3COM CORP, 424B3, 1996-10-22

3COM CORP
424B3, 1996-10-22
COMPUTER COMMUNICATIONS EQUIPMENT

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[ONSTREAM LOGO]

3393 OCTAVIUS DRIVE
SANTA CLARA, CA 95054

Dear Shareholder:

You will find enclosed a written consent of the shareholders of OnStream
Networks, Inc., a California corporation ("OnStream"). The written consent
("Consent") requests your approval of (i) the Agreement and Plan of
Reorganization dated October 5, 1996 (the "Merger Agreement") among OnStream,
3Com Corporation, a California corporation ("3Com"), and OnStream Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of 3Com
("Sub"), pursuant to which Sub will be merged with and into OnStream (the
"Merger"), resulting in OnStream becoming a wholly-owned subsidiary of 3Com,
(ii) the related Agreement of Merger to be filed with the California Secretary
of State in order to effect the Merger, and (iii) the establishment of an escrow
fund pursuant to which claims for indemnification may be made by 3Com following
consummation of the Merger (the "Escrow Fund"). The Consent also includes an
election to convert shares of OnStream Preferred Stock to OnStream Common Stock
effective immediately prior to the Effective Date (as defined below). It is
anticipated that all holders of OnStream Preferred Stock will convert their
shares of OnStream Preferred Stock into shares of OnStream Common Stock prior to
the Merger because each share of OnStream Common Stock will be converted in the
Merger into a larger fraction of a share of 3Com Common Stock than each share of
OnStream Preferred Stock.

The Merger will become effective as soon as practicable after all necessary
regulatory and shareholder approvals are obtained and certain other conditions
are satisfied (the "Effective Date"). Assuming that all outstanding warrants to
acquire shares of OnStream Preferred Stock have been exercised and all shares of
OnStream Preferred Stock are converted into OnStream Common Stock prior to the
Merger, on the Effective Date, the shareholders of OnStream will receive .23364
of a share of common stock of 3Com, par value $0.01, ("3Com Common Stock") for
each share of Common Stock of OnStream. On the Effective Date, each option to
acquire shares of OnStream Common Stock will be assumed by 3Com and converted
into an option to acquire 3Com Common Stock. The number of shares and exercise
price of each option will be appropriately adjusted to reflect the exchange
ratio for the conversion of OnStream Common Stock into 3Com Common Stock. In
addition, OnStream shareholders receiving 3Com Common Stock in the Merger will
also receive the rights (if any) attaching to such stock pursuant to that
certain Amended and Restated Rights Agreement dated December 1994 by and between
3Com and the First National Bank of Boston.

In connection with the Merger, 3Com is registering 3,800,000 shares of 3Com
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"), for issuance to OnStream shareholders. The Merger is intended to be a
tax-free reorganization which will not result in recognition of any gain or loss
by OnStream, OnStream shareholders or 3Com.

Your Board of Directors has carefully considered the terms and conditions of
the proposed Merger and has determined that the Merger is in the best interests
of OnStream and its shareholders. THE BOARD OF DIRECTORS HAS UNANIMOUSLY
RECOMMENDED THAT THE SHAREHOLDERS OF ONSTREAM APPROVE THE MERGER.

In the material accompanying this letter you will find a Consent and a
Prospectus/Consent Solicitation Statement relating to the actions to be taken by
the OnStream shareholders pursuant to the Consent. The Prospectus/Consent
Solicitation Statement more fully describes the proposed Merger and includes
information about OnStream and 3Com. I urge you to read and consider these
materials carefully. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR CONSENT IN THE
ENCLOSED ENVELOPE OR FAX YOUR CONSENT TO INVESTOR RELATIONS AT ONSTREAM AT (408)
727-5151 SO THAT WE RECEIVE IT NO LATER THAN OCTOBER 29, 1996.

On behalf of your Board of Directors, thank you for your continued support.

Sincerely,

/s/ JAMES MONGIELLO

James Mongiello

President and Chief Executive Officer

YOUR CONSENT IS IMPORTANT. THE MERGER IS SCHEDULED TO BE CONSUMMATED ON OR
ABOUT OCTOBER 31, 1996. IN ORDER TO ASSURE THAT YOUR SHARES ARE VOTED ON THIS
IMPORTANT MATTER, YOU ARE REQUESTED TO COMPLETE AND SIGN YOUR CONSENT AND RETURN
IT IN THE ENCLOSED ENVELOPE OR FAX YOUR CONSENT TO INVESTOR RELATIONS AT
ONSTREAM AT (408) 727-5151 SO THAT IT IS RECEIVED NO LATER THAN OCTOBER 29,
1996.

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3COM CORPORATION PROSPECTUS/ONSTREAM NETWORKS, INC.
CONSENT SOLICITATION STATEMENT

3Com Corporation, a California corporation ("3Com"), has filed a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, covering up to 3,800,000 shares of its Common Stock, par value $0.01
per share (together with the rights (if any) attaching to such stock pursuant to
that certain Amended and Restated Rights Agreement dated December 1994 by and
between 3Com and the First National Bank of Boston, "3Com Common Stock"), to be
issued in connection with the proposed merger (the "Merger") of OnStream
Acquisition Corporation, a California corporation and a wholly-owned subsidiary
of 3Com ("Sub"), with and into OnStream Networks, Inc., a California corporation
("OnStream"), pursuant to the terms set forth in the Agreement and Plan of
Reorganization entered into by and among 3Com, Sub and OnStream dated as of
October 5, 1996 (the "Merger Agreement").

Pursuant to the Merger Agreement, upon the consummation of the Merger,
OnStream will become a wholly-owned subsidiary of 3Com, and OnStream Stock (as
defined below) will be converted into shares of 3Com Common Stock. As used
herein, "OnStream Stock" includes all shares of issued and outstanding Common
Stock of OnStream ("OnStream Common Stock") and all shares of issued and
outstanding Preferred Stock of OnStream ("OnStream Preferred Stock"), other than
those shares held by holders who perfect their dissenters' rights under
California law. The Merger Agreement provides that 3Com will issue a total of
3,800,000 shares of 3Com Common Stock and options to acquire shares of 3Com
Common Stock in exchange for all OnStream Stock and all rights to acquire
OnStream Stock. It is anticipated that all holders of OnStream Preferred Stock
will convert their shares of OnStream Preferred Stock into shares of OnStream
Common Stock prior to the Merger because each share of OnStream Common Stock
will be converted in the Merger into a larger fraction of a share 3Com Common
Stock than each share of OnStream Preferred Stock. As of October 5, 1996, and
assuming that all outstanding warrants to acquire OnStream Stock are exercised
and that all OnStream Preferred Stock is converted into OnStream Common Stock,
there were 14,364,297 shares of OnStream Common Stock and options to acquire
(and agreements to grant options to acquire) 1,891,624 shares of OnStream Common
Stock outstanding. See "The Merger Agreement--Conversion of Securities."
Subsequent to October 5, 1996, the OnStream Board of Directors approved the
issuance of options to acquire an additional 8,200 shares of OnStream Common
Stock.

Pursuant to the Merger Agreement and in connection with their
indemnification of 3Com and certain of its affiliates and other parties, holders
of OnStream Stock will be required to deposit into escrow at the time of the
closing of the Merger 10% of the shares of 3Com Common Stock which they are
entitled to receive in the Merger.

This 3Com Prospectus/OnStream Consent Solicitation Statement
("Prospectus/Consent Solicitation Statement") constitutes (a) the Prospectus of
3Com filed as part of the Registration Statement, and (b) the Consent
Solicitation Statement of OnStream relating to the solicitation of Consents (as
defined herein) of the shareholders of OnStream. All information herein with
respect to OnStream has been furnished by OnStream and all information herein
with respect to 3Com and Sub has been furnished by 3Com. All unaudited pro forma
combined financial information herein has been prepared by 3Com using historical
financial information regarding 3Com and OnStream, which in turn was furnished
by 3Com and OnStream, respectively. This Prospectus/Consent Solicitation
Statement is first being mailed to shareholders of OnStream on or about October
23, 1996.

SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED CAREFULLY BY ONSTREAM SHAREHOLDERS BEFORE CONSENTING
TO THE MERGER AGREEMENT.

NEITHER THIS TRANSACTION NOR THE SECURITIES OF 3COM OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/CONSENT SOLICITATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

The date of this Prospectus/Consent Solicitation Statement is October 23,
1996.

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AVAILABLE INFORMATION

As permitted by the rules and regulations of the Securities and Exchange
Commission (the "SEC"), this Prospectus/Consent Solicitation Statement omits
certain information contained in the Registration Statement. For such
information, reference is made to the Registration Statement and the exhibits
thereto. In addition, 3Com is subject to the information reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, information statements and other information
with the SEC. Such reports, information statements and other information may be
inspected and copied at the Public Reference Room of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, New York, New York 10048. Copies of such material may be obtained from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The SEC maintains a website that contains
reports, proxy and information statements and other information regarding 3Com.
The address of the website is http://www.sec.gov. 3Com Common Stock is quoted on
the Nasdaq National Market, and certain of 3Com's proxy statements, reports and
other information concerning 3Com may be available for inspection at the offices
of the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE MATTERS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY 3COM OR ONSTREAM. NEITHER THE DELIVERY HEREOF
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS/CONSENT SOLICITATION
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SECURITIES OFFERED BY THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT OR
A SOLICITATION OF A CONSENT IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.

INFORMATION PROVIDED BY 3COM AND ONSTREAM

The information set forth in this Prospectus/Consent Solicitation Statement
concerning 3Com and Sub has been furnished by 3Com and has not been
independently investigated or verified by OnStream, and the information set
forth in this Prospectus/Consent Solicitation Statement concerning OnStream has
been furnished by OnStream and has not been independently investigated or
verified by 3Com or Sub. All unaudited pro forma combined financial information
herein has been prepared by 3Com from historical financial information regarding
3Com and OnStream, which in turn was furnished by 3Com and OnStream,
respectively.

3Com, 3Wizard, AccessBuilder, Boundary Routing, CardFacts, Chipcom,
EtherDisk, EtherLink, EtherLink II, LANplex, LANsentry, LinkBuilder, LinkSwitch,
Net Age, NETBuilder, NETBuilder II, NetFacts, ONcore, ONsemble, ORnet, Parallel
Tasking, Personal Routing, Primary Access, PrimaryView, RingBuilder, SmartAgent,
SoftHub, Star-Tek, TokenDisk, TokenLink, Transcend, Trichannel, ViewBuilder and
Viewplex are registered trademarks of 3Com Corporation. 3System, 3ComImpact,
3Com Network Ready, 3Com Open Partners, 3Com Park, AccessView, Aperture,
Arpeggio, ATMDisk, ATMLink, AutoIQ, AutoLink, BRASICA, CELLplex, DynamicAccess,
FDDILink, FlexiProbe, FederalLinks, Impresario, LANServant, LinkConverter, MSH,
MultiProbe, NetProbe, OfficeConnect, ONdemand, ONline, PACE, Power Grouping,
PowerRing, PrimaryVision, SuperStack, SwitchCentral, Traffix, Velocity,
WANServant and ZipChip are trademarks of 3Com Corporation. 3ComFacts,
3Community, 3Compatible, 3Fund, 3Partner, 3PartyLine, 3Secure, 3Seller, 3Source,
3STAR, Associates Program, Express, Guardian, Infoline, InfoPAK, Internet Spoken
Here, netWorking Partners, Networks That go the Distance, Premier Partner,
Service Manager, Service Partner, Service Scout, Service Select Program,
SupportPAK and The Power of Access are service marks of 3Com Corporation.
BMXSTREAM, BMX28, BMX45, CLstream, CLEARSTREAM, CS600, FLEXSTREAM, LXSTREAM,
LX10, ONSTREAM NETWORKS and ONSTREAM are trademarks of OnStream. This
Prospectus/Consent Solicitation Statement may also include trademarks and trade
names which are the property of their respective owners.

ii
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TABLE OF CONTENTS

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AVAILABLE INFORMATION...................................................................................... ii
INFORMATION PROVIDED BY 3COM AND ONSTREAM.................................................................. ii
SUMMARY.................................................................................................... 1
The Companies............................................................................................ 1
Record Date.............................................................................................. 2
Purpose of Solicitation of Consents...................................................................... 2
Vote Required............................................................................................ 2
Effect of the Merger..................................................................................... 2
Escrow and Indemnification............................................................................... 3
Recommendation........................................................................................... 3
Interests of Certain Persons in the Merger............................................................... 3
Effective Date of the Merger............................................................................. 4
Conditions to the Merger................................................................................. 4
Termination.............................................................................................. 4
Surrender of Certificates................................................................................ 4
Dissenters' Rights....................................................................................... 4
Certain Federal Income Tax Consequences.................................................................. 5
Accounting Treatment..................................................................................... 5
Comparison of Shareholder Rights......................................................................... 5
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........................................ 6
3COM SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.......................................................
ONSTREAM SELECTED HISTORICAL FINANCIAL DATA................................................................
3COM AND ONSTREAM SELECTED PRO FORMA COMBINED FINANCIAL DATA...............................................
COMPARATIVE PER SHARE DATA................................................................................. 9
MARKET PRICE INFORMATION................................................................................... 11
RISK FACTORS............................................................................................... 12
CONSENT OF SHAREHOLDERS OF ONSTREAM........................................................................ 14
General.................................................................................................. 14
Record Date and Outstanding Shares....................................................................... 15
Consent Required......................................................................................... 15
THE MERGER................................................................................................. 15
Background of the Merger................................................................................. 15
Reasons for the Merger; Recommendation of the OnStream Board of Directors................................ 16
Interests of Certain Persons in the Merger............................................................... 18
Voting Agreements........................................................................................ 18
Accounting Treatment..................................................................................... 19
Certain Federal Income Tax Consequences.................................................................. 19
Regulatory Approvals..................................................................................... 21
Resale of 3Com Common Stock.............................................................................. 21
Nasdaq National Market Quotation......................................................................... 22
Dissenters' Rights....................................................................................... 22
THE MERGER AGREEMENT....................................................................................... 23
The Merger............................................................................................... 23
Conversion of Securities................................................................................. 23
Assumption of OnStream Options........................................................................... 24
Escrow and Indemnification............................................................................... 25
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iii
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Representations and Warranties........................................................................... 25
Certain Covenants and Agreements......................................................................... 26
Conditions............................................................................................... 26
Termination.............................................................................................. 26
Amendment and Waiver..................................................................................... 27
Expenses................................................................................................. 27
3COM CORPORATION........................................................................................... 28
Business................................................................................................. 28
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 40
Management............................................................................................... 48
Stock Ownership of Certain Beneficial Owners and Management.............................................. 52
Executive Compensation and Other Matters................................................................. 54
ONSTREAM NETWORKS, INC..................................................................................... 58
Business................................................................................................. 58
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 62
Management............................................................................................... 65
Principal Shareholders................................................................................... 67
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 70
COMPARISON OF RIGHTS OF HOLDERS OF 3COM COMMON STOCK AND HOLDERS OF ONSTREAM STOCK......................... 77
DESCRIPTION OF 3COM CAPITAL STOCK.......................................................................... 79
LEGAL MATTERS.............................................................................................. 81
EXPERTS.................................................................................................... 81
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
ANNEX A--AGREEMENT AND PLAN OF REORGANIZATION.............................................................. A-1
</TABLE>

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SUMMARY

THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT. REFERENCE IS MADE TO, AND THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED
IN THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT AND THE ANNEX HERETO. UNLESS
OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE
RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROSPECTUS/CONSENT
SOLICITATION STATEMENT. SHAREHOLDERS ARE URGED TO READ THIS PROSPECTUS/ CONSENT
SOLICITATION STATEMENT AND THE ANNEX IN THEIR ENTIRETY.

THE COMPANIES

3COM CORPORATION. 3Com was founded on June 4, 1979 and pioneered the
networking industry. Over the years, 3Com has evolved from a supplier of
discrete networking products to a broad-based supplier of local area network
(LAN) and network access systems for the large enterprise, small business, home
and network service provider markets. Today, 3Com is a multi-billion dollar
company offering customers a broad range of ISO 9000-compliant global data
networking solutions that include routers, hubs, remote access servers, switches
and adapters for Ethernet, Fast Ethernet, Token Ring, fiber distributed data
interface (FDDI), Asynchronous Transfer Mode (ATM) and other high-speed
networks. Additionally, 3Com offers Integrated Services Digital Network (ISDN)
adapters and internetworking products for small businesses and home users, and
integrated digital remote access systems used by network service providers and
telecommunications carriers. 3Com's products are distributed and serviced
worldwide through 3Com and its partners: principally systems integrators,
value-added resellers (VARs), national resellers and dealers, distributors and
original equipment manufacturers (OEMs). Certain products, such as ISDN digital
modems, PC Card adapters and the Network Starter Kit, are also sold through
electronics catalogs and retailers.

3Com's executive offices are located at 5400 Bayfront Plaza, Santa Clara,
California 95052, and its telephone number at that address is (408) 764-5000.

ONSTREAM NETWORKS, INC. OnStream was founded as T3Plus Networking, Inc. in
August 1989 to design, develop, market and support high-speed wide area
networking products. Since inception, OnStream has pioneered a series of such
products, including high-speed Data Service Units, networking T3 multiplexer
products and, more recently, a series of high-speed network access products,
based on both time division multiplexer (TDM) and ATM technologies. These access
products are now the focus of OnStream's development and sales efforts. The
products allow enterprises and service providers to integrate voice, data and
video traffic over high-speed TDM or ATM circuits. OnStream's products have been
distributed mainly in the United States through a direct sales force. Over the
course of the last 18 months, OnStream has begun developing reseller channels
and has begun to sell and support its products worldwide.

OnStream's executive offices are located at 3393 Octavius Drive, Santa
Clara, California 95054, and its telephone number at that address is (408)
986-4200.

ONSTREAM ACQUISITION CORPORATION. OnStream Acquisition Corporation, a
California corporation, is a corporation recently organized by 3Com for the
purpose of effecting the acquisition of Onstream. It has no material assets and
has not engaged in any activities except in connection with the proposed
acquisition. Its executive offices are located at 5400 Bayfront Plaza, Santa
Clara, California 95052, and its telephone number at that address is (408)
764-5000.

As used in this Prospectus/Consent Solicitation Statement, unless the
context requires otherwise, "OnStream" means Onstream Networks, Inc., its
predecessors and its subsidiaries, and "3Com" means 3Com Corporation, its
predecessors and its subsidiaries.

1
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RECORD DATE

Only holders of record at the close of business on October 5, 1996 (the
"Record Date") of issued and outstanding shares of OnStream Common Stock and
OnStream Preferred Stock (collectively, "Onstream Stock") are entitled to
consent to the authorization and approval of the Merger Agreement and the
Agreement of Merger (as defined below).

PURPOSE OF SOLICITATION OF CONSENTS

The purpose of the solicitation of Consents from the shareholders of
OnStream is to request approval of (i) the Merger Agreement, pursuant to which
Sub will be merged with and into OnStream, resulting in OnStream becoming a
wholly-owned subsidiary of 3Com, (ii) the related Agreement of Merger to be
filed with the California Secretary of State in order to effect the Merger
("Agreement of Merger"), and (iii) the establishment of an escrow fund pursuant
to which claims for indemnification may be made by 3Com and certain related
parties following consummation of the Merger (the "Escrow Fund"). Approval of
the foregoing matters shall constitute approval of all of the matters related to
the Merger described herein. See "The Merger Agreement--Escrow and
Indemnification."

VOTE REQUIRED

Approval of the Merger Agreement requires the consent of holders of (i) a
majority of the outstanding shares of OnStream Common Stock entitled to vote;
(ii) 67% of the outstanding shares of OnStream Preferred Stock entitled to vote;
and (iii) a majority of the outstanding shares of OnStream Common Stock and
OnStream Preferred Stock entitled to vote, voting together as a single class.

As of the Record Date, certain directors and executive officers of OnStream
and certain 5% or greater shareholders held or may be deemed to have held
1,294,167 shares of OnStream Common Stock directly or beneficially, representing
41.7% of the outstanding shares of OnStream Common Stock. In addition, as of the
Record Date, such persons held or may be deemed to have held 5,778,478 shares of
OnStream Preferred Stock, representing 51.7% of the outstanding shares of
OnStream Preferred Stock. Certain shareholders of OnStream, who hold or who may
be deemed to hold an aggregate of 49.1% of the outstanding shares of OnStream
Stock as of the Record Date have entered into agreements with 3Com whereby they
have agreed to vote their shares of OnStream Stock in favor of approval of the
Merger Agreement and the Merger and any matter which could reasonably be
expected to facilitate the Merger, and, in connection therewith, have granted
irrevocable proxies to the Board of Directors of 3Com covering approximately
1,294,167 shares of OnStream Common Stock, or 41.7% of the outstanding OnStream
Common Stock as of the Record Date, approximately 5,722,315 shares of OnStream
Preferred Stock, or 51.1% of the outstanding OnStream Preferred Stock as of the
Record Date and approximately 7,016,482 shares of OnStream Stock. See "The
Merger--Voting Agreements."

EFFECT OF THE MERGER

Upon consummation of the Merger, pursuant to the Merger Agreement, (i) Sub
will be merged with and into OnStream, which will be the surviving corporation,
and OnStream will become a wholly-owned subsidiary of 3Com, and (ii) each issued
and outstanding share of OnStream Stock will be converted into the right to
receive that fraction of a share of 3Com Common Stock equal to the applicable
"Exchange Ratio" for that class of stock. Subject to certain assumptions
regarding the conversion of OnStream Preferred Stock, the exercise of OnStream
warrants and the number of outstanding shares and options (see "The Merger
Agreement--Conversion of Securities"), each share of OnStream Common Stock will
be converted into .23364 of a share of 3Com Common Stock, in each case by virtue
of the Merger and without any action on the part of the holder thereof.
Fractional shares of 3Com Common Stock will not be issuable in connection with
the Merger. OnStream shareholders otherwise entitled to a fractional share will
be paid

2
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the value of such fraction in cash determined as described herein under "The
Merger Agreement-- Conversion of Securities."

Upon consummation of the Merger, each option to purchase OnStream Common
Stock then outstanding or issuable under certain agreements (an "OnStream
Option") will be assumed by 3Com and automatically converted into an option (a
"3Com Option") to purchase the number of shares of 3Com Common Stock (rounded
down to the nearest whole number) that the holder of such OnStream Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the consummation of the Merger, at a
price per share (rounded up to the nearest whole cent) equal to the exercise
price for the shares of OnStream Common Stock otherwise purchaseable pursuant to
the OnStream Option divided by the Exchange Ratio for OnStream Common Stock. See
"The Merger Agreement--Assumption of OnStream Options."

ESCROW AND INDEMNIFICATION

On the Effective Date (and, with respect to those shares held by holders of
OnStream Stock which qualify as "dissenting shares" as defined in Section
1300(b) of the California General Corporation Law ("CGCL") (the "Dissenting
Shares") for which appraisal rights have not been perfected or lost, such later
time as determined in accordance with Section 1.5 of the Merger Agreement), 3Com
will deposit into escrow certificates representing 10% of the shares of 3Com
Common Stock issued to the holders of OnStream Stock in the Merger, on a pro
rata basis. Such shares (the "Escrow Shares") will be registered in the name of
and deposited with the State Street Bank and Trust Company (the "Escrow Agent")
pursuant to the Merger Agreement to constitute the "Escrow Fund." The Escrow
Fund will be available to indemnify 3Com, its affiliates, their representatives,
and their successors for specified damages that 3Com has incurred or reasonably
anticipates incurring by reason of the breach by OnStream of any representation,
warranty, covenant or obligation of OnStream contained in the Merger Agreement.
Claims against the Escrow Fund shall be 3Com's sole remedy following the Merger
for any such breaches. 3Com's right to receive shares from the Escrow Fund is
subject to certain limitations. For items that would be expected to be
encountered in 3Com's annual audit process, the indemnification period will end
on the date of completion of the first audit of financial statements containing
results of combined operations of 3Com and OnStream. For all other items, the
indemnification period will end on the first anniversary of the Closing Date.
See "The Merger Agreement--Escrow and Indemnification."

RECOMMENDATION

The Board of Directors of OnStream has unanimously approved the Merger
Agreement and recommends that holders of OnStream Stock approve and adopt the
Merger Agreement, the related Agreement of Merger, and the establishment of the
Escrow Fund. See "The Merger--Reasons for the Merger; Recommendation of the
OnStream Board of Directors."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

As of September 30, 1996, directors and executive officers of 3Com and their
affiliates may be deemed to be beneficial owners of approximately 2.8% of the
outstanding shares of 3Com Common Stock.

As of October 5, 1996, directors and executive officers of OnStream and
their affiliates may be deemed to be beneficial owners of approximately 49.5% of
the outstanding shares of OnStream Stock. Each of the directors and executive
officers of OnStream has advised OnStream that he or she intends to vote or
direct the vote of all the outstanding shares of OnStream Stock over which he or
she has voting control in favor of approval and adoption of the Merger
Agreement, the related Agreement of Merger and the establishment of the Escrow
Fund. In addition, certain directors of OnStream owned 44,530 shares of 3Com
Common Stock as of October 5, 1996.

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EFFECTIVE DATE OF THE MERGER

It is anticipated that the Merger will become effective as promptly as
practicable after the requisite shareholder approvals have been obtained and all
other conditions to the Merger have been satisfied or waived (the "Effective
Date"). It is anticipated that, assuming all conditions are met, the Merger will
occur on October 31, 1996.

CONDITIONS TO THE MERGER

The obligations of 3Com and OnStream to consummate the Merger are subject to
the satisfaction of certain conditions, including, but not limited to, obtaining
requisite shareholder and regulatory approvals, approval for quotation on the
Nasdaq National Market of the 3Com Common Stock to be issued pursuant to the
Merger, the absence of any injunction prohibiting consummation of the Merger,
the accuracy of the representations made in the Merger Agreement (subject to
certain limitations set forth therein), the receipt of certain legal opinions
with respect to corporate, securities and tax matters and the receipt of an
accountants' letter with respect to qualification of the Merger as a pooling of
interests transaction. See "The Merger--Accounting Treatment," " The
Merger--Certain Federal Income Tax Consequences" and "The Merger
Agreement--Conditions."

The consummation of the Merger is also subject to the expiration of the
relevant waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"). See "The Merger--Regulatory Approvals."

TERMINATION

The Merger Agreement is subject to termination by mutual written consent of
3Com, OnStream and Sub and at the option of either 3Com or OnStream if the
Merger is not consummated before December 31, 1996 (or in the event of a delay
caused exclusively by the Registration Statement not having been declared
effective, the date twenty (20) days after the date on which the Registration
Statement becomes effective, but in no event later than January 31, 1997),
unless otherwise mutually agreed in writing by the parties. See "The Merger
Agreement--Termination."

SURRENDER OF CERTIFICATES

If the Merger becomes effective, a letter of transmittal with instructions
will be mailed to all holders of record of OnStream Stock within five business
days after the Effective Date of the Merger for use in surrendering their stock
certificates in exchange for certificates representing shares of 3Com Common
Stock and a cash payment in lieu of fractional shares, if any. CERTIFICATES
SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. See "The
Merger Agreement--Conversion of Securities."

DISSENTERS' RIGHTS

Holders of OnStream Stock who object to the Merger may, under certain
circumstances and by following procedures prescribed by the CGCL, exercise
dissenters' rights and receive cash for their shares of OnStream Stock in an
amount equal to the fair value of the OnStream Stock as determined pursuant to
such procedures. The failure of a dissenting shareholder of OnStream to follow
the appropriate procedures will result in the termination or waiver of such
rights. In the event that an OnStream shareholder who attempts to exercise
dissenters' rights should fail to make a proper demand for payment or otherwise
loses his or her status as a dissenting shareholder, such OnStream shareholder
shall be entitled to receive from 3Com the same number of shares of 3Com Common
Stock and cash payment in lieu of any fractional share that such OnStream
shareholder would have received in the Merger if he or she had not attempted to
exercise dissenters' rights. See "The Merger--Dissenters' Rights."

4
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Merger is intended to be a reorganization so that no gain or loss would
be recognized by 3Com or OnStream and no gain or loss would be recognized by
OnStream shareholders, except in respect of cash received in lieu of fractional
shares or for dissenters' shares. It is a condition to the Merger that OnStream
shall have received an opinion of its counsel to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). For a further discussion of
federal income tax consequences of the Merger, see "The Merger--Certain Federal
Income Tax Consequences." See also "The Merger Agreement--Conditions."

ACCOUNTING TREATMENT

COMPARISON OF SHAREHOLDER RIGHTS

See "Comparison of Shareholder Rights" for a summary of the material
differences between the rights of holders of 3Com Common Stock and OnStream
Stock.

5
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The selected historical consolidated financial data of 3Com as of and for
the fiscal years ended May 31, 1992 through 1996 and the selected historical
financial data of OnStream as of and for the fiscal years ended December 31,
1991 through 1995 have been derived from their respective audited historical
financial statements and should be read in conjunction with such financial
statements and notes thereto of the separate companies, which are included
elsewhere in this Prospectus/Consent Solicitation Statement. The selected
historical unaudited financial data for 3Com and OnStream as of and for the
three months ended August 31, 1996 and nine months ended September 30, 1996,
respectively, reflect, in the opinion of the managements of 3Com and OnStream,
respectively, all adjustments, consisting only of normal recurring accruals,
necessary for the fair presentation of the results of operations for such
periods. These interim operating results of 3Com and OnStream are not
necessarily indicative of the results that may be expected for their respective
entire fiscal years ending May 31, 1997 and December 31, 1996.

The selected unaudited pro forma combined financial data give effect to the
proposed Merger on a pooling of interests basis. The unaudited pro forma
combined financial data is based on the respective historical financial
statements and the notes thereto, which are included elsewhere in this
Prospectus/ Consent Solicitation Statement. The unaudited pro forma combined
balance sheet assumes that the Merger took place on August 31, 1996 and combines
3Com's August 31, 1996 unaudited consolidated balance sheet with OnStream's
September 30, 1996 unaudited balance sheet. The unaudited pro forma combined
statements of operations assume that the Merger took place as of the beginning
of the periods presented and combine 3Com's consolidated statements of
operations for the three months ended August 31, 1996 and for the years ended
May 31, 1996, 1995 and 1994 with OnStream's results of operations for the three
months ended September 30, 1996, the twelve months ended June 30, 1996, and for
the years ended December 31, 1994 and December 31, 1993, respectively. This
presentation has the effect of excluding OnStream's results of operations for
the six-month period ended June 30, 1995 from the pro forma combined statement
of operations data.

The unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the entities been a single entity
during these periods. The unaudited pro forma combined financial data is derived
from the unaudited pro forma combined financial statements appearing elsewhere
herein and should be read in conjunction with those statements and notes
thereto. See "Unaudited Pro Forma Combined Financial Statements."

6
<PAGE>
3COM
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------ FISCAL YEAR ENDED MAY 31,
AUGUST 31, AUGUST 31, -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
----------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical consolidated
statements of operations data:
Sales............................ $ 706,968 $ 497,289 $2,327,101 $1,593,469 $1,011,533 $ 723,231 $ 482,416
Operating income................. 141,472 87,039 301,681 224,456 23,497 69,910 8,138
Net income (loss) (1)............ 93,113 57,421 177,854 144,559 (11,870) 45,047 7,983
Net income (loss) per common and
equivalent share (1)........... $ 0.52 $ 0.33 $ 1.00 $ 0.84 $ (0.08) $ 0.30 $ 0.05
Common and equivalent shares used
in computing per share
amounts........................ 179,448 174,520 176,972 171,079 145,139 147,901 146,420
Historical consolidated balance
sheet data (end of period):
Working capital.................. $ 923,393 $ 624,556 $ 825,190 $ 570,691 $ 307,017 $ 244,767 $ 187,278
Total assets..................... 1,689,530 1,143,137 1,525,117 1,074,810 614,688 458,869 361,248
Long-term obligations............ 115,371 115,454 115,492 116,221 4,642 4,833 13,220
Shareholders' equity............. 1,092,831 711,333 978,805 633,724 414,122 323,307 247,100
</TABLE>

- ------------------------

(1) Net income for fiscal 1996 included a charge of approximately $69.0 million
($.28 per share) for merger-related costs associated with the acquisition of
Chipcom Corporation ("Chipcom"), a charge of approximately $52.4 million ($.29
per share) for purchased in-process technology associated with the acquisition
of AXON Networks, Inc., and a charge of approximately $1.0 million
(approximately $.01 per share) for a litigation settlement.

Net income for fiscal 1995 included a charge of approximately $68.7 million
($.25 per share) for purchased in-process technology primarily associated with
the acquisition of NiceCom, Ltd. and Chipcom's acquisition of DSI
ExpressNetworks, Inc. and a charge of $11.2 million ($.06 per share) for
merger-related costs associated with the acquisitions of Sonix Communications
Limited and Primary Access, and Chipcom's acquisition of Artel Communications
Corporation, and a credit of $1.1 million ($.01 per share) for a reduction in
accrued restructuring costs.

Net loss for fiscal 1994 included a charge of approximately $134.5 million
($.82 per share) for purchased in-process technology resulting from 3Com's
acquisitions of Synernetics, Inc. and Centrum Communications, Inc. and an
exclusive technology licensing agreement with Pacific Monolithics, Inc., a gain
of approximately $17.7 million ($.07 per share) relating to the sale of an
investment and a tax benefit of $1.2 million ($.01 per share) resulting from
retroactive tax law changes.

Net income for fiscal 1993 included non-recurring items totaling $1.3
million ($.01 per share) which consisted of the net cost of a litigation
settlement of $3.6 million, merger costs of $1.0 million related to the
acquisition of Star-Tek, Inc., offset by a reduction in accrued restructuring
costs of $3.3 million based on revised estimates of future costs.

Net income for fiscal 1992 included a charge of approximately $10.4 million
($.07 per share) for purchased in-process technology resulting from 3Com's
acquisition of the data networking products business of BICC Group, plc.

7
<PAGE>
ONSTREAM
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 30, FISCAL YEAR ENDED DEC. 31,
---------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS
DATA:
Revenues.............................. $ 8,443 $ 9,052 $ 11,915 $ 7,755 $ 6,875 $ 3,030 $ 1,470
Operating loss........................ (6,373) (1,848) (3,181) (3,121) (734) (1,756) (2,051)
Net loss.............................. (6,238) (1,584) (2,892) (3,134) (719) (1,740) (1,965)
Net loss per common and equivalent
share............................... $ (2.12) $ (0.69) $ (1.22) $ (1.62) $ (0.52) $ (1.30) $ (1.96)
Common and equivalent shares used in
computing per share amounts......... 2,936 2,284 2,379 1,930 1,393 1,338 1,001
HISTORICAL BALANCE SHEET DATA (END OF
PERIOD):
Working capital....................... $ 6,272 $ 5,929 $ 4,384 $ 6,493 $ 3,787 $ 1,792 $ 2,630
Total assets.......................... 12,156 10,845 10,473 10,133 6,808 3,266 3,698
Long-term obligations................. 1,212 942 828 593 508 184 202
Shareholders' equity.................. 7,207 6,699 5,393 7,063 4,413 2,138 2,871
</TABLE>

3COM AND ONSTREAM
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED MAY 31,
ENDED AUGUST ----------------------------------------
31, 1996 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:
Sales.................................................. $ 710,534 $ 2,338,417 $ 1,601,224 $ 1,018,408
Operating income....................................... 140,145 294,818 221,335 22,763
Net income (loss)...................................... 91,814 171,215 141,425 (12,589)
Net income (loss) per common and equivalent share
(1).................................................. $ 0.50 $ 0.95 $ 0.82 $ (0.09)
Common and equivalent shares used in computing per
share amounts........................................ 183,212 180,310 173,327 146,782
PRO FORMA COMBINED BALANCE SHEET DATA (END OF PERIOD):
Working capital........................................ $ 922,665
Total assets........................................... 1,701,686
Long-term obligations.................................. 116,583
Shareholders' equity................................... 1,093,038
Book value per share (2)............................... 6.31
</TABLE>

- ------------------------

(1) The pro forma combined net income (loss) per common and equivalent share is
based upon the pro forma weighted average number of common and equivalent
shares outstanding (except where inclusion of common equivalent shares is
antidilutive) of 3Com and OnStream for each period at the Exchange Ratio of
.23364 of a share of 3Com Common Stock for each share of OnStream Common
Stock, assuming the conversion of OnStream Preferred Stock into OnStream
Common Stock.

(2) Pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number of shares of Common Stock
outstanding at the end of the period at the Exchange Ratio of .23364 of a
share of 3Com Common Stock for each share of OnStream Common Stock, assuming
the conversion of OnStream Preferred Stock into OnStream Common Stock.

8
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)

The following table sets forth certain historical per share data of 3Com and
OnStream and unaudited pro forma and equivalent pro forma combined per share
data after giving effect to the proposed Merger on a pooling of interests basis
at the Exchange Ratio of .23364 of a share of 3Com Common Stock for each share
of OnStream Common Stock, assuming the conversion of OnStream Preferred Stock
into OnStream Common Stock. This data should be read in conjunction with the
selected historical financial data, the unaudited pro forma combined financial
statements and the separate historical consolidated financial statements of 3Com
and OnStream and the notes thereto included elsewhere in this Prospectus/Consent
Solicitation Statement. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results or financial position that would
have been achieved had the Merger been consummated at the beginning of the
periods presented and should not be construed as representative of future
operations. Neither OnStream nor 3Com has ever declared or paid cash dividends
on their respective shares of capital stock.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
THREE MONTHS ENDED -------------------------------------
AUGUST 31, 1996 1996 1995 1994
--------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Historical--3Com:
Net income (loss) per share (1).............................. $ 0.52 $ 1.00 $ 0.84 $ (0.08)
Book value per share (2)..................................... 6.43 5.80 3.94 2.74

FISCAL YEAR ENDED DEC. 31,
NINE MONTHS ENDED -------------------------------------
SEPTEMBER 30, 1996 1995 1994 1993
--------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Historical--OnStream:
Net loss per share (1)....................................... $ (2.12) $ (1.22) $ (1.62) $ (0.52)
Book value per share (2)..................................... 0.51 0.45 0.62 0.56
<CAPTION>

FISCAL YEAR ENDED MAY 31,
THREE MONTHS ENDED -------------------------------------
AUGUST 31, 1996 1996 1995 1994
--------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Pro forma and equivalent pro forma combined net income (loss)
per share (3)(4):
Pro forma combined net income (loss) per 3Com share.......... $ 0.50 $ 0.95 $ 0.82 $ (0.09)
Equivalent pro forma combined net income (loss) per OnStream
share (5).................................................. 0.12 0.22 0.19 (0.02)
<CAPTION>

AUGUST 31, 1996
---------------------
<S> <C> <C> <C> <C>
Pro forma combined book value per share (3)(4)(6):
Pro forma combined book value per 3Com share................. $ 6.31
Equivalent pro forma combined book value per OnStream share
(5)........................................................ 1.47
</TABLE>

- ------------------------

(1) The historical net income (loss) per common and equivalent share is based
upon the weighted average number of common and equivalent shares outstanding
of 3Com and OnStream for each period, except in loss periods in which the
equivalent shares are excluded as their effect would be antidilutive.

(2) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of Common Stock outstanding at the end of
each period assuming the conversion of OnStream Preferred Stock into
OnStream Common Stock.

(3) The unaudited pro forma combined net income (loss) per common and equivalent
share data is based upon the weighted average number of common and
equivalent shares of 3Com and OnStream for each period at the Exchange Ratio
of .23364 of a share of 3Com Common Stock for each share of

9
<PAGE>
OnStream Common Stock, assuming the conversion of OnStream Preferred Stock
into OnStream Common Stock. Net income (loss) of 3Com for the three months
ended August 31, 1996 and the fiscal years ended May 31, 1996, 1995 and 1994
has been combined with the net loss of OnStream for the three months ended
September 30, 1996, the twelve months ended June 30, 1996 and for the fiscal
years ended December 31, 1994 and December 31, 1993, respectively. The
presentation has the effect of excluding OnStream's results of operations
for the six-month period ended June 30, 1995 from the pro forma and
equivalent pro forma combined net income (loss) per share. The pro forma and
equivalent pro forma combined book value per share data reflect 3Com's per
share data as of August 31, 1996 and OnStream's per share data as of
September 30, 1996.

(4) 3Com and OnStream estimate they will incur costs of approximately $7 million
associated with the Merger, primarily consisting of direct transaction fees
for investment banking, legal and accounting services. The Merger costs,
which are not tax deductible, will be charged to operations in the fiscal
quarter in which the Merger is consummated. The unaudited pro forma combined
balance sheet gives effect to such expenses as if they had been incurred as
of August 31, 1996, but the effects of these costs have not been reflected
in the unaudited pro forma combined statements of operations.

(5) The unaudited pro forma combined net income (loss) per equivalent OnStream
share amounts and the unaudited pro forma book value per equivalent OnStream
share amounts are calculated by multiplying the respective unaudited pro
forma combined 3Com per share amounts by the Exchange Ratio of .23364 of a
share of 3Com Common Stock for each share of OnStream Common Stock, assuming
the conversion of OnStream Preferred Stock into OnStream Common Stock.

(6) The unaudited pro forma combined book value per share is computed by
dividing unaudited pro forma combined shareholders' equity by the unaudited
pro forma number of shares of stock outstanding at the end of the period,
assuming the conversion of OnStream Preferred Stock into OnStream Common
Stock and the Exchange Ratio of .23364 of a share of 3Com Common Stock for
each share of OnStream Common Stock.

10
<PAGE>
MARKET PRICE INFORMATION

Neither OnStream Common Stock nor OnStream Preferred Stock is traded on an
established public market.

The Common Stock of 3Com has been traded in the over-the-counter market and
quoted on the Nasdaq National Market under the Nasdaq symbol "COMS" since 3Com's
initial public offering on March 21, 1984. The following table sets forth the
range of high and low sale prices reported on the Nasdaq National Market for
3Com Common Stock for the fiscal periods indicated (share prices have been
adjusted to reflect two-for-one stock splits, effective August 25, 1995 and
September 1, 1994):

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended May 31, 1995:
First Quarter............................................................ $ 17.28 $ 10.06
Second Quarter........................................................... 23.00 15.75
Third Quarter............................................................ 26.63 20.06
Fourth Quarter........................................................... 34.63 25.69
Fiscal Year Ended May 31, 1996:
First Quarter............................................................ $ 40.88 $ 30.44
Second Quarter........................................................... 53.63 38.38
Third Quarter............................................................ 51.88 35.50
Fourth Quarter........................................................... 52.00 36.13
Fiscal Year Ending May 31, 1997:
First Quarter............................................................ $ 50.88 $ 33.50
Second Quarter (through October 21, 1996)................................ 68.50 45.00
</TABLE>

On October 7, 1996, the last trading day prior to the announcement by 3Com
and OnStream that they had reached an agreement concerning the Merger, the
closing price of 3Com Common Stock as reported on the Nasdaq National Market was
$66.88 per share. As of September 30, 1996 there were approximately 2,774
shareholders of record of 3Com Common Stock.

Because the market price of 3Com Common Stock is subject to fluctuation, the
market value of the shares of 3Com Common Stock that holders of OnStream Stock
will receive in the Merger may increase or decrease. OnStream shareholders are
urged to obtain a current market quotation for 3Com Common Stock.

Following the Merger, 3Com Common Stock will continue to be traded on the
Nasdaq National Market under the symbol "COMS."

Neither 3Com nor OnStream has ever paid cash dividends. If the Merger is not
consummated, the Board of Directors of OnStream presently intends to continue a
policy of retaining all earnings to finance the expansion of its business.
OnStream's credit agreement restricts payment of cash dividends. Following the
Merger, it is expected that the Board of Directors of 3Com will continue the
policy of not paying cash dividends in order to retain earnings for reinvestment
in the business of the combined companies.

11
<PAGE>
RISK FACTORS

The following risk factors should be considered by holders of OnStream Stock
in evaluating whether to approve the Merger Agreement and thereby become holders
of 3Com Common Stock. These factors should be considered in conjunction with the
other information included and incorporated by reference in this
Prospectus/Consent Solicitation Statement. In accordance with the provisions of
the Private Securities Litigation Reform Act of 1995, the cautionary statements
set forth below identify important factors that could cause actual results to
differ materially from those in any forward-looking statements which may be
contained in this Prospectus/Consent Solicitation Statement.

GENERAL RISKS. 3Com's future operating results may be affected by various
trends and factors which 3Com must successfully manage in order to achieve
favorable operating results. In addition, there are trends and factors beyond
3Com's control which affect its operations. Such trends and factors include, but
are not limited to, adverse changes in general economic conditions or conditions
in the specific markets for 3Com's products, governmental regulation or
intervention affecting communications or data networking, fluctuations in
foreign exchange rates, and other factors, including those listed below. 3Com
participates in a highly volatile and rapidly growing industry which is
characterized by vigorous competition for market share and rapid technological
development carried out amidst uncertainty over adoption of industry standards
and protection of proprietary intellectual property rights. This could result in
aggressive pricing practices, growing competition both from start-up companies
and from well-capitalized computer systems and communications companies. 3Com's
ability to compete in this environment depends upon a number of competitive and
market factors and is subject to the risks set forth in this Prospectus/Consent
Solicitation Statement.

UNCERTAINTIES RELATED TO THE INTEGRATION OF ONSTREAM'S BUSINESS. The
successful combination of companies in the high technology industry may be more
difficult to accomplish than in other industries. There can be no assurance that
3Com will be successful in developing products based on OnStream's technology or
engineering expertise, that 3Com will be successful in integrating its own
distribution channels with those of OnStream, that 3Com will be successful in
penetrating OnStream's installed customer base, that 3Com will be successful in
selling OnStream's products to 3Com's customer base, that the combined companies
will retain their key personnel or that 3Com will realize any of the other
anticipated benefits of the Merger.

INTEGRATION OF OTHER ACQUIRED BUSINESSES. 3Com has consummated several
acquisitions in recent years, and will, if the Merger is approved, acquire
OnStream. There can be no assurance that products, technologies, distribution
channels, key personnel and businesses of acquired companies will be effectively
assimilated into 3Com's business or product offerings, or that such integration
will not adversely affect 3Com's business, financial condition or results of
operations. The difficulties of such integration may be increased by the size
and number of such acquisitions and the requirements of coordinating
geographically separated organizations. There can be no assurance that any
acquired products, technologies or businesses will contribute at anticipated
levels to 3Com's sales or earnings, that the sales and earnings from acquired
businesses will not be adversely affected by the integration process or other
general factors. If 3Com is not successful in the integration of such
acquisitions, there could be an adverse impact on the financial results of 3Com.
The historical growth of the computer networking industry, coupled with critical
time-to-market factors, has caused increased competition and consolidation. As a
result, there has been a significant increase in the acquisition value of
computer networking companies. Future acquisitions are therefore more likely to
result in values that are material to 3Com's operations. There can be no
assurance that 3Com will continue to be able to identify and consummate suitable
acquisition transactions in the future.

RAPID TECHNOLOGICAL CHANGE. The markets for 3Com's and OnStream's products
are characterized by rapidly changing technology. 3Com's and OnStream's success
depends, in substantial part, on the timely and successful introduction of new
products. An unexpected change in one or more of the technologies affecting data
networking or in market demand for products based on a particular technology
could have a

12
<PAGE>
material adverse effect on 3Com's operating results if 3Com and OnStream do not
respond timely and effectively to such changes. 3Com and OnStream are engaged in
research and development activities in certain emerging LAN and WAN high-speed
technologies, such as ATM, ISDN, Fast Ethernet, Gigabit Ethernet and
data-over-cable. As the industry standardizes on high-speed technologies, there
can be no assurance that 3Com and OnStream will be able to respond promptly and
cost-effectively to compete in the marketplace.

CERTAIN COMPONENTS SOLE-SOURCED. Some key components of 3Com's and
OnStream's products are currently available only from single sources. There can
be no assurance that in the future 3Com's and OnStream's suppliers will be able
to meet 3Com's or OnStream's demand for components in a timely and
cost-effective manner. 3Com's operating results and customer relationships could
be adversely affected by either an increase in prices for, or an interruption or
reduction in supply of, any key components.

INCREASED CREDIT RISK. 3Com distributes a significant portion of its
products through third party distributors and resellers. Due to the
consolidation in the distribution and reseller channels and 3Com's increased
volume of sales into these channels, 3Com has experienced an increased
concentration of credit risk. While 3Com continuously monitors and manages this
risk, financial difficulties on the part of one or more of 3Com's resellers may
have a material adverse effect on 3Com. Likewise, 3Com's and OnStream's
expansion into certain emerging geographic markets, characterized by economic
and political instability and currency fluctuations, may subject 3Com's and
OnStream's resellers to financial difficulties which may have an adverse impact
on 3Com.

FAILURE TO IMPLEMENT KEY PROJECTS. 3Com will continue to invest during
fiscal 1997 in expanding its sales, marketing, service, logistics and
manufacturing operations worldwide. 3Com's ability to achieve continued sales
and earnings growth may be adversely affected unless 3Com can successfully
implement several projects, including the continued expansion of 3Com's direct
sales force and the establishment of a new manufacturing and distribution
facility in the Asia Pacific region.

INDUSTRY CONSOLIDATION. Acquisitions of complementary businesses and
technologies, including technologies and products under development, are an
active part of 3Com's overall business strategy. Certain of 3Com's major
competitors have also been engaged in merger and acquisition transactions. Such
consolidations by competitors are likely to create entities with increased
market share, customer base, technology and marketing expertise, sales force
size, or proprietary technology in segments in which 3Com competes, which may
adversely affect 3Com's ability to compete in such segments.

NEW PRODUCT TRANSITIONS. 3Com's business is characterized by the continuous
introduction of new products and the management of the transition of those
products from prior generations of technology or product platforms. In each
product transition cycle, 3Com faces the challenge of managing the inventory of
its older products, including materials, work-in-process, and products held by
resellers. If 3Com is not successful in managing these transitions, there could
be an adverse impact on the financial results of 3Com.

WARRANTY OBLIGATIONS. 3Com's products are covered by product warranties and
3Com may be subject to contractual commitments concerning product features or
performance. If unexpected circumstances arise such that the product does not
perform as intended and 3Com is not successful in resolving product quality or
performance issues, there could be an adverse impact on sales and earnings.

VOLATILITY OF STOCK PRICE; STOCK ESCROW. The market price of 3Com Common
Stock has been, and may continue to be, extremely volatile. Factors such as new
product announcements by 3Com or its competitors, quarterly fluctuations in
3Com's operating results, challenges associated with integration of businesses
and general conditions in the data networking market may have a significant
impact on the market price of 3Com Common Stock. These conditions, as well as
factors which generally affect the market for stocks of high technology
companies, could cause the price of 3Com Common Stock to fluctuate substantially
over short periods.

13
<PAGE>
In addition, at the Effective Date, 3Com will deposit into escrow,
certificates representing 10% of the shares of 3Com Common Stock to be issued to
the holders of OnStream Stock in the Merger in connection with the
indemnification obligations of the OnStream shareholders. Such shares shall be
subject to fluctuations in the market value of the 3Com Common Stock during the
Escrow Period (as defined herein). To the extent such escrowed shares are used
to satisfy these obligations, the OnStream shareholders may receive up to 10%
fewer shares than determined based solely upon the Exchange Ratio. Further, the
OnStream shareholders will be obligated to indemnify the Shareholder
Representative (as defined herein) for losses, liabilities or expenses he may
incur in connection with fulfilling his duties as the Shareholder
Representative. See "The Merger Agreement--Escrow and Indemnification."

CERTAIN MERGER-RELATED CONSIDERATIONS. The negotiation and implementation
of the Merger is currently anticipated to result in aggregate expenses
(including investment banking, legal and accounting fees) estimated to be
approximately $7 million. These costs are expected to be charged against the
operations of 3Com in the fiscal quarter in which the Merger is consummated. The
Merger is intended to qualify for pooling of interests treatment under U.S.
generally accepted accounting principles, and it is a condition to 3Com's
obligation to consummate the Merger that 3Com shall have received a letter from
3Com's independent accountants confirming that 3Com may account for the Merger
as a pooling of interests. If such treatment were later denied, 3Com's future
results of operations could be adversely affected.

EARTHQUAKES. Notwithstanding 3Com's increased geographical diversification,
3Com's and OnStream's corporate headquarters and a large portion of their
research and development activities and other critical business operations are
located in California, near major earthquake faults. 3Com's and OnStream's
business, financial condition and operating results could be materially
adversely affected in the event of a major earthquake.

CERTAIN CHARTER PROVISIONS. Certain charter provisions and 3Com's
shareholder rights plan could have the effect of delaying, deferring or
preventing a change in control of 3Com. In addition, 3Com's charter eliminates
the personal monetary liability of its directors for breach of their duty of
care, and 3Com has entered into agreements with its officers and directors
indemnifying them against losses they may incur in legal proceedings resulting
from their service to 3Com. See "Description of 3Com Capital Stock."

PROPOSITION 211. A pending initiative on the November 1996 California
ballot would, if passed by voters and upheld against potential court challenges,
subject corporations and their directors and officers to increased risk of suit
and may prohibit corporations from indemnifying officers and directors and
expose directors and officers of corporations to increased risk of personal
liability. Proposition 211, if passed and upheld, could increase litigation
expenses and the cost of related insurance and adversely affect the financial
position and results of operations of 3Com and OnStream. In addition, the
increased risk of personal liability could interfere with the ability of 3Com
and OnStream to attract and retain directors and officers, which in turn could
adversely affect the companies' competitive position.

CONSENT OF SHAREHOLDERS OF ONSTREAM

GENERAL

This Prospectus/Consent Solicitation Statement is being furnished to holders
of OnStream Stock in connection with the solicitation by OnStream of shareholder
consent to the authorization and approval of the Merger Agreement, Agreement of
Merger and establishment of the Escrow Fund (as defined herein).

This Prospectus/Consent Solicitation Statement contains certain information
set forth more fully in the Merger Agreement attached hereto as ANNEX A and is
qualified in its entirety by reference to the Merger Agreement, which is hereby
incorporated herein by reference. The Merger Agreement should be read carefully
by each OnStream shareholder in formulating his or her decision with respect to
the proposed Merger.

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RECORD DATE AND OUTSTANDING SHARES

Shareholders of record of OnStream Stock at the close of business on the
Record Date are entitled to authorize and approve the Merger Agreement,
Agreement of Merger and establishment of the Escrow Fund (as defined herein). On
the Record Date, there were approximately 112 shareholders of record and
approximately 3,105,826 shares of OnStream Common Stock and approximately
11,187,376 shares of OnStream Preferred Stock issued and outstanding.

CONSENT REQUIRED

Approval of the Merger requires the consent of holders of (i) a majority of
the outstanding shares of OnStream Common Stock entitled to vote; (ii) 67% of
the outstanding shares of OnStream Preferred Stock entitled to vote; and (iii) a
majority of the outstanding shares of OnStream Common Stock and OnStream
Preferred Stock, voting together as a single class. As a condition to their
obligation to consummate the Merger, 3Com and Sub are also requiring that
shareholders of OnStream holding no more than 5% of the OnStream Stock have, or
be able to perfect, dissenters' or appraisal rights in connection with the
Merger. Pursuant to the terms of the Voting Agreements, directors, executive
officers and certain shareholders of OnStream holding an aggregate of
approximately 49.1% of the outstanding shares of OnStream Stock as of the Record
Date have agreed to vote their shares of OnStream Stock in favor of approval of
the Merger Agreement and the Merger and any matter which could reasonably be
expected to facilitate the Merger and, in connection therewith, have granted
irrevocable proxies to the Board of Directors of 3Com. See "The Merger--Voting
Agreements."

Shareholders of OnStream should complete, sign and date the Consent and
return the Consent to OnStream Networks, Inc., 3393 Octavius Drive, Santa Clara,
California 95054, Attention Investor Relations (Facsimile: (408) 727-5151) by
October 29, 1996.

CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS THEREOF UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. See "The Merger
Agreement--Conversion of Securities."

THE MERGER

BACKGROUND OF THE MERGER

In April 1996, OnStream and 3Com began discussing a potential OEM commercial
relationship whereby OnStream would supply its recently introduced broadband
networking access products to 3Com. Thereafter 3Com conducted a detailed
technical review of the products. In late August 1996, OnStream contacted 3Com
about a potential acquisition of OnStream. On September 5, 1996, OnStream
provided a presentation about its business to 3Com. On September 23, 1996, 3Com
presented an offer to acquire OnStream in a merger transaction. OnStream's Board
of Directors met to consider the offer on September 26, 1996. Later that day,
representatives of OnStream and 3Com met to discuss further 3Com's original
offer and OnStream's response. Based on such discussions, 3Com modified its
offer. On that same date, the parties jointly prepared a draft term sheet
summarizing the principal anticipated provisions of the possible merger. The
parties negotiated the terms of the merger in several meetings and numerous
telephone calls, culminating in the execution and delivery of the Merger
Agreement and the Voting Agreements on October 5, 1996. During such
negotiations, OnStream and 3Com also entered into an OEM Private Label Agreement
effective October 1, 1996 to provide for the supply to 3Com of OnStream products
and related services in a variety of configurations on standard commercial
terms.

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REASONS FOR THE MERGER; RECOMMENDATION OF THE ONSTREAM BOARD OF DIRECTORS

JOINT REASONS FOR THE MERGER

3Com and OnStream believe that the extensive offerings of 3Com's and
OnStream's data networking and wide area access products position the combined
company to offer comprehensive standards-based solutions that aggregate voice,
video and data traffic across LANs and wide area networks (WANs).

3Com and OnStream believe that the technical resources of OnStream,
primarily in the market for products providing access to public wide area
network services or creating public or private wide area networks, and its broad
base of clients, including leading network services companies worldwide, will
enable the combined company to compete more effectively.

3Com and OnStream believe that the combined technological resources of 3Com
and OnStream will permit the combined company to leverage its development
capabilities to create new products which combine aspects of local area
networking equipment and wide area access equipment. In addition, many
enterprise customers are planning to integrate voice and video with data over
their local area networks. This is especially true for customers who are
installing ATM backbones in their local area networks. There is an increasing
demand for vendors to deliver end-to-end solutions across the WAN to customers.
Furthermore, network service providers are beginning to extend their networks to
support ATM traffic. Combined, 3Com and OnStream believe that they can deliver
new technologies and system solutions more effectively to such customers.

The combination of the sales and marketing resources of the two companies
should allow the combined company to compete more effectively with greater
resources. 3Com's broad distribution channels for its wide array of networking
products and OnStream's expertise in and relationships with both major network
service providers and wide area switching companies selling to network service
providers, will be complementary and should enhance the combined company's
competitive resources.

The combined company may also realize cost efficiencies and synergies from
combining operations.

3COM'S REASONS FOR THE MERGER AND FURTHER BACKGROUND

The Board of Directors of 3Com approved the terms and provisions of the
Merger Agreement at its meeting held on October 3, 1996. The Board of Directors
of 3Com believes that consummation of the Merger is in the best interests of
3Com.

In arriving at its decision to approve the Merger Agreement, the Board of
Directors of 3Com considered a number of factors. Among the factors that the
Board considered were (i) information concerning 3Com's and OnStream's
respective businesses, historical financial performance, operations and
products, including possible future product releases; (ii) the opportunity for
3Com to expand the distribution of its products to major network service
providers and wide area switching companies; (iii) the opportunity to expand
3Com's products to include broadband networking access products; (iv) an
analysis of the value that OnStream might contribute to the future business and
prospects of the combined company; (v) comparative equity valuation and
comparisons of market values and recent acquisition prices for comparable
companies; (vi) the compatibility of management and businesses of 3Com and
OnStream; (vii) reports from management on specific terms of the relevant
agreements, including the Merger Agreement; (viii) the Board's judgment that
3Com was unlikely to identify an alternative business opportunity that would
provide superior benefits to 3Com and its shareholders; and (ix) the technical
and marketing knowledge of the OnStream employee team.

One of 3Com's goals is to provide the broadest of networking products and
solutions to its customers. OnStream has developed wide area access products
that when combined with 3Com's current networking products will allow customers
to integrate voice, video and data over their local and wide area networks. 3Com
believes that the OnStream products will strengthen its position with customers
who are increasingly looking to a single vendor to provide a complete LAN/WAN
solution.

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The Board of Directors of 3Com also believes that the strategic
relationships that OnStream has established with both network service providers
and vendors of wide area switching technology will assist 3Com in achieving its
stated goal of increasing its distribution and technology relationships within
the telecommunications industry. 3Com believes that with the OnStream products,
it will be able to strengthen its position with telecommunications service
providers that are extending their networks to offer ATM services.

RECOMMENDATION OF THE ONSTREAM BOARD OF DIRECTORS; ONSTREAM'S REASONS FOR
THE MERGER

The Board of Directors of OnStream unanimously approved the terms and
provisions of the Merger Agreement at its meeting held on October 4, 1996. The
Board of Directors of OnStream believes the terms of the Merger are fair and
recommends that the shareholders approve the Merger, the Merger Agreement, the
Agreement of Merger, and the establishment of the Escrow Fund.

