186
    ... product life cycle, we have concluded that the asset does not provide any future benefit. Additionally, in fiscal 2008 our gross intangible assets increased by $10.5 million due to the appreciation on the Renminbi affecting the value of certain intangible assets tied to our Chinese business. These...

  • Page 187
    ... of $6.9 million provided to the respective banks. We lease certain of our facilities under operating leases. Leases expire at various dates from 2009 to 2013, and certain leases have renewal options with rentals based upon changes in the Consumer Price Index or the fair market rental value of the...

  • Page 188
    ...vest on an annual basis over a period of two to four years and have a term of seven years from the date of grant. The expected term of employee stock purchase plan shares is the average of the remaining purchase periods under each offering period. The expected volatility of the common stock price is...

  • Page 189
    ... stock price volatility. The underlying weighted-average assumptions used in the Black-Scholes model and the resulting estimates of fair value per share were as follows for options granted during the years ended May 31, 2008, May 31, 2007 and May 31, 2006: 2008 2007 20061 Employee stock options...

  • Page 190
    ... the difference between the market value on exercise date and the option price of the shares. The closing market value per share as of May 30, 2008, the last trading day of the fiscal year, was $2.52 as reported by The NASDAQ Global Select Market. The aggregate intrinsic value of options outstanding...

  • Page 191
    ... $ 3.43 During the year ended May 31, 2008 approximately 1.1 million restricted award shares with an aggregate fair value of $3.7 million became vested. Restricted Stock Units. Restricted stock unit activity was as follows (shares in thousands): Number of Shares (unvested) Outstanding June 1, 2006...

  • Page 192
    ...of one share of our common stock. Upon a person or a group acquiring 15 percent or more of the outstanding common stock, each Right will allow the holder (other than the acquirer) to purchase common stock or securities of 3Com having a then current market value of two times the Exercise Price of the...

  • Page 193
    ... amounts reported in the consolidated balance sheets for cash and equivalents approximate their estimated fair values. Corporate equity securities. Fair value of publicly traded corporate equity securities is based on quoted market prices. Fair value of privately held corporate equity securities...

  • Page 194
    ...includes a gain from the insurance proceeds from our Hemel facility in fiscal 2007. Note 17: Income Taxes The provision (benefit) for income taxes consists of the following (in thousands): Years Ended May 31, 2008 2007 2006 Current: Federal State Foreign Total current Deferred Federal State Foreign...

  • Page 195
    ... in our tax provision for fiscal 2008 of $6.1 million. We have net operating loss carryforwards related to the following income tax jurisdictions and expiration periods: U.S. federal loss carryforwards of approximately $2.6 billion expiring between fiscal years 2009 and 2028, substantially all of...

  • Page 196
    ..., disclosure, and transition. The Company adopted the provisions of FIN 48 on June 2, 2007 which resulted in no adjustment to the beginning of the year retained earnings balance. The aggregate changes in the balance of our gross unrecognized benefits during fiscal 2008 were as follows (in thousands...

  • Page 197
    ...basic and diluted earnings per share (in thousands, except per share data): Years Ended May 31, 2008 2007 2006 Net loss Weighted-average shares - Basic Effect of dilutive securities: Employee stock options Restricted stock Weighted-average shares - Diluted Net loss per share - Basic and Diluted Net...

  • Page 198
    ... operating income (loss), excluding certain corporate level costs, stock-based compensation, amortization of acquired intangible assets, and the impairment charge recorded in 2008. Summarized financial information of our results of operations by segment for the fiscal years 2008, 2007 and 2006 is as...

  • Page 199
    ... DVBU and Corporate segments and does not allocate between the two. Certain product groups accounted for a significant portion of our sales. Sales from these product groups as a percentage of total sales for the past three fiscal years were as follows (in thousands): 2008 Years Ended May 31, 2007...

  • Page 200
    ... by the Internal Revenue Service. In addition, the 401(k) Plan provides for contributions as determined by the Board of Directors. We match 50 percent for each dollar on the first six percent of eligible annual compensation contributed by the employee. Employees become vested in our matching...

  • Page 201
    ..., Inc., et al. (Civil Action Number 01-CV-10976). The principal allegation in the lawsuit is that the defendants participated in a scheme to manipulate the initial public offering and subsequent market price of TippingPoint's stock (and the stock of other public companies) by knowingly assisting the...

  • Page 202
    .... Note 24: Quarterly Results of Operations (Unaudited) Fiscal 2008 Second Third Quarter Quarter Fiscal 2007 Second Third Quarter Quarter First Quarter Fourth Quarter First Quarter Fourth Quarter (In thousands, except per share data) Sales Gross profit Gross profit margin % Operating loss Net...

  • Page 203
    ...to the purchase of the final 49 percent we did not have a minority interest in the fourth quarter of fiscal 2007 and thereafter. Note 25: Subsequent Event On July 11, 2008, 3Com Corporation and Realtek Group entered into three agreements that document the resolution of the patent dispute between the...

  • Page 204
    ...ended May 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management... our management and board of directors; and provide reasonable ...

  • Page 205
    ...controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost ...that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making ...

  • Page 206
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended May 30, 2008 of 3Com and our report dated July 25, 2008 expressed an unqualified opinion on those financial...

  • Page 207
    ....3com.com, complies with the rules of the SEC and the listing standards of The NASDAQ Global Select Market....Corporate Governance" in our Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 11 of this Annual Report...

