UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Section 240.14a-12

 

3COM CORPORATION

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

Common Stock, par value $0.01 per share of 3Com Corporation (the “Common Stock”).

 

 

401,995,350 shares of Common Stock; 48,842,182 options to purchase Common Stock; and restricted stock units with respect to 6,602,618 shares of Common Stock.

 

 

The maximum aggregate value was determined based upon the sum of (A) 401,995,350 shares of Common Stock multiplied by $5.30 per share; (B) options to purchase 48,842,182 shares of Common Stock multiplied by $.0746 (which is the difference between $5.30 and the weighted average exercise price of $5.2254 per share); and (C) restricted stock units with respect to 6,602,618 shares of Common Stock multiplied by $5.30 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.0000307 by the sum of the preceding sentence.

 

 

$2,169,212,857

 

 

$66,595

 

 

 

 

 

 

 

 

 

 

3Com Corporation
350 Campus Drive
Marlborough, Massachusetts 01752-3064

          , 2007

 

Dear Stockholder:

 

The board of directors of 3Com Corporation, a Delaware corporation, has unanimously approved a merger agreement providing for the acquisition of 3Com by Diamond II Holdings, Inc., an entity formed by investment vehicles sponsored by Bain Capital Partners, LLC. If the merger contemplated by the merger agreement is completed, you will be entitled to receive $5.30 in cash, without interest and less any applicable withholding tax, for each share of 3Com common stock owned by you immediately prior to completion of the merger (unless you have properly and validly perfected your statutory rights of appraisal with respect to the merger).

 

At a special meeting of our stockholders, you will be asked to consider and vote on a proposal to adopt the merger agreement. After careful consideration, our board of directors has unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement and determined that the merger is fair to and in the best interests of 3Com and its stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.

 

The special meeting will be held on          , at      a.m. local time, at our headquarters, 350 Campus Drive, Marlborough, Massachusetts 01752-3064. Notice of the special meeting and the related proxy statement are enclosed.

 

The attached proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and the merger agreement carefully. You may also obtain more information about 3Com from documents we have filed with the Securities and Exchange Commission.

 

Your vote is very important regardless of the number of shares you own. We cannot complete the merger unless the holders of a majority of outstanding shares of common stock that are entitled to vote at the special meeting vote in favor of the proposal to adopt the merger agreement. The failure of any stockholder to vote on the proposal to adopt the merger agreement will have the same effect as a vote against the proposal to adopt the merger agreement.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the attached proxy in the accompanying reply envelope, or submit your proxy by telephone or the Internet. If you have Internet access, we encourage you to record your vote via the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. If you hold your shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

Edgar Masri
President and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

The proxy statement is dated          , 2007, and is first being mailed to stockholders on or about          , 2007.

3Com Corporation
350 Campus Drive
Marlborough, Massachusetts 01752-3064

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On          , 2007

 

To the Stockholders of 3Com Corporation:

 

A special meeting of stockholders of 3Com Corporation, a Delaware corporation (the “Company”), will be held on          , at      a.m. local time, at the Company’s headquarters, 350 Campus Drive, Marlborough, Massachusetts 01752-3064, for the following purposes:

 

1. Adoption of the Merger Agreement.   To consider and vote on a proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 28, 2007, by and among the Company, Diamond II Holdings, Inc., (“Newco”) and Diamond II Acquisition Corp., an indirect wholly-owned subsidiary of Newco (“Merger Sub”). A copy of the Merger Agreement is attached as Annex A to the attached proxy statement. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”) and each outstanding share of the Company’s common stock, par value $0.01 per share (the “Common Stock”) (other than shares owned by Newco, Merger Sub or the Company, or by any direct or indirect wholly-owned subsidiary of Newco, Merger Sub or the Company, in each case immediately prior to the effective time of the Merger, and shares held by stockholders, if any, who have properly and validly perfected statutory rights of appraisal with respect to the Merger), will be converted into the right to receive $5.30 in cash, without interest and less any applicable withholding tax.

 

2. Adjournment or Postponement of the Special Meeting.  To approve the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.

 

Only stockholders of record of the Company’s Common Stock as of the close of business on          , 2007 are entitled to notice of and to vote at the special meeting or at any adjournment or postponement of the special meeting. All stockholders of record are cordially invited to attend the special meeting in person.

 

Your vote is very important, regardless of the number of shares of Common Stock you own.  Adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the shares of Common Stock outstanding on          , the record date of the special meeting. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy or submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares will be represented at the special meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” the adoption of the Merger Agreement.

 

If you fail to vote by proxy or in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have the same effect as a vote against the adoption of the Merger Agreement.  If you are a stockholder of record, voting in person at the special meeting will revoke any proxy previously submitted. If you hold your shares through a bank, broker or other custodian, you must obtain a legal proxy from such custodian in order to vote in person at the special meeting. If your shares are held by a bank or broker, please bring to the special meeting your statement evidencing your beneficial ownership of Common Stock and photo identification.

 

Stockholders of the Company who do not vote in favor of the proposal to adopt the Merger Agreement will have the right to seek appraisal of the fair value of their shares of Common Stock if the Merger is completed, but only if they properly and validly perfect statutory rights of appraisal before the vote is taken on the Merger Agreement and comply with all requirements of Delaware law, which are summarized in the attached proxy statement.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY IN THE ACCOMPANYING REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. IF YOU HAVE INTERNET ACCESS, WE ENCOURAGE YOU TO RECORD YOUR VOTE VIA THE INTERNET. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

 

By Order of the Board of Directors,

 

Neal D. Goldman
Executive Vice President, Chief Administrative and Legal Officer and Secretary

 

Marlborough, Massachusetts

          , 2007

TABLE OF CONTENTS

 

PROXY STATEMENT

 

References to “3Com,” the “Company,” “we,” “our” or “us” in this proxy statement refer to 3Com Corporation and its subsidiaries unless otherwise indicated by context.

 

SUMMARY

 

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. See “Where You Can Find More Information” beginning on page 72.

 

Proposal

 

You are being asked to vote on a proposal to adopt the Agreement and Plan of Merger, dated September 28, 2007 (the “Merger Agreement”), by and among the Company, Diamond II Holdings, Inc. (“Newco”) and Diamond II Acquisition Corp. (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into 3Com and 3Com will be the surviving corporation and an indirect wholly-owned subsidiary of Newco (the “Merger”). In the event that there are not sufficient votes at the time of the special meeting to adopt the Merger Agreement, the stockholders may be asked to vote on a proposal to adjourn or postpone the special meeting to solicit additional proxies. See “The Special Meeting” beginning on page 15.

 

The Parties to the Merger (Page 14)

 

3Com is a Delaware corporation with its headquarters in Marlborough, Massachusetts. 3Com was incorporated in California on June 4, 1979 and reincorporated in Delaware on June 12, 1997. 3Com is a provider of secure, converged voice and data networking solutions for enterprises of all sizes. 3Com offers a broad line of products backed by world class sales, service and support, which excel at delivering business value for its customers. 3Com also includes H3C Technologies Co., Limited (“H3C”), a China-based provider of network infrastructure products that provides cost-effective product development. Through its TippingPoint division, 3Com is a provider of network-based intrusion prevention systems that deliver in-depth application protection, infrastructure protection and performance protection. 3Com is organized into three primary business groups: H3C, the data and voice business unit (“DVBU”) and TippingPoint.

 

Newco was formed in anticipation of the Merger by investment vehicles sponsored by Bain Capital Partners, LLC (“Bain Capital”). Newco was formed solely for the purpose of acquiring 3Com and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. At the effective time of the Merger, Newco will be majority-owned and controlled by investment vehicles sponsored by Bain Capital. Bain Capital is part of Bain Capital, LLC, a U.S.-based, global private investment firm whose affiliates manage several pools of capital including private equity, venture capital public equity and leverage debt assets with more than $60 billion in assets under management. Since its inception in 1984, Bain Capital has made private equity investments and add-on acquisitions in over 300 companies around the world, including numerous investments in the software and technology sectors such as Ameritrade, Applied Systems, Aspect Development, Chip PAC, DoubleClick, Epsilon Data Management, Experian, Gartner Group, Integrated Circuit Systems, MCI, NXP, SunGard Data Systems, U.S. Internetworking and UGS. At the effective time of the merger, an affiliate of Huawei Technologies Co. Ltd. will make a non-controlling, minority investment in Newco (the affiliate of Huawei Technologies Co. Ltd. together with Bain Capital, the “Investors”).

 

Merger Sub was formed by investment vehicles sponsored by Bain Capital solely for the purpose of completing the proposed Merger. Merger Sub is an indirect, wholly-owned subsidiary of Newco and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Subject to the terms of the Merger Agreement, at the effective time, Merger Sub will merge with

and into 3Com. Upon the consummation of the proposed Merger, Merger Sub will cease to exist, 3Com will continue as the Surviving Corporation and will become an indirect wholly-owned subsidiary of Newco.

 

The Merger (Page 18)

 

The Merger Agreement provides that Merger Sub will merge with and into 3Com. In the Merger, each outstanding share of 3Com common stock, par value $0.01 per share (the “Common Stock”) that is outstanding immediately prior to the effective time of the Merger, (other than shares owned by Newco, Merger Sub or 3Com, or by any direct or indirect wholly-owned subsidiary of Newco, Merger Sub or 3Com, and shares held by stockholders, if any, who have properly and validly perfected statutory rights of appraisal with respect to the Merger) will be converted into the right to receive $5.30 in cash, without interest and less any applicable withholding tax, which we refer to in this proxy statement as the merger consideration.

 

Effects of the Merger (Page 48)

 

If the Merger is completed, you will be entitled to receive $5.30 in cash, without interest and less any applicable withholding taxes, for each share of Common Stock that you own immediately prior to the completion of the Merger, unless you have properly and validly perfected your statutory rights of appraisal with respect to the Merger. As a result of the Merger, 3Com will cease to be an independent, publicly traded company. You will not own any shares of the Surviving Corporation and will not have any rights as a stockholder.

 

The Special Meeting (Page 15)

 

Time, Place and Date (Page 15)

 

The special meeting will be held on          , at   a.m. local time, at the Company’s headquarters, 350 Campus Drive, Marlborough, Massachusetts 01752-3064.

 

Purpose (Page 15)

 

You will be asked to consider and vote upon a proposal to adopt the Merger Agreement, pursuant to which Merger Sub will merge with and into the Company.

 

Record Date and Quorum (Page 15)

 

You are entitled to vote at the special meeting if you owned shares of Common Stock at the close of business on          , the record date for the special meeting. You will have one vote for each share of Common Stock that you owned as of the close of business on the record date. As of the close of business on the record date, there were           shares of Common Stock outstanding and entitled to vote. A majority of the shares of Common Stock issued and outstanding on the record date represented at the special meeting in person or by a duly authorized and properly completed proxy constitutes a quorum for the purpose of considering the proposals.

 

Vote Required (Page 15)

 

Completion of the Merger requires the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of shares of Common Stock outstanding on          , the record date for special meeting. Failure to vote your shares of Common Stock by proxy or in person or an abstention will have the same effect as voting against approval of the Merger Agreement. Approval of the proposal to adjourn or postpone the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the votes cast by the holders of all Common Stock present in person or represented by proxy at the special meeting and entitled to vote on the matter. Failure to vote your shares of our Common Stock or an abstention will have no effect on the approval of the proposal to adjourn or postpone the special meeting.

Common Stock Ownership of Directors and Executive Officers (Page 15)

 

As of the close of business on the record date, the directors and executive officers of 3Com held in the aggregate approximately     % of the shares of Common Stock entitled to be voted at the special meeting. In the aggregate, these shares represent     % of the votes necessary to approve the proposal to adopt the Merger Agreement at the special meeting.

 

Voting and Proxies (Page 16)

 

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, the Internet, by returning the enclosed proxy card by mail, or by voting in person by appearing at the special meeting. If your shares of Common Stock are held in “street name” by your broker, you should instruct your broker on how to vote your shares of Common Stock using the instructions provided by your broker. If you do not provide your broker with instructions, your shares of Common Stock will not be voted and that will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. The persons named in the attached proxy will also have discretionary authority to vote on any proposals to adjourn or postpone the special meeting.

 

Revocability of Proxy (Page 16)

 

Any stockholder of record who executes and returns a proxy card (or submits a proxy via telephone or the Internet) may revoke the proxy at any time before it is voted at the special meeting in any one of the following ways:

 

 

If you hold your shares through a broker, bank or other nominee and you have instructed a broker, bank or other nominee to vote your shares of Common Stock, follow the directions received from your broker, bank or other nominee to change your vote.

 

Treatment of Options and Other Awards (Page 48)

 

Stock Options.  Immediately prior to the effective time of the Merger, except as otherwise agreed to by the holder and Newco, all outstanding options to purchase Common Stock under the Company’s equity incentive plans will become fully vested. All such options not exercised prior to the Merger will be cancelled and converted into the right to receive a cash payment equal to the number of shares of Common Stock underlying the options multiplied by the amount (if any) by which $5.30 exceeds the exercise price, without interest and less any applicable withholding taxes.

 

Restricted Stock.  Immediately prior to the effective time of the Merger, except as otherwise agreed by a holder and Newco, all shares of restricted stock will vest and those shares will be cancelled and converted into the right to receive a cash payment equal to the number of shares of restricted stock multiplied by $5.30, without interest and less any applicable withholding taxes.

 

Restricted Stock Units.  Immediately prior to the effective time of the Merger, except as otherwise agreed by a holder and Newco, all restricted stock units will vest and settle through the issuance of shares of Common Stock and thereafter be treated in the same manner as restricted stock.

 

Employee Stock Purchase Plan.  Prior to the consummation of the Merger, the then-current offering period under our Employee Stock Purchase Plan will be terminated and all funds in each participant’s account will be applied toward the purchase of shares of Common Stock on the terms and conditions set forth under

our Employee Stock Purchase Plan. Thereafter, those shares will be entitled to receive the merger consideration on the same basis as other shares of Common Stock. All amounts withheld by us on behalf of participants in our Employee Stock Purchase Plan that have not been used to purchase Common Stock prior to the effective time of the Merger will be returned to the participants without interest pursuant to the terms of our Employee Stock Purchase Plan.

 

Recommendation of Our Board of Directors (Page 25)

 

Our board of directors, at a meeting duly called and held at which all directors were present, unanimously (i) determined that the terms of the Merger are fair and in the best interests of the Company and its stockholders and declared it advisable to enter into the Merger Agreement providing for the merger of Merger Sub with and into the Company, in accordance with the Delaware General Corporation Law (“DGCL”), upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, in accordance with the DGCL, upon the terms and conditions contained in the Merger Agreement and (iii) resolved to recommend that the stockholders of the Company adopt the Merger Agreement, in accordance with the applicable provisions of the DGCL. The board of directors unanimously recommends that our stockholders vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies.

 

In reaching its decision, our board of directors evaluated a variety of business, financial and market factors and consulted with our management team and legal and financial advisors. See “The Merger — Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 25.

 

Interests of the Company’s Directors and Executive Officers in the Merger (Page 38)

 

In considering the recommendation of the board of directors, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder and that may present actual or potential conflicts of interest, including the following:

 

 

The board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the Merger and the recommendation that our stockholders vote in favor of the proposal to adopt the Merger Agreement.

 

Opinion of Goldman, Sachs & Co. (Page 27)

 

Our board of directors considered the financial analyses and opinion of Goldman, Sachs & Co. (“Goldman Sachs”), delivered orally to our board of directors and subsequently confirmed in writing, to the

effect that, as of September 28, 2007, and based upon and subject to the factors and assumptions set forth therein, the $5.30 per share in cash to be received by the holders of shares of Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, dated September 28, 2007, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B and is incorporated in this proxy statement by reference. Goldman Sachs provided its opinion for the information and assistance of our board of directors in connection with its consideration of the Merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of shares of Common Stock should vote with respect to the adoption of the Merger Agreement or any other matter. Pursuant to an engagement letter between 3Com and Goldman Sachs, 3Com has agreed to pay Goldman Sachs a transaction fee equal to approximately $24 million, the principal portion of which is payable upon completion of the Merger.

 

Financing (Page 35)

 

The aggregate amount of funds necessary to complete the Merger is anticipated to be approximately $2.54 billion. These payments are expected to be funded by Newco and Merger Sub with a combination of equity contributions by the Investors, debt financing obtained by Merger Sub and made available to Merger Sub and certain newly formed wholly-owned subsidiaries of 3Com, and, to the extent available, cash of 3Com. Newco and Merger Sub have obtained equity and debt financing commitments described below in connection with the transactions contemplated by the Merger Agreement.

 

Merger Sub has obtained debt financing commitments of up to an aggregate of $1.2 billion consisting of (i) commitments from Citibank N.A., Hong Kong Branch, UBS AG, Singapore Branch, The Hongkong and Shanghai Banking Corporation Limited, ABN Amro Bank N.V. and Bank of China (Hong Kong) Limited to provide debt financing in the form of senior secured facilities consisting of (A) a term loan facility in the aggregate principal amount of up to $750 million and (B) a revolving facility in an aggregate principal amount of $50 million and (ii) commitments from UBS AG, Singapore Branch, Citibank, N.A. and The Hongkong and Shanghai Banking Corporation Limited to provide debt financing in the form of a bridge loan facility with a maturity of one year in an aggregate principal amount of up to $400 million.

 

Regulatory Approvals (Page 45)

 

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules promulgated thereunder by the Federal Trade Commission (“FTC”), provides that transactions such as the Merger may not be completed until notification and report forms have been filed with the FTC and the Antitrust Division of the Department of Justice (“DOJ”) and the applicable waiting period has expired or been terminated. 3Com and Newco have filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ, and the applicable waiting period has not yet expired or been terminated.

 

The Merger is also subject to review by the governmental authorities of various other jurisdictions under the antitrust laws of those jurisdictions.

 

The parties have agreed to make a joint voluntary filing of the transaction with the Committee on Foreign Investment in the United States (“CFIUS”).

 

Except for these filings and the filing of a certificate of merger in Delaware at or before the effective date of the Merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Merger Agreement or completion of the Merger.

 

Procedure for Receiving Merger Consideration (Page 49)

 

Promptly following the effective time of the Merger, a payment agent will mail a letter of transmittal and instructions to you and the other 3Com stockholders. The letter of transmittal will tell you how to surrender your stock certificates in exchange for the merger consideration. You should not return your stock

certificates with the proxy card, and you should return your stock certificates with the letter of transmittal.

 

Material United States Federal Income Tax Consequences (Page 44)

 

The exchange of shares of Common Stock for cash pursuant to the Merger Agreement generally will be a taxable transaction for U.S. federal income tax purposes. Stockholders who exchange their shares of Common Stock in the Merger will generally recognize gain or loss in an amount equal to the difference, if any, between the cash received in the Merger and their adjusted tax basis in their shares of Common Stock surrendered. Because individual circumstances may differ, we urge you to consult your tax advisor for a complete analysis of the effect of the Merger on your federal, state and local and/or foreign taxes.

 

Conditions to the Merger (Page 56)

 

Before we can complete the Merger, a number of conditions must be satisfied. These include:

 

 

Restrictions on Solicitations of Other Offers (Page 57)

 

The Merger Agreement restricts our ability to solicit, engage in or encourage discussions or negotiations with a third party regarding specified transactions regarding the Company and to provide information about the Company to any third party. Notwithstanding these restrictions, under certain limited circumstances required for our board to comply with its fiduciary duties, our board may respond to a bona fide unsolicited alternative acquisition proposal or terminate the Merger Agreement and enter into an agreement with respect to a superior proposal after paying a termination fee.

 

Termination of the Merger Agreement (Page 59)

 

The Merger Agreement may be terminated at any time prior to the consummation of the Merger, whether before or after stockholder approval has been obtained:

 

 

 

 

 

The Merger Agreement may also be terminated by 3Com prior to the special meeting in order to enter into a definitive agreement for a superior proposal, provided that 3Com subsequently pay Newco a termination fee, as described in further detail in “The Merger Agreement — Recommendation Withdrawal/Termination in Connection with a Superior Proposal” beginning on page 59.

 

Termination Fees (Page 61)

 

Under certain circumstances, in connection with the termination of the Merger Agreement, we will be required to pay to Newco a termination fee of $66 million. We also may be required to pay Newco their out of pocket fees and expenses (not to exceed $20 million) in connection with the Merger. In circumstances where we are required to pay such fees and expenses, if we are subsequently required to pay a termination fee, any fees and expenses previously reimbursed will be deducted from the termination fee owed. See “The Merger Agreement — Termination Fees and Expenses” beginning on page 61 for a detailed discussion of the termination fees.

 

Newco has agreed to pay the Company a termination fee of $66 million if we terminate the Merger Agreement in circumstances under which the conditions to the Merger are satisfied but (i) Newco and Merger Sub have not received the proceeds of the debt financing or (ii) a U.S. federal regulatory agency (that is not an antitrust regulatory agency) has informed Newco, Merger Sub or the Company (or any of their representatives) that it intends to take action to prevent the Merger. In the event that (i) all of the conditions to the Merger are satisfied, (ii) the debt financing has been funded or would be funded upon funding of the equity financing and (iii) no U.S. federal regulatory agency has informed Newco, Merger Sub or the Company (or any of their representatives) that it intends to take action to prevent the Merger, and (iv) Newco and Merger Sub fail to consummate the Merger, Newco has agreed to pay the Company a termination fee of $110 million. See “The Merger Agreement — Termination Fees and Expenses” beginning on page 61 for a detailed discussion of the termination fees.

Remedies (Page 63)

 

In the event that the Company or Newco receive a termination fee as described above, such fee shall be deemed to be liquidated damages for any and all damages incurred by the party receiving such fee in connection with the matter forming the basis for such termination and no other claims may be brought with respect to such matters. Except in the case of fraud, the Company’s right to receive the termination fee as described above is the sole and exclusive remedy of the Company and its subsidiaries against Newco, Merger Sub, the Investors and any of their affiliates for any damages suffered as a result of a failure of the Merger to be consummated, or for a breach or failure to perform under the Merger Agreement or otherwise. Except in the case of fraud, Newco’s right to receive the termination fee as described above in circumstances that such fee is payable, or to recover damages from the Company in circumstances that such fee is not payable, is the sole and exclusive remedy of Newco, Merger Sub and their affiliates against the Company, its subsidiaries and any of their affiliates for any damages suffered as a result of a failure of the Merger to be consummated, or for a breach or failure to perform under the Merger Agreement or otherwise. In addition, Newco and Merger Sub are entitled to seek specific performance of the terms and provisions of the Merger Agreement with respect to the obligations of the Company, including seeking an injunction to prevent or restrain breaches or threatened breaches of the Merger Agreement by the Company and enforcing compliance with the covenants and obligations of the Company under the Merger Agreement. The Company is not entitled to seek specific performance with respect to the obligations of Newco and Merger Sub, including an injunction to prevent breaches of the Merger Agreement by Newco or Merger Sub.

 

Limited Guarantee (Page 38)

 

In connection with the Merger Agreement, certain investment vehicles advised by Bain Capital and an affiliate of Huawei Technologies Co. Ltd. entered into a limited guarantee for the benefit of the Company, pursuant to which each party has agreed to guaranty the obligations of Newco up to a maximum amount equal to its pro rata share of any termination fee payable by Newco to the Company pursuant to the terms of the Merger Agreement (which fee will be $66 million or $110 million depending on the circumstances of termination, as described more fully in “The Merger Agreement — Termination Fees and Expenses” beginning on page 61). The limited guarantee is the Company’s sole recourse against each Investor as a guarantor, except for claims arising out of fraud against a person that committed such fraud.

 

Appraisal Rights (Page 68)

 

Under Delaware law, holders of Common Stock who do not vote in favor of the proposal to adopt the Merger Agreement will have the right to seek appraisal of the fair value of their shares of Common Stock as determined by the Delaware Court of Chancery if the Merger is completed, but only if they comply with all requirements of Delaware law, which are summarized in this proxy statement. The judicially determined appraisal amount could be more than, the same as or less than the merger consideration. Any holder of Common Stock intending to exercise appraisal rights, among other things, must submit a written demand for an appraisal to us prior to the vote on the proposal to adopt the Merger Agreement and must not vote or otherwise submit a proxy in favor of adoption of the Merger Agreement and must otherwise strictly comply with all of the procedures required by Delaware law. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. A copy of the relevant section of Delaware law is attached hereto as Annex C.

 

Market Price of Common Stock (Page 65)

 

Our Common Stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbol “COMS.” The closing sale price of Common Stock on Nasdaq on September 27, 2007, the last trading day prior to the execution of the Merger Agreement, was $3.68. The $5.30 per share to be paid for each share of Common Stock in the Merger represents a premium of approximately 44.0% to the closing price on September 27, 2007, and a premium of approximately 43.8% to the average closing share price during the thirty (30) trading days ended September 27, 2007. The closing sale price of our common stock on Nasdaq on           , 2007, the last trading day before the date of this proxy statement, was $      .

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger, the Merger Agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a 3Com stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See “Where You Can Find More Information” beginning on page 72.

 

 

 

 

 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

 

This proxy statement and the documents to which we refer you in this proxy statement include forward-looking statements based on estimates and assumptions. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary,” “Questions and Answers about the Special Meeting and the Merger,” “The Merger,” “Opinion of Financial Advisor,” “Regulatory Approvals” and “Litigation Related to the Merger” and in statements containing words such as “believes,” “estimates,” “anticipates,” “continues,” “contemplates,” “expects,” “may,” “will,” “could,” “should” or “would” or other similar words or phrases. These statements, which are based on information currently available to us, are not guarantees of future performance and may involve risks and uncertainties that could cause our actual growth, results of operations, performance and business prospects, and opportunities to materially differ from those expressed in, or implied by, these statements. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statement included in this proxy statement or elsewhere. In addition to other factors and matters contained or incorporated in this document, these statements are subject to risks, uncertainties and other factors, including, among others:

 

 

and other risks detailed in our current filings with the SEC, including our most recent filings on Forms 8-K, 10-Q and 10-K, including but not limited to the risks detailed in the sections entitled “Risk Factors.” See “Where You Can Find More Information” beginning on page 72. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

THE PARTIES TO THE MERGER

 

3Com

 

3Com is a Delaware corporation with its headquarters in Marlborough, Massachusetts. 3Com was incorporated in California on June 4, 1979 and reincorporated in Delaware on June 12, 1997. 3Com is a provider of secure, converged voice and data networking solutions for enterprises of all sizes. 3Com offers a broad line of products backed by world class sales, service and support, which excel at delivering business value for its customers. 3Com also includes H3C Technologies Co., Limited (“H3C”), a China-based provider of network infrastructure products that provides cost-effective product development. Through its TippingPoint division, 3Com is a provider of network-based intrusion prevention systems that deliver in-depth application protection, infrastructure protection and performance protection. 3Com is organized into three primary business groups: H3C, the data and voice business unit (“DVBU”) and TippingPoint.

 

For more information about 3Com, please visit our website at www.3Com.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement and therefore is not incorporated by reference. See also “Where You Can Find More Information” beginning on page 72. Our Common Stock is publicly traded on the Nasdaq Global Select Market under the symbol “COMS.”

 

3Com’s principal executive offices are located at 350 Campus Drive, Marlborough, Massachusetts 01752-3064 and the telephone number is (508) 323-1000.

 

Newco

 

Diamond II Holding, Inc. (“Newco”) was formed by investment vehicles sponsored by Bain Capital Partners, LLC (“Bain Capital”) in anticipation of the Merger. Diamond II Acquisition Corp. (“Merger Sub”) was organized by investment vehicles sponsored by Bain Capital in anticipation of the Merger. Both Newco and Merger Sub were formed solely for the purpose of the Merger and, prior to the effective time of the Merger, will have de minimis assets and operations. Prior to the effective time of the Merger, neither Newco nor Merger Sub, has engaged in any business except for activities incidental to their formation and as contemplated by the Merger Agreement.

 

At the effective time of the Merger, Newco will be majority-owned and controlled by investment vehicles sponsored by Bain Capital and an affiliate of Huawei Technologies Co. Ltd. (“Huawei”) will make a non-controlling, minority investment, directly or indirectly, in Newco (the affiliate of Huawei Technologies Co. Ltd. together with Bain Capital, the “Investors”) and Merger Sub will be indirectly wholly-owned subsidiary of Newco. Both Newco and Merger Sub have their principle executive office at 111 Huntington Avenue, Boston, Massachusetts 02199 and their telephone number is (617) 516-2000.

 

Bain Capital is a part of Bain Capital, LLC, a U.S.-based, global private investment firm whose affiliates manage several pools of capital including private equity, venture capital public equity and leverage debt assets with more than $60 billion in assets under management. Since its inception in 1984, Bain Capital has made private equity investments and add-on acquisitions in over 300 companies around the world, including numerous investments in the software and technology sectors such as Ameritrade, Applied Systems, Aspect Development, Chip PAC, DoubleClick, Epsilon Data Management, Experian, Gartner Group, Integrated Circuit Systems, MCI, NXP, SunGard Data Systems, U.S. Internetworking and UGS.

 

THE SPECIAL MEETING

 

Time, Place and Purpose of the Special Meeting

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting to be held on          , at   a.m., at the Company’s headquarters, 350 Campus Drive, Marlborough, Massachusetts 01752-3064, or at any adjournment or postponement thereof. The purpose of the special meeting is for our stockholders to consider and vote upon a proposal to adopt the Merger Agreement (and to approve the proposal to adjourn or postpone the special meeting, if necessary or appropriate to solicit additional proxies). Our stockholders must adopt the Merger Agreement in order for the Merger to occur. If the stockholders fail to adopt the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about          ,2007.

 

Record Date and Quorum

 

We have fixed the close of business on          , 2007 as the record date for the special meeting, and only holders of record of Common Stock on the record date are entitled to receive notice of and vote at the special meeting. As of the close of business on the record date, there were           shares of Common Stock outstanding and entitled to vote. Each share of Common Stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

A majority of the shares of Common Stock issued and outstanding on the record date represented at the special meeting in person or by a duly authorized and properly completed proxy constitutes a quorum for the purpose of considering the proposals. Shares of Common Stock represented at the special meeting but not voted, including shares of Common Stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. Although the law in Delaware is unclear on the proper treatment of abstentions, we believe that abstentions should be counted for purposes of determining whether a quorum is present. Without controlling precedent to the contrary, we intend to treat abstentions in this manner. Accordingly, abstentions will be counted for the purpose of determining whether a quorum is present. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned or postpone to solicit additional proxies.

 

Vote Required for Approval

 

Approval of the proposal to adopt the Merger Agreement requires the affirmative vote of the holders of a majority of shares of Common Stock outstanding that are entitled to vote at the special meeting. Approval of the proposal to adjourn or postpone the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the votes cast by the holders of all Common Stock present in person or represented by proxy at the special meeting and entitled to vote on the matter. If you do not submit a proxy by telephone or the Internet or return a signed proxy card by mail or vote your shares in person, it has the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement but it will have no effect on the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies.

 

If your shares of Common Stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker to vote your shares, it has the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. As of the close of business on          , 2007, the record date, the directors and executive officers of 3Com held and are entitled to vote, in the aggregate,           shares of Common Stock, representing approximately     % of the outstanding Common Stock.

 

Proxies and Revocation

 

If you submit a proxy by telephone or the Internet or by returning a signed proxy card by mail, your shares will be voted at the special meeting as you indicate on your proxy card or by such other method. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Proxies received at any time before the special meeting and not revoked or superseded before being voted will be voted at the special meeting. You have the right to change or revoke your proxy at any time before the vote taken at the special meeting:

 

 

If you hold your shares through a broker, bank or other nominee and you have instructed a broker, bank or other nominee to vote your shares of Common Stock, the above instructions do not apply and, instead, you must follow the directions received from your broker, bank or other nominee to change those instructions.

 

Please do not send in your stock certificates with your proxy card. When the Merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration in exchange for your stock certificates.

 

Adjournments and Postponements

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice (if the adjournment is not for more than thirty (30) days), other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting. Whether or not a quorum exists, holders of a majority of the shares of Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereat may adjourn the special meeting. Any signed proxies received by 3Com in which no voting instructions are provided on such matter will be voted “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow 3Com’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned.

 

Rights of Stockholders Who Object to the Merger

 

Stockholders are entitled to statutory appraisal rights under Delaware law in connection with the Merger. This means that you are entitled to have the value of your shares determined by the Delaware Court of Chancery and to receive payment based on that valuation. The ultimate amount you receive as a dissenting stockholder in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to the Company before the vote is taken on the Merger Agreement and you must not vote in favor of the proposal to adopt the Merger Agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Dissenters’ Rights of Appraisal” beginning on page 68 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex C.

 

Solicitation of Proxies

 

This proxy solicitation is being made and paid for by 3Com on behalf of its board of directors. In addition, we have retained Georgeson Shareholder Communications, Inc. (“Georgeson”) to assist in the solicitation. We will pay Georgeson approximately $20,000 plus reasonable out-of-pocket expenses for their assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional or special remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of Common Stock that the brokers and fiduciaries hold of record and obtain such holders voting instructions. Upon request, we will reimburse such brokers and fiduciaries for their reasonable out-of-pocket expenses. In addition, we will indemnify Georgeson against any losses arising out of that firm’s proxy soliciting services on our behalf.

 

Questions and Additional Information

 

If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please (1) mail your request to 3Com Corporation, 350 Campus Drive, Marlborough, Massachusetts 01752-3064, Attn: Investor Relations, or (2) call our Investor Relations department at (508) 323-1198.

 

Availability of Documents

 

The reports, opinions or appraisals referenced in this proxy statement will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested holder of Common Stock.

 

THE MERGER

 

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

 

Background of the Merger

 

In November 2003, we formed a China-based joint venture named Huawei-3Com Co., Limited (now known as H3C Technologies Co., Limited, or H3C) with an affiliate of Huawei whereby we held a 49% interest and Huawei held a 51% interest in H3C. The purpose of the joint venture was to provide us with a significant presence in China, Japan, Hong Kong and certain other developing markets, an expanded product line and access to lower cost and highly effective engineering talent. In addition, we believed that this investment would contribute to our turn-around plans aimed at restoring growth and profitability.

 

H3C’s performance was strong during its first two years in operation. At the same time, our historical business, known as DVBU, continued to confront increased competition and execution challenges. Because H3C had become increasingly important to 3Com’s turn-around efforts, including as a source of cost-effective engineering talent, the possibility of consolidating its results became attractive to us. More specifically, by this time H3C had developed significant Chinese intellectual property and we were sourcing a large portion of our enterprise switches from H3C. Accordingly, in November 2005, we exercised a contractual right under our H3C shareholders’ agreement with Huawei to purchase an additional 2% interest in H3C from Huawei, resulting in 3Com holding a 51% interest in H3C. We were granted regulatory approval by China, and subsequently completed this transaction on January 27, 2006 and began fully consolidating its results.

 

H3C continued its strong growth during its third year in operation. While our results and cash flows benefited from the consolidation of H3C’s financials and a continued focus on cost containment in the historical DVBU business, DVBU was not successful in restoring revenue growth to support its cost structure. In August 2006, after an extensive internal review, including participation of external consultants, our board of directors determined that acquiring the remaining 49% interest in H3C was an important element of our plan to successfully turn-around 3Com. We desired to own 100% of the engineering talent and Chinese technology H3C had developed which was important to our efforts to continue to build our enterprise router and switch business. In late August 2006, therefore, we began a series of negotiations with Huawei regarding the possibility of acquiring Huawei’s remaining 49% interest in H3C outside of the bidding process contemplated by the shareholders’ agreement between 3Com and Huawei. At the same time, Huawei had discussions with Bain Capital, among others, concerning the prospect of making a proposal under which Huawei would acquire our 51% interest in H3C and investment vehicles advised by Bain Capital and others would then acquire a controlling interest in H3C. While we had conversations with several private equity firms who were interested in partnering with us to acquire H3C, we ultimately determined to seek to acquire H3C without a financial partner. We were unable to reach a negotiated agreement with Huawei regarding our acquisition of Huawei’s 49% interest in H3C outside the bidding process, so we ultimately made a formal bid for Huawei’s 49% interest in H3C on November 15, 2006. After several rounds of competing bids, on November 27, 2006, Huawei accepted our final bid of $882 million.

 

Shortly after we agreed to acquire 100% ownership of H3C, several private equity firms (including Bain Capital) and several strategic industry participants contacted us to discuss the state of the networking industry and the possibility of partnering with 3Com. Members of our board and management team had high level discussions with several of these parties (including Bain Capital) throughout the early part of 2007, but none of these conversations progressed to the point of discussing a specific transaction.

 

On January 10, 2007, during the pendency of our acquisition of Huawei’s 49% interest in H3C, the Chairman of our board of directors, Eric Benhamou, and our President and Chief Executive Officer, Edgar Masri, received a qualified expression of interest to acquire 3Com from a strategic industry participant (“Strategic Party One”). Our board of directors discussed this indication of interest at a regularly scheduled meeting on January 18 and 19, 2007. Representatives of Goldman, Sachs & Co. and the Company’s outside legal counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation also attended this meeting. During

the meeting, the board and representatives of Goldman Sachs and Wilson Sonsini Goodrich & Rosati, discussed the proposed transaction, including the conditionality of the indication of interest, the ability of Strategic Party One to finance the transaction and the possible impact that such a transaction could have on our pending acquisition of Huawei’s remaining 49% interest in H3C. The board also discussed the Company’s business plans and prospects for growth in light of its acquisition of 100% ownership of H3C, as well as other strategic initiatives then under consideration. After these discussions, the board of directors determined not to pursue the acquisition proposal in order to focus on consummating our pending acquisition of the remaining interest in H3C, integrating H3C into our global operations and continuing our general turn-around efforts.

 

On February 27, 2007, our board of directors held a regularly scheduled meeting, which representatives of Goldman Sachs and Wilson Sonsini Goodrich & Rosati also attended. During this meeting, the board of directors and our management team conducted a thorough review of each of our business units and their future prospects and business plans and noted in particular the challenges the Company continued to face in turning around the DVBU business and the demands of the H3C integration efforts. The board of directors also received an update on our pending acquisition of Huawei’s remaining 49% interest in H3C, as well as various high level discussions that members of our board of directors and management team continued to have with private equity firms and strategic industry participants regarding 3Com. Again, the board of directors determined not to pursue discussions with any third parties at this time in order to focus management and the Company on our pending acquisition of Huawei’s remaining 49% interest in H3C, our H3C integration efforts and our business turn-around efforts generally.

 

We completed our acquisition of Huawei’s remaining 49% interest in H3C on March 29, 2007, as a result of which we came to own 100% of H3C.

 

On May 17, 2007, our board of directors received a letter from two private equity firms, including Bain Capital and another private equity firm (“Private Equity Party One”), indicating their desire to conduct due diligence on 3Com with a view toward making an offer to acquire the Company. Bain Capital indicated that it had engaged in discussions with Huawei and that Huawei was also interested in exploring a transaction involving 3Com, Bain Capital and Private Equity Party One. Our board of directors convened a conference call on May 18, 2007 to discuss the indication of interest, decided to consider it more fully at a future meeting and asked management to use the intervening period to refresh its standalone business plan.

 

On May 29, 2007, our board of directors convened a meeting to review management’s three-year business plan and consider the recently received indication of interest from Bain Capital and Private Equity Party One. Representatives of Goldman Sachs and Wilson Sonsini Goodrich & Rosati also attended this meeting. Management began the meeting by presenting a refreshed three-year business plan and budget for the Company, highlighting the opportunities and challenges that we now faced by owning 100% of H3C and doing business in China and explaining the recently experienced slow-down in the growth rate of the H3C division and the ongoing difficulties and challenges in our DVBU business. Goldman Sachs then presented a preliminary financial analysis of the Company. After discussion of Goldman Sachs’ analysis, the board considered the indication of interest that it had received from Bain Capital and Private Equity Party One. In connection with this discussion, Neal Goldman, the Company’s Executive Vice President and Chief Administrative and Legal Officer, informed the board that Strategic Party One had requested a meeting with management to discuss a potential transaction. Wilson Sonsini Goodrich & Rosati then advised the board regarding legal and fiduciary aspects of considering Bain Capital and Private Equity Party One’s indication of interest and the request that the Company had received from Strategic Party One. The board then discussed these matters and instructed management to meet with Bain Capital, Private Equity Party One and Strategic Party One. The board did not determine, however, to pursue a transaction at this point.

 

On June 4, 2007, members of our management team met with representatives of Strategic Party One at our headquarters to discuss a potential transaction. At this meeting, Strategic Party One expressed its desire to commence due diligence on 3Com and explore a potential strategic transaction with the Company. On June 4, 2007, our management team also contacted representatives of Bain Capital and Private Equity Party One to express our willingness to discuss a possible transaction with them.

On June 11, 2007, another private equity firm (“Private Equity Party Two”) contacted members of our management team and expressed a desire to discuss a potential transaction with us.

 

On June 12, 2007, our board of directors convened a meeting, joined by Goldman Sachs and Wilson Sonsini Goodrich & Rosati, to discuss the status of our discussions with Bain Capital, Private Equity Party One and Strategic Party One. At the outset of the meeting, our management team presented its revised standalone business plan and Goldman Sachs presented a revised preliminary financial analysis of the Company. Our management team and Goldman Sachs then updated the board on their preliminary discussions with Bain Capital, Private Equity Party One and Strategic Party One and informed the board that Private Equity Party Two had contacted the Company to express its desire to discuss a transaction with the Company. The board of directors instructed management to initiate discussions with Private Equity Party Two and to continue its discussions with Bain Capital, Private Equity Party One and Strategic Party One. The board also authorized management to assemble and make due diligence documents and materials on the Company available to all of these parties in support of their efforts to more fully understand the Company and its business plans, operations and prospects.

 

In furtherance of these due diligence efforts, the Company executed a non-disclosure agreement with Bain Capital and Private Equity Party One on June 13, 2007 and with Strategic Party One on June 18, 2007. Private Equity Party Two executed a non-disclosure agreement with 3Com on June 15, 2007.

 

On June 15, 2007, our management team met with Bain Capital and Private Equity Party One to make a presentation regarding the Company’s business plans and operations. Our management made a similar presentation to Private Equity Party Two later that same day. On June 18, 2007, members of our management team met with Strategic Party One to make the same presentation.

 

On June 22, 2007, our board of directors received a non-binding indication of interest from Bain Capital and Private Equity Party One to acquire 3Com at a valuation in the range of $5.25-5.85 per share, subject to obtaining financing and conducting comprehensive due diligence. The proposal included an alternate valuation methodology for a purchase of 3Com which excluded our TippingPoint division. The indication of interest also indicated that Bain Capital and Private Equity Party One had entered into a strategic alliance agreement with Huawei, which among other things provided that if Bain Capital and Private Equity Partner One acquired 3Com, Huawei would become a stockholder of Newco and extend and expand its OEM arrangements with 3Com. In addition, the indication of interest stated that the strategic alliance agreement among Bain Capital, Private Equity Partner One and Huawei provided for a period of exclusivity lasting until May 17, 2008 (or, if earlier, when Bain Capital and Huawei abandon the acquisition of 3Com), during which time Bain Capital, Private Equity Party One and Huawei agreed not to solicit, initiate, consider, encourage or accept any proposal or offer from or to any third party to engage in any transaction similar to the acquisition of 3Com.

 

On June 25 and 26, 2007, our board of directors held a regularly-scheduled meeting. At this meeting, Goldman Sachs and management updated the board on their ongoing discussions with all of the third parties with whom they had been discussing a possible transaction. The board discussed the indication of interest received from Bain Capital and Private Equity Party One on June 22, 2007. Wilson Sonsini Goodrich & Rosati advised the board on its fiduciary duties in considering and responding to all of the third party interest in a potential transaction with the Company. Goldman Sachs informed the board that, while Strategic Party One indicated an interest in a potential transaction subject to diligence and other conditions, it was not willing to give the Company a preliminary non-binding offer or valuation indication at that time. Goldman Sachs also informed the board that Private Equity Party Two indicated that it had elected not to continue discussions with the Company. The board discussed the alternatives to organically grow our business, including the risks and challenges, and the possibility of partnering with other companies. The board then instructed management and Goldman Sachs to continue their discussions with all of the interested third parties. Also at this meeting, the board discussed whether to form a special committee of the board in connection with the evaluation of potential transactions. In considering whether to form such special committee, the board considered the fact that none of the members of the board were “interested parties” with respect to any of the transactions then being considered. After discussion, the board determined to create an oversight committee rather than a special committee. The board approved the formation of a Strategic Transaction Oversight Committee (the “STOC”),

consisting of Mr. Benhamou, Gary T. DiCamillo and Paul G. Yovovich, none of whom were members of management. The STOC was formed to oversee management in assessing a potential transaction, to provide direction to management and 3Com’s advisers and to liaise with the board regarding a potential transaction.

 

On June 28, 2007, the Company announced its intention to execute an initial public offering of its TippingPoint division.

 

On July 2, 2007, the STOC convened a meeting to discuss the status of management’s conversations with Strategic Party One, as well as Bain Capital and Private Equity Party One, the initial due diligence efforts and progress on the efforts of the Company and Goldman Sachs to identify additional third parties who might be interested in exploring a transaction with the Company. Management also reported on the status of their refined stand-alone strategic plan. After discussion, the STOC authorized Goldman Sachs and management to contact additional third parties regarding a potential transaction with the Company. One of the strategic industry participants that they contacted (“Strategic Party Two”) indicated that it would be interested in discussing a transaction with the Company and subsequently executed a non-disclosure agreement with the Company to facilitate further discussions. On July 19, 2007, members of our management team made a presentation on our business plans and operations to representatives of Strategic Party Two. Subsequently, Strategic Party Two informed Goldman Sachs that it was not interested in pursuing further discussions with 3Com regarding a transaction with the Company. None of the other third parties that Goldman Sachs and management contacted expressed any interest in discussing a transaction with 3Com.

 

On July 23, 2007, members of the STOC met with representatives of Goldman Sachs regarding the status of their efforts to identify third parties who might be interested in a transaction with the Company. On the same day, our board of directors convened a meeting, which representatives of Goldman Sachs and Wilson Sonsini Goodrich & Rosati also attended. During this meeting, Goldman Sachs and members of our management team provided an update on the progress of their discussions with third parties, including Strategic Party One, Strategic Party Two, as well as Bain Capital and Private Equity Party One.

 

On July 27, 2007, the Company received a letter from Bain Capital and Private Equity Party One reconfirming a preliminary non-binding indication of interest in acquiring 3Com for a purchase price in the range of $5.25-5.85 per share, which was the same range outlined in its June 22, 2007 indication of interest. The indication of interest also indicated that the proposal described therein was subject to due diligence and financing arrangements.

 

On July 28, 2007, the STOC held a meeting to discuss the indication of interest from Bain Capital and Private Equity Party One. At this meeting, representatives of Goldman Sachs reported that, while Bain Capital had reconfirmed its bidding range, its offer was likely to be at the lower end of its stated range. Further, Goldman Sachs indicated that the then current credit market conditions could make financing Bain Capital’s proposed transaction more challenging. In addition, Goldman Sachs reported on the ongoing discussions with Strategic Party One.

 

On July 31, 2007, members of our management team made another presentation to representatives of Strategic Party One regarding our business and operations. On August 1 and 2, 2007, members of our management team made another presentation to representatives of Bain Capital and Private Equity Party One regarding the same matters. During the month of August and the first week of September 2007, Bain Capital conducted an extensive due diligence investigation of the Company, including review of due diligence materials in our on-line electronic data room and conducting extensive due diligence conference calls and in-person sessions among members of management and Bain Capital and Private Equity Party One along with their advisors and proposed lenders. During this same period, Strategic Party One, through its management and its advisors, continued to express interest in acquiring 3Com, but did not make any meaningful progress in its due diligence efforts.

 

Following the meetings with Bain Capital in early August 2007, Bain Capital and Private Equity Party One lowered the range of purchase prices they were tentatively prepared to offer for the Company to $5.25-5.75 per share from $5.25-5.85 per share. On August 6, 2007, our board convened a meeting to discuss strategic matters and discuss the risks and challenges of the standalone strategic plan. Representatives of

Goldman Sachs reported on the latest discussions with Strategic Party One, as well as Bain Capital and Private Equity Party One, and updated the board on the then current credit market conditions and their likely impact on Bain Capital and Private Equity Party One’s ability to finance a transaction. The board also discussed management’s stand-alone plan and instructed management to continue discussions with all of the third parties currently discussing a transaction with the Company.

 

On August 4, 2007, the STOC met with representatives of Goldman Sachs during which Goldman Sachs updated the STOC on the latest discussions with Strategic Party One, as well as Bain Capital and Private Equity Party One.

 

During late July 2007 and early August 2007, Wilson Sonsini Goodrich & Rosati and 3Com management prepared a draft merger agreement. On August 8, 2007, Wilson Sonsini Goodrich & Rosati delivered an initial draft of the Merger Agreement to Ropes & Gray, LLP (“Ropes & Gray”), counsel to Bain Capital. Diligence efforts continued during the remainder of August.

 

On August 16 and 17, 2007, representatives of Bain Capital and our management team met for further management presentations as part of Bain Capital’s ongoing due diligence process. On August 17, 2007, the STOC convened another meeting to receive an update on the due diligence sessions with Bain Capital and discussions with Strategic Party One. Management and Goldman Sachs communicated to the STOC that Bain Capital remained very interested in pursuing a potential transaction within the valuation range previously indicated but Private Equity Party One had determined not to participate in the transaction in the indicated valuation range. Further, Goldman Sachs reported to the STOC that Strategic Party One was continuing to work internally on preparations to potentially submit a non-binding offer.

 

On or about August 17, 2007, at the direction of members of the board of directors, Goldman Sachs also contacted another strategic industry participant (“Strategic Party Three”) to determine its interest in exploring a transaction with the Company. Drafts of non-disclosure agreements were exchanged between the parties, but Strategic Party Three did not pursue discussions with the Company and never executed the Company’s non-disclosure agreement.

 

For the remainder of August 2007, Bain Capital continued its due diligence review of the Company.

 

On September 4, 2007, our board of directors met to discuss the Company’s stand-alone company plan and receive an update on other strategic matters. Representatives of Goldman Sachs reported that Bain Capital was almost complete with its due diligence review of the Company and was pursuing financing options. Goldman Sachs also reported that Strategic Party Three had determined not to pursue a transaction with 3Com. The board instructed management and Goldman Sachs to continue discussions with Bain Capital, Private Equity Party One and Strategic Party One.

 

In early September, in anticipation of making a revised non-binding offer to buy 3Com, Bain Capital confirmed that an affiliate of Huawei would be a direct minority equity investor in the acquiring entity, provided that it receive limited access to due diligence materials. Our management team approved limited due diligence access for Huawei, as would be appropriate for an existing important customer and potential competitor. No technology of the Company was provided to Huawei or its affiliates in connection with this due diligence process. Moreover, no direct access to due diligence materials was provided to Huawei. Huawei relied solely on its prior knowledge of H3C (based on Huawei’s previous status as a shareholder in H3C) and secondary source material compiled by Bain Capital and its advisors, such as due diligence memoranda prepared by PricewaterhouseCoopers and Ropes & Gray, advisors to Bain Capital. With these conditions in place, Huawei and 3Com executed a non-disclosure agreement on September 13, 2007.

 

On September 15, 2007, Bain Capital delivered to our board of directors and management a non-binding offer to acquire 3Com for $5.10 per share, to be financed with approximately $1.2 billion of debt and almost $1.3 billion of equity (which represented a 42% premium to the market price of 3Com stock at the time). The non-binding offer included signed equity and debt commitment letters without due diligence or financing conditions, or “outs,” and a pro rata guarantee by the equity investors of the reverse break-up fee to be agreed in the Merger Agreement. Bain Capital indicated that it had completed its due diligence and it had received all internal approvals necessary to proceed with a transaction. Bain Capital also indicated that it had reached

general agreement with Huawei with respect to the strategic alliance with Huawei following the successful consummation of the acquisition of 3Com. Finally, Bain Capital indicated a desire to execute a merger agreement quickly.

 

On September 16, 2007, our board of directors met to consider the latest Bain Capital non-binding offer. Goldman Sachs reported on discussions with Bain Capital on its non-binding offer, during which Bain Capital indicated that its offer was lower than the low end of its previously provided price range due to risks with 3Com’s business identified during the diligence process and the impact of the then current credit markets. Wilson Sonsini Goodrich & Rosati presented to the board of directors an overview of the changes to the terms of the Merger Agreement proposed by Bain Capital that accompanied its September 15, 2007 indication of interest. Goldman Sachs then presented its financial analysis of 3Com’s stand-alone prospects and the status of discussions with other third parties regarding a transaction with the Company. After discussion, the board instructed management and Goldman Sachs to continue discussions with all of the third parties with whom the Company was in discussions. The board also instructed Goldman Sachs to contact Strategic Party One to re-assess its current level of interest in a transaction with 3Com.

 

During the period between September 16 and 19, 2007, Goldman Sachs and management engaged in extensive discussions and negotiations with Bain Capital and its advisors. As a result of these discussions, on September 20, 2007, Bain Capital sent a letter to our board of directors and management in which, among other things, Bain Capital increased its original non-binding offer from $5.10 per share to $5.20 per share and improved certain terms proposed in the Merger Agreement.

 

On September 20, 2007, 3Com reported its first quarter fiscal 2008 results, including guidance on its H3C business for the next fiscal quarter.

 

On September 21, 2007, the STOC met to receive an update from Goldman Sachs and management on the ongoing negotiations with Bain Capital and the status of interest from Strategic Party One and to discuss the revised indication of interest from Bain Capital received the day before. Goldman Sachs discussed the increase in Bain Capital’s offer price from $5.10 to $5.20 per share. Wilson Sonsini Goodrich & Rosati presented a summary of the negotiations on the material terms in the Merger Agreement and reviewed the fiduciary duties of the board of directors.

 

Between September 22 and 23, 2007, representatives of Goldman Sachs continued negotiations relating to price and deal terms with Bain Capital.

 

During the period between September 24 and 27, 2007, the parties convened at the offices of Ropes & Gray to conduct negotiations of the Merger Agreement and the related documentation, including the limited guarantees and the debt and equity commitment letters. Management and representatives of Goldman Sachs consulted with the STOC on an informal basis during this period and the STOC provided instructional direction to management and Goldman Sachs.

 

On September 25, 2007, our board of directors held a meeting to discuss the status of the transaction. Representatives of Goldman Sachs and Wilson Sonsini Goodrich & Rosati were also present at this meeting. Goldman Sachs reviewed the extensive process it had undertaken to contact potentially interested parties, including the status of discussions with other parties who had at one point in time expressed an interest in acquiring the Company or making a strategic investment in the Company. Mr. Masri reported that Strategic Party One had advised that it was not in a position to move forward. Goldman Sachs presented to the board preliminary financial analyses of the Company. Wilson Sonsini Goodrich & Rosati provided an update to the board of directors on the status of negotiations with Bain Capital on the terms of the Merger Agreement, including an overview of the financing commitments and a discussion of key unresolved issues, which included the Company’s ability to specifically enforce the terms of the Merger Agreement, the Company’s recourse against Bain Capital if Bain Capital failed to close the transaction in breach of the Merger Agreement and various aspects of the definition of “Material Adverse Effect” bearing on the certainty that the transaction would ultimately close. Wilson Sonsini Goodrich & Rosati also advised the board of directors on its fiduciary duties relating to the potential transaction with Bain Capital. The board directed management to continue the negotiations with Bain Capital and instructed Goldman Sachs to continue price negotiations with Bain Capital.

On the evening of September 25, 2007, Goldman Sachs engaged in further price negotiations with Bain Capital. The parties also continued to negotiate the terms of the Merger Agreement, including the Company’s ability to specifically enforce the Merger Agreement and the Company’s recourse against Bain Capital if Bain Capital failed to close the transaction in breach of the Merger Agreement.

 

On September 26, 2007, the Company held its annual shareholder’s meeting, followed by a regularly-scheduled annual board of directors meeting. At this board meeting, Mr. Goldman updated the board of directors on negotiations with Bain Capital. Goldman Sachs and Wilson Sonsini Goodrich & Rosati reported on unresolved transaction issues, including the purchase price, the availability of specific performance and the Company’s remedies for breaches of the Merger Agreement by Bain Capital. The board of directors provided guidance to management and its advisors in conducting further negotiations. A representative of Goldman Sachs left the board meeting and contacted Bain Capital to continue discussions regarding the price, at which time Bain Capital increased its offer to $5.25 per share. Goldman Sachs reported the price increase to the board, but the board instructed Goldman Sachs to request a price of $5.30 per share and to report back on final deal terms. During a break in the board meeting in the mid-afternoon, members of the board and representatives of Goldman Sachs continued to negotiate the per share purchase price with Bain Capital. As a result of these negotiations, Bain Capital agreed to increase the per share purchase price to $5.30 from $5.25 and improve certain terms relating to the Company’s remedies if Bain Capital failed to close the transaction in breach of the Merger Agreement. Bain Capital, however, insisted that the Company could not specifically enforce the terms of the Merger Agreement, but would only have recourse to money damages for any breach of the Merger Agreement by Bain Capital.

 

When the board meeting reconvened on September 26, 2007, Goldman Sachs and Wilson Sonsini Goodrich & Rosati updated the board on the negotiations with Bain Capital. Goldman Sachs then presented its updated financial analysis of the Company based on the $5.30 per share price offered by Bain Capital. Goldman Sachs then delivered an oral opinion to the effect that, based upon and subject to the limitations, qualifications and assumptions to be set forth in its written opinion, the $5.30 per share in cash to be received by the holders of shares of Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders of Common Stock. The full text of the written opinion of Goldman Sachs, dated September 28, 2007, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. The parties continued negotiations throughout the remainder of the day and evening.

 

On September 27, 2007, the parties engaged in negotiations to finalize the Merger Agreement and the related agreements, including the debt and equity commitment letters and the guarantees. During the evening of September 27, 2007, the board of directors convened a meeting to review the status and resolution of the final issues. Representatives of Goldman Sachs and Wilson Sonsini Goodrich & Rosati also attended this meeting. Wilson Sonsini Goodrich & Rosati provided an overview of the remaining issues to be finalized. After considering (i) the certainty of the transaction with Bain Capital, (ii) the revised price (which represented a premium of approximately 44% over our closing price of $3.68 on September 27, 2007), (iii) a variety of business, financial and market factors, (iv) the updated financial analyses of Goldman Sachs, including the opinion of Goldman Sachs, (v) the board’s belief that no other bids were forthcoming, (vi) the fact that 3Com, with the assistance of Goldman Sachs, had extensively marketed the Company and (vii) each of the factors described below in “— Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 25, it was in the best interests of the Company and its stockholders to enter into the Merger Agreement with Bain Capital. Accordingly, the board of directors unanimously (i) determined that the terms of the Merger were fair and in the best interests of the Company and its stockholders and declared it advisable to enter into the Merger Agreement providing for the merger of Merger Sub with and into the Company in accordance with the DGCL, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby in accordance with the DGCL upon the terms and conditions contained in the Merger Agreement, and (iii) resolved to recommend that the stockholders of the Company adopt the Merger Agreement in accordance with the applicable provisions of the DGCL.

After the board meeting adjourned, the parties finalized the Merger Agreement and related documents. On the morning of September 28, 2007, prior to the opening of the market, the parties entered into the Merger Agreement, the Investors delivered their equity commitment letters and guarantees and the Investors’ debt financing sources delivered their debt commitment letters. Shortly thereafter, the Company announced the transaction by a press release dated September 28, 2007.

 

Reasons for the Merger; Recommendation of Our Board of Directors

 

Our board of directors, acting with the advice and assistance of the Company’s independent legal and financial advisors, evaluated and negotiated the Merger proposal, including the terms and conditions of the Merger Agreement, with Newco and Merger Sub. The board of directors (i) determined that the terms of the Merger are fair and in the best interests of the Company and its stockholders and declared it advisable to enter into the Merger Agreement providing for the merger of Merger Sub with and into the Company, in accordance with the DGCL, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, in accordance with the DGCL, upon the terms and conditions contained in the Merger Agreement and (iii) resolved to recommend that the stockholders of the Company adopt the Merger Agreement, in accordance with the applicable provisions of the DGCL.

 

In the course of reaching its determination, the board of directors considered a number of positive factors and potential benefits of the Merger, each of which the members of the board of directors believed supported its decision. The factors the board of directors considered included the following material factors:

 

 

 

 

 

The board of directors also considered a variety of risks and other potentially negative factors concerning the Merger Agreement and the Merger, including the following:

 

 

Our board of directors also considered the financial analyses and opinion of Goldman Sachs, delivered orally to our board of directors and subsequently confirmed in writing, to the effect that, as of September 28, 2007, and based upon and subject to the factors and assumptions set forth therein, the $5.30 per share in cash to be received by the holders of shares of Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, dated September 28, 2007, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B and is incorporated in this proxy statement by reference. Goldman Sachs provided its opinion for the information and assistance of our board of directors in connection with its consideration of the Merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of shares of Common Stock should vote with respect to the adoption of the Merger Agreement or any other matter.

 

The foregoing discussion summarizes the material factors considered by the board of directors in its consideration of the Merger. After considering these factors, as well as others, the board of directors concluded that the positive factors relating to the Merger Agreement and the Merger outweighed the potential negative factors. In view of the wide variety of factors considered by the board of directors and the complexity of these matters, the board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors but conducted an overall analysis of the transaction. In addition, individual members of the board of directors may have assigned different weights to various factors. The board of directors unanimously approved and recommends the Merger Agreement and the Merger based upon the totality of the information presented to and considered by it.

 

Our board of directors recommends that you vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies.

Opinion of Financial Advisor

 

Goldman Sachs rendered its opinion to our board of directors that, as of September 28, 2007 and based upon and subject to the factors and assumptions set forth therein, the $5.30 per share in cash to be received by the holders of shares of Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated September 28, 2007, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. The summary of the opinion in this statement is qualified in its entirety by reference to the full text of the opinion. Goldman Sachs provided its opinion for the information and assistance of our board of directors of in connection with its consideration of the Merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of shares of Common Stock should vote with respect to the adoption of the Merger Agreement or any other matter.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

Goldman Sachs also held discussions with members of our senior management regarding their assessment of the past and current business operations, financial condition and future prospects of 3Com, including their views of the risks and uncertainties associated with achieving the forecasts for 3Com prepared by its management. Additionally, Goldman Sachs reviewed the reported price and trading activity for shares of Common Stock, compared certain financial and stock market information for 3Com with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the communication technology industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

 

For purposes of rendering its opinion, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of 3Com or any of our subsidiaries, nor was any such evaluation or appraisal furnished to Goldman Sachs. Goldman Sachs did not express any opinion as to the impact of the Merger on the solvency or viability of 3Com or Newco or the ability of 3Com or Newco to pay its obligations when they become due. The Goldman Sachs opinion did not address any legal, regulatory, tax or accounting matters and did not address the underlying business decision of 3Com to engage in the Merger or the relative merits of the Merger as compared to any strategic alternatives that may have been available to 3Com. The Goldman Sachs opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, September 28, 2007, and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events which occurred after such date. The Goldman Sachs opinion was approved by a fairness committee of Goldman Sachs.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to our board of directors in connection with rendering the opinion described above. The following summary, however, does

not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before September 27, 2007 and is not necessarily indicative of current market conditions.

 

Historical Stock Trading and Premium Analysis.  Goldman Sachs analyzed the $5.30 merger consideration to be received by holders of shares of Common Stock in relation to the closing price of Common Stock as of September 27, 2007, the 52 week high closing price of Common Stock and the average closing price of Common Stock for the 5, 10, 20, 30, 60 and 90 trading day periods ending September 27, 2007. This analysis indicated that the $5.30 per share in cash to be received by the holders of shares of Common Stock pursuant to the Merger Agreement represented:

 

 

Goldman Sachs also analyzed certain information relating to all of the completed cash-only mergers and acquisitions in the technology industry announced between January 1, 2004 and September 21, 2007 where both the acquiror and target were publicly traded U.S. companies with a rank value as reported in SDC, a collection of databases with information on financial transactions, greater than $250 million. SDC calculated rank value by subtracting the value of any liabilities assumed in a transaction from the total value of consideration paid by the acquiror (excluding fees and expenses) and by adding the target’s net debt. For these selected transactions, Goldman Sachs calculated the median premium represented by the consideration paid for the target’s common stock based on the closing price of the target’s common stock one week prior to the announcement date of the transaction, based on information obtained from SDC. The analysis resulted in a median premium of 19.5% for those selected transactions where premium data was available. This compared to a premium of 48.0% for the Merger based on the $5.30 merger consideration and the closing price of $3.58 per share of Common Stock on September 21, 2007, one week prior to the announcement date of the Merger.

 

Although none of the selected transactions are directly comparable to the Merger and none of the companies party to the selected transactions are directly comparable to 3Com or Newco, the transactions were chosen because they involve transactions that for purposes of analysis may be considered similar to the Merger and/or involve companies with operations that for purposes of analysis may be considered similar to certain operations of 3Com or Newco.

 

Selected Companies Analysis.  Goldman Sachs reviewed and compared certain financial information for 3Com to corresponding financial information, ratios and public market multiples for the following publicly

traded companies in the enterprise/data networking industry, which Goldman Sachs refers to collectively as the networking comparables:

 

 

Although none of the selected companies is directly comparable to 3Com, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of 3Com.

 

Goldman Sachs also calculated and compared various financial multiples based on information it obtained from the SEC filings and estimates provided by Institutional Brokers’ Estimate System, a data service that compiles estimates issued by securities analysts (“IBES”). The multiples of 3Com were calculated using the 3Com closing price on September 27, 2007, and the multiples of each of the selected companies were calculated using the closing price of each such selected company’s common stock on September 27, 2007, except that for Avaya Inc., the multiples were calculated based on the closing price of Avaya Inc.’s common stock on May 25, 2007, representing the undisturbed price prior to the announcement of a going private transaction involving Avaya Inc. The multiples of 3Com were based on IBES estimates and estimates provided by 3Com’s management including and excluding the impact of an operating subsidy from the Chinese value added tax (“VAT”) authorities in the form of a partial refund of VAT taxes expected to be collected by a subsidiary of 3Com that is a wholly-owned foreign enterprise (“WOFE”) in the People’s Republic of China through calendar year 2010 from purchasers of software products (the “SWOFE”) given the non-recurring nature of the SWOFE. When calculating multiples excluding the SWOFE, the following adjustments were made:

 

 

The multiples for each of the selected companies were based on the most recent publicly available information. With respect to 3Com and each of the selected companies, Goldman Sachs calculated:

 

 

The results of these analyses are summarized as follows:

 

 

Using the same management projections and the $5.30 merger consideration per share, Goldman Sachs also performed an illustrative sensitivity analysis to calculate the effect of adjustments to annual revenue growth rates and adjustments to annual earnings before interest and taxes (“EBIT”), margins on the range of price to earnings multiples and enterprise value to revenue multiples for calendar years 2008 and 2009. This analysis utilized a range of movements in annual revenue growth rates of (5.0%) to 2.5% and annual EBIT margins of (2.0%) to 1.0%, in each case as compared to 3Com management’s projections for fiscal years 2008 through 2012. The results of this analysis were as follows:

 

 

Illustrative Present Value of Future Share Price Analysis.  Goldman Sachs performed an illustrative analysis of the implied present value of the hypothetical future price per share of Common Stock, which was designed to provide an indication of the present value of a hypothetical future value of 3Com’s equity as a function of its estimated future earnings and its assumed price-to-future-earnings per share multiple. For this analysis, Goldman Sachs used the financial projections for 3Com prepared by its management. Goldman Sachs calculated the hypothetical future share price, by applying price to earnings per share multiples ranging from 16.0x to 20.0x to earnings per share estimates excluding the present value of the SWOFE, for calendar year 2009, prepared by 3Com’s management. Goldman Sachs then calculated the implied present value per share of Common Stock by discounting back using annual discount rates ranging from 12.5% to 14.5% (cost of equity), and then adding the present value of the SWOFE on a per share of Common Stock basis at a discount rate of 12.5%. This analysis resulted in a range of implied present values of $5.01 to $6.34 per share of Common Stock.

 

Using the same projections and an assumed annual discount rate of 13.5% (cost of equity), Goldman Sachs performed an illustrative sensitivity analysis to determine a range of implied present values per share of Common Stock based on a range of adjustments to annual revenue growth rates of (5.0%) to 2.5% and a range of adjustments to annual EBIT margins of (2.0%) to 1.0%, in each case as compared to 3Com management’s

projections, applying the different assumed price to earnings multiples. The results of this analysis were as follows:

 

 

Illustrative Discounted Cash Flow Analysis.  Goldman Sachs performed an illustrative discounted cash flow analysis on 3Com using 3Com management’s projections. Goldman Sachs calculated indications of present values of unlevered free cash flows for 3Com for fiscal years 2008 through 2012 using annual discount rates ranging from 11.5% to 13.5%. Goldman Sachs calculated indications of values of perpetual unlevered free cash flows based on perpetuity growth rates ranging from 2.0% to 4.0%. These illustrative terminal values were then discounted to calculate indications of implied present values using discount rates ranging from 11.5% to 13.5%. This analysis resulted in a range of implied present values of $4.05 to $5.75 per share of Common Stock.

 

Using the same projections and an assumed discount rate of 12.5% and a perpetuity growth rate of 3.0%, Goldman Sachs performed an illustrative sensitivity analysis to determine a range of implied present values per share of Common Stock based on a range of adjustments to annual revenue growth rates of (5.0%) to 2.5% and a range of adjustments to annual EBIT margins of (2.0%) to 1.0%, in each case as compared to 3Com management’s projections. This analysis resulted in a range of implied present values of $3.19 to $5.64 per share of Common Stock.

 

Selected Transactions Analysis.  Goldman Sachs analyzed certain information relating to selected leverage buy-out transactions involving the following target companies in the hardware and communication technology industry since February 1997:

 

 

For the Merger and each of the selected transactions, Goldman Sachs calculated and compared enterprise value as a multiple of last-twelve months earnings before interest, taxes, depreciation and amortization (“EBITDA”). The multiples for each of the selected transactions were based on the SEC filings and press releases. The multiples for the Merger were based on estimates provided by 3Com’s management including and excluding the impact of the SWOFE. The following table presents the results of this analysis:

 

Although none of the selected transactions are directly comparable to the Merger and none of the companies party to the selected transactions are directly comparable to 3Com or Newco, the transactions were chosen because they involve transactions that for purposes of analysis may be considered similar to the Merger and/or involve companies with operations that for purposes of analysis may be considered similar to certain operations of 3Com or Newco.

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying the Goldman Sachs opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to 3Com or Newco or the contemplated transaction.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to our board of directors as to the fairness from a financial point of view to the holders of the shares of Common Stock of the $5.30 per share in cash to be received by such holders pursuant to the Merger Agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of 3Com, Newco, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The merger consideration to be paid pursuant to the Merger Agreement was determined through arms’ length negotiations between 3Com and Newco and was approved by our board of directors. Goldman Sachs provided advice to 3Com during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to 3Com or our board of directors or that any specific amount of consideration constituted the only appropriate consideration for the Merger.

 

As described above, the Goldman Sachs opinion to our board of directors was one of many factors taken into consideration by our board of directors in making its determination to approve the Merger Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.

 

Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs has acted as financial advisor to 3Com in connection with, and has participated in certain of the negotiations leading to, the Merger. In addition, Goldman Sachs has provided and is currently providing certain investment banking and other financial services to 3Com and its affiliates, including having acted as financial advisor to 3Com in connection with its acquisition of TippingPoint Technologies Inc. in December 2004 and a minority interest in Huawei-3Com Co. Ltd. in November 2006; and as lead arranger with respect to secured term loan facilities provided to H3C Holdings Limited, an affiliate of 3Com (aggregate principal amount $430,000,000), in May 2007. Goldman Sachs has also provided and is currently providing certain investment banking services to Bain Capital and its affiliates and portfolio companies, including having acted as joint lead arranger in connection with the provision of a committed financing package consisting of senior secured facilities, a mezzanine facility and a PIK loan facility (aggregate principal amount €799,500,000) in connection with the acquisition by Bain Capital of FCI SA in December 2005; as lead arranger in connection with the leveraged recapitalization of Brenntag AG, a former portfolio company of Bain Capital, in January 2006; as co-financial advisor to Brenntag AG in connection with its sale in September 2006; as financial advisor to Bain Capital in connection with its sale of Houghton Mifflin Holding Company, Inc. to HM Rivergroup PLC in

December 2006; and as financial advisor to Bain Capital in connection with its sale of Front Line Management to IAC/InteractiveCorp in June 2007. Goldman Sachs also may provide investment banking and other financial services to 3Com, Huawei, Bain Capital and its portfolio companies, and their respective affiliates in the future. In connection with the above-described services Goldman Sachs has received, and may receive, compensation. In addition, affiliates of Goldman Sachs have co-invested with Bain Capital and its affiliates from time to time and may do so in the future, and such affiliates of Goldman Sachs also have invested and may invest in the future in limited partnership interests of affiliates of Bain Capital including those that may be involved in the Merger.

 

Goldman Sachs is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of 3Com, Huawei, portfolio companies of Bain Capital and any of their respective affiliates or any currency or commodity that may be involved in the Merger for their own account and for the accounts of their customers.

 

Our board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. Pursuant to a letter agreement dated June 27, 2007, 3Com engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of this engagement letter, 3Com has agreed to pay Goldman Sachs a transaction fee equal to approximately $24 million, a principal portion of which is payable upon completion of the Merger. In addition, 3Com has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against and exculpate Goldman Sachs and related persons from various liabilities, including certain liabilities under the federal securities laws.

 

Projected Financial Information

 

We do not as a matter of course make public projections as to future performance or earnings. However, certain prospective financial information prepared by our management team was made available to our board of directors, to Goldman Sachs, to the Investors and their advisors and financing sources in connection with the Investors’ consideration of the Merger and to other parties who had executed non-disclosure agreements in connection with their consideration of a transaction with the Company. We have included the material portions of this prospective financial information below in order to give our stockholders access to this information as well. The prospective financial information set forth below was prepared for purposes of the board’s consideration and evaluation of the Merger, to facilitate Goldman Sachs’ financial analysis in connection with the Merger and to facilitate the due diligence review of the Investors and their advisors and financing sources and other parties who had expressed interest in a transaction with the Company. The inclusion of the prospective financial information below should not be regarded as an indication that our management team, our board of directors, Goldman Sachs, the Investors or any other recipient of this information considered, or now considers, it to be predictive of actual future results.

 

Our management team advised our board of directors, Goldman Sachs, the Investors and the other recipients of the prospective financial information that its internal financial forecasts, upon which the following prospective financial information was based, was subjective in many respects. The prospective financial information set forth below reflects numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and beyond the Company’s control. The prospective financial information set forth below also reflects numerous estimates and assumptions related to our business that are inherently subject to significant economic, political and competitive uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. As a result, although the prospective financial information set forth below was prepared in good faith based on assumptions believed to be reasonable at the time the information was

prepared, there can be no assurance that the assumptions made in preparing such information will prove accurate or that the projected results reflected therein will be realized.

 

The prospective financial information set forth below was prepared for 3Com’s internal use, for use by Goldman Sachs in preparing its financial analysis in connection with the Merger and for use by the Investors and other potential purchasers of the Company and not with a view toward public disclosure or toward complying with U.S. generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Our independent registered public accounting firm has not examined or compiled any of the prospective financial information set forth below, expressed any conclusion or provided any form of assurance with respect to such information and, accordingly, assumes no responsibility for such information. The prospective financial information set forth below does not take into account any circumstances or events occurring since the date such information was prepared or which may occur in the future, and, in particular, does not take into account or give effect to the Merger or the proposed financing of the Merger any revised prospects of our business, changes in general business or economic conditions or any other transaction or event that has occurred since the date on which such information was prepared or which may occur in the future. Prospective financial information of this type is based on estimates and assumptions that are inherently subject to factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operation of the Company, including the factors described under “Cautionary Statement Concerning Forward-Looking Information” beginning on page 13. Since the prospective financial information set forth below covers multiple years, such information by its nature is subject to greater uncertainty with each successive year.

 

We have made publicly available our actual results for the first quarter of the 2008 fiscal year ended August 31, 2007. You should review our Quarterly Report on Form 10-Q for the quarter ended August 31, 2007 to obtain this information. See “Where You Can Find More Information” beginning on page 72. You are cautioned not to place undue reliance on the specific portions of the prospective financial information set forth below. No one has made or makes any representation to any stockholder regarding the information included in the prospective financial information set forth below.

 

For the foregoing reasons, as well as the bases and assumptions on which the prospective financial information set forth below was compiled, the inclusion of the prospective financial information in this proxy statement should not be regarded as an indication that such information will be predictive of actual future results or events, and it should not be relied on as such. Except as required by applicable securities laws, we have not updated nor do we intend to update or otherwise revise the prospective financial information set forth below, including, without limitation, to reflect circumstances existing after the date such information was prepared or to reflect the occurrence of future events, including, without limitation, changes in general economic or industry conditions, even in the event that any or all of the assumptions underlying the prospective financial information is shown to be in error.

 

The prospective financial information set forth below for fiscal years 2008 through 2010, which was provided to our board of directors, Goldman Sachs, the Investors and their advisors and financing sources and other parties who expressed interest in a transaction with the Company, included the following estimates of the Company’s future financial performance:

 

 

 

In developing the prospective financial information for fiscal years 2008 through 2010, we made numerous assumptions about our industry, markets, products and services and ability to execute on our business plans. In particular, we have assumed that growth in the China market for networking and other technology products and services would continue to be robust. Among the other more significant assumptions are the following:

 

 

Financing of the Merger

 

The aggregate amount of funds necessary to complete the Merger is anticipated to be approximately $2.54 billion, consisting of (i) approximately $2.2 billion to pay 3Com’s stockholders, option holders and holders of restricted stock and restricted stock units the amounts due to them under the Merger Agreement, assuming that no 3Com stockholder validly exercises and perfects its appraisal rights, (ii) approximately $110 million to pay related fees and expenses in connection with the Merger and (iii) approximately

$230 million to repay the Company’s net debt. These payments are expected to be funded by Newco and Merger Sub with a combination of equity contributions by investors in Newco, debt financing obtained by Merger Sub and made available to Merger Sub and certain wholly-owned subsidiaries of 3Com, and, to the extent available, cash of 3Com. Merger Sub has obtained equity and debt financing commitments described below in connection with the transactions contemplated by the Merger Agreement.

 

Debt Financing

 

In connection with the execution and delivery of the Merger Agreement, Merger Sub has obtained debt financing commitments of up to an aggregate of $1.2 billion consisting of (i) commitments from Citibank N.A., Hong Kong Branch, UBS AG, Singapore Branch, The Hongkong and Shanghai Banking Corporation Limited, ABN Amro Bank N.V. and Bank of China (Hong Kong) Limited to provide debt financing in the form of senior secured facilities consisting of (A) a term loan facility in the aggregate principal amount of up to $750 million and (B) a revolving facility in an aggregate principal amount of $50 million and (ii) commitments from UBS AG, Singapore Branch, Citibank, N.A. and The Hongkong and Shanghai Banking Corporation Limited to provide debt financing in the form of a bridge loan facility with a maturity of one year in an aggregate principal amount of up to $400 million. Either Merger Sub or a newly created wholly-owned indirect subsidiary of 3Com will be the borrower under the senior secured facilities (in either case, the “Senior Secured Borrower”) and a newly created wholly-owned indirect subsidiary of Newco will be the borrower under the bridge loan facility (the “Bridge Borrower”). The proceeds under the term loan facility and a portion of the proceeds of the bridge loan facility will be dividended up to Newco and then contributed as common equity to 3Com to be used by 3Com to finance, in part, the payment of the amounts payable under the Merger Agreement, the refinancing of existing indebtedness and the payment of fees and expenses in connection with the Merger. The remaining portion of the proceeds of the bridge loan facility will be escrowed in a deposit account to finance interest payments under the bridge loan facility. The revolving facility will be used by the Senior Secured Borrower to finance interest payments under the senior secured facilities and to pay Equity Appreciation Rights Plan obligations incurred in connection with the previous acquisition of H3C Technologies Co., Limited and its subsidiaries by 3Com.

 

The facilities contemplated by the debt financing commitments are conditioned on the consummation of the Merger as well as other customary conditions, including, but not limited to:

 

 

 

Although the debt financing described in this proxy statement is not subject to the lenders’ satisfaction with their due diligence or to a “market out” condition, such financing may not be considered assured. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described herein is not available as anticipated. The documentation governing the senior secured facilities and the bridge loan facility has not been finalized and, accordingly, their actual terms may differ from those described in this proxy statement.

 

Senior Secured Facilities

 

The senior secured credit facilities consist of a term loan facility and a revolving facility. The senior secured facilities will be guaranteed jointly and severally by the immediate parent corporation of the Senior Secured Borrower and certain wholly-owned subsidiaries and each subsequently acquired or organized direct or indirect wholly-owned subsidiary (subject to certain exceptions and qualifications, including an exception for any subsidiary organized under the laws of the People’s Republic of China and a qualification to permit a period of time to complete any applicable whitewash procedures, the “guarantors”) and will be secured by substantially all of the assets of the Senior Secured Borrower and each guarantor, including a charge of all the issued share capital of the Senior Secured Borrower and certain material subsidiaries held by the Senior Secured Borrower and the guarantors (subject to certain exceptions and qualifications, including limitations related to applicable law).

 

Bridge Loan Facility

 

The bridge loan facility consists of a single facility to be drawn in full on the closing date of the Merger. The bridge loan facility will be guaranteed jointly and severally by the immediate parent corporation of the Bridge Borrower and certain wholly-owned subsidiaries of the Bridge Borrower (subject to certain exceptions) and will be secured by substantially all of the assets of the Bridge Borrower and each guarantor of the bridge loan facility, including but not limited to: (i) a charge on all of the issued share capital held by the Bridge Borrower and the guarantors, (ii) a floating charge over all assets and undertakings of the Bridge Borrower and (iii) a fixed charge over the deposit account related to the escrowed proceeds from the bridge loan facility borrowing.

 

Equity Financing

 

The Bain Funds and an affiliate of Huawei delivered an equity commitment letter to Newco pursuant to which the Bain Funds agreed to contribute equity to Newco in the amount of $1,310,000,000 and an affiliate of Huawei agreed to contribute equity to Newco in the amount of $106,000,000. These commitments constitute all of the equity portion of the merger financing.

 

Each of the equity commitment letters provides that the equity funds will be contributed to fund, and only to the extent necessary to fund, the Merger and the other transactions contemplated by the Merger Agreement, including the repayment of the Company’s debt and for no other purposes. Each of the equity commitments is generally subject to certain other terms contained therein, including the satisfaction or waiver at the closing of the conditions precedent to the obligations of Newco and Merger Sub to consummate the Merger. The terms of the equity commitment letters will automatically expire on the earliest to occur of (i) termination of the Merger Agreement, (ii) any of the Company or its affiliates asserting a claim or proceeding against any equity investor or related person under the guarantee.

Pursuant to the terms of the Merger Agreement and the equity commitment letter, the equity investors have limited rights to syndicate their equity investments to other investors.

 

Limited Guarantee

 

Pursuant to limited guarantees, each of the Bain Funds and Huawei has agreed to guarantee the obligations of Newco under the Merger Agreement with respect to the payment of any termination fee owed by Newco in the following amounts (x) $61,050,000 less the amount of any equity which is funded or has been funded by the guarantors or their assignees to Newco (provided that, in the limited circumstances under which Newco is required to pay a termination fee of $110,000,000, $61,050,000 will be increased to $101,750,000 for purposes of calculating the cap) and (y) $4,950,000 less the amount of any equity which is funded or has been funded by the Guarantor or its assignees to Newco (provided that, in the limited circumstances under which Newco is required to pay a termination fee of $110,000,000, $4,950,000 will be increased to $8,250,000 for purposes of calculating the cap). The Company’s recourse against the guarantors and their related parties are limited to such amounts and the limited guarantees are the sole recourse against such parties except in the case of fraud. The guarantees will terminate upon consummation of the Merger and, except that if the Company or any of its affiliates assert a claim other than as permitted under the limited guarantee the limited guarantee will immediately terminated and become null and void.

 

Interests of the Company’s Directors and Executive Officers in the Merger

 

In considering the recommendation of the board of directors to vote “FOR” the proposal to adopt the Merger Agreement, 3Com’s stockholders should be aware that certain of 3Com’s directors and executive officers have interests in the transaction that are different from, or in addition to, the interests of 3Com’s stockholders generally. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below. The board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the Merger and the recommendation that our stockholders vote in favor of proposal to adopt the Merger Agreement.

 

Treatment of Stock Options

 

As of the close of business on the record date, there were approximately           options to purchase shares of Common Stock granted under our equity incentive plans to our current executive officers and directors and each of our former directors and executive officers who served since June 1, 2006, the beginning of our last fiscal year. Under the terms of the Merger Agreement, except as otherwise agreed to by Newco and a holder of an option, each outstanding option that is unexercised as of the effective time of the Merger will become fully vested, cancelled and converted into the right to receive a cash payment equal to the number of shares of Common Stock underlying the outstanding option multiplied by the amount (if any) by which $5.30 exceeds the option exercise price, without interest and less any applicable withholding taxes.

 

The following table identifies, for each of our current directors and executive officers and each of our former directors and executive officers who served since June 1, 2006, the beginning of our last fiscal year, the aggregate number of shares of Common Stock subject to his or her outstanding vested and unvested options as of September 28, 2007, the aggregate number of shares of Common Stock subject to his or her outstanding unvested options with an exercise price less than $5.30 per share that will become fully vested in connection with the Merger, the weighted average exercise price and value of such unvested options with an exercise price less than $5.30 per share, and the weighted average exercise price and value of his or her

collective vested and unvested options with an exercise price less than $5.30 per share. The information in the table assumes that all options included therein remain outstanding on the closing date of the Merger.

 

 

 

 

Treatment of Restricted Stock

 

As of the close of business on the record date, there were           shares of restricted stock granted under our equity incentive plans to each of our current directors and executive officers and each of our former directors and executive officers who served since June 1, 2006, the beginning of our last fiscal year. Under the terms of the Merger Agreement, except as otherwise agreed to by Newco and a holder of restricted stock, all outstanding shares of restricted stock that are outstanding immediately prior to the effective time of the Merger will become fully vested and those shares will be cancelled and converted into the right to receive a cash payment equal to the number of outstanding shares of restricted stock multiplied by $5.30, without interest and less any applicable withholding tax.

 

The following table identifies the aggregate number of shares of unvested restricted stock outstanding as of September 28, 2007 and the value of such shares of unvested restricted stock that will become fully vested in connection with the Merger. The information in the table assumes that all such shares of restricted stock remain outstanding on the closing date of the Merger.

 

 

 

 

Treatment of Restricted Stock Units

 

As of the close of business on the record date, there were 200,000 unvested restricted stock units granted under our equity incentive plans to Dr. Shusheng Zheng. No restricted stock units were held by our current directors and executive officers or our former directors and executive officers who served since June 1, 2006, the beginning of our last fiscal year, other than Dr. Zheng. Under the terms of the Merger Agreement, except as otherwise agreed to by Newco and a holder of a restricted stock unit, each outstanding restricted stock unit that is outstanding as of the effective time of the Merger will be treated as shares of Common Stock entitled to receive a cash payment equal to $5.30 per share, without interest and less any applicable withholding tax.

 

The following table identifies the aggregate number of shares of Common Stock subject to outstanding unvested restricted stock units as of September 28, 2007 and the value of such unvested restricted stock units that will become fully vested in connection with the Merger. The information in the table assumes that all such restricted stock units remain outstanding on the closing date of the Merger.

 

 

 

 

New Employment Arrangements

 

As of the date of this proxy statement, no member of our management or our board of directors has entered into any amendments or modifications to existing employment agreements with us or our subsidiaries in anticipation of the Merger, nor has any executive officer who has plans or is expected to remain with the Surviving Corporation entered into any agreement, arrangement or understanding with the Investors or their affiliates regarding employment with, or the right to purchase or participate in the equity of, the Surviving Corporation. Although no such agreement, arrangement or understanding currently exists, it is generally expected that a number of our executive officers will remain after the Merger is completed, which means that such executive officers may, prior to the closing of the Merger, enter into new arrangements with the Investors or their affiliates regarding employment with, or the right to purchase or participate in the equity of, the Surviving Corporation.

 

Change of Control Benefits

 

We have entered into individual management retention agreements with our executive officers, pursuant to which each such executive officer will be entitled to receive the severance and other benefits described below if at any time within three (3) months prior to or twelve (12) months following a “change of control” (as described below) such executive officer is terminated “without cause” (as described below) or such executive officer voluntarily terminates for “good reason” (as described below) during such time period. We have approved two forms of management retention agreements which are described below. The first form applies to Mr. Goldman, Mr. Hamilton and Dr. Willebeek-LeMair. The second form applies to Mr. Dechant, Mr. Zager and Dr. Zheng. Mr. Masri has change of control benefits in his employment agreement and such benefits are described below.

 

Following a qualifying event involving a change of control, benefits include:

 

 

 

“Cause” is defined to mean: (i) an act of theft, embezzlement or intentional dishonesty by the executive in connection with his/her employment; (ii) the executive being convicted of a felony; (iii) a willful act by the executive officer which constitutes gross misconduct and which is injurious to the Company; or (iv) following delivery to the executive officer of a written demand for performance from the Company which describes the basis for the Company’s reasonable belief that the executive officer has not substantially performed his/her duties, continued violations by the executive officer of the executive officer’s obligations to the Company which are demonstrably willful and deliberate on the executive officer’s part.

 

“Good reason”, while defined differently between the forms, generally includes material reductions in duties, title, authority, responsibilities, facilities or perquisites, reduction of base salary, material reduction in aggregate level of employee benefits, relocation or constructive termination.

 

A “change of control” means: (i) the acquisition by any person of 50% or more of the total voting power of our then outstanding securities; (ii) the consummation of the sale or disposition of all or substantially all company assets; (iii) the consummation of a merger or consolidation of us where the outstanding securities immediately prior thereto no longer represent at least 50% of the voting power immediately after such merger or consolidation; and solely in the case of the first form, (iv) a change in the composition of the Board during any two consecutive years, such that a majority consists of persons who are not either directors who were in office when the agreement was entered into or whose nominations were approved by a majority of the directors who were in office not in connection with a transaction described in (i) through (iii) above.

 

If the benefits provided constitute a parachute payment under Section 280G of the Internal Revenue Code and would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then, provided the excise tax is at least 3.59 times the “base amount” under Section 280G, the executive officer shall receive (i) a payment sufficient to pay such excise tax and (ii) an additional payment sufficient to pay the taxes arising as a result of such payment. If the tax is less than 3.59 times the base amount, we may reduce the benefits to the extent necessary to avoid such tax. Solely with respect to the second form, if additional taxes would result due to Internal Revenue Code Section 409A, the Company will modify the payment schedule described above so that payments do not occur until the date that is six (6) months and one (1) day after the termination date.

 

The benefits described above are conditioned on the executive officer signing a release of claims and a one-year non-solicitation clause. With respect to the second form, the executive officer must also sign a one-year non-competition agreement and abide by a non-disparagement clause.

 

Under the terms of Mr. Masri’s employment agreement, if Mr. Masri’s employment is terminated without cause or he resigns for good reason in connection with a change of control, he is entitled to the payment of two years of base salary plus the payment of two (2) times his target annual incentive for the year in which the termination occurs, full vesting of outstanding equity awards (other than performance-based awards), up to eighteen (18) months of reimbursement for premiums paid for coverage under the Consolidated Omnibus Budget Reconciliation Act, an extension of the period in which to exercise his stock options after termination, from the earlier of the expiration of the stock option by its terms or one hundred sixty-five (165) days,

continuation for up to one year of the $10,000,000 term life insurance policy in effect at the time of his termination, and excise tax gross-up payments.

 

Assuming that each current executive officer (including Dr. Willebeek-LeMair, who ceased to be an executive officer on March 28, 2007) is involuntarily terminated for any reason other than cause or such executive officer terminates his employment for good reason following the Merger, based on a theoretical termination date of February 1, 2008, the amount of severance benefits (based on the executive officer’s current salary and target incentive bonus) that would be payable is:

 

 

 

 

Indemnification and Insurance

 

The Surviving Corporation has agreed to indemnify for a period of six (6) years each of our present and former officers and directors against all expenses, losses and liabilities incurred in connection with any claim, action, suit proceeding or investigation arising out of, relating to, or in connection with, any act or omission in their capacity as an officer, director or employee occurring on or before the effective time of the Merger.

 

The Merger Agreement provides that we may purchase “tail coverage” directors’ and officers’ liability insurance policies containing the same coverage and in the same amount as the Company’s existing policies

and with a claims period of six (6) years from the effective time of the Merger for claims arising from facts or events that occurred on or prior to the effective time of the Merger. If we choose to purchase such tail coverage, the Surviving Corporation will maintain such tail coverage for the six (6) year period.

 

Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders

 

The following is a summary of the material U.S. federal income tax consequences of the Merger to U.S. persons (as defined below) whose shares of Common Stock are converted into the right to receive cash in the Merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. For purposes of this discussion, we use the term “U.S. person” to mean a beneficial owner of shares of Common Stock that is, for U.S. federal income tax purposes:

 

 

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds Common Stock, the tax treatment of a partner generally will depend on the status of the partners and the activities of the partnership. A partner of a partnership holding Common Stock should consult its tax advisor.

 

This discussion is based on current law, which is subject to change, possibly with retroactive effect. It applies only to beneficial owners who hold shares of Common Stock as capital assets, and may not apply to shares of Common Stock received in connection with the exercise of employee stock options or otherwise as compensation, stockholders who validly exercise their rights under Delaware law to object to the Merger or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, stockholders subject to the alternative minimum tax, stockholders that have a functional currency other than the U.S. dollar or stockholders who hold Common Stock as part of a hedge, straddle or a constructive sale or conversion transaction). This discussion does not address the receipt of cash in connection with the cancellation of shares of stock appreciation rights, restricted stock units or options to purchase shares of Common Stock, or any other matters relating to equity compensation or benefit plans. This discussion also does not address the U.S. tax consequences to any stockholder who, for U.S. federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust, and it does not address any aspect of state, local or foreign tax laws.

 

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement.  The exchange of shares of Common Stock for cash in the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, a stockholder whose shares of Common Stock are converted into the right to receive cash in the Merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received with respect to such shares and the stockholder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that a stockholder’s holding period for such shares is more than twelve (12) months at the time of the consummation of the Merger. Long-term capital gains of individuals are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

 

Backup Withholding and Information Reporting.  Backup withholding of tax may apply to cash payments to which a non-corporate stockholder is entitled under the Merger Agreement, unless the stockholder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise

complies with the backup withholding rules. Each of our stockholders should complete and sign the Substitute Form W-9 that will be included as part of the letter of transmittal and return it to the payment agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the payment agent.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowable as a refund or a credit against a stockholder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

Cash received in the Merger will also be subject to information reporting unless an exemption applies.

 

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the Merger. Because individual circumstances may differ, each stockholder should consult with the stockholder’s tax advisor regarding the applicability of the rules discussed above to the stockholder and the particular tax effects to the stockholder of the Merger in light of such stockholder’s particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of options, stock appreciation rights or restricted stock units to purchase shares of Common Stock, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

 

Regulatory Approvals

 

Under the HSR Act and the rules promulgated thereunder by the FTC, the Merger cannot be completed until 3Com and Newco file a notification and report form under the HSR Act and the applicable waiting period has expired or been terminated. 3Com and Newco have filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ. The applicable waiting period under the HSR Act has not yet expired or been terminated. At any time before or after consummation of the Merger, notwithstanding the early termination of the waiting period under the HSR Act, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of 3Com or Newco. At any time before or after the consummation of the Merger, and notwithstanding the early termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of 3Com or Newco. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

In addition, the Merger is subject to various foreign antitrust laws. To the extent required, 3Com and Newco expect to file notifications in certain foreign jurisdictions and to observe the applicable waiting periods prior to completing the Merger.

 

While there can be no assurance that the Merger will not be challenged by a governmental authority or private party on antitrust grounds, 3Com, based on a review of information provided by Newco relating to the businesses in which it and its affiliates are engaged, believes that the Merger can be effected in compliance with federal, state and foreign antitrust laws. The term “antitrust laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other Federal, state and foreign statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

 

The parties have agreed to make a joint voluntary filing of the transaction with the Committee on Foreign Investment in the United States (“CFIUS”).

 

Delisting and Deregistration of Common Stock

 

If the Merger is completed, the Common Stock will be delisted from Nasdaq and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC on account of the Common Stock.

 

Litigation Related to the Merger

 

Between September 28, 2007 and October 10, 2007, five putative class action complaints were filed in the Court of Chancery of the State of Delaware in connection with the announcement of the proposed Merger — Fisk v. 3Com Corporation, et al., Civil Action No. 3256-VCL; Bendit v. 3Com Corporation, et al., Civil Action No. 3258-VCL; Litvintchouk v. Robert Y.L. Mao, et al., Civil Action No. 3264-VCL; Kadlec v. 3Com Corporation, et al., Civil Action No. 3268-VCL; and Kahn v. 3Com Corporation, et al., Civil Action No. 3286-VCL. On October 12, 2007, the above-referenced actions were consolidated for all purposes and captioned: IN RE: 3COM SHAREHOLDERS LITIGATION, Civil Action No. 3256-VCL. An additional two putative class action complaints were filed in the Superior Court of Middlesex County, Massachusetts — Tansey v. 3Com Corporation, et al., Civil Action No. 07-3768, and Davenport v. Benhamou, et al., Civil Action No. 07-3973F. On October 12 and 15, 2007, the defendants served motions to dismiss or, in the alternative, stay the two Massachusetts proceedings. All of the complaints name 3Com and the current members of our board of directors as defendants. All of the complaints except the Tansey and Kahn petitions also name Paul G. Yovovich, a former member of our board of directors, as a defendant. Excepting the Tansey and Davenport petitions, all of the complaints also name Bain Capital as a defendant. The Tansey complaint names Bain Capital, LLC as a defendant. The Davenport complaint also names Diamond II Acquisition Corp. and Diamond II Holdings, Inc. as defendants. Diamond II Acquisition Corp. was also named as a defendant in the Kahn complaint. The Bendit complaint also names Huawei Technologies Company as a defendant, and the Tansey complaint also names Huawei Technology Co. Ltd. as a defendant. Plaintiffs purport to represent stockholders of 3Com who are similarly situated to them. Among other things, the seven complaints allege that the proposed purchase price of $5.30 per share is inadequate and that our directors, in approving the proposed Merger, breached fiduciary duties owed to 3Com’s shareholders because they assertedly failed to take steps to maximize the value to our public stockholders. The complaints further allege that Bain Capital and, in some cases, 3Com and Huawei, aided and abetted these alleged breaches of fiduciary duty. The complaints seek class certification, damages and certain forms of equitable relief, including enjoining the consummation of the Merger and a direction to our board of directors to obtain a transaction in the best interests of 3Com’s shareholders. We believe that plaintiffs’ allegations are without merit, and we intend to vigorously contest these actions. There can be no assurance, however, that we will be successful in our defense of these actions.

 

Amendment to 3Com’s Rights Plan

 

On September 28, 2007, the Company and American Stock Transfer & Trust Company (the “Rights Agent”) entered into Amendment No. 1 to the Third Amended and Restated Preferred Shares Rights Agreement between the Company and the Rights Agent, dated November 4, 2002. The amendment permits the execution of the Merger Agreement and the performance and consummation of the transactions contemplated by the Merger Agreement, including the Merger, without triggering the provisions of the rights agreement.

 

THE MERGER AGREEMENT

 

This section of the proxy statement describes the material provisions of the Merger Agreement but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. We urge you to read the full text of the Merger Agreement because it is the legal document that governs the Merger. It is not intended to provide you with any other factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in “Where You Can Find More Information” beginning on page 72.

 

The Merger

 

The Merger Agreement provides for the Merger of Merger Sub with and into 3Com upon the terms, and subject to the conditions, of the Merger Agreement. As the Surviving Corporation, 3Com will continue to exist following the Merger. Upon consummation of the Merger, the directors of Merger Sub will be the initial directors of the Surviving Corporation and the officers of Merger Sub will be the initial officers of the Surviving Corporation. All Surviving Corporation officers will hold their positions until their successors are duly elected and qualified or until the earlier of their resignation or removal.

 

We, Newco or Merger Sub may terminate the Merger Agreement prior to the consummation of the Merger in some circumstances, whether before or after the adoption by our stockholders of the Merger Agreement. Additional details on termination of the Merger Agreement are described in “— Termination of the Merger Agreement” beginning on page 59.

 

Effective Time; Marketing Period

 

The Merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at a later time, if agreed upon by the parties and specified in the certificate of merger). We expect to complete the Merger as promptly as practicable after our stockholders adopt the Merger Agreement and, if necessary, the expiration of the Marketing Period described below.

 

Unless otherwise agreed by the parties to the Merger Agreement, the parties are required to close the Merger no later than the third (3rd) business day after the satisfaction or waiver of the conditions described under “— Conditions to the Merger” beginning on page 56, except that the parties will not be obligated to close the Merger until the earliest to occur of a date before the end of the Marketing Period specified by Newco on not less than three (3) days’ written notice to us and the final day of the Marketing Period.

 

For purposes of the Merger Agreement, “Marketing Period” means the first period of twenty (20) consecutive business days throughout which Newco has certain financial information required to be provided by the Company under the Merger Agreement in connection with Newco’s financing of the Merger, which period will in no event begin prior to the date that is thirteen (13) business days before the special meeting.

 

The Marketing Period will not be deemed to have commenced if, prior to the completion of the Marketing Period:

 

 

 

The purpose of the Marketing Period is to provide the Investors a reasonable and appropriate period of time during which they can market and place the permanent debt financing contemplated by the debt financing commitments for the purpose of financing the Merger. To the extent the Investors do not need the benefit of the Marketing Period to market and place the debt financing, they may, in their sole discretion, determine to waive the Marketing Period and close the Merger prior to the expiration of the Marketing Period if all closing conditions are otherwise satisfied or waived.

 

Merger Consideration

 

Each share of Common Stock issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive $5.30 in cash, without interest and less any applicable withholding taxes, other than the following shares:

 

 

After the Merger is effective, each holder of a certificate representing any shares of Common Stock (other than shares for which appraisal rights have been properly and validly perfected) will no longer have any rights with respect to the shares, except for the right to receive the merger consideration. See “Dissenters’ Rights of Appraisal” beginning on page 68.

 

Treatment of Options and Other Awards

 

Stock Options.  Immediately prior to the effective time of the Merger, except as otherwise agreed to by the holder and Newco, all outstanding options to purchase Common Stock under the Company’s equity incentive plans will become fully vested. All such options not exercised prior to the Merger will be cancelled and converted into the right to receive a cash payment equal to the number of shares of Common Stock underlying the options multiplied by the amount (if any) by which $5.30 exceeds the exercise price, without interest and less any applicable withholding taxes.

 

Restricted Stock.  Immediately prior to the effective time of the Merger, except as otherwise agreed by a holder and Newco, all shares of restricted stock will vest and those shares will be cancelled and converted into the right to receive a cash payment equal to the number of shares of restricted stock multiplied by $5.30, without interest and less any applicable withholding taxes.

 

Restricted Stock Units.  Immediately prior to the effective time of the Merger, except as otherwise agreed by a holder and Newco, all restricted stock units will vest and be settled through the issuance of shares of Common Stock and will thereafter be treated in the same manner as restricted stock.

 

Employee Stock Purchase Plan.  Prior to the consummation of the Merger, the then-current offering period under our Employee Stock Purchase Plan will be terminated and all funds in each participant’s account will be applied toward the purchase of shares of Common Stock on the terms and conditions set forth under our Employee Stock Purchase Plan. Thereafter, those shares will be entitled to receive the merger consideration on the same basis as other shares of Common Stock. All amounts withheld by us on behalf of participants in our Employee Stock Purchase Plan that have not been used to purchase Common Stock prior to the effective time of the Merger will be returned to the participants without interest pursuant to the terms of our Employee Stock Purchase Plan.

 

Payment for the Shares of Common Stock

 

Newco will designate a payment agent reasonably acceptable to us to make payment of the merger consideration as described above. At the closing of the Merger, Newco will deposit, or cause to be deposited, with the payment agent, for payment to the holders of shares of Common Stock, an amount of cash equal to the aggregate share consideration.

 

Following the effective time of the Merger, we will close our stock ledger. After that time, there will be no further transfer of shares of Common Stock.

 

Promptly following the effective time of the Merger, Newco and the Surviving Corporation will cause the payment agent to mail to you a letter of transmittal and instructions advising you how to surrender your certificates in exchange for the merger consideration. The payment agent will pay you your merger consideration after you have (i) surrendered your certificates to the payment agent and (ii) provided to the payment agent your signed letter of transmittal and any other items specified by the letter of transmittal. Interest will not be paid or accrue in respect of the merger consideration. The payment agent will reduce the amount of any merger consideration paid to you by any applicable withholding taxes. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYMENT AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.

 

If any cash deposited with the payment agent is not claimed within twelve (12) months following the effective time of the Merger, such cash will be returned to the Surviving Corporation upon demand, and any holders of shares of Common Stock who have not surrendered such shares of Common Stock for exchange will become general creditors of the Surviving Corporation. Any unclaimed amounts remaining immediately prior to when such amounts would escheat to or become property of any government entity will be returned to the Surviving Corporation free and clear of any prior claims or interest thereto.

 

If the payment agent is to pay some or all of your merger consideration to a person other than you, as the registered owner of a stock certificate, you must have your certificates properly endorsed and otherwise in proper form for transfer, and you must pay any transfer or other taxes payable by reason of the transfer or establish to the satisfaction of Newco (or any agent designated by Newco) that the taxes have been paid or are not required to be paid.

 

The transmittal instructions will tell you what to do if you have lost your certificate, or if it has been stolen or destroyed. You will have to provide an affidavit to that fact and, if required by the Surviving Corporation, post a bond in an amount that the Surviving Corporation reasonably directs as indemnity against any claim that may be made against Newco, the Surviving Corporation or the payment agent with respect to the lost, stolen or destroyed certificate.

 

Representations and Warranties

 

The Merger Agreement contains representations and warranties made by us to Newco and Merger Sub and representations and warranties made by Newco and Merger Sub to us. Some of those representations and warranties may not be accurate or complete as of any particular date because they are subject to a contractual standard of materiality or material adverse effect different from that generally applicable to public disclosures to stockholders or used for the purpose of allocating risk between the parties to the Merger Agreement rather than establishing matters of fact. For the foregoing reasons, you should not rely on the representations and warranties contained in the Merger Agreement as statements of factual information.

 

In the Merger Agreement, 3Com, Newco and Merger Sub each made representations and warranties relating to, among other things:

 

 

 

In the Merger Agreement, Newco and Merger Sub also each made representations and warranties relating to:

 

 

In the Merger Agreement, 3Com also made representations and warranties relating to:

 

 

Many of 3Com’s representations and warranties are qualified by a “Company Material Adverse Effect” standard. For purposes of the Merger Agreement, “Company Material Adverse Effect” is defined to mean any effect, circumstance, change, event or development, individually or in the aggregate, and taken with all other effects, circumstances, changes, events or developments, that is (or are) materially adverse to the business, operations, condition (financial or otherwise) or results of operations of 3Com and our subsidiaries, taken as a whole, other than:

 

 

except in the case of the first three bullets above, to the extent such changes, effects, events, conditions or developments referred to therein affect the Company and its subsidiaries in a disproportionate manner relative to other participants in the industries in which the Company and its subsidiaries conduct business.

 

Conduct of Business Prior to Closing

 

We have agreed in the Merger Agreement that, until the consummation of the Merger, except as contemplated by the Merger Agreement or consented to in writing by Newco, with certain exceptions, we and our subsidiaries will:

 

 

We have also agreed that, until the consummation of the Merger, except as expressly contemplated by the Merger Agreement, with certain exceptions, or consented to in writing by Newco and Merger Sub, we and our subsidiaries will not:

 

 

 

 

 

 

 

 

 

Agreement to Use Reasonable Best Efforts

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, each of parties has agreed to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be

done, and to assist and cooperate with the other party or parties in doing, all things necessary, proper or advisable to consummate the Merger in the most expeditious manner practicable, including causing all the conditions to the Merger to be satisfied, making all filings with governmental authorities in connection with the Merger Agreement and the consummation of the Merger and obtaining all consents under any material contracts. The parties have also agreed to defend against any lawsuit or other legal proceeding challenging the Merger Agreement, the Limited Guarantees or the transactions contemplated thereby and contest and appeal any order by any governmental authority which has or may have the effect of prohibiting or otherwise preventing the Merger in order to enable the parties to consummate the Merger.

 

The parties have also agreed to use reasonable best efforts to take all actions necessary so that no state takeover or other similar statute or regulation becomes applicable to the Merger and if any such statute or regulation does become applicable, to use reasonable best efforts to ensure that the Merger may be consummated as promptly as practicable on the terms contemplated by the Merger Agreement and otherwise minimize the effect of such statute or regulation on the Merger.

 

Financing

 

Cooperation of 3Com

 

We have agreed to provide Newco and Merger Sub, and shall cause our subsidiaries to provide, and to use reasonable best efforts to cause our representatives to provide, all cooperation reasonably requested by Newco or Merger Sub in connection with the arrangement of the debt financing or any replacement, amended, modified or alternative debt financing, including, to the extent reasonably requested:

 

 

The Merger Agreement limits our obligation to incur any fees or liabilities with respect to the debt or equity financing prior to the effective time of the Merger.

Debt Financing

 

Newco has agreed to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and obtain the debt financing on the terms and conditions described in the debt commitment letters (or terms no less favorable to Newco and no more conditional than the terms described therein as determined in the reasonable judgment of Newco), including by:

 

 

Newco may amend, restate, supplement, modify or supersede the debt commitment letters, senior secured credit agreement and/or bridge agreement to add one or more lenders, lead arrangers, bookrunners, agents or similar entities which had not executed the debt commitment letters as of the date of the Merger Agreement, to increase the amount of indebtedness, to replace or modify one or more facilities with one or more new facilities or otherwise amend, supplement or modify the debt commitment letters, senior secured credit agreement and/or the bridge agreement or otherwise, provided that the new debt financing commitments:

 

 

In the event any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letters or the senior secured credit agreement or bridge agreement for any reason, as promptly as practicable following the occurrence of such event Newco has agreed to use its reasonable best efforts to obtain alternative financing from alternative sources on terms that are not less favorable, in the aggregate, to Newco (as determined in the reasonable judgment of Newco) than the debt financing contemplated by the debt commitment letters.

 

Equity Financing

 

Newco has agreed to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to obtain the equity financing, including by:

 

 

In addition, Newco and Merger Sub may enter into arrangements and agreements relating to the equity financing for the transactions contemplated by the Merger Agreement to add other equity financing sources, provided that:

 

 

 

Conditions to the Merger

 

Conditions to Each Party’s Obligations.  Each party’s obligation to complete the Merger is subject to the satisfaction or waiver of the following conditions:

 

 

Conditions to Newco’s and Merger Sub’s Obligations.  The obligations of Newco and Merger Sub to complete the Merger are subject to the satisfaction or waiver of the following additional conditions, any of which may be waived exclusively by Newco:

 

 

 

Conditions to 3Com’s Obligations.  Our obligation to complete the Merger is subject to the satisfaction or waiver of the following further conditions, any of which may be waived exclusively by us:

 

 

If a failure to satisfy one of these conditions to the Merger is not considered by our board of directors to be material to our stockholders, the board of directors could waive compliance with that condition. Our board of directors is not aware of any condition to the Merger that cannot be satisfied. Under Delaware law, after the Merger Agreement has been adopted by our stockholders, the merger consideration cannot be changed and the Merger Agreement cannot be altered in a manner adverse to our stockholders without re-submitting the revisions to our stockholders for their approval.

 

Restrictions on Solicitations of Other Offers

 

The Merger Agreement provides that, from and after the date of the Merger Agreement, the Company and our subsidiaries have agreed not to directly or indirectly:

 

 

Notwithstanding the aforementioned restrictions, at any time prior to the approval of the Merger Agreement by our stockholders, we are permitted to participate or engage in discussions or negotiations with, and/or furnish any non-public information relating to the Company or any of our subsidiaries or afford access to the business, properties, assets, books, records or other non-public information, or to the personnel, of the Company or any of our subsidiaries to any person that has made a bona fide unsolicited written acquisition proposal, provided that our board of directors determines in good faith (after consultation with its independent financial advisor and outside legal counsel) that such acquisition proposal either constitutes a superior proposal or is reasonably likely to lead to a superior proposal.

 

We are required, upon receipt of such acquisition proposal, promptly (and in any event within 48 hours) to provide Newco a copy of any such acquisition proposal or superior proposal made in writing, or a written summary of the material terms of any such acquisition proposal or superior proposal not made in writing. We will keep Newco reasonably informed of any material developments regarding any acquisition proposal and, upon the reasonable request of Newco, apprise Newco of the status of such acquisition proposal.

 

We are required contemporaneously to provide to Newco any non-public information concerning us or our subsidiaries provided to such other person which was not previously provided to Newco. We agree that we and our subsidiaries will not enter into any confidentiality agreement with any person which will prohibit us from complying with our obligations under the Merger Agreement.

 

An “acquisition proposal” means any offer or proposal (other than an offer or proposal by Newco or Merger Sub) to engage in an acquisition transaction from any person or group as defined in Section 13(d) of the Exchange Act.

 

An “acquisition transaction” means any transaction or series of related transactions (other than the transactions contemplated by the Merger Agreement) involving: (i) the purchase or other acquisition from the Company by any person or “group” (as defined in or under Section 13(d) of the Exchange Act), directly or indirectly, of twenty percent (20%) or more of the Common Stock outstanding as of the consummation of such purchase or other acquisition, or any tender offer or exchange offer by any person or “group” (as defined in or under Section 13(d) of the Exchange Act) that, if consummated in accordance with its terms, would result in such person or “group” beneficially owning twenty percent (20%) or more of the Common Stock outstanding as of the consummation of such tender or exchange offer; (ii) a merger, consolidation, business combination, stock exchange, recapitalization, liquidation, issuance of or amendment to terms of outstanding stock or other securities, or other similar transaction involving the Company pursuant to which the stockholders of the Company immediately preceding such transaction (in their capacities as such) hold eighty percent (80%) or less of the Common Stock or consolidated assets of the Company or our subsidiaries taken as a whole (either as measured by the fair market value thereof or by the revenues or earnings on a consolidated basis attributable thereto) in the surviving or resulting entity of such transaction; (iii) a sale, transfer, acquisition or disposition of twenty percent (20%) or more of the consolidated assets of the Company and our subsidiaries taken as a whole (either as measured by the fair market value thereof or by the revenues or earnings on a consolidated basis attributable thereto); or (iv) any combination of the foregoing.

 

A “superior proposal” means any bona fide written acquisition proposal (provided that, for purposes of this definition, all references in the definition of acquisition transaction to “twenty percent (20%)” shall be references to “fifty percent (50%)” and the reference therein to “eighty percent (80%)” shall be a reference to “fifty percent (50%)”) with respect to which our board of directors shall have determined in good faith (after consultation with its independent financial advisor and outside legal counsel) that the acquisition transaction contemplated by such acquisition proposal would be more favorable to the Company’s stockholders (in their capacity as such) than the Merger, after taking into account all the terms and conditions of such proposal (including the financial aspects of such proposal, the likelihood, ability to finance, conditionality and timing of consummation of such proposal) and the Merger Agreement (including any changes to the terms of the Merger Agreement proposed by Newco to the Company in writing in response to such proposal or otherwise).

 

Recommendation Withdrawal/Termination in Connection with a Superior Proposal

 

The Merger Agreement requires us to duly call, give notice of, convene and hold a meeting of our stockholders to adopt the Merger Agreement. Our board of directors has unanimously resolved to recommend that our stockholders adopt the Merger Agreement. Our board of directors, however, may, at any time prior to the adoption of the Merger Agreement by our stockholders, withhold, withdraw, amend, change, qualify or modify in a manner adverse to Newco, or publicly propose to withhold, withdraw, amend, change, qualify or modify in a manner adverse to Newco, its recommendation in favor of adoption of the Merger Agreement, or approve, adopt or recommend to our stockholders any acquisition proposal, or publicly propose to approve, adopt or recommend to our stockholders any acquisition proposal, or make any public statement in connection with a tender offer or exchange offer that does not include a reaffirmation of its recommendation in favor of the adoption of the Merger Agreement or terminate the Merger Agreement and enter into a definitive agreement with respect to a superior proposal if we receive a bona fide written takeover proposal and if:

 

 

To the extent the board proposes to take the foregoing actions with regard to its recommendation, it may only do so after:

 

 

In addition, we are not entitled to enter into any agreement with respect to a superior proposal unless the Merger Agreement has been or is concurrently terminated in accordance with its terms and we have concurrently paid to Newco the $66 million termination fee as described in further detail in “— Termination Fees and Expenses” beginning on page 61.

 

Termination of the Merger Agreement

 

The Merger Agreement may be terminated at any time prior to the consummation of the Merger, whether before or after stockholder approval has been obtained:

 

 

 

 

 

 

 

 

The Merger Agreement may also be terminated by 3Com prior to the special meeting in order to enter into a definitive agreement for a superior proposal, provided that 3Com subsequently pay Newco a termination fee, as described in further detail in “— Recommendation Withdrawal/Termination in Connection with a Superior Proposal” beginning on page 59.

 

Termination Fees and Expenses

 

Payable by 3Com

 

We have agreed to pay Newco (or its designee) a termination fee of $66 million if:

 

 

 

 

 

 

 

We have also agreed to reimburse Newco’s and Merger Sub’s out-of-pocket fees and expenses incurred in connection with the Merger Agreement (including in connection with the equity and debt financing), up to an aggregate of $20 million, if either the Company or Newco terminates the Merger Agreement because of the failure to receive Company stockholder approval at the special meeting or any adjournment or postponement thereof at which the Merger Agreement was voted on.

 

Payable by Newco

 

Newco has agreed to pay us a termination fee of $66 million if we terminate the Merger Agreement in the situation where:

 

 

Newco has agreed to pay us a termination fee of $110 million if we terminate the Merger Agreement in the situation where: (i) all conditions to the obligations of Newco and Merger Sub to close have been satisfied (to the extent permitted under the Merger Agreement); (ii) the debt financing contemplated by the debt commitment letters, senior secured credit agreement and/or bridge agreement or any replacement, amended, modified or alternative debt commitment letters, senior secured credit agreement and/or bridge agreement has funded or would be funded pursuant to the terms and conditions set forth in such debt commitment letters, senior secured credit agreement and/or bridge agreement upon funding of the equity financing contemplated by the equity commitment letters; (iii) Newco and Merger Sub have breached their obligation to cause the Merger to be consummated pursuant to the terms of the Merger Agreement; and (iv) a U.S. Federal regulatory agency (that is not an antitrust regulatory agency) has not informed Newco, Merger Sub or the Company that it is considering taking action to prevent the Merger unless the parties or any of their affiliates agree to satisfy specified conditions (which may but need not include divestiture of a material portion of the Company’s business), or such regulatory agency has informed the parties that it is no longer considering such action.

 

Remedies

 

In the event that the Company or Newco receive a termination fee as described above, such fee shall be deemed to be liquidated damages for any and all damages incurred by the party receiving such fee in connection with the matter forming the basis for such termination and no other claims may be brought with respect to such matters. Except in the case of fraud, the Company’s right to receive the termination fee as described above is the sole and exclusive remedy of the Company against Newco, Merger Sub, the Investors and any of their affiliates for any damages suffered as a result of a failure of the Merger to be consummated, or for a breach or failure to perform under the Merger Agreement or otherwise. Except in the case of fraud, Newco’s right to receive the termination fee as described above in circumstances that such fee is payable, or to recover damages from the Company in circumstances that such fee is not payable, is the sole and exclusive remedy of Newco, Merger Sub and their affiliates against the Company, its subsidiaries and any of its affiliates for any damages suffered as a result of a failure of the Merger to be consummated, or for a breach or failure to perform under the Merger Agreement or otherwise. In addition, Newco and Merger Sub are entitled to seek specific performance of the terms and provisions of the Merger Agreement with respect to the obligations of the Company, including seeking an injunction to prevent or restrain breaches or threatened breaches of the Merger Agreement by the Company and enforcing compliance with the covenants and obligations of the Company under the Merger Agreement. The Company is not entitled to seek specific performance with respect to the obligations of Newco and Merger Sub, including an injunction to prevent breaches of the Merger Agreement by Newco or Merger Sub.

 

Indemnification and Insurance

 

Newco shall, and shall cause the Surviving Corporation and its subsidiaries to, honor and fulfill in all respects the obligations of the Company and its subsidiaries under any and all indemnification contracts between the Company or any of its subsidiaries and any of their respective current or former directors and officers and any person who becomes a director or officer of the Company or any of its subsidiaries prior to the effective time of the Merger (the “Indemnified Persons”). In addition, during the period commencing at the effective time of the Merger and ending on the sixth anniversary of the effective time of the Merger, the Surviving Corporation and its subsidiaries shall (and Newco shall cause the Surviving Corporation and its subsidiaries to) cause the certificate of incorporation and bylaws (and other similar organizational documents) of the Surviving Corporation and its subsidiaries to contain provisions with respect to indemnification, exculpation and the advancement of expenses, covering acts and omissions of directors and officers (and any other employees or agents who otherwise would be entitled to similar benefits thereunder pursuant to the terms thereof in effect on the date of the Merger Agreement), in each case in their respective capacities as such, occurring at or prior to the effective time of the Merger, that are at least as favorable as the indemnification, exculpation and advancement of expenses provisions contained in the certificate of incorporation and bylaws (or other similar organizational documents) of the Company and its subsidiaries as of the date of the Merger Agreement, and during such six-year period, such provisions shall not be repealed, amended or otherwise modified in any manner except as required by applicable law.

 

The Surviving Corporation and its subsidiaries shall (and Newco shall cause the Surviving Corporation and its subsidiaries to) indemnify and hold harmless each Indemnified Person from and against any costs, fees and expenses (including reasonable attorneys’ fees and investigation expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, proceeding, investigation or inquiry, whether civil, criminal, administrative or investigative, to the extent such claim, proceeding, investigation or inquiry arises directly or indirectly out of or pertains directly or indirectly to (i) any action or omission or alleged action or omission in such Indemnified Person’s capacity as a director, officer, employee or agent of the Company or any of its subsidiaries or other affiliates occurring at or prior to the effective time of the Merger, or (ii) any of the transactions contemplated by the Merger Agreement, in each case regardless of whether such claim, proceeding, investigation or inquiry is made, occurs or arises prior to, at or after the effective time of the Merger.

 

Prior to the effective time of the Merger, the Company may purchase a six-year “tail” prepaid policy on the directors’ and officers’ liability insurance. In the event that the Company purchases such a “tail” policy

prior to the effective time of the Merger, Newco and the Surviving Corporation shall maintain such “tail” policy in full force and effect and continue to honor their respective obligations thereunder, in lieu of all other obligations of Newco and the Surviving Corporation for so long as such “tail” policy shall be maintained in full force and effect. In the event that the Company does not so purchase a “tail” policy prior to the effective time of the Merger, during the period commencing at the effective time of the Merger and ending on the sixth anniversary of the effective time of the Merger, Newco and the Surviving Corporation shall maintain in effect the Company’s current directors’ and officers’ liability insurance in respect of acts or omissions occurring at or prior to the effective time of the Merger, covering each person covered by the Company’s current directors’ and officers’ liability insurance, on terms with respect to the coverage and amounts that are equivalent to those of the Company’s current directors’ and officers’ liability insurance. In satisfying their obligations with respect to directors’ and officers’ liability insurance, Newco and the Surviving Corporation are not obligated to pay annual premiums in excess of 300% of the amount we paid for coverage for our last full fiscal year. If the annual premiums of such insurance coverage exceed such amount, Newco and the Surviving Corporation are obligated to obtain a policy with the greatest coverage available for a cost not exceeding that 300% maximum.

 

Amendment, Extension and Waiver

 

The parties may amend the Merger Agreement at any time, except that after our stockholders have adopted the Merger Agreement, there shall be no amendment that by law requires further approval by our stockholders without such approval having been obtained. All amendments to the Merger Agreement must be approved by the parties’ respective boards of directors and shall be in a writing signed by us, Newco and Merger Sub.

 

At any time before the consummation of the Merger, each of the parties to the Merger Agreement may, by written instrument:

 

 

MARKET PRICE OF COMMON STOCK

 

Our Common Stock is listed for trading on Nasdaq under the symbol “COMS.” The following table sets forth, for the fiscal quarters indicated, the high and low sales prices per share as reported on Nasdaq composite tape for the Common Stock.

 

 

The closing sale price of the Common Stock on Nasdaq on September 27, 2007, the last trading day prior to the execution of the Merger Agreement, was $3.68 per share. On          , 2007, the most recent practicable date before this proxy statement was printed, the closing price for the Common Stock on Nasdaq was $           per share. You are encouraged to obtain current market quotations for Common Stock in connection with voting your shares.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table contains information, as of September 28, 2007, the date we executed the Merger Agreement, 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 01752-3064.