OnStream believes the Merger will create the potential to expand the market
presence of OnStream's products in the United States and globally through 3Com's
significant sales and distribution infrastructure and broad installed base of
customers. OnStream expects that the Merger will allow 3Com and OnStream to
share the results of their combined research and development activities and the
benefits of their combined sales and marketing efforts. OnStream also believes
that the Merger will allow savings in selling, general and administrative as
well as sales and marketing expenses by enabling OnStream to utilize 3Com's
infrastructure and therefore invest more in research and development than it
would otherwise be able to invest. Finally, the Merger is expected to provide
liquidity for OnStream's shareholders through their ownership of 3Com stock.

In the course of its deliberations on September 26, 1996 and October 4,
1996, the OnStream Board of Directors met with OnStream management and its
financial and legal advisors and reviewed the anticipated benefits summarized
above and a number of additional factors relevant to the Merger. In particular,
the OnStream Board of Directors considered, among other things: (i) information
concerning, and their knowledge of, OnStream's and 3Com's respective businesses,
prospects, historical financial performances and conditions, operations,
technologies, managements, competitive positions, products, customers and future
development plans; (ii) the historical market prices, volatility and trading
information with respect to the 3Com Common Stock; (iii) the consideration to be
received by OnStream shareholders in the Merger and the market value of the
shares of 3Com Common Stock to be issued in exchange for OnStream Stock and upon
exercise of outstanding OnStream Options and warrants; (iv) comparative equity
valuation and comparisons of market values and recent acquisition prices for
comparable companies; (v) the terms of the Merger Agreement; (vi) an evaluation
of the prospects of OnStream on a stand-alone basis; (vii) an evaluation of
other strategic alternatives potentially available to OnStream, including other
merger opportunities and a potential initial public offering; (viii) the
compatibility of the managements and businesses of OnStream and 3Com, as well as
the fact that certain members of OnStream's senior management would manage the
operations relating to OnStream's products and business for the combined
company; and (ix) the fact that the Merger is expected to qualify as a tax-free
reorganization.

The Board of Directors of OnStream also considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, among
other things: (i) the slower growth of 3Com's revenues compared to the potential
growth of OnStream's revenues as a stand-alone entity; (ii) the possibility of
management disruption associated with the Merger and the risk that, despite the
efforts of the combined company, the combined company may not be able to retain
key technical, sales and management personnel of OnStream; (iii) the risk that
the combined company's ability to increase or maintain revenues might be
diminished by potential loss of existing OnStream partners, loss of personnel or
other factors resulting from the Merger; (iv) the risk that the benefits sought
to be achieved by the Merger will not be achieved; (v) the ability of OnStream
to remain as a stand-alone company and (vi) other risks described above under
"Risk Factors."

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In view of the wide variety of factors considered by the OnStream Board of
Directors, the OnStream Board of Directors did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered. After taking into consideration all of the factors set forth above,
among others, the OnStream Board of Directors unanimously determined that the
Merger was fair to and in the best interests of OnStream and its shareholders
and that OnStream should proceed with the Merger.

CONDUCT OF ONSTREAM IF MERGER IS NOT CONSUMMATED

In the event that the proposed Merger is not consummated, OnStream will
continue to operate its business as currently conducted. It is anticipated that
OnStream would consider additional capital financing, including the possibility
of an initial public offering or a strategic arrangement with another company
possessing complementary technologies.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

As of September 30, 1996, directors and executive officers of 3Com and their
affiliates may be deemed to be beneficial owners of approximately 2.8% of the
outstanding shares of 3Com Common Stock.

As of October 5, 1996, directors and executive officers of OnStream and
their affiliates may be deemed to be beneficial owners of approximately 49.5% of
the outstanding shares of OnStream Stock. See "OnStream Networks,
Inc.--Principal Shareholder" for additional information concerning such
ownership. Each of the directors and executive officers of OnStream has advised
OnStream that he or she has agreed to vote or direct the vote of all the
outstanding shares of OnStream Stock over which he or she (or a related
partnership) has voting control in favor of approval and adoption of the Merger
Agreement, the related Agreement of Merger and the establishment of the Escrow
Fund. In addition, certain directors of OnStream owned 44,530 shares of 3Com
Common Stock as of October 5, 1996.

VOTING AGREEMENTS

As of October 23, 1996, in connection with the execution of the Merger
Agreement, holders of approximately 1,294,167 shares of OnStream Common Stock,
or 41.7% of the total number of shares of outstanding OnStream Common Stock as
of the Record Date, holders of approximately 5,722,315 shares of OnStream
Preferred Stock, or 51.1% of the total number of shares of outstanding OnStream
Preferred Stock as of the Record Date, and holders of approximately 7,016,482
shares of OnStream Stock, or 49.1% of the total number of shares of outstanding
OnStream Stock as of the Record Date, had entered into Voting Agreements
pursuant to which they have agreed, subject to certain limited exceptions, not
to transfer, pledge, sell, exchange or offer to transfer or sell or otherwise
dispose of or encumber at any time prior to the Expiration Date (as defined
below) any of the shares of OnStream Stock owned by them or acquired by them
prior to the Expiration Date (as defined below). The term "Expiration Date" is
defined in the Voting Agreements as the earliest to occur of (i) such date as
the Merger shall become effective in accordance with the terms and provisions of
the Merger Agreement, or (ii) such date as the Merger Agreement shall be
terminated.

At every meeting of the shareholders of OnStream (and at any adjournment
thereof), and with respect to every action or approval by written consent
solicited from such shareholders prior to the Expiration Date, each such
OnStream shareholder has agreed to vote all such shares of OnStream Stock: (i)
in favor of approval of the Merger Agreement and the Merger and any matter which
could reasonably be expected to facilitate the Merger, (ii) against approval of
any proposal made in opposition to or competition with consummation of the
Merger and the Merger Agreement, (iii) against any merger or consolidation of
OnStream with, sale of assets or stock of OnStream to, or reorganization or
recapitalization involving OnStream with any party other than 3Com and Sub, (iv)
against any liquidation or winding up of OnStream and (v) against any other
matter which would, or could reasonably be expected to, prohibit or discourage
the Merger. Each such shareholder, as the holder of voting stock of OnStream,
has agreed to be

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present, in person or by proxy, at all meetings of shareholders of OnStream so
that all such shares of OnStream Stock are counted for the purposes of
determining the presence of a quorum at such meetings. The Voting Agreements are
intended to bind the shareholders only with respect to the specific matters set
forth in such Voting Agreements, and shall not prohibit such shareholders from
acting in accordance with their fiduciary duties as officers and/or directors of
OnStream.

Concurrently with the execution of each Voting Agreement, each shareholder
executing such agreement has delivered to 3Com an irrevocable proxy pursuant to
which each shareholder has appointed the 3Com Board of Directors as such
shareholder's proxy to vote all his or her shares of OnStream Stock with respect
to the matters specified in the proxy, which are consistent with the provisions
of the Voting Agreements.

ACCOUNTING TREATMENT

The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to the Merger that 3Com
shall have received a letter from Deloitte & Touche LLP, its independent
accountants, confirming, based on certain material representations provided by
3Com and OnStream as described in such letter, that 3Com may account for the
Merger as a pooling of interests transaction under generally accepted accounting
principles. Under this method of accounting, the recorded assets and liabilities
of 3Com and OnStream will be carried forward to the combined company at their
recorded amounts, income of the combined company will include the results of
operations of 3Com and OnStream for the entire fiscal year in which the
combination occurs. See "The Merger Agreement-- Conditions" and "Unaudited Pro
Forma Combined Financial Statements."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes certain of the federal income tax
considerations of the Merger that are generally applicable to holders of
OnStream Stock. This discussion does not deal with all federal income tax
considerations that may be relevant to particular OnStream shareholders in light
of their particular circumstances, such as shareholders who are dealers in
securities, foreign persons or shareholders who acquired their shares in
connection with stock option plans or in other compensatory transactions. In
addition, the following discussion generally does not address the tax
consequences of other transactions effectuated prior to, at the time of or after
the Merger (whether or not such transactions are in connection with the Merger)
including, without limitation, the exercise of options, warrants or similar
rights to purchase stock, or the exchange, assumption or substitution of
options, warrants or similar rights to purchase OnStream Stock for rights to
purchase 3Com Common Stock. Furthermore, no foreign, state or local tax
considerations are addressed herein. This discussion is based on legal
authorities in existence as of the date hereof. No assurances can be given that
future legislation, regulations, administrative pronouncements or court
decisions will not significantly change the law and materially affect the
conclusions expressed herein. Any such change, even though made after
consummation of the Merger, could be applied retroactively. ACCORDINGLY, ALL
ONSTREAM SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO
THEM.

The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Code. Subject to the limitations and qualifications
described herein, and assuming the Merger so qualifies, then the following tax
consequences should generally result:

(a) No gain or loss should be recognized by holders of OnStream Stock
upon their receipt in the Merger of 3Com Common Stock (except to the extent
of cash received in lieu of a fractional share thereof) in exchange
therefor;

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(b) The aggregate tax basis of the 3Com Common Stock received in the
Merger (including any fractional share that is treated as issued and sold
pursuant to paragraph (d) below) should be the same as the aggregate tax
basis of OnStream Stock surrendered in exchange therefor;

(c) The holding period of the 3Com Common Stock received in the Merger
should include the period for which the OnStream Stock surrendered in
exchange therefor was held, provided that the OnStream Stock is held as a
capital asset at the Effective Date;

(d) Cash received by an OnStream shareholder in lieu of a fractional
share of 3Com Common Stock should be treated as received for a fractional
share of 3Com Common Stock that had been issued in the Merger and then
redeemed by 3Com from such OnStream shareholder. An OnStream shareholder
receiving such cash should generally recognize gain or loss upon such
payment equal to the difference (if any) between such shareholder's basis in
the fractional share and the amount of cash received. Such gain or loss
should be a capital gain or loss if, at the Effective Date, the OnStream
Stock is held as a capital asset;

(e) A shareholder who exercises appraisal rights with respect to a share
of OnStream Stock and receives payment for such share in cash will generally
recognize capital gain or capital loss (if such share was held as a capital
asset at the Effective Date), measured by the difference between the
holder's basis in such share and the amount of cash received, provided,
however, the payment is neither essentially equivalent to a dividend within
the meaning of Section 302 of the Code nor has the effect of a distribution
of a dividend within the meaning of Section 356(a)(2) of the Code
(collectively a "Dividend Equivalent Transaction"). A sale of shares
pursuant to an exercise of appraisal rights will generally not be a Dividend
Equivalent Transaction if, as a result of such exercise, the shareholder
exercising appraisal rights owns no shares of 3Com Common Stock (either
actually or constructively within the meaning of Section 318 of the Code)
after such sale; and

(f) Neither 3Com, OnStream nor Sub should recognize gain or loss as a
result of the Merger.

The parties are not requesting a ruling from the Internal Revenue Service
("IRS") regarding the consequences of the Merger. It is a condition to the
obligation of OnStream to consummate the Merger that, to the extent that such
counsel can render an opinion, OnStream receive an opinion of Venture Law Group
to the effect that the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code. Such opinion (the "Tax Opinion") neither
binds the IRS nor precludes the IRS from adopting a contrary position. In
addition, this discussion and the Tax Opinion will be subject to certain
assumptions and qualifications, will address only the status of the Merger
itself as a reorganization (and not the potential effect on such status of
events or transactions that may occur after the Effective Date) and will be
based on the truth and accuracy of certain representations and warranties made
by 3Com, Sub, OnStream and certain shareholders of OnStream.

Of particular importance, the above discussions and the Tax Opinion will be
based on certain assumptions, representations and warranties relating to the
satisfaction of the "continuity of interest" requirement for reorganization
treatment. To satisfy the continuity of interest requirement, OnStream
shareholders must not, pursuant to a plan or intent existing at or prior to the
Merger, dispose of or transfer so much of either (i) their OnStream Stock in
anticipation of the Merger or (ii) the 3Com Common Stock to be received in the
Merger (collectively "Planned Dispositions"), such that the OnStream
shareholders, as a group, would no longer have a meaningful continuing equity
interest in 3Com after the Merger. Planned Dispositions include, among other
things, disposition of shares pursuant to the exercise of dissenters' rights.
Although it is uncertain as to what constitutes sufficient continuity of
interest, 50% continuity should satisfy the requirement.

Irrespective of the reorganization status of the Merger, a recipient of
shares of 3Com Common Stock would recognize income or gain to the extent such
shares were considered to be received in exchange for services or property other
than solely OnStream Stock. Gain would also be recognized to the extent an

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OnStream shareholder was treated as receiving (directly or indirectly)
consideration other than 3Com Common Stock in exchange for his or her OnStream
Stock.

A successful IRS challenge to the reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
would result in an OnStream shareholder recognizing gain or loss with respect to
each share of OnStream Stock equal to the difference between the shareholder's
basis in such share and the fair market value, as of the Effective Date, of the
3Com Common Stock received in exchange therefor. A shareholder's aggregate basis
in the 3Com Common Stock so received would equal its fair market value, and his
or her holding period for such stock would begin the day after the Merger.

REGULATORY APPROVALS

ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. 3Com
and OnStream filed notification and report forms under the HSR Act with the FTC
and the Antitrust Division on October 8, 1996. At any time before or after
consummation of the Merger, the Antitrust Division 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 OnStream. At any time before or
after the Effective Date of the Merger, and notwithstanding that the HSR Act
waiting period has expired, 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 OnStream or businesses of 3Com or OnStream. Private parties may
also seek to take legal action under the antitrust laws under certain
circumstances.

Based on information available to them, 3Com and OnStream believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, 3Com and OnStream would prevail or would not be required to accept certain
conditions including certain divestitures in order to consummate the Merger. In
this regard, it is a condition to the obligation of 3Com to consummate the
Merger that no litigation or proceeding shall be threatened or pending against
3Com or OnStream which would have the probable effect of requiring 3Com to
divest or hold separate any business in connection with the Merger.

RESALE OF 3COM COMMON STOCK

The shares of 3Com Common Stock to be issued in the Merger have been
registered under the Securities Act pursuant to the Registration Statement,
thereby allowing such securities to be traded without restriction by all former
holders of OnStream Stock not deemed to be "affiliates" (as such term is defined
for purposes of Rule 145 under the Securities Act) of OnStream at the time the
transaction is submitted for a vote to OnStream shareholders. Persons who may be
deemed to be affiliates of OnStream generally include individuals or entities
that control, are controlled by, or are under common control with, such party
and may include certain officers and directors of such party as well as
principal shareholders of such party. Rule 145(d) under the Securities Act
requires that, for specified periods, such sales be made in compliance with the
volume limitations, manner of sale provisions and current information
requirements of Rule 144 under the Securities Act. The volume limitations should
not pose any material limitations on any OnStream shareholder who owns less than
one percent of 3Com's outstanding Common Stock after the Merger (approximately
1,747,779 shares of 3Com Common Stock as of September 30, 1996 after giving
effect to the shares to be issued in the Merger) unless, pursuant to Rule 144,
such shareholder's shares are required to be aggregated with those of another
shareholder. The Merger Agreement requires each of

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OnStream and 3Com to use its best efforts to cause each of its respective
affiliates to execute a written agreement to the effect that such person will
not offer to sell or otherwise dispose of any of the shares of 3Com Common Stock
issued to such person in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated by the SEC thereunder.

NASDAQ NATIONAL MARKET QUOTATION

It is a condition to the Merger that the shares of 3Com Common Stock to be
issued pursuant to the Merger Agreement and required to be reserved for issuance
in connection with the Merger be approved for listing on the Nasdaq National
Market. An application has been filed for listing the shares of 3Com Common
Stock on the Nasdaq National Market.

DISSENTERS' RIGHTS

THE FOLLOWING SUMMARY OF APPRAISAL RIGHTS UNDER CALIFORNIA LAW IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION
LAW, THE COMPLETE TEXT OF WHICH IS ATTACHED HERETO AS EXHIBIT D TO ANNEX A.

FAILURE TO FOLLOW STRICTLY THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW MAY RESULT IN THE LOSS, TERMINATION OR WAIVER
OF APPRAISAL RIGHTS. AN ONSTREAM SHAREHOLDER WHO SIGNS A CONSENT APPROVING AND
AUTHORIZING THE MERGER AGREEMENT WILL NOT HAVE A RIGHT TO DISSENT FROM THE
MERGER AGREEMENT.

Under the CGCL each OnStream shareholder as of the Record Date is entitled
to demand and receive payment of the fair value of all or any portion of such
holder's shares of OnStream Stock pursuant to Chapter 13 of the CGCL owned by
such holder if the Merger is consummated. The fair value of such shares is
determined as of October 7, 1996, the last trading day before the first
announcement of the terms of the Merger. Any OnStream shareholder who elects to
perfect such holder's dissenters' rights and demands payment of the fair value
of such holder's shares of OnStream Stock must strictly comply with Chapter 13
of the CGCL. The following summary does not purport to be complete and is
qualified in its entirety by reference to Chapter 13 of the CGCL, the text of
which is attached as EXHIBIT D to ANNEX A and is incorporated herein by
reference. Any holder of shares of OnStream Stock considering demanding
dissenters' rights is advised to consult legal counsel. Dissenting rights will
not be available unless and until the Merger (or a similar business combination)
is consummated. To perfect the right to dissent and receive the fair value of
such holder's shares, the shareholder must abstain from voting by not returning
an executed Consent and must not return an executed consent in favor of the
Merger.

Within 10 days after the date of approval of the Merger, OnStream will mail
to each OnStream shareholder who did not return an executed Consent notice (the
"Notice") of the approval of the merger by the OnStream shareholders,
accompanied by a copy of Sections 1300-1304 of the CGCL. The Notice shall also
state the price determined by OnStream to be the fair market value of the
Dissenting Shares and a brief description of the procedure to be followed by a
shareholder who elects to dissent.

Any dissenting OnStream shareholder who desires that OnStream purchase his
or her shares of OnStream Stock must make written demand upon OnStream for the
purchase of such shares. The demand must be made no later than 30 days after the
Notice was mailed to the shareholder. The OnStream shareholder's demand must
state the number and class of shares held of record by the OnStream shareholder
which the shareholder demands that OnStream purchase, as well as a statement by
the OnStream shareholder as to what such holder thinks the fair market value of
such share was as of the day prior to the announcement of the Merger. The
statement of fair market value constitutes an offer by the OnStream shareholder
to sell the shares at such price. Failing to return the executed Consent does
not constitute such written demand.

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Within the same 30-day period following the mailing of the Notice, the
dissenting shareholder must submit to OnStream for endorsement certificates for
any shares which the OnStream shareholder demands OnStream purchase. If OnStream
and the OnStream shareholder agree upon the price of the Dissenting Shares, the
dissenting OnStream shareholder is entitled to the agreed price with interest at
the legal rate on judgments from the date of such agreement. Payment must be
made within 30 days of the later of the date of the agreement between the
OnStream shareholder and OnStream or the date the contractual conditions to the
Merger are satisfied.

If OnStream and the shareholder cannot agree as to the fair market value or
as to the fact that such shares are Dissenting Shares, such OnStream shareholder
may file within six months of the date of mailing of the Notice a complaint with
the California Superior Court for the County of Santa Clara demanding judicial
determination of such matters. OnStream will then be required to make any
payments in accordance with such judicial determination. If the complaint is not
filed within the specified six-month period, the OnStream shareholder's rights
as a dissenter are lost.

Dissenting shares lose their status as such if (i) OnStream abandons the
Merger; (ii) the shares are transferred or are surrendered for conversion into
shares of another class; (iii) the OnStream shareholder and OnStream do not
agree as to the fair market value of such shares and a complaint is not filed
within six months of the date the Notice was mailed; or (iv) the dissenting
OnStream shareholder withdraws, with the consent of OnStream, his or her demand
for purchase of the dissenting shares.

At the Effective Date, the shares of OnStream held by an OnStream
shareholder exercising his or her dissenters' rights will be canceled, and such
shareholder will be entitled to no further rights except the right to receive
payment of the fair value of such holder's shares of OnStream Stock. However, if
the OnStream shareholder fails to perfect or withdraws or loses such holder's
rights as a dissenter with respect to such holder's shares of OnStream Stock,
such holder's shares of OnStream Stock will be exchanged for 3Com Common Stock
as provided in the Merger Agreement.

THE MERGER AGREEMENT

The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Prospectus/Consent
Solicitation Statement and incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Shareholders of
OnStream are urged to read the Merger Agreement in its entirety for a more
complete description of the Merger. The Merger Agreement rather than the summary
set forth herein, will control the terms of the Merger and the rights of the
parties and the shareholders of OnStream thereunder.

THE MERGER

The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the shareholders of OnStream and the satisfaction or
waiver of the other conditions to the Merger, Sub will be merged with and into
OnStream, with OnStream continuing as the surviving corporation (the "Surviving
Corporation"), which shall be a wholly-owned subsidiary of 3Com.

If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the filing by the Surviving Corporation of a duly
executed Agreement of Merger with the Secretary of State of the State of
California.

CONVERSION OF SECURITIES

Each issued and outstanding share of OnStream Stock will be converted into
the right to receive that number of shares of 3Com Common Stock equal to the
applicable "Exchange Ratio" for that class of stock. Subject to the assumptions
described below, each share of OnStream Common Stock will be converted into
.23364 of a share of 3Com Common Stock and each option to acquire a share of
OnStream

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Common Stock will be converted into an option to acquire .23364 of a share of
3Com Common Stock, in each case by virtue of the Merger and without any action
on the part of the holder thereof. The foregoing Exchange Ratios are subject to
the following assumptions: Because each share of OnStream Common Stock will
convert into a larger fraction of a share of 3Com Common Stock than each share
of OnStream Preferred Stock, it is assumed that, prior to the Merger, all
holders of OnStream Preferred Stock will convert their shares of OnStream
Preferred Stock into OnStream Common Stock (and that the holders of warrants to
acquire OnStream Preferred Stock will exercise such warrants and thereafter
convert the resulting shares of OnStream Preferred Stock into shares of OnStream
Common Stock). It is further assumed that 14,364,297 shares of OnStream Common
Stock, and options to acquire (and agreements to grant options to acquire)
1,899,824 shares of OnStream Common Stock, are deemed outstanding. If, contrary
to the foregoing assumptions, no shares of OnStream Preferred Stock were
converted into OnStream Common Stock, the Exchange Ratio for OnStream Common
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock would be .68312,
.01495, .03364, .02243, .03589 and .06534, respectively, assuming an Average
Price (as defined in the Merger Agreement) for 3Com Common Stock of $66.88 which
is subject to change dependent on the Effective Date.

If any holder of shares of OnStream Stock would be entitled to receive a
number of shares of 3Com Common Stock that includes a fraction, then, in lieu of
a fractional share, such holder will be entitled to receive cash in an amount
equal to such fractional part of a share of 3Com Common Stock multiplied by the
average of the closing sale prices of 3Com Common Stock, reported in the Wall
Street Journal on the basis of information provided by the Nasdaq National
Market, for each of the thirty consecutive trading days ending three business
days immediately prior to the effective date.

Promptly after the Effective Date, but no later than five business days
thereafter, the First National Bank of Boston (the "Exchange Agent") will mail
transmittal forms and exchange instructions to each holder of record of OnStream
Stock to be used to surrender and exchange certificates evidencing shares of
OnStream Stock for certificates evidencing the shares of 3Com Common Stock to
which such holder has become entitled. After receipt of such transmittal forms,
each holder of certificates formerly representing OnStream Stock will be able to
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange therefor certificates evidencing the number of whole shares
of 3Com Common Stock to which such holder is entitled less 10% of the shares of
3Com Common Stock to which such holder is entitled, which shall be deposited
into escrow, and any cash which may be payable in lieu of a fractional share of
3Com Common Stock. See "The Merger Agreement--Escrow and Indemnification." Such
transmittal forms will be accompanied by instructions specifying other details
of the exchange. ONSTREAM SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A TRANSMITTAL FORM.

ASSUMPTION OF ONSTREAM OPTIONS

On the Effective Date, each OnStream Option outstanding immediately prior to
the Effective Date will be assumed by 3Com and converted into a 3Com Option to
purchase that number of shares of 3Com Common Stock which equals the Exchange
Ratio multiplied by the total number of shares of OnStream Common Stock subject
to the OnStream Option immediately prior to the Effective Date, with the
resulting number of shares rounded down to the nearest whole number. The
exercise price per share of 3Com Common Stock purchasable under each such 3Com
Option will be equal to the exercise price of the OnStream Option (per share of
OnStream Common Stock) divided by the Exchange Ratio (with the resulting amount
rounded up to the nearest whole cent). At the Record Date, there were OnStream
Options deemed outstanding to purchase 1,891,624 shares of OnStream Common
Stock. Subsequent to the Record Date, the OnStream Board of Directors approved
the issuance of options to purchase an additional 8,200 shares of OnStream
Common Stock.

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Each optionee who is an employee or consultant of OnStream on the Effective
Date will be credited for continuous employment or consultancy with OnStream,
whether occurring before or after the Effective Date, for purposes of
determining the number of shares subject to exercise, vesting or repurchase
after the Effective Date.

Upon the Effective Date, 3Com will issue to each holder of an outstanding
OnStream Option a document evidencing the assumption of such OnStream Option by
3Com. No fractional shares of 3Com Common Stock will be issued in connection
with the exercise of 3Com Options. All fractional shares which would otherwise
be issuable will be rounded down to the nearest whole share. All of the other
terms of each 3Com Option including, without limitation, the vesting and holding
periods, will remain the same as the corresponding assumed OnStream Option. The
holders of OnStream Options are urged to consult their own tax advisors as to
the consequences to them of such assumption.

3Com will use its best efforts to prepare, file with the SEC and to cause to
become effective a registration statement on Form S-8 with respect to the shares
3Com Common Stock issuable upon the exercise of the OnStream Options as soon as
practicable after the Closing Date but in any event on or prior to the date on
which 3Com publishes financial statements covering at least thirty days' results
of combined operations of 3Com and OnStream.

ESCROW AND INDEMNIFICATION

On the Effective Date (and, with respect to Dissenting Shares for which
appraisal rights have not been perfected or lost, such later time as determined
in accordance with Section 1.5 of the Merger Agreement) 3Com will deposit into
escrow certificates representing 10% of the shares of 3Com Common Stock issued
to the holders of OnStream Stock in the Merger, on a pro rata basis. Such Escrow
Shares will be registered in the name of and deposited with the Escrow Agent
pursuant to the Merger Agreement to constitute the Escrow Fund. The Escrow Fund
will be available to indemnify 3Com, its affiliates, their representatives, and
their successors for any loss, damage, injury, decline in value, lost
opportunity, liability, claim, demand, settlement, judgment, award, fine,
penalty, tax, fee (including reasonable attorneys' fees), charge, costs
(including reasonable costs of investigation) or reasonable expenses of any
nature (collectively, "Damages") that 3Com or OnStream has incurred by reason of
any inaccuracy or breach by OnStream of any representation, warranty, covenant
or obligation of OnStream contained in the Merger Agreement. For items that
would be expected to be encountered in 3Com's annual audit process, the
indemnification period will end on the date of completion of the first audit of
financial statements containing results of combined operations of 3Com and
OnStream. For all other items, the indemnification period will end on the first
anniversary of the Closing Date.

Notwithstanding the foregoing, 3Com may not receive any shares from the
Escrow Fund unless and until and only to the extent that the aggregate amount of
Damages exceeds $250,000. To receive any Escrow Shares, notice of Damages must
be delivered to the Escrow Agent and the Shareholders' Representative and if the
Shareholders' Representative disputes the claim, the matter must be resolved by
binding arbitration. For the purpose of compensating 3Com for its Damages, the
Escrow Shares shall be valued at a price equal to the average closing price of
3Com Common Stock for the thirty consecutive trading days ending three business
days prior to the Effective Date. In no event shall 3Com receive more than the
number of Escrow Shares then remaining in the Escrow Fund at the time of 3Com's
claim for Damages, and the maximum liability of all OnStream shareholders under
the indemnity provisions of the Merger Agreement shall not exceed the forfeiture
of the Escrow Shares in the Escrow Fund. Except with respect to claims based on
knowing and intentional misrepresentations and warranties, 3Com's sole recourse
with respect to Damages is limited to the Escrow Fund.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) the due organization, valid
existence and good standing of each of 3Com and OnStream

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and certain similar corporate matters; (b) the capital structure of each of 3Com
and OnStream; (c) the authorization, execution, delivery and enforceability of
the Merger Agreement, the consummation of the transactions contemplated by the
Merger Agreement and related matters; (d) the absence of conflicts under
charters or by-laws, required consents or approvals, and the absence of
violations of any instruments or law; (e) documents and financial statements
filed by 3Com with the SEC and the accuracy of information contained therein and
the financial statements prepared by OnStream; (f) the absence of material
undisclosed liabilities of OnStream; (g) the absence of certain material adverse
changes or events; (h) OnStream's taxes, tax returns and audits; (i) OnStream's
properties; (j) OnStream's intellectual property; (k) agreements, contracts and
commitments; (l) litigation; (m) environmental matters, hazardous materials and
hazardous materials activities; (n) employee benefit plans of OnStream; (o)
compliance with laws; (p) matters affecting the availability of pooling of
interests accounting; and (q) interested party transactions relating to
OnStream; and other matters.

CERTAIN COVENANTS AND AGREEMENTS

Pursuant to the Merger Agreement, OnStream has agreed that, during the
period from the date of the Merger Agreement until the Effective Date, except as
otherwise consented to in writing by 3Com or as set forth in OnStream's
disclosure schedule, OnStream will continue to conduct its business and maintain
its business relationships in the ordinary and usual course and OnStream will
not take certain actions, including borrowing money in excess of certain
amounts, raising salaries, undertaking new obligations in excess of certain
amounts, and similar matters.

CONDITIONS

The respective obligations of 3Com and OnStream to effect the Merger are
subject to the following conditions, among others: (a) the Merger Agreement
shall have been approved and authorized by the shareholders of OnStream; (b) the
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated; (c) the Registration Statement shall have
become effective and shall not be the subject of a stop order or proceedings
seeking a stop order; (d) no litigation or proceeding shall be threatened or
pending with the probable effect of enjoining or preventing the Merger or the
enforcement of any of the non-competition agreements contemplated by the Merger
Agreement or requiring 3Com to divest or hold separate any business, and no
judgment, decree, injunction, rule or order shall be outstanding against
OnStream that would otherwise have a material adverse effect on 3Com; (e) the
receipt of a letter of Deloitte & Touche LLP by 3Com confirming, based on
certain material representations provided by 3Com and OnStream as described in
such letter, that 3Com may account for the Merger as a pooling of interests
transaction under generally accepted accounting principles (see "The
Merger--Accounting Treatment"); (f) the approval of the shares of 3Com Common
Stock to be issued in the Merger for listing on the Nasdaq National Market; (g)
the receipt by OnStream of an opinion of Venture Law Group, counsel to OnStream
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code (see "The Merger--Certain Federal Income
Tax Consequences"); (h) receipt by 3Com of all permits and other authorizations
required under applicable state blue sky laws for the issuance of 3Com Common
Stock pursuant to the Merger (i) the representations and warranties of 3Com
shall be true and correct in all material respects as of the date of the Merger
Agreement and as of the Closing Date, (j) the representations and warranties of
OnStream shall be true and correct in all material respects as of the date of
the Merger Agreement, except where (1) the failure of such representation or
warranty to be true and correct would not have a Material Adverse Effect or (2)
the failure of such representation or warranty to be true and correct has been
remedied prior to the Closing Date or will be remedied no later than December
31, 1996; and (k) the performance in all material respects of all obligations of
the other party required to be performed under the Merger Agreement.

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TERMINATION

The Merger Agreement may be terminated at any time prior to the Closing:

(a) by mutual consent of 3Com, Sub and OnStream;

(b) by either 3Com or OnStream if the Merger shall not have been
consummated by December 31, 1996 (or in the event of a delay caused
exclusively by the Registration Statement not having been declared effective
by the SEC, the date twenty (20) days after the date on which the
Registration Statement becomes effective, but in no event later than January
31, 1997) unless otherwise mutually agreed in writing by the parties,

In the event of any termination of the Merger Agreement by either 3Com, Sub
or OnStream as provided above, the Merger Agreement will become void and there
will be no liability or obligation, except to the extent that such termination
results from the willful failure by a party to carry out its obligations set
forth in the Merger Agreement, then such party shall be liable for damages
incurred by the other parties in pursuing their rights and remedies (including
reasonable attorney's fees).

AMENDMENT AND WAIVER

Any term or provision of the Merger Agreement may be amended, and the
observance of any term of the Merger Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only by a
writing signed by the party to be bound thereby. The waiver by a party of any
breach thereof for default in payment of any amount due thereunder or default in
the performance thereof shall not be deemed to constitute a waiver of any other
default or any succeeding breach or default.

EXPENSES

3Com, Sub and OnStream shall each pay its own costs and expenses incurred
with respect to the negotiation, execution and delivery of the Merger Agreement
and the exhibits thereto. In the event the Merger is consummated, all investment
banking, legal, accounting, broker's and finder's fees incurred by OnStream in
connection with the Merger shall be borne by 3Com; provided, however, that 3Com
shall not be responsible for any legal fees incurred by OnStream in connection
with the Merger to the extent such fees are in excess of $200,000.

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3COM CORPORATION

BUSINESS

3Com (for purposes of this section only, sometimes referred to as the
"Company"), was founded on June 4, 1979 and pioneered the networking industry.
Over the years, 3Com has evolved from a supplier of discrete networking products
to a broad-based supplier of LAN and network access systems for the large
enterprise, small business, home and network service provider markets. Today,
3Com is a multi-billion dollar company offering customers a broad range of ISO
9000-compliant global data networking solutions that include routers, hubs,
remote access servers, switches and adapters for Ethernet, Fast Ethernet, Token
Ring, FDDI, ATM and other high speed networks. Additionally, the Company offers
ISDN adapters and internetworking products for small businesses and home users,
and integrated digital remote access systems used by network service providers
and telecommunications carriers. 3Com's products are distributed and serviced
worldwide through 3Com and its partners: principally systems integrators, VARs,
national resellers and dealers, distributors and OEMs. Certain products, such as
ISDN digital modems, PC Card adapters and the Network Starter Kit, are also sold
through electronics catalogs and retailers.

3Com's name is derived from its focus on COMputer COMmunication
COMpatibility. Since its inception, the Company has been a leader in defining,
shaping and promoting the growth of networking infrastructures that transmit
data to all parts of the world quickly and efficiently. The Company's commitment
to its customers goes beyond point-product excellence to making data networks
fundamentally easier to design, install, maintain and evolve. The Company's
objective is to make the network invisible to the individual end-user as well as
flexible and unconstrained for the network manager.

During fiscal 1992 and 1993, 3Com focused on changing the direction of the
Company. The Company rebuilt its product portfolio with the introduction of new
adapter, hub and internetworking platforms, expanded the training of its sales
force to sell connectivity systems and solutions, and expanded its global
presence with new sales offices, service centers, and "parts banks" worldwide.
The acquisition of the data networking products business of U.K.-based BICC
Group, plc ("BICC") in fiscal 1992 strengthened the Company's position in the
structured wiring hub market and expanded the Company's position in Europe. In
fiscal 1993, 3Com enhanced its Token Ring technology base with the acquisition
of Star-Tek, Inc., a Massachusetts-based Token Ring hub manufacturer. Also in
fiscal 1993, to further meet increased demand for its network adapter products
and to service the growing European market, 3Com began full-scale operations at
its 60,000 square foot manufacturing facility in Blanchardstown, Ireland.

In fiscal 1994, 3Com introduced a new architecture focusing on customer
requirements for scaling network performance and extending network reach.
Combined with Transcend-Registered Trademark- Network Management, which was
introduced in September 1993, this architecture, called High Performance
Scaleable Networking (HPSN) demonstrated the Company's ability to deliver
complete connectivity systems for the enterprise and beyond, and provided
customers with a framework for building and managing scaleable, high-performance
networking infrastructures. During fiscal 1994, the Company enhanced its product
offerings under HPSN with two strategic acquisitions. First, 3Com acquired
Massachusetts-based Synernetics, Inc. (Synernetics), 3Com's long-term
development partner and the revenue leader in the LAN switching market at that
time. The switching products of Synernetics are marketed under the
LANplex-Registered Trademark- name and include the LANplex 6000 backbone switch
and the LANplex 2000 family of departmental switches. Second, 3Com acquired
Centrum Communications, Inc. (Centrum) of San Jose, California, an innovator in
remote access internetworking technology. Centrum remote access servers for
Ethernet and Token Ring networks are marketed under the 3Com
AccessBuilder-Registered Trademark- trademark.

Fiscal 1994 results included a $134.5 million pre-tax charge to operations
for the combined effect of purchased in-process technology related to the
acquisitions and a wireless technology licensing agreement. Also during fiscal
1994, the Company expanded its product offerings with new and enhanced adapter,
internetworking and stackable hub products, extended its worldwide presence with
sales offices in five

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additional countries, expanded its major accounts sales force and added new
production lines at its manufacturing facilities in both the U.S. and Ireland.

In fiscal 1995, there was accelerated customer migration toward higher
performance and geographically dispersed networks. The Company expanded its
product line to address this trend with high performance adapters, enhanced
remote access products, new LAN and ATM switches and higher density
internetworking platforms. In fiscal 1995, 3Com acquired substantially all the
assets of Israel-based NiceCom, Ltd., (NiceCom) an innovator in ATM technology,
and also acquired a company developing advanced network adapter technology.
Fiscal 1995 results included a $60.8 million pre-tax charge to operations for
the effect of purchased in-process technology related to the acquisitions.

Also, in fiscal 1995, the Company capitalized on a substantial opportunity
to provide connectivity solutions beyond the enterprise market, to the small and
home office markets and to the commercial remote access market by completing two
additional acquisitions. These acquisitions were the first steps in penetrating
the small and home office networking markets, which provide dial-up connectivity
to users of on-line information services, value-added networks, and transaction
networks.

First, 3Com acquired its ISDN adapter development partner, New Jersey-based
AccessWorks Communications Inc., (AccessWorks) in a purchase transaction.
AccessWorks develops, manufactures, and markets ISDN transmission products.
Second, the Company acquired all of the outstanding stock of Sonix
Communications, Ltd., (Sonix) a U.K.-based innovator in ISDN internetworking
technology, in a pooling-of-interests transaction valued at approximately $70
million on the date the acquisition was announced. Sonix manufactures and
markets a portfolio of network access products specifically designed for data
and voice. Sonix's low-cost ISDN bridge/routers provide connectivity among
small, dispersed workgroups and simple, high-performance, low-cost connectivity
between central sites and remote offices. A market leader in the U.K., Sonix
products are marketed throughout Europe and in the U.S. as part of the
AccessBuilder family of remote access products.

In fiscal 1996, the Company extended its market presence to network service
providers and carriers, and enhanced its enterprise-wide networking solutions
through three strategic acquisitions. In the first quarter of fiscal 1996, the
Company acquired Primary Access Corporation (Primary Access) based in San Diego,
California, in a pooling-of-interests transaction valued at approximately $170
million on the date the acquisition was announced. Primary Access pioneered
software-defined access to public telephone networks with its digital
Aperture-TM- platform. Sold to interexchange carriers, cellular and local
carriers, as well as providers of on-line information services, value added
networks (VANs) and transaction networks, the Aperture platform replaces
fixed-function hardware devices such as channel banks, modems, ISDN devices and
remote access servers in central data processing sites or points of presence
(POPs). Customers of Primary Access include CompuServe, AT&T, MCI, Sprint,
regional Bell operating companies, more than 15 cellular carriers and leading
banks and oil companies.

In the second quarter of fiscal 1996, the Company acquired Chipcom
Corporation (Chipcom), a provider of integrated multifunction hub and switching
platforms, in a pooling-of-interests transaction valued at approximately $775
million on the date the acquisition was announced. Chipcom's principal product
lines, the ONline-TM- hub and ONcore-Registered Trademark- multifunction
switching platforms, complement 3Com's focused-function switching, hub and
routing products and enhance 3Com's enterprise networking solutions.
Additionally, IBM resold Chipcom products under its own brand names. The IBM
relationship has continued and has been extended to include other 3Com products.
The Company further capitalized on its relationship with IBM by forming,
together with Bay Networks, the Network Interoperability Alliance. This alliance
aligns the architectural strategies of the three companies so customers are
assured of interoperability between products, and provides for the pursuit of
common networking standards that allow customers to simplify, standardize and
enhance the design of interoperable switched networks, and facilitates the
migration to interoperable VLANs. During fiscal 1995, Chipcom acquired Artel
Communications Corporation (Artel) and DSI ExpressNetworks, Inc. (DSI). Artel
designed and developed high-

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performance communication systems for the internetworking and video distribution
markets. DSI developed and manufactured intelligent hubs and related
internetworking products.

In the fourth quarter of fiscal 1996, the Company acquired AXON Networks,
Inc. (AXON), a technological leader in next-generation remote network management
and monitoring (RMON2) and an OEM partner of embedded network management
capabilities for 3Com systems products. Specifically, AXON had provided
client/server products for enterprise traffic management, including network
management applications and network probes which enable central management and
troubleshooting of remote networks. The acquisition was accounted for as a
purchase at an aggregate purchase price of $65.3 million, which included a
pre-tax charge of $52.4 million for purchased in-process technology that had not
yet reached technological feasibility.

In recognition of the changing needs of large enterprise customers and the
growing importance of network management in evolving data network
infrastructures, the Company expanded and enhanced its architectural framework
to embrace three equally important dimensions: scaling network performance,
extending network reach, and managing network growth. The framework was named
Transcend Networking to reflect the integral role of the Company's network
management software, Transcend Network Management, and provides for the
migration to virtual local area networks (VLANs), which the Company believes is
the next phase of data network evolution.

Under the Transcend Networking framework, the Company introduced a number of
new and enhanced products, including new stackable Ethernet, Fast Ethernet and
Ethernet-to-ATM switches for connecting workgroups to high-speed backbones, LAN
emulation capabilities for its CELLplex-TM- family of ATM switches, Fast
Ethernet and Token Ring capabilities for its LANplex family of backbone and
departmental switches, and enhanced security capabilities for its AccessBuilder
family of remote access servers. The Company also rebranded its remote access
products under the AccessBuilder name and introduced the AccessBuilder 7000
Access Concentrator, the industry's first high-density LAN/WAN switch designed
to provide remote access into corporate intranets. For the small office, 3Com
introduced the OfficeConnect-TM- system of "clippable" network components, the
industry's first network system designed specifically for the small office. For
desktop and mobile connectivity, the Company began shipping the industry's first
LAN+modem PC Card adapter with v.34 (28.8 Kbps) connectivity, and enhanced Token
Ring adapters based on 3Com custom application-specific integrated circuits
(ASICs). Additionally, 3Com's industry-leading family of
EtherLink-Registered Trademark- adapters were enhanced with DynamicAccess-TM-
capabilities, which allow the adapter to perform sophisticated network
management functions and provide superior multimedia support, transforming the
network adapter from a passive connectivity device to an active network
component.

The Company believes that its principal competitive advantages lie in the
depth and breadth of its product lines, its ability to recognize and respond to
new trends in data networking, its focus on making all aspects of networking
easier for network managers and users, and a strong yet flexible business
infrastructure. 3Com has strong brand recognition in Ethernet adapters, which it
believes is transferable to other product and technology areas and markets, such
as stackable networking systems, LAN switching and remote office and personal
office internetworking platforms. Additionally, the Company believes its low-
cost manufacturing, worldwide presence, flexible distribution strategy, and
comprehensive service and support capabilities allow the Company to take
advantage of market trends that are extending the reach, scope and performance
of today's data networks.

PRODUCTS

3Com is committed to making the complexities of networks invisible to end
users and to making networks easier to design, install, maintain and evolve. As
the cornerstone of this commitment, 3Com has developed Transcend Networking, a
unique framework that enables network managers to provide users with more
services at their expected response levels, at lower cost, with less risk and
with less effort.

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The Transcend Networking framework takes a "three-vectored" approach to
evolving networks. Each vector consists of a host of innovative architectures,
networking technologies, platforms and specific products. The three vectors
include:

- - SCALING THE PERFORMANCE OF THE NETWORK: Switching and desktop connectivity
solutions which provide migration to increased LAN bandwidth/capacity by
meeting the distinct requirements of the core and boundary of the LAN;

- - EXTENDING THE REACH OF THE NETWORK: Wide area network (WAN) routing and
remote access solutions which provide remote workgroups and individual users
with connectivity to resources on corporate backbones by meeting the specific
requirements of central and remote sites and of mobile and home users;

- - MANAGING THE GROWTH OF THE NETWORK: Networking products with embedded,
scaleable management features and innovative distributed network monitoring,
analysis and management solutions.

PRINCIPLES OF THE TRANSCEND NETWORKING FRAMEWORK

3Com designs solutions by first developing platforms (e.g., types of
routers, switches, and remote access devices) that meet the distinct
requirements of each location in the network, then selecting/ developing the
networking technologies (e.g., high-speed technologies, management features) to
solve location-dependent needs and finally, packaging the solution (e.g.,
stackable or chassis form factor).

The driving principles of the Transcend Networking framework include:

- - TECHNOLOGY AND PLATFORM NEUTRALITY--no biases toward any network type (e.g.,
Ethernet, Fast Ethernet, FDDI, ATM) or kind of system (e.g., switch, router,
stackable, chassis) in order to offer customers more effective, economical
and tailored solutions;

- - CENTRALIZING COMPLEXITY AND DISTRIBUTING SIMPLICITY--installing the more
complex systems and network functions required at the network core to take
advantage of central processing, support facilities and economies of scale,
while distributing the simplest, easiest to maintain and least expensive
systems to the network boundary where users are connected to the network;

- - STANDARDS-BASED, OPEN MULTI-VENDOR ARCHITECTURE--innovative solutions based
on industry standards to enable 3Com's systems to interoperate with any other
vendor's equipment;

- - INVESTMENT PROTECTION WITH INCREMENTAL EVOLUTION--solutions that allow
customers to upgrade their networks to new functionality and higher
performance technologies as their needs evolve;

- - LOW TOTAL COST OF OWNERSHIP--providing complete enterprise, multiplatform
solutions, combined with point-product excellence, which are optimized for
total price/performance and efficient, low-cost operations management.

Within the Transcend Networking framework, 3Com offers a complete breadth of
products and innovative technologies that scale network performance, extend
network reach and manage network growth for the enterprise market, as well as
solutions for small sites/small businesses, network service providers and
individual mobile or home users. 3Com's solutions include network systems
products and network adapters, which accounted for 59 percent and 40 percent of
fiscal 1996 sales, respectively.

NETWORK SYSTEMS PRODUCTS

LAN AND ATM SWITCHING PLATFORMS: 3Com switches provide cost-effective,
high-speed links between multiple network segments, simplifying network design
and reducing network latency in client/server networks. Switches can also
provide direct links to either the desktop or server, providing dedicated
capacity to high-bandwidth users. The development of custom ASICs for switching
is central to the Company's switching strategy. Virtually all of 3Com's
internally developed switches are based on custom-

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designed ASICs, which the Company believes will dramatically improve performance
and reliability while reducing costs. Switching ASICs developed by 3Com include
the Intelligent Switching Engine (ISE) chip for Ethernet-to-FDDI switching, the
BRASICA-TM- chip for Ethernet and Fast Ethernet switching, the ZipChip-TM-device
for Ethernet-to-ATM switching and the Token Ring Switching Engine for Token Ring
switching. 3Com switches are available in either chassis or stackable formats
and are optimized to meet the specific need of the network core and its
boundaries.

High function switches: High function switches are designed to meet the
requirements of the network core (backbone) for high density connectivity,
scaleable capacity, reliability and network control, and to meet the migration
needs of the customer. In a collapsed backbone environment, high function
switches might act as a high-performance, high capacity switch connecting
multiple boundary switches or hubs, or both, depending on the network design and
bandwidth needs of the different network segments. 3Com's chassis (modular) high
function switches include:

- - The CELLplex family of ATM switches for aggressive migration to cell-switched
network backbones. CELLplex switches include VLAN capabilities for the
creation of logical user groups and broadcast domains, as well as integrated
ATM forum LAN emulation for smooth Ethernet-to-ATM communications.

- - The ONcore line of integrated, multifunction switches for highly integrated
migration from shared LANs to packet-switched and cell-switched backbones.
The ONcore platform supports a full range of LAN technologies, including
shared and switched Ethernet, Token Ring, FDDI and ATM, as well as remote
access, routing and communication server functions.

- - The LANplex family of LAN switches for migrating backbone router environments
to packet-switched LANs. The LANplex family of LAN switches offers high
performance Ethernet, Fast Ethernet, FDDI and Token Ring switching for data
center and department applications.

Boundary switches: Boundary switches are designed to meet the requirements
of the LAN boundary to reduce network latency at the desktop by providing
increased bandwidth, and to provide simple, plug-and-play connectivity. These
switches can provide either a direct desktop or server connection, or provide
for greater network bandwidth by switching between Ethernet or Fast Ethernet
hubs and the network backbone. 3Com boundary switches are available in either
chassis or stackable format and provide for Ethernet-to-Ethernet,
Ethernet-to-Fast Ethernet, Ethernet-to-FDDI, and Ethernet-to-ATM connectivity.
The Company began shipping the LinkSwitch-Registered Trademark- family of
stackable boundary switches as part of the SuperStack-TM- network system in late
fiscal 1995 and early fiscal 1996.

HUBS: Hubs act as concentrators of network traffic generated from the
desktop and define specific network segments, relaying the traffic either within
the workgroup or onto the network backbone. Unlike switches, each desktop
connected through a hub shares the total available bandwidth of the hub with
other users. Their relatively low cost per port, manageability and ease-of-use,
make hubs a popular choice for workgroup connectivity. Multiple hubs are
frequently connected to a switch, which acts as a "hub of a hub," to segment the
network and improve overall performance.

The Company designs, manufactures and markets a full range of Ethernet, Fast
Ethernet, Token Ring and FDDI hubs in either stackable or chassis-based
configurations. 3Com's stackable hubs, including the
LinkBuilder-Registered Trademark- FMS for Ethernet, Fast Ethernet and Token Ring
networks, provide users with a highly reliable, cost-effective solution for
networking workgroups in both the central site and remote office. 3Com's
SuperStack II stackable network solutions offer customers significant
capabilities such as routing, remote access, and network management. 3Com's
chassis hubs, LinkBuilder MSH and ONline, offer higher density and sophisticated
network management capabilities, making them ideal for growing departments and
mid-size workgroups.

ENTERPRISE INTERNETWORKING PLATFORMS: Internetworking devices link
multiprotocol LANs within the building/campus environment and provide WAN
connectivity to link multiple remote locations and provide

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access to the Internet and other remote network resources. 3Com offers a variety
of internetworking solutions that extend the reach of the network, each tailored
to the specific needs of the application.

Backbone and remote office routers. For central sites needing
high-performance bridge/routing and a choice of Ethernet, Fast Ethernet, Token
Ring, FDDI, ATM and WAN connectivity, 3Com offers the high-density,
multiprotocol NETBuilder II-Registered Trademark- bridge/router. Available in a
range of compatible chassis with the ability to add additional processing power
over time, the NETBuilder II offers a high degree of scalability to handle
evolving LAN and WAN integration requirements. The NETBuilder II also provides
the central site connection for NETBuilder-Registered Trademark- Remote Office
routers running Boundary Routing" software.

NETBuilder Remote Office routers, designed for the remote or branch office,
support Ethernet and Token Ring LANs, analog and ISDN lines, and System Network
Architecture (SNA) applications over 3Com's Boundary Routing system
architecture. Available in either standalone configurations or as part of the
SuperStack network system, NETBuilder Remote Office routers simplify remote
office connectivity and offer extensive upgradability and flexibility as remote
office routing needs evolve.

Remote network access servers. Remote access servers provide central site
connectivity for mobile workers and telecommuters accessing Ethernet or Token
Ring networks from remote locations over public telephone lines. Available in
densities ranging from 4 to 16 ports, the AccessBuilder 2000 and AccessBuilder
4000 servers are suitable for small to mid-size corporate intranets. To complete
the connection at the remote site, 3Com offers the 3ComImpact-TM- ISDN digital
modem.

REMOTE ACCESS CONCENTRATORS: For network service providers with large
dial-up networks and for enterprises building large-scale corporate intranets,
3Com offers the AccessBuilder 8000 and AccessBuilder 5000 network access
concentrators. The AccessBuilder 8000 server (formerly Aperture II) is a
high-density, software-defined platform capable of delivering network access to
large numbers of concurrent users over both digital (ISDN) and analog lines. It
has been installed by the world's leading online service companies, such as
AT&T, CompuServe, Sprint and Microsoft Network. The AccessBuilder 5000 server,
introduced in March 1996, is an integrated LAN/WAN switch designed to provide
network access into large-scale corporate intranets. Built around the ONcore
chassis, the AccessBuilder 5000 server supports Ethernet and Token Ring LANs as
well as up to 256 remote user ports.

SMALL OFFICE SYSTEMS: In February 1996, 3Com introduced the OfficeConnect
network system, a full range of hubs, servers and remote connectivity devices
for the small office. The industry's first complete networking system designed
from the outset to meet the needs of small remote sites and small businesses,
the OfficeConnect system offers a unique "clippable" design, silent operation
and a very small footprint. Leveraging its technological strengths in the
enterprise market, 3Com provides the hub and Internet-optimized WAN access
devices of the OfficeConnect system and partners with third parties for
additional components such as fax, print and CD-ROM servers.

NETWORK MANAGEMENT: In September 1993, 3Com introduced Transcend Network
Management, a family of network management applications that represents a
significant advance in simplified and logical management of LANs and WANs. Using
Transcend applications on the network management platform of their choice,
network administrators are able to create logical groups of hubs, routers,
servers and desktop devices, regardless of physical location, to obtain
correlated management information and control. To simplify network
administration, Transcend products also leverage administrative resources by
consolidating repetitive tasks, such as downloading router software, into a
single command.

In March 1996, when 3Com acquired AXON, a leader in the remote monitoring of
network traffic, the Company formed a separate network management division
chartered with coordinating development of enterprise-wide network management
applications, policies and systems.

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NETWORK ADAPTERS

Network adapters, also known as network interface cards (NICs), are add-in
printed circuit boards that allow network servers, personal computers, laptop
computers and workstations to connect to the LAN. According to International
Data Corporation (IDC), a leading market research firm, 3Com is the leading
provider of Desktop Ethernet adapters with a 40 percent market share. According
to Dataquest, 3Com also leads the market in Ethernet LAN PC Card (formerly
PCMCIA) adapters with a 29 percent market share.

In fiscal 1993, 3Com began shipping its family of
EtherLink-Registered Trademark- III adapters with Parallel
Tasking-Registered Trademark- technology, based on a 3Com-designed custom ASIC.
Parallel Tasking is an innovative architecture that speeds data transfers by
allowing separate tasks to be performed in parallel, resulting in higher overall
adapter efficiency and performance than would otherwise be possible. The Company
has applied for and received patents on certain aspects of this technology. In
fiscal 1994, 3Com introduced Ethernet PC Card adapters for laptop and other
portable computers, further extending the EtherLink III family. 3Com's EtherLink
III adapters include 16-bit ISA, 32-bit EISA, MicroChannel and Combo adapters as
well as the PC Card adapter. All are designed around 3Com's custom ASIC, which
results in products that the Company believes are inherently more reliable,
easier to install and configure, and less expensive to manufacture.

In fiscal 1995, 3Com introduced a new, higher performance, lower cost
version of its popular 10 Mbps EtherLink III adapters and extended the
technology to include the new Fast Ethernet (100 Mbps Ethernet) standard. The
Fast EtherLink III family of network adapters are dual speed Ethernet adapters
capable of transmitting data at either 10 Mbps or 100 Mbps. The Company believes
the Fast EtherLink family of adapters provides network managers with a smooth
upgrade path to higher speed workgroup connectivity.

In fiscal 1996, 3Com began developing further advancements to its NIC
technology to meet the evolving needs of today's networks. Shortly after the
close of the fiscal year, the Company introduced EtherLink XL Ethernet and Fast
Ethernet NICs with DynamicAccess technology, which incorporates new features
that facilitate the migration to virtual networking and collaborative computing.
DynamicAccess allows the adapter to perform sophisticated network management and
configuration functions at the desktop and provides for superior multimedia
support and transforms the NIC from a passive connectivity device into an active
network component.

In addition to Ethernet and Fast Ethernet adapters, 3Com offers Token Ring,
FDDI and ATM adapters. Based on 3Com custom ASICs, the
TokenLink-Registered Trademark- III family of ISA, EISA and MicroChannel
adapters are designed to work seamlessly with IBM drivers and applications while
offering enhanced performance, installation and network management features.
3Com's FDDILink-TM- family of adapters connect devices to the network via copper
wiring and fiber at 100 Mbps. When combined with 3Com's FDDI Concentrator (hub),
FDDILink adapters offer workstation and high-end PC users a cost-effective
solution for high-bandwidth applications. 3Com's ATMLink-TM- adapters support
ATM forum LAN emulation, allowing users to scale performance incrementally, and
are part of the Company's end-to-end ATM solution.

OTHER PRODUCTS

Other products accounted for one percent of fiscal 1996 sales and primarily
include communication servers, which provide terminal-to-host connectivity for
terminals and workstations over the network and protocol software.

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PRODUCT DEVELOPMENT

The Company's product development efforts are focused exclusively on its
strategic product lines: network systems products and network adapters. The
Company's ownership of core networking technologies creates opportunities to
leverage its engineering investments and develop more integrated products for
simpler, more innovative networking solutions for customers. The Company plans
to invest in emerging technologies for use in existing and future products, as
well as to improve and enhance existing products to extend their lifecycles,
reduce manufacturing costs and increase functionality. In addition to the
development of custom ASICs to improve performance, increase reliability and
reduce costs, the Company is investing in the following areas: network
management, Fast Ethernet (100 Mbps Ethernet), ATM and other high speed
networking technologies, wireless LAN communications, VLAN capabilities, ISDN
and other remote access technologies, enhanced connectivity in IBM environments,
and remote access for single and mobile users (including data-over-cable and
Asymmetric Digital Subscriber Line or ADSL technologies).

The industry in which 3Com competes is subject to rapid technological
developments, evolving industry standards, changes in customer requirements and
frequent new product introductions and enhancements. As a result, the Company's
success in part depends upon its ability, on a cost-effective and timely basis,
to continue to enhance its existing products and to develop and introduce new
products that take advantage of technological advances. The Company will
continue to make strategic acquisitions where appropriate. There can be no
assurance that 3Com will be able to successfully develop new products to address
new industry transmission standards and technological changes or to respond to
new product announcements by others or that such products will achieve market
acceptance.

MARKETS AND CUSTOMERS

3Com's customers are represented among the world's leading industries,
including finance, health care, manufacturing, government, education, and
service organizations. In fiscal 1994, the Company began targeting specific
vertical markets, including health care, education, finance and government, and
has recently started expanding its major accounts sales force. With the
acquisition of OnStream, 3Com will gain important presence within the network
service provider markets.

Around the world, 3Com serves its customers through a variety of sales
channels including direct and indirect channels. Indirect channels include
systems integrators, VARs, distributors, national dealers and resellers, and
OEMs. The Company's multi-channel sales strategy encourages broad market
coverage by allowing 3Com sales personnel to create demand for the Company's
products while giving customers the flexibility to choose the most appropriate
delivery channels. In fiscal 1995, the Company began building an end-user sales
force to target large enterprise accounts and established a separate sales force
to market to telephone carriers and network service providers. 3Com has also
maintained and expanded Chipcom's relationships with large, single-tier network
integrators.

INTERNATIONAL OPERATIONS: 3Com distinguishes itself from many of its
competitors with its dedicated research and development, manufacturing, sales
and service organizations outside the United States. The Company maintains sales
offices in 32 countries, with new offices opened in fiscal 1996 in Eastern
Europe, Latin America and the Asia Pacific region. The Company primarily markets
its products internationally through subsidiaries, sales offices and
relationships with local distributors in Europe, Canada, Asia Pacific and Latin
America (see Note 16 of the Notes to Consolidated Financial Statements relating
to geographic area information).

CUSTOMER SERVICE: Since global data networking infrastructures are becoming
increasingly complex, customers require vendors to help them manage and support
their networks as well as design and build them. Additionally, as customers'
networking purchases transition from point-product to connectivity systems, a
more solutions-oriented approach to service and support is required. The Company
recognized these trends early and has invested in a comprehensive worldwide
service and support organization capable

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of providing virtually around-the-clock customer support regardless of
geographic location. In fiscal 1996, the Company expanded its worldwide service
and support capabilities to offer true 7 day/24 hour support to its customers by
doubling the post-sale dedicated customer service engineers in North America,
opening additional support centers and providing toll-free support service in
Latin America, Europe and the Asia Pacific, as well as adding interactive
Internet-based customer support options.

Worldwide logistics include support and repair centers in the United States,
dedicated service organizations in Europe and Asia Pacific regions, "parts
banks" at more than 25 locations, and electronic bulletin boards throughout the
world. In addition to on-site training, the Company also provides computer-based
courses that allow customers to learn networking technologies at their own pace
in their own environments.

BACKLOG

3Com manufactures its products based upon its forecast of the demand of its
customers worldwide and maintains inventories of finished products in advance of
receiving firm orders from its customers. Orders are generally placed by the
customer on an as-needed basis and products are usually shipped within one to
four weeks after receipt of an order. Such orders generally may be canceled or
rescheduled by the customer without significant penalty. Accordingly, the
Company does not maintain a substantial backlog, and backlog as of any
particular date may not be indicative of 3Com's actual sales in any succeeding
period.

MANUFACTURING AND SUPPLIERS

3Com's primary production activities are conducted at its Santa Clara,
California and Blanchardstown, Ireland facilities. Purchasing, mechanical
assembly, burn-in, testing, final assembly, and quality assurance functions are
performed at both of these facilities. The Company also procures certain
products and subassemblies through subcontractors. Over the past several years,
the Company has been investing in automating its manufacturing capabilities,
decreasing the costs and increasing the quality of both manufacturing design and
production. To meet increased demand for its global data networking products,
the Company added new automated production lines in both its California and
Ireland plants. In fiscal 1996, construction was completed on a new 225,000
square feet manufacturing facility at its headquarters in Santa Clara, and the
Ireland facility was expanded to 120,000 square feet. The new Santa Clara
facility, which produces the EtherLink and TokenLink families of network
adapters and the SuperStack network system components, tripled the existing
manufacturing square footage in Santa Clara.

The Company is committed to being an environmentally conscious manufacturer,
and pioneered implementation of a chlorofluorocarbon (CFC)-free semi-aqueous
cleaning process at its California plant with DuPont and Corpane Corporations.
The same process is used at the Ireland facility, and 3Com met its goal of being
CFC-free by the end of calendar year 1993.

Components purchased by the Company are generally available from multiple
suppliers. However, certain components may be available from sole sources. The
inability of 3Com to obtain certain components could require the Company to
redesign or delay shipments of several of its data networking products. The
Company has sought to establish close relationships with sole-source suppliers
and/or to build up inventory of such components; however, there can be no
assurance that production would not be interrupted due to the unavailability of
components. The Company believes that its inventory levels of these components,
combined with finished components held by 3Com's suppliers, are adequate for its
currently forecasted needs.

COMPETITION

Data networking is an emerging field within the information systems industry
encompassing both on-premises (e.g., desktop connectivity devices,
internetworking platforms, data network switching, and wiring

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hubs) and off-premises (e.g., wide-area networking) technologies. The Company
participates primarily in designing, manufacturing and marketing on-premises
equipment, and is expanding its presence in the off-premises POP market. 3Com's
competitors typically compete in one or more segments of the on-premises sector
of the data networking market. These companies are using their resources and
technical expertise to improve and expand their product lines in an effort to
gain market share. Several competitors are extending their product offerings
beyond a single market segment and are pursuing strategies more closely
resembling 3Com's global data networking strategy. The industry recently has
witnessed a wave of merger, acquisition and strategic partnering activity as
many of these companies seek to provide broader networking solutions.

NETWORK SYSTEMS PRODUCTS: Competition in the network systems business,
formerly characterized by niche-based competitors focused on a single industry
segment, is shifting toward more broad-based suppliers offering multiple product
lines. This has been achieved through mergers and acquisitions, through joint
marketing agreements, and through internally developed products. This industry
consolidation, and the convergence of hub, switching and routing technologies on
single platforms, will likely continue, intensifying competition among a small
group of companies with broad product offerings. Principal competitors in the
network systems products market include Bay Networks, Cabletron and Cisco
Systems. Additionally, shifting market trends that place a greater importance on
switching and remote access have allowed small niche-product companies such as
Shiva and Xylan to grow their revenues and gain additional market share.

Until very recently, the market for remote access concentrators, primarily
POP connectivity equipment, has been characterized by a large number of vendors
with many complementary hardware products. A traditional POP maintained by a
network service provider might include modems, channel banks, and packet
assembler/disassemblers (PADs) from a number of different suppliers. Integrated
remote access concentrators, such as 3Com's AccessBuilder 8000 server, replace
these multiple, single function hardware products with a single software-defined
platform capable of handling both digital and analog signals. 3Com, through its
Primary Access subsidiary, competes against various manufacturers of the
products mentioned above, as well as Ascend Communications, Cisco Systems and
U.S. Robotics who manufacture integrated remote access concentrators that
compete directly with the AccessBuilder 8000 server.

The market for ISDN digital modems is characterized by many small companies
in both the U.S. and Europe, and by a few well established electronics and modem
manufacturers, such as Ascend Communications, Motorola, and U.S. Robotics.
Additionally, Bay Networks and Cisco Systems have both acquired companies
capable of manufacturing ISDN connectivity devices. The market for ISDN is
currently very small, however, more companies may combine to achieve greater
market presence in the ISDN segment, and give rise to ISDN's increased
availability to individual users and small businesses.

NETWORK ADAPTERS: The market for network adapters is highly competitive,
with companies offering products that support a range of Ethernet, Fast
Ethernet, Token Ring and FDDI media. Principal competitors in the traditional
adapter market include Intel Corporation, IBM Corporation, Madge N.V., Olicom
A/S, Standard Microsystems Corporation and Xircom.

The Company believes it competes favorably in the data networking market by
providing customers with a full breadth of products based on leading
technologies which, when combined under the Transcend Networking framework,
address central site and remote connectivity needs for enterprise customers, and
offer innovative solutions for small offices, network service providers and
individual users. Additionally, 3Com believes that its products enjoy a
reputation for both high quality and reliability.

PATENTS, LICENSES AND RELATED MATTERS

The Company relies on U.S. and foreign patents, copyrights, trademarks and
trade secrets to establish and maintain proprietary rights in its technology and
products. 3Com has an active program to file applications for and obtain patents
in the United States and in selected foreign countries where a potential

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market for the Company's products exists. The Company's general policy has been
to seek patent protection for those inventions and improvements likely to be
incorporated in its products or otherwise expected to be of value. The Company
has been issued 62 utility patents and six design patents in the U.S., and has
been issued four foreign patents. Numerous other patent applications are
currently pending which relate to the Company's research and development.

There can be no assurance that any of these patents would be upheld as valid
if litigated. While the Company believes that its patents and applications have
value, it also believes that its competitive position depends primarily on the
innovative skills, technological expertise and management abilities of its
employees.

3Com has been granted licenses by others, including a fully paid, perpetual,
non-exclusive license to a patent held by Xerox covering a portion of the
Ethernet technology.

The Company has registered 48 trademarks in the United States and has
registered 23 trademarks in one or more of 43 foreign countries. Numerous
applications for registration of domestic and foreign trademarks are currently
pending.

Many of 3Com's products are designed to include software or other
intellectual property licensed from third parties. The Company actively seeks to
license software that promotes the compatibility of its products with industry
standards, including standard protocols and architectures. The loss of rights in
software or other intellectual property licensed from a third party and designed
into a particular product might disrupt or delay 3Com's distribution of that
product. While it may be necessary in the future to seek or renew licenses
relating to various aspects of its products, the Company believes that, based
upon past experience and standard industry practice, such licenses generally
could be obtained on commercially reasonable terms.

EMPLOYEES

As of August 31, 1996, 3Com had approximately 5,726 full-time employees, of
whom 1,322 were employed in engineering, 2,340 in sales, marketing and customer
service, 1,380 in manufacturing, and 684 in finance and administration. None of
3Com's employees is represented by a labor organization and the Company
considers its employee relations to be excellent.

LEGAL PROCEEDINGS

On October 13, 1995, the Company acquired Chipcom, which had already been
named as a defendant in the litigation described below. On May 30, 1995, a
complaint was filed in the United States District Court for the District of
Massachusetts entitled LUCILLE NAPPO, MARC LINSKY, CONSTANDINE MACHAKOS, AND
MARY MACHAKOS V. CHIPCOM CORP., JOHN ROBERT HELD, ROBERT PETER BADAVAS, BRUCE L.
COHEN, MENACHEM E. ABRAHAM, AND JERALD G. FISHMAN. The named plaintiffs purport
to represent the class of persons who purchased Chipcom's common stock during
the period from and including February 8, 1995 through and including May 26,
1995. The complaint alleged violations by the defendants of Sections 10(b) and
20(a) of the Securities and Exchange Act of 1934, and sought unspecified
damages. On June 7, 1995, a complaint alleging very similar claims was filed
against the same defendants in the same Court by Anthony Mallozzi. A third
similar complaint was filed against the same defendants in the same Court on
June 8, 1995, by Daniel List. A fourth similar complaint was filed in the same
Court on June 16, 1995, entitled SEAN J. CARNEY AND NICHOLAS GIANNANTONIO V.
CHIPCOM CORP., JOHN HELD, AND ROBERT BADAVAS. A fifth similar complaint was
filed in the same Court on June 16, 1995, entitled MANUEL C. DESOUSA AND BARBARA
J. DESOUSA V. CHIPCOM CORP., John Held, and Robert Badavas. The cases were
consolidated for pretrial purposes pursuant to an order entered by the Court on
June 15, 1995. The consolidated action is entitled IN RE: CHIPCOM SECURITIES
LITIGATION, Civil Action No. 95-111114-DPW. A Consolidated Complaint was filed
on September 13, 1995, and an Amended Consolidated Complaint was filed on
November 30, 1995.

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The defendants' motion to dismiss the Amended Consolidated Complaint was
granted without leave to amend on May 1, 1996. The dismissal covers all five
cases. On October 1, 1996, the parties to these cases agreed upon what the
Company considers to be favorable financial terms for settlement of all five
cases, which amount is not considered material to the Company's operations or
financial position. Pursuant to the contemplated settlement, which would be
subject to the approval of the District Court, it is intended that all claims of
all persons which are related to the subject matter of the Consolidated
Complaint would be settled and released.

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3COM CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

THREE MONTHS ENDED AUGUST 31, 1996 AND 1995

RESULTS OF OPERATIONS

3Com achieved record sales in the first quarter of fiscal 1997 totaling
$707.0 million, an increase of $209.7 million or 42 percent from the
corresponding quarter a year ago. Compared with the fourth quarter of fiscal
1996, sales for the first quarter of fiscal 1997 increased $46.7 million or
seven percent.

The Company believes that the year-over-year increase in first quarter sales
is due to several factors, including continued strength in the data networking
market as customers migrate to new technologies such as Fast Ethernet, increases
in worldwide personal computer sales, and the strength of the Company's product
offerings at the edge of the network, including workgroup switching and hubs.
The Company also believes that the impact of a strong new product cycle in
systems and adapter products and the continuous expansion of 3Com's product
offerings and its ability to deliver complete data networking solutions for
different connectivity environments contributed to the increase in first quarter
sales over the same period a year ago.

Sales of network systems products (i.e., internetworking platforms, remote
access servers, hubs, switching products and customer service) in the first
quarter of fiscal 1997 represented 59 percent of total sales and increased 38
percent from the same quarter one year ago. In the first quarter of fiscal 1996,
sales of network systems products represented 61 percent of total sales. The
increase was led primarily by the LinkSwitch workgroup switching family, the
LinkBuilder FMS II stackable hub, the SuperStack LinkBuilder FMS 100 Stackable
Fast Ethernet Hub, and the CELLplex ATM switching family. The increase was
partially offset by a decrease in sales of discontinued product lines acquired
from Chipcom. Customer service revenue is included in network systems products
(previously this revenue was classified as other products), and accordingly, all
sales composition and growth percentages reflect this reclassification.

Sales of network adapters in the first quarter of fiscal 1997 represented 40
percent of total sales and increased 52 percent from the year-ago period. In the
first quarter of fiscal 1996, sales of network adapters represented 37 percent
of total sales. The increase in network adapter sales was led primarily by the
Fast EtherLink PCI adapters, EtherLink III family of network adapters, and the
EtherLink PC Card adapters.

Sales of other products represented one percent of total sales in the first
quarter of fiscal 1997, compared with two percent of total sales in the first
quarter of fiscal 1996, and is not significant to the Company's operations, as
expected.

Sales in the United States for the first quarter of fiscal 1997, comprised
52 percent of total sales, compared to 49 percent in the same period a year ago.
Sales growth in the United States was 49 percent when compared to the first
quarter of fiscal 1996. The Company believes the growth in sales in the United
States can be attributed primarily to increased sales to large enterprise
organizations and the enhancement of the Company's product portfolio.
International sales for the first quarter of fiscal 1997 increased 35 percent
over the same period a year ago, and increased in all geographic regions,
primarily in the Asia Pacific region. The Company believes that the growth in
International sales is due primarily to the Company's continued global expansion
through the opening of new sales offices, and the expansion of its worldwide
field sales, service and support programs. The Company's operations were not
significantly impacted by fluctuations in foreign currency exchange rates in the
first quarters of fiscal 1997 and 1996.

Cost of sales as a percentage of sales was 46.0 percent in the first quarter
of fiscal 1997, compared to 47.4 percent for the first quarter of fiscal 1996.
The resulting improvement in gross margin in the first quarter of fiscal 1997
primarily reflected an increased shipment mix of higher margin workgroup
switching

40
<PAGE>
and stackable system products, and lower product material costs of certain
adapter products. The combination of these factors would have increased gross
margin by approximately 2.7 percentage points. Factors causing the increase in
gross margin were partially offset by increased provisions for excess and
obsolete inventories and a higher mix of certain lower margin adapter products,
which collectively would have reduced gross margin by approximately 1.3
percentage points.

Total operating expenses in the first quarter of fiscal 1997 were $240.5
million, or 34.0 percent of sales, compared to $174.7 million, or 35.1 percent
of sales, in the first quarter of fiscal 1996.

Sales and marketing expenses in the first quarter of fiscal 1997 increased
$39.1 million or 38 percent from fiscal 1996. As a percentage of sales, sales
and marketing expenses decreased to 20.0 percent in the first quarter of fiscal
1997, from 20.6 percent in the corresponding fiscal 1996 period. The decrease as
a percentage of sales is due in part to gains in efficiency following
assimilation of the separate sales, marketing and support organizations
initially present as a result of the fiscal 1996 acquisition of Chipcom. A
recent initiative of the Company is to increase personnel in field sales,
service and support organizations to further serve its customers and channel
partners, which the Company anticipates may result in a slight increase in sales
and marketing expense as a percentage of sales in future periods.

Research and development expenses in the first quarter of fiscal 1997
increased $18.0 million or 35 percent from the year-ago period. As a percentage
of sales, such expenses decreased to 9.8 percent in fiscal 1997, compared to
10.4 percent in the first quarter of fiscal 1996. The increase in research and
development expenses was primarily attributable to the cost of developing 3Com's
new products, primarily switching, traffic management and adapter products, and
the Company's expansion into new technologies and markets. The Company believes
the timely introduction of new technologies and products is crucial to its
success, and plans to continue to make acquisitions to accelerate time to market
where appropriate. Most of the in-process research and development projects
acquired in connection with the Company's business acquisitions have been
completed. The Company estimates that the remaining costs in connection with the
completion of outstanding acquired research and development projects are not
significant, and are primarily made up of labor costs for design, prototype
development and testing. The Company anticipates total future research and
development spending as a percent of sales will not significantly differ from
its historical trend.

General and administrative expenses in the first quarter of fiscal 1997
increased $8.7 million or 41 percent from the same period a year-ago. The
increase in general and administrative expenses reflected expansion of the
Company's infrastructure through internal growth, and higher provisions for bad
debts, as a result of the increased volume of sales. As a percentage of sales,
such expenses remained flat at 4.2 percent, when compared to the same period a
year ago.

Other income (net) was $2.9 million in the first quarter of fiscal 1997,
compared to $1.3 million in the first quarter of fiscal 1996. The increase was
due primarily to interest income, which increased due to larger cash and
investment balances.

The Company's effective income tax rate was 35.5 percent in the first
quarter of fiscal 1997, compared to 35.0 percent in the first quarter of 1996.

Net income for the first quarter of fiscal 1997 was $93.1 million, or $0.52
per share, compared to net income of $57.4 million, or $0.33 per share, for the
first quarter of fiscal 1996. Net income and net income per share increased 62
and 58 percent, respectively, from the first quarter of fiscal 1996.

FISCAL YEARS ENDED MAY 31, 1996, 1995 AND 1994

ACQUISITIONS

During the fiscal year ended May 31, 1996, 3Com enhanced its enterprise-wide
networking solutions with two acquisitions. On March 12, 1996, the Company
acquired AXON Networks, Inc. (AXON), a

41
<PAGE>
technological leader in remote network management and monitoring of data network
traffic. The purchase price consisted of cash, net of cash acquired, of
approximately $60.2 million, which was paid using funds from the Company's
working capital, and assumption of stock options with a fair value of
approximately $3.7 million. The acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair market values at the date of acquisition. The aggregate purchase
price of $65.3 million, including $1.4 million of costs directly attributable to
the completion of the acquisition, has been allocated to the assets acquired and
the liabilities assumed. Approximately $52.4 million of the total purchase price
represented the value of in-process technology that had not yet reached
technological feasibility, had no alternative future use and was charged to the
Company's operations in the fourth quarter of fiscal 1996. The Company's
consolidated results of operations for the fiscal year ended May 31, 1996
include the operating results of AXON from the date of acquisition.

On October 13, 1995, the Company acquired Chipcom Corporation (Chipcom), a
provider of computer networking multifunction platforms, including hubs,
switching and network management products. The Company issued approximately 18.3
million shares of 3Com common stock in exchange for all the outstanding common
stock of Chipcom. The Company also assumed and exchanged all options to purchase
Chipcom common stock for options to purchase approximately 2.4 million shares of
the Company's common stock. The acquisition was accounted for as a
pooling-of-interests, and all financial data of the Company prior to the
acquisition has been restated to include the historical information of Chipcom.
No significant adjustments were required to conform the accounting policies of
the Company and Chipcom. In connection with the acquisition of Chipcom,
acquisition-related costs of $69.0 million were charged to operations in the
second quarter of fiscal 1996. These charges consisted primarily of expenses for
the elimination of duplicate and discontinued products and facilities, related
severance costs and direct transaction costs (see Note 13 of Notes to
Consolidated Financial Statements).

On June 9, 1995, 3Com extended its market presence to network service
providers and carriers with the acquisition of Primary Access Corporation
(Primary Access), a provider of integrated network access systems. The Company
issued approximately 4.6 million shares of 3Com common stock for all of the
outstanding stock of Primary Access, and assumed and exchanged all options and
warrants to purchase Primary Access stock for options and warrants to purchase
approximately 1.0 million shares of the Company's common stock. The acquisition
was accounted for as a pooling-of-interests, and all financial data of the
Company prior to the acquisition has been restated to include the historical
information of Primary Access. No significant adjustments were required to
conform the accounting policies of the Company and Primary Access.

In fiscal 1995, the Company acquired Sonix Communications, Ltd. (Sonix), a
provider of ISDN connectivity solutions in the United Kingdom, and Chipcom
acquired Artel Communications Corporation (Artel), a provider of
high-performance communication systems for the internetworking and video
distribution markets. The Company issued an aggregate of approximately 3.6
million shares of common stock in exchange for all the outstanding stock of the
acquired companies. Both acquisitions were accounted for as
poolings-of-interests. Also in fiscal 1995, the Company acquired NiceCom, Ltd.
(NiceCom), an innovator of ATM technology, and Chipcom acquired DSI
ExpressNetworks, Inc. (DSI), a developer of intelligent hubs and internetworking
products. Both acquisitions were accounted for as purchases. Fiscal 1995 results
included a $68.7 million pre-tax charge to operations for the effect of
purchased in-process technology related to fiscal 1995 purchase transactions.

In fiscal 1994, the Company acquired Synernetics, Inc. (Synernetics), a
market leader in LAN switching products, and Centrum Communications, Inc.
(Centrum), an innovator of remote access products. Both acquisitions were
accounted for as purchases. The Company also entered into a technology licensing
agreement with Pacific Monolithics, Inc., a developer of wireless communications
(see Note 12 of Notes to Consolidated Financial Statements). Fiscal 1994 results
included a $134.5 million pre-tax charge to operations for the combined effect
of purchased in-process technology related to the acquisitions and the license
agreement.

42
<PAGE>
See Notes 3 and 13 of Notes to Consolidated Financial Statements for
additional information on the above business combinations.

RESULTS OF OPERATIONS

Fiscal 1996 sales increased 46 percent to $2.3 billion from $1.6 billion in
fiscal 1995. This compares to a 58 percent increase in sales in fiscal 1995 from
fiscal 1994 sales of $1.0 billion. The Company believes that the increase in
fiscal 1996 and 1995 sales is due to several factors, including continued
strength in the data networking market as customers migrate to new technologies
such as LAN switching and Fast Ethernet, increases in worldwide personal
computer sales, rapid growth in sales outside the U.S., and the continuous
expansion of 3Com's product offerings and its ability to deliver complete data
networking solutions for different connectivity environments.

Sales of network systems products (i.e., internetworking platforms, remote
access servers, hubs, switching products and customer service) in fiscal 1996
represented 59 percent of total sales and increased 56 percent from fiscal 1995.
This followed a 72 percent increase in systems sales in fiscal 1995 from fiscal
1994. Sales of systems products in fiscal years 1995 and 1994 represented 55
percent and 51 percent of total sales, respectively. The increase in fiscal 1996
network systems product sales was led primarily by the LinkBuilder FMS II
stackable hub, the LANplex and LinkSwitch families of switching products, the
AccessBuilder 8000 integrated network access system and the ONcore intelligent
switching system. The increase in network systems products was partially offset
by declines in sales of certain product lines acquired from Chipcom. The
increase in fiscal 1995 network systems product sales was led primarily by the
aforementioned LinkBuilder FMS II stackable hub and the LANplex family of
switching products as well as the NETBuilder Remote Office internetworking
system and Chipcom's ONline family of intelligent switching systems. Customer
service revenue is included in network systems products (previously this revenue
was classified as other products), and accordingly, all sales composition and
growth percentages reflect this reclassification.

Sales of network adapters in fiscal 1996 represented 40 percent of total
sales and increased 35 percent from fiscal 1995. This followed a 45 percent
sales increase in network adapters in fiscal 1995 from fiscal 1994. Sales of
network adapters in fiscal years 1995 and 1994 represented 43 percent and 46
percent of total sales, respectively. The increase in fiscal 1996 network
adapter sales represented a significant increase in unit volume, primarily the
result of increased sales of the EtherLink III network adapter and the EtherLink
PC Card adapter and the introduction of the Fast EtherLink PCI adapter. The
trend toward decreasing average selling prices in all adapter products continued
in fiscal 1996, but was mostly offset by the increased mix of Fast Ethernet and
PC Card products, which carry higher average selling prices. The increase in
fiscal 1995 network adapter sales represented an increase in unit volume
partially offset by continuation of the industry-wide trend toward decreasing
average selling prices, particularly in the Token Ring market. The increase in
unit volume primarily resulted from sales of the EtherLink III network adapter,
but was also favorably impacted by sales of the EtherLink PC Card adapter.

Sales of other products represented one percent of total sales in fiscal
1996, two percent in fiscal 1995, and three percent of total sales in fiscal
1994. Sales of other products are not significant to the Company's operations,
as expected.

Sales outside of the United States comprised 53 percent of total sales in
fiscal 1996, compared to 52 percent in fiscal 1995 and 49 percent in fiscal
1994. In fiscal 1996, international and U.S. sales increased 48 percent and 44
percent, respectively, from fiscal 1995. In fiscal 1995, international and U.S.
sales increased 66 percent and 49 percent, respectively, from fiscal 1994. The
Company believes that the increase in international sales was a result of strong
growth in the Asia Pacific region, the breadth of the Company's product
offerings, its continued global expansion through the opening of new sales
offices in Asia, Latin America and Europe, and the expansion of worldwide
service and support programs. The

43
<PAGE>
Company's operations were not significantly impacted by fluctuations in foreign
currency exchange rates in fiscal years 1996, 1995 and 1994.

Cost of sales as a percentage of sales was 47.1 percent in fiscal 1996,
compared to 46.3 percent in fiscal 1995 and 48.0 percent in fiscal 1994. The 0.8
percentage point reduction in gross margin in fiscal 1996 resulted primarily
from a higher mix of certain lower margin adapter and network access system
products and increased provisions for obsolete and excess inventory, which taken
separately would have reduced gross margin by 2.2 percentage points. Factors
causing the decline in gross margin were partially offset by a favorable
shipment mix toward the Company's switching products and reductions in adapter
product material costs, which taken separately would have improved gross margin
by 1.4 percentage points. The improvement in gross margin in fiscal 1995
resulted primarily from a favorable shipment mix of the Company's switching
products, reductions in adapter product material costs and lower provisions for
obsolete and excess inventory, which taken separately would have improved gross
margins by 1.7 percentage points.

SUMMARY OF OPERATING EXPENSES

<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
--------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing................... $ 475,769 20.4% $ 319,310 20.0% $ 217,197 21.5%
Research and development.............. 233,107 10.0 166,327 10.4 101,085 10.0
General and administrative............ 97,395 4.2 66,462 4.2 49,733 4.9
Non-recurring charges:
Purchased in-process technology..... 52,353 2.2 68,696 4.3 134,481 13.3
Acquisition-related charges and
other............................. 69,950 3.0 10,125 0.6 -- --
--------- --- --------- --- --------- ---
Total operating expenses.......... $ 928,574 39.9% $ 630,920 39.6% $ 502,496 49.7%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
Total operating expenses excluding
non-recurring charges........... $ 806,271 34.6% $ 552,099 34.6% $ 368,015 36.4%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>

Total operating expenses in fiscal 1996 were $928.6 million, compared to
$630.9 million in fiscal 1995 and $502.5 million in fiscal 1994. Excluding the
acquisition-related charge of $69.0 million related to the acquisition of
Chipcom, the charge of $52.4 million for purchased in-process technology
associated with the acquisition of AXON (see Note 13 of Notes to Consolidated
Financial Statements) and a charge of $1.0 million for a settlement of
litigation, total operating expenses in fiscal 1996 would have been $806.3
million, or 34.6 percent of sales. Excluding the charge of $68.7 million for
purchased in-process technology and a non-recurring charge of $10.1 million,
which consisted of approximately $11.2 million in merger transaction costs
associated with the acquisitions of Artel, Primary Access and Sonix and a credit
of $1.1 million for the reduction in accrued costs relating to the fiscal 1991
restructuring, total operating expenses in fiscal 1995 would have been $552.1
million, or 34.6 percent of sales. Excluding the charge of $134.5 million for
purchased in-process technology resulting from the acquisitions of Synernetics
and Centrum and the technology licensing agreement, total operating expenses in
fiscal 1994 would have been $368.0 million, or 36.4 percent of sales.

Sales and marketing expenses in fiscal 1996 increased $156.5 million or 49
percent from fiscal 1995. The increase in such expenses reflected increased
selling costs related to the 46 percent increase in sales volume, higher costs
associated with marketing promotions and sales support programs, and a
year-over-year increase in sales and marketing personnel of 35 percent. The
Company believes the increase in sales and marketing expenses is also a direct
result of the Chipcom acquisition. Sales and marketing expenses in fiscal 1995
increased $102.1 million or 47 percent from fiscal 1994. The increase in such
expenses reflected

44
<PAGE>
increased selling costs related to the 58 percent increase in sales volume, the
cost of introducing and promoting the Company's new and existing products, and a
year-over-year increase in sales and marketing personnel of 32 percent. As a
percentage of sales, sales and marketing expenses were 20.4 percent in fiscal
1996, compared to 20.0 percent in fiscal 1995 and 21.5 percent in fiscal 1994.

Research and development expenses in fiscal 1996 increased $66.8 million or
40 percent from the prior year, compared to a fiscal 1995 increase of $65.2
million or 65 percent from fiscal 1994. The increase in research and development
expenses was primarily attributable to the cost of developing new products,
including the Company's expansion into new technologies and markets. Full time
research and development personnel increased 27 percent and 35 percent in fiscal
1996 and 1995, respectively. The increase in research and development expenses
is consistent with the Company's continued commitment to develop and introduce
high quality, innovative products. As a percentage of sales, research and
development expenses were 10.0 percent in fiscal 1996, compared to 10.4 percent
in fiscal 1995 and 10.0 percent in fiscal 1994.

The Company believes the timely introduction of new technologies and
products is crucial to its success, and plans to continue to make acquisitions
to accelerate time to market where appropriate. Most of the in-process research
and development projects acquired in connection with businesses purchased by the
Company prior to fiscal 1996 have been completed. Development work associated
with projects still in process is proceeding as expected. Such development
activities primarily include the development of products with remote monitoring
functionality for the enterprise market. The costs for the projects in process
are primarily labor costs for design, prototype development and testing. As of
May 31, 1996, the Company estimates that an aggregate of approximately $7 to $13
million dollars will be expensed over the next 18 to 24 months in connection
with completion of such acquired research and development projects. The Company
anticipates future research and development spending, including costs remaining
for the completion of these purchased in-process research and development
projects, will not significantly differ from the historical trend of research
and development expenses as a percent of sales.

General and administrative expenses in fiscal 1996 increased $30.9 million
or 47 percent from the prior year, compared to a fiscal 1995 increase of $16.7
million or 34 percent from fiscal 1994. The increase in general and
administrative expenses reflects the worldwide expansion of the Company's
infrastructure through internal growth and acquisitions. As a percentage of
sales, such expenses remained flat at 4.2 percent in fiscal 1996 and 1995, and
decreased from 4.9 percent in fiscal 1994.

Other income (net) was $6.8 million in fiscal 1996, compared to $4.9 million
in fiscal 1995 and $4.0 million in fiscal 1994. These amounts consist primarily
of interest income, which has increased $9.3 million and $7.2 million in fiscal
1996 and 1995, respectively, due primarily to larger cash and investment
balances and higher interest rates. Partially offsetting this increase in other
income was the issuance of $110.0 million of convertible subordinated notes in
the second quarter of fiscal 1995, which in addition to increasing cash
balances, contributed to increases in interest expense of $5.5 million and $6.5
million in fiscal 1996 and 1995, respectively.

Non-operating income was favorably impacted during fiscal 1994 as the
Company realized a non-recurring gain of $17.7 million from the sale of the
Company's investment in Madge N.V.

The Company's effective income tax rate was 42 percent in fiscal 1996.
Excluding the purchased in-process technology charge, which was not tax
deductible, and the nondeductible portion of the merger costs associated with
the Chipcom acquisition, the effective tax rate would have been 35 percent. The
Company's effective income tax rate was 37 percent in fiscal 1995. Excluding the
merger costs associated with the Sonix and Primary Access acquisitions, which
were not tax deductible, the effective tax rate would have been 36 percent. In
fiscal 1994, 3Com provided $57.1 million for income taxes on income before
income taxes of $45.2 million because a significant portion of the purchased
in-process technology charges were not tax deductible. In addition, the income
tax rate in fiscal 1994 reflected the recognition of a net benefit of $1.2
million, which resulted from retroactive changes to the Revenue Reconciliation
Act of 1993.

45
<PAGE>
Excluding the effect of the non-recurring items in fiscal 1994, the effective
tax rate would have been 35 percent.

Net income for fiscal 1996 was $177.9 million, or $1.00 per share, compared
to net income of $144.6 million, or $0.84 per share for fiscal 1995 and a net
loss for fiscal 1994 of $11.9 million, or $0.08 per share. Net income for fiscal
1996 included the aforementioned acquisition-related charge of $69.0 million,
the $52.4 million charge for purchased in-process technology and the $1.0
million charge for a litigation settlement. Excluding these charges, the Company
would have realized net income of $280.0 million, or $1.58 per share for fiscal
1996. Net income for fiscal 1995 included the aforementioned $68.7 million
charge for purchased in-process technology, the $11.2 million charge for merger
costs and the $1.1 million credit for the reduction in the restructuring
reserve. Excluding these charges and gains, the Company would have realized net
income of $195.5 million, or $1.14 per share for fiscal 1995. Net income for
fiscal 1994 included the aforementioned $134.5 million charge for purchased
in-process technology, the $17.7 million gain from the sale of an investment and
the $1.2 million tax benefit. Excluding these charges and gains, the Company
would have realized net income of $103.7 million, or $0.66 per share for fiscal
1994. Net income per share for fiscal 1995 and net loss per share for fiscal
1994 have been restated to reflect the two-for-one stock split on August 25,
1995.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
requires that the Company review for impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS 121 will be effective for the Company's fiscal year
beginning June 1, 1996. The Company does not expect that the adoption of this
statement will have a material impact on the Company's financial position or
results of operations.

The FASB also issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company is required to adopt SFAS 123 for the fiscal year
beginning June 1, 1996. This statement establishes accounting and disclosure
requirements using a fair value based method of accounting for stock-based
employee compensation plans. Under SFAS 123 the Company may either adopt the new
fair value based accounting method or continue the intrinsic value based method
and provide pro forma disclosures of net income and earnings per share as if the
accounting provisions of this statement had been adopted. The Company plans to
adopt only the disclosure requirements of SFAS 123; therefore such adoption will
have no effect on the Company's financial position or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and temporary cash investments at August 31, 1996
were $577.1 million, increasing $77.8 million, from May 31, 1996.

For the three months ended August 31, 1996, net cash generated from
operating activities was $122.0 million. Trade receivables at August 31, 1996
increased $59.7 million from May 31, 1996 due primarily to an increase in sales.
Days sales outstanding in receivables was 53 days at August 31, 1996, compared
to 49 days at May 31, 1996. The increase in days sales outstanding is consistent
with the trend in previous first fiscal quarters. Inventory levels at August 31,
1996 decreased $13.6 million from the prior fiscal year-end, with inventory
turnover increasing to 5.6 turns at August 31, 1996, compared to 5.4 turns at
May 31, 1996.

During the three months ended August 31, 1996, the Company made $48.3
million in capital expenditures. Major capital expenditures included upgrades
and additions to product manufacturing lines in Santa Clara and Ireland,
continuing development of the Company's worldwide information systems, and
purchases and upgrades of desktop systems.

46
<PAGE>
During the first quarter of fiscal 1997, the Company received cash of $7.8
million from the sale of its common stock to employees through its option plans.

The Company leases and occupies 225,000 square feet of office and
manufacturing space adjacent to its existing headquarters in Santa Clara (Phase
I). The Company amended this lease agreement on February 1, 1996 to add 150,000
square feet of office and manufacturing space and a parking garage (Phase II) to
be build on adjacent land. The amended lease expires in five years and provides
the Company with an option to purchase both Phase I and II properties, or
arrange for the sale of the properties, to a third party with a guaranteed
residual value of up to $57.8 million to the seller of the properties. The
Company anticipates that it will commence occupancy of and begin lease payments
on the significant portion of the Phase II property in the fourth quarter of
fiscal 1997.

The Company has a $40 million revolving bank credit agreement which expires
December 31, 1996. No amount is outstanding under the credit agreement and the
Company is in compliance with all financial ratio and minimum net worth
requirements.

Based on current plans and business conditions, the Company believes that
its existing cash and equivalents, temporary cash investments, cash generated
from operations and the available revolving credit agreement will be sufficient
to satisfy anticipated operating cash requirements for at least the next twelve
months.

47
<PAGE>
MANAGEMENT

The directors and executive officers of 3Com and their ages as of September
30, 1996 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Eric A. Benhamou.................. 40 Chairman, President and Chief Executive Officer

Debra J. Engel.................... 44 Senior Vice President, Corporate Services

Robert J. Finocchio, Jr........... 45 President, 3Com Systems

John H. Hart...................... 50 Senior Vice President and Chief Technical Officer

Richard W. Joyce.................. 40 Senior Vice President, New Business Operations

Alan J. Kessler................... 39 Senior Vice President, Global Systems Sales and
Services

Christopher B. Paisley............ 43 Senior Vice President, Finance and Chief Financial
Officer

Janice M. Roberts................. 40 Senior Vice President, Central Marketing

Douglas C. Spreng................. 52 Executive Vice President, 3Com Interface Products

Thomas L. Thomas.................. 47 Senior Vice President and Chief Information Officer,
Global Information Systems

James L. Barksdale................ 53 Director

Gordon A. Campbell................ 52 Director

David W. Dorman................... 42 Director

Jean-Louis Gassee................. 52 Director

Stephen C. Johnson................ 54 Director

Philip C. Kantz................... 52 Director

William F. Zuendt................. 49 Director
</TABLE>

Eric A. Benhamou has been 3Com's President and Chief Executive Officer since
April 1990 and September 1990, respectively. Mr. Benhamou became Chairman of the
Board of Directors of 3Com in July 1994. Mr. Benhamou served as 3Com's Chief
Operating Officer from April 1990 through September 1990. From October 1987
through April 1990, Mr. Benhamou held various general management positions
within 3Com. Prior to that, Mr. Benhamou was one of the founders of Bridge
Communications, Inc., in September 1981, and held various executive positions in
that company in the field of engineering and product development, most recently
as Vice President of Engineering, until that company merged with 3Com in
September 1987. Mr. Benhamou serves as a Director of Cypress Semiconductor,
Inc., Legato Systems, Inc. and Smart Valley, Inc.

Debra J. Engel has been Senior Vice President, Corporate Services since
August 1996. From March 1990 through July 1996, Ms. Engel was Vice President,
Corporate Services. From the time Ms. Engel joined 3Com in November 1983 until
March 1990, she was Vice President, Human Resources. Prior to that, she was with
Hewlett-Packard Company for seven years, most recently as Corporate Staffing
Manager at Hewlett-Packard's Corporate Headquarters. Ms. Engel also serves as a
director of Aspect Telecommunications.

48
<PAGE>
Robert J. Finocchio, Jr. was promoted to President, 3Com Systems in August
1996. From June 1993 to July 1996, Mr. Finocchio served as Executive Vice
President, Network Systems Operations. From January 1990 through May 1993, Mr.
Finocchio served as Executive Vice President, Field Operations. Mr. Finocchio
joined 3Com in December 1988 as Vice President of Sales, Marketing and Services,
a position he held through January 1990. Prior to joining 3Com, Mr. Finocchio
was with Rolm, Inc. for nine years, where he held various executive positions in
sales and service. Most recently he was Vice President of Rolm Systems
Marketing. Mr. Finocchio also serves as a director of Latitude Communications
and Sync Research.

John H. Hart has been Senior Vice President and Chief Technical Officer
since August 1996. From the time Mr. Hart joined 3Com in September 1990 until
July 1996, he was Vice President and Chief Technical Officer. Prior to joining
3Com, Mr. Hart worked for Vitalink Communications Corporation for seven years,
where he held various executive positions in product engineering and
development. Mr. Hart's final position with Vitalink was Vice President of
Network Products.

Richard W. Joyce has been Senior Vice President, New Business Operations
since August 1996. From June 1995 through July 1996, Mr. Joyce was Vice
President, New Business Operations. From June 1993 to June 1995, Mr. Joyce
served as Vice President, Sales Europe and Asia/Pacific Rim (APR). From January
1990 to June 1995, Mr. Joyce served as President, 3Com Europe Limited. Mr. Joyce
joined 3Com in November 1987 as Sales Manager of 3Com (UK) Limited, a position
he held until September 1988. From September 1988 until January 1990, Mr. Joyce
served as Managing Director of 3Com (UK) Limited. Most recently prior to joining
3Com, Mr. Joyce held the position of Managing Director Europe for State Street
Trade Development Corporation from 1985 through 1987.

Alan J. Kessler became Senior Vice President, Global Systems Sales and
Services in August 1996. From June 1995 to July 1996, Mr. Kessler served as Vice
President, Customer Service Operations. From June 1993 through June 1995, Mr.
Kessler served as Vice President, Systems Sales-North America. From May 1991
through May 1993, Mr. Kessler served as Vice President and General Manager,
Network Systems Division. From April 1990 until May 1991, Mr. Kessler served as
Vice President and General Manager, Distributed Systems Division. Previously, he
served as Product Marketing Manager of the Distributed Systems Division from
November 1988 through April 1990 and as Product Line Manager from October 1985
through November 1988.

Christopher B. Paisley has been 3Com's Senior Vice President, Finance and
Chief Financial Officer since August 1996. From the time Mr. Paisley joined 3Com
in September 1985 until July 1996, he was Vice President, Finance and Chief
Financial Officer. Prior to joining 3Com, Mr. Paisley was Vice President,
Finance of Ridge Computers from May 1982 to September 1985. Previously, Mr.
Paisley was employed by Hewlett-Packard Company for five years in a variety of
accounting and finance positions. Mr. Paisley also serves as a director of
Applied Digital Access, Inc.

Janice M. Roberts has been Senior Vice President, Central Marketing since
August 1996. From June 1992 through July 1996, Ms. Roberts was Vice President,
Marketing. From February 1994 to June 1995, Ms. Roberts also served as General
Manager, Personal Office Division. From February 1992 until June 1992, Ms.
Roberts was Vice President and General Manager of the Premises Distribution
Division. During the period January 1989 to February 1992, Ms. Roberts served as
Director of BICC Technologies Limited and President of BICC Technologies, Inc.
and BICC Communications, Inc. She was also Chairman and Managing Director of
BICC Data Networks Limited. From December 1986 through January 1989, Ms. Roberts
was Manager of Sales and Marketing of STC Components Ltd. located in Harlowe,
United Kingdom.

Douglas C. Spreng was promoted to Executive Vice President, 3Com Interface
Products in August 1996. From July 1995 to July 1996, Mr. Spreng served as Vice
President, Personal Connectivity Operations. He joined 3Com as Vice President
and General Manager of 3Com's Network Adapter Division in March 1992. Prior to
joining 3Com, Mr. Spreng was President and Chief Operations Officer of Domestic

49
<PAGE>
Automation Company, a private communications system start-up company based in
San Carlos, California. Previously, Mr. Spreng spent 23 years with
Hewlett-Packard Company (HP) in a variety of key marketing, manufacturing and
general management positions, including General Manager of HP's Commercial
Systems Group. Most recently he served as General Manager of HP's Manufacturing
Applications Group. Mr. Spreng also serves as a director of Contango (previously
Creative Insights) and Com 21.

Thomas L. Thomas has been Senior Vice President and Chief Information
Officer, Global Information Systems since August 1996. From September 1995
through July 1996, Mr. Thomas was Vice President and Chief Information Officer,
Global Information Systems. Prior to joining 3Com, Mr. Thomas had been President
and Chief Information Officer of Dell Computer Corporation, a manufacturer of
personal computers, from 1993 to 1995. Prior to that, Mr. Thomas served as Vice
President of Management Information Systems at Kraft General Foods from 1987 to
1993, and at Sara Lee Corporation from 1981 to 1987.

Mr. Barksdale has served on the Board of Directors since 1987. Mr. Barksdale
has been the President, CEO and a director of Netscape Communications
Corporation, a provider of internet software, since January 1995. Previously,
Mr. Barksdale had been President and Chief Executive Officer of AT&T Wireless
Services since September 1994. Prior to September 1994, Mr. Barksdale had been
employed as the President and Chief Operating Officer of McCaw Cellular
Communications, Inc. since January 1992 and by Federal Express Corporation since
1979. Mr. Barksdale served as a director of Bridge Communications, Inc. from
April 1986 until that company combined with 3Com in 1987. Mr. Barksdale also
serves as a director of Harrah's Entertainment Corporation, @ Home Corporation
and Robert Mondavi Corporation.

Mr. Campbell has served on the Board of Directors since 1990. He was a
founder and since 1993 has been President and Chairman of the Board of Techfarm,
Inc., a company formed to launch technology based start-up companies. Mr.
Campbell was a founder of Chips and Technologies, Inc. ("Chips"), a company that
designs and distributes very large scale integrated circuit products, and served
as a director of Chips from December 1984 until November 1995 and as Chairman of
the Board of Chips until November 1995. Mr. Campbell also served as the
President and Chief Executive Officer of Chips from January 1985 to July 1993.
Mr. Campbell was also a founder of Seeq Technology, Inc., and, from January 1981
to October 1984, he served as that company's President and Chief Executive
Officer. Mr. Campbell also serves as a director of Bell Microproducts, Inc.,
Reply Corporation and Scotts Valley Instruments, Inc. and as Chairman of the
Board of Exponential Technology, Inc., 3d/Fx Interactive, Inc., Absolute Time
Corporation, and Resonate, Inc.

Mr. Dorman has served on the Board of Directors since 1995. He has been
President and Chief Executive Officer of Pacific Bell Corporation since July
1994 and Chairman of the Board of that company since March 1996. Prior to that,
he was associated with US Sprint Corporation for 13 years, during which time he
held several management positions, most recently as President of Sprint Business
Services from 1993 to 1994.

Mr. Gassee has served on the Board of Directors since 1993. He is the
Chairman of the Board and Chief Executive Officer of Be Incorporated, a personal
computing technology company in the development stage, which he founded in
October 1990. Previously, Mr. Gassee held several management positions with
Apple Computer, Inc. ("Apple") for 10 years, most recently as the president of
Apple Products, the research and development and manufacturing division of
Apple. Prior to joining Apple, Mr. Gassee was President and General Manager of
the French subsidiary of Exxon Corp., held several management positions with
Data General Corporation, and spent six years at Hewlett-Packard Company.Mr.
Gassee is currently also a director of Electronics For Imaging, Inc. and
LaserMaster Technologies.

Mr. Johnson has served on the Board of Directors since 1989. He was a
founder and has been President and Chief Executive Officer of Komag,
Incorporated, a manufacturer of Winchester disk media, since 1983. Mr. Johnson
served as a director of 3Com from June 1982 to September 1987; he stepped down

50
<PAGE>
from the Board when 3Com combined with Bridge Communications, Inc. and returned
to the Board in 1989. Mr. Johnson also serves as a director of Komag,
Incorporated and Uniphase Corporation.

Mr. Kantz has served on the Board of Directors since 1992. He has served as
President, Chief Operating Officer and a director of Trans Ocean Ltd., a
privately held transportation equipment leasing company, since October 1995. He
also has served as President and Chief Executive Officer of The Sandros
Enterprise, a privately held business and management consulting firm, since
February 1995. From February 1994 to January 1995, he served as President, Chief
Executive Officer and a director of Transcisco Industries, Inc., an industrial
services company. From October 1992 through September 1993, Mr. Kantz served as
President and Chief Executive Officer of Genetrix, Inc., a biotechnology
services company. Mr. Kantz was President and Chief Executive Officer of Intel
Containers International Corporation from 1988 through 1991. Previously, Mr.
Kantz was President of Transportation and Industrial Funding Corporation and
Senior Vice President and General Manager of GE Capital from 1986 to 1988. Mr.
Kantz also serves as a director of Falcon Building Products, Inc., Genetrix,
Inc., ParcPlace-Digitalk, Inc., Search Systems Corporation and Mine Reclamation
Corporation.

Mr. Zuendt has served on the Board of Directors since 1988. He is President
and Chief Operating Officer of Wells Fargo & Company, a bank holding company,
and of Wells Fargo Bank. He joined Wells Fargo in 1973. Mr. Zuendt is also a
director of Wells Fargo & Company and a trustee of Golden Gate University.

During the fiscal year ended May 31, 1996, the Board held eight (8)
meetings. The Board does not have a standing Nominating Committee, but does have
an Audit Committee and a Compensation Committee.

During the fiscal year ended May 31, 1996, 3Com's Audit Committee met four
(4) times. Its current members are David W. Dorman, Stephen C. Johnson and
William F. Zuendt. The Audit Committee makes recommendations to the Board
regarding engagement of 3Com's independent public accountants, approves services
rendered by such accountants, reviews the activities and recommendations of
3Com's internal audit department, and reviews and evaluates 3Com's accounting
systems, financial controls and financial personnel.

During the fiscal year ended May 31, 1996, the Compensation Committee met
four (4) times. Its current members are Gordon A. Campbell and Philip C. Kantz.
Eric A. Benhamou serves as an ex officio member of the Compensation Committee.
The Compensation Committee reviews salaries and other compensation arrangements
for officers and other key employees of 3Com, reviews the administration of
3Com's stock option and stock purchase plans, and advises the Board on general
aspects of 3Com's compensation and benefit policies.

51
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information, as of September 30,
1996, with respect to the beneficial ownership of 3Com's Common Stock by (i)
each director and director-nominee of 3Com, (ii) the Chief Executive Officer and
the four other most highly compensated executive officers of 3Com and an
individual who served as an executive officer during a portion of the most
recent fiscal year but was no longer an executive officer as of May 31, 1996,
and (iii) all executive officers and directors of 3Com as a group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF COMMON
NAME OWNERSHIP(1) STOCK OUTSTANDING
- ---------------------------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
James L. Barksdale.................................................... 90,000 *
Gordon A. Campbell.................................................... 24,000 *
David W. Dorman....................................................... 53,500 *
Jean-Louis Gassee..................................................... 90,000 *
Stephen C. Johnson.................................................... 171,300 *
Philip C. Kantz....................................................... 150,004 *
William F. Zuendt..................................................... 330,000 *
Eric A. Benhamou...................................................... 1,532,104 *
Robert J. Finocchio, Jr............................................... 502,593 *
Ralph B. Godfrey(2)................................................... 78,872 *
William G. Marr(3).................................................... 70,000 *
Christopher B. Paisley................................................ 688,160 *
Douglas C. Spreng..................................................... 440,547 *
All directors and executive officers as a group (18 persons).......... 4,911,825 2.8%
</TABLE>

- ------------------------

* Less than 1%.

(1) Except as indicated in the footnotes to this table, to the Company's
knowledge, the persons named in the table have sole voting and investment
power with respect to all shares of 3Com Common Stock shown as beneficially
owned by them, subject to community property laws where applicable.

Includes shares of 3Com Common Stock issuable pursuant to options
exercisable within 60 days of September 30, 1996, including options to
acquire 90,000 shares of 3Com Common Stock held by Mr. Barksdale, options to
acquire 24,000 shares held by Mr. Campbell, options to acquire 53,500 shares
held by Mr. Dorman, options to acquire 90,000 shares held by Mr. Gassee,
options to acquire 156,000 shares held by Mr. Johnson, options to acquire
140,948 shares held by Mr. Kantz, options to acquire 166,000 shares held by
Mr. Zuendt, options to acquire 1,112,548 shares held by Mr. Benhamou,
options to acquire 437,032 shares held by Mr. Finocchio, options to acquire
55,094 shares held by Mr. Godfrey, options to acquire 605,720 shares held by
Mr. Paisley, options to acquire 425,360 shares held by Mr. Spreng, and
options to acquire 4,038,495 shares of 3Com Common Stock held by directors
and executive officers of 3Com as a group.

(2) Mr. Godfrey ceased to be an executive officer on July 1, 1995, but remained
an employee of the Company. Beneficial ownership information for Mr. Godfrey
is as of July 31, 1996.

(3) Mr. Marr ceased to be an executive officer of the Company in August 1996,
but remained an employee of the Company.

52
<PAGE>
The following table sets forth certain information, as of September 30, 1996
with respect to the beneficial ownership of 3Com Common Stock by all persons
known by 3Com to be the beneficial owners of more than 5% of the outstanding
3Com Common Stock.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF COMMON STOCK
NAME OWNERSHIP(1) OUTSTANDING
------------------------------------- ---------------------- ---------------------------
<S> <C> <C>
Twentieth Century Companies, Inc. 12,500,000 7.3%
4500 Main Street
P.O. Box 418210
Kansas City, MO
64141-9210
</TABLE>

- ------------------------

(1) To 3Com's knowledge, the entity named in the table and a wholly-owned
subsidiary has sole voting and investment power with respect to all shares
of 3Com Common Stock shown as beneficially owned.

This information is based upon a review of 13G filings made with the SEC
during 1996.

53
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of
the Chief Executive Officer of 3Com and the four other most highly compensated
executive officers of 3Com as of May 31, 1996 and an individual who served as an
executive officer during a portion of the most recent fiscal year but was no
longer an executive officer as of May 31, 1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
- ------------------------------------------------- ----------- ---------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Eric A. Benhamou 1996 $ 589,583 $ 34,684 320,000 1,090
President and Chief 1995 472,085 49,433 291,200 682
Executive Officer 1994 451,629 25,372 400,000 572

Robert J. Finocchio, Jr. 1996 395,000 23,241 192,000 911
Executive Vice President 1995 338,335 35,423 174,720 587
Network Systems Operations 1994 318,449 18,599 240,000 629

Ralph B. Godfrey 1996 375,932 2,421 96,000 1,599
Vice President Americas Sales(4) 1995 330,738 1,411 87,360 988
1994 324,404 0 36,000 302

William G. Marr 1996 367,197 12,908 240,000 1,422
Executive Vice President 1995 N/A N/A N/A N/A
Worldwide Sales 1994 N/A N/A N/A N/A

Christopher B. Paisley 1996 283,333 16,625 144,000 475
Vice President Finance and 1995 263,751 27,614 145,600 436
Chief Financial Officer 1994 248,342 14,496 200,000 401

Douglas C. Spreng 1996 356,250 20,849 192,000 1,753
Vice President and General 1995 311,918 32,674 174,720 1,492
Manager, Personal Connectivity 1994 272,664 15,890 240,000 1,068
Operations
</TABLE>

- ------------------------

(1) Amount shown and also payments made under 3Com-wide profit-sharing plan
known as 3SHARE. Under that plan, 3Com distributed approximately 3%, 6%, and
6% of its income before taxes in fiscal 1996, 1995 and 1994, respectively,
after adjustments, for certain unusual or non-revising income or expense
items. The distributions were determined and paid at six-month intervals to
all employees worldwide (other than those who are paid commissions),
including executive officers, with the individual payments determined pro
rata based on salary level. In fiscal 1995, amount shown also includes a
3Com wide cash bonus in an amount equal to two days salary.

(2) Amounts shown reflect the total stock split (payable in the form of a stock
dividend) effected in August 1994 and the 2-for-1 stock split (payable in
the form of a stock dividend effected in August 1995.)

54
<PAGE>
(3) Represents life insurance premiums.

(4) Mr. Godfrey's salary for 1996, 1995 and 1994 include commission payments in
the amount of $147,932, $140,778 and $148,864, respectively.

The following table provides information concerning grants of options to
purchase 3Com Common Stock made during the fiscal year ended May 31, 1996 to the
persons named in the Summary Compensation Table.

OPTION GRANTS IN FISCAL YEAR 1996

<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT
SECURITIES GRANTED ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR OPTION TERM (3)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------------------
NAME GRANTED (1) 1996 SHARE (2) DATE 5% 10%
- -------------------------------- ----------- ----------- ----------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou................ 320,000 5.22% $ 35.78 06-01-05 $ 7,305,499 $ 18,251,183
Robert J. Finocchio, Jr......... 192,000 3.13% 35.78 06-01-05 4,383,299 10,950,710
Ralph B. Godfrey................ 96,000 1.57% 35.78 06-01-05 2,191,650 5,475,355
William G. Marr................. 240,000 3.91% 32.63 06-05-05 4,924,245 12,479,003
Christopher B. Paisley.......... 144,000 2.35% 35.78 06-01-05 3,287,474 8,213,032
Douglas C. Spreng............... 192,000 3.13% 35.78 06-01-05 4,383,299 10,950,710
All Shareholders (4)............ N/A N/A N/A N/A $ 5,228,239,769 $ 13,249,386,080
</TABLE>

- ------------------------

(1) All of the above options are subject to the terms of 3Com's 1983 Stock
Option Plan (the "1983 Option Plan") and are exercisable only as they vest.
With the exception of the options granted to Mr. Marr, the options granted
to each officer vest and become exercisable in equal annual increments over
a four (4) year period provided the optionee continues to be employed by
3Com. The options granted to Mr. Marr vest and become exercisable in equal
monthly increments over a four (4) year period, provided Mr. Marr continues
to be employed by 3Com.

(2) All options, with the exception of those granted to Mr. Marr, were granted
at an exercise price equal to the average of the fair market value of 3Com
Common Stock over a period of ten trading days beginning on July 14, 1995
and ending on July 27, 1995. The options granted to Mr. Marr were granted at
an exercise price equal to the closing price of 3Com Common Stock on the
date he began employment with 3Com.

(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission rules. No
gain to an optionee is possible without an increase in stock price, which
will benefit all shareholders commensurably. A 0% gain in stock price will
result in zero dollars for the optionee. Actual realizable values, if any,
on stock option exercises are dependent on the future performance of the
Common Stock, overall market conditions and the optionholders' continued
employment through the vesting period.

(4) Represents potential appreciation in aggregate shareholder value at the
assume annual rates of stock price appreciation over a ten-year period
beginning May 31, 1996 based on the number of shares then outstanding, and
using as a base value the $49.25 per share closing price of 3Com Common
Stock on that date.

55
<PAGE>
The following table provides the specified information concerning option
exercises during fiscal year 1996 and the exercisable and unexercisable options
held as of May 31, 1996, by the persons named in the Summary Compensation Table:

AGGREGATED OPTION EXERCISES IN FISCAL
YEAR 1996 AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED 5/31/96 5/31/96 (1)
ON VALUE -------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou............. 280,000 $ 11,386,041 839,718 848,430 $ 37,496,062 $ 25,827,074
Robert J. Finocchio, Jr...... 90,000 3,166,291 315,392 513,000 13,724,616 15,678,562
Ralph B. Godfrey............. 68,600 2,689,146 2,951 174,573 131,647 4,221,545
William G. Marr.............. 80,000 0 51,875 188,125 862,422 3,127,578
Christopher B. Paisley....... 80,000 4,041,875 481,470 400,050 21,737,433 12,320,355
Douglas C. Spreng............ 30,000 1,384,688 333,680 453,040 14,539,821 12,905,412
</TABLE>

- ------------------------

(1) Based on a fair market value of $49.25 per share as of May 31, 1996, the
closing sale price of 3Com's Common Stock on that date as reported by the
NASDAQ National Market System.

STOCK OPTION PLAN INFORMATION

In July 1994, the Board of Directors of 3Com adopted a new stock option plan
solely for the grant of nonqualified stock options to employees and consultants
who are not executive officers or directors of 3Com. In fiscal year 1996,
options for 4,015,128 shares were granted to non-executive officer employees
under the 1994 Stock Option Plan, at a weighted average price of $41.81. 3Com
continues to maintain the 1983 Option Plan, which permits option grants to all
employees, including executive officers. In fiscal year 1996, no options were
granted to non-executive officer employees under the 1983 Stock Option Plan. For
the future, 3Com anticipates that option grants under the 1983 Option Plan will
be made exclusively to executive officers. As of July 31, 1996, approximately
3,387,619 shares of Common Stock were available for future option grants under
the 1983 Option Plan.

EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS

Options granted under the 1983 Option Plan contain provisions pursuant to
which outstanding options must either become fully vested and immediately
exercisable prior to a "transfer of control" transaction or must be assumed in
the transaction, and all unexercised options terminate to the extent they are
not assumed upon such "transfer of control" as defined under the 1983 Option
Plan.

Options granted under the 3Com Corporation Director Stock Option Plan (the
"Director Plan") contain provisions pursuant to which outstanding options
granted under the Director Plan will become fully vested and immediately
exercisable upon a merger or acquisition of 3Com where 3Com is not the survivor
or upon the sale of substantially all of the assets of 3Com.

COMPENSATION OF DIRECTORS

Members of the Board who are not employees of 3Com received an annual
retainer during fiscal 1996 as follows: Audit Committee members, $18,000;
Compensation Committee members, $18,000; others, $15,000; plus reimbursement of
travel expenses for travel by members of the Board who reside out of the local
area.

Outside directors receive options to purchase 3Com Common Stock pursuant to
the Director Plan. The Director Plan provides for the initial automatic grant of
an option to purchase shares of 3Com

56
<PAGE>
Common Stock to each director of 3Com who is not an employee of 3Com ("Outside
Director") with a maximum of 30,000 shares to be subject to each option (or
36,000 shares for the "lead" director). In addition, each Outside Director is
automatically granted an option to purchase shares of 3Com Common Stock upon
becoming a member of the Audit or Compensation Committee with a maximum of
18,000 shares to be subject to each such option. The actual number of shares to
be subject to the options granted for Board and Committee Service are
established by the Committee administering the Plan. For the fiscal year ended
May 31, 1996, the options granted to Outside Directors for service on the Board
were set at 30,000 shares, and at 18,000 shares for Board Committees. All
options have a five year term, are immediately exercisable and vest over two
years so long as the option holder continues to serve on the Board or the
Committee. An additional option to purchase the same number of shares of 3Com
Common Stock is automatically granted to each Outside Director following the
vesting in full of the option previously received.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1996, Messrs. Campbell and Kantz served as members of the
Compensation Committee of 3Com's Board of Directors.

57
<PAGE>
ONSTREAM NETWORKS, INC.

BUSINESS

BACKGROUND

OnStream designs, manufactures and supports a family of high-speed,
broadband network access and management products that are designed to enable the
high-speed transfer of voice, data, image and video communications over WANs.
OnStream supplies products to carriers and enterprises to allow them to build
cost-effective high-speed networks to meet the exploding bandwidth requirements
of new high-speed data and multimedia applications. OnStream, a California
corporation, was founded in 1989 as T3plus Networking, Inc. Its headquarters
facility accommodates engineering, marketing, sales, customer support,
manufacturing and corporate administration and is located at 3393 Octavius Drive
in Santa Clara, California.

THE MARKET

The market for high-speed, broadband networking products has grown rapidly,
driven by companies' implementation of bandwidth-intensive applications, such as
distributed use, processing and back-up of sales, financial and billing data,
the World Wide Web (WWW) and video telephones and other real-time image-rich
communications. As the need for high-speed wide-area communications continues to
grow, many carriers and enterprises are looking to vendors to provide a new
generation of equipment which permits increases in performance both in terms of
speed and number of connections supported by the network. Increasingly, carriers
and enterprises are turning to ATM as a cost-effective solution to meet their
needs for high-speed WANs.

In order to justify the cost of the high-speed WAN ATM services required by
the new applications, carriers and enterprises must use the new ATM networks to
replace their existing data, voice and video networks. Many companies find ATM
attractive because it permits consolidation of diverse networks into a single,
more manageable network that can be purchased from and managed by third parties.
In order to implement WAN ATM services, carriers and corporations must install
WAN ATM edge platforms which enable this consolidation. To achieve widespread
acceptance, these platforms must be easily integrated into existing networks,
including legacy data internetworks such as frame relay, LAN connect, ATM data
networks, voice networks and video networks. In addition, they must be
affordably priced and compliant with prevailing international standards.

ONSTREAM SOLUTION

OnStream is focused on building products which address the access segment of
the broadband networking market. These products allow enterprises to consolidate
voice, video and data traffic onto high-speed services and circuits provided by
carriers. They also allow service providers to terminate lines from customers
which carry voice, video and data traffic. OnStream's carrier products are
designed to fit into carrier networks where service aggregation, scalability,
low price-per-port and manageability are required. OnStream's products are
purchased mainly by carriers such as Inter-Exchange Carriers (IXCs) and Internet
Service Providers (ISPs), and by Fortune 500 enterprises.

PRODUCTS

OnStream offers two families of products. First, OnStream offers a
comprehensive family of products designed to meet the access needs of
enterprises and carriers who rely on pre-ATM networks. This product family
includes the LX10-TM- inverse multiplexer and the BMX28-TM- access concentrator.
The BMX28, which was first shipped commercially in the second quarter of 1996,
is designed for network center applications, either in service providers or in
large enterprises. A single BMX28 is able to accept and process network traffic
from up to 84 separate customers. The LX10, which was first shipped commercially
in the third

58
<PAGE>
quarter of 1995, is a smaller, low cost product designed for customer sites. It
offers Ethernet or serial interfaces and transports traffic over up to 7 T1
lines or 6 E1 lines. The BMX28 and the LX10 are interoperable. OnStream believes
that the BMX28 and LX10 combination provides customers with significant
advantages over competing products in terms of the wide range of types of
available interfaces, price per port and scalability.

OnStream also offers the CLstream-TM- family of products, designed for
enterprises and service providers whose networks are ATM-based. The first member
of the CLstream family, the CS600-TM- concentrator, was first shipped to
commercial accounts in volume during the second quarter of 1996. The CS600 is an
ATM access concentrator targeted at applications in enterprise and in service
provider networks. For the enterprise, the CS600 offers cost-effective
concentration of voice, video and data traffic onto a public or private ATM WAN
network. Carriers can use the CS600 as a cost-effective concentrator to
aggregate traffic from many customers.

OnStream believes that the CS600 provides customers with advantages over
competing products in terms of the overall costs of deployment. The CS600 offers
a wider range of interfaces than competing products. CS600 interfaces include
OC3/STM-1, DS3/E3, serial, Ethernet, HSSI and T1. The CS600 is also
differentiated by its traffic management capabilities and by value added
software, including features like Internet Protocol (IP) forwarding, voice
activity detection and the ability to signal network problems to PBXs. The CS600
offers extensive enterprise management features such as SNMP, and management
features designed for carriers including flexible clocking and alarm schemes.

Prior to developing the CS600 and LX10 products, OnStream developed and
introduced a variety of new products and services. In 1989, OnStream
co-developed the high-speed serial interface (HSSI), the standard for
interconnecting routers and bridges and WAN equipment at high speeds. In 1990,
OnStream introduced its BMX45-TM- Broadband Bandwidth Manager, the first
private, meshed T3 bandwidth manager and, until recently, OnStream's core
product offering. The BMX45 integrates intelligent bandwidth management, high
reliability, a range of interfaces to carrier services and multivendor customer
equipment. OnStream also offers a SONET OC-3 access interface for 155 Mbps
communications, as well as multimegabit inverse multiplexing and Ethernet
interface capabilities. These integrated capabilities enable LAN users to take
advantage of full 10 Mbps Ethernet speeds across a metropolitan area or across
the nation and to support LAN and client-server applications without requiring a
more expensive, dedicated T3 link.

MARKETING AND SALES

OnStream markets and sells its products in the United States through a
direct sales organization. Since mid-1995, OnStream also has been developing a
network of resellers. OnStream's marketing organization is a small, experienced
team of product marketing and marketing communications professionals. Key areas
of focus for the group include positioning OnStream as a premier broadband ATM
access solution provider and working with OnStream's sales organization to
establish relationships with resellers such as carriers, system integrators and
campus network providers.

OnStream's sales force consisted of thirteen professionals as of September
30, 1996. Each sales professional has extensive experience selling network
products to end-users, RBOCs, CAPs and other independent telephone companies.
The group's major objectives are to sell OnStream's products in the United
States, support OnStream's resellers, develop alternate distribution channels
and obtain approval of OnStream's ATM access products in major carrier
organizations. OnStream's reseller network includes over 20 organizations
ranging from major RBOCs and other telcos to regional value added resellers. In
addition, OnStream employs two professionals focused on developing and
supporting international OEM partners and distributors.

59
<PAGE>
SERVICE AND SUPPORT

OnStream maintains a technical assistance group staffed with seven
experienced network support professionals as of September 30, 1996. The group
installs OnStream products, delivers customer training and provides high-quality
service 24 hours a day, 7 days a week. Dial-in diagnostic capabilities built
into OnStream products allow many customer problems to be resolved over the
phone on the first call. If additional service is required, technical assistance
group personnel perform on-site customer service. OnStream believes that its
considerable experience providing service and support for complex networking
products is a competitive advantage in the ATM market over many other edge
platform vendors, which have a background in simple DSU level products.

MANAGEMENT

OnStream has assembled a strong management team with expertise in technical
development, marketing, sales and customer support, and in building successful
high-technology companies. Members of the team are experienced in the computer,
communications and LAN/WAN industries. OnStream believes that its management has
the experience necessary to assist in making OnStream a leading provider of
broadband ATM access solutions.

PRODUCT DEVELOPMENT

OnStream's success will depend upon its ability to develop and introduce in
a timely fashion new products and enhancements to its existing products that
meet changing customer requirements and emerging industry standards. OnStream is
focusing development efforts on expanding the functionality and capacity of its
ATM concentrator products, supporting carrier services and additional industry
standards and expanding network management capabilities. OnStream's engineering
team consists of an experienced group of hardware and software engineers with
experience ranging from ASIC design to LAN and WAN interface development.
OnStream's software/firmware group has extensive experience in embedded
telecommunications systems and SNMP management. OnStream has hired engineers
with frame relay, Ethernet and ATM development expertise. There can be no
assurance, however, that OnStream will be able to identify, develop,
manufacture, market or support new products or enhancements to its existing
products successfully or on a timely basis, that any new products will gain
market acceptance or that OnStream will be able to respond effectively to
product announcements by competitors, technological changes or emerging industry
standards.

MANUFACTURING

OnStream's manufacturing operations consist primarily of material planning
and procurement, final assembly, software loading, test and quality assurance.
OnStream's operational strategy relies on outsourcing of certain manufacturing
to reduce fixed costs and to provide flexibility in meeting market demand,
including the assembly of printed circuit boards which is performed by an ISO
9002-certified turnkey subcontractor. Certain of such components are available
only from a single source or limited sources, including the printed circuit
boards. OnStream takes the printed circuit board-based modules produced by its
contract manufacturer and inserts them into product enclosures in combination
with OnStream's software to meet the needs of individual customers. OnStream
performs circuit board functional testing, burn-in and system-level testing, and
additional product assurance testing to ensure the quality and reliability of
its products. However, there can be no assurance that OnStream's contract
manufacturers will meet OnStream's requirements for timely delivery of quality
products in sufficient quantities or at a reasonable price. If orders for
products do not match OnStream forecasts, OnStream may have inadequate inventory
of certain materials and components. The loss of OnStream's contract
manufacturers, their inability to provide adequate supplies of high-quality
products at a reasonable price or a lack of adequate inventory could delay
OnStream's ability to fulfill customer orders and could have a material adverse
effect on OnStream's business, operating results and financial condition.

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<PAGE>
COMPETITION

The market for high-speed network access switching products is intensely
competitive and subject to frequent product introductions and enhancements,
rapid technological change and emerging industry standards. OnStream believes
that the principal competitive factors in its market are: (i) expertise and
familiarity with LAN and ATM protocols, LAN and ATM switching and network
management, particularly with multiple applications; (ii) product performance,
features, functionality and reliability; (iii) attractive price/performance;
(iv) timeliness of new product introductions; (v) support of emerging industry
standards; (vi) customer service and support; (vii) ISO-9000 manufacturing
certification; (viii) size and scope of distribution network and relationships
with key industry participants and carriers; (ix) access to customers; (x) size
of installed customer base; and (xi) corporate operating history and financial
resources.

Many established networking companies and newly established companies have
introduced, or have announced their intention to develop, network access
switching products that are or will be competitive with OnStream's products. In
addition, OnStream competes with WAN switch vendors, and other vendors of ATM
edge platforms which offer network access products. OnStream expects that other
companies also will enter markets in which it competes, including other vendors
in the networking market which may incorporate access concentration
functionality into their products or provide alternative network solutions. Many
of OnStream's competitors have broader product lines which provide a more
comprehensive networking solution than OnStream currently offers. Many also have
longer operating histories and substantially greater financial, technical,
sales, marketing and other resources, as well as greater name recognition and a
larger installed customer base, than OnStream. As a result, these competitors
may be able to devote greater resources to the development, promotion, sale and
support of their products than OnStream. In addition, competitors with a larger
installed customer base may have a competitive advantage over OnStream when
selling similar products or alternative networking solutions to such customers.
Increased competition could result in significant price competition, reduced
profit margins or loss of market share, any of which could have a material
adverse effect on OnStream's business, operating results and financial
condition. There can be no assurance that OnStream will be able to compete
successfully against either current or potential competitors.

EMPLOYEES

As of September 30, 1996, OnStream had 92 employees, including 34 in
research and development, 23 in sales and marketing, 7 in customer support, 15
in operations and 13 in administration. OnStream believes that the success of
its business will depend, in part, on its ability to attract and retain
qualified personnel. There can be no assurance that OnStream will be able to
attract and retain the qualified personnel or develop the expertise needed for
its business. OnStream believes that it has a good relationship with its
employees.

FACILITIES

OnStream currently leases 35,310 square feet of space of which it occupies
27,810 square feet in Santa Clara, California for development, engineering,
final product assembly and test operations, marketing and administrative
functions. OnStream subleases 7500 square feet to a private company engaged in
engineering activities unrelated to OnStream. This sublease expires in March,
1997 and may be renewed at the mutual agreement of OnStream and its tenant for
an additional six months. OnStream's lease expires in 1999. OnStream believes
that its existing facilities will be adequate to meet its needs through 1997.

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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Except for historical information contained in this Section, the matters
discussed herein are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Factors that could cause actual results to differ
materially include, but are not limited to, the timing of orders and shipments,
the timely development and market acceptance of new products, the impact of
competitive products and pricing and other risks detailed below. OnStream
assumes no obligation to update any forward-looking statements contained herein.

GENERAL

OnStream was incorporated in August 1989 as T3plus Networking, Inc. to
design, manufacture and support broadband networking (evolutionary nxT1, T3,
SONET to ATM) solutions for businesses and carriers for high-speed transfer of
voice, data, image and video communications over wide-area networks. Shipments
of OnStream's first product commenced in April 1990. All of OnStream's revenues
were derived from the BMX45 product family until 1995 when the LX10, a LAN
extension access unit to extend Ethernet LANs across wide-area networks, was
introduced.

OnStream changed its name in late 1995 in anticipation of the broader
product offerings introduced in that year. In April 1996, the BMX28, a TDM
access concentrator was brought to market. Revenues from this product were not
significant until the third quarter of 1996. During that quarter, the BMX28
product represented 10% of total revenues. Development on the CS600, an ATM
access concentrator, commenced in 1994, and the first customer shipment took
place in June 1996. Shipments of the CS600 represented approximately 15% of
OnStream's third quarter product revenues. Sales of new products were to a
number of new customers.

OnStream also derives revenue from installation and maintenance of its
systems.

RESULTS OF OPERATIONS OF ONSTREAM

NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED WITH SEPTEMBER 30, 1995

Revenues declined 7% in the 1996 period from the 1995 period due to the
decline in sales of the BMX45. New products introduced in the second quarter of
1996 accounted for 14% of total revenues for the nine month period ended
September 30, 1996. BMX45 revenue accounted for 100% of the 1995 period product
revenues. Service revenues increased from approximately $1,000,000 in the 1995
period to $1,700,000 in the 1996 period due to an increase in the number of
service contracts. Sales to UUNET Technologies, Inc. accounted for 11% of total
revenues for the 1995 period. No customer represented 10% or more of total
revenues for the 1996 period.

Gross profit on products declined from 59% for the nine month period ended
September 30, 1995 to 38% in the same period in 1996 due to increased reserves
for BMX45 inventory in excess of projected short-term demand and a change in mix
to a higher percentage of OnStream's more recently introduced products which
carry lower margins than the BMX45. Service margins improved to 38% in the 1996
period, up from 22% in the 1995 period, due to efficiencies associated with the
increased number of service contracts.

Product development expenses increased to $4,100,000 during the 1996 period
from $2,800,000 in the 1995 period due to increases in engineering personnel as
well as the addition of test equipment associated with development of new
products. OnStream believes that its future success depends on its ability to
maintain its technological leadership through enhancement of its existing
products and development of new products. Therefore, OnStream intends to
continue to make significant investments in product development.

Selling, general and administrative expenses increased approximately 36%
from the comparable period in 1995 primarily due to increased sales and
marketing costs associated with the introduction and

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<PAGE>
sales of new products. These new products required not only increased
expenditures but also a change in the existing sales force structure to
accommodate direct sales channels.

Other income declined from $300,000 in the 1995 period to $100,000 in the
1996 period due to increased interest expense arising from increased financing
of capital equipment purchases.

No federal income taxes have been paid due to OnStream's net losses. At
September 30, 1996, OnStream had federal income tax loss carryforwards of
approximately $13,200,000 which begin to expire in 2005, and California state
income tax loss carryforwards of approximately $2,200,000 which begin to expire
in 1998. The extent to which the loss carryforwards can be used to offset future
taxable income will be limited because of ownership changes as provided in the
Tax Reform Act of 1986 and the California Conformity Act of 1987. The Merger
will constitute such an ownership change. OnStream has available research and
experimentation credit carryforwards of approximately $1,000,000 which begin to
expire in 2005. Based upon OnStream's history of operating losses and expiration
dates of the loss carryforwards, OnStream has recorded a valuation allowance to
the full extent of its net deferred tax assets.

FISCAL 1995 COMPARED WITH FISCAL 1994

Revenues increased 54% from $7,800,000 for the year ended December 31, 1994
to $11,900,000 for the same period in 1995 due to increased sales of the BMX45
as well as an increase in the number of customers entering into new service
agreements.

Sales to UUNET Technologies, Inc., Ameritech and Bank of America represented
22%, 15% and 12%, respectively, of total revenues in 1995. Sales to Ameritech
represented 22% of total revenues in 1994.

OnStream's gross profit on product sales increased from $4,000,000 in 1994
to $6,100,000 in 1995. As a percentage of revenues, gross profit on product
sales increased slightly to 59% in 1995, from 57% in 1994, primarily due to a
higher mix of sales of certain configurations of BMX45 systems which carry
higher gross margins. Service revenues rose to $1,500,000 in 1995 from $700,000
in 1994, and gross profit as a percentage of service revenues increased from 21%
in 1994 to 30% in 1995. In 1994, additional costs were incurred in association
with repair of BMX45 products in the installed base.

Product development expenditures increased 55% from $2,500,000 in 1994 to
$3,900,000 in 1995 primarily due to increases in engineering personnel and
related costs in connection with the development of new products.

Selling, general and administrative expenses increased from $4,800,000 in
1994 to $5,900,000 in 1995 primarily due to increased costs associated with
sales and marketing of OnStream's products. This increase in year-over-year
spending was partially offset by a decrease in 1995 due to severance costs of
approximately $700,000 incurred in 1994 in association with termination of
employment of certain executives of OnStream.

Net other income increased from a net expense of $13,000 in 1994 to net
other income of approximately $300,000 in 1995 due to increased interest income
arising from increased cash balances that resulted from a November 1994 equity
transaction.

FISCAL 1994 COMPARED WITH FISCAL 1993

Revenues increased approximately 13% from $6,900,000 for the year ended
December 31, 1993 to $7,800,000 for the same period in 1994 due to increased
sales of the BMX45 product family. Sales to International Business Machines
Corporation, Charles Schwab and Co., Inc. and U S West represented 24%, 11% and
11%, respectively, of total revenues in 1993.

OnStream's gross profit on product sales declined slightly from
approximately $4,200,000 in 1993 to approximately $4,000,000 in 1994. As a
percentage of product revenues, product margins decreased from

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<PAGE>
67% in 1993 to 57% in 1994 primarily due to sales in 1994 of BMX45 product
configurations which carried a lower gross margin, as well as increased sales
discounts on sales to major customers.

Product development expenditures increased 9% from $2,300,000 in 1993 to
$2,500,000 in 1994 primarily due to increases in engineering personnel and
related costs in connection with the enhancements of existing products and
initial new product development activity.

Selling, general and administrative expenses increased from approximately
$2,900,000 in 1993 to approximately $4,800,000 in 1994 primarily due to
increases in sales personnel as well as administrative costs associated with
transition of OnStream executives.

Net other income (expense) decreased from a net income position of
approximately $15,000 in 1993 to a net expense of approximately $13,000 in 1994
due to increased interest expense arising from the additional borrowings against
OnStream's capital equipment financing and bank line of credit.

LIQUIDITY AND CAPITAL RESOURCES

OnStream has relied primarily upon private financing of equity securities,
which have provided aggregate proceeds of approximately $25,700,000 since its
inception in 1989. Other sources of capital have been a capital equipment line
of credit and a bank line of credit secured by OnStream's assets. Proceeds from
these equity and debt sources were used primarily to finance operating losses
and for working capital. During the nine month period ended September 30, 1996,
OnStream raised $8,000,000 in a private financing of equity securities. Proceeds
from this financing were used for development costs of the CS600 and BMX28
products and to finance accounts receivable. As of September 30, 1996, OnStream
had approximately $4,900,000 in cash and cash equivalents, approximately
$6,300,000 in working capital, and approximately $1,700,000 in borrowings
secured by capital equipment. In November 1994, OnStream raised cash of
approximately $6,000,000 in a private equity transaction which served as
OnStream's primary source of capital throughout 1995. From December 31, 1994 to
December 31, 1995, a portion of these funds were used to finance accounts
receivable and inventories and to fund operations.

Working capital increased to $6,300,000 at September 30, 1996 from
$4,400,000 at December 31, 1995. A private equity transaction in January 1996
increased cash balances to approximately $11,300,000 which was partially offset
by increased operating expenditures and investments in inventory and accounts
receivable.

Cash used for capital expenditures for the nine month period ended September
30, 1996 was approximately $1,600,000 and was $1,600,000, $800,000 and $600,000,
respectively, for the years ended December 31, 1995, 1994 and 1993,
respectively. In connection with material procurement for OnStream's
manufacturing process at September 30, 1996, OnStream had purchase commitments
of approximately $500,000 for the purchase of component parts used in the
manufacturing process.

OnStream has available a secured revolving line of credit of $3,000,000
expiring on November 26, 1996 and a term loan for capital equipment purchases of
$2,000,000 expiring on December 27, 1999. At September 30, 1996, there were no
borrowings against the revolving line of credit, and approximately $1,600,000
was outstanding against the capital equipment term loan.

To date, neither inflation nor any fluctuations in the U.S. dollar have had
a significant effect on OnStream's operating results. Export sales have not been
material to any period presented.

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<PAGE>
MANAGEMENT

The following table sets forth certain information with respect to the
executive officers and directors of OnStream as of September 30, 1996:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH ONSTREAM
- ---------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
James Mongiello............................... 54 President and Chief Executive Officer, Director
Robert A. Ende................................ 45 Vice President of Operations
Kenneth G. Koenig............................. 41 Vice President of Engineering
Jan A. Praisner............................... 45 Vice President of Finance and Chief Financial Officer
David Yates................................... 38 Vice President of Marketing
Tench Coxe.................................... 38 Director
Kathryn C. Gould.............................. 46 Director
Frederick K. Fluegel.......................... 56 Director
</TABLE>

James Mongiello joined OnStream in June 1994 as President and Chief
Executive Officer and was elected to the Board of Directors at that time. In
1990, Mr. Mongiello was elected to the post of President and Chief Executive
Officer at Larscom Corporation, a supplier of high-speed network equipment.
Prior to that, Mr. Mongiello held various sales and marketing executive posts at
Larscom, Doeltz Networks, Timeplex and General DataComm. Mr. Mongiello has a
bachelor of science degree in electrical engineering from Lowell University.

Robert A. Ende joined OnStream in October 1993 as Vice President of
Operations. Previously he served as the director of manufacturing at Rolm
Systems, a supplier of PBX equipment, from 1980 to 1993. Mr. Ende also held
various production-related posts at Spectra-Physics and Signetics prior to his
employment with Rolm Systems. Mr. Ende holds a masters degree in business
administration from Santa Clara University and a bachelor of science degree from
University of Florida.

Kenneth G. Koenig joined OnStream in November 1994 as Vice President of
Engineering. Previously he served as director of engineering at Aspect
Telecommunications, a supplier of call transaction processing equipment, from
1993 to 1994. From 1992 to 1993, Mr. Koenig was Director of Engineering at Foton
Inc., and from 1983 to 1992 he was Director of Engineering at Racal-Milgo. Prior
to that, Mr. Koenig held various engineering design positions at Tandem
Computers and Intel Corporation. Mr. Koenig holds a master of science degree in
computer science and a bachelor of science degree in electrical engineering from
Cornell University.

Jan A. Praisner joined OnStream in January 1996 as Vice President of Finance
and Chief Financial Officer. Previously Ms. Praisner served as Vice President of
Marketing in 1994 and as Chief Financial Officer from 1988 to 1994 at Aspect
Telecommunications. Prior to that, Ms. Praisner held senior financial management
positions at Advanced Micro Devices and Digital Equipment Corporation. Earlier
in her career she was a certified public accountant with Price Waterhouse. Ms.
Praisner holds a bachelor of arts degree and a master in business administration
degree from Southern Methodist University.

David Yates joined OnStream in November 1995 as Vice President of Marketing.
Previously he served as director, software product management at Bay Networks, a
supplier of networking products, from 1994 to 1995 and held various senior
marketing positions at Bay Networks from 1991 to 1994. Mr. Yates held various
marketing positions at AT&T from 1986 to 1991. Mr. Yates holds bachelor and
master of arts degrees from Oxford University. He received a master of arts
degree and a master of business administration degree from Harvard University
and completed Ph.D. course work at Harvard.

Tench Coxe has served as a director of OnStream since January 1991. Since
1987, Mr. Coxe has served as general partner of Sutter Hill Ventures, a venture
capital firm providing equity capital to technology companies throughout the
United States. Funds and individuals who may be deemed to be affiliates of
Sutter Hill Ventures are collectively principal shareholders of OnStream. Prior
to joining Sutter Hill Ventures, Mr. Coxe served in a variety of positions with
Digital Communications Associates from 1984 to

65
<PAGE>
1987. Mr. Coxe currently serves as director of Edify Corporation and Avant!, as
well as nine privately-held companies. Mr. Coxe holds a bachelor of arts degree
in Economics from Dartmouth College and a master of business administration
degree from Harvard University.

Frederick K. Fluegel has served as director of OnStream since May, 1991. He
has been a General Partner of Matrix Partners, a group of venture capital funds,
since February, 1982. He is a General Partner of Matrix III Management Company,
which is General Partner of Matrix Partners III, L.P. Mr. Fluegel is a Director
of FileNet Corporation and Clarify, Inc. Mr. Fluegel holds a B.S. degree in
Engineering from the U.S. Naval Academy and is a graduate of the Graduate School
of Management at the University of California, Irvine.

Kathryn C. Gould has served as director of OnStream since June 1994. Ms.
Gould has been a general partner with Foundation Capital, a venture capital
partnership, since 1995. Ms. Gould is a limited partner of MPAE V Management
Company, L.P., the general partner of Merrill, Pickard, Anderson & Eyre V, L.P.,
a venture capital partnership, from 1989 to 1995. MPAE V Management Company,
L.P. and Merrill, Pickard, Anderson & Eyre V, L.P. are principal shareholders of
OnStream. She is a director of Documentum, Inc. and of six privately-held
companies. Ms. Gould received her M.B.A. from the University of Chicago and a
bachelor of science degree in physics from the University of Toronto.

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<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of OnStream Stock as of September 30, 1996, by (i) all persons and
entities known by OnStream to be beneficial owners of more than 5% of its
outstanding Common Stock or Preferred Stock (ii) each director and each
executive officer of OnStream serving at the end of OnStream's last fiscal year
ended December 31, 1995 and (iii) all directors and executive officers of
OnStream serving at the end of OnStream's last fiscal year ended December 31,
1995 as a group. Unless otherwise indicated, each of the shareholders listed
below has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
SHARES PERCENT
COMMON STOCK PRIOR TO MERGER OF CLASS
- --------------------------------------------------------------------------------------- --------------- ---------
<S> <C> <C>
James Mongiello (1).................................................................... 669,375 22.1%

Kenneth G. Koenig (1).................................................................. 166,249 5.5%

Robert Ende (1)........................................................................ 91,875 3.0%

Peter B. Liebowitz (1)(2).............................................................. 68,392 2.3%

Robert Stiehler (1)(2)................................................................. 56,937 1.9%

All directors and executive officers as a group (10 persons) (1)(2).................... 1,432,828 46.9%

PREFERRED STOCK
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Sutter Hill Ventures (3)............................................................... 2,514,985 22.5%
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304

Tench Coxe (4)......................................................................... 2,514,985 22.5%
c/o Sutter Hill Ventures
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304

Mayfield Fund (5)...................................................................... 1,853,302 16.6%
2800 Sand Hill Road
Menlo Park, CA 94025

Merrill, Pickard, Anderson & Eyre (6).................................................. 1,756,202 15.7%
2480 Sand Hill Road
Menlo Park, CA 94025

Kathryn C. Gould (6)(7)................................................................ 1,756,202 15.7%
c/o Foundation Capital
75 Willow Road, Suite 103
Menlo Park, CA 94025

New Enterprise Associates (8).......................................................... 1,743,245 15.6%
3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025

Matrix Partners, III, L.P.............................................................. 1,507,291 13.5%
2500 Sand Hill Road
Menlo Park, CA 94025
</TABLE>

67
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENT
PREFERRED STOCK (CONTINUED) PRIOR TO MERGER OF CLASS
- --------------------------------------------------------------------------------------- --------------- ---------
<S> <C> <C>
Frederick Fluegel (9).................................................................. 1,507,291 13.5%
c/o Matrix Partners
2500 Sand Hill Road
Menlo Park, CA 94025

Sigma Partners (10).................................................................... 790,746 7.1%
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025

Brentwood Associates VII, L.P.......................................................... 778,032 7.0%
2730 Sand Hill Road, Suite 250
Menlo Park, CA 94025

All directors and executive officers as a group (10 persons) (4)(6)(7)(9).............. 5,778,478 51.7%
</TABLE>

- ------------------------

(1) Includes shares issuable upon exercise of vested stock options within 60
days of September 30, 1996 held by the following executive officers of
OnStream: Mr. Mongiello, 9,375; Mr. Koenig, 16,429; Mr. Ende, 11,875; and
Mr. Liebowitz, 2,766. Subsequent to September 30, 1996, Mr. Ende and Mr.
Koenig exercised options to purchase 10,417 and 13,750 shares of OnStream
Common Stock, respectively.

(2) Mr. Stiehler resigned on February 29, 1996. He was serving as Vice
President, Finance and Administration of the Company as of December 31,
1995. Mr. Liebowitz resigned as Vice President, Sales of the Company on May
31, 1996; however, certain incentive stock options held by him continued to
vest until September 30, 1996 and are exercisable (to the extent vested as
of September 30, 1996) until December 29, 1996.

(3) Includes 980,638 shares held by employees and partners of Sutter Hill
Ventures and entities associated with the families of such individuals.

(4) Includes 1,534,347 shares owned by Sutter Hill Ventures, A California
Limited Partnership ("Sutter Hill"), over which Mr. Coxe shares voting and
investing power with four other general partners. Also includes 70,439
shares held directly by or beneficially on behalf of Mr. Coxe. Includes an
additional 910,199 shares owned by other employees and partners of Sutter
Hill and entities associated with their families. Because of his position
with Sutter Hill, Mr. Coxe may be deemed to be a beneficial owner of such
shares but expressly disclaims beneficial ownership of such shares except
as to shares held by him personally and to the extext of his pecuniary
interest in shares held by Sutter Hill.

(5) Includes 1,779,170 shares held by Mayfield VI and 74,132 shares held by
Mayfield Associates Fund, each of which is a limited partnership. Certain
of the general partners of the general partner of Mayfield VI are also
general partners of Mayfield Associates Fund.

(6) Includes 1,732,869 shares held by Merrill, Pickard, Anderson & Eyre V, L.P.
and 23,333 shares held by MPAE V Affiliates Fund, L.P., each of which is a
limited partnership. Both such limited partnerships share the same general
partner.

(7) Ms. Gould is a limited partner of MPAE V Management Company, L.P., which
entity is the sole general partner of Merrill, Pickard, Anderson & Eyre V,
L.P. and MPAE Affiliates Fund, L.P. Because of her position with such
entity, Ms. Gould may be deemed to be a beneficial owner of such shares,
but expressly disclaims beneficial ownership of such shares except to the
extent of her pecuniary interest therein.

(8) Includes 121,306 shares held by New Venture Partners III, 1,599,717 shares
held by New Enterprise Associates V, Limited Partnership and 22,222 shares
held by Silverado Fund, each of which is a limited partnership. Certain of
the general partners of New Enterprise Associates V, Limited

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<PAGE>
Partnership are also general partners of the general partner of New Venture
Partners III and Silverado Fund.

(9) Includes 1,507,291 shares held by Matrix Partners III, L.P., a limited
partnership of whose general partner Mr. Fluegel is a general partner.
Because of his position with such entity, Mr. Fluegel may be deemed to be a
beneficial owner of such shares, but expressly disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.

(10) Includes 738,738 shares held by Sigma Partners II, L.P. and 52,008 shares
held by Sigma Associates II, L.P., each of which is a limited partnership.
Both such limited partnerships share the same general partner.

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<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements give effect
to the proposed Merger of 3Com and OnStream on a pooling of interests basis. The
unaudited pro forma combined financial statements are based on the respective
historical financial statements which are included elsewhere in this
Prospectus/Consent Solicitation Statement. The unaudited pro forma combined
balance sheet assumes that the Merger took place on August 31, 1996 and combines
3Com's August 31, 1996 unaudited consolidated balance sheet with OnStream's
September 30, 1996 unaudited balance sheet. The unaudited pro forma combined
statements of operations assume that the Merger took place as of the beginning
of the periods presented and combine 3Com's consolidated statements of
operations for the three months ended August 31, 1996 (unaudited) and the fiscal
years ended May 31, 1996, 1995 and 1994 with OnStream's results of operations
for the three months ended September 30, 1996 (unaudited), the twelve months
ended June 30, 1996 (unaudited) and the years ended December 31, 1994 and
December 31, 1993, respectively. This presentation has the effect of excluding
OnStream's results of operations for the six-month period ended June 30, 1995
from the unaudited pro forma combined statements of operations.

The unaudited pro forma combined financial statements are based on the
estimates and assumptions set forth in the notes to such statements. The pro
forma adjustments made in connection with the development of the pro forma
information are preliminary and have been made solely for purposes of developing
such pro forma information for illustrative purposes necessary to comply with
the disclosure requirements of the Commission. The unaudited pro forma combined
financial statements do not purport to be indicative of the results of
operations for future periods or the combined financial position or the results
that actually would have been realized had the entities been a single entity
during these periods.

3Com and OnStream estimate that they will incur direct transaction costs of
approximately $7 million associated with the Merger which will be charged to
operations in the fiscal quarter in which the Merger is consummated. This amount
is a preliminary estimate only and is therefore subject to change. There can be
no assurance that 3Com will not incur additional charges in subsequent quarters
to reflect costs associated with the Merger.

These unaudited pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of 3Com and OnStream, which are included elsewhere herein.
See "Index to Financial Statements."

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<PAGE>
3COM AND ONSTREAM
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ONSTREAM
3COM AUGUST SEPTEMBER 30, PRO FORMA PRO FORMA
31, 1996 1996 ADJUSTMENTS* COMBINED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents............................. $ 218,035 $ 3,992 $ 222,027
Temporary cash investments............................ 359,111 860 359,971
Trade receivables--net................................ 418,840 2,155 420,995
Inventories........................................... 227,375 2,790 230,165
Deferred income taxes................................. 87,789 -- 87,789
Other................................................. 70,933 212 71,145
------------ ------------- ------------
Total current assets................................ 1,382,083 10,009 1,392,092
Property & equipment--net............................... 267,531 2,075 269,606
Other assets............................................ 39,916 72 39,988
------------ ------------- ------------
Total................................................... $ 1,689,530 $ 12,156 $ 1,701,686
------------ ------------- ------------
------------ ------------- ------------

LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable...................................... $ 111,418 $ 449 $ 111,867
Accrued and other liabilities......................... 241,005 2,602 $ 7,000(2) 250,607
Income taxes payable.................................. 106,267 -- 106,267
Current portion of long-term obligations.............. -- 686 686
------------ ------------- ------------ ------------
Total current liabilities........................... 458,690 3,737 7,000 469,427
Long-term debt.......................................... 110,000 985 110,985
Other long-term obligations............................. 5,371 227 5,598
Noncurrent deferred taxes............................... 22,638 -- 22,638
Shareholders' Equity:
Preferred stock (OnStream: 11,187,376 shares)......... -- 25,234 (25,234)(3) --
Common stock (3Com: 169,904,038 shares; OnStream:
3,017,205 shares; and 173,223,000 shares on a pro
forma combined basis)............................... 619,771 478 25,234(3) 645,483
Unamortized restricted stock grants................... (4,144) -- (4,144)
Retained earnings..................................... 472,468 (18,178) (7,000)(2) 447,290
Notes receivable from sale of stock................... -- (327) (327)
Net unrealized gain on available-for-sale
securities.......................................... 5,257 -- 5,257
Accumulated translation adjustments................... (521) -- (521)
------------ ------------- ------------ ------------
Total shareholders' equity.......................... 1,092,831 7,207 (7,000) 1,093,038
------------ ------------- ------------ ------------
Total................................................... $ 1,689,530 $ 12,156 $ -- $ 1,701,686
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>

* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements

71
<PAGE>
3COM AND ONSTREAM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
3COM
THREE MONTHS
ENDED ONSTREAM
AUGUST 31, THREE MONTHS ENDED PRO FORMA PRO FORMA
1996 SEPTEMBER 30, 1996 ADJUSTMENTS* COMBINED
-------------- ------------------ ----------------- -----------
<S> <C> <C> <C> <C>
Sales............................................. $ 706,968 $ 3,566 $ 710,534
Cost of sales..................................... 325,032 1,835 326,867
-------------- ------- -----------
Gross margin.................................. 381,936 1,731 383,667
Operating expenses:
Sales and marketing............................. 141,357 1,271 142,628
Research and development........................ 69,516 1,374 70,890
General and administrative...................... 29,591 413 30,004
-------------- ------- -----------
Total operating expenses...................... 240,464 3,058 243,522
-------------- ------- -----------
Operating income (loss)........................... 141,472 (1,327) 140,145
Other income--net................................. 2,894 28 2,922
-------------- ------- -----------
Income (loss) before income taxes................. 144,366 (1,299) 143,067
Income tax provision.............................. 51,253 -- 51,253
-------------- ------- -----------
Net income (loss)............................. $ 93,113 $ (1,299) $ 91,814
-------------- ------- -----------
-------------- ------- -----------
Net income (loss) per common
and equivalent share:
Primary......................................... $ 0.52 $ (0.43) $ 0.50
Fully diluted................................... $ 0.52 $ (0.43) $ 0.50

Common and equivalent shares
used in computing per share amounts:
Primary......................................... 179,174 2,996 768(4) 182,938
Fully diluted................................... 179,448 2,996 768(4) 183,212
</TABLE>

* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements

72
<PAGE>
3COM AND ONSTREAM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ONSTREAM
3COM TWELVE MONTHS
YEAR ENDED ENDED JUNE PRO FORMA PRO FORMA
MAY 31, 1996 30, 1996 ADJUSTMENTS* COMBINED
------------ ------------- --------------- ------------

<S> <C> <C> <C> <C>
Sales................................................... $2,327,101 $ 11,316 $ 2,338,417
Cost of sales........................................... 1,096,846 6,197 1,103,043
------------ ------------- ------------
Gross margin........................................ 1,230,255 5,119 1,235,374

Operating expenses:
Sales and marketing................................... 475,769 5,593 481,362
Research and development.............................. 233,107 4,909 238,016
General and administrative............................ 97,395 1,480 98,875
Purchased in-process technology....................... 52,353 -- 52,353
Acquisition--related charges and other................ 69,950 -- 69,950
------------ ------------- ------------
Total operating expenses............................ 928,574 11,982 940,556
------------ ------------- ------------
Operating income (loss)................................. 301,681 (6,863) 294,818
Other income--net....................................... 6,788 224 7,012
------------ ------------- ------------
Income (loss) before income taxes....................... 308,469 (6,639) 301,830
Income tax provision.................................... 130,615 -- 130,615
------------ ------------- ------------
Net income (loss)................................... $ 177,854 $ (6,639) $ 171,215
------------ ------------- ------------
------------ ------------- ------------

Net income (loss) per common and equivalent share:
Primary............................................. $ 1.01 $ (2.43) $ 0.95
Fully diluted....................................... $ 1.00 $ (2.43) $ 0.95

Common and equivalent shares used in computing per share
amounts:
Primary............................................. 176,517 2,734 604(4) 179,855
Fully diluted....................................... 176,972 2,734 604(4) 180,310
</TABLE>

* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements

73
<PAGE>
3COM AND ONSTREAM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ONSTREAM
3COM YEAR ENDED
YEAR ENDED DEC. 31, PRO FORMA PRO FORMA
MAY 31, 1995 1994 ADJUSTMENTS* COMBINED
------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Sales................................................... $1,593,469 $ 7,755 $ 1,601,224
Cost of sales........................................... 738,093 3,581 741,674
------------ ------------ ------------
Gross margin........................................ 855,376 4,174 859,550
Operating expenses:
Sales and marketing................................... 319,310 3,191 322,501
Research and development.............................. 166,327 2,494 168,821
General and administrative............................ 66,462 1,610 68,072
Purchased in-process technology....................... 68,696 -- 68,696
Acquisition-related charges and other................. 10,125 -- 10,125
------------ ------------ ------------
Total operating expenses............................ 630,920 7,295 638,215
------------ ------------ ------------
Operating income (loss)................................. 224,456 (3,121) 221,335
Other income (expense)--net............................. 4,895 (13) 4,882
------------ ------------ ------------
Income (loss) before income taxes....................... 229,351 (3,134) 226,217
Income tax provision.................................... 84,792 -- 84,792
------------ ------------ ------------
Net income (loss)................................... $ 144,559 $ (3,134) $ 141,425
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per common and equivalent share:
Primary............................................. $ 0.85 $ (1.62) $ 0.82
Fully diluted....................................... $ 0.84 $ (1.62) $ 0.82

Common and equivalent shares used in computing per share
amounts:
Primary............................................. 169,443 1,930 318(4) 171,691
Fully diluted....................................... 171,079 1,930 318(4) 173,327
</TABLE>

* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements

74
<PAGE>
3COM AND ONSTREAM
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ONSTREAM
3COM YEAR ENDED
YEAR ENDED DEC. 31, PRO FORMA PRO FORMA
MAY 31, 1994 1993 ADJUSTMENTS* COMBINED
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
Sales................................................... $1,011,533 $ 6,875 $ 1,018,408
Cost of sales........................................... 485,540 2,410 487,950
------------ ------------ ------------
Gross margin........................................ 525,993 4,465 530,458
Operating expenses:
Sales and marketing................................... 217,197 2,187 219,384
Research and development.............................. 101,085 2,283 103,368
General and administrative............................ 49,733 729 50,462
Purchased in-process technology....................... 134,481 -- 134,481
------------ ------------ ------------
Total operating expenses............................ 502,496 5,199 507,695
------------ ------------ ------------
Operating income (loss)................................. 23,497 (734) 22,763
Other income --net...................................... 3,978 15 3,993
Gain on sale of investment.............................. 17,746 -- 17,746
------------ ------------ ------------
Income (loss) before income taxes....................... 45,221 (719) 44,502
Income tax provision.................................... 57,091 -- 57,091
------------ ------------ ------------
Net loss................................................ $ (11,870) $ (719) $ (12,589)
------------ ------------ ------------
------------ ------------ ------------
Net loss per common and equivalent share:
Primary............................................. $ (0.08) $ (0.52) $ (0.09)
Fully diluted....................................... $ (0.08) $ (0.52) $ (0.09)

Common and equivalent shares used in computing per share
amounts:
Primary............................................. 145,139 1,393 250(4) 146,782
Fully diluted....................................... 145,139 1,393 250(4) 146,782
</TABLE>

* See accompanying Notes to Unaudited Pro Forma Combined Financial Statements

75
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

NOTE 1. PERIODS COMBINED

The 3Com consolidated balance sheet as of August 31, 1996 has been combined
with the OnStream balance sheet as of September 30, 1996.

The 3Com consolidated statements of operations for the three months ended
August 31, 1996 and for the fiscal years ended May 31, 1996, 1995 and 1994 have
been combined with the OnStream statements of operations for the three months
ended September 30, 1996, the twelve months ended June 30, 1996 and for the
years ended December 31, 1994 and December 31, 1993, respectively. This
presentation has the effect of excluding OnStream's results of operations for
the six-month period ended June 30, 1995 from the unaudited pro forma combined
statements of operations.

NOTE 2. MERGER COSTS

3Com and OnStream estimate they will incur costs of approximately $7 million
associated with the Merger, primarily consisting of direct transaction fees for
investment banking, legal and accounting services. The Merger costs, which are
not tax deductible, will be charged to operations in the fiscal quarter in which
the Merger is consummated. The unaudited pro forma combined balance sheet gives
effect to such expenses as if they had been incurred as of August 31, 1996, but
the effects of these costs have not been reflected in the unaudited pro forma
combined statements of operations.

NOTE 3. EXCHANGE OF STOCK

Entry reflects the issuance of approximately 3.3 million shares of 3Com
Common Stock in exchange for all outstanding shares of OnStream Common Stock
based on the Exchange Ratio of .23364 of a share of 3Com Common Stock for each
share of OnStream Common Stock, assuming the conversion of OnStream Preferred
Stock into OnStream Common Stock.

NOTE 4. PRO FORMA INCOME (LOSS) PER SHARE

The unaudited pro forma combined income (loss) per common and equivalent
share is based upon the weighted average number of common and equivalent shares
outstanding (except where inclusion of common equivalent shares is antidilutive)
of 3Com and OnStream for each period using an Exchange Ratio of .23364 of a
share of 3Com Common Stock for each share of OnStream Common Stock, assuming the
conversion of OnStream Preferred Stock into OnStream Common Stock. The effect of
the assumed conversion of 3Com's convertible subordinated notes was antidilutive
for the periods presented. No pro forma adjustment has been provided for income
taxes as the impact is not material to the unaudited pro forma combined
statements of operations.

76
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF 3COM
COMMON STOCK AND HOLDERS OF ONSTREAM STOCK

3Com and OnStream are each incorporated under the laws of the State of
California. The following summarizes differences in the charter documents of
OnStream and 3Com that could materially affect the rights of shareholders of
OnStream after consummation of the Merger. A number of the provisions of 3Com's
Charter documents may have the effect of delaying, deferring or preventing a
change in control of 3Com.

ANNUAL MEETING. The 3Com Bylaws require that an annual meeting of
shareholders be held within three months following the close of 3Com's fiscal
year. The OnStream Bylaws require that an annual shareholder meeting be held
each year at a time designated by the Board of Directors.

ANNUAL REPORTS. The 3Com Bylaws require that an annual report be sent to
shareholders at least fifteen days prior to the annual meeting of shareholders.
The OnStream Bylaws expressly waive the requirement of compiling and
distributing an annual report to shareholders, so long as the outstanding shares
are held by fewer than one hundred holders of record. Otherwise, the annual
report is required to be sent to shareholders at least fifteen days prior to the
annual meeting of shareholders.

NUMBER OF DIRECTORS. The 3Com Articles of Incorporation and Bylaws fix the
authorized number of directors at eight, with changes in the authorized number
of directors permitted by either the Board of Directors or the shareholders,
through amendment of either the Bylaws (if authorizing a number of directors
between seven and eleven, inclusive) or the Articles of Incorporation. In
addition, the 3Com Bylaws require that the Board consist of not less than two
Independent Directors. The OnStream Bylaws fix the authorized number of
directors at a range from three to five, with the number currently set at five,
with changes in the authorized number of directors permitted by either the Board
of Directors, through amendment of the Bylaws (if authorizing a number of
directors between three and five, inclusive), or by the shareholders through
amendment of the Bylaws (if authorizing a number of directors between three and
five, inclusive) or the Articles of Incorporation, provided that an amendment
reducing the fixed number or minimum number of directors to a number less than
five cannot be adopted if the votes cast against its adoption at a meeting, or
the shares not consenting in the case of an action by written consent, exceed
16 2/3% of the outstanding shares entitled to vote thereon. In addition, holders
of OnStream Series B Preferred Stock, voting separately as a class, have the
right to elect one member of the OnStream Board of Directors.

CUMULATIVE VOTING FOR DIRECTORS. Under California law, shareholders of a
California corporation may, unless such corporation's articles of incorporation
or bylaws expressly eliminate cumulative voting, cumulate their votes in the
election of directors so long as at least one shareholder has given notice of
such shareholder's intent to cumulate his or her votes at the meeting prior to
the voting. The respective articles of incorporation and bylaws of 3Com and
OnStream do not contain any provision eliminating cumulative voting.

CLASSIFICATION OF DIRECTORS. The 3Com Articles of Incorporation and Bylaws
provide for two classes of directors elected for staggered two-year terms. The
OnStream Articles of Incorporation and Bylaws limit the term of a director to
one year and do not classify the OnStream Board of Directors.

BOARD OF DIRECTOR MEETINGS. The 3Com Bylaws provide for a regular meeting
of the Board of Directors each quarter, including one after the annual meeting
of shareholders. The OnStream Bylaws provide for regular meetings to be held at
times designated by the Board of Directors.

DIRECTOR VOTING. The 3Com Bylaws provide that unless the authorized number
of directors is one, the number constituting a quorum shall be not less than the
greater of one-third of the authorized number of directors or two directors. In
addition, if (1) the number of elected directors is an even number, (2) all
directors are present at a meeting and (3) the directors are evenly divided on a
particular vote, then the

77
<PAGE>
Chairman of the Board shall decide the issue. The OnStream Bylaws provide that a
majority of the directors constitutes a quorum, but do not expressly provide for
quorum requirements or tie breaking procedures under the circumstances specified
in the previous sentence.

REMOVAL OF DIRECTORS. Under California law, any or all of the directors of
a California corporation may be removed if such removal is approved by a
majority of the outstanding shares; PROVIDED, HOWEVER, that no director of such
corporation may be removed (unless the entire board of directors of such
corporation is removed) when the votes cast against removal, or not consenting
in writing to the removal, would be sufficient to elect the director if voted
cumulatively at an election at which the same total number of votes were cast
(or, if the action is taken by written consent, all shares entitled to vote were
voted) and (1) for a corporation without a classified board, the entire number
of directors authorized at the time of the director's most recent election were
then being elected, or (2) for a corporation with a classified board, either the
number of directors elected at the most recent annual meeting of shareholders,
or if greater, the number of directors for whom removal is being sought, were
then being elected. The respective articles of incorporation and bylaws of 3Com
and OnStream do not contain any provisions which are inconsistent with
California law with respect to removal of directors.

RECORD DATE. The 3Com Bylaws do not establish a procedure to determine the
record date, if a record date is not set by the Board of Directors. The OnStream
Bylaws establish a procedure for determining the record date, if the Board of
Directors does not set one. Under the OnStream Bylaws, if no record date is set,
the record date for determining whether a shareholder is: (1) entitled to notice
of or to vote at a meeting shall be the close of business on the business day
preceding the day notice is given or, if notice is waived, the close of business
on the next business day on which the meeting is held; (2) entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given; and (3) entitled to give consent to corporate action
in writing without a meeting, when prior action by the Board of Directors has
been taken, for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution related thereto, or the
60th day prior to the date of such action, whichever is later.

ADVANCE NOTICE OF SHAREHOLDER PROPOSALS. The 3Com Bylaws provide that no
matter proposed by 3Com shareholders will be considered at an annual meeting or
special shareholder meeting unless (1) it is specified in the notice of meeting,
(2) it is brought by or at the direction of the Board of Directors or (3)
written notice of such matter is provided to 3Com no later than the date on
which shareholder proposals to be included in the 3Com proxy statement must be
received under federal securities laws. The OnStream Bylaws do not expressly
require advance notice of shareholder proposals.

NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS. The 3Com Bylaws require that
any person at 3Com who is entitled to call a special meeting of shareholders
upon proper written request and who receives such request, provide notice to the
shareholders entitled to vote not less than 35 nor more than 60 days after
receipt of request. The OnStream Bylaws require that notice of special meetings
of shareholders be provided to all shareholders entitled to vote not less than
10 (or, if notice is sent by third-class mail, 30) nor more than 60 days before
the meeting.

TRANSACTIONS WITH INTERESTED SHAREHOLDERS. The 3Com Articles of
Incorporation require at least a two-thirds majority of the combined voting
power of all outstanding shares of all outstanding classes and at least a
majority of the holders of such stock (other than shares held by an "Interested
Shareholder") in order to approve any material business dealings involving an
Interested Shareholder, unless approved by a majority of "Disinterested
Directors." Neither the OnStream Articles of Incorporation nor the OnStream
Bylaws expressly provide for procedures for approving such transactions.

AMENDMENT OF CHARTER DOCUMENTS. Approval of shareholders holding at least
two thirds of the voting shares of 3Com is required to amend those provisions of
the 3Com Articles of Incorporation addressing business combinations and those
provisions addressing amendment of the Articles of Incorporation. A

78
<PAGE>
majority of the shareholders of OnStream can amend any or all of the provisions
of the OnStream Articles of Incorporation, but, so long as any shares of
OnStream Preferred Stock are outstanding, OnStream may not, without the consent
of at least 67% of the holders of OnStream Preferred Stock, amend or repeal any
provision of, or add any provisions to, its Articles of Incorporation, if such
action would alter any of the rights, preferences or privileges of any shares of
any series of its Preferred Stock.

AMENDMENT OF BYLAWS. Both the 3Com Bylaws and the OnStream Bylaws may be
amended by holders of a majority of voting shares entitled to vote or by a
majority of the directors, except that a Bylaw amendment adopted by a majority
of the directors changing the authorized number of directors may only be adopted
if the Board changes the authorized number of directors within the limits
specified by the Bylaws. In addition, so long as any shares of OnStream
Preferred Stock are outstanding, OnStream can not, without the consent of at
least 67% of the holders of OnStream Preferred Stock, amend or repeal any
provision of, or add any provision to, its Bylaws, if such action would alter
any of the rights, preferences or privileges of any shares of any series of its
Preferred Stock.

INDEMNIFICATION. The 3Com Articles of Incorporation and Bylaws provide that
3Com shall indemnify any person to the full extent permitted by the CGCL in
connection with claims arising by reason of that person acting as a director,
officer or agent of 3Com. The Board of Directors shall determine whether such
person has met the applicable standard of conduct to establish indemnification
under the standards set by the CGCL. If the 3Com Board of Directors finds that
the person has not met this standard, the issue will be brought to a shareholder
vote. The 3Com Articles of Incorporation authorize it to provide insurance for
its directors, officers and/or agents, for breach of duty to the corporation and
its shareholders to the full extent under California law. The OnStream Articles
of Incorporation and Bylaws provide that the liability of the directors of
OnStream for monetary damages shall be eliminated to the fullest extent
permissible under California law, and that OnStream is authorized to provide
indemnification of agents in excess of the indemnification otherwise permitted
under California law. The OnStream Articles of Incorporation and Bylaws do not
expressly establish a procedure for processing indemnification requests but do
expressly authorize insurance for directors, officers and/or agents.

RESTRICTION ON SALES OF STOCK. 3Com is a public company whose shares are
traded on Nasdaq. As a result, the 3Com Articles of Incorporation and Bylaws do
not provide for any restrictions on the transfer of outstanding shares, other
than those imposed by federal securities laws for shares offered under certain
exempt transactions. OnStream is a private company and, as such, the agreements
relating to outstanding shares provide for various restrictions on the resale or
transfer of outstanding stock.

SHAREHOLDER RIGHTS PLAN. The Board of Directors of 3Com adopted a
Shareholder Rights Plan in September 1989, as amended in December 1994, which
provides for distribution of rights to holders of outstanding shares of 3Com
Common Stock. OnStream does not have a similar rights plan. Therefore, after the
Effective Date, the shares of 3Com Common Stock held by former OnStream'
shareholders will be subject to the 3Com Rights Plan. See "Description of 3Com
Capital Stock--Rights Plan" for a description of the Rights Plan.

DESCRIPTION OF 3COM CAPITAL STOCK

The authorized capital stock of 3Com consists of 400,000,000 shares of
Common Stock, $0.01 par value, and 3,000,000 shares of Preferred Stock, no par
value.

COMMON STOCK

As of September 30, 1996, there were approximately 170,977,913 shares of
3Com Common Stock outstanding held of record by approximately 2,774
shareholders.

Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of 3Com Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. 3Com has not paid any cash dividends on its Common Stock and
is

79
<PAGE>
prohibited by certain of its borrowing arrangements from paying cash dividends
without prior approval from the lender. Each holder of 3Com Common Stock is
entitled to one vote for each share held of record by him or her and may not
cumulate votes for the election of directors. In the event of a liquidation,
dissolution or winding up of 3Com, holders of 3Com Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding Preferred Stock. Holders of 3Com
Common Stock have no preemptive rights and have no rights to convert their
Common Stock into any other securities and there are no redemption provisions
with respect to such shares. All of the outstanding shares of 3Com Common Stock
are fully paid and non-assessable.

The transfer agent for 3Com Common Stock is the First National Bank of
Boston.

CERTAIN CHARTER PROVISIONS

3Com's Articles of Incorporation and Bylaws contain certain provisions that
could have the effect of delaying, deferring or preventing a change in control
of 3Com. These include the following: (i) a provision classifying the Board of
Directors into two classes; (ii) a provision permitting the Board of Directors
to consider factors other than price per share when evaluating a merger or
consolidation or certain other types of proposed business combination; and (iii)
a provision requiring that a vote of two thirds ( 2/3) of all of the outstanding
shares of 3Com, and the holders of at least a majority of the outstanding voting
shares other than shares held by interested shareholders, is required to approve
certain business combinations.

PREFERRED STOCK

As of September 30, 1996, there were no shares of 3Com Preferred Stock
outstanding. The 3Com Preferred Stock may be issued from time to time in one or
more series. 3Com's Board of Directors has authority to fix the designation,
preferences, and rights of each such series and the qualifications, limitations
and restrictions thereon and to increase or decrease the number of shares of
such series (but not below the number of shares of such series then
outstanding), without any further vote or action by the shareholders.

RIGHTS PLAN

In September 1989, the Board of Directors of 3Com declared a dividend
distribution of one Common Stock Purchase Right (each a "Right" and collectively
the "Rights") for each outstanding share of Common Stock, without par value
("Common Stock"), of 3Com. The distribution was paid as of September 20, 1989,
to shareholders of record on that date and subsequently to holders of shares
issued after that date. On December 13, 1994, the Board of Directors of 3Com
approved the amendment and restatement of the Rights Agreement. Each Right
entitles the registered holder to purchase from 3Com one share of 3Com Common
Stock at a purchase price of $250 per full share (the "Purchase Price").

The description and terms of the Rights are set forth in the Amended and
Restated Rights Agreement dated as of December 21, 1994 (the "Rights Agreement")
between 3Com and The First National Bank of Boston, as the Rights Agent, a copy
of which is attached to 3Com's Quarterly Report on Form 10-Q filed with the
Commission on January 13, 1995. The Rights will expire December 13, 2004, unless
earlier redeemed or exchanged, and will become exercisable and transferable
separately from the Common Stock only (i) on the earlier of (A) the acquisition
of, or the public announcement of the intent of any person or group to acquire,
without the approval of the Board of Directors of 3Com, beneficial ownership of
20% or more of the outstanding 3Com Common Stock ("Acquiring Person"), or (B)
the 10th day (unless extended by the Board prior to the time a person becomes an
Acquiring Person) following the commencement, or announcement of an intention to
commence by any person or group of persons, a tender offer which would result in
the offeror owning 20% or more of the outstanding 3Com Common Stock (the earlier
of such dates being referred to as the "First Distribution Date") or (ii) with
respect to any shares of Common Stock issuable upon conversion of certain
convertible notes of 3Com after the First Distribution Date, on

80
<PAGE>
the day immediately following the date on which such notes are converted into
shares of Common Stock (such date and the First Distribution Date are
collectively referred to as the Distribution Date).

If 3Com or more than 50% of its assets is acquired in a merger or other
business combination transaction after the Distribution Date, each holder of a
Right shall thereafter have the right to purchase, upon payment of the Purchase
Price, such number of shares of common stock of the acquiring company having a
current market value equal to twice the Purchase Price. If any person or group
acquires 20% or more of 3Com's Common Stock, or if such 20% shareholder engages
in certain self-dealing transactions (as specified in the Rights Agreement) with
3Com, each holder of Rights other than such 20% shareholder will have the right
to purchase upon payment of the then current Purchase Price, in lieu of one
share of Common Stock per outstanding Right, such number of shares of Common
Stock having a market value at the time of the transaction equal to twice the
Purchase Price. After any of these events, 3Com may also exchange all or any
portion of the outstanding Rights, other than Rights held by such 20%
shareholder, for shares of 3Com's Common Stock at an exchange ratio of one-half
share of Common Stock per Right, subject to the provisions of the Rights
Agreement. The Board of Directors may redeem the Rights for $.01 per Right at
any time prior to the day a person or group becomes a 20% shareholder and in
certain other instances. Additionally, the exercise price and the value of stock
that may be acquired for that price are subject to adjustment from time to time
to prevent dilution.

The Rights are designed to protect and maximize the value of the outstanding
equity interests in 3Com in the event of an unsolicited attempt by an acquiror
to take over 3Com in a manner or on terms not approved by the Board of
Directors. The Rights may have the effect of rendering more difficult or
discouraging an acquisition of 3Com deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire 3Com on terms or in a manner not approved by 3Com's Board of
Directors, except pursuant to an offer conditioned upon the negation, purchase
or redemption of the Rights.

LEGAL MATTERS

The validity of the shares of 3Com Common Stock to be issued in connection
with the Merger will be passed upon for 3Com by Gray Cary Ware & Freidenrich,
Palo Alto, California.

EXPERTS

The consolidated financial statements of 3Com Corporation as of May 31, 1996
and 1995 and for each of the three years in the period ended May 31, 1996
included in this Prospectus/Consent Solicitation Statement and the related
financial statement schedule have been audited by Deloitte & Touche LLP, as
stated in their reports dated June 24, 1996, which are included herein and
elsewhere in the Registration Statement, except for the premerger financial
statements of Chipcom Corporation as of December 31, 1994 and for the two years
in the period ended December 31, 1994 which have been audited by Price
Waterhouse LLP, as stated in their report included herein (which financial
statements are included in the fiscal 1995 and 1994 consolidated financial
statements of 3Com Corporation), and except for the premerger financial
statements of Primary Access Corporation for the fifty-three weeks ended October
3, 1993 which have been audited by KPMG Peat Marwick LLP as stated in their
report included herein (which financial statements are included in the fiscal
1994 consolidated financial statements of 3Com Corporation), all of which
financial statements have been so included in reliance upon the respective
reports of such firms given upon their authority as experts in accounting and
auditing. All of the foregoing firms are independent auditors.

The financial statements of OnStream Networks, Inc. at December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
included in this Prospectus/Consent Solicitation Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon such report given upon their authority
as experts in accounting and auditing.

81
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
3COM CORPORATION
Years ended May 31, 1996, 1995, and 1994:
Independent Auditors' Report--Deloitte & Touche LLP...................................................... F-2
Report of Independent Accountants--Price Waterhouse LLP.................................................. F-3
Independent Auditors' Report--KPMG Peat Marwick LLP...................................................... F-4
Consolidated Statements of Operations for the Years ended May 31, 1996, 1995 and 1994.................... F-5
Consolidated Balance Sheets at May 31, 1996 and 1995..................................................... F-6
Consolidated Statements of Shareholders' Equity for the Years ended May 31, 1996, 1995 and 1994.......... F-7
Consolidated Statements of Cash Flows for the Years ended May 31, 1996, 1995 and 1994.................... F-8
Notes to Consolidated Financial Statements............................................................... F-10
Quarterly Results of Operations (unaudited).............................................................. F-26

Three Months ended August 31, 1996 and 1995 (unaudited):
Consolidated Balance Sheets at August 31, 1996 and May 31, 1996.......................................... F-27
Consolidated Statements of Income for the Three Months ended August 31, 1996 and 1995.................... F-28
Consolidated Statements of Cash Flows for the Three Months ended August 31, 1996 and 1995................ F-29
Notes to Consolidated Financial Statements............................................................... F-30

ONSTREAM NETWORKS, INC.
Independent Auditors' Report--Deloitte & Touche LLP...................................................... F-32
Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995 and 1994.......................... F-33
Statements of Operations for the Nine Months ended September 30, 1996 and 1995 (unaudited) and for the
Years ended December 31, 1995, 1994 and 1993........................................................... F-34
Statements of Shareholders' Equity for the Nine Months ended September 30, 1996 (unaudited) and for the
Years ended December 31, 1995, 1994 and 1993........................................................... F-35
Statements of Cash Flows for the Nine Months ended September 30, 1996 and 1995 (unaudited) and for the
Years ended December 31, 1995, 1994 and 1993........................................................... F-36
Notes to Financial Statements............................................................................ F-37
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of 3Com Corporation:

We have audited the consolidated balance sheets of 3Com Corporation and its
subsidiaries as of May 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended May 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits. The consolidated
financial statements give retroactive effect to the fiscal 1996 mergers of 3Com
Corporation with Chipcom Corporation and Primary Access Corporation, which have
been accounted for as poolings-of-interests as described in Note 3 to the
consolidated financial statements. We did not audit the consolidated balance
sheet of Chipcom Corporation as of December 31, 1994, which reflects total
assets of $221,853,000 and is combined with 3Com Corporation's consolidated
balance sheet as of May 31, 1995, or the related consolidated statements of
income, shareholders' equity, and cash flows of Chipcom Corporation for the
years ended December 31, 1994 and 1993, which are combined with 3Com
Corporation's statements for the years ended May 31, 1995 and 1994 or of Primary
Access Corporation for the fifty-three weeks ended October 3, 1993 which are
combined with 3Com Corporation's statements for the year ended May 31, 1994, and
reflect combined revenues of $267,776,000 and $184,538,000, respectively, and
net income of $18,560,000 and $16,824,000, respectively, for fiscal years 1995
and 1994. Those statements were audited by other auditors whose reports have
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Chipcom Corporation and Primary Access Corporation for fiscal years
1995 and 1994, is based solely on the reports of such other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of 3Com Corporation and its
subsidiaries at May 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended May 31, 1996 in
conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

San Jose, California
June 24, 1996

F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Chipcom Corporation

In our opinion, the consolidated balance sheet and related consolidated
statements of income, of stockholders' equity and of cash flows of Chipcom
Corporation and its subsidiaries (not presented separately herein) present
fairly, in all material respects, their financial position at December 31, 1994,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Chipcom Corporation for any
period subsequent to December 31, 1994.

/s/ Price Waterhouse LLP
- ----------------------------

PRICE WATERHOUSE LLP

Boston, Massachusetts
February 7, 1995

F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Primary Access Corporation:

We have audited the statement of operations, stockholders' equity, and cash
flows of Primary Access Corporation for the fifty-three weeks ended October 3,
1993 (not presented herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, and cash flows of Primary
Access Corporation flows for the fifty-three weeks ended October 3, 1993 in
conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP
--------------------------------------------------------------------

KPMG Peat Marwick LLP

San Diego, California

November 5, 1993

F-4
<PAGE>
3COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales................................................................... $ 2,327,101 $ 1,593,469 $ 1,011,533
Costs and Expenses:
Cost of sales......................................................... 1,096,846 738,093 485,540
Sales and marketing................................................... 475,769 319,310 217,197
Research and development.............................................. 233,107 166,327 101,085
General and administrative............................................ 97,395 66,462 49,733
Purchased in-process technology....................................... 52,353 68,696 134,481
Acquisition-related charges and other................................. 69,950 10,125 --
------------ ------------ ------------
Total................................................................. 2,025,420 1,369,013 988,036
------------ ------------ ------------
Operating income........................................................ 301,681 224,456 23,497
Other income--net....................................................... 6,788 4,895 3,978
Gain on sale of investment.............................................. -- -- 17,746
------------ ------------ ------------
Income before income taxes.............................................. 308,469 229,351 45,221
Income tax provision.................................................... 130,615 84,792 57,091
------------ ------------ ------------
Net income (loss)....................................................... $ 177,854 $ 144,559 $ (11,870)
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per common and equivalent share:
Primary............................................................. $ 1.01 $ 0.85 $ (0.08)
Fully diluted....................................................... $ 1.00 $ 0.84 $ (0.08)
Common and equivalent shares used in computing per share amount:
Primary............................................................. 176,517 169,443 145,139
Fully diluted....................................................... 176,972 171,079 145,139
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
3COM CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------
1996 1995
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 216,759 $ 159,908
Temporary cash investments.......................................................... 282,578 225,660
Trade receivables, less allowance for doubtful accounts ($26,921 and $20,022 in 1996
and 1995, respectively)........................................................... 359,182 245,258
Inventories......................................................................... 241,018 182,759
Deferred income taxes............................................................... 79,259 55,273
Other............................................................................... 60,915 26,698
------------ ------------
Total current assets.................................................................. 1,239,711 895,556
Property and equipment--net........................................................... 246,652 144,944
Other assets.......................................................................... 38,754 34,310
------------ ------------
Total................................................................................. $ 1,525,117 $ 1,074,810
------------ ------------
------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................... $ 120,211 $ 118,377
Accrued and other liabilities....................................................... 211,620 150,076
Income taxes payable................................................................ 82,690 56,412
------------ ------------
Total current liabilities............................................................. 414,521 324,865
Long-term debt........................................................................ 110,000 110,000
Other long-term obligations........................................................... 5,492 6,221
Deferred income taxes................................................................. 16,299 --
Shareholders' Equity:
Preferred stock, no par value, 3,000,000 shares authorized; none outstanding........ -- --
Common stock, no par value, 400,000,000 shares authorized; shares outstanding:
1996--168,799,586; 1995--160,911,572.............................................. 597,452 435,922
Unamortized restricted stock grants................................................. (4,487) (2,037)
Retained earnings................................................................... 379,358 200,030
Unrealized net gain (loss) on available-for-sale securities......................... 7,159 (22)
Accumulated translation adjustments................................................. (677) (169)
------------ ------------
Total shareholders' equity............................................................ 978,805 633,724
------------ ------------
Total................................................................................. $ 1,525,117 $ 1,074,810
------------ ------------
------------ ------------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
3COM CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNAMORTIZED
RESTRICTED UNREALIZED GAIN
COMMON STOCK STOCK GRANTS (LOSS) ON ACCUMULATED
-------------------- AND NOTES RETAINED AVAILABLE-FOR- TRANSLATION
SHARES AMOUNT RECEIVABLE EARNINGS SALE SECURITIES ADJUSTMENTS
--------- --------- ------------- ----------- --------------- ---------------

(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 1, 1993 AS PREVIOUSLY
REPORTED............................. 127,690 $ 166,998 $ (5) $ 95,310 $ -- $ 142
Restatement for pooling of interests--
Chipcom.............................. 14,635 57,473 3,389
--------- --------- ------------- ----------- ------ -----
AS RESTATED............................ 142,325 224,471 (5) 98,699 -- 142
Common stock issued.................... 11,763 71,767 (255)
Repurchase of common stock............. (2,800) (3,501) (13,143)
Tax benefit from employee stock
transactions......................... 27,117
Amortization of restricted stock
grants............................... 53
Stock options assumed in connection
with acquisitions.................... 21,089
Accumulated translation adjustments.... (447)
Repayment of note receivable........... 5
Net loss............................... (11,870)
--------- --------- ------------- ----------- ------ -----
BALANCES, MAY 31, 1994................. 151,288 340,943 (202) 73,686 -- (305)
Common stock issued under stock plans
and for business acquisitions........ 8,494 44,364 (2,128)
Repurchase of common stock............. (1,570) (2,674) (16,916)
Tax benefit from employee stock
transactions......................... 45,794
Amortization of restricted stock
grants............................... 293
Stock options assumed in connection
with acquisitions.................... 6,508
Adjustment to conform pooled entity--
Sonix................................ 2,416 844 (2,079) (69)
Adjustment to conform fiscal year of
pooled entity--Primary Access........ 284 143 780
Unrealized loss on available-for-sale
securities........................... (22)
Accumulated translation adjustments.... 205
Net income............................. 144,559
--------- --------- ------------- ----------- ------ -----
BALANCES, MAY 31, 1995................. 160,912 435,922 (2,037) 200,030 (22) (169)
Common stock issued under stock
plans................................ 7,619 74,648 (3,502)
Repurchase of common stock............. (23) (52) (923)
Tax benefit from employee stock
transactions......................... 79,774
Amortization of restricted stock
grants............................... 1,052
Stock options assumed in connection
with acquisitions.................... 3,671
Adjustment to conform fiscal year of
pooled entity--Chipcom............... 292 3,489 2,397 151
Unrealized gain on available-for-sale
securities........................... 7,030
Accumulated translation adjustments.... (508)
Net income............................. 177,854
--------- --------- ------------- ----------- ------ -----
BALANCES, MAY 31, 1996................. 168,800 $ 597,452 $ (4,487) $ 379,358 $ 7,159 $ (677)
--------- --------- ------------- ----------- ------ -----
--------- --------- ------------- ----------- ------ -----

TOTAL
---------
(In thousands)
<S> <C>
BALANCES, JUNE 1, 1993 AS PREVIOUSLY
REPORTED............................. $ 262,445
Restatement for pooling of interests--
Chipcom.............................. 60,862
---------
AS RESTATED............................ 323,307
Common stock issued.................... 71,512
Repurchase of common stock............. (16,644)
Tax benefit from employee stock
transactions......................... 27,117
Amortization of restricted stock
grants............................... 53
Stock options assumed in connection
with acquisitions.................... 21,089
Accumulated translation adjustments.... (447)
Repayment of note receivable........... 5
Net loss............................... (11,870)
---------
BALANCES, MAY 31, 1994................. 414,122
Common stock issued under stock plans
and for business acquisitions........ 42,236
Repurchase of common stock............. (19,590)
Tax benefit from employee stock
transactions......................... 45,794
Amortization of restricted stock
grants............................... 293
Stock options assumed in connection
with acquisitions.................... 6,508
Adjustment to conform pooled entity--
Sonix................................ (1,304)
Adjustment to conform fiscal year of
pooled entity--Primary Access........ 923
Unrealized loss on available-for-sale
securities........................... (22)
Accumulated translation adjustments.... 205
Net income............................. 144,559
---------
BALANCES, MAY 31, 1995................. 633,724
Common stock issued under stock
plans................................ 71,146
Repurchase of common stock............. (975)
Tax benefit from employee stock
transactions......................... 79,774
Amortization of restricted stock
grants............................... 1,052
Stock options assumed in connection
with acquisitions.................... 3,671
Adjustment to conform fiscal year of
pooled entity--Chipcom............... 6,037
Unrealized gain on available-for-sale
securities........................... 7,030
Accumulated translation adjustments.... (508)
Net income............................. 177,854
---------
BALANCES, MAY 31, 1996................. $ 978,805
---------
---------
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>
3COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss).............................................................. $ 177,854 $ 144,559 $ (11,870)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization................................................ 90,969 57,687 37,391
Gain on sale of investment................................................... -- -- (17,746)
Deferred income taxes........................................................ (7,474) (27,980) (11,653)
Purchased in-process technology.............................................. 52,353 68,696 134,481
Adjustment to conform fiscal year of pooled entity........................... (3,048) 3,013 --
Non-cash acquisition-related costs........................................... 44,320 -- --
Non-cash restructuring costs................................................. -- (1,100) --
Changes in assets and liabilities net of effects of acquisitions:
Trade receivables.......................................................... (124,753) (87,348) (43,606)
Inventories................................................................ (71,852) (81,738) (8,002)
Other current assets....................................................... (21,088) (13,667) 5,182
Accounts payable........................................................... 11,636 48,754 13,192
Accrued and other liabilities.............................................. 57,707 44,934 6,157
Income taxes payable....................................................... 103,719 82,429 36,655
--------- --------- ---------
Net cash provided by operating activities........................................ 310,343 238,239 140,181
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment............................................. (179,982) (100,706) (50,928)
Purchase of temporary cash investments......................................... (301,960) (246,313) (136,900)
Proceeds from temporary cash investments....................................... 231,904 140,377 114,337
Businesses acquired in purchase transactions................................... (60,246) (70,174) (98,128)
Proceeds from sale of investment............................................... -- -- 18,066
Other --net.................................................................... (9,874) (1,378) (3,473)
--------- --------- ---------
Net cash used for investing activities........................................... (320,158) (278,194) (157,026)
--------- --------- ---------
Cash flows from financing activities:
Common stock issued under stock plans.......................................... 71,146 38,556 71,513
Repurchase of common stock..................................................... (975) (19,590) (16,644)
Net proceeds from issuance of debt............................................. -- 107,330 --
Repayments of notes payable and capital lease obligations...................... (2,997) (7,263) (2,724)
Other --net.................................................................... (508) 205 (490)
--------- --------- ---------
Net cash provided by financing activities........................................ 66,666 119,238 51,655
--------- --------- ---------
Increase in cash and cash equivalents............................................ 56,851 79,283 34,810
Cash and cash equivalents at beginning of year................................... 159,908 80,625 45,815
--------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 216,759 $ 159,908 $ 80,625
--------- --------- ---------
--------- --------- ---------
Other cash flow information:
Interest paid.................................................................. $ 12,961 $ 5,903 $ 570
Income taxes paid.............................................................. 34,921 33,272 30,623
Non-cash investing and financing activities--
Tax benefit from employee stock option transactions.......................... 79,774 45,794 27,117
Fair value of stock issued and options assumed
in business acquisitions................................................... 3,671 10,188 21,089
</TABLE>

- ------------------------------

F-8
<PAGE>
3COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

In connection with the purchase acquisition of AXON in fiscal 1996 (see Note
3), the Company paid cash, net of cash acquired, of $60.2 million, and recorded
the fair value of options assumed of $3.7 million. Excluding the $52.4 million
of purchased in-process technology charged to operations, the fair value of
assets acquired was $3.7 million and liabilities assumed were $3.5 million.

In connection with the purchase acquisitions in fiscal 1995 (see Note 3),
the Company paid cash, net of cash acquired, of $55.9 million, and recorded the
fair value of stock issued and options assumed of $3.7 million and $6.5 million,
respectively. Excluding the $68.7 million of purchased in-process technology
charged to operations, the fair value of assets acquired was $23.8 million, and
liabilities assumed were $17.8 million. In connection with the acquisition of
Centrum Communications in fiscal 1994 (see Note 3), the Company made a final
payment in cash of $14.3 million in fiscal 1995.

In connection with the acquisitions in fiscal 1994 (see Note 3), the Company
paid cash, net of cash acquired, of $98.1 million plus $14.3 million payable in
fiscal 1995, and recorded the fair value of options assumed of $21.1 million.
Excluding the $132.1 million of purchased in-process technology charged to
operations, the fair value of assets acquired was $35.6 million, and liabilities
assumed were $11.3 million.

See notes to consolidated financial statements.

F-9
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS. Founded in 1979, 3Com Corporation pioneered the
data networking industry and is committed to providing customers global access
to information. Today, 3Com offers a broad range of global data networking
connectivity solutions which include routers, hubs, remote access servers,
switches, adapters and network management for Ethernet, Token Ring, FDDI, ATM
and other high-speed data networks. Headquartered in Santa Clara, California,
3Com has worldwide research and development, manufacturing, marketing, sales and
support capabilities.

BASIS OF PRESENTATION. The Company acquired Primary Access Corporation
(Primary Access) on June 9, 1995 and Chipcom Corporation (Chipcom) on October
13, 1995. Both acquisitions were accounted for as poolings-of-interests. All
financial data of the Company has been restated to include the historical
financial information of Primary Access and Chipcom.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of 3Com Corporation and its wholly-owned subsidiaries. All
significant intercompany balances and transactions are eliminated in
consolidation.

CASH EQUIVALENTS are highly liquid debt investments acquired with a maturity
of three months or less.

TEMPORARY CASH INVESTMENTS consist of short-term investments acquired with
maturities exceeding three months. While the Company's intent is to hold debt
securities to maturity, consistent with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company has classified all securities as available-for-sale, as
the sale of such securities may be required prior to maturity to implement
management strategies. Such securities are reported at fair value with
unrealized gains or losses excluded from earnings and reported as a separate
component of shareholders' equity, net of applicable taxes.

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS. Financial instruments
which potentially subject the Company to concentrations of credit risk consist
principally of investments and trade receivables. The Company invests in
instruments with an investment credit rating of AA and better. The Company also
places its investments for safekeeping with high-credit-quality financial
institutions, and by policy, limits the amount of credit exposure to any one
financial institution.

Due to the consolidation in the distribution and reseller channels and the
Company's increased volume of sales into these channels, the Company has
experienced an increased concentration of credit risk, and, as a result, may
maintain individually significant receivable balances with such distributors.
While the Company continuously monitors and manages this risk, financial
difficulties on the part of one or more of the Company's resellers may have a
material adverse effect on the Company. The Company did not have any customers
which individually accounted for more than 10 percent of total sales or trade
receivables in fiscal years 1996, 1995 and 1994.

F-10
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES are stated at the lower of standard cost (which approximates
first-in, first-out cost) or market.

PROPERTY AND EQUIPMENT is stated at cost. Equipment under capital leases is
stated at the lower of fair market value or the present value of the minimum
lease payments at the inception of the lease.

DEPRECIATION AND AMORTIZATION are computed over the shorter of the estimated
useful lives, lease terms, or terms of license agreements of the respective
assets, on a straight-line basis--generally 2-7 years, except for buildings
which are over 25 years.

PURCHASED TECHNOLOGY is included in other assets and is amortized over four
years.

REVENUE RECOGNITION. The Company recognizes revenue when the product has
been shipped, no material vendor or post-contract support obligations remain
outstanding, except as provided by a separate service agreement, and collection
of the resulting receivable is probable. The Company accrues related product
return reserves, warranty and royalty expenses at the time of sale. Service and
subscription revenue is recognized over the contract term. The Company extends
limited product return and price protection rights to certain distributors and
resellers. Such rights are generally limited to a certain percentage of sales
over a three-month period. Historically, actual amounts recorded for product
returns and price protection have not varied significantly from estimated
amounts. The Company warrants products for periods ranging from 90 days to life,
depending upon the product.

FOREIGN CURRENCY TRANSLATIONS. For foreign operations with the local
currency as the functional currency, assets and liabilities are translated at
year-end exchange rates, and statements of operations are translated at the
average exchange rates during the year. Gains or losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity.

For foreign operations with the U.S. dollar as the functional currency,
assets and liabilities are translated at the year-end exchange rates except for
inventories, prepaid expenses, and property and equipment, which are translated
at historical exchange rates. Statements of operations are translated at the
average exchange rates during the year except for those expenses related to
balance sheet amounts that are translated using historical exchange rates. Gains
or losses resulting from foreign currency translation are included in other
income--net in the statements of operations and were not significant for any of
the years presented.

NET INCOME (LOSS) PER COMMON AND EQUIVALENT SHARE is computed using the
weighted average number of common and common equivalent shares outstanding and
the dilutive effects of stock options, using the treasury stock method. The
effect of the assumed conversion of the 10.25% convertible subordinated notes
was antidilutive for the periods presented.

The Company's common stock was split two-for-one on August 25, 1995 for
shareholders of record on August 4, 1995. All applicable share and per share
data has been restated to give effect to this stock split.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS. The Financial Accounting
Standards Board (FASB) has issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that the Company review for impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets whenever
events or changes in

F-11
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 will be effective for the Company's fiscal year beginning
June 1, 1996. The Company does not expect that the adoption of this statement
will have a material impact on the Company's financial position or results of
operations.

The FASB also issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company is required to adopt SFAS 123 for the fiscal year
beginning June 1, 1996. This statement establishes accounting and disclosure
requirements using a fair value based method of accounting for stock-based
employee compensation plans. Under SFAS 123, the Company may either adopt the
new fair value based accounting method or continue the intrinsic value based
method and provide pro forma disclosures of net income and earnings per share as
if the accounting provisions of this statement had been adopted. The Company
plans to adopt only the disclosure requirements of SFAS 123; therefore such
adoption will have no effect on the Company's financial position or results of
operations.

RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the current year presentation.

NOTE 3: BUSINESS COMBINATIONS

Unless otherwise stated, for acquisitions accounted for under the
pooling-of-interests method, all financial data of the Company has been restated
to include the historical financial data of these acquired companies. For
acquisitions accounted for as purchases, the Company's consolidated results of
operations include the operating results of the acquired companies from their
acquisition dates. Acquired assets and liabilities were recorded at their
estimated fair values at the dates of acquisition, and the aggregate purchase
price plus costs directly attributable to the completion of acquisitions have
been allocated to the assets and liabilities acquired. No significant
adjustments were required to conform the accounting policies of the acquired
companies.

FOR THE YEAR ENDED MAY 31, 1996. On June 9, 1995, the Company acquired
Primary Access by issuing approximately 4.6 million shares of its common stock
for all of the outstanding stock of Primary Access. The Company also assumed and
exchanged all options and warrants to purchase Primary Access stock for options
and warrants to purchase approximately 1.0 million shares of the Company's
common stock. The acquisition was accounted for as a pooling-of-interests.
Primary Access develops, manufactures and markets network access systems.
Primary Access maintained its financial records on a 52-53 week fiscal year
ending nearest to September 30. The restated consolidated statements of
operations and cash flows for the year ended May 31, 1994 includes the
statements of operations and cash flows of Primary Access for the year ended
October 3, 1993. The results of operations of Primary Access for the eight-month
period ended May 31, 1994 reflected revenues of $14.6 million and net income of
$780,000, which has been reported as an increase to the Company's fiscal 1995
retained earnings. Financial information as of May 31, 1996 and 1995, and for
the years then ended, reflects the Company's and Primary Access' operations for
those periods.

On October 13, 1995, the Company acquired Chipcom by issuing approximately
18.3 million shares of its common stock in exchange for all the outstanding
common stock of Chipcom. The Company also assumed and exchanged all options to
purchase Chipcom common stock for options to purchase approximately 2.4 million
shares of the Company's common stock. The acquisition was accounted for as a
pooling-

F-12
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 3: BUSINESS COMBINATIONS (CONTINUED)
of-interests. Chipcom designs, manufactures and distributes computer networking
multifunction platforms. Chipcom maintained its financial records on a 52-53
week fiscal year ending nearest to December 31. The May 31, 1995 restated
consolidated balance sheet includes the balance sheet of Chipcom as of December
31, 1994. The restated consolidated statements of operations and cash flows for
the years ended May 31, 1995 and 1994 include the statements of operations and
cash flows of Chipcom for the years ended December 31, 1994 and December 25,
1993, respectively. The results of operations of Chipcom for the five month
period ended May 31, 1995 reflected revenues of $118.1 million and net income of
$2.4 million, and has been reported as an increase to the Company's fiscal 1996
retained earnings. Financial information as of May 31, 1996 and for the year
then ended reflects the Company's and Chipcom's operations for that period.

The following table shows the effect on the results of operations as
restated for the periods prior to the combinations with Primary Access and
Chipcom.

<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED YEAR ENDED
AUG. 31, 1995 MAY 31, 1995 MAY 31, 1994
------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales:
3Com................................................................. $ 430,354 $1,295,311 $ 826,995
Chipcom.............................................................. 66,935 267,776 160,486
Primary Access....................................................... -- 30,382 24,052
------------- ------------ ------------
Combined............................................................. $ 497,289 $1,593,469 $1,011,533
------------- ------------ ------------
------------- ------------ ------------
Net income (loss):
3Com................................................................. $ 59,421 $ 125,706 $ (28,694)
Chipcom.............................................................. (2,000) 18,560 12,346
Primary Access....................................................... -- 293 4,478
------------- ------------ ------------
Combined............................................................. $ 57,421 $ 144,559 $ (11,870)
------------- ------------ ------------
------------- ------------ ------------
</TABLE>

On March 12, 1996, the Company acquired substantially all the assets and
assumed substantially all the liabilities of AXON Networks, Inc. (AXON). The
purchase price consisted of cash, net of cash acquired, of approximately $60.2
million, which was paid using funds from the Company's working capital, and
assumption of stock options with a fair value of approximately $3.7 million. The
acquisition was accounted for as a purchase. The aggregate purchase price of
$65.3 million, which includes $1.4 million of costs directly attributable to the
completion of the acquisition, has been allocated to the assets and liabilities
acquired. Approximately $52.4 million of the total purchase price represented
the value of in-process technology that had not yet reached technological
feasibility and had no alternative future use and was charged to the Company's
operations in the fourth quarter of fiscal 1996. AXON develops, manufactures and
markets remote network management and data network traffic management products.

The Company's consolidated results of operations include the operating
results of AXON from the acquisition date. Pro forma results of operations of
3Com and AXON for the periods prior to the acquisition are not presented as the
amounts would not significantly differ from the Company's historical results.

F-13
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 3: BUSINESS COMBINATIONS (CONTINUED)
FOR THE YEAR ENDED MAY 31, 1995. On October 18, 1994, the Company acquired
substantially all the assets and assumed substantially all the liabilities of
NiceCom, Ltd. (NiceCom), and assumed all outstanding NiceCom stock options. The
purchase price consisted of cash, net of cash acquired, of approximately $48.0
million which was paid using funds from the Company's working capital and the
issuance of 186,324 shares of common stock of the Company, with a fair value of
$3.7 million. In addition, the Company assumed stock options with a fair value
of $5.7 million and incurred direct transaction costs of approximately $2.0
million. NiceCom is engaged in the development of asynchronous transfer mode
(ATM) switches and an Ethernet-to-ATM solution to provide a migration path from
existing Ethernet LANs to ATM networking.

On October 14, 1994, the Company acquired all of the outstanding shares and
assumed all outstanding stock options of a company engaged in the development of
network adapter technology. The purchase price consisted of approximately $2.3
million in cash plus the assumption of stock options with a fair value of
approximately $400,000. The purchase price was paid using funds from the
Company's working capital.

The acquisitions were accounted for as purchases. The aggregate purchase
price of $61.6 million, plus $2.0 million of costs directly attributable to the
completion of the acquisitions, has been allocated to the assets and liabilities
acquired. Approximately $60.8 million of the total purchase price represented
the value of in-process technology that had not yet reached technological
feasibility and had no alternative future use and was charged to the Company's
operations in the second quarter of fiscal 1995.

On February 28, 1995, the Company acquired AccessWorks Communications, a
company involved in developing, manufacturing and marketing Integrated Services
Digital Network (ISDN) transmission products. The acquisition was accounted for
as a purchase. The purchase price and costs directly attributable to the
completion of the acquisition were not significant.

On May 1, 1995, the Company acquired Sonix Communications Limited (Sonix) by
issuing approximately 2.4 million shares of common stock for all of the
outstanding stock of Sonix. The acquisition was accounted for as a
pooling-of-interests. All financial data of the Company for fiscal 1995 has been
restated to include the operating results of Sonix. As the historical operations
of Sonix were not significant to any year presented, the Company's financial
statements for years prior to fiscal 1995 have not been restated. The financial
effect of the results of operations of Sonix prior to fiscal 1995 have been
accounted for as a $2.1 million charge against retained earnings in fiscal 1995.
Sonix develops, manufactures and markets a range of networking connectivity
solutions using ISDN technology.

In the Company's first quarter of fiscal 1995, Chipcom acquired Artel
Communications Corporation (Artel) by issuing approximately 1.2 million shares
of common stock in exchange for all of the outstanding common stock of Artel.
The merger was accounted for as a pooling-of-interests. Artel designs,
manufactures and markets high-performance communication systems for the
internetworking and video distribution markets.

In the Company's third quarter of fiscal 1995, Chipcom acquired all of the
outstanding common stock of DSI ExpressNetworks, Inc. (DSI). Cash paid,
including transaction costs, was approximately $4.4 million. Chipcom acquired
assets with a fair value of $19.5 million and assumed liabilities of $15.2
million. The acquisition was accounted for as a purchase. Approximately $7.9
million of the total purchase price represented the value of in-process
technology that had not yet reached technological feasibility and had

F-14
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 3: BUSINESS COMBINATIONS (CONTINUED)
no alternative future use and was charged to the Company's operations in fiscal
1995. DSI is engaged in the development of intelligent hubs and related
internetworking products.

FOR THE YEAR ENDED MAY 31, 1994. On January 14, 1994, the Company acquired
all of the outstanding shares of Synernetics, Inc. (Synernetics) and assumed all
outstanding Synernetics stock options. The purchase price consisted of
approximately $104.0 million, plus stock options with a fair value of $3.3
million. A substantial portion of the purchase price was paid using funds from
the Company's working capital. Synernetics is engaged in the development,
manufacturing and marketing of LAN switching products.

On February 2, 1994, the Company acquired all of the outstanding shares of
Centrum Communications, Inc. (Centrum) and assumed all outstanding Centrum stock
options. The purchase price consisted of approximately $36.0 million, of which
$16.0 million was paid in cash at the time of the acquisition and $14.3 million
was paid in cash in August 1994, pursuant to the acquisition agreement. The
remainder was associated with the fair value of the assumed stock options.
Centrum is engaged in the development, manufacturing and marketing of remote
access products and technology.

The acquisitions were accounted for as purchases and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair values at
the dates of acquisition. The aggregate purchase price of $143.3 million, plus
$13.1 million of costs directly attributable to the completion of the
acquisitions, has been allocated to the assets and liabilities acquired.
Approximately $132.1 million of the total purchase price represented in-process
technology that had not yet reached technological feasibility and had no
alternative future use and was charged to the Company's operations.

NOTE 4: INVESTMENTS

Available-for-sale securities consist of:

<TABLE>
<CAPTION>
MAY 31, 1996
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal securities................................... $ 152,998 $ 135 $ (296) $ 152,837
Corporate debt securities........................................ 79,299 11 (107) 79,203
U.S. Government and agency securities............................ 50,910 11 (383) 50,538
---------- ----------- ----------- ----------
Temporary cash investments....................................... 283,207 157 (786) 282,578
Corporate equity securities...................................... 3,010 12,609 -- 15,619
---------- ----------- ----------- ----------
Total............................................................ $ 286,217 $ 12,766 $ (786) $ 298,197
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>

F-15
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 4: INVESTMENTS (CONTINUED)
Corporate equity securities are included in other current assets.

<TABLE>
<CAPTION>
MAY 31, 1995
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal securities................................... $ 148,153 $ 214 $ (228) $ 148,139
Corporate debt securities........................................ 49,773 76 -- 49,849
U.S. Government and agency securities............................ 27,633 39 -- 27,672
---------- ----- ----- ----------
Total............................................................ $ 225,559 $ 329 $ (228) $ 225,660
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>

Realized gains or losses on sales of available-for-sale securities for the
years ended May 31, 1996 and 1995 were not significant. The cost of securities
sold is based on the specific identification method.

The contractual maturities of available-for-sale debt securities at May 31,
1996 are as follows:

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Within one year....................................................... $ 171,071 $ 170,896
Over one year to two years............................................ 112,136 111,682
---------- ----------
Temporary cash investments............................................ $ 283,207 $ 282,578
---------- ----------
---------- ----------
</TABLE>

NOTE 5: INVENTORIES

Inventories at May 31 consist of:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Finished goods........................................................ $ 132,363 $ 104,535
Work-in-process....................................................... 22,310 31,102
Raw materials......................................................... 86,345 47,122
---------- ----------
Total................................................................. $ 241,018 $ 182,759
---------- ----------
---------- ----------
</TABLE>

F-16
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 6: PROPERTY AND EQUIPMENT

Property and equipment at May 31 consists of:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land................................................................ $ 15,257 $ 1,303
Buildings........................................................... 35,226 7,365
Machinery and equipment............................................. 325,262 222,320
Furniture and fixtures.............................................. 35,475 22,999
Leasehold improvements.............................................. 30,218 20,270
Construction in progress............................................ 29,514 16,787
----------- -----------
Total............................................................... 470,952 291,044
Accumulated depreciation and amortization........................... (224,300) (146,100)
----------- -----------
Property and equipment--net......................................... $ 246,652 $ 144,944
----------- -----------
----------- -----------
</TABLE>

NOTE 7: ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities at May 31 consist of:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued payroll and related expenses................................ $ 49,761 $ 46,613
Accrued product warranty............................................ 30,574 22,756
Accrued cooperative advertising..................................... 20,300 12,773
Other accrued liabilities........................................... 110,985 67,934
----------- -----------
Accrued and other liabilities....................................... $ 211,620 $ 150,076
----------- -----------
----------- -----------
</TABLE>

NOTE 8: BORROWING ARRANGEMENTS AND COMMITMENTS

During the first quarter of fiscal 1995, the Company signed a five-year
lease for 225,000 square feet (Phase I) of office and manufacturing space to be
built on land adjacent to its existing headquarters in Santa Clara. The Company
commenced occupancy of the facility in the first quarter of fiscal 1996, and
payments on the lease started in the second quarter of fiscal 1996. The Company
amended the lease agreement on February 1, 1996 to add 150,000 square feet of
office and manufacturing space and a parking garage (Phase II) to be built on
adjacent land. The amended lease expires in five years and provides the Company
with an option to purchase both Phase I and II properties or arrange for the
sale of the properties to a third party with a guaranteed residual value of up
to $57.8 million to the seller of the property. The Company anticipates that it
will commence occupancy of, and begin lease payments on, the significant portion
of the Phase II property in the fourth quarter of fiscal 1997. Future minimum
lease payments are included in the table below.

As of May 31, 1996, the Company had approximately $22 million in capital
expenditure commitments, primarily associated with the expansion and
refurbishment of facilities and product manufacturing lines.

The Company has a $40 million revolving bank credit agreement which expires
on December 31, 1996. Under the agreement, the Company may select among various
interest rate options, including borrowing at

F-17
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 8: BORROWING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
the bank's prime rate. The agreement requires that the Company maintain certain
financial ratios and minimum net worth. At May 31, 1996, all such requirements
were met and there were no outstanding borrowings under the agreement. The
Company has no restrictions on paying cash dividends on its common stock.

In November 1994, the Company completed a private placement of $110 million
aggregate principal amount of convertible subordinated notes under Rule 144A of
the Securities Act of 1933. The notes mature in 2001. Interest is payable
semi-annually at 10.25% per annum. The notes are convertible at the option of
the note holders into the Company's common stock at an initial conversion price
of $34.563 per share. Beginning in November 1997, the notes become redeemable at
the option of the Company at an initial redemption price of 102.929% of the
principal amount. The Company has reserved 3,182,640 shares of common stock for
the conversion of these notes.

3Com Development Corporation, a wholly-owned subsidiary of 3Com, is a
limited partner in a lease/ joint venture arrangement to acquire and develop the
Company's corporate offices in Santa Clara, which were initially occupied in the
first quarter of fiscal 1991. Future minimum lease payments are included in the
table below.

The Company leases its facilities and certain equipment under operating
leases. Leases expire at various dates from 1996 to 2013 and certain facility
leases have renewal options with rentals based upon changes in the Consumer
Price Index or the fair market rental value of the property.

Future operating lease commitments are as follows:

<TABLE>
<CAPTION>
(IN
FISCAL YEAR THOUSANDS)
- ------------------------------------------------------------------------------- -------------
<S> <C>
1997........................................................................... $ 31,556
1998........................................................................... 26,517
1999........................................................................... 22,262
2000........................................................................... 18,885
2001........................................................................... 11,544
Thereafter..................................................................... 7,004
-------------
Total.......................................................................... $ 117,768
-------------
-------------
</TABLE>

Rent expense was $28.2 million, $19.9 million, and $15.6 million for fiscal
years ended May 31, 1996, 1995, and 1994, respectively.

NOTE 9: COMMON STOCK

SHAREHOLDER RIGHTS PLAN. In September 1989, the Company's Board of
Directors approved an amendment and restatement of the stock purchase rights
plan and declared a dividend distribution of one common stock purchase right for
each outstanding share of its common stock. The Company's Board of Directors
approved an amendment and restatement of the rights plan in December 1994. The
rights become exercisable based on certain limited conditions related to
acquisitions of stock, tender offers and

F-18
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 9: COMMON STOCK (CONTINUED)
certain business combination transactions of the Company. In the event one of
the limited conditions is triggered, each right entitles the registered holder
to purchase for $250 a number of shares of 3Com common stock (or any acquiring
company) with a fair market value of $500. The rights are redeemable at the
Company's option for $.01 per right and expire on December 13, 2004.

STOCK OPTION PLANS. The Company has stock option plans under which
employees and directors may be granted options to purchase common stock. Options
are generally granted at not less than the fair market value at grant date, vest
over a four-year period, and expire ten years after the grant date.

A summary of option transactions under the plans follows:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT PRICE PER SHARE)
<S> <C> <C> <C>
Number of option shares:
Granted and assumed........................... 6,912 8,164 10,349
Exercised..................................... (6,661) (6,932) (7,900)
Canceled...................................... (1,489) (1,271) (998)
-------------- -------------- --------------
Outstanding at end of year.................... 26,289 27,527 27,566
-------------- -------------- --------------
Option price per share:
Granted and assumed........................... $ 4.65-$51.63 $ 0.02-$46.93 $ 0.22-$51.29
Exercised..................................... 0.02- 46.13 0.22- 33.33 0.22- 19.42
Canceled...................................... 0.02- 51.00 0.37- 51.29 0.23- 19.42
-------------- -------------- --------------
Outstanding at end of year.................... $ 0.02-$51.63 $ 0.02-$46.93 $ 0.22-$51.29
-------------- -------------- --------------
</TABLE>

In connection with the fiscal 1996 acquisitions discussed in Note 3, the
Company assumed certain outstanding options to purchase common stock of the
acquired companies and exchanged them for options to acquire 3.4 million shares
of the Company's common stock at exercise prices of $0.24 to $43.52 per share.
The Company also assumed certain outstanding warrants to purchase common stock
of Primary Access and exchanged them for warrants to acquire 54,000 shares of
the Company's common stock at exercise prices of $2.26 to $4.89. All warrants
were exercised during fiscal 1996.

On July 13, 1995, the Board of Directors authorized the increase of shares
available for future grant under the 1994 Stock Option Plan by 3.7 million
shares. At May 31, 1996, options to purchase 12.8 million shares were
exercisable, 8.1 million shares were available for future grants, and 34.4
million shares were reserved for issuance under the stock option plans.

EMPLOYEE STOCK PURCHASE PLAN. The Company has an employee stock purchase
plan, under which eligible employees may authorize payroll deductions of up to
10 percent of their compensation (as defined) to purchase common stock at a
price not less than 85 percent of the lower of the fair market value as of the
beginning or the end of the offering period. On September 28, 1995, the
shareholders of the Company approved an amendment to increase the share reserve
under the employee stock purchase plan by 6.0 million shares. At May 31, 1996,
6.1 million shares of common stock were reserved for issuance under this plan.

F-19
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 9: COMMON STOCK (CONTINUED)
RESTRICTED STOCK PLAN. The Company has a restricted stock plan, under which
shares of common stock are reserved for issuance at no cost to key employees.
Compensation expense, equal to the fair market value on the date of the grant,
is recognized as the granted shares vest over a one-to-four year period. On
September 28, 1995, the shareholders of the Company approved an amendment to
increase the share reserve under the restricted stock plan by 500,000 shares. At
May 31, 1996, 703,000 shares were reserved for future issuance.

STOCK REPURCHASE PROGRAM. The Board of Directors has authorized the Company
to repurchase up to 30.0 million shares of common stock. Under this
authorization, 24.5 million shares have been repurchased and the Company may
repurchase up to an additional 5.5 million shares of common stock.

NOTE 10: FOREIGN EXCHANGE CONTRACTS

INTERCOMPANY BALANCES AND BALANCE SHEET EXPOSURES. The Company does not use
derivative financial instruments for speculative or trading purposes. The
Company enters into foreign exchange forward contracts to hedge certain balance
sheet exposures and intercompany balances against future movements in foreign
exchange rates. Gains and losses on the foreign exchange contracts are included
in other income--net, which offset foreign exchange gains or losses from
revaluation of foreign currency-denominated balance sheet items and intercompany
balances. The contracts require the Company to exchange foreign currencies for
U.S. dollars or vice versa, and generally mature in one month, unless otherwise
noted below.

At May 31, 1996, the Company had outstanding foreign exchange forward
contracts of $24.1 million which have remaining maturities of one month. In
addition, the Company entered into foreign exchange forward contracts to
minimize fluctuation in the expected U.S. dollar cost to purchase manufacturing
equipment due to movements in the Japanese Yen-to-U.S. dollar exchange rate. At
May 31, 1996, the outstanding foreign exchange contracts related to the
manufacturing equipment were $5.6 million. The contracts require the Company to
exchange U.S. dollars for Japanese Yen and have remaining maturities from three
to four months. Gains and losses on the forward contracts, if significant, are
included in construction in progress.

The Company also entered into a foreign exchange forward contract to
minimize fluctuations in the expected U.S. dollar cost to purchase and refurbish
a U.K. facility due to movements in the British Pound Sterling (GBP). The
forward contract matured in May 1996 to coincide with the purchase of the
facility. At May 31, 1996, the Company held the equivalent of $10.7 million in
cash in GBP as a hedge against commitments to refurbish the facility. Gains and
losses on this hedge, if significant, are included in construction in progress.

At May 31, 1995, the Company had outstanding foreign exchange forward
contracts of $16.7 million, excluding the foreign exchange contract related to
the expansion of an Irish manufacturing facility for $10.1 million. The
expansion of the facility was subsequently completed during fiscal 1996.

NOTE 11: FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE

The following summary disclosures are made in accordance with the provisions
of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which
requires the disclosure of fair value

F-20
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 11: FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE (CONTINUED)
information about both on- and off-balance sheet financial instruments where it
is practicable to estimate the value. Fair value is defined in SFAS 107 as the
amount at which an instrument could be exchanged in a current transaction
between willing parties, rather than in a forced or liquidation sale, which is
not the Company's intent.

Because SFAS 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements, any aggregation of
the fair value amounts presented would not represent the underlying value of the
Company.

<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1995
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents...................................... $ 216,759 $ 216,759 $ 159,908 $ 159,908
Temporary cash investments..................................... 282,578 282,578 225,660 225,660
Corporate equity securities.................................... 15,619 15,619 -- --
Liabilities:
Convertible subordinated notes................................. $ 110,000 $ 182,463 $ 110,000 $ 138,050
Commitments:
Foreign exchange contracts..................................... $ 29,752 $ 29,711 $ 26,796 $ 26,782
</TABLE>

The following methods and assumptions were used in estimating the fair
values of financial instruments:

CASH AND CASH EQUIVALENTS. The carrying amounts reported in the balance
sheets for cash and cash equivalents approximate their estimated fair values.

TEMPORARY CASH INVESTMENTS, CORPORATE EQUITY SECURITIES, CONVERTIBLE
SUBORDINATED NOTES, AND FOREIGN EXCHANGE CONTRACTS. The fair value of temporary
cash investments, corporate equity securities, convertible subordinated notes,
and foreign exchange contracts are based on quoted market prices.

NOTE 12: LICENSE

In fiscal 1994, the Company licensed certain in-process wireless technology
from Pacific Monolithics, Inc. This technology was still under development and,
accordingly, $2.4 million of the $2.5 million cost of obtaining this license
represented in-process technology and was charged to operations in fiscal 1994.

NOTE 13: ACQUISITION-RELATED CHARGES AND OTHER

Acquisition-related charges for the year ended May 31, 1996 consisted of
acquisition costs of $69.0 million related to the acquisition of Chipcom (see
Note 3) and approximately $1.0 million for a settlement of litigation. The $69.0
million charge includes $60.8 million of exit expenses and $8.2 million of
direct transaction costs (consisting primarily of investment banking and other
professional fees). Exit expenses include approximately $37.8 million of costs
of eliminating duplicate and discontinued products, $5.1 million of severance
and related costs for approximately 80 employees primarily associated with
duplicate or discontinued product lines, field sales and administrative
functions, $4.3 million of costs of eliminating

F-21
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 13: ACQUISITION-RELATED CHARGES AND OTHER (CONTINUED)
duplicate facilities and $13.6 million of other acquisition-related costs. Total
expected cash expenditures relating to the acquisition-related charges are $24.7
million, of which $13.5 million was disbursed prior to May 31, 1996 and the
remaining $11.2 million is expected to be paid within the next twelve months.

Acquisition-related charges for the year ended May 31, 1995 consists of
direct transaction costs of $11.2 million related to 3Com's acquisitions of
Sonix and Primary Access, and Chipcom's acquisition of Artel (see Note 3).
Offsetting the acquisition-related charges in fiscal 1995 was a $1.1 million
reduction in accrued costs associated with the fiscal 1991 restructuring based
on revised estimates of future costs.

NOTE 14: OTHER INCOME--NET

Other income--net consists of:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income.............................................. $ 21,636 $ 12,338 $ 5,177
Interest expense............................................. (12,611) (7,144) (635)
Other........................................................ (2,237) (299) (564)
--------- --------- ---------
Total........................................................ $ 6,788 $ 4,895 $ 3,978
--------- --------- ---------
--------- --------- ---------
</TABLE>

NOTE 15: INCOME TAXES

The provision for income taxes consists of:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------
1996 1995 1994
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................................... $ 67,645 $ 69,113 $ 39,676
State........................................................... 22,957 22,112 9,743
Foreign......................................................... 46,163 23,380 17,622
---------- ----------- ----------
Total current..................................................... 136,765 114,605 67,041
---------- ----------- ----------
Deferred:
Federal......................................................... (3,195) (22,333) (10,673)
State........................................................... (3,449) (7,790) (330)
Foreign......................................................... 494 310 1,053
---------- ----------- ----------
Total deferred.................................................... (6,150) (29,813) (9,950)
---------- ----------- ----------
Total............................................................. $ 130,615 $ 84,792 $ 57,091
---------- ----------- ----------
---------- ----------- ----------
</TABLE>

F-22
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 15: INCOME TAXES (CONTINUED)

The components of the net deferred tax assets at May 31, consist of:

<TABLE>
<CAPTION>
1996 1995
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves not recognized for tax purposes..................................... $ 65,537 $ 40,855
Net operating loss carryforwards............................................. 24,229 21,987
Amortization and depreciation................................................ 20,418 24,801
Other........................................................................ 17,494 19,439
Valuation allowance.......................................................... (27,491) (27,982)
---------- -----------
Total deferred tax assets...................................................... 100,187 79,100
---------- -----------
Deferred tax liabilities:
Unremitted earnings.......................................................... (32,406) (12,828)
Net unrealized gain on available-for-sale securities......................... (4,821) (123)
Other........................................................................ -- (1,279)
---------- -----------
Net deferred tax assets........................................................ $ 62,960 $ 64,870
---------- -----------
---------- -----------
</TABLE>

The valuation allowance relates primarily to the remaining portion of
acquired net operating losses as the Company believes that, due to various
limitations, it is more likely than not that such benefits will not be realized.
The allowance also relates to certain expenses, the realization of which is not
assured on future state income tax returns. The valuation allowance decreased
$491,000 in fiscal 1996, and increased $15.8 million and $1.8 million in 1995
and 1994, respectively.

The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income before taxes as follows:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Tax computed at federal statutory rate.................................... 35.0% 35.0% 35.0%
State income taxes, net of federal effect................................. 4.1 4.1 3.7
Foreign sales corporation................................................. (0.7) (1.1) (3.1)
Tax exempt investment income.............................................. (0.6) (0.9) (3.2)
Benefit of net operating loss carryforwards............................... -- -- (4.0)
Provision for combined foreign and U.S. taxes on certain foreign income at
rates less than U.S. rates............................................... (4.6) (3.5) (2.4)
Non-deductible book losses................................................ -- -- 1.5
Research tax credits...................................................... (0.1) (1.5) (4.4)
Non-deductible purchased in-process technology............................ 7.6 3.1 105.0
Effect of tax law changes................................................. -- -- (2.8)
Other..................................................................... 1.6 1.8 0.9
--- --- -----
Total..................................................................... 42.3% 37.0% 126.2%
--- --- -----
--- --- -----
</TABLE>

Income before income taxes for the years ended May 31, 1996, 1995, and 1994
includes income of $241.1 million, $131.2 million and $58.2 million,
respectively from the Company's foreign subsidiaries. The Company has not
provided for federal income taxes on approximately $107.3 million of
undistributed earnings of its foreign subsidiaries in countries in which the
statutory tax rates are less than the U.S. rates. The Company intends to
reinvest in subsidiary operations indefinitely. If such undistributed earnings
were to be remitted, the related tax liability would be approximately $29.8
million.

F-23
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 16: GEOGRAPHIC AREA INFORMATION

The Company operates in a single industry segment: the design, manufacture,
marketing, and support of data networking systems. The Company's foreign
operations consist primarily of central distribution and order administration,
manufacturing and research and development facilities in Western Europe, and
sales, marketing and customer service activities conducted through sales
subsidiaries throughout the world.

Sales, operating income and identifiable assets, classified by the major
geographic areas in which the Company operates, are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States operations.................................... $ 1,104,350 $ 767,484 $ 513,759
Export sales from United States operations.................. 456,906 302,670 173,742
European operations......................................... 764,992 523,151 324,032
Other....................................................... 853 164 --
------------ ------------- ------------
Total....................................................... $ 2,327,101 $ 1,593,469 $ 1,011,533
------------ ------------- ------------
------------ ------------- ------------
Transfers from geographic areas (eliminated in
consolidation):
United States operations.................................... $ 241,680 $ 144,862 $ 112,418
European operations......................................... 107,295 123,360 52,595
Other....................................................... 15,465 439 --
------------ ------------- ------------
Total....................................................... $ 364,440 $ 268,661 $ 165,013
------------ ------------- ------------
------------ ------------- ------------
Operating income (loss):
United States operations.................................... $ 103,020 $ 105,305 $ (35,794)
European operations......................................... 247,399 143,349 63,306
Other....................................................... 21,185 (2,351) 587
Eliminations................................................ (69,923) (21,847) (4,602)
------------ ------------- ------------
Total....................................................... $ 301,681 $ 224,456 $ 23,497
------------ ------------- ------------
------------ ------------- ------------
Identifiable assets:
United States operations.................................... $ 1,091,091 $ 874,607
European operations......................................... 441,668 239,947
Other....................................................... 32,015 10,895
Eliminations................................................ (39,657) (50,639)
------------ -------------
Total....................................................... $ 1,525,117 $ 1,074,810
------------ -------------
------------ -------------
</TABLE>

Operating income (loss) for the United States operations for the years ended
May 31, 1996, 1995 and 1994 included charges of approximately $52.4 million,
$68.7 million and $134.5 million, respectively, for purchased in-process
technology resulting from the Company's acquisitions in those years (see Note
3). In connection with the acquisition of Chipcom, approximately $63.0 million
of acquisition-related costs was charged to the United States operations in
fiscal 1996 (see Note 13). Transfers between geographic areas are accounted for
at prices representative of unaffiliated party transactions.

F-24
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994

NOTE 17: LITIGATION

On October 13, 1995, the Company acquired Chipcom, which had already been
named as a defendant in the litigation described below. On May 30, 1995, a
complaint was filed in the United States District Court for the District of
Massachusetts entitled LUCILLE NAPPO, MARC LINSKY, CONSTANDINE MACHAKOS, AND
MARY MACHAKOS V. CHIPCOM CORP., JOHN ROBERT HELD, ROBERT PETER BADAVAS, BRUCE L.
COHEN, MENACHEM E. ABRAHAM, AND JERALD G. FISHMAN. The named plaintiffs purport
to represent the class of persons who purchased Chipcom's common stock during
the period from and including February 8, 1995 through and including May 26,
1995. The complaint alleged violations by the defendants of Sections 10(b) and
20(a) of the Securities and Exchange Act of 1934, and sought unspecified
damages. On June 7, 1995, a complaint alleging very similar claims was filed
against the same defendants in the same Court by Anthony Mallozzi. A third
similar complaint was filed against the same defendants in the same Court on
June 8, 1995, by Daniel List. A fourth similar complaint was filed in the same
Court on June 16, 1995, entitled SEAN J. CARNEY AND NICHOLAS GIANNANTONIO V.
CHIPCOM CORP., JOHN HELD, AND ROBERT BADAVAS. A fifth similar complaint was
filed in the same Court on June 16, 1995, entitled MANUEL C. DESOUSA AND BARBARA
J. DESOUSA V. CHIPCOM CORP., JOHN HELD, AND ROBERT BADAVAS. The cases were
consolidated for pretrial purposes pursuant to an order entered by the Court on
June 15, 1995. The consolidated action is entitled IN RE: CHIPCOM SECURITIES
LITIGATION, Civil Action No. 95-111114-DPW. A Consolidated Complaint was filed
on September 13, 1995, and an Amended Consolidated Complaint was filed on
November 30, 1995.

The defendants' motion to dismiss the Amended Consolidated Complaint was
granted without leave to amend on May 1, 1996. The dismissal covers all five
cases. The plaintiffs have appealed the order granting the dismissal.

F-25
<PAGE>
3COM CORPORATION

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS ENDED FISCAL 1995 QUARTERS ENDED
------------------------------------------ ------------------------------------------
MAY 31 FEB. 29 NOV. 30 AUG. 31 MAY 31 FEB. 28 NOV. 30 AUG. 31
1996 1996 1995 1995 1995 1995 1994 1994
--------- --------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales........................ $ 660,266 $ 606,002 $ 563,544 $ 497,289 $ 476,256 $ 425,759 $ 376,771 $ 314,683
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin................. 350,508 321,183 296,825 261,739 256,855 228,833 201,725 167,963
Gross margin %............... 53.1% 53.0% 52.7% 52.6% 53.9% 53.7% 53.5% 53.4%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income............. 71,711 113,010 29,921 87,039 87,122 75,738 12,098 49,498
--------- --------- --------- --------- --------- --------- --------- ---------
Net income................... 29,498 74,590 16,345 57,421 54,153 48,504 9,257 32,645
Net income %................. 4.5% 12.3% 2.9% 11.5% 11.4% 11.4% 2.5% 10.4%
--------- --------- --------- --------- --------- --------- --------- ---------
Fully diluted net income per
share....................... $ 0.16 $ 0.42 $ 0.09 $ 0.33 $ 0.31 $ 0.28 $ 0.05 $ 0.20
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>

Net income for the quarter ended May 31, 1996 included a charge of
approximately $52.4 million ($.29 per share) for purchased in-process technology
and a charge of approximately $1.0 million (approximately $.01 per share) for a
litigation settlement. Net income for the quarter ended November 30, 1995
included a charge of approximately $69.0 million ($.28 per share) for
merger-related costs. Net income for the quarter ended May 31, 1995 included a
charge of approximately $6.1 million ($.04 per share) for merger-related costs.
Net income for the quarter ended February 28, 1995 included a charge of
approximately $7.9 million ($.03 per share) for purchased in-process technology.
Net income for the quarter ended November 30, 1994 included a charge of
approximately $60.8 million ($.23 per share) for purchased in-process technology
and a credit of $1.1 million ($.01 per share) for a reduction in accrued
restructuring costs. Net income for the quarter ended August 31, 1994 included a
charge of approximately $5.1 million ($.02 per share) for merger-related costs.
See Notes 3 and 13 to the Consolidated Financial Statements for additional
information on the above transactions. Excluding the non-recurring items noted
above, pro forma net income and net income per share on a fully diluted basis
would have been as follows:

<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS ENDED FISCAL 1995 QUARTERS ENDED
-------------------------------------------- --------------------------------------------
MAY 31 FEB. 29 NOV. 30 AUG. 31 MAY 31 FEB. 28 NOV. 30 AUG. 31
1996 1996 1995 1995 1995 1995 1994 1994
--------- --------- --------- ----------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pro forma net income................. $ 82,469 $ 74,590 $ 65,553 $ 57,421 $ 60,253 $ 53,481 $ 45,937 $ 35,874
Pro forma net income per share....... $ 0.46 $ 0.42 $ 0.37 $ 0.33 $ 0.35 $ 0.31 $ 0.27 $ 0.22
--------- --------- --------- ----------- --------- --------- --------- -----------
</TABLE>

F-26
<PAGE>
3COM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MAY 31, 1996
AUGUST 31, ------------
1996
------------
(UNAUDITED)
<S> <C> <C>

ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 218,035 $ 216,759
Temporary cash investments.......................................................... 359,111 282,578
Trade receivables................................................................... 418,840 359,182
Inventories......................................................................... 227,375 241,018
Deferred income taxes............................................................... 87,789 79,259
Other............................................................................... 70,933 60,915
------------ ------------
Total current assets.................................................................. 1,382,083 1,239,711
Property and equipment--net........................................................... 267,531 246,652
Other assets.......................................................................... 39,916 38,754
------------ ------------
Total................................................................................. $ 1,689,530 $ 1,525,117
------------ ------------
------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................... $ 111,418 $ 120,211
Accrued and other liabilities....................................................... 241,005 211,620
Income taxes payable................................................................ 106,267 82,690
------------ ------------
Total current liabilities............................................................. 458,690 414,521
Long-term debt........................................................................ 110,000 110,000
Other long-term obligations........................................................... 5,371 5,492
Deferred income taxes................................................................. 22,638 16,299

Shareholders' Equity:
Preferred stock, no par value, 3,000,000 shares authorized; none outstanding -- --
Common stock, $.01 par value, 400,000,000 shares authorized; shares outstanding:
August 31, 1996: 169,904,038; May 31, 1996: 168,799,586........................... 619,771 597,452
Unamortized restricted stock grants................................................. (4,144) (4,487)
Retained earnings................................................................... 472,468 379,358
Unrealized net gain on available-for-sale securities................................ 5,257 7,159
Accumulated translation adjustments................................................. (521) (677)
------------ ------------
Total shareholders' equity............................................................ 1,092,831 978,805
------------ ------------
Total................................................................................. $ 1,689,530 $ 1,525,117
------------ ------------
------------ ------------
</TABLE>

See notes to consolidated financial statements.

F-27
<PAGE>
3COM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED AUGUST
31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
SALES..................................................................................... $ 706,968 $ 497,289
Cost of sales............................................................................. 325,032 235,550
---------- ----------
Gross margin.............................................................................. 381,936 261,739
Operating expenses:
Sales and marketing..................................................................... 141,357 102,211
Research and development................................................................ 69,516 51,548
General and administrative.............................................................. 29,591 20,941
---------- ----------
Total................................................................................. 240,464 174,700
---------- ----------
Operating income.......................................................................... 141,472 87,039
Other income-net.......................................................................... 2,894 1,253
---------- ----------
Income before income taxes................................................................ 144,366 88,292
Income tax provision...................................................................... 51,253 30,871
---------- ----------
NET INCOME................................................................................ $ 93,113 $ 57,421
---------- ----------
---------- ----------
Net income per common and equivalent share:
Primary................................................................................. $ 0.52 $ 0.33
Fully diluted........................................................................... $ 0.52 $ 0.33

Common and equivalent shares used in computing per share amounts:
Primary................................................................................. 179,174 173,833
Fully diluted........................................................................... 179,448 174,520
</TABLE>

See notes to consolidated financial statements.

F-28
<PAGE>
3COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED AUGUST
31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $ 93,113 $ 57,421
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization........................................................ 31,987 19,446
Deferred income taxes................................................................ (875) 11,966
Adjustment to conform fiscal year of pooled entity--Chipcom.......................... -- (3,048)
Changes in assets and liabilities, net of effects of acquisitions:
Trade receivables.................................................................. (59,658) (40,995)
Inventories........................................................................ 11,804 (17,116)
Other current assets............................................................... (13,365) 2,794
Accounts payable................................................................... (8,793) (1,866)
Accrued and other liabilities...................................................... 29,720 (5,995)
Income taxes payable............................................................... 38,083 14,950
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................ 122,016 37,557
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment..................................................... (48,314) (38,228)
Purchase of temporary cash investments................................................. (152,770) (47,103)
Proceeds from temporary cash investments............................................... 75,401 86,720
Other--net............................................................................. (2,805) (7,989)
----------- ----------
NET CASH USED FOR INVESTING ACTIVITIES................................................... (128,488) (6,600)
----------- ----------
Cash flows from financing activities:
Sale of stock.......................................................................... 7,810 5,444
Repayments of notes payable and capital lease obligations.............................. (218) (1,717)
Other--net............................................................................. 156 (366)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................ 7,748 3,361
----------- ----------
Increase in cash and cash equivalents.................................................... 1,276 34,318
Cash and cash equivalents at beginning of period......................................... 216,759 159,908
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................... $ 218,035 $ 194,226
----------- ----------
----------- ----------
Non-cash financing and investing activities:
Tax benefit on stock option transactions............................................... $ 14,506 $ 8,698
Unrealized net gain (loss) on available-for-sale securities............................ $ (1,902) $ 122
</TABLE>

See notes to consolidated financial statements.

F-29
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. The consolidated financial statements include the accounts of 3Com
Corporation (the "Company") and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. In the opinion of
management, these unaudited consolidated financial statements include all
adjustments necessary for a fair presentation of the Company's financial
position as of August 31, 1996, and the results of operations and cash flows for
the quarters ended August 31, 1996 and 1995.

The results of operations for the quarter ended August 31, 1996 may not
necessarily be indicative of the results to be expected for the fiscal year
ending May 31, 1997.

These financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto for the fiscal year
ended May 31, 1996 included in this Prospectus/Consent Solicitation Statement.

2. Inventories consisted of (in thousands):

<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1996 1996
---------- ----------
<S> <C> <C>
Finished goods........................................................ $ 130,224 $ 132,363
Work-in-process....................................................... 18,604 22,310
Raw materials......................................................... 78,547 86,345
---------- ----------
Total................................................................. $ 227,375 $ 241,018
---------- ----------
---------- ----------
</TABLE>

3. NET INCOME PER SHARE

Net income per common and equivalent share is computed based on the weighted
average number of common shares and the dilutive effects of stock options
outstanding during the period using the treasury stock method. The effect of the
assumed conversion of the 10.25% convertible subordinated notes was excluded
from the computation as it was antidilutive for the periods presented.

4. LITIGATION

On October 13, 1995, the Company acquired Chipcom, which had already been
named as a defendant in the litigation described below. Five complaints were
filed between May, 30, 1995 and June 16, 1995 that alleged violations by the
defendants of Sections 10(b) and 20(a) of the Securities and Exchange Act of
1934, and sought unspecified damages. The cases were consolidated for pretrial
purposes pursuant to an order entered by the Court on June 15, 1995. The
consolidated action is entitled IN RE: CHIPCOM SECURITIES LITIGATION, Civil
Action No. 95-111114-DPW. A Consolidated Complaint was filed on September 13,
1995, and an Amended Consolidated Complaint was filed on November 30, 1995.

The defendants' motion to dismiss the Amended Consolidated Complaint was
granted without leave to amend on May 1, 1996. The dismissal covers all five
cases. The plaintiffs appealed the order granting the dismissal. On October 1,
1996, the parties to these cases agreed upon what the Company considers to be
favorable financial terms for settlement of all five cases, which amount the
Company does not consider material to its operations or financial position.
Pursuant to the contemplated settlement, which would be subject to the approval
of the District Court, it is intended that all claims of all persons which are
related to the subject matter of the Consolidated Complaint would be settled and
released.

F-30
<PAGE>
3COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. SUBSEQUENT EVENT

On September 26, 1996, the shareholders of the Company approved a proposal
to amend 3Com's Articles of Incorporation to designate a par value of $.01 for
each share of common stock. The financial statements have been restated to
reflect this event.

F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
of OnStream Networks, Inc.:

We have audited the accompanying balance sheets of OnStream Networks, Inc.
(formerly T3plus Networking, Inc.) as of December 31, 1995 and 1994, and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of OnStream Networks, Inc. at December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
January 22, 1996

F-32
<PAGE>
ONSTREAM NETWORKS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS
SEPTEMBER
30, DECEMBER DECEMBER
1996 31, 1995 31, 1994
----------- ----------- ----------
UNAUDITED
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents............................... $ 3,992,000 $ 2,420,000 $5,608,000
Short-term investments............................. 860,000 1,573,000 999,000
Accounts receivable, net of allowances for
$217,000, $172,000 and $120,000.................. 2,155,000 1,583,000 830,000
Inventories........................................ 2,790,000 2,936,000 1,421,000
Prepaid expenses and deposits...................... 212,000 124,000 112,000
----------- ----------- ----------
Total current assets........................... 10,009,000 8,636,000 8,970,000
PROPERTY--Net........................................ 2,075,000 1,765,000 1,102,000
DEPOSITS............................................. 72,000 72,000 61,000
----------- ----------- ----------
TOTAL................................................ $12,156,000 $10,473,000 $10,133,000
----------- ----------- ----------
----------- ----------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>

CURRENT LIABILITIES:
Revolving note payable to bank..................... $ -- $ 1,000,000 $ --
Accounts payable................................... 449,000 774,000 722,000
Accrued liabilities................................ 1,718,000 1,179,000 1,111,000
Current portion of long-term obligations........... 686,000 449,000 273,000
Deferred revenues.................................. 884,000 850,000 371,000
----------- ----------- ----------
Total current liabilities...................... 3,737,000 4,252,000 2,477,000
----------- ----------- ----------
CAPITAL LEASE OBLIGATIONS............................ -- 1,000 172,000
----------- ----------- ----------
BANK TERM NOTE....................................... 985,000 589,000 200,000
----------- ----------- ----------
DEFERRED RENT........................................ 227,000 238,000 221,000
----------- ----------- ----------
SHAREHOLDERS' EQUITY:
Convertible preferred stock--no par value,
11,298,600 shares authorized; shares outstanding:
1996-- 11,187,376; 1995 and 1994--9,356,711;
liquidation preference of $25,339,000............ 25,234,000 17,256,000 17,256,000
Common stock--no par value, 20,000,000 shares
authorized; shares outstanding: 1996--3,017,205;
1995--2,758,291; 1994--2,091,468................. 478,000 408,000 247,000
Notes receivable from sale of stock................ (327,000) (331,000) (1,392,000)
Accumulated deficit................................ (18,178,000) (11,940,000) (9,048,000)
----------- ----------- ----------
Total shareholders' equity..................... 7,207,000 5,393,000 7,063,000
----------- ----------- ----------
TOTAL................................................ $12,156,000 $10,473,000 $10,133,000
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

See notes to financial statements.

F-33
<PAGE>
ONSTREAM NETWORKS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED
NINE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------
---------------------------- 1995 1994 1993
1995 ------------- ------------- ------------
-------------
1996 (UNAUDITED)
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales....................... $ 6,706,000 $ 8,085,000 $ 10,460,000 $ 7,035,000 $6,355,000
Service and rental revenue.......... 1,737,000 967,000 1,455,000 720,000 520,000
------------- ------------- ------------- ------------- ------------
Total revenues.................... 8,443,000 9,052,000 11,915,000 7,755,000 6,875,000
------------- ------------- ------------- ------------- ------------
COST OF REVENUES:
Cost of product sales............... 4,141,000 3,328,000 4,338,000 3,010,000 2,132,000
Cost of service and rental
revenue........................... 1,075,000 754,000 1,015,000 571,000 278,000
------------- ------------- ------------- ------------- ------------
Total cost of revenues............ 5,216,000 4,082,000 5,353,000 3,581,000 2,410,000
------------- ------------- ------------- ------------- ------------
GROSS PROFIT.......................... 3,227,000 4,970,000 6,562,000 4,174,000 4,465,000
------------- ------------- ------------- ------------- ------------
OPERATING EXPENSES:
Selling, general and administrative
expenses............................ 5,487,000 4,037,000 5,867,000 4,801,000 2,916,000
Product development................... 4,113,000 2,781,000 3,876,000 2,494,000 2,283,000
------------- ------------- ------------- ------------- ------------
Total operating expenses.......... 9,600,000 6,818,000 9,743,000 7,295,000 5,199,000
------------- ------------- ------------- ------------- ------------
LOSS FROM OPERATIONS.................. (6,373,000) (1,848,000) (3,181,000) (3,121,000) (734,000)
------------- ------------- ------------- ------------- ------------
OTHER INCOME (EXPENSE):
Interest income..................... 254,000 283,000 328,000 62,000 72,000
Interest expense.................... (151,000) (68,000) (109,000) (109,000) (77,000)
Other............................... 32,000 49,000 70,000 34,000 20,000
------------- ------------- ------------- ------------- ------------
Other income (expense)--net......... 135,000 264,000 289,000 (13,000) 15,000
------------- ------------- ------------- ------------- ------------
NET LOSS.............................. $(6,238,000) $(1,584,000) $ (2,892,000) $ (3,134,000) $ (719,000)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
NET LOSS PER COMMON AND EQUIVALENT
SHARE............................... $ (2.12) $ (0.69) $ (1.22) $ (1.62) $ (0.52)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
COMMON AND EQUIVALENT SHARES USED IN
COMPUTING PER SHARE AMOUNTS......... 2,936,000 2,284,000 2,379,000 1,930,000 1,393,000
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
</TABLE>

See notes to financial statements.

F-34
<PAGE>
ONSTREAM NETWORKS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------- ---------------------- NOTES ACCUMULATED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
----------- ------------- ---------- ---------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1993.......... 4,440,045 $ 7,287,000 1,377,035 $ 82,000 $ (35,000) $ (5,195,000) $ 2,139,000
Sale of Series C convertible
preferred stock (net of issuance
costs of $18,000)................. 2,000,000 2,982,000 2,982,000
Issuance of common stock for notes
receivable........................ 80,000 18,000 (18,000) --
Repayment of notes receivable...... 11,000 11,000
Exercise of stock options.......... 1,333 -- --
Net loss........................... (719,000) (719,000)
----------- ------------- ---------- ---------- ------------ -------------- ------------
BALANCES, December 31, 1993........ 6,440,045 10,269,000 1,458,368 100,000 (42,000) (5,914,000) 4,413,000
Sale of Series D convertible
preferred stock (net of issuance
costs of $13,000)................. 2,916,666 6,987,000 (1,214,000) 5,773,000
Issuance of common stock for notes
receivable........................ 660,000 148,000 (148,000) --
Repurchase of unvested shares...... (36,332) (3,000) (3,000)
Repayment of notes receivable...... 12,000 12,000
Exercise of stock options.......... 9,432 2,000 2,000
Net loss........................... (3,134,000) (3,134,000)
----------- ------------- ---------- ---------- ------------ -------------- ------------
BALANCES, December 31, 1994........ 9,356,711 17,256,000 2,091,468 247,000 (1,392,000) (9,048,000) 7,063,000
Issuance of common stock for notes
receivable........................ 630,000 154,000 (154,000) --
Sale of common stock............... 100 -- --
Repurchase of unvested shares...... (1,999) (1,000) (1,000)
Repayment of notes receivable...... 1,215,000 1,215,000
Exercise of stock options.......... 38,722 8,000 8,000
Net loss........................... (2,892,000) (2,892,000)
----------- ------------- ---------- ---------- ------------ -------------- ------------
BALANCES, December 31, 1995........ 9,356,711 17,256,000 2,758,291 408,000 (331,000) (11,940,000) 5,393,000
Sale of Series E convertible
preferred stock (net of issuance
costs of $22,000)*................ 1,830,665 7,978,000 7,978,000
Issuance of common stock for notes
receivable*....................... 245,000 68,000 (68,000) --
Exercise of stock options*......... 99,839 23,000 23,000
Repurchase of unvested
shares*........................... (85,925) (21,000) 21,000 --
Repayment of notes
receivable*....................... 51,000 51,000
Net loss*.......................... (6,238,000) (6,238,000)
----------- ------------- ---------- ---------- ------------ -------------- ------------
BALANCES, September 30, 1996*...... 11,187,376 $ 25,234,000 3,017,205 $ 478,000 $ (327,000) $ (18,178,000) $ 7,207,000
----------- ------------- ---------- ---------- ------------ -------------- ------------
----------- ------------- ---------- ---------- ------------ -------------- ------------
</TABLE>

- ------------------------------

* Unaudited

See notes to financial statements.

F-35
<PAGE>
ONSTREAM NETWORKS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
NINE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------
---------------------------- 1995 1994 1993
1995 ------------ ------------ ------------
-------------
1996 (UNAUDITED)
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(6,238,000) $(1,584,000) $(2,892,000) $(3,134,000) $ (719,000)
Reconciliation to net cash used for
operating activities:
Depreciation and amortization............ 1,262,000 710,000 957,000 781,000 553,000
Loss on sale of equipment................ 30,000 -- -- (3,000) 5,000
Deferred rent............................ (11,000) 1,000 17,000 121,000 69,000
Changes in current assets and
liabilities:
Accounts receivable.................... (572,000) (1,257,000) (753,000) 400,000 2,000
Inventories............................ 146,000 (1,169,000) (1,515,000) 493,000 (1,483,000)
Prepaid expenses and deposits.......... (88,000) 35,000 (12,000) (19,000) (51,000)
Accounts payable....................... (325,000) (8,000) 52,000 53,000 446,000
Accrued liabilities.................... 539,000 198,000 68,000 381,000 290,000
Deferred revenues...................... 34,000 210,000 479,000 139,000 85,000
------------- ------------- ------------ ------------ ------------
Net cash used for operating
activities......................... (5,223,000) (2,864,000) (3,599,000) (788,000) (803,000)
------------- ------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property...................... (1,610,000) (1,084,000) (1,620,000) (846,000) (607,000)
Purchase of short-term investments......... (3,915,000) (1,590,000) (1,604,000) (999,000) --
Maturity of short-term investments......... 4,628,000 1,030,000 1,030,000 -- --
Deposits................................... -- (175,000) (11,000) -- (30,000)
Proceeds from sale of property............. 8,000 -- -- 49,000 9,000
------------- ------------- ------------ ------------ ------------
Net cash used for investing
activities......................... (889,000) (1,819,000) (2,205,000) (1,796,000) (628,000)
------------- ------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments under ) revolving
note payable to bank..................... (1,000,000) 600,000 1,000,000 -- --
Proceeds from debt obligations............. 1,048,000 270,000 675,000 776,000 --
Payments under debt obligations............ (266,000) (12,000) (41,000) (526,000) --
Payments under capital lease obligations... (150,000) (183,000) (240,000) (278,000) (157,000)
Sale of preferred stock.................... 7,978,000 -- -- 5,773,000 2,982,000
Repayments of shareholder notes
receivable............................... 51,000 1,214,000 1,215,000 12,000 --
Common stock transactions--net............. 23,000 6,000 7,000 (2,000) 11,000
------------- ------------- ------------ ------------ ------------
Net cash provided by financing
activities......................... 7,684,000 1,895,000 2,616,000 5,755,000 2,836,000
------------- ------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS................................ 1,572,000 (2,788,000) (3,188,000) 3,171,000 1,405,000
CASH AND EQUIVALENTS, Beginning of period.... 2,420,000 5,608,000 5,608,000 2,437,000 1,032,000
------------- ------------- ------------ ------------ ------------
CASH AND EQUIVALENTS, End of period.......... $ 3,992,000 $ 2,820,000 $2,420,000 $5,608,000 $2,437,000
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of preferred and common stock for
notes receivable......................... $ 68,000 $ 84,000 $ 154,000 $1,362,000 $ 18,000
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Property acquired under capital leases..... $ -- $ -- $ -- $ 9,000 $ 504,000
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Repurchase of unvested shares for
cancellation of note..................... $ 21,000 $ -- $ -- $ -- $ --
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Interest paid.............................. $ 111,000 $ 68,000 $ 109,000 $ 109,000 $ 77,000
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
</TABLE>

See notes to financial statements.

F-36
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION--OnStream Networks, Inc. (OnStream) was incorporated on August
10, 1989 as T3plus Networking, Inc. to design, manufacture and support broadband
networking products for end-user organizations and telecommunication carriers.

ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. Actual results could
differ from those estimates.

SHORT-TERM INVESTMENTS--Short-term investments are primarily comprised of
highly liquid debt instruments purchased with a maturity of more than three
months. Effective at the beginning of fiscal 1994, OnStream adopted Statement
for Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." There was no impact on OnStream's
financial position or results of operations due to the adoption of SFAS 115.
OnStream's policy is to classify securities purchased as "available for sale"
because the sale of such securities may be required prior to maturity. Under
this policy, short-term investments are carried at fair value. The difference
between amortized cost (cost adjusted for amortization of premiums and accretion
of discounts which are recognized as adjustments to interest income) and fair
value representing unrealized holding gains or losses, net of tax effect, are
recorded as a separate component of shareholders' equity until realized. Any
gains or losses on the sale of short-term investments are determined on a
specific identification basis. At September 30, 1996 OnStream held one
investment in commercial paper with a carrying value of $860,000, maturing
October 1996. At December 31, 1995, OnStream held two investments in U.S.
Treasury obligations with a carrying value of $1,573,000, maturing January 1996.
At December 31, 1994, OnStream held one investment in U.S. Treasury obligations
with a carrying value of $999,000, which matured June 1995. There were no
unrealized gains or losses during the nine months ended September 30, 1996 and
1995, or during the years ended December 31, 1995, 1994 or 1993.

CONCENTRATION OF CREDIT RISK--Financial instruments which may potentially
subject OnStream to concentrations of credit risk consist principally of
short-term investments and accounts receivable. Short-term investments consist
of U.S. Treasury obligations and commercial paper. Credit risk with respect to
accounts receivable is concentrated with several significant customers with the
remaining customer base generally diversified due to the dispersion across many
different industries and geographies. OnStream often sells its products through
third-party resellers, and, as a result, may maintain individually significant
receivable balances with major resellers. OnStream believes that its credit
evaluation, approval and monitoring processes mitigate potential credit risks.
OnStream maintains reserves for potential credit losses, and all such losses to
date have been within management's expectation. As of September 30, 1996 no
sales to individual customers accounted for greater than 10% of the total
year-to-date revenue, whereas, as of September 30, 1995, one customer accounted
for 11% of sales. At September 30, 1996, one customer accounted for 11% of the
accounts receivable balance. As of September 30, 1995, accounts receivable from
three customers were 60% of total receivables. Three customers accounted for
12%, 15% and 22% of revenues in 1995. Accounts receivable from the second
customer at December 31, 1995 were 28% of total receivables. One customer
accounted for 22% of sales in 1994. Three different customers accounted for 24%,
11% and 11% of revenues in 1993.

F-37
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS--OnStream considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.

INVENTORIES--Inventories are stated at the lower of standard cost (first-in,
first-out method) or market.

PROPERTY--Property is stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of one to
five years or the lease term, if shorter.

REVENUE RECOGNITION--Revenue is recognized upon product shipment. Estimated
warranty costs are recorded at the time the revenue is recognized. Maintenance
contract revenues and equipment rental revenues are recognized on a
straight-line basis over the term of the contract. Product contract revenue is
recognized on the completion of project milestones set forth in the related
agreements.

SOFTWARE DEVELOPMENT COSTS--The costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards No. 86. Because OnStream believes its current
process for developing software is essentially completed concurrent with the
establishment of technological feasibility, no costs have been capitalized to
date.

INCOME TAXES--OnStream accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires an asset and liability approach to account for income
taxes.

RECENTLY ISSUED ACCOUNTING STANDARD--OnStream is required to adopt Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," in fiscal 1996. SFAS No. 123 establishes accounting and
disclosure requirements using a fair value method of accounting for stock-based
employee compensation plans. Under SFAS No. 123, OnStream will continue the
intrinsic value-based method and provide pro forma disclosures of net income and
earnings per share as if the accounting provisions of SFAS No. 123 had been
adopted. OnStream plans to adopt only the disclosure of SFAS No. 123; therefore,
such adoption will have no effect on OnStream's net earnings or cash flows.

NET LOSS PER COMMON AND EQUIVALENT SHARE--Net loss per common and equivalent
share is computed using the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
include convertible preferred stock (using the "if converted" method) and common
stock options and warrants (using the treasury stock method). Common equivalent
shares are excluded from the computation if their effect is anti-dilutive.

UNAUDITED FINANCIAL INFORMATION--The financial information as of September
30, 1996 and September 30, 1995 and for the nine-months then ended are unaudited
but include all adjustments that OnStream considers necessary for a fair
representation of the financial position as of such date and the results of
operations and cash flows for these periods. Results for the 1996 interim period
are not necessarily indicative of results to be expected from the entire year.

F-38
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

2. INVENTORIES

Inventories consist of:

<TABLE>
<CAPTION>
SEPTEMBER DECEMBER DECEMBER
30, 1996 31, 1995 31, 1994
----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C>
Components and subassemblies.................... $2,246,000 $2,496,000 $1,092,000
Work in process................................. 282,000 23,000 65,000
Finished goods.................................. 262,000 417,000 264,000
----------- ----------- -----------
Total inventories............................... $2,790,000 $2,936,000 $1,421,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

At September 30, 1996, OnStream had purchase commitments of $487,000 for
component parts.

3. PROPERTY

Property consists of:

<TABLE>
<CAPTION>
SEPTEMBER DECEMBER DECEMBER
30, 1996 31, 1995 31, 1994
----------- ---------- ----------
UNAUDITED
<S> <C> <C> <C>
Equipment and purchased software............... $2,871,000 $2,283,000 $1,305,000
Demonstration and rental equipment............. 1,762,000 1,377,000 865,000
Leasehold improvements......................... 523,000 218,000 101,000
Furniture and fixtures......................... 152,000 155,000 142,000
----------- ---------- ----------
Total property................................. 5,308,000 4,033,000 2,413,000
Accumulated depreciation and amortization...... (3,233,000) (2,268,000) (1,311,000)
----------- ---------- ----------
Property -- net................................ $2,075,000 $1,765,000 $1,102,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

4. ACCRUED LIABILITIES

Accrued liabilities consist of:

<TABLE>
<CAPTION>
SEPTEMBER DECEMBER DECEMBER
30, 1996 31, 1995 31, 1994
----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C>
Compensation and related benefits............... $ 821,000 $ 620,000 $ 739,000
Accrued warranty................................ 587,000 394,000 206,000
Other........................................... 310,000 165,000 166,000
----------- ----------- -----------
Total accrued liabilities....................... $1,718,000 $1,179,000 $1,111,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

5. BORROWING AND LEASING ARRANGEMENTS

OnStream has available a $3,000,000 revolving bank line of credit which
expires in November 1996. At September 30, 1996 there was no outstanding amount
under the line of credit. At December 31, 1995, there was $1,000,000 outstanding
under the line of credit. Borrowings under the line are limited to 80% of

F-39
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

5. BORROWING AND LEASING ARRANGEMENTS (CONTINUED)
qualified accounts receivable, bear interest at prime (8.25% at September 30,
1996) plus 1% and are collateralized by substantially all of OnStream's assets.
The line of credit requires OnStream to maintain certain financial covenants
which include maintaining specified financial ratios, levels of losses and net
worth. OnStream was in compliance with these debt covenants at September 30,
1996.

OnStream also has available a $2,000,000 equipment loan facility which
expires in December 1999. Borrowings under the agreement are limited to 85% of
qualified equipment purchases, bear interest at prime (8.25% at September 30,
1996) plus 2.25% and are collateralized by substantially all of OnStream's
assets. At September 30, 1996, December 31, 1995 and December 31, 1994, OnStream
had borrowed $1,611,000, $884,000 and $250,000, respectively, under this
agreement. Principal payments are due as follows: $199,000 in 1996, $626,000 in
1997, $626,000 in 1998 and $160,000 in 1999.

Property with a net book value of $9,000, $125,000 and $482,000 (net of
accumulated amortization of $628,000, $513,000 and $440,000) at September 30,
1996, December 31, 1995 and December 31, 1994, respectively, has been acquired
under capital leases.

OnStream leases its facilities under a noncancelable operating lease which
expires in December 1999. Deferred rent results from the difference between
facilities rent expense recognized on a straight-line basis over the term of the
lease as compared to the contractual payments made.

Future minimum annual payments under operating and capital lease obligations
as of September 30, 1996 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
1996........................................................................... $ 88,000 $ 22,000
1997........................................................................... 392,000 1,000
1998........................................................................... 413,000 --
1999........................................................................... 396,000 --
------------ ---------
Total.......................................................................... $ 1,289,000 23,000
------------
------------
Amount representing interest................................................... --
---------
Present value of minimum lease payments........................................ 23,000
Less current portion........................................................... 23,000
---------
Long-term portion.............................................................. $ --
---------
---------
</TABLE>

Rent expense was $291,000, $236,000, $330,000, $332,000, and $216,000 for
the nine months ended September 30, 1996 and 1995, and for the years ended
December 31, 1995, 1994 and 1993, respectively.

F-40
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

6. SHAREHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK--Convertible preferred stock consists of the
following at September 30, 1996:

<TABLE>
<CAPTION>
SHARES INITIAL PRICE
------------------------ --------------------------
DESIGNATED OUTSTANDING PER SHARE AGGREGATE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Series A.......................................... 1,750,000 1,715,000 $ 1.00 $ 1,715,000
Series B.......................................... 2,100,000 2,049,443 2.25 4,611,000
Series C.......................................... 2,701,268 2,675,602 1.50 4,013,000
Series D.......................................... 2,916,667 2,916,666 2.40 7,000,000
Series E.......................................... 1,830,665 1,830,665 4.37 8,000,000
Issuance costs.................................... -- (105,000)
------------ -------------
Total............................................. 11,187,376 $ 25,234,000
------------ -------------
------------ -------------
</TABLE>

Significant terms of the Series A, B, C, D and E convertible preferred stock
are as follows:

- Each share of the Series A, B, C, D and E preferred stock is convertible
into OnStream's common stock on a one for one basis, subject to
adjustment, at the option of the holder or mandatorily upon the occurrence
of certain events. In addition, each share is entitled to the number of
votes equal to the conversion ratio. In the event of liquidation,
dissolution or winding up of OnStream, the preferred shareholders would
receive their initial price per share plus all declared but unpaid
dividends prior to any distributions to the common shareholders.

- Dividends are at the discretion of the Board of Directors and are not
cumulative. Annual dividends, if declared, are $.10 per share for Series
A, $.225 per share for Series B, $.15 per share for Series C, $.24 per
share for Series D and $.437 per share for Series E. No dividends have
been declared to date.

- OnStream may redeem the convertible preferred stock at its initial price
per share plus all declared and unpaid dividends after December 1999 or
earlier with the consent of the holders of 67% of the then outstanding
convertible preferred stock.

WARRANTS--In connection with the equipment loan facility, OnStream granted
warrants to purchase up to 25,000 shares of Series A convertible preferred stock
at $1.00 per share; 20,429 shares of Series B convertible preferred stock at
$2.25 per share and 25,666 shares of Series C convertible preferred stock at
$1.50 per share. Such warrants allow for a net exercise by their holder. The
warrants expire at the earlier of various dates between February 1997 and
September 2000 or three years from the effective date of the OnStream's initial
public offering or upon merger or sale of OnStream.

F-41
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

6. SHAREHOLDERS' EQUITY (CONTINUED)
COMMON STOCK--At September 30, 1996, OnStream has reserved shares of common
stock for issuance as follows:

<TABLE>
<S> <C>
Conversion of outstanding preferred stock............................... 11,187,376
Issuance under stock option plan........................................ 1,975,730
Conversion of preferred stock issuable under warrants................... 71,095
---------
Total................................................................... 13,234,201
---------
---------
</TABLE>

STOCK OPTION PLAN--Under the 1990 Stock Option Plan, incentive stock options
may be granted to employees and nonstatutory stock options may be granted to
employees, consultants and directors to purchase up to 2,735,681 shares of
common stock. Incentive stock options are granted at fair market value (as
determined by the Board of Directors) at the date of grant; nonstatutory options
may be granted at 85% of fair market value. Options generally become exercisable
over four or five years and expire ten years from the date of grant.

Activity under the plan was as follows:

<TABLE>
<CAPTION>
SHARES AGGREGATE
UNDER OPTION EXERCISE PRICE AMOUNT
------------- -------------- -----------
<S> <C> <C> <C>
Balances, January 1, 1993.................................. 187,500 $.10 - $.225 $ 39,000

Granted.................................................... 297,000 .225 67,000
Cancelled.................................................. (25,167) .10 - .225 (5,000)
Exercised.................................................. (1,333) .225 --
------------- -----------
Balances, December 31, 1993................................ 458,000 .10 - .225 101,000

Granted.................................................... 800,517 .225 - .25 180,000
Cancelled.................................................. (294,451) .225 (66,000)
Exercised.................................................. (9,432) .225 (2,000)
------------- -----------
Balances, December 31, 1994................................ 954,634 .10 - .25 213,000

Granted.................................................... 1,119,528 .25 280,000
Cancelled.................................................. (125,989) .10 - .25 (29,000)
Exercised.................................................. (488,722) .10 - .25 (117,000)
------------- -----------
Balances, December 31, 1995................................ 1,459,451 .10 - .25 347,000

Granted.................................................... 975,625 .25 - .85 413,000
Cancelled.................................................. (169,993) .225 - .40 (42,000)
Exercised.................................................. (344,838) .225 - .25 (91,000)
------------- -----------
Balances, September 30, 1996............................... 1,920,245 $.10 - $.85 $ 627,000
------------- -----------
------------- -----------
</TABLE>

At September 30, 1996, options to purchase 572,166 shares were exercisable
and 55,485 were available for future option grants under the plan. At September
30, 1996, OnStream had outstanding commitments to certain employees, contingent
upon those employees meeting certain performance objectives through

F-42
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

6. SHAREHOLDERS' EQUITY (CONTINUED)
1997, to grant options to purchase 60,000 shares of common stock with an
exercise price of fair market value at the time of grant.

Certain officers and employees exercised unvested stock options with full
recourse notes. The related shares of common stock are subject to repurchase by
OnStream at the original purchase price per share upon the purchaser's cessation
of service prior to the vesting of such shares. The restricted stock continues
to vest in accordance with the terms of the original stock option. In addition,
OnStream sold restricted stock to certain officers and employees for cash and
full recourse notes. The notes bear interest at 8% and are due in 2000. At
September 30, 1996, 885,626 outstanding shares of restricted stock were subject
to repurchase at the original exercise price.

STOCK PURCHASE PLAN--At September 30, 1996 OnStream had 434,319 outstanding
restricted shares of common stock sold under the 1990 Stock Purchase Plan to
employees, directors and consultants. At September 30, 1996, no shares were
available for future issuance under the Stock Purchase Plan.

In the event of an employee termination, OnStream has the right to
repurchase shares of common stock issued to employees under the Stock Purchase
Plan at the original purchase price. Such right expires over periods of four to
five years beginning on the date of grant. At September 30, 1996, 34,792 shares
of stock were subject to repurchase. In addition, OnStream has the right of
first refusal on any sale of common stock until after a public offering of
common stock has occurred.

7. INCOME TAXES

No federal income taxes were provided for the nine months ended September
30, 1996 or for the years ended December 31, 1995, 1994 and 1993 due to
OnStream's net losses. The provision for income taxes differs from the amount
computed by applying the federal statutory income tax rate to the loss before
income taxes as follows:

<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED DECEMBER 31,
ENDED SEPTEMBER -------------------------------------
30, 1996 1995 1994 1993
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Taxes computed at federal statutory rate................. 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal effect................ 4.5 4.5 4.5 4.5
Research tax credits..................................... 2.6 6.9 4.3 19.7
Change in valuation allowance............................ (42.1) (46.4) (43.8) (59.2)
----- ----- ----- -----
Total provision........................................ --% --% --% --%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

F-43
<PAGE>
ONSTREAM NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

7. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to deferred taxes
were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Expenses not currently deductible for tax purposes....... $ 1,900,000 $ 1,100,000 $ 700,000
Tax net operating loss and credit carryforwards.......... 4,800,000 3,900,000 3,100,000
Research and development expenses capitalized for tax
purposes............................................... 500,000 400,000 200,000
------------- ------------- -------------
Total deferred tax assets.................................. 7,200,000 5,400,000 4,000,000
Valuation allowance on deferred tax assets................. (7,200,000) (5,400,000) (4,000,000)
------------- ------------- -------------
Net deferred income taxes.................................. $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

At December 31, 1995, OnStream had net operating loss carryforwards of
approximately $8,800,000 and $1,900,000 available to offset future federal and
California taxable income, respectively. The extent to which the loss
carryforwards can be used to offset future taxable income may be limited,
depending on the extent of ownership changes within any three-year period as
provided in the Tax Reform Act of 1986 and the California Conformity Act of
1987. Such federal carryforwards expire in 2005 through 2010. Such state
carryforwards expire in 1997 through 1999.

OnStream has capitalized approximately $6,300,000 of research and
development expenditures for California purposes which are available for
amortization in future years. Realization of the deferred tax assets associated
with these expenditures is contingent upon the amount of income or loss
apportioned to California during the subject amortization periods. Research and
development tax credit carryforwards of approximately $800,000 are also
available to offset future federal and California income taxes payable.

Based upon OnStream's history of operating losses and the expiration dates
of the loss carryforwards, OnStream has recorded a valuation allowance to the
full extent of its net deferred tax assets because in management's judgement, it
is more likely than not that the benefit of such assets will not be realized.

* * * * *

F-44
<PAGE>
ANNEX A

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

AGREEMENT AND PLAN OF REORGANIZATION

AMONG:

3COM CORPORATION,
A CALIFORNIA CORPORATION;

ONSTREAM ACQUISITION CORPORATION,
A CALIFORNIA CORPORATION;

AND

ONSTREAM NETWORKS, INC.,
A CALIFORNIA CORPORATION.

---------------------

DATED AS OF OCTOBER 5, 1996

------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
SECTION 1. Plan of Reorganization................................................................... 2
1.1 The Merger............................................................................... 2
1.2 Exchange Ratio; Conversion of Shares and Assumption of Options........................... 2
1.3 Fractional Shares........................................................................ 4
1.4 Escrow Fund Agreement.................................................................... 4
1.5 Dissenting Shares........................................................................ 4
1.6 The Closing.............................................................................. 5
1.7 Effective Date........................................................................... 5
1.8 Tax Free Reorganization.................................................................. 5

SECTION 2. Representations and Warranties of OnStream............................................... 5
2.1 Organization............................................................................. 5
2.2 Capitalization........................................................................... 6
2.3 Power, Authority and Validity............................................................ 6
2.4 Financial Statements..................................................................... 7
2.5 Tax Matters.............................................................................. 8
2.6 Absence of Certain Changes or Events..................................................... 9
2.7 Title and Related Matters................................................................ 10
2.8 Proprietary Rights and Warranty Claims................................................... 10
2.9 Employee Benefit Plans................................................................... 11
2.10 Bank Accounts and Receivables............................................................ 12
2.11 Contracts................................................................................ 12
2.12 Orders, Commitments and Returns.......................................................... 14
2.13 Compliance With Law...................................................................... 14
2.14 Labor Difficulties; No Discrimination.................................................... 14
2.15 Trade Regulation......................................................................... 15
2.16 Insider Transactions..................................................................... 15
2.17 Employees, Independent Contractors and Consultants....................................... 15
2.18 Insurance................................................................................ 15
2.19 Litigation............................................................................... 15
2.20 Section 341(f)(2)........................................................................ 16
2.21 Subsidiaries............................................................................. 16
2.22 Compliance with Environmental Requirements............................................... 16
2.23 Corporate Documents...................................................................... 16
2.24 No Brokers............................................................................... 16
2.25 Pooling of Interests..................................................................... 16
2.26 Disclosure............................................................................... 16

SECTION 3. Representations and Warranties of 3Com and Sub........................................... 16
3.1 Organization and Good Standing........................................................... 17
3.2 Capital Structure........................................................................ 17
3.3 Power, Authorization and Validity........................................................ 17
3.4 No Violation of Existing Agreements...................................................... 17
3.5 SEC Documents............................................................................ 18
3.6 Pooling of Interests..................................................................... 18
3.7 Compliance With Other Instruments and Laws............................................... 18
3.8 Litigation............................................................................... 18
3.9 Absence of Certain Changes and Events.................................................... 18
3.10 Disclosure............................................................................... 18
</TABLE>

A-i
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
SECTION 4. Preclosing Covenants of OnStream......................................................... 18
4.1 Material Consents........................................................................ 18
4.2 Advice of Changes........................................................................ 18
4.3 Conduct of Business...................................................................... 19
4.4 Risk of Loss............................................................................. 20
4.5 Access to Information.................................................................... 20
4.6 Satisfaction of Conditions Precedent..................................................... 20
4.7 Other Negotiations....................................................................... 20
4.8 Registration Statement; Proxy Statement; Prospectus...................................... 21

SECTION 5. Preclosing and Other Covenants of 3Com and Sub........................................... 21
5.1 Material Consents........................................................................ 21
5.2 Advice of Changes........................................................................ 21
5.3 Reservation of 3Com Common Stock......................................................... 21
5.4 Satisfaction of Conditions Precedent..................................................... 21
5.5 Registration Statement; Proxy Statement; Prospectus...................................... 21
5.6 S-8 Registration......................................................................... 22

SECTION 6. Mutual Covenants......................................................................... 22
6.1 Confidentiality.......................................................................... 22
6.2 No Public Announcement................................................................... 23
6.3 Regulatory Filings; Consents; Best Efforts............................................... 23
6.4 HSR Act Application...................................................................... 23
6.5 Pooling Accounting....................................................................... 23
6.6 Proxy Statement; Prospectus; Registration Statement...................................... 24
6.7 Tax Matters.............................................................................. 24
6.8 Further Assurances....................................................................... 24

SECTION 7. Closing Matters.......................................................................... 24
7.1 Filing of Merger Agreement............................................................... 24
7.2 Exchange of Certificates................................................................. 24
7.3 Delivery of Documents.................................................................... 25

SECTION 8. Conditions to OnStream's Obligations..................................................... 25
8.1 Accuracy of Representations and Warranties............................................... 25
8.2 Covenants................................................................................ 25
8.3 Authorizations........................................................................... 25
8.4 Opinion of 3Com's Counsel................................................................ 25
8.5 Government Consents...................................................................... 25
8.6 Termination of HSR Waiting Period........................................................ 25
8.7 Listing of 3Com Common Stock............................................................. 26
8.8 No Litigation............................................................................ 26
8.9 Escrow Fund Agreement.................................................................... 26
8.10 Tax Opinion.............................................................................. 26
8.11 Registration Statement................................................................... 26
8.12 Blue Sky Laws............................................................................ 26

SECTION 9. Conditions to 3Com's and Sub's Obligations............................................... 26
9.1 Accuracy of Representations and Warranties............................................... 26
9.2 Covenants................................................................................ 26
9.3 No Litigation............................................................................ 26
</TABLE>

A-ii
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
9.4 Authorizations........................................................................... 26
9.5 Required Consents........................................................................ 26
9.6 Opinion of OnStream's Counsel............................................................ 27
9.7 Termination of HSR Waiting Period........................................................ 27
9.8 Deloitte & Touche Pooling Letter......................................................... 27
9.9 Escrow Fund Agreement.................................................................... 27
9.10 Listing of 3Com Stock.................................................................... 27
9.11 Receipt of Certificate................................................................... 27
9.12 Registration Statement................................................................... 27
9.13 Blue Skylaws............................................................................. 27
9.14 Employees................................................................................ 27

SECTION 10. Termination of Agreement................................................................. 27
10.1 Termination.............................................................................. 27
10.2 Effect of Termination.................................................................... 27
10.3 Certain Effects of Termination........................................................... 28

SECTION 11. Indemnification and Escrow............................................................... 28
11.1 Survival of Representations.............................................................. 28
11.2 Indemnification by Shareholders.......................................................... 28
11.3 Threshold; Ceiling; Exclusivity.......................................................... 29
11.4 Satisfaction of Indemnification Claim.................................................... 29
11.5 No Contribution.......................................................................... 29
11.6 Defense of Third Party Claims............................................................ 29
11.7 Exercise of Remedies by Indemnitees Other Than 3Com...................................... 30
11.8 Escrow Fund.............................................................................. 31
11.9 Escrow Period............................................................................ 31
11.10 Shareholder Representative............................................................... 31
11.11 Resolution of Claims Made by 3Com........................................................ 31

SECTION 12. Employee Arrangements.................................................................... 31
12.1 Non-Competition and Non-Solicitation Agreements.......................................... 31
12.2 Termination of Agreements................................................................ 31
12.3 Alternative Positions.................................................................... 32
12.4 Severance Pay............................................................................ 32
12.5 Employee Benefit Plans................................................................... 32

SECTION 13. Miscellaneous............................................................................ 33
13.1 Governing Laws........................................................................... 33
13.2 Binding upon Successors and Assigns...................................................... 33
13.3 Severability............................................................................. 33
13.4 Entire Agreement......................................................................... 33
13.5 Counterparts............................................................................. 33
13.6 Expenses................................................................................. 33
13.7 Amendment and Waivers.................................................................... 33
13.8 Survival of Agreements................................................................... 33
13.9 No Waiver................................................................................ 33
13.10 Attorneys' Fees.......................................................................... 34
13.11 Notices.................................................................................. 34
</TABLE>

A-iii
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
13.12 Construction of Agreement................................................................ 34
13.13 No Joint Venture......................................................................... 34
13.14 Pronouns................................................................................. 35
13.15 Further Assurances....................................................................... 35
13.16 Absence of Third Party Beneficiary Rights................................................ 35
</TABLE>

A-iv
<PAGE>
AGREEMENT AND PLAN
OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered into
this 5th day of October 1996, by and among 3COM CORPORATION, a California
corporation ("3Com"), ONSTREAM ACQUISITION CORPORATION, a California corporation
and a wholly-owned subsidiary of 3Com ("Sub"), and ONSTREAM NETWORKS, INC., a
California corporation ("OnStream"). Certain other capitalized terms used in
this Agreement are defined in EXHIBIT A attached hereto.

RECITALS

WHEREAS, subject to and in accordance with the terms and conditions of this
Agreement and pursuant to the Agreement of Merger attached hereto as EXHIBIT B
(the "Merger Agreement"), the respective boards of directors of 3Com, Sub and
OnStream, and 3Com, as sole shareholder of Sub, have approved the merger of Sub
with and into OnStream (the "Merger"), whereby (i) each issued and outstanding
share of common stock, no par value per share, of OnStream ("OnStream Common
Stock"), each outstanding option to purchase shares of OnStream Common Stock
("OnStream Options"), and each issued and outstanding share of preferred stock,
no par value per share, of OnStream ("OnStream Preferred Stock," and together
with the OnStream Common Stock, "OnStream Capital Stock"), will be converted
into the right to receive common stock, One Cent ($0.01) par value per share, of
3Com and any rights attaching to such stock pursuant to that certain Amended and
Restated Rights Agreement (the "3Com Rights Plan") dated December 1994 by and
between 3Com and The First National Bank of Boston ("3Com Common Stock") and
options to purchase shares of 3Com Common Stock ("3Com Options") and (ii) 3Com
shall assume each warrant to acquire OnStream Capital Stock outstanding
immediately prior to the Effective Date (as defined below) (collectively, the
"OnStream Warrants," and together with the OnStream Capital Stock and the
OnStream Options, the "OnStream Securities") which shall thereafter be deemed to
be a warrant to purchase shares of 3Com Common Stock (collectively, the "3Com
Warrants"), as provided herein;

WHEREAS, for federal income tax purposes, it is intended that (i) the Merger
shall qualify as a reorganization, and (ii) this Agreement (and the other
agreements entered into in connection herewith) shall qualify as a plan of
reorganization within the meaning of the regulations issued pursuant to Section
368 of the Internal Revenue Code of 1986, as amended (the "Code");

WHEREAS, the Merger is intended to be treated as a "pooling of interests"
transaction for accounting purposes, and Deloitte & Touche LLP, the independent
accountants for each of 3Com and OnStream, has confirmed to each of 3Com and
OnStream in writing that it has reviewed to the extent it deemed necessary the
terms and structure of the Merger, that it has reviewed this Agreement, the
Merger Agreement and such other documents as it has requested as necessary for
its review and that, as of the date of this Agreement, it knows of nothing that
will prohibit the Merger from being treated as a "pooling of interests"
transaction for accounting purposes; and

WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger.

A-1
<PAGE>
AGREEMENT

NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

SECTION 1. PLAN OF REORGANIZATION.

1.1 THE MERGER. Subject to the terms and conditions of this Agreement and
the Merger Agreement, Sub shall be merged with and into OnStream in accordance
with the applicable provisions of the laws of California and with the terms and
conditions of this Agreement and the Merger Agreement so that:

(a) At the Effective Date, Sub shall be merged with and into OnStream.
As a result of the Merger, the separate corporate existence of Sub shall
cease and OnStream shall continue as the surviving corporation (sometimes
referred to herein as the "Surviving Corporation") and shall succeed to and
assume all of the rights and obligations of OnStream in accordance with the
laws of California.

(b) The articles of incorporation and bylaws of Sub in effect
immediately prior to the Effective Date shall be the articles of
incorporation and bylaws, respectively, of Surviving Corporation after the
Effective Date unless and until further amended as provided by law.

(c) The directors and officers of Sub immediately prior to the Effective
Date shall be the directors and officers of the Surviving Corporation after
the Effective Date. Such directors and officers shall hold their position
until the election and qualification of their respective successors or until
their tenures are otherwise terminated in accordance with the bylaws of
Surviving Corporation.

1.2 EXCHANGE RATIO; CONVERSION OF SHARES AND ASSUMPTION OF OPTIONS.

(a) The "Exchange Ratio" for the conversion of the OnStream Common Stock,
OnStream Options, and the OnStream Warrants shall be a fraction, the numerator
of which is equal to three million eight hundred thousand (3,800,000) less the
Aggregate Preferred Amount (as defined in Section 1.2(h) below), if any, and
less the Aggregate Net Exercise Amount (as defined in Section 1.2(m) below), if
any, and the denominator of which is equal to the sum of (i) the total number of
issued and outstanding shares of OnStream Common Stock plus (ii) the total
number of shares of OnStream Common Stock issuable upon exercise of OnStream
Options and OnStream Warrants outstanding at the Effective Date.

(b) The "Series A Preferred Exchange Ratio" for the conversion of the
OnStream Series A Preferred Stock shall be a fraction, the numerator of which is
One Dollar ($1.00) and the denominator of which is the Average Price. The
"Series A Preferred Amount" shall be the product of the Series A Preferred
Exchange Ratio and the number of OnStream Series A Preferred Shares outstanding
immediately prior to the Effective Date.

(c) The "Series B Preferred Exchange Ratio" for the conversion of the
OnStream Series B Preferred Stock shall be a fraction, the numerator of which is
Two Dollars and Twenty-Five Cents ($2.25) and the denominator of which is the
Average Price. The "Series B Preferred Amount" shall be the product of the
Series B Preferred Exchange Ratio and the number of OnStream Series B Preferred
Shares outstanding immediately prior to the Effective Date.

(d) The "Series C Preferred Exchange Ratio" for the conversion of the
OnStream Series C Preferred Stock shall be a fraction, the numerator of which is
One Dollar and Fifty Cents ($1.50) and the denominator of which is the Average
Price. The "Series C Preferred Amount" shall be the product of the Series C
Preferred Exchange Ratio and the number of OnStream Series C Preferred Shares
outstanding immediately prior to the Effective Date.

(e) The "Series D Preferred Exchange Ratio" for the conversion of the
OnStream Series D Preferred Stock shall be a fraction, the numerator of which is
Two Dollars and Forty Cents ($2.40) and the

A-2
<PAGE>
denominator of which is the Average Price. The "Series D Preferred Amount" shall
be the product of the Series D Preferred Exchange Ratio and the number of
OnStream Series D Preferred Shares outstanding immediately prior to the
Effective Date.

(f) The "Series E Preferred Exchange Ratio" for the conversion of the
OnStream Series E Preferred Stock shall be a fraction, the numerator of which is
Four Dollars and Thirty-Seven Cents ($4.37) and the denominator of which is the
Average Price. The "Series E Preferred Amount" shall be the product of the
Series E Preferred Exchange Ratio and the number of OnStream Series E Preferred
Shares outstanding immediately prior to the Effective Date.

(g) The "Average Price" shall mean the average of the closing sale prices of
3Com Common Stock reported in THE WALL STREET JOURNAL on the basis of
information provided by the Nasdaq National Market for each of the thirty (30)
consecutive trading days ending three (3) business days immediately prior to the
Closing Date.

(h) The "Aggregate Preferred Amount" shall mean the sum of the Series A
Preferred Amount, the Series B Preferred Amount, the Series C Preferred Amount,
the Series D Preferred Amount and the Series E Preferred Amount.

(i) If, between the date of this Agreement and the Effective Date, the
outstanding shares of 3Com Common Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
split-up, stock dividend or stock combination, then the Exchange Ratio and each
of the Series A, Series B, Series C, Series D and Series E Preferred Exchange
Ratios shall be correspondingly adjusted.

(j) Each share of OnStream Common Stock that is issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Merger and at
the Effective Date, automatically and without further action on the part of any
holder thereof, be converted into such fraction of a fully paid and
nonassessable share of 3Com Common Stock as is equal to the Exchange Ratio. Each
share of OnStream Series A Preferred Stock that is issued and outstanding
immediately prior to the Effective Date, will by virtue of the Merger and at the
Effective Date, automatically and without further action on the part of any
holder thereof, be converted into such fraction of a fully paid and
nonassessable share of 3Com Common Stock as is equal to the Series A Preferred
Exchange Ratio. Each share of OnStream Series B Preferred Stock that is issued
and outstanding immediately prior to the Effective Date shall, by virtue of the
Merger and at the Effective Date, automatically and without further action on
the part of any holder thereof, be converted into such fraction of a fully paid
and nonassessable share of 3Com Common Stock as is equal to the Series B
Preferred Exchange Ratio. Each share of OnStream Series C Preferred Stock that
is issued and outstanding immediately prior to the Effective Date shall, by
virtue of the Merger and at the Effective Date, automatically and without
further action on the part of any holder thereof, be converted into such
fraction of a fully paid and nonassessable share of 3Com Common Stock as is
equal to the Series C Preferred Exchange Ratio. Each share of OnStream Series D
Preferred Stock that is issued and outstanding immediately prior to the
Effective Date shall, by virtue of the Merger and at the Effective Date,
automatically and without further action on the part of any holder thereof, be
converted into such fraction of a fully paid and nonassessable share of 3Com
Common Stock as is equal to the Series D Preferred Exchange Ratio. Each share of
OnStream Series E Preferred Stock that is issued and outstanding immediately
prior to the Effective Date shall, by virtue of the Merger and at the Effective
Date, automatically and without further action on the part of any holder
thereof, be converted into such fraction of a fully paid and nonassessable share
of 3Com Common Stock as is equal to the Series E Preferred Exchange Ratio.

(k) Each OnStream Option that is outstanding immediately prior to the
Effective Date shall, by virtue of the Merger and at the Effective Date,
automatically and without further action on the part of any holder thereof, be
assumed by 3Com and converted into an option to purchase that number of shares
of 3Com Common Stock which equals the Exchange Ratio multiplied by the total
number of shares of

A-3
<PAGE>
OnStream Common Stock subject to the OnStream Option immediately prior to the
Effective Date (with the resulting number of shares of 3Com Common Stock rounded
down to the nearest whole number). The exercise price per share of 3Com Common
Stock purchasable under each such 3Com Option will be equal to the exercise
price of the OnStream Option (per share of OnStream Common Stock) divided by the
Exchange Ratio (with the resulting amount rounded up to the nearest whole cent).
Continuous employment with OnStream, whether occurring before or after the
Effective Date, shall be credited to an optionee for purposes of determining the
number of shares subject to exercise, vesting or repurchase after the Effective
Date. Upon the Effective Date, 3Com shall issue to each holder of an outstanding
OnStream Option a document evidencing the foregoing assumption by 3Com. No
fractional shares of 3Com Common Stock shall be issued in connection with 3Com
Options. All fractional shares which would otherwise be issuable shall be
rounded down to the next full share. All of the other terms of each 3Com Option
including, without limitation, the vesting and exercise periods, will remain the
same as the corresponding assumed OnStream Option. It is intended that the
assumption and conversion of OnStream Options pursuant to this Section 1.2(k)
will be treated under the Code as "assuming a stock option in a transaction to
which Section 424(a) applies" and this Section 1.2(k) shall be interpreted and
applied consistent with such intention.

(l) Each OnStream Warrant that is outstanding immediately prior to the
Effective Date shall, by virtue of the Merger and without further action on the
part of any holder, be assumed by 3Com at the Effective Date and converted into
a 3Com Warrant. The terms and conditions of the 3Com Warrants will remain the
same as those set forth in the respective warrant agreements of the OnStream
Warrants, except that: (i) the 3Com Warrant shall be exercisable for a number of
shares of 3Com Common Stock equal to the number of shares of OnStream Capital
Stock subject to the OnStream Warrant immediately prior to the Effective Date
multiplied by the appropriate exchange ratio (with the resulting number of
shares of 3Com Common Stock rounded up to the nearest whole number) and (ii) the
per share exercise price shall be an amount equal to the per share exercise
price of the OnStream Warrant prior to the Effective Date divided by the
appropriate exchange ratio (with the resulting amount rounded up to the nearest
whole cent). No fractional shares of 3Com Common Stock shall be issued in
connection with the 3Com Warrants. All fractional shares which would otherwise
be issuable shall be rounded up to the next full share.

(m) The "Aggregate Net Exercise Amount" shall mean that number of shares, if
any, equal to the aggregate Warrant Price (as defined in each OnStream Warrant),
of all OnStream Warrants exercised pursuant to the net exercise provisions of
such OnStream Warrant divided by the Average Price (as defined in Section 1.2(g)
of this Agreement).

1.3 FRACTIONAL SHARES. No fractional shares of 3Com Common Stock will be
issued in connection with the Merger, but in lieu thereof, holders of OnStream
Capital Stock who would otherwise be entitled to receive a fraction of a share
of 3Com Common Stock will receive from 3Com, promptly after the Effective Date,
an amount of cash equal to the Average Price multiplied by the fraction of a
share of 3Com Common Stock to which such holder would otherwise be entitled.

1.4 ESCROW FUND AGREEMENT. At the Effective Date, 3Com will deposit in
escrow certificates representing ten percent (10%) of the shares of 3Com Common
Stock issued to the holders of OnStream Capital Stock in the Merger, on a pro
rata basis. Such shares (the "Escrow Shares") shall be held as collateral for
the indemnification obligations under Section 11 and pursuant to the provisions
of an escrow agreement (the "Escrow Fund Agreement") in the form attached hereto
as EXHIBIT C to be executed pursuant to Section 11.

1.5 DISSENTING SHARES. Any Dissenting Shares shall not be converted into a
right to receive 3Com Common Stock but shall be converted into the right to
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the laws of the State of California; PROVIDED,
HOWEVER, that if the status of any such shares as Dissenting Shares shall not be
perfected, or if any such shares shall lose their status as Dissenting Shares,
then, as of the later of the Effective Date or the time of the failure to
perfect such status, such shares shall automatically be converted into and shall
represent only

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the right to receive (upon the surrender of the certificate or certificates
representing such shares) 3Com Common Stock in accordance with Section 1.2 (and
cash in lieu of fractional shares in accordance with Section 1.3). OnStream
shall give 3Com prompt notice of any demand received by OnStream for appraisal
of OnStream Capital Stock, and 3Com shall have the right to participate in all
negotiations and proceedings with respect to such demand. OnStream agrees that,
except with the prior written consent of 3Com or as required under Chapter 13 of
the General Corporation Law of the State of California (the "CGCL"), a copy of
which is attached hereto as EXHIBIT D, it will not voluntarily make any payment
with respect to, or settle or offer to settle, any such demand for appraisal.
Each holder of Dissenting Shares ("Dissenting Shareholder") who, pursuant to the
provisions of the CGCL, becomes entitled to payment of the value of shares of
OnStream Capital Stock shall receive payment therefor from OnStream (but only
after the value therefor shall have been agreed upon or finally determined
pursuant to such provisions).

1.6 THE CLOSING. Subject to termination of this Agreement as provided in
Section 10 below, the closing of the transactions contemplated in this Agreement
(the "Closing") shall take place at the offices of Gray Cary Ware & Freidenrich,
A Professional Corporation, 400 Hamilton Avenue, Palo Alto, California, as soon
as possible upon the satisfaction or waiver of all conditions set forth in
Section 8 and Section 9 hereof (the "Closing Date"), or such other time and
place as is mutually agreeable to the parties; PROVIDED, HOWEVER, that in no
event shall the Closing take place after December 31, 1996 (or, in the event of
a delay caused exclusively by the Registration Statement not having been
declared effective by the SEC, the date twenty (20) days after the date on which
the Registration Statement becomes effective, but in no event after January 31,
1997), unless otherwise mutually agreed in writing by the parties.

1.7 EFFECTIVE DATE. Simultaneously with the Closing, the Merger Agreement,
together with all required officers' certificates, shall be filed in the offices
of the Secretary of State of the State of California. The Merger shall become
effective immediately upon the date stamped by the California Secretary of State
upon the Merger Agreement (such date is referred to as the "Effective Date").

1.8 TAX FREE REORGANIZATION. The parties intend to adopt and hereby do
adopt this Agreement as a plan of reorganization within the meaning of the
regulations issued pursuant to Section 368 of the Code and intend to consummate
the Merger in accordance with the provisions of Sections 368(a)(1)(A) and
(a)(2)(E) of the Code. Each party agrees that it will not take or assert any
position on any tax return, report, or otherwise which is inconsistent with the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code and will take no action, either prior or subsequent to the
Merger, which would cause the Merger to fail to qualify as a reorganization. The
provisions and representations contained or referred to in this Section 1.8
shall survive until the expiration of the applicable statute of limitations.

SECTION 2. REPRESENTATIONS AND WARRANTIES OF ONSTREAM.

Except as otherwise set forth in the "OnStream Disclosure Schedule" provided
to 3Com on the date hereof, OnStream represents and warrants to 3Com as set
forth below. No fact or circumstance disclosed to 3Com shall constitute an
exception to these representations and warranties unless such fact or
circumstance is set forth in the OnStream Disclosure Schedule. Applicable
information so disclosed on the OnStream Disclosure Schedule shall be deemed to
be disclosed under and incorporated into any other subsection of this Section 2
relating to the same general subject matter; provided, however that OnStream
shall use its Best Efforts to include such information or provide detailed
cross-references in the OnStream Disclosure Schedule wherever information is
called for under more than one subsection of this Section 2.

2.1 ORGANIZATION. OnStream is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
corporate power and authority to carry on its business as it is now being
conducted and as it is proposed to be conducted. OnStream is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
nature of its business or properties makes such qualification or licensing
necessary, except where the failure to qualify would not be material to
OnStream's business. The OnStream Disclosure Schedule contains a true and
complete listing of the

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locations of all sales offices, manufacturing facilities, and any other offices
or facilities of OnStream and a true and complete list of all states in which
OnStream maintains any employees. The OnStream Disclosure Schedule contains a
true and complete list of all states in which OnStream is duly qualified to
transact business as a foreign corporation. True and complete copies of
OnStream's articles of incorporation and bylaws, as in effect on the date hereof
and as to be in effect immediately prior to the Closing, have been provided to
3Com or its representatives.

2.2 CAPITALIZATION.

(a) The authorized capital stock of OnStream as of the date of this
Agreement consists of: (i) twenty million (20,000,000) shares of common stock
and (ii) eleven million two hundred ninety-eight thousand six hundred
(11,298,600) shares of preferred stock. As of the date of this Agreement, three
million seventeen thousand two hundred and five (3,017,205) shares of OnStream
common stock and eleven million one hundred eighty-seven thousand three hundred
and seventy-six (11,187,376) shares of OnStream preferred stock are issued and
outstanding and held of record by OnStream's shareholders as set forth and
identified in the shareholder list provided to 3Com or its representatives.

(b) On the date of this Agreement (i) fifty-five thousand four hundred
eighty-five (55,485) shares of OnStream common stock are available or reserved
for issuance under the OnStream Stock Option Plan (the "OnStream Plan"), and
(ii) one million nine hundred twenty thousand two hundred forty five (1,920,245)
shares are subject to outstanding options and held of record by OnStream's
option holders. Twenty-five thousand (25,000) shares of OnStream Series A
Preferred Stock, twenty thousand four hundred and twenty-nine (20,429) shares of
OnStream Series B Preferred Stock, and twenty-five thousand six hundred and
sixty-six (25,666) shares of OnStream Series C Preferred Stock are reserved for
issuance and subject to outstanding OnStream Warrants. The names of the holders
of the OnStream Warrants are set forth on the OnStream Disclosure Schedule.

(c) All of the outstanding OnStream Securities have been duly authorized and
are validly issued, fully paid and nonassessable. All outstanding OnStream
Securities were issued in compliance with applicable securities laws. None of
the outstanding OnStream Securities were issued in consideration in whole or in
part for any contribution, transfer or assignment of the OnStream Products or
Proprietary Assets or any proprietary rights incorporated therein or otherwise
related thereto. OnStream does not have any other shares of its capital stock
issued or outstanding and does not have any other outstanding subscriptions,
options, warrants, rights or other agreements or commitments obligating OnStream
to issue shares of its capital stock or other securities.

2.3 POWER, AUTHORITY AND VALIDITY.

(a) OnStream has the corporate power and authority to enter into this
Agreement and the other Transaction Documents to which it is a party and to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Transaction Documents to which it is a party and the
consummation of the transactions contemplated herein and therein have been duly
authorized by the board of directors of OnStream, and no other corporate
proceedings, other than shareholder approval of the Merger, are necessary to
authorize this Agreement and the other Transaction Documents. OnStream is not
subject to or obligated under any charter, bylaw or contract provision or any
license, franchise or permit, or subject to any order or decree, which would be
breached or violated in a manner by or in conflict with its executing and
carrying out this Agreement and the transactions contemplated herein and under
the Transaction Documents. To OnStream's knowledge, except for (i) the filing of
the Merger Agreement and any required officers' certificates with the Secretary
of State of the State of California and appropriate documents with the relevant
authorities of other states in which OnStream is qualified to do business, (ii)
filings under applicable securities laws, (iii) the termination of the waiting
period under the HSR Act and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the laws of any foreign country in which OnStream or any of OnStream's
subsidiaries conducts any business or owns any property or assets, no consent of
any person who is a party

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to a contract which is material to OnStream's business, nor consent of any
governmental body, is required to be obtained on the part of OnStream to permit
the transactions contemplated herein and continue the business activities of
OnStream as previously conducted by OnStream. This Agreement constitutes, and
the other Transaction Documents to which OnStream is a party when executed and
delivered by OnStream shall constitute, valid and binding obligations of
OnStream enforceable in accordance with their respective terms, subject to (i)
laws of general application relating to bankruptcy, insolvency, and the relief
of debtors and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.

(b) Except as set forth in the OnStream Disclosure Schedule, all OnStream
Options outstanding as of the Effective Date have been issued in accordance with
the terms of the OnStream Plan and pursuant to the forms of option agreement
previously provided to legal counsel for 3Com. No option will by its terms
require an adjustment in connection with the Merger. Neither the transactions
contemplated in this Agreement nor any action taken by OnStream will result in
(i) any additional benefits for any optionee under and option or (ii) the
inability of 3Com after the Effective Date to exercise any right or benefit held
by OnStream prior to the Effective Date with respect to an option assumed by
3Com, including, without limitation, the right to repurchase an optionee's
unvested shares on termination of such optionee's employment. The assumption by
3Com of OnStream Options in accordance with Section 1.2(k) hereunder will not
(x) give the optionees additional benefits which they did not have under their
options prior to such assumption (after taking into account the existing
provisions of the options, such as their respective exercise prices and vesting
schedules) or (y) constitute a breach of the OnStream Plan or any material
agreement entered into pursuant to the OnStream Plan.

2.4 FINANCIAL STATEMENTS.

(a) OnStream has delivered to 3Com copies of OnStream's unaudited balance
sheet as of September 30, 1996 and statements of operations, shareholders'
equity and cash flow for the period then-ended (the "OnStream Unaudited
Financials") and the audited balance sheet as of December 31, 1995 and
statements of operations, shareholder's equity and cash flow for the period
then-ended (collectively, the "OnStream Financial Statements").

(b) The OnStream Financial Statements are complete and in accordance with
the books and records of OnStream and present fairly in all material respects
the financial position of OnStream as of their historical dates. The OnStream
Financial Statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except as to the OnStream Unaudited Financials,
for the absence of footnotes) applied on a basis consistent with prior periods.
Except and to the extent reflected or reserved against in such balance sheets
(including the notes thereto), OnStream does not have, as of the dates of such
balance sheets, any liabilities or obligations (absolute or contingent) of a
nature required to be or customarily reflected in a balance sheet (or the notes
thereto) prepared in accordance with GAAP. The reserves, if any, reflected on
the OnStream Financial Statements are adequate in light of the contingencies
with respect to which they are made. The statements of operations, shareholder's
equity and cash flow are complete and in accordance with the books and records
of OnStream and present fairly the results of operations, equity transactions
and changes of OnStream for the periods indicated.

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(c) OnStream has no debt, liability, or obligation in a material amount,
either individually or in the aggregate, of any nature, whether accrued,
absolute, contingent, or otherwise, and whether due or to become due, that is
not reflected or reserved against in the OnStream Unaudited Financials, except
for those (i) that may have been incurred after the date of the OnStream
Financial Statements or (ii) that are not required by GAAP to be included in a
balance sheet or the notes thereto, except that OnStream has not established any
reserves with respect to the costs and fees associated with this Agreement and
the transactions contemplated herein. All material debts, liabilities, and
obligations incurred after the date of the OnStream Financial Statements were
incurred in the ordinary course of business, and are usual and normal in amount,
both individually and in the aggregate.

2.5 TAX MATTERS.

(a) OnStream has fully and timely, properly and accurately filed all tax
returns and reports required to be filed by it, including all federal, foreign,
state and local tax returns and estimates for all years and periods (and
portions thereof) for which any such returns, reports or estimates were due. All
such returns, reports and estimates were prepared in the manner required by
applicable law in all material respects. All income, sales, use, occupation,
property or other taxes or assessments due from OnStream prior to the Closing
Date have been paid or will be paid on or before the Closing Date. There are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid. The reserves for taxes, if any, reflected on the OnStream
Financial Statements are adequate, and there are no tax liens on any property or
assets of OnStream (other than liens for taxes not yet due and payable). To
OnStream's knowledge, there have been no audits or examinations of any tax
returns or reports by any applicable governmental agency. To OnStream's
knowledge, no state of facts exists or has existed which would constitute
grounds for the assessment of any penalty or any further tax liability in a
material amount, either individually or in the aggregate, beyond that shown on
the respective tax reports, returns or estimates. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any federal, foreign state or local tax return or report for any period.

(b) All taxes which OnStream has been required to collect or withhold have
been duly withheld or collected and, to the extent required, have been paid to
the proper taxing authority.

(d) At no time has OnStream been included in the federal consolidated income
tax return of any affiliated group of corporations.

(e) No payment which OnStream is obliged to pay to any director, officer,
employee or independent contractor pursuant to the terms of an employment
agreement, severance agreement or otherwise will constitute an excess parachute
payment as defined in Section 280G of the Code.

(f) OnStream will not be required to include any adjustment in taxable
income for any tax period (or portion thereof) ending after the Closing Date
pursuant to Section 481(c) of the Code or any provision of the tax laws of any
jurisdiction requiring tax adjustments as a result of a change in method of
accounting implemented by OnStream prior the Closing Date for any tax period (or
portion thereof) ending on or before the Closing Date or pursuant to the
provisions of any agreement entered into by OnStream prior to the Closing Date
with any taxing authority with regard to the tax liability of OnStream for any
tax period (or portion thereof) ending on or before the Closing Date.

(g) OnStream is not currently under any contractual obligation to pay to any
Governmental Body any tax obligations of, or with respect to any transaction
relating to, any other person or to indemnify any other person with respect to
any tax, other than pursuant to this Agreement.

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2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. From September 30, 1996, to the
date of this Agreement, OnStream has not:

(a) suffered any Material Adverse Change in its financial condition or
in the operations of its business, nor any Material Adverse Change in its
balance sheet (with the OnStream Financial Statements and any subsequent
balance sheet analyzed as if each had been prepared according to GAAP
exclusive of footnotes), and including but not limited to cash distributions
or material decreases in the net assets of OnStream;

(b) suffered any damage, destruction or loss, whether covered by
insurance in an amount in excess of Fifty Thousand Dollars ($50,000);

(c) granted or agreed to make any increase in the compensation payable
or to become payable by OnStream to its officers or employees, except those
occurring in the ordinary course of business;

(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of OnStream Capital Stock or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by OnStream of such shares other than repurchases of OnStream
Capital Stock at original issue prices from former employees or consultants
pursuant to written agreements providing for their repurchase in the event
of termination of employment or consultancy;

(e) issued any shares of capital stock of OnStream or any warrants,
rights, options or entered into any commitment relating to the shares of
OnStream except for the issuance of shares of OnStream Capital Stock
pursuant to the exercise of outstanding OnStream Options or OnStream
Warrants or upon conversion of outstanding shares of OnStream Preferred
Stock;

(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation
or amortization policies or rates adopted therein;

(g) sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property other than in the
ordinary course of business;

(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application
for any patent, trademark or copyright), invention, work of authorship,
process, know-how, formula or trade secret or interest thereunder or other
intangible asset except in the ordinary course of its business;

(i) suffered any dispute involving any employee which may result in a
material liability to OnStream;

(j) engaged in any activity or entered into any material commitment or
transaction (including without limitation any borrowing or capital
expenditure), in either case, other than in the ordinary course of business;

(k) incurred any liabilities, contingent or otherwise, either matured or
unmatured (whether or not required to be reflected in financial statements
in accordance with GAAP, and whether due or to become due), except for (i)
liabilities identified as such in the "liabilities" column of the OnStream
Unaudited Financials, (ii) accounts payable or accrued salaries that have
been incurred by OnStream since September 30, 1996 in the ordinary course of
business and consistent with OnStream's past practices and (iii) liabilities
in Section 2.6(k) of the Disclosure Schedule;

(l) permitted or allowed any of its material property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, except those permitted under Section 2.7
hereof, other than any purchase money security interests incurred in the
ordinary course of business;

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(m) made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of Fifty Thousand
Dollars ($50,000), or in the aggregate, in excess of One Hundred Thousand
Dollars ($100,000);

(n) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or
arrangement with any of its Affiliates, officers, directors or shareholders
or, to OnStream's knowledge, any Affiliate or associate of any of the
foregoing;

(o) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the OnStream
Disclosure Schedule; or

(p) agreed to take any action described in this Section 2.6 or outside
of its ordinary course of business or which would constitute a breach of any
of the representations contained in this Agreement.

2.7 TITLE AND RELATED MATTERS. OnStream has good and marketable title to
all the properties, interests in properties and assets, real and personal,
reflected in the OnStream Financial Statements or acquired after the date of the
OnStream Financial Statements (except properties, interests in properties and
assets sold or otherwise disposed of since the date of the OnStream Financial
Statements in the ordinary course of business), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except the
lien of current taxes not yet due and payable and except for liens which in the
aggregate do not secure more than Fifty Thousand Dollars ($50,000) in
liabilities. The equipment of OnStream used in the operation of its business is
in good operating condition and repair, normal wear and tear excepted. All real
or personal property leases to which OnStream is a party are, to OnStream's
knowledge, valid, binding, enforceable and effective in accordance with their
respective terms, subject to (i) laws of general application relating to
bankruptcy, insolvency, and the relief of debtors and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
There is not under any of such leases any existing default by OnStream or event
of default or event which, with notice or lapse of time or both, would
constitute a material default. The OnStream Disclosure Schedule contains a
description of all real and personal property leased or owned by OnStream,
describing its interest in said property and with respect to owned real
property, a description of each parcel and a summary description of the
buildings, structures and improvements thereon. True and correct copies of
OnStream's leases have been provided to 3Com or its representatives.

2.8 PROPRIETARY RIGHTS AND WARRANTY CLAIMS.

(a) Part 2.8(a)(i) of the Disclosure Schedule sets forth, with respect to
each OnStream Proprietary Asset registered with any Governmental Body or for
which an application for registration has been filed with any Governmental Body,
(i) a brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.8(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to OnStream by any Person (except
for any Proprietary Asset that is licensed to OnStream under any third party
software license generally available to the public at a cost of less than
Twenty-five Thousand Dollars ($25,000)), and identifies the license agreement
under which such Proprietary Asset is being licensed to OnStream. Except as set
forth in Part 2.8(a)(iii) of the Disclosure Schedule, OnStream has, to the best
of OnStream's knowledge, valid and marketable title to all OnStream Proprietary
Assets used in or necessary for the conduct of its business free and clear of
all material liens and other encumbrances, except for third party rights
licensed to it, as to which it has a valid right to use such OnStream
Proprietary Assets (all of the foregoing are referred to herein as "OnStream
Proprietary Rights"). Except as set forth in Part 2.8(a)(v) of the Disclosure
Schedule, OnStream is not obligated to make any material payment to any Person
for the use of any OnStream Proprietary Asset. Except as set forth in Part
2.8(a)(vi) of the Disclosure Schedule, OnStream has not developed jointly with
any other Person any OnStream Proprietary Asset with respect to which such other
Person has any rights.

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(b) Except as set forth in Part 2.8 of the Disclosure Schedule, OnStream has
taken all reasonable and customary measures and precautions necessary to protect
and maintain the confidentiality and secrecy of all OnStream Proprietary Assets
(except OnStream Proprietary Assets whose value would be unimpaired by public
disclosure) and otherwise to maintain and protect the value of all OnStream
Proprietary Assets. Except as set forth in Part 2.8(b) of the Disclosure
Schedule, OnStream has not (other than pursuant to license agreements identified
in Part 2.11 of the Disclosure Schedule) disclosed or delivered to any Person,
or permitted the disclosure or delivery to any Person of the source code, or any
portion or aspect of the source code, of any OnStream Product.

(c) (i) To OnStream's knowledge, and (ii) except where such infringement,
misappropriation or unlawful use, whether or not within OnStream's knowledge,
would not and could not reasonably be expected to be material in impact or
amount, either individually or in the aggregate: OnStream is not infringing,
misappropriating or making any unlawful use of, and OnStream has not at any time
infringed, misappropriated or made any unlawful use of, and OnStream has not
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To
OnStream's knowledge, no other Person is infringing, misappropriating or making
any unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any OnStream Proprietary Asset.

(d) Except as set forth in Part 2.8(d) of the Disclosure Schedule: (i) each
OnStream Product conforms in all material respects with any specification,
documentation, performance standard, representation or statement made or
provided with respect thereto by or on behalf of OnStream and (ii) there has not
been during the last three (3) years any claim made against OnStream by any
customer or other Person alleging that any OnStream Product (including each
version thereof that has been licensed or otherwise made available by OnStream
to any Person) does not conform in all material respects with any specification,
documentation, performance standard, representation or statement made or
provided by or on behalf of OnStream, and, to OnStream's knowledge, there is not
a reasonable basis for any such claim.

(e) The OnStream Proprietary Assets constitute all the Proprietary Assets
necessary, in OnStream's reasonable judgment, to enable OnStream to conduct its
business in the manner in which such business has been and is being conducted.
Except as set forth in Part 2.8(e) of the Disclosure Schedule, (i) OnStream has
not licensed any of the OnStream Proprietary Assets to any Person on an
exclusive basis and (ii) OnStream has not entered into any covenant not to
compete or contract limiting its ability to exploit fully any of the OnStream
Proprietary Assets or to transact business in any market or geographical area or
with any Person.

(f) Except as set forth in Part 2.8(f) of the Disclosure Schedule, (i) all
current and former employees of OnStream have executed and delivered to OnStream
an agreement (containing no exceptions to or exclusions from the scope of its
coverage relevant to OnStream's business) that is substantially identical to the
form of the Employee Agreement previously delivered to 3Com, and (ii) all
current and former consultants and independent contractors to OnStream providing
technical services relating to OnStream's Proprietary Assets have executed and
delivered to OnStream an agreement (containing no exceptions to or exclusions
from the scope of its coverage relevant to OnStream's business), the material
provisions of which are in substance similar to the terms of the form of
Employee Agreement previously delivered to 3Com.

(g) To OnStream's knowledge, no product liability or warranty claims which
individually or in the aggregate could exceed the reserves therefor on the
OnStream Financial Statements have been communicated in writing to or threatened
in writing against OnStream.

2.9 EMPLOYEE BENEFIT PLANS. OnStream does not maintain, and is not
obligated to contribute to, any defined benefit pension plan or any employee
benefit plan that is subject to either Title IV of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the minimum funding standards of

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ERISA or the Internal Revenue Code. (i) To OnStream's knowledge, and (ii) except
where nonconformance, whether or not within OnStream's knowledge, would not and
could not be reasonably expected to be material in impact or amount, either
individually or in the aggregate: each bonus, deferred compensation, pension,
profit-sharing, retirement, stock purchase, stock option, and other employee
benefit or fringe benefit plans, whether formal or informal, maintained by
OnStream conforms in all material respects, to the applicable requirements, if
any, of ERISA. The OnStream Disclosure Schedule lists all profit-sharing, bonus,
incentive, deferred compensation, vacation, severance pay, retirement, stock
option, group insurance or other plans (whether written or not) providing
employee benefits, and where no plan or other written document has been made
available to 3Com, summarizes briefly its principal features.

2.10 BANK ACCOUNTS AND RECEIVABLES. The OnStream Disclosure Schedule sets
forth the names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which OnStream maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom. The OnStream Disclosure Schedule sets forth an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable, and other receivables of OnStream as of September 30, 1996. Except
as set forth on the OnStream Disclosure Schedule all existing accounts
receivable of OnStream (including those accounts receivable reflected on the
OnStream Unaudited Financials that have not yet been collected and those
accounts receivable that have arisen since [September 30, 1996] and have not yet
been collected) (i) represent valid obligations of customers of OnStream arising
from bona fide transactions entered into in the ordinary course of business and
(ii) to OnStream's knowledge, are current and will be collected in full, and
when due, without any counterclaim or setoff (net of an allowance for doubtful
accounts as reflected in the OnStream Financials of Two Million One Hundred and
Fifty-Five Thousand Dollars ($2,155,000) in the aggregate).

2.11 CONTRACTS.

(a) The OnStream Disclosure Schedule identifies each material license
agreement, development agreement, manufacturing agreement, distribution
agreement, and OEM agreement to which OnStream is a party.

(b) Except as set forth in Part 2.11 of the OnStream Disclosure Schedule,

(i) OnStream has no agreements, contracts or commitments that call for
prospective fixed and/ or contingent payments or expenditures by or to
OnStream of more than Twenty-five Thousand Dollars ($25,000) other than
those entered into in the ordinary course of business concerning the sale of
OnStream's products;

(ii) OnStream has no purchase agreement, contract or commitment that
calls for fixed and/or contingent payments by OnStream that are in excess of
the normal, ordinary and usual requirements of OnStream's business;

(iii) There is no outstanding sales contract, commitment or proposal
(including, without limitation, development projects) of OnStream that
OnStream currently expects to result either individually or in the aggregate
in any material loss to OnStream upon completion or performance thereof;

(iv) OnStream has no outstanding agreements, contracts or commitments
with officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable by it on
notice of not longer than ninety (90) days and without liability, penalty or
premium exceeding Two Thousand Five Hundred Dollars ($2,500) in any single
instance or Ten Thousand Dollars ($10,000) in the aggregate;

(v) OnStream has not entered into any employment, independent contractor
or similar agreement, contract or commitment that is not terminable on not
more than ninety (90) days' notice without penalty or liability of any type,
including without limitation severance or termination pay;

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(vi) OnStream has no currently effective collective bargaining or union
agreements, contracts or commitments;

(vii) OnStream is not restricted by agreement from competing with any
person or from carrying on its business anywhere in the world;

(viii) OnStream is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return to OnStream of
inventory or merchandise in the possession of wholesalers, distributors,
retailers, or other customers, except such liabilities, obligations and
claims as, in the aggregate, do not exceed the reserves therefor set forth
in the OnStream Financial Statements;

(ix) OnStream has not guaranteed any obligations of other persons or
made any agreements to acquire or guarantee any obligations of other
persons;

(x) OnStream has no outstanding loan or advance to any person; nor is it
party to any line of credit, standby financing, revolving credit or other
similar financing arrangement of any sort which would permit the borrowing
by OnStream of any sum not reflected in the OnStream Financial Statements;
and

(xi) All material contracts, agreements and instruments to which
OnStream is a party are valid, binding, in full force and effect, and
enforceable by OnStream in accordance with their respective terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and
the relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies. No such contract, agreement
or instrument contains any liquidated-damages, penalty or similar provision.
To OnStream's knowledge, no party to any such contract, agreement or
instrument intends to cancel, withdraw, modify or amend such contract,
agreement or instrument.

(c) The OnStream Disclosure Schedule describes all agreements pursuant to
which OnStream has agreed to manufacture for or supply to any third party any
OnStream Products or components thereto requiring, or expected to require,
payments of Fifty Thousand Dollars ($50,000) or more over the life of any such
agreement. The OnStream Disclosure Schedule also lists each vendor which is the
sole source for any product or component included in the OnStream Products which
OnStream believes is not readily available from other sources.

(d) OnStream has delivered to 3Com accurate and complete copies of all
written contracts identified in Part 2.11 of the Disclosure Schedule, including
all amendments thereto. OnStream has not entered into any material oral
contracts. Each contract identified in Part 2.11 of the Disclosure Schedule (a
"Material Contract") is valid and in full force and effect, and, to the best of
the knowledge of OnStream, is enforceable by OnStream in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.

(e) Except as set forth in Part 2.11 of the Disclosure Schedule:

(i) OnStream has not violated or breached, or committed any default
under, any Material Contract, and, to OnStream's knowledge, no other Person
has violated or breached, or committed any default under, any Material
Contract; and

(ii) to OnStream's knowledge, no event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) will, or
could reasonably be expected to, (A) result in a violation or breach of any
of the provisions of any Material Contract, (B) give any Person the right to
declare default or exercise any remedy under any Material Contract, (C) give
any Person the right to accelerate the maturity or performance of any
Material Contract or (D) give any Person the right to cancel, terminate or
modify any Material Contract.

(f) None of the Material Contracts contains any provision which would
require the consent of third parties to the Merger or which would be altered as
a result of the Merger. If any Material Contract

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contains any such provisions, then OnStream has described them briefly in the
OnStream Disclosure Schedule.

2.12 ORDERS, COMMITMENTS AND RETURNS. All accepted and unfilled orders
entered into by OnStream for the sale, license, or lease or other disposition by
OnStream of its products, and all agreements, contracts, or commitments for the
purchase of supplies by OnStream, were made in the ordinary course of business.
No outstanding material purchase or outstanding lease commitment of OnStream is
in excess of the normal, ordinary and usual requirements of its business or was
made at a price (on both a per unit and aggregate basis) in excess of the
current market price at the time made, or contains terms and conditions
materially more onerous to OnStream than those usual and customary in the
industry.

2.13 COMPLIANCE WITH LAW. OnStream is in compliance in all material
respects with all applicable laws and regulations. Neither OnStream nor, to
OnStream's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. OnStream has not participated directly or indirectly in any
boycotts or other similar practices affecting any of its customers. OnStream has
complied in all material respects at all times with any and all applicable
federal, state and foreign laws, rules, regulations, proclamations and orders
relating to the importation or exportation of its products. (i) To OnStream's
knowledge, and (ii) except where such invalidity or insufficiency, whether or
not within OnStream's knowledge, would not and could not be reasonably expected
to be material in impact or amount, either individually or in the aggregate: all
licenses, franchises, permits and other governmental authorizations held by
OnStream and which are material to its business are valid and sufficient in all
respects for the business presently carried on by OnStream.

2.14 LABOR DIFFICULTIES; NO DISCRIMINATION.

(a) (i) To OnStream's knowledge, and (ii) except where such unfair labor
practice or violation, whether or not within OnStream's knowledge, would not and
could not reasonably be expected to be material in impact or amount, either
individually or in the aggregate: OnStream is not engaged in any unfair labor
practice and is not in violation of any applicable laws relating to employment
and employment practices, terms and conditions of employment, and wages and
hours.

(b) There is no unfair labor practice complaint against OnStream actually
pending or, to OnStream's knowledge, threatened before the National Labor
Relations Board.

(d) No union representation question exists with respect to the employees of
OnStream and, to OnStream's knowledge, no union organizing activities are taking
place.

(e) No grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is pending and to OnStream's knowledge no claims
therefor exist.

(f) No collective bargaining agreement that is binding on OnStream restricts
it from relocating or closing any of its operations.

(g) OnStream has not experienced any work stoppage or other labor
difficulty.

(h) There is not presently, and there has not been within the previous two
(2) years, any claim against OnStream based on actual or alleged wrongful
termination or on actual or alleged race, age, sex, disability or other
harassment or discrimination, or similar tortious conduct, nor to OnStream's
knowledge, is there any reasonable basis for any such claim.

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(i) OnStream is not aware of any key OnStream employee who intends to
terminate his or her employment with OnStream.

2.15 TRADE REGULATION. OnStream has not terminated its relationship with
or refused to ship OnStream Products to any dealer, distributor, OEM, third
party marketing entity or customer which had theretofore paid or been obligated
to pay OnStream in excess of Fifty Thousand Dollars ($50,000) over any
consecutive twelve (12) month period. The prices charged by OnStream in
connection with the marketing or sale of any products or services have been in
compliance in all material respects with all applicable laws and regulations. No
claims against OnStream have been communicated or threatened in writing to
OnStream with respect to wrongful termination of any dealer, distributor or any
other marketing entity, discriminatory pricing, price fixing, unfair
competition, false advertising, or any other violation of any laws or
regulations relating to anti-competitive practices or unfair trade practices of
any kind, and to OnStream's knowledge, no specific situation, set of facts, or
occurrence provides a reasonable basis for any such claim.

2.16 INSIDER TRANSACTIONS. No Affiliate of OnStream has any interest in
(i) any equipment or other material property, real or personal, tangible or
intangible, including, without limitation, any proprietary asset, used in
connection with or pertaining to the business of OnStream or, to OnStream's
knowledge, (ii) any creditor, supplier, customer, manufacturer, agent,
representative, or distributor of products of OnStream; PROVIDED, HOWEVER, that
no such Affiliate or other person shall be deemed to have such an interest
solely by virtue of (a) the ownership of less than one percent (1%) of the
outstanding stock or debt securities of any publicly-held company whose stock or
debt securities are traded on a recognized stock exchange or quoted on the
National Association of Securities Dealers Automated Quotation System, or (b)
such person's status as a general or limited partner of a venture capital or
similar fund, which fund is also a holder of the securities of such creditor,
supplier, customer, manufacturer, agent, representative or distributor.

2.17 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS. The OnStream
Disclosure Schedule lists all currently effective written or, to OnStream's
knowledge, oral consulting, independent contractor and/or employment agreements
and other material agreements concluded with individual employees, independent
contractors or consultants to which OnStream is a party other than those
terminable at will or within thirty (30) days. If oral, the OnStream Disclosure
Schedule also contains a brief summary of such agreements. True and correct
copies of all such written agreements have been provided to 3Com or its
representatives. All salaries and wages paid by OnStream are in material
compliance, both individually and in the aggregate, with applicable federal,
state and local laws. The OnStream Disclosure Schedule lists (i) the names of
all persons currently employed by OnStream and the salaries and other
compensation arrangements (bonus, deferred compensation, etc.) for each such
person. OnStream's aggregate accrued vacation and severance pay as of September
30, 1996 was approximately Three Hundred Eleven Thousand One Hundred and
Thirty-One Dollars ($311,131).

2.18 INSURANCE. The OnStream Disclosure Schedule contains a list of the
principal policies of fire, liability and other forms of insurance held by
OnStream. To OnStream's knowledge, OnStream has not done anything, either by way
of action or inaction, that might reasonably be expected to invalidate such
policies in whole or in part.

2.19 LITIGATION. There are no suits, actions or proceedings pending or, to
OnStream's knowledge, threatened against or materially affecting OnStream or
which questions or challenges the validity of this Agreement or the Transaction
Documents. To its knowledge, there is no judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or arbitrator outstanding against OnStream.

2.20 SECTION 341(F)(2). OnStream has not, with regard to any property or
assets held, acquired or to be acquired by it, at any time, filed a consent to
the application of Section 341(f)(2) of the Code nor will any such consent be
filed before the Closing.

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2.21 SUBSIDIARIES. OnStream has no subsidiaries. OnStream does not own or
control (directly or indirectly) any capital stock, bonds or other securities
of, and does not have any proprietary interest in, any other corporation,
general or limited partnership, firm, association or business organization,
entity or enterprise, and OnStream does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.

2.22 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. OnStream has obtained all
material permits, licenses and other authorizations which are required under
federal, state and local laws applicable to OnStream and relating to pollution
or protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes. Except as set forth in the OnStream Disclosure Schedule,
OnStream is in material compliance with all terms and conditions of the required
permits, licenses and authorizations. Except as set forth in the OnStream
Disclosure Schedule, OnStream is not aware of, nor has OnStream received written
notice of, any conditions, circumstances, activities, practices, incidents, or
actions which might reasonably form the basis of a claim, action, suit,
proceeding, hearing, or investigation of, by, against or relating to OnStream,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic substance, material or waste.

2.23 CORPORATE DOCUMENTS. OnStream has furnished to 3Com for its
examination: (i) copies of its articles of incorporation and bylaws, (ii) its
minute book containing all records required to be set forth of all proceedings,
consents, actions, and meetings of the shareholders, the board of directors and
any committees thereof, (iii) all material permits, orders, and consents issued
by any regulatory agency with respect to OnStream, or any securities of
OnStream, and all applications for such permits, orders, and consents, and (iv)
the stock transfer books of OnStream setting forth all transfers of any capital
stock. The corporate minute books, stock certificate books, stock registers and
other corporate records of OnStream are complete and accurate in all respects,
and the signatures appearing on all documents contained therein are the true
signatures of the persons purporting to have signed the same. All actions
reflected in such books and records were duly and validly taken in compliance in
all material respects with the laws of the applicable jurisdiction.

2.24 NO BROKERS. Neither OnStream nor, to OnStream's knowledge, any
OnStream shareholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction contemplated hereby or thereby
other than Deutsche Morgan Grenfell.

2.25 POOLING OF INTERESTS. To OnStream's knowledge, neither OnStream nor
any of its Affiliates has, through the date of this Agreement, taken or agreed
to take any action which would prevent OnStream from accounting for the business
combination to be effected by the Merger as a pooling of interests.

2.26 DISCLOSURE. The statements by OnStream contained in this Agreement,
the exhibits and schedules thereto, and the certificates or documents required
to be delivered by OnStream to 3Com or Sub under this Agreement, taken as a
whole, do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF 3COM AND SUB.

3Com and Sub jointly and severally represent and warrant to OnStream that:

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3.1 ORGANIZATION AND GOOD STANDING. 3Com and Sub are corporations duly
organized, validly existing and in good standing under the laws of the State of
California and have full power and authority to carry on their businesses as now
conducted.

3.2 CAPITAL STRUCTURE. As of the date hereof the authorized capital stock
of 3Com consists of two hundred million (200,000,000) shares of 3Com Common
Stock, One Cent ($0.01) par value per share and three million (3,000,000) shares
of 3Com Preferred Stock, no par value. At the close of business on August 31,
1996, one hundred sixty-nine million nine hundred four thousand (169,904,000)
shares of 3Com Common Stock were outstanding, twenty-six million two hundred
ninety-five thousand (26,295,000) shares of 3Com Common Stock were subject to
outstanding stock options ("Existing 3Com Options"), no shares of 3Com Common
Stock were held by 3Com in its treasury, no shares of 3Com Preferred Stock were
held by 3Com in its treasury, and no shares of 3Com Preferred Stock were
outstanding. All the outstanding shares of 3Com Common Stock are validly issued,
fully paid, nonassessable and free of preemptive rights. The shares of 3Com
Common Stock issuable in connection with the Merger are duly authorized and
reserved for issuance and, when issued in accordance with the terms of this
Agreement and Agreement of Merger, will be validly issued, fully paid,
nonassessable and free of preemptive rights. As of the date hereof, the
authorized capital stock of Sub consists of one thousand (1,000) shares of
Common Stock, no par value, all of which are validly issued, fully paid and
nonassessable and owned by 3Com. Except for the shares listed above issuable
pursuant to Existing 3Com Options and the 3Com Rights Plan, there are not any
options, warrants, calls, conversion rights, commitments or agreements of any
character to which 3Com or any subsidiary of 3Com is a party or by which any of
them may be bound obligating 3Com or any subsidiary of 3Com to issue, deliver,
sell, or cause to be issued, delivered or sold, additional shares of the capital
stock of 3Com or any subsidiary of 3Com or obligating 3Com or any subsidiary of
3Com to grant, extend or enter into any such option, warrant, call, conversion
right, commitment or agreement.

3.3 POWER, AUTHORIZATION AND VALIDITY. 3Com and Sub have the right, power,
legal capacity and authority to enter into and perform their respective
obligations under this Agreement and the other Transaction Documents to which
they are a party. The execution and delivery of this Agreement and the other
Transaction Documents have been duly and validly approved and authorized by the
respective boards of directors of 3Com and Sub and by 3Com as the sole
shareholder of Sub. No authorization or approval, governmental or otherwise, is
necessary in order to enable 3Com and Sub to enter into and to perform the terms
of this Agreement or the other Transaction Documents on their parts to be
performed, except for (i) the filing of the Merger Agreement and all required
officers' certificates with the Secretary of State of the State of California
and appropriate documents with the relevant authorities of other states in which
3Com is qualified to do business, (ii) filings under applicable securities laws,
(iii) the termination of the waiting period under the HSR Act and (iv) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under the laws of any foreign country in which
3Com or any of 3Com's subsidiaries conducts any business or owns any property or
assets. This Agreement is, and the other Transaction Documents when executed and
delivered by 3Com and/or Sub shall be, the valid and binding obligations of 3Com
and Sub enforceable in accordance with their respective terms, subject to (i)
laws of general application relating to bankruptcy, insolvency, and the relief
of debtors and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.

3.4 NO VIOLATION OF EXISTING AGREEMENTS. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
herein will conflict with, or result in a material breach or violation of, any
provision of 3Com's and or Sub's respective articles of incorporation, and
bylaws as currently in effect, any instrument or contract to which 3Com or Sub
is a party or by which any such party is bound, or any federal, state or local
judgment, writ, decree, order, statute, rule or regulation applicable to any
such party. Neither the execution and delivery of this Agreement, nor any
Agreement attached hereto as an Exhibit, nor the consummation of the
transactions contemplated herein or therein will have a Material Adverse Effect
on the operations, assets, or financial condition of 3Com.

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3.5 SEC DOCUMENTS. 3Com has delivered to OnStream true, accurate and
complete copies of 3Com's most recent reports on Forms 10-K, 10-Q and any report
on Form 8-K filed since the most recent 10-Q (collectively, the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act or the
Securities Act, and taken together, the SEC Documents contain no untrue
statement of a material fact and did not omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected or superseded by a subsequently filed SEC Document. The
financial statements of 3Com included in the 3Com SEC Documents (the "3Com
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of 3Com and its consolidated subsidiaries at the
dates thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of unaudited
statements, to normal, recurring audit adjustments, provided that the notes and
accounts receivable are collectible in the amounts shown thereon and inventories
are not subject to write-down, except in either case in an amount not material
or for which 3Com has provided adequate reserves). There has been no change in
3Com's accounting policies or estimates except as described in the notes to the
3Com Financial Statements.

3.6 POOLING OF INTERESTS. To 3Com's knowledge, neither 3Com nor any of its
Affiliates has, through the date of this Agreement, taken or agreed to take any
action which would prevent 3Com from accounting for the business combination to
be effected by the Merger as a pooling of interests.

3.7 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS. 3Com is not in violation
of any provisions of its articles of incorporation or bylaws as currently in
effect or any federal, state or local judgment, writ, decree, or order
applicable to 3Com.

3.8 LITIGATION. There is no suit, action, proceeding, claim or
investigation pending or, to 3Com's knowledge, threatened against 3Com and Sub
before any court or administrative agency or which questions or challenges the
validity of this Agreement and which is not set forth in the SEC Documents (as
defined below) which could have a Material Adverse Effect on the operations,
assets or financial condition of 3Com or Sub.

3.9 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since August 31, 1996, there
has been no Material Adverse Change in the business condition of 3Com, and 3Com
has (i) conducted its business in the ordinary course and (ii) filed in a timely
manner all documents with the SEC required by law. Since August 31, 1996, 3Com
has not agreed to take any action outside of its ordinary course of business or
which would constitute a breach of any of the representations contained in this
Agreement.

3.10 DISCLOSURE. The statements by 3Com and Sub contained in this
Agreement, the exhibits thereto, and the certificates and documents required to
be delivered by 3Com or Sub to OnStream under this Agreement, taken as a whole,
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements contained herein and
therein not misleading in light of the circumstances under which such statements
were made.

SECTION 4. PRECLOSING COVENANTS OF ONSTREAM.

4.1 MATERIAL CONSENTS. OnStream shall use its Best Efforts to obtain any
and all consents necessary for the assumption by the Surviving Corporation of
those Material Contracts listed on Schedule 4.1 of the OnStream Disclosure
Schedule concurrent with the Merger (the "Material Consents").

4.2 ADVICE OF CHANGES. OnStream shall promptly advise 3Com in writing (i)
of any event occurring subsequent to the date of this Agreement which would
render any representation or warranty of OnStream contained in this Agreement,
if made on or as of the date of such event, untrue or inaccurate in any

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material and adverse respect and (ii) of any Material Adverse Change in
OnStream's business or financial condition, taken as a whole.

4.3 CONDUCT OF BUSINESS. Until the Closing, OnStream will continue to
conduct its business and maintain its business relationships in the ordinary and
usual course and will not, except as set forth in the OnStream Disclosure
Schedule or with the prior written consent of 3Com, which consent will not be
unreasonably withheld,

(a) borrow any additional money which borrowings exceed in the aggregate One
Hundred Thousand Dollars ($100,000);

(b) incur any liability other than in the ordinary and usual course of
business or in connection with the performance of consummation of this
Agreement;

(c) incur or commit to incur any capital expenditures in excess of One
Hundred Thousand Dollars ($100,000) in the aggregate or as to any individual
matter in excess of Fifty Thousand Dollars ($50,000) other than capital
expenditures and commitments made in the usual and ordinary course of its
business, consistent in amount with past practice;

(d) lease, license, sell, transfer, encumber or permit to be encumbered any
asset, intellectual property right or other property associated with the
business of OnStream (including sales or transfers to Affiliates of OnStream),
except for licenses granted and products sold in the usual and ordinary course
of business and except for cash applied in payment of OnStream's liabilities in
the usual and ordinary course of its business;

(e) dispose of any of its assets, except inventory in the regular and
ordinary course of business;

(f) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business;

(g) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;

(h) except as provided in Section 12.5(b), pay any bonus or special
remuneration (excluding sales commissions and bonuses paid pursuant to existing
arrangements in the ordinary course of business) to any officer or employee,
including any amounts for accrued but unpaid bonuses, or increase the salary of
any officer or employee;

(i) change its accounting methods;

(j) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock other than repurchases of OnStream Common Stock at original prices
from former employees or consultants pursuant to written agreements providing
for their repurchase in the event of termination of employment or consultancy;

(k) amend or terminate any material contract, agreement or license to which
it is a party except in the ordinary course of business;

(l) enter into any material contract except in the ordinary course of
business and consistent with past practice;

(m) loan any amount to any person or entity, or guaranty or act as a surety
for any obligation;

(n) waive or release any right or claim, except in the ordinary course of
business;

(o) issue or sell any shares of its capital stock of any class or any other
of its securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue shares of capital
stock, except in connection with the exercise of rights existing prior to the
date hereof;

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(p) split or combine the outstanding shares of its capital stock of any
class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;

(q) merge, consolidate or reorganize with any entity;

(r) amend its articles of incorporation or bylaws;

(s) make or change any election, change any annual accounting period, adopt
or change any accounting method, file any amended tax return, enter into any
closing agreement, settle any tax claim or assessment relating to OnStream,
surrender any right to claim refund of taxes, consent to any extension or waiver
of the limitation period applicable to any tax claim or assessment relating to
OnStream, or take any other action or omit to take any action, if any such
election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action or omission would have the effect of increasing the tax
liability of OnStream or 3Com;

(t) do anything that is not contemplated in this Agreement or would cause
there to be a Material Adverse Change in the OnStream Financial Statements (with
such OnStream Financial Statements analyzed as if they had been prepared
according to GAAP, and including but not limited to cash distributions or
material decreases in the net assets of OnStream), except as would occur in the
ordinary course of OnStream's business, between the date of the OnStream
Financial Statements and the Closing Date; or

(u) agree to do any of the things described in the preceding clauses Section
4.3(a) through (t).

4.4 RISK OF LOSS. Except as otherwise provided in this Agreement or to the
extent caused by 3Com or Sub, and subject to Section 1.2, until the Closing, all
risk of loss, damage or destruction to OnStream's assets shall be borne by
OnStream.

4.5 ACCESS TO INFORMATION. Until the Closing, OnStream shall allow 3Com
and its agents free access upon reasonable notice and during normal working
hours to its files, books, records, and offices, including, without limitation,
any and all information relating to taxes, commitments, contracts, leases,
licenses, and personal property and financial condition. Until the Closing,
OnStream shall cause its accountants to cooperate with 3Com and its agents in
making available all financial information requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.

4.6 SATISFACTION OF CONDITIONS PRECEDENT. OnStream will use its Best
Efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 9, and OnStream will use its Best Efforts to cause the
transactions contemplated in this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings (including the HSR
application) with, and give all notices to, third parties which may be necessary
or reasonably required on its part in order to effect the transactions
contemplated herein.

4.7 OTHER NEGOTIATIONS. Between the date hereof and the date this
Agreement is terminated pursuant to Section 10 hereof (the "Expiration Date"),
OnStream will not (and it will use its Best Efforts to assure that its officers,
directors, employees, agents and affiliates do not on its behalf) take any
action to solicit, initiate, seek, encourage or support any inquiry, proposal or
offer from, furnish any information to, or participate in any negotiations with,
any corporation, partnership, person or other entity or group (other than
discussions with 3Com) regarding any acquisition of OnStream, any merger or
consolidation with or involving OnStream, or any acquisition of any material
portion of the stock or assets of OnStream. OnStream agrees that any such
negotiations in progress as of the date hereof will be terminated or suspended
during such period. In no event will OnStream accept or enter into an agreement
concerning any such third party transaction. OnStream represents and warrants
that it has the legal right to terminate or suspend any such pending
negotiations and agrees to indemnify 3Com, its representatives and agents

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from and against any claims by any party to such negotiations based upon or
arising out of the discussion or any consummation of the Acquisition as
contemplated in this Agreement.

4.8 REGISTRATION STATEMENT; PROXY STATEMENT; PROSPECTUS. The information
supplied by OnStream for inclusion in the registration statement on Form S-4
pursuant to which the shares of 3Com Common Stock issued in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances in which
such statements were made, not misleading. The information supplied by OnStream
for inclusion in the proxy statement/prospectus (the "Proxy Statement") to be
sent to the OnStream shareholders in connection with the meeting of OnStream's
shareholders to consider approval of this Agreement and the Merger (the
"OnStream Shareholders' Meeting") shall not, on the date the Proxy Statement is
first mailed to shareholders of OnStream, at the time of the OnStream
Shareholder's Meeting and on the Effective Date, contain any statement which, at
such time and in light of the circumstances under which it was made, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made in the Proxy Statement not false
or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the OnStream Shareholders' Meeting which has become false or
misleading. If, at any time prior to the Effective Date, OnStream should
discover any event or fact relating to OnStream or any of its Affiliates,
officers or directors which would be required to be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement, OnStream
shall promptly inform 3Com of such event or fact.

SECTION 5. PRECLOSING AND OTHER COVENANTS OF 3COM AND SUB.

5.1 MATERIAL CONSENTS. 3Com shall provide reasonable assistance and
cooperation to OnStream in obtaining the Material Consents.

5.2 ADVICE OF CHANGES. 3Com and Sub will promptly advise OnStream in
writing of (i) any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of 3Com or Sub contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (ii) any Material Adverse
Change in 3Com's or Sub's business or financial condition, taken as a whole.

5.3 RESERVATION OF 3COM COMMON STOCK. 3Com shall reserve for issuance, out
of its authorized but unissued capital stock, three million eight hundred
thousand (3,800,000) shares of 3Com Common Stock (as adjusted for any
reclassification, split-up, stock dividend or stock combination occurring
between the date of this Agreement and the Effective Date) issuable upon or
after consummation of the Merger.

5.4 SATISFACTION OF CONDITIONS PRECEDENT. 3Com and Sub will use their
respective Best Efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 8, and 3Com and Sub will use their
respective Best Efforts to cause the transactions contemplated herein to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings
(including the HSR Act application) with, and give all notices to, third parties
which may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.

5.5 REGISTRATION STATEMENT; PROXY STATEMENT; PROSPECTUS. The information
supplied by 3Com for inclusion in the Registration Statement shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by 3Com for
inclusion in the Proxy Statement shall not, on the date the Proxy

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Statement is first mailed to shareholders of 3Com, at the time of the OnStream
Shareholders Meeting and on the Effective Date, contain any statement which, at
such time and in light of the circumstances under which it was made, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made in the Proxy Statement not false
or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the OnStream Shareholders' Meeting which has become false or
misleading. If at any time prior to the Effective Date 3Com should discover any
event or fact relating to 3Com or any of its Affiliates, officers or directors
which would be required to be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, 3Com shall promptly inform
OnStream of such event or fact.

5.6 S-8 REGISTRATION. 3Com shall use its Best Efforts to prepare, file
with the SEC and to cause to become effective a registration statement on Form
S-8 with respect to the shares of 3Com Common Stock issuable upon the exercise
of the OnStream Options as soon as practicable after the Closing Date but in any
event on or prior to the date on which 3Com publishes financial statements
covering at least thirty (30) days' results of combined operations of 3Com and
OnStream.

SECTION 6. MUTUAL COVENANTS.

6.1 CONFIDENTIALITY. Each party acknowledges that in the course of the
performance of this Agreement, it may obtain the Confidential Information of the
other party. The party (the "Receiving Party") receiving such Confidential
Information from the party disclosing such confidential information (the
"Disclosing Party") shall, at all times, both during the term of this Agreement
and thereafter, keep in confidence and trust all of the Disclosing Party's
Confidential Information received by it. The Receiving Party shall not use the
Confidential Information of the Disclosing Party other than as expressly
permitted under the terms of this Agreement or by a separate written agreement.
The Receiving Party shall take all reasonable steps to prevent unauthorized
disclosure or use of the Disclosing Party's Confidential Information and to
prevent it from falling into the public domain or into the possession of
unauthorized persons. The Receiving Party shall not disclose Confidential
Information of the Disclosing Party to any person or entity other than its
officers or employees (or outside legal, financial or accounting advisors) who
need access to such Confidential Information in order to effect the intent of
this Agreement and who have entered into confidentiality agreements with such
person's employer or who are subject to ethical restrictions on disclosure which
protects the Confidential Information of the Disclosing Party. The Receiving
Party shall immediately give notice to the Disclosing Party of any unauthorized
use or disclosure of Disclosing Party's Confidential Information. The Receiving
Party agrees to assist the Disclosing Party to remedy such unauthorized use or
disclosure of its Confidential Information. These obligations shall not apply to
the extent that Confidential Information includes information which:

(a) is already known to the Receiving Party at the time of disclosure,
which knowledge the Receiving Party shall have the burden of proving by
reference to written or electronic records in existence at the time of
disclosure;

(b) is, or through no act or failure to act of the Receiving Party
becomes, publicly known;

(c) is received by the Receiving Party from a third party without
restriction on disclosure (although this exception shall not apply if such
third party is itself violating a confidentiality obligation by making such
disclosure);

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(d) is independently developed by the Receiving Party without reference
to the Confidential Information of the Disclosing Party, which independent
development the Receiving Party will have the burden of proving;

(e) is approved for release by written authorization of the Disclosing
Party; or

(f) is required to be disclosed by a Government Body to further the
objectives of this Agreement or by a proper order of a court of competent
jurisdiction; PROVIDED, HOWEVER, that the Receiving Party will use its best
efforts to minimize such disclosure and will consult with and assist the
Disclosing Party in obtaining a protective order prior to such disclosure.

6.2 NO PUBLIC ANNOUNCEMENT. The parties shall make no public announcement
concerning this Agreement, their discussions or any other memos, letters or
agreements between the parties relating to the Merger until such time as they
agree to the contents of a mutually satisfactory press release which they intend
to release to the public on or before the close of business on the day following
the Closing Date. Either of the parties, but only after reasonable consultation
with the other, may make disclosure if required under applicable law.

6.3 REGULATORY FILINGS; CONSENTS; BEST EFFORTS. Subject to the terms and
conditions of this Agreement, OnStream and 3Com shall use their respective Best
Efforts to (i) make all necessary filings with respect to the Merger and this
Agreement under the Securities Act, the Exchange Act and applicable blue sky or
similar securities laws and obtain required approvals and clearances with
respect thereto and supply all additional information requested in connection
therewith (ii) make other appropriate filings with federal, state or local
governmental bodies or applicable foreign governmental agencies and obtain
required approvals and clearances with respect thereto and supply all additional
information requested in connection therewith (iii) obtain all consents,
waivers, approvals, authorizations and orders required in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and (iv) take, or cause to be taken, all appropriate action, and do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement as promptly as
practicable, with the objective of completing the Closing no later than October
31, 1996.

6.4 HSR ACT APPLICATION. Within three (3) business days after the date of
this Agreement, each of 3Com and OnStream shall make or cause to be made any and
all required filings pursuant to the HSR Act, with respect to the transactions
contemplated herein and in the Transaction Documents. Each of 3Com and OnStream
shall use its respective best efforts to respond as promptly as practicable to
all inquiries received from the applicable governmental agencies or committees
for additional information or documentation. Each of 3Com and OnStream shall
notify the other of all correspondence, filings, request or communications
between such party or its representatives on the one hand, and the applicable
Governmental Body on the other hand, with respect to the transactions
contemplated herein and in the Transaction Documents. Each of 3Com and OnStream
shall furnish the other with such necessary information and reasonable
assistance as such other parties may request in connection with its preparation
of all required filings under the HSR Act.

6.5 POOLING ACCOUNTING. OnStream and 3Com shall each use their respective
Best Efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of OnStream and 3Com shall use
their respective Best Efforts (i) to cause its respective Affiliates not to take
any action that would adversely affect the ability of Sub or 3Com to account for
the business combination to be effected by the Merger as a pooling of interests
and (ii) to cause its respective Affiliates to sign and deliver to Sub a
customary "Affiliates Agreement" in form and substance agreed upon by OnStream
and 3Com. OnStream and 3Com each acknowledge and agree that it shall be a
requirement and condition of the Merger that OnStream, the holders of OnStream
Capital Stock, 3Com and Affiliates of 3Com shall not have taken any action after
the date of this Agreement, which, in the reasonable opinion of Deloitte and
Touche LLP would prevent the Merger being accounted for as a pooling of
interests. Each of

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OnStream and 3Com shall not, and each of OnStream and 3Com shall use its
respective Best Efforts to cause its respective Affiliates not to, take any
action that would adversely affect the ability of 3Com to account for the
business combination to be effected by the Merger as a pooling of interests.

6.6 PROXY STATEMENT; PROSPECTUS; REGISTRATION STATEMENT.

(a) As promptly as practicable after the execution of this Agreement, 3Com
and OnStream shall prepare and file with the SEC the Proxy Statement, and 3Com
shall prepare and file with the SEC the Registration Statement, in which the
Proxy Statement will be included. Each of 3Com and OnStream shall use its
respective Best Efforts to cause the Registration Statement to become effective
as soon after such filing as practicable.

(b) 3Com and OnStream shall make all necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and applicable state blue
sky laws and the rules and regulations thereunder.

6.7 TAX MATTERS. All parties intend the Merger to be a tax-free
reorganization within the meaning of Section 368(a) of the Code, and agree to
use their respective Best Efforts to take all action required or appropriate to
facilitate such tax treatment.

6.8 FURTHER ASSURANCES. Prior to and following the Closing, each party
agrees to cooperate fully with the other parties and to execute such further
instruments, documents and agreements, and to give such further written
assurances, as may be reasonably requested by any other party to evidence and
reflect better the transactions described and contemplated herein and to carry
into effect the intents and purposes of this Agreement.

SECTION 7. CLOSING MATTERS.

7.1 FILING OF MERGER AGREEMENT. On the date of the Closing, but not prior
to the Closing, the Merger Agreement (including all required officers'
certificates) shall be filed with the offices of the Secretary of State of the
State of California, and the merger of Sub with and into OnStream shall be
consummated.

7.2 EXCHANGE OF CERTIFICATES.

(a) 3COM TO PROVIDE COMMON STOCK. Promptly after the Effective Date of the
Merger (but in no event later than three (3) business days thereafter), 3Com
shall make available for exchange in accordance with Section 1 of this Agreement
through such reasonable procedures as 3Com may adopt, the shares of 3Com Common
Stock issuable pursuant to Section 1 of this Agreement in exchange for
outstanding shares of OnStream Common Stock and OnStream Preferred Stock (less
the number of shares of 3Com Common Stock to be deposited in escrow pursuant to
Section 1.4), and shall thereafter make available for issuance upon exercise of
the 3Com Options and 3Com Warrants such shares of 3Com Common Stock as are
issuable thereunder.

(b) EXCHANGE PROCEDURES. Promptly after the Effective Date of the Merger
(but no later than five (5) business days thereafter), the Exchange Agent shall
mail to each holder of record of certificates representing outstanding shares of
OnStream Common Stock or OnStream Preferred Stock (the "Certificates"), (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and which shall be in such form and have such
other provisions as 3Com may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for 3Com Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by 3Com together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive the number of shares of 3Com Common Stock to which such
holder is entitled pursuant to Section 1 hereof (less the number of shares of
3Com Common Stock to be deposited in escrow pursuant to Section 1.4). The
Certificate so surrendered shall immediately be canceled. In the event of a
transfer of ownership of OnStream Common or OnStream Preferred Stock that is not
registered

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in the transfer records of OnStream, the appropriate number of shares of 3Com
Common Stock may be delivered to a transferee if the Certificate represented
such OnStream Common Stock or OnStream Preferred Stock is presented to the
Exchange Agent and accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid.

(c) NO FURTHER OWNERSHIP RIGHTS IN ONSTREAM STOCK. All 3Com Common Stock
delivered upon the surrender for exchange of shares of OnStream Common Stock or
OnStream Preferred Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such shares
of OnStream Common Stock or OnStream Preferred Stock. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of OnStream Common Stock or OnStream Preferred Stock
that were outstanding immediately prior to the Effective Date of the Merger. If
after the Effective Date of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 7.2.

7.3 DELIVERY OF DOCUMENTS. At the Closing, the parties shall deliver the
documents, and shall perform the acts, which are set forth in Section 8 and
Section 9, including delivery of the counterpart signature pages of the
Transaction Documents executed by OnStream, 3Com and/or Sub, as the case may be.
All documents which OnStream shall deliver or cause to be delivered shall be in
form and substance reasonably satisfactory to 3Com. All documents which 3Com and
Sub shall deliver or cause to be delivered shall be in form and substance
reasonably satisfactory to OnStream.

SECTION 8. CONDITIONS TO ONSTREAM'S OBLIGATIONS.

The obligations of OnStream to close the transactions contemplated in this
Agreement are subject to the fulfillment or satisfaction on and as of the
Closing of each of the following conditions (any one or more of which may be
waived by OnStream, but only in a writing signed by OnStream):

8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of 3Com and Sub set forth in Section 3 and in any certificate
delivered at the Closing by 3Com or Sub in connection with this Agreement shall
be true and correct in all material respects when made and on and as of the
Closing with the same force and effect as if such representations and warranties
had been made at the Closing, and OnStream shall receive a certificate to such
effect signed by the President or Chief Financial Officer of 3Com and Sub,
respectively.

8.2 COVENANTS. 3Com and Sub shall have performed and complied in all
material respects with all of their covenants contained in Sections 5 and 6 on
or before the Closing, and OnStream shall receive a certificate from 3Com and
Sub to such effect signed by the President or Chief Financial Officer of 3Com
and Sub, respectively.

8.3 AUTHORIZATIONS. OnStream shall have received from 3Com and Sub written
evidence that the execution, delivery and performance of 3Com and Sub's
obligations under this Agreement have been duly and validly approved and
authorized by the Board of Directors of 3Com and Sub, respectively, and the
shareholder of Sub.

8.4 OPINION OF 3COM'S COUNSEL. OnStream shall receive from counsel to 3Com
an opinion in substantially the form attached hereto as Exhibit E ("Opinion of
Counsel to 3Com").

8.5 GOVERNMENT CONSENTS. There shall have been obtained at or prior to the
date of Closing such permits or authorizations, and there shall have been taken
such other action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken.

8.6 TERMINATION OF HSR WAITING PERIOD. The waiting period under the HSR
Act shall have terminated.

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8.7 LISTING OF 3COM COMMON STOCK. The shares of 3Com Common Stock to be
issued in the Merger pursuant to this Agreement shall have been approved for
listing (subject to notice of issuance) on the Nasdaq National Market.

8.8 NO LITIGATION. On and as of the Closing, no litigation or proceeding
shall be threatened or pending against 3Com challenging the validity of any of
the transactions contemplated in this Agreement or which would, in the
reasonable opinion of OnStream's counsel, materially impair the value of
consideration received by OnStream pursuant to this Agreement.

8.9 ESCROW FUND AGREEMENT. The Escrow Fund Agreement substantially in the
form attached hereto as Exhibit C shall have been executed and delivered by all
parties thereto.

8.10 TAX OPINION. OnStream shall have received a written opinion of
OnStream's legal counsel in form and substance reasonably satisfactory to it, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, and such opinion shall not have been withdrawn.
In rendering such opinion, counsel shall be entitled to rely upon, among other
things, reasonable assumptions as well as representations of 3Com, Sub and
OnStream and certain shareholders of OnStream.

8.11 REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.

8.12 BLUE SKY LAWS. 3Com shall have received all permits and other
authorizations required under applicable state blue sky laws for the issuance of
3Com Common Stock pursuant to the Merger.

SECTION 9. CONDITIONS TO 3COM'S AND SUB'S OBLIGATIONS.

The obligations of 3Com and Sub are subject to the fulfillment or
satisfaction on and as of the Closing of each of the following conditions (any
one or more of which may be waived by 3Com, but only in a writing signed by
3Com):

9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by OnStream contained in Section 2 and in any certificate
delivered by OnStream in connection with this Agreement shall be true and
correct when made except where (i) the failure of such representation or
warranty to be true and correct would not have a Material Adverse Effect or (ii)
the failure of such representation or warranty to be true and correct has been
remedied prior to the Closing Date or will be remedied no later than December
31, 1996; and 3 Com shall receive a certificate to such effect signed by the
President or Chief Financial Officer of OnStream.

9.2 COVENANTS. OnStream shall have performed and complied in all material
respects with all of its covenants and obligations contained in this Agreement
on or before the Closing.

9.3 NO LITIGATION. On and as of the Closing, no litigation or proceeding
shall be threatened or pending against 3Com or OnStream with the probable effect
(in the reasonable opinion of 3Com's counsel) of enjoining or preventing the
consummation of the Merger or the enforcement of any of the Noncompetition
Agreements, or requiring 3Com to divest or hold separate any business in
connection with the Merger, and no judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator shall be outstanding against OnStream that would otherwise have a
Material Adverse Effect on 3Com (exclusive of the business of OnStream).

9.4 AUTHORIZATIONS. 3Com shall have received from OnStream written
evidence that (i) the execution, delivery and performance of this Agreement have
been duly and validly approved and authorized by OnStream's board of directors
and by the shareholders of OnStream and (ii) shareholders of OnStream holding no
more than five percent (5%) of the outstanding shares of OnStream capital stock
have, or might be able to perfect, dissenters' or appraisal rights in connection
with the Merger.

9.5 REQUIRED CONSENTS. 3Com shall have received all Material Consents (if
any).

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9.6 OPINION OF ONSTREAM'S COUNSEL. 3Com shall have received from counsel
to OnStream, an opinion in substantially the form attached hereto as Exhibit F
("Opinion of Counsel to OnStream").

9.7 TERMINATION OF HSR WAITING PERIOD. The waiting period under the HSR
Act shall have been terminated.

9.8 DELOITTE & TOUCHE LLP POOLING LETTER. 3Com shall have received a
letter from Deloitte & Touche LLP, dated as of the Closing Date, confirming that
3Com may account for the Merger as a "pooling of interests" in accordance with
generally accepted accounting principles, Accounting Principles Board Opinion
No. 16 and all published rules, regulations and policies of the Commission.

9.9 ESCROW FUND AGREEMENT. The Escrow Fund Agreement substantially in the
form attached as Exhibit C hereto shall have been executed and delivered by the
Shareholder Representative.

9.10 LISTING OF 3COM STOCK. The shares of 3Com Stock to be issued in the
Merger pursuant to this Agreement shall have been approved for listing (subject
to notice of issuance) on the Nasdaq National Market.

9.11 RECEIPT OF CERTIFICATE. 3Com shall have received at Closing a
certificate signed by the President and Chief Financial Officer of OnStream
certifying the accuracy of the matters set forth in Section 9.1, 9.2, 9.3, and
9.4.

9.12 REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.

9.13 BLUE SKY LAWS. 3Com shall have received all permits and other
authorizations required under applicable state blue sky laws for the issuance of
shares of 3Com Common Stock pursuant to the Merger.

9.14 EMPLOYEES. None of the Key Employees (as defined in Section 12), no
more than ten percent (10%) of OnStream's engineers (including customer support
personnel) and no more than twenty-five percent (25%) of OnStream's employees
(excluding, for purposes of such calculation, administrative and finance
personnel) shall have: (a) voluntarily terminated their employment with OnStream
on or prior to the Closing Date or (b) refused to accept employment with, or
given notice that they do not intend to continue employment with, the Surviving
Corporation.

SECTION 10. TERMINATION OF AGREEMENT.

10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing by the mutual written consent of each of the parties hereto. This
Agreement may also be terminated and abandoned:

(a) By mutual consent, or

(b) By either 3Com or OnStream for any reason if the Closing has not
occurred by December 31, 1996 (or in the event of a delay caused exclusively
by the Registration Statement not having been declared effective by the SEC,
the date twenty (20) days after the date on which the Registration Statement
becomes effective, but in no event after January 31, 1997), unless otherwise
mutually agreed in writing by the parties, or such later date as the parties
may agree in writing, provided that a party cannot terminate under this
provision if the failure to occur of the Closing is the result of the
failure on the part of such party to perform any of its obligations
hereunder (except the failure on the part of such party to satisfy a closing
condition over which such party has no control).

Any termination of this Agreement under this Section 10.1 shall be effective
by the delivery of written notice of the terminating party to the other parties
hereto.

10.2 EFFECT OF TERMINATION. Any termination of this Agreement pursuant to
this Section 10 shall be without further obligation or liability upon any party
in favor of any other party hereto; PROVIDED, HOWEVER,

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that if such termination by one party shall result from the willful failure of
the other party to carry out its obligations under this Agreement, then such
party shall be liable for Damages incurred by the other party, and such
termination shall not be deemed or construed as limiting or denying any legal or
equitable right or remedy of said party, and said party shall be entitled to
recover its costs and expenses which are incurred in pursuing its rights and
remedies (including reasonable attorneys' fees).

10.3 CERTAIN EFFECTS OF TERMINATION. In the event of the termination of
this Agreement by either OnStream or 3Com as provided in Section 10.1 hereof:

(a) each party, if so requested by the other party, will (i) return
promptly every document (other than documents publicly available) furnished
to it by the other party (or any subsidiary, division, associate or
affiliate of such other party) in connection with the transactions
contemplated hereby, whether so obtained before or after the execution of
this Agreement, and any copies thereof which may have been made, and will
cause its representatives and any representatives of financial institutions
and investors and others to whom such documents were furnished promptly to
return such documents and any copies thereof any of them may have made, or
(ii) destroy such documents and cause its representatives and such other
representatives to destroy such documents, and such party shall deliver a
certificate executed by its president or vice president stating to such
effect; and

(b) OnStream and 3Com shall continue to abide by the provisions of the
Mutual Nondisclosure Agreement dated as of August 28, 1996 between 3Com and
OnStream. This Section 10.3 shall survive any termination of this Agreement.

SECTION 11. INDEMNIFICATION AND ESCROW.

11.1 SURVIVAL OF REPRESENTATIONS.

(a) The representations and warranties made by OnStream (including the
representations and warranties set forth in Section 2 hereof and the
representations and warranties set forth in any certificate delivered by
OnStream in connection with this Agreement) shall survive the Closing and shall
remain in full force and effect and shall survive until the end of the
Indemnification Period and shall survive thereafter only with respect to any
claims made prior to the end of the Indemnification Period; PROVIDED, HOWEVER,
that the termination hereunder of the representations and warranties made by
OnStream shall not terminate or limit in any manner whatsoever any rights 3Com
has or may have for knowing and intentional misrepresentation. The
representations and warranties made by 3Com and Sub shall survive the Closing,
shall remain in full force and effect and shall survive until the end of the
Indemnification Period, and the holders of OnStream Securities shall be
expressly permitted to rely on such representations and warranties as third
party beneficiaries; PROVIDED, HOWEVER, that the termination hereunder of the
representations and warranties made by 3Com and Sub shall not terminate or limit
in any manner whatsoever any rights which OnStream or the OnStream Shareholders
or holders of OnStream Options or OnStream Warrants have or may have for knowing
and intentional misrepresentation.

(b) The representations, warranties, covenants and obligations of OnStream,
and the rights and remedies that may be exercised by the Indemnitees, shall not
be limited or otherwise affected by or as a result of any information furnished
to, or any investigation made by or knowledge of, any of the Indemnitees or any
of their Representatives.

11.2 INDEMNIFICATION BY SHAREHOLDERS.

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delivered by OnStream in connection with this Agreement, (ii) any breach of any
covenant or obligation of OnStream hereunder, or (iii) any Legal Proceeding
relating to any inaccuracy, breach or expense of the type referred to in clause
"(i)" or "(ii)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section 11
if such Indemnitee is the prevailing party in any such Legal Proceeding).

(b) If the Surviving Corporation suffers, incurs or otherwise becomes
subject to any Damages as a result of or in connection with any inaccuracy in or
breach of any representation, warranty, covenant or obligation, then (without
limiting any of the rights of the Surviving Corporation as an Indemnitee) 3Com
shall also be deemed, by virtue of its ownership of the stock of the Surviving
Corporation, to have incurred Damages as a result of and in connection with such
inaccuracy or breach.

11.3 THRESHOLD; CEILING; EXCLUSIVITY.

(a) The Shareholders shall not be required to make any indemnification
payment pursuant to Section 11.2(a) or for any other reason or on account of any
other provision for any inaccuracy in or breach of any of the representations
and warranties set forth in Section 2 hereof or in any certificate delivered by
OnStream in connection with this Agreement until such time as the total amount
of all Damages (including the Damages arising from such inaccuracy or breach and
all other Damages arising from any other inaccuracies in or breaches of any
representations or warranties) that have been suffered or incurred by any one or
more of the Indemnitees, or to which any one or more of the Indemnitees has or
have otherwise become subject, exceeds Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate, and then only to the extent Damages exceed such
amount.

(b) Except with respect to claims based on knowing and intentional
misrepresentations of representations and warranties, 3Com and Sub agree on
behalf of the Indemnitees that, after the Closing, the sole recourse of the
Indemnitees with respect to Damages shall be against the Escrow Fund.

11.4 SATISFACTION OF INDEMNIFICATION CLAIM. In the event the Shareholders
shall have any liability which, in all cases, shall be several and not joint,
for indemnification or otherwise to any Indemnitee under this Section 11,
satisfaction of such liability shall occur from the shares escrowed pursuant to
the Escrow Fund Agreement. In all such cases the value of the 3Com Common Stock
to be so delivered shall be determined by dividing (a) the aggregate dollar
amount of such liability (the "Aggregate Liability") by (b) the Average Price
(as defined in Section 1.2(g) and as adjusted as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by 3Com between the Closing Date and the date such
liability is satisfied).

11.5 NO CONTRIBUTION. The Shareholders acknowledge and agree that they
shall not have and shall not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
against the Surviving Corporation in connection with any indemnification
obligation or any other liability to which it may become subject under or in
connection with this Agreement or any certificate delivered by OnStream in
connection with this Agreement.

11.6 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against 3Com or against any other Person) with respect to
which OnStream may become obligated to hold harmless, indemnify, compensate or
reimburse any Indemnitee pursuant to this Section 11, the procedure set forth
below shall be followed.

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<PAGE>
such Legal Proceeding). The Indemnification Period shall be tolled solely
with respect to a particular claim for the period beginning on the date the
Indemnifying Party receives written notice of that claim until the final
resolution of such claim so long as such claim is made within the
Indemnification Period.

(b) DEFENSE OF CLAIM. The Indemnitee shall have the right to be
represented by counsel of its choice and to defend or otherwise control the
handling of any claim or Legal Proceeding for which indemnity is sought.
Notwithstanding the foregoing, the Shareholder Representative may elect on
behalf of the OnStream Shareholders (by written notice by the Shareholder
Representative to 3Com within thirty (30) days after receipt of written
notice under Section 11.6(a)) to assume the defense of or otherwise control
the handling of any such claim or Legal Proceeding (other than for matters
relating to the intellectual property rights of 3Com (including OnStream),
or claims by customers of 3Com) for which indemnity is sought, subject to
the limitations provided herein.

If the Shareholders so elect to assume the defense of any such claim or
Legal Proceeding:

(i) the Shareholders shall proceed to defend such claim or Legal
Proceeding in a diligent manner with counsel reasonably satisfactory to the
Indemnitee;

(ii) the Indemnitee shall make available to the Shareholders any
documents and materials in the possession of the Indemnitee that may be
necessary to the defense of such claim or Legal Proceeding;

(iii) the Shareholders shall keep the Indemnitee informed of all material
developments and events relating to such claim or Legal Proceeding;

(iv) the Indemnitee shall have the right to participate in the defense
of such claim or Legal Proceeding at the Indemnitee's expense; and

(v) the Shareholders shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of 3Com;
PROVIDED, HOWEVER, that 3Com shall not unreasonably withhold such consent.

If the Shareholders do not (or cannot) elect to assume the defense of any
such claim or Legal Proceeding, the Indemnitee may proceed with the defense of
such claim or Legal Proceeding on its own. If the Indemnitee so proceeds with
the defense of any such claim or Legal Proceeding on its own:

(vi) all expenses relating to the defense of such claim or Legal
Proceeding (whether or not incurred by the Indemnitee) shall be borne and
paid exclusively by the Shareholders out of the Escrow Fund, PROVIDED,
HOWEVER, that the Shareholders shall not be liable for the costs of more
than one counsel on behalf of the Indemnities collectively;

(vii) the Shareholders shall make available to the Indemnitee any
documents and materials in the possession or control of the Shareholders
that may be necessary to the defense of such claim or Legal Proceeding
except for documents or materials which are sealed by a court order or are
subject to a nondisclosure agreement prohibiting disclosure by the
Shareholders;

(viii) the Indemnitee shall keep the Shareholders informed of all material
developments and events relating to such claim or Legal Proceeding; and

(ix) the Indemnitee shall have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of the Shareholders;
PROVIDED, HOWEVER, that the Shareholders shall not unreasonably withhold
such consent.

11.7 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN 3COM. No Indemnitee
(other than 3Com or any successor thereto or assignee thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless 3Com (or any successor thereto or assign thereof) shall
have consented to the assertion of such indemnification claim or the exercise of
such other remedy.

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11.8 ESCROW FUND. As soon as practicable after the Effective Date, the
Escrow Shares shall be registered in the name of, and be deposited with State
Street Bank and Trust Company, an institution selected by 3Com with the
reasonable consent of OnStream as escrow agent (the "Escrow Agent"), such
deposit to constitute the Escrow Fund and to be governed by the terms set forth
herein and in the Escrow Fund Agreement attached hereto as Exhibit C.

11.9 ESCROW PERIOD. The Escrow Period shall terminate on the date the
Indemnification Period terminates.

11.10 SHAREHOLDER REPRESENTATIVE; APPROVAL OF SHAREHOLDERS.

(a) Mr. James Mongiello shall be constituted and appointed as agent
("Shareholder Representative") for and on behalf of the OnStream shareholders to
give and receive notices and communications, to authorize delivery to 3Com of
the Escrow Shares or other property from the Escrow Fund in satisfaction of
claims by 3Com, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Shareholder
Representative for the accomplishment of the foregoing. Such agency may be
changed by the holders of a majority in interest of the Escrow Fund from time to
time upon not less than ten (10) business days' prior written notice to 3Com. No
bond shall be required of the Shareholder Representative, and the Shareholder
Representative shall receive no compensation for his services. Notices or
communications to or from the Shareholder Representative shall constitute notice
to or from each of the OnStream shareholders.

(b) The Shareholder Representative shall not be liable for any act done or
omitted hereunder as Shareholder Representative while acting in good faith and
not in a manner constituting gross negligence, and any act done or omitted
pursuant to the advice of counsel shall be conclusive evidence of such good
faith. The OnStream shareholders shall severally indemnify the Shareholder
Representative and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Shareholder
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder.

(c) The approval by the Shareholders of the Merger shall be deemed to be
approval of the terms of the provisions of this Section 11, including the
appointment of the Shareholder Representative and the approval of the Escrow
Fund Agreement and of the Shareholder Representative's actions in executing the
Escrow Fund Agreement.

11.11 RESOLUTION OF CLAIMS MADE BY 3COM. In the event of the assertion or
commencement by 3Com of any claim with respect to which OnStream may become
obligated to hold harmless, indemnify, compensate or reimburse any Indemnitee
pursuant to this Section 11, the matter shall be resolved as provided in the
Escrow Fund Agreement.

SECTION 12. EMPLOYEE ARRANGEMENTS.

12.1 NON-COMPETITION AND NON-SOLICITATION AGREEMENTS. 3Com and OnStream
acknowledge that each of James Mongiello, David Yates, Kenneth G. Koenig, John
Leon Guerrero and Mitri Halabi (each a "Key Employee" and collectively the "Key
Employees") have executed and delivered non-competition and non-solicitation
agreements with 3Com containing, among other things, a two-year
non-competition/non-solicitation term.

12.2 TERMINATION OF AGREEMENTS. All of OnStream's employment agreements
and any agreement obligating OnStream to issue options, capital stock or
warrants to any employee, consultant or any other Person (but excluding the
OnStream Options and the OnStream Warrants) shall be terminated or fulfilled to
the mutual satisfaction of 3Com and OnStream prior to the Closing Date.

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12.3 ALTERNATIVE POSITIONS. 3Com agrees that where an OnStream employee
would otherwise be terminated within the first twelve (12) months following the
Closing Date due to redundancy of functions performed by then-current employees
of 3Com. 3Com shall take the following steps, in the indicated order.

(a) 3Com will offer the OnStream employee any open position within 3Com
reasonably similar to employee's prior position or for which the employee is
otherwise properly qualified;

(b) If an open position of the type described in (a) above is not available,
3Com shall make available to the OnStream employee any position within 3Com held
or performed by a contractor to or consultant for 3Com where such position is
reasonably similar to the OnStream employee's prior position or for which the
OnStream employee is otherwise properly qualified, and where 3Com is legally
able to terminate such contractor or consulting relationship without significant
liability; and

(c) If a position of the type described in (a) or (b) above is not
available, 3Com shall make available any position within 3Com reasonably similar
to the OnStream employee's prior position or for which the employee is otherwise
properly qualified, which new position will become available in the ninety (90)
day
period following the anticipated effective date of elimination of the OnStream
employee's prior position and which new position will be created based on the
scheduled termination of another 3Com employee or the creation of an additional
position as evidenced by 3Com's standard procedures for authorizing additional
employment positions. Such employee shall remain employed by either OnStream or
3Com prior to such position becoming available.

12.4 SEVERANCE PAY.

(a) In the event an alternative position is not available for an employee of
OnStream as described in Section 12.3 above, 3Com agrees to provide 3Com's
standard severance package comprised of up to sixty (60) days' salary, up to
sixty (60) days' benefits and outplacement services to any OnStream employee
terminated by 3Com (other than for cause) within twelve (12) months of the
Closing Date due to redundancy of functions performed by then-current employees
of 3Com.

(b) In the event an OnStream employee is terminated due to a reduction in
3Com's workforce resulting directly from a downturn in 3Com's business
performance or prospects, 3Com agrees to provide the same severance package to
such employee as is provided generally to other 3Com employees terminated in
such reduction in workforce who are similarly situated.

12.5 EMPLOYEE BENEFIT PLANS.

(a) 3Com covenants and agrees that to the extent the existing benefit plans
and arrangements provided by OnStream to its employees are terminated on or
after the Closing Date, such employees shall be entitled to participate in all
benefit plans and arrangements which are available and subsequently become
available to 3Com's employees of similar position on the same basis as 3Com's
employees.

(b) Notwithstanding the provisions of (a) above, no service credit prior to
the Closing Date shall be provided to any OnStream employee with respect to
3Com's employee sabbatical program. In addition, no OnStream employee shall be
permitted to accrue any vacation or paid time off (PTO) in excess of the maximum
number of hours permitted under 3Com's standard policies, which maximum accrual
shall be not less than one hundred twenty (120) hours as of the Closing Date.
Prior to the Closing, OnStream shall be permitted pursuant to the existing terms
of its vacation policy to buy out in cash any accrued vacation or PTO held by an
OnStream employee to reduce his or her accrual to one hundred (100) hours
immediately prior to the Closing. The amount of such accrual, net of any buyout
by OnStream, shall then be carried over following the Closing with respect to
3Com's standard policies, provided that under such policies the employee shall
not thereafter be permitted to accrue vacation or PTO beyond the maximum amount
then permitted under 3Com's standard policies.

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SECTION 13. MISCELLANEOUS.

13.1 GOVERNING LAWS. It is the intention of the parties hereto that the
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.

13.2 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators
and assigns of the parties hereto provided that no party hereto shall assign
this Agreement to any such entity without the prior written consent of the other
party, which consent shall not be unreasonably withheld.

13.3 SEVERABILITY. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances shall be interpreted so as best to effect reasonably the intent
of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.

13.4 ENTIRE AGREEMENT. This Agreement, the exhibits hereto, the documents
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto; PROVIDED, HOWEVER, that the
Mutual Nondisclosure Agreement between 3Com and OnStream dated August 28, 1996
shall not be so superseded.

13.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.

13.6 EXPENSES. Except as provided to the contrary herein, each party shall
pay all of its own costs and expenses incurred with respect to the negotiation,
execution and delivery of this Agreement and the exhibits hereto. In the event
the Merger is consummated, all legal, accounting, investment banking, broker's
and finder's fees incurred by OnStream in connection with the Merger shall be
borne by 3Com; PROVIDED, HOWEVER, that 3Com shall not be responsible for any
legal fees incurred by OnStream in connection with the Merger to the extent such
fees exceed Two Hundred Thousand Dollars ($200,000).

13.7 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.

13.8 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations
and warranties made herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
notwithstanding any investigation of the parties hereto and shall terminate on
the earlier of one year after the Closing Date or such earlier date as required
to comply with the requirements of pooling-of-interests accounting treatment
with respect to the Merger.

13.9 NO WAIVER. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.

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13.10 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal). The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.

13.11 NOTICES. Any notice provided for or permitted under this Agreement
will be treated as having been given when (a) delivered personally, (b) sent by
confirmed telecopy, (c) sent by commercial overnight courier with written
verification of receipt, or (d) mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 13.11.

OnStream: OnStream Networks, Inc.
3393 Octavius Drive
Santa Clara, CA 95054
Attention: President

With copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Elias Blawie

3Com: 3Com Corporation
5400 Bay Front Plaza
P. O. Box 58145
Santa Clara, CA 95052-8145
Attention: General Counsel

With copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: J. Howard Clowes, Esq.

Shareholder's Representative: James Mongiello
47066 Palo Amarillo Drive
Fremont, CA 94539

Such notice will be treated as having been received upon actual receipt.

13.12 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof shall not
be construed for or against any party. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Agreement which shall be considered as a whole.

13.13 NO JOINT VENTURE. Nothing contained in this Agreement shall be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 13.13.

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13.14 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.

13.15 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to evidence and reflect better the transactions described herein
and contemplated hereby and to carry into effect the intents and purposes of
this Agreement.

13.16 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be personal solely between the parties
to this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.

<TABLE>
<S> <C>
3COM CORPORATION, ONSTREAM NETWORKS, INC.,
a California corporation a California corporation

By: /s/ ERIC A. BENHAMOU By: /s/ JAMES MONGIELLO
-------------------------------------- --------------------------------------
Its: Chairman and Chief Executive Its: President and Chief Executive
Officer Officer
-------------------------------------- --------------------------------------

ONSTREAM ACQUISITION CORPORATION,
a California corporation

By: /s/ RONALD B. FRIEDMAN
--------------------------------------
Its:
President
--------------------------------------
</TABLE>

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LIST OF EXHIBITS:

<TABLE>
<S> <C>
EXHIBIT A: CERTAIN DEFINITIONS

EXHIBIT B: AGREEMENT OF MERGER

EXHIBIT C: ESCROW FUND AGREEMENT

EXHIBIT D: CHAPTER 13 OF THE GENERAL CORPORATIONS LAW OF THE STATE OF CALIFORNIA

EXHIBIT E: OPINION OF COUNSEL TO 3COM

EXHIBIT F: OPINION OF COUNSEL TO ONSTREAM
</TABLE>

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<PAGE>
EXHIBIT A

CERTAIN DEFINITIONS
<PAGE>
EXHIBIT A

CERTAIN DEFINITIONS

For purposes of the Agreement (including this Exhibit A):

AFFILIATE. "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.

AGGREGATE PREFERRED AMOUNT. "Aggregate Preferred Amount" shall have the
meaning set forth in Section 1.2(h).

AVERAGE PRICE. "Average Price" shall have the meaning set forth in Section
1.2(g).

BEST EFFORTS. "Best Efforts" shall mean the efforts that a prudent person
desirous of achieving a result would use in similar circumstances to ensure that
such result is achieved as expeditiously as possible; PROVIDED, HOWEVER, that an
obligation to use Best Efforts under this Agreement does not require the person
subject to that obligation to take actions that would result in a Material
Adverse Change in the benefits to such person of this Agreement and the
transactions contemplated herein.

CERTIFICATES. "Certificates" shall have the meaning set forth in Section
7.2.

CGCL. "CGCL" shall have the meaning set forth in Section 1.5

CLOSING AND CLOSING DATE. "Closing" and "Closing Date" shall have the
meanings set forth in Section 1.6.

CODE. "Code" shall have the meaning set forth in the Recitals.

COMMISSION. "Commission" shall mean the United States Securities and
Exchange Commission.

CONFIDENTIAL INFORMATION. "Confidential Information" shall mean
confidential information of a party ("Disclosing Party") which is disclosed to
another party ("Receiving Party"). Confidential Information shall include, but
not be limited to, trade secrets, know-how, inventions, techniques, processes,
algorithms, software programs, blueprints, engineering drawings, schematics,
designs, theories of operation, contracts, customer lists, financial
information, sales and marketing plans and business information.

DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, tax, fee (including reasonable attorneys' fees), charge, costs
(including reasonable costs of investigation) or reasonable expenses of any
nature.

DISSENTING SHARES. "Dissenting Shares" shall mean those shares held by
holders of OnStream Capital Stock which qualify as "dissenting shares" as
defined in Section 1300(b) of the CGCL.

EFFECTIVE DATE. "Effective Date" shall have the meaning set forth in
Section 1.7.

ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.

EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any substituted federal statute and the rules and
regulations thereunder, all as the same shall be in effect at the time.

EXCHANGE RATIO. "Exchange Ratio" shall mean the fraction of a share of 3Com
Common Stock to be issued for a share of OnStream Stock pursuant to Section 1.2.

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EXPIRATION DATE. "Expiration Date" shall have the meaning set forth in
Section 4.7.

GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).

HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.

INDEMNIFICATION PERIOD. "Indemnification Period" shall mean the period
commencing on the Closing Date and ending (i) for those items that would be
expected to be encountered in 3Com's annual audit process, on the date of
completion of the first audit of financial statements containing results of
combined operations of 3Com and OnStream, and (ii) for all other items, on the
close of business on the first anniversary of the Closing Date.

INDEMNITEES. "Indemnitees" shall mean the following Persons: (a) 3Com; (b)
3Com's current and future affiliates (including, but not limited to, the
Surviving Corporation); (c) the respective Representatives of the Persons
referred to in clauses "(a)" and "(b)" above; and (d) the respective successors
of the Persons referred to in clauses "(a)" and "(b)" and "(c)" above; PROVIDED,
HOWEVER, that any Person receiving 3Com Common Stock pursuant to this Agreement
shall not be deemed to be an "Indemnitee."

KNOWLEDGE. The terms "knowledge" and "known" when not capitalized shall be
construed, except as specifically otherwise provided, to qualify the matter
referred to as being to the actual knowledge after diligent inquiry of the
executive officers of the party making the statement or representation. The
executive officers of OnStream are James Mongiello (President and Chief
Executive Officer), Robert Ende (Vice President of Operations), Kenneth G.
Koenig (Vice President of Engineering), Jan A. Praisner (Vice President of
Finance and Administration and Chief Financial Officer) and David Yates (Vice
President of Marketing). The executive officers of 3Com are Eric A. Benhamou
(Chairman, President and Chief Executive Officer), Debra J. Engel (Vice
President, Corporate Services), Robert J. Finocchio, Jr. (Executive Vice
President and General Manager, Network Systems Operations), John H. Hart (Vice
President and Chief Technical Officer), Richard W. Joyce (Vice President, New
Business Operations), Alan J. Kessler (Vice President, Customer Service
Operations), William G. Marr (Executive Vice President, Worldwide Sales),
Christopher B. Paisley (Vice President, Finance and Chief Financial Officer),
Janice M. Roberts (Vice President, Marketing), Douglas C. Spreng (Executive Vice
President and General Manager, Personal Connectivity Operations), and Thomas L.
Thomas (Vice President and Chief Information Officer, Global Information
Systems).

LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving any court or other Governmental Body or any
arbitrator or arbitration panel.

MATERIAL. The term "material" when not capitalized and used with respect to
any subsection or subsections of Section 2 hereof shall be construed, except as
specifically otherwise provided, to qualify the matter or matters referred to as
having a value in excess of Twenty-five Thousand Dollars ($25,000). For example,
a "material breach" would be a breach resulting in Damages exceeding Twenty-Five
Thousand Dollars ($25,000).

MATERIAL ADVERSE CHANGE. "Material Adverse Change" shall mean a change
which would have a Material Adverse Effect.

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MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to have
a "Material Adverse Effect" on OnStream or 3Com or Sub, as applicable, if such
violation or other matter would be material in impact or amount to OnStream's or
3Com's or Sub's, as applicable, business, intellectual property rights or
condition, or, taken as a whole, its assets, liabilities, operations, or
financial performance. The definition of "material" for purposes of Section 2
shall have no bearing upon the interpretation of the term "material" for
purposes of this definition.

MERGER. "Merger" shall have the meaning set forth in Recitals.

MERGER AGREEMENT. "Merger Agreement" shall have the meaning set forth in
the Recitals.

ONSTREAM CAPITAL STOCK. "OnStream Capital Stock" shall have the meaning set
forth in the Recitals.

ONSTREAM COMMON STOCK. "OnStream Common Stock" shall have the meaning set
forth in the Recitals.

ONSTREAM FINANCIAL STATEMENTS. "OnStream Financial Statements" shall have
the meaning set forth in Section 2.4(a).

ONSTREAM OPTIONS. "OnStream Options" shall mean the outstanding options to
acquire OnStream Stock held by OnStream employees, consultants and non-employee
directors.

ONSTREAM PREFERRED STOCK. "OnStream Preferred Stock" shall have the meaning
set forth in the Recitals.

ONSTREAM PRODUCTS. "OnStream Products" shall mean all versions and
implementations of any product which has been or is being marketed by OnStream
or currently is under development, and all patents, patent applications, trade
secrets, copyrights, trademarks, trade names and other proprietary rights
related thereto.

ONSTREAM SECURITIES. "OnStream Securities" shall have the meaning set forth
in the Recitals.

ONSTREAM SHARES. "OnStream Shares" shall mean the shares of OnStream
capital stock issued and outstanding at the Effective Date of the Merger, other
than the Dissenting Shares.

ONSTREAM WARRANTS. "OnStream Warrants" shall have the meaning set forth in
the Recitals.

PERSON. "Person" shall mean any individual, Entity or Governmental Body.

PROPRIETARY ASSET. "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; and (b) any right to use or exploit any of
the foregoing.

REGISTRATION STATEMENT. "Registration Statement" shall have the meaning set
forth in Section 4.8.

REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants and other professional advisors.

SEC. "SEC" shall mean the Securities and Exchange Commission.

SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended, or any substituted federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.

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<PAGE>
SERIES A PREFERRED AMOUNT. "Series A Preferred Amount" shall have the
meaning set forth in Section 1.2(b).

SERIES A PREFERRED EXCHANGE RATIO. "Series A Preferred Exchange Ratio"
shall have the meaning set forth in Section 1.2(b).

SERIES B PREFERRED AMOUNT. "Series B Preferred Amount" shall have the
meaning set forth in Section 1.2(c).

SERIES B PREFERRED EXCHANGE RATIO. "Series B Preferred Exchange Ratio"
shall have the meaning set forth in Section 1.2(c).

SERIES C PREFERRED AMOUNT. "Series C Preferred Amount" shall have the
meaning set forth in Section 1.2(d).

SERIES C PREFERRED EXCHANGE RATIO. "Series C Preferred Exchange Ratio"
shall have the meaning set forth in Section 1.2(d).

SERIES D PREFERRED AMOUNT. "Series D Preferred Amount" shall have the
meaning set forth in Section 1.2(e).

SERIES D PREFERRED EXCHANGE RATIO. "Series D Preferred Exchange Ratio"
shall have the meaning set forth in Section 1.2(e).

SERIES E PREFERRED AMOUNT. "Series E Preferred Amount" shall have the
meaning set forth in Section 1.2(f).

SERIES E PREFERRED EXCHANGE RATIO. "Series E Preferred Exchange Ratio"
shall have the meaning set forth in Section 1.2(f).

SHAREHOLDERS. "Shareholders" shall mean the record holders of shares of
capital stock of OnStream.

SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning set
forth in Section 1.1.

3COM COMMON STOCK. "3Com Common Stock" shall have the meaning set forth in
the Recitals.

3COM OPTIONS. "3Com Options" shall have the meaning set forth in the
Recitals.

3COM WARRANTS. "3Com Warrants" shall mean the warrants or other similar
rights to acquire 3Com Common Stock issued by 3Com in exchange for OnStream
Warrants pursuant to the Merger.

TRANSACTION DOCUMENTS. "Transaction Documents" shall mean this Agreement
(including the OnStream Disclosure Schedule delivered pursuant to Section 2
hereof) and the following documents or agreements required to be delivered
hereunder including the Merger Agreement and the Escrow Fund Agreement.

AA-4
<PAGE>
EXHIBIT B
AGREEMENT OF MERGER
<PAGE>
EXHIBIT B
AGREEMENT OF MERGER
OF ONSTREAM ACQUISITION CORPORATION
WITH AND INTO
ONSTREAM NETWORKS, INC.

This Agreement of Merger (this "Merger Agreement") is entered into as of
this th day of October, 1996, by and among 3Com Corporation, a California
corporation ("3Com"), OnStream Acquisition Corporation, a California corporation
and wholly-owned subsidiary of 3Com ("Sub"), and OnStream Networks, Inc., a
California corporation ("OnStream").

RECITALS

A. 3Com, Sub and OnStream have entered into an Agreement and Plan of
Reorganization dated October 5, 1996 (the "Reorganization Agreement") providing
for, among other things, the execution and filing of this Merger Agreement and
the merger of Sub with and into OnStream upon the terms set forth in the
Reorganization Agreement and this Merger Agreement (the "Merger").

B. Each of the respective boards of directors of 3Com, Sub and OnStream
deems it advisable and in the best interest of each of such corporations and its
respective shareholders that Sub be merged with and into OnStream.

AGREEMENT

NOW, THEREFORE, in consideration of the promises contained in this Merger
Agreement, 3Com, OnStream and Sub hereby agree that Sub shall be merged with and
into OnStream in accordance with the provisions of the laws of the State of
California, upon the terms and subject to the conditions set forth as follows:

1. AGREEMENT TO ACQUIRE ONSTREAM. Subject to the terms of this Merger
Agreement and the Reorganization Agreement, OnStream shall be acquired by 3Com
through a merger (the "Merger") of Sub with and into OnStream. The
Reorganization Agreement and this Merger Agreement are intended to be construed
together in order to effectuate their purposes.

2. FILING. This Merger Agreement shall be filed with the Secretary of
State of California at the time specified in the Reorganization Agreement.

3. EFFECTIVE DATE AND CLOSING OF MERGER. Pursuant to the California
General Corporation Law (the "CGCL"), Sub shall be merged with and into
OnStream, and OnStream shall be the surviving corporation of the Merger. The
Merger shall be effective immediately upon the filing of this Merger Agreement
with the Secretary of State of California in accordance with Section 1103 of the
CGCL (the "Effective Date").

4. SURVIVING CORPORATION. At the Effective Date, Sub shall be merged with
and into OnStream. As a result of the Merger, the separate corporate existence
of Sub shall cease and OnStream shall continue as the Surviving Corporation in
the merger (sometimes referred to herein as the "Surviving Corporation") and
shall continue its corporate existence, with all of its purposes, objects,
rights, privileges, powers, immunities and franchises, under the laws of the
State of California unaffected and unimpaired by the Merger.

5. FURTHER ACTION. If at any time after the Effective Date any further
action is necessary or desirable to carry out the purposes of this Merger
Agreement or to vest the Surviving Corporation with the full right, title and
possession to all assets, property, rights, privileges, immunities, powers and
franchises of Sub, the officers and directors of the Surviving Corporation are
fully authorized in the name of either Sub or OnStream or otherwise to take all
such action.

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<PAGE>
6. ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. At the
Effective Date, the Articles of Incorporation of the Surviving Corporation shall
hereby be amended and restated in their entirety to read as set forth on EXHIBIT
A attached hereto.

7. DIRECTORS AND OFFICERS. The directors and officers of Sub immediately
prior to the Effective Date shall be the directors and officers of the Surviving
Corporation after the Effective Date. Such directors and officers shall hold
their position until the election and qualification of their respective
successors or until their tenure is otherwise terminated in accordance with the
bylaws of the Surviving Corporation.

8. EXCHANGE RATIO; PREFERRED EXCHANGE RATES; CONVERSION OF SHARES AND
ASSUMPTION OF OPTIONS AND WARRANTS.

a. The "Exchange Ratio" for the conversion of the OnStream common stock
outstanding immediately prior to the Effective Date (the "OnStream Common
Stock"), OnStream options outstanding immediately prior to the Effective Date
(the "OnStream Options"), and the OnStream warrants outstanding immediately
prior to the Effective Date (the "OnStream Warrants") shall be a fraction, the
numerator of which is equal to three million eight hundred thousand (3,800,000)
less the Aggregate Preferred Amount (as defined in Section 8(h) below), if any,
and less the Aggregate Net Exercise Amount (as defined in Section 8(k) below),
if any, and the denominator of which is equal to the sum of (i) the total number
of issued and outstanding shares of OnStream Common Stock plus (ii) the total
number of shares of OnStream Common Stock issuable upon exercise of OnStream
Options and OnStream Warrants outstanding at the Effective Date.

b. The "Series A Preferred Exchange Ratio" for the conversion of the
OnStream Series A Preferred Stock shall be a fraction, the numerator of which is
One Dollar ($1.00) and the denominator of which is the Average Price (as defined
in Section 8(g) below). The "Series A Preferred Amount" shall be the product of
the Series A Preferred Exchange Ratio and the number of OnStream Series A
Preferred Shares outstanding immediately prior to the Effective Date.

c. The "Series B Preferred Exchange Ratio" for the conversion of the
OnStream Series B Preferred Stock shall be a fraction, the numerator of which is
Two Dollars and Twenty-Five Cents ($2.25) and the denominator of which is the
Average Price. The "Series B Preferred Amount" shall be the product of the
Series B Preferred Exchange Ratio and the number of OnStream Series B Preferred
Shares outstanding immediately prior to the Effective Date.

d. The "Series C Preferred Exchange Ratio" for the conversion of the
OnStream Series C Preferred Stock shall be a fraction, the numerator of which is
One Dollar and Fifty Cents ($1.50) and the denominator of which is the Average
Price. The "Series C Preferred Amount" shall be the product of the Series C
Preferred Exchange Ratio and the number of OnStream Series C Preferred Shares
outstanding immediately prior to the Effective Date.

e. The "Series D Preferred Exchange Ratio" for the conversion of the
OnStream Series D Preferred Stock shall be a fraction, the numerator of which is
Two Dollars and Forty Cents ($2.40) and the denominator of which is the Average
Price. The "Series D Preferred Amount" shall be the product of the Series D
Preferred Exchange Ratio and the number of OnStream Series D Preferred Shares
outstanding immediately prior to the Effective Date.

f. The "Series E Preferred Exchange Ratio" for the conversion of the
OnStream Series E Preferred Stock shall be a fraction, the numerator of which is
Four Dollars and Thirty-Seven Cents ($4.37) and the denominator of which is the
Average Price. The "Series E Preferred Amount" shall be the product of the
Series E Preferred Exchange Ratio and the number of OnStream Series E Preferred
Shares outstanding immediately prior to the Effective Date.

g. The "Average Price" shall mean the average of the closing sale prices of
3Com common stock (the "3Com Common Stock") reported in THE WALL STREET JOURNAL
on the basis of information provided by

AB-2
<PAGE>
the Nasdaq National Market for each of the thirty (30) consecutive trading days
ending three (3) business days immediately prior to the Closing Date.

h. The "Aggregate Preferred Amount" shall mean the sum of the Series A
Preferred Amount, the Series B Preferred Amount, the Series C Preferred Amount,
the Series D Preferred Amount and the Series E Preferred Amount.

i. If, between the date of this Agreement and the Effective Date, the
outstanding shares of 3Com Common Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
split-up, stock dividend or stock combination, then the Exchange Ratio and each
of the Series A, Series B, Series C, Series D and Series E Preferred Exchange
Ratios shall be correspondingly adjusted.

j. Each share of OnStream Common Stock that is issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Merger and at
the Effective Date, automatically and without further action on the part of any
holder thereof, be converted into such fraction of a fully paid and
nonassessable share of 3Com Common Stock as is equal to the Exchange Ratio. Each
share of OnStream Series A Preferred Stock that is issued and outstanding
immediately prior to the Effective Date, will by virtue of the Merger and at the
Effective Date, automatically and without further action on the part of any
holder thereof, be converted into such fraction of a fully paid and
nonassessable share of 3Com Common Stock as is equal to the Series A Preferred
Exchange Ratio. Each share of OnStream Series B Preferred Stock that is issued
and outstanding immediately prior to the Effective Date shall, by virtue of the
Merger and at the Effective Date, automatically and without further action on
the part of any holder thereof, be converted into such fraction of a fully paid
and nonassessable share of 3Com Common Stock as is equal to the Series B
Preferred Exchange Ratio. Each share of OnStream Series C Preferred Stock that
is issued and outstanding immediately prior to the Effective Date shall, by
virtue of the Merger and at the Effective Date, automatically and without
further action on the part of any holder thereof, be converted into such
fraction of a fully paid and nonassessable share of 3Com Common Stock as is
equal to the Series C Preferred Exchange Ratio. Each share of OnStream Series D
Preferred Stock that is issued and outstanding immediately prior to the
Effective Date shall, by virtue of the Merger and at the Effective Date,
automatically and without further action on the part of any holder thereof, be
converted into such fraction of a fully paid and nonassessable share of 3Com
Common Stock as is equal to the Series D Preferred Exchange Ratio. Each share of
OnStream Series E Preferred Stock that is issued and outstanding immediately
prior to the Effective Date shall, by virtue of the Merger and at the Effective
Date, automatically and without further action on the part of any holder
thereof, be converted into such fraction of a fully paid and nonassessable share
of 3Com Common Stock as is equal to the Series E Preferred Exchange Ratio.

k. The "Aggregate Net Exercise Amount" shall mean that number of shares, if
any, equal to the aggregate Warrant Price (as defined in each OnStream Warrant),
of all OnStream Warrants exercised pursuant to the net exercise provisions of
such OnStream Warrant divided by the Average Price (as defined in Section 8(g)
of this Merger Agreement).

9. FRACTIONAL SHARES. No fractional shares of 3Com Common Stock will be
issued in connection with the Merger, but in lieu thereof, holders of OnStream
Capital Stock who would otherwise be entitled to receive a fraction of a share
of 3Com Common Stock will receive from 3Com, promptly after the Effective Date,
an amount of cash equal to the Average Price multiplied by the fraction of a
share of 3Com Common Stock to which such holder would otherwise be entitled.

10. ESCROW FUND AGREEMENT. At the Effective Date, 3Com will deposit into
escrow certificates representing ten percent (10%) of the shares of 3Com Common
Stock issued to the holders of OnStream capital stock in the Merger, on a pro
rata basis. Such shares (the "Escrow Shares") shall be held as collateral for
the indemnification obligations under Section 11 of the Reorganization Agreement
and

AB-3
<PAGE>
pursuant to the provisions of the escrow fund agreement attached as EXHIBIT C to
the Reorganization Agreement (the "Escrow Fund Agreement").

11. EXCHANGE OF CERTIFICATES.

a. EXCHANGE AGENT. Prior to the Effective Date, 3Com shall appoint the
First National Bank of Boston to act as exchange agent (the "Exchange Agent") in
the Merger.

b. 3COM TO PROVIDE COMMON STOCK. Promptly after the Effective Date of the
Merger (but in no event later than three (3) business days thereafter), 3Com
shall make available for exchange in accordance with Section 1 of the
Reorganization Agreement through such reasonable procedures as 3Com may adopt,
the shares of 3Com Common Stock issuable pursuant to Section 1 of the
Reorganization Agreement in exchange for outstanding shares of OnStream Common
Stock and OnStream preferred stock (less the number of shares of 3Com Common
Stock to be deposited in escrow pursuant to Section 1.4 of the Reorganization
Agreement).

c. EXCHANGE PROCEDURES. Promptly after the Effective Date of the Merger
(but no later than five (5) business days thereafter), the Exchange Agent shall
mail to each holder of record of certificates representing outstanding shares of
OnStream Common Stock or OnStream preferred stock (the "Certificates"), (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and which shall be in such form and have such
other provisions as 3Com may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for 3Com Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by 3Com together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive the number of shares of 3Com Common Stock to which such
holder is entitled pursuant to Section 1 of the Reorganization Agreement (less
the number of shares of 3Com Common Stock to be deposited in escrow pursuant to
Section 1.4 of the Reorganization Agreement). The Certificate so surrendered
shall immediately be canceled. In the event of a transfer of ownership of
OnStream Common or OnStream preferred stock that is not registered in the
transfer records of OnStream, the appropriate number of shares of 3Com Common
Stock may be delivered to a transferee if the Certificate represented such
OnStream Common Stock or OnStream preferred stock is presented to the Exchange
Agent and accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid.

d. NO FURTHER OWNERSHIP RIGHTS IN ONSTREAM STOCK. All 3Com Common Stock
delivered upon the surrender for exchange of shares of OnStream Common Stock or
OnStream preferred stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such shares
of OnStream Common Stock or OnStream preferred stock. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of OnStream Common Stock or OnStream preferred stock
that were outstanding immediately prior to the Effective Date of the Merger. If
after the Effective Date of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in Section 7.2 of the Reorganization Agreement.

12. FURTHER ASSIGNMENTS. After the Effective Date, OnStream and its
officers and directors immediately prior to the Effective Date may execute and
deliver such deeds, assignments and assurances and do all other things necessary
or desirable to vest, perfect or confirm title to OnStream property or rights in
OnStream and otherwise to carry out the purposes of the Reorganization Agreement
in the name of Sub or otherwise.

13. APPRAISAL RIGHTS. Any Dissenting Shares shall not be converted into a
right to receive 3Com Common Stock but shall be converted into the right to
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the laws of the State of California; PROVIDED,
HOWEVER, that if the status of any such shares as Dissenting Shares shall not be
perfected, or if any such

AB-4
<PAGE>
shares shall lose their status as Dissenting Shares, then, as of the later of
the Effective Date or the time of the failure to perfect such status, such
shares shall automatically be converted into and shall represent only the right
to receive (upon the surrender of the certificate or certificates representing
such shares) 3Com Common Stock in accordance with Section 8 of this Merger
Agreement (and cash in lieu of fractional shares in accordance with Section 9 of
this Merger Agreement). OnStream shall give 3Com prompt notice of any demand
received by OnStream for appraisal of OnStream Capital Stock, and 3Com shall
have the right to participate in all negotiations and proceedings with respect
to such demand. OnStream agrees that, except with the prior written consent of
3Com or as required under Chapter 13 of the CGCL, it will not voluntarily make
any payment with respect to, or settle or offer to settle, any such demand for
appraisal. Each holder of Dissenting Shares ("Dissenting Shareholder") who,
pursuant to the provisions of the CGCL, becomes entitled to payment of the value
of shares of OnStream capital stock shall receive payment therefor from OnStream
(but only after the value therefor shall have been agreed upon or finally
determined pursuant to such provisions).

14. ASSIGNMENT. No party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other parties
hereto. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, personal representatives and
permitted assigns.

15. GOVERNING LAW. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts entered into and to be performed wholly within the State of California
without regard to principles of conflict of laws.

16. COUNTERPARTS. This Merger Agreement may be executed in any number of
counterparts, each of which will be an original as against any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Merger Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatories
of all of the parties reflected hereon as signatories.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.

<TABLE>
<S> <C>
3COM CORPORATION, INC. ONSTREAM NETWORKS, INC.,
a California corporation a California corporation

By: ---------------------------------------- By: ----------------------------------------

Its: ---------------------------------------- Its: ----------------------------------------

ONSTREAM ACQUISITION CORPORATION,
a California corporation

By: ----------------------------------------

Its: ----------------------------------------
</TABLE>

AB-5
<PAGE>
EXHIBIT A
ARTICLES OF INCORPORATION
OF
SURVIVING CORPORATION
<PAGE>
ARTICLES OF INCORPORATION
OF
ONSTREAM NETWORKS, INC.

ARTICLE I
NAME

The name of the corporation is OnStream Networks, Inc.

ARTICLE II
PURPOSES

The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California General
Corporation Law ("CGCL").

ARTICLE III
STOCK

The Corporation is authorized to issue only one class of shares of stock.
The total number of shares which this corporation is authorized to issue is one
thousand (1,000).

ARTICLE IV
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS

The liability of the directors of the corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law.

The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) through bylaw provisions, agreements with
agents, vote of shareholders or disinterested directors or otherwise, to the
fullest extent permissible under California law.

Any amendment, repeal or modification of any provision of this Article V
shall not adversely affect any right or protection of an agent of the
corporation existing at the time of such amendment, repeal or modification.

ABA-1
<PAGE>
ONSTREAM NETWORKS, INC.
OFFICERS' CERTIFICATE

We, the undersigned President and Chief Financial Officer of OnStream
Networks, Inc., a California corporation ("OnStream") respectively, do certify
that:

1. We are, respectively, the duly elected and qualified President and Chief
Financial Officer of OnStream.

2. The Agreement of Merger (the "Merger Agreement") in the form attached
has been duly approved by OnStream's board of directors and shareholders.
OnStream has two classes of capital stock entitled to vote on the Merger
Agreement in the form attached: Common Stock, of which 2,951,579 are outstanding
and entitled to vote on the Merger Agreement in the form attached, and Preferred
Stock of which 11,258,471 shares are outstanding and entitled to vote on the
Agreement of Merger in the form attached.

3. The number of shares of Common Stock voting in favor of the Merger
Agreement in the form attached equaled or exceeded the vote required for
approval, and the number of shares of Preferred Stock voting in favor of the
Merger Agreement in the form attached equaled or exceeded the vote required for
approval. The required vote for approval of the Merger Agreement in the form
attached is the affirmative vote of greater than ( ) of the
outstanding shares of Common Stock voting as a single class and the affirmative
vote of greater than ( ) of the outstanding shares of Preferred
Stock voting together as a single class.

We each further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Officers' Certificate are true
and correct of each of our knowledge.

<TABLE>
<S> <C>
Dated: October , 1996 --------------------------------------------
, PRESIDENT

Dated: October , 1996 --------------------------------------------
, CHIEF FINANCIAL OFFICER
</TABLE>

ABA-2
<PAGE>
ONSTREAM ACQUISITION CORPORATION
OFFICERS' CERTIFICATE

The undersigned, the President and Secretary, respectively, of OnStream
Acquisition Corporation, a California corporation ("Sub") and wholly-owned
subsidiary of 3Com Corporation, a California corporation ("Parent"), does
certify that:

1. I am the duly elected and qualified President and Secretary of Sub.

2. The Agreement of Merger (the "Merger Agreement") in the form attached
has been duly approved by Sub's board of directors and sole stockholder. There
is only one class of capital stock ("Common Stock") of Sub eligible to vote on
the Merger Agreement in the form attached, of which one thousand (1000) shares
are outstanding and eligible to vote on the Agreement in the form attached.

3. The number of shares of Common Stock voting in favor of the Merger
Agreement in the form attached equaled or exceeded the vote required for
approval. The required vote for approval of the Merger Agreement in the form
attached is the affirmative vote of greater than fifty percent (50%) of the
outstanding shares of Common Stock.

4. No vote of the shareholders of Parent was required to approve the
Agreement of Merger to which this Certificate is attached.

I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of my knowledge.

<TABLE>
<S> <C>
Dated: October , 1996 --------------------------------------------
, PRESIDENT

Dated: October , 1996 --------------------------------------------
, SECRETARY
</TABLE>

ABA-3
<PAGE>
EXHIBIT C
ESCROW FUND AGREEMENT
<PAGE>
EXHIBIT C
ESCROW FUND AGREEMENT

This Escrow Fund Agreement (this "Agreement") is entered into as of October
, 1996, by and among 3Com Corporation, a California corporation ("3Com"), State
Street Bank and Trust Company ("Escrow Agent") and James Mongiello, an
individual ("Shareholder Representative") on behalf of the shareholders of
OnStream Networks, Inc. ("OnStream") (collectively, the "Holders").

RECITALS

A. 3Com, OnStream, and OnStream Acquisition Corporation, a California
corporation and wholly-owned subsidiary of 3Com ("Sub"), have entered into an
Agreement and Plan of Reorganization dated as of October 5, 1996 (the
"Reorganization Agreement"), pursuant to which Sub will merge with and into
OnStream (the "Merger"), with OnStream surviving the Merger. Capitalized terms
used in this Agreement and not otherwise defined in this Agreement shall have
the meanings ascribed to them in the Reorganization Agreement (a copy of which
has been delivered to the Escrow Agent).

B. Section 1.4 of the Reorganization Agreement provides that at the
Effective Date, or such later time as determined in accordance with Section 1.5
of the Reorganization Agreement with respect to Dissenting Shares for which
appraisal rights have not been perfected or lost, 3Com will deposit into an
account with the Escrow Agent, accompanied by written instructions (such deposit
constituting the "Escrow Fund") certificates representing ten percent (10%) of
the shares of 3Com Common Stock issuable to the Holders in the Merger, in
proportion to the number of shares of 3Com Common Stock issued to each such
Holder pursuant to the Reorganization Agreement. Such certificates representing
the shares (the "Escrow Shares") shall be held as collateral for the
indemnification obligations under Section 11 of the Reorganization Agreement.

C. The parties to this Agreement desire to establish the terms and
conditions pursuant to which the Escrow Shares will be deposited into, held in,
and disbursed from, the Escrow Fund.

NOW, THEREFORE, the parties to this Agreement agree as follows:

1. ESCROW AND INDEMNIFICATION.

(a) ESCROW FUND. The Escrow Agent agrees to accept delivery of such Escrow
Shares as are identified to it in writing as the Escrow Fund Shares and to hold
such Escrow Shares delivered to it in escrow subject to the terms and conditions
of this Agreement and Section 11 of the Reorganization Agreement (which Section
11 is attached to this Agreement as APPENDIX A) (collectively, the "Escrow
Provisions") until the Escrow Agent is required to release such Escrow Shares
pursuant to the terms of this Agreement. The Escrow Agent shall have no
responsibility for the calculation or sufficiency of the Escrow Shares.

(b) INDEMNIFICATION. The Holders have agreed pursuant to Section 11 of the
Reorganization Agreement to indemnify and hold harmless 3Com and the other
Indemnitees from and against specified Damages, subject to the limitations set
forth in the Reorganization Agreement. The Holders agree that the Escrow Shares
will be security for this indemnity obligation, subject to the limitations and
in the manner provided in the Escrow Provisions. Promptly after the receipt by
3Com of notice or discovery of any claim, damage or legal action or proceeding
giving rise to indemnification rights under the Reorganization Agreement, 3Com
will give the Shareholder Representative and the Escrow Agent written notice of
such claim, damage, legal action or proceeding (a "Claim") in accordance with
Section 3 hereof. 3Com shall notify the Shareholder Representative of the
progress of any such Claim and shall permit the Shareholder Representative to
participate in such defense in accordance with Section 11 of the Reorganization
Agreement, and 3Com shall not compromise or settle any such Claim without the
written consent of the Shareholder Representative, which consent will not be
unreasonably withheld.

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<PAGE>
(c) LIMITATION ON LIABILITY. Except as otherwise set forth in Section 11
of the Reorganization Agreement, the maximum liability of each Holder for any
matter set forth in this Agreement (other than knowing and intentional
misrepresentations and knowing and intentional breaches of warranties) shall be
deemed several and not joint and shall be such Holder's pro rata share of such
liability based on the respective interest of each Holder in the Escrow Shares
calculated pursuant to this section and as set forth next to such Holder's name
on EXHIBIT A, and shall not exceed the forfeiture of the entire number of shares
of 3Com Common Stock received by such Holder in the Merger that is held in
escrow. Payments for Claims shall be deducted from the Escrow Shares of each
Holder in proportion to the number of shares of 3Com Common Stock issuable to
each Holder in the Merger in respect of the shares of OnStream Capital Stock
held by such Holder as of the Closing as set forth on EXHIBIT A. For purposes of
calculating a Holder's pro rata share of any liability hereunder, such pro rata
interest shall be based on the Holder's pro rata interest in the aggregate of
the Escrow Shares as set forth on EXHIBIT A.

2. DEPOSIT OF ESCROW SHARES; RELEASE FROM ESCROW.

(a) DELIVERY OF ESCROW SHARES. On the Closing Date, 3Com will deliver the
Escrow Shares to the Escrow Agent in the form of a duly authorized stock
certificate or certificates issued in the name of the Escrow Agent or its
nominee (with an unexecuted stock power with the date and number of shares left
blank). In the event that 3Com issues any Additional Shares, such shares will be
issued in the name of the Escrow Agent and delivered to the Escrow Agent in the
same manner as the Escrow Shares delivered on the Effective Date.

(b) DISTRIBUTION TO HOLDERS. Within three (3) business days after the date
the Indemnification Period ends (the "Release Date"), the Escrow Agent shall
release from escrow to the Holders their respective number of the Escrow Shares
less (A) such Holder's pro rata portion of any liability (as calculated by 3Com
and certified to the Escrow Agent in writing pursuant to Section 1(c)) delivered
to 3Com in accordance with Section 4 hereof in satisfaction of Claims by 3Com
and (B) such Holder's pro rata portion of any liability (as calculated by 3Com
and certified to the Escrow Agent in writing pursuant to Section 1(c)) subject
to possible future delivery to 3Com in accordance with Section 4 hereof with
respect to any pending but unresolved Claims of 3Com. Any Escrow Shares held as
a result of clause (B) shall be released to the Holders or to 3Com (as
appropriate) promptly upon resolution of each specific Claim involved in
accordance with Section 4 hereof. 3Com shall give the Escrow Agent at least
seven (7) business days advance written notice of the occurrence of the Release
Date.

(c) RELEASE OF SHARES. The Escrow Shares will be held by the Escrow Agent
until required to be released pursuant to Section 2(b). Within three (3)
business days after the Release Date, the Escrow Agent will deliver to each
Holder the requisite number of the Escrow Shares to be released on such date as
identified by 3Com and the Shareholder Representative to the Escrow Agent in
writing, in the form of stock certificates issued in the name of the Holder.
Escrow Shares shall be released to the respective Holders in proportion to their
respective interests as set forth in EXHIBIT A attached hereto. 3Com will take
such action as may be necessary to cause such shares to be payable in the names
of the appropriate Holders.

(d) NO ENCUMBRANCE. No Escrow Shares or any beneficial interest therein
may be pledged, sold, assigned or transferred, including by operation of law, by
a Holder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of a Holder, prior to the delivery
to such Holder of the Escrow Shares by the Escrow Agent.

3. NOTICE OF CLAIM.

(a) Each notice of a Claim by 3Com (the "Notice of Claim") shall be
delivered in writing to the Shareholder Representative and the Escrow Agent, and
shall contain the following information to the extent it is reasonably available
to 3Com:

(i) 3Com's good faith estimate of the reasonably foreseeable maximum
amount of the alleged Damages; and

AC-2
<PAGE>
(ii) A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Damages based on 3Com's
good faith belief thereof.

(b) The Escrow Agent will not release any of the Escrow Shares held in the
Escrow Fund to 3Com pursuant to a Notice of Claim until such Notice of Claim has
been resolved in accordance with Section 4 below.

4. RESOLUTION OF NOTICE OF CLAIM AND TRANSFER OF ESCROW SHARES. Any Notice
of Claim received by the Shareholder Representative and the Escrow Agent
pursuant to Section 3 above will be resolved as follows:

(a) UNCONTESTED CLAIMS. In the event that the Shareholder Representative
does not contest a Notice of Claim (or contests only a portion of the claim), in
writing to the Escrow Agent and 3Com within thirty (30) days after such notice
is deemed delivered pursuant to Section 11 below, the Escrow Agent will promptly
deliver to 3Com, as applicable, that number of Escrow Shares equal to the amount
specified in the Notice of Claim (that is not contested) and notify the
Shareholder Representative or 3Com, as applicable, in writing, of such transfer.

(b) CONTESTED CLAIMS. In the event that the Shareholder Representative
gives written notice contesting all, or a portion of, a Notice of Claim to 3Com
and the Escrow Agent (a "Contested Claim") within the thirty (30) day period
provided above, the Shareholder Representative and an officer of 3Com shall
attempt to resolve the matter, but if such matter is not resolved in writing
within sixty (60) days after the Notice of Claim is deemed delivered pursuant to
Section 13, then the matter will be settled by binding arbitration. Any portion
of the Notice of Claim which is not contested shall be disbursed in accordance
with Section 4(a). The final decision of the arbitrator shall be furnished to
the Escrow Agent, the Shareholder Representative, the Holders and 3Com in
writing and will constitute a conclusive determination of the issue in question,
binding upon the Holders, the Shareholder Representative and 3Com and shall not
be contested or appealed by any of them. After notice that the Notice of Claim
is contested by the Shareholder Representative, the Escrow Agent will continue
to hold in the Escrow Fund a number of the Escrow Shares equal to the contested
amount to cover such Claim (notwithstanding the expiration of the Release Date)
until the earlier of receipt by it of (i) execution of a settlement agreement by
3Com and the Shareholder Representative setting forth a resolution of the Notice
of Claim, or (ii) a copy of the final award of the arbitrator.

(c) ARBITRATION. Any Contested Claim shall be settled by (i) agreement of
the Shareholder Representative and 3Com or (ii) arbitration in Santa Clara,
California, except as herein specifically stated, in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA
Rules") then in effect. However, in all events, these arbitration provisions
shall govern over any conflicting rules which may now or hereafter be contained
in the AAA Rules. Any judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction over the subject matter thereof. The
arbitrator shall have the authority to grant any equitable and legal remedies
that would be available in any judicial proceeding instituted to resolve a
Contested Claim.

(i) COMPENSATION OF ARBITRATOR. Any such arbitration shall be
conducted before a single arbitrator who shall be compensated for his or her
services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon reasonable hourly or daily
consulting rates for the arbitrator in the event the parties are not able to
agree upon his or her rate of compensation.

(ii) SELECTION OF ARