1. Purpose. The Audit and Finance Committee (the “Committee”) of the Board of Directors (the “Board”) of 3Com Corporation (the “Company”) has been established for the purpose of assisting the Board in fulfilling its oversight responsibilities for the integrity of the Company’s: (i) accounting and financial reporting process, (ii) system of internal controls over financial reporting, (iii) system of disclosure controls and procedures, (iv) audit process and (v) process for monitoring compliance with applicable laws and regulations and the Company’s Code of Ethics and Business Conduct.
  2. Structure and Membership.

    2.1 Number. The Committee shall be composed of at least three members selected by the Nominating and Governance Committee.

    2.2 Independence. Each member of the Committee shall be (i) an “Independent Director” as defined by the rules and regulations of the Nasdaq Stock Market (“Nasdaq”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (ii) shall not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years.

    2.3 Financial Literacy. Each member of the Committee shall be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement. Additionally, at least one member of the Committee must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Unless otherwise determined by the Board (in which case disclosure of such determination shall be made in the Company’s annual report filed with the United States Securities and Exchange Commission (the “ SEC”)), at least one member of the Committee shall be an “audit committee financial expert” (as defined by applicable SEC rules).

    2.4 Chair. The Nominating and Governance Committee shall elect a Chair of the Committee. The Chair shall, if present, preside at all meetings of the Committee and exercise and perform such other powers and duties as may be assigned to him or her by the Nominating and Governance Committee or the Committee.

    2.5 Compensation. The compensation of Committee members shall be as determined by the Board. No member of the Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than fees paid in his or her capacity as a member of the Board or a committee of the Board.
  3. Authority. To allow the Committee to achieve its purpose and satisfy its responsibilities, the Committee shall have the authority described in this Section 3.

    3.1 Subcommittees. The Committee may establish subcommittees of one or more members, and delegate its authority and responsibilities to such subcommittees, as it deems appropriate and in accordance with applicable rules and regulations.

    3.2 Consultants and Advisors. The Committee is authorized, without further action by the Board, to engage such independent legal, accounting, financial and other advisors as it deems necessary or appropriate to carry out its responsibilities. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such advisors as established by the Committee.

    3.3 Selection of Independent Auditors. The Committee shall have sole authority for appointing, evaluating, retaining, determining funding for, overseeing and, when necessary, terminating the engagement of the independent auditor. The Committee may, in its discretion, seek stockholder ratification of the independent auditor it appoints.

    3.4 Other Services. The Committee shall have sole authority to approve, in advance, the provision by the Company’s independent auditor of all permissible non-audit services.

    3.5 Complaints. The Committee shall have the authority to establish procedures for (i) the receipt, retention, investigation, and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees to the Company of concerns regarding questionable accounting or auditing matters.

    3.6 Investigations. The Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Committee or any advisors engaged by the Committee.

    3.7 Funding. The Committee is empowered, without further action by the Board, to cause the Company to pay the ordinary administrative expenses of the Committee that are incurred in carrying out its duties.

    3.8 Other Actions. The Committee may take such other actions as the Committee deems necessary or appropriate to satisfy its responsibilities set forth in this Charter.
  4. Meetings. The Committee shall meet at least four times a year, with authority to convene additional meetings as circumstances require. The Committee may invite members of management, the Company’s independent auditor, legal counsel or other advisors to attend meetings and provide pertinent information; provided, however, the Committee may meet in executive session at its discretion.
  5. Responsibilities. The Committee shall be responsible for assisting the Board in fulfilling its oversight responsibilities for the integrity of the Company’s: (i) accounting and financial reporting process, (ii) system of internal controls over financial reporting, (iii) system of disclosure controls and procedures, (iv) audit process and (v) process for monitoring compliance with applicable laws and regulations and the Company’s Code of Ethics and Business Conduct.

    5.1 General Financial and Accounting Matters.

    (a) Regulatory or Accounting Initiatives. The Committee shall review with management and the independent auditors the effect of significant regulatory and accounting initiatives.

    (b) Off-Balance Sheet Transactions. The Committee shall review and approve the effect of any off-balance sheet structures or transactions on the Company’s financial statements.

    (c) Investments. The Committee shall periodically meet with management on matters pertaining to the Company’s policies and practices for foreign exchange, investments, and derivatives.

    (d) Review of Quarterly Press Releases and Filings. The Committee shall review with management the Company’s quarterly press release regarding results of operations, including the quarterly financial statements and the independent auditor’s reviews of the quarterly financial statements. In addition, the Committee shall review with management the Company’s quarterly report on Form 10Q required to be filed with the SEC.

    (e) Review of Capital Structure. The Committee shall review the Company’s capital structure annually, and, to the extent deemed necessary, recommend to the Board transactions or alterations of the capital structure of the Company.

    (f) Expenditure Authorizations. The Committee shall establish guidelines pertaining to the Company’s treasury resolutions and expenditure authorizations.

    (g) Investments in Other Entities. The Committee shall establish guidelines pertaining to unusual methods of acquiring or holding interests in other entities.

    5.2 Internal Audit.

    (a) Oversight. The Committee shall review with management and the internal audit director the plans, annual budget, activities, staffing and organizational structure of the internal audit function. The Committee shall take such actions as it deems necessary or appropriate to ensure there are no unjustified restrictions or limitations which impact or impair the scope of the internal audit department’s activities or their access to required information.

    (b) Internal Audit Director. The Committee shall approve the appointment, replacement or dismissal of the internal audit director. The internal audit director shall, in addition to his or her reporting relationship in the Company, have a separate and independent reporting relationship to the Chair of the Committee.

    5.3 Oversight of Independent Auditors.

    (a) Selection. The Committee shall be responsible for appointing, evaluating, retaining, determining funding for, overseeing and, when necessary, terminating the engagement of the independent auditor.

    (b) Independence. The Committee shall take, or recommend that the full Board take, appropriate action to oversee the independence of the independent auditor. In connection with this responsibility, the Committee shall obtain and review a formal written statement from the independent auditor describing all relationships between the auditor and the Company, including the disclosures required by Independence Standards Board Standard No. 1. The Committee review and discuss with the auditor any disclosed relationships or services that might impact the objectivity and independence of the auditor.

    (c) Compensation. The Committee shall have sole and direct responsibility for setting the compensation of the independent auditor. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of the independent auditor established by the Committee.

    (d) Preapproval of Services. The Committee shall preapprove all audit services to be provided to the Company, whether provided by the principle auditor or other firms, and all other permissible services (review, attest and non-audit) to be provided to the Company by the independent auditor; provided, however, that de minimis non-audit services may instead be approved in accordance with applicable SEC rules.

    (e) Oversight. The Committee shall review the independent auditors’ proposed audit scope and approach. The independent auditor shall report directly to the Committee, and the Committee shall have sole and direct responsibility for overseeing the work of the independent auditor, including resolution of disagreements between Company management and the independent auditor regarding financial reporting. In connection with its oversight role, the Committee shall, from time to time as appropriate, receive and consider the reports required to be made by the independent auditor regarding:
    1. critical accounting policies and practices;
    2. alternative treatments within GAAP for the policies and practices related to material items that have been discussed with Company management, including ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and
    3. other material written communications between the independent auditor and Company management.

(f) Employment or Engagement of Independent Auditor Personnel. The Committee shall review and approve the Company’s hiring as an employee or engagement as a contractor of any employees of the independent auditor who were engaged on the Company’s account in the most recent two years.

5.4 Audited Financial Statements.

(a) Review and Discussion. The Committee shall review and discuss with the Company’s management and independent auditor the Company’s audited financial statements, including the matters about which Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU §380) requires discussion.

(b) Recommendation to Board Regarding Financial Statements. The Committee shall consider whether it will recommend to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K required to be filed with the SEC.

(c) Audit Committee Report. The Committee shall be responsible for preparing a report to be included in the Company’s proxy statement relating to its annual meeting of stockholders.

5.5 Internal Controls and Procedures.

(a) Oversight. The Committee shall coordinate the Board’s oversight of the Company’s internal control over financial reporting and disclosure controls and procedures. The Committee shall consider and review with management, the independent auditor and the director of internal audit, the effectiveness of the Company’s internal controls over annual and interim financial reporting. The Committee shall receive and review any reports of the Chief Executive Officer or Chief Financial Officer required by Rule 13a-14 of the Exchange Act, the independent auditor’s attestation report on management’s assessment of the Company’s internal control over financial reporting required by Item 308 of Regulation S-K.

(b) Procedures of Complaints. The Committee shall establish procedures for the: (i) receipt, retention, investigation, and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and (ii) confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. The Committee shall also periodically review the complaint procedures to confirm that they are effectively operating.

(c) Related-Party Transactions. The Committee shall review all “related party transactions” (defined as transactions required to be disclosed pursuant to Item 404 of Regulation S-K) for potential conflict of interest situations on an ongoing basis, and all such transactions must be approved by the Committee.

5.6 Compliance.

(a) Correspondence with Governmental Agencies. The Committee shall review with management and the independent auditors correspondence received from regulators or governmental agencies which raise material issues regarding the Company’s financial statements or accounting policies. Management shall regularly keep the Committee informed of the status of such matters.

(b) Legal and Other Matters. The Committee shall obtain regular updates from management and the Company’s general counsel regarding legal matters which may have a material impact on the Company’s financial statements, including any related-party transactions, and any material reports or inquiries received from regulators or governmental agencies.

(c) Compliance with Laws and Regulations. The Committee shall review the effectiveness of the Company’s system for monitoring compliance with laws and regulations and the results of management’s investigation (including disciplinary action) of any instances of noncompliance).

(d) Code of Ethics and Business Conduct. The Committee shall review the process for communicating the Code of Ethics and Business Conduct to Company personnel, for reporting violations and for monitoring compliance annually.

5.7 Annual Performance Evaluation. The Committee shall complete an annual performance evaluation of itself and its members consistent with practices established by the Nominating and Governance Committee (or any successor committee).

5.8 Additional Responsibilities. The Committee shall have such other responsibilities as may be delegated from time to time by the Board.

  1. Reporting. The Committee’s reporting responsibilities will include reports to the Board about Committee activities, issues and related recommendations, the preparation of written minutes of Committee meetings and preparation of the report to be included in the Company’s annual proxy statement describing the Committee and its activities, as required by SEC rules.
  2. Committee Charter. The Committee shall also perform other activities related to this Charter as requested by the Board, including: (i) a review and assessment of the adequacy of this Charter annually and request for Board approval of any proposed changes; (ii) annual confirmation that the responsibilities outlined in this Charter have been carried out; and (iii) ensure that this Charter is published or otherwise made publicly available as required by rules and regulations established by the SEC and Nasdaq.

Adopted : June 30, 2004