  • Page 208
    ...SERVICES The information required by Item 14 of this Annual Report... Incorporated by Reference Exhibit Number Exhibit Description Master Separation...3Com Corporation, 3Com Technologies, Huawei Technologies Co., Ltd. and Shenzhen Huawei Investment & Holding Co., Ltd., dated as of October 28, 2005 Stock...

  • Page 209
    ... 30, 2001* 3Com Corporation 1984 Employee Stock Purchase Plan, amended and restated as of June 18, 2008 (subject to shareholder approval)* 3Com Corporation Director Stock Option Plan, as amended* 3Com Corporation Restricted Stock Plan, as amended July 1, 2001* 3Com Corporation 1994 Stock Option Plan...

  • Page 210
    ...Number...Stock Option Agreement dated May 6, 2008 by and between Ronald A. Sege and 3Com Corporation * Stand Alone Restricted Stock Agreement dated May 6, 2008 by and between Ronald A. Sege and 3Com Corporation.... Masri and Murray)* Form of Management Retention Agreement between the Registrant and each...

  • Page 211
    Incorporated by Reference Exhibit Number 10.40 10.41 10.42 10.43 10.44 10.45 10.... than Messrs. Mao, Sege, Masri and Murray* 3Com Corporation Deferred Compensation Plan* Form of Indemnity Agreement between the Registrant and its officers and directors Office Lease, dated as of November 26, 2002,...

  • Page 212
    ..."A&R Credit Agreement") First Amendment to A&R Credit Agreement, dated as of June 18, 2008 Borrower Share Charge dated March 22, 2007 among 3Com Technologies, as Chargor, and Industrial and Commercial Bank of China (Asia) Limited, as Collateral Agent Borrower Fixed and Floating Charge dated March 22...

  • Page 213
    ...Bank of China (Asia) Limited, as Collateral Agent, in favour of 3Com Technologies Purchase and Sale Agreement made as of July 24, 2006 by and between 3Com Corporation and SSC... 7/31/07 8-K 000-12867 10.1 7/26/06 X X X X X * Indicates a management contract or compensatory plan or arrangement 97

  • Page 214
    ... of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 25th day of July, 2008. 3COM CORPORATION (Registrant) By /s/ Robert Y. L. Mao Robert Y. L. Mao Chief Executive Officer Pursuant to the...

  • Page 215
    SCHEDULE II 3Com Corporation VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended May 31, 2006, 2007, and 2008 (In thousands) Balance at Beginning of Period Description Additions Charged to Costs and Expenses Balance at End of Period Other Deductions Year ended May 31, 2006: ...

  • Page 216
    ... 30, 2001* 3Com Corporation 1984 Employee Stock Purchase Plan, amended and restated as of June 18, 2008 (subject to shareholder approval)* 3Com Corporation Director Stock Option Plan, as amended* 3Com Corporation Restricted Stock Plan, as amended July 1, 2001* 3Com Corporation 1994 Stock Option Plan...

  • Page 217
    ... Jay Zager and 3Com Corporation * Stand Alone Restricted Stock Agreement dated July 3, 2007 by and between Jay Zager and 3Com Corporation * Form of Stock Option Agreement for 2003 Stock Plan (Non-Employee Directors) Form of Stock Option Agreement for 2003 Stock Plan (Employees)* Form of Performance...

  • Page 218
    ...Stock Option Agreement dated May 6, 2008 by and between Ronald A. Sege and 3Com Corporation * Stand Alone Restricted Stock Agreement dated May 6, 2008 by and between Ronald A. Sege and 3Com Corporation... Sege. Masri and Murray)* Form of Management Retention Agreement between the Registrant and each of...

  • Page 219
    ... and Commercial Bank of China (Asia) Limited, as Collateral Agent Amended and Restated Credit and Guaranty Agreement dated as of May 25, 2007 and effective as of May 31, 2007 among H3C Holdings Limited, as Borrower, 3Com Corporation, 3Com Holdings Limited and 3Com Technologies, as Holdco Guarantors...

  • Page 220
    ... made March 30, 2007 by Industrial and Commercial Bank of China (Asia) Limited, as Collateral Agent, in favour of 3Com Technologies Purchase and Sale Agreement made as of July 24, 2006 by and between 3Com Corporation and SSC II, L.P. Subsidiaries of Registrant Consent of Independent Registered...

  • Page 221
    Incorporated by Reference Exhibit Number 31.1 31.2 32.1 Exhibit Description Certification of Principal Executive Officer Certification of...-Oxley Act of 2002 Form File No. Exhibit Filing Date Filed Herewith X X X * Indicates a management contract or compensatory plan or arrangement 105

  • Page 222
    Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Robert Y. L. Mao, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of 3Com Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact ...

  • Page 223
    ...: 1. 2. I have reviewed this Annual Report on Form 10-K of 3Com Corporation; Based on my knowledge, this report does not contain any untrue statement of...management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: July 25, 2008...

  • Page 224
    ... 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of 3Com Corporation on Form 10-K for the fiscal year ended May 30, 2008 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that...

  • Page 225

  • Page 226

  • Page 227
    ... logo, Digital Vaccine, IntelliJack, NBX, OfficeConnect, TippingPoint and TippingPoint Technologies are registered trademarks and H3C and VCX are trademarks of 3Com Corporation or one of its wholly owned subsidiaries. Other product and brand names may be trademarks or registered trademarks of their...

  • Page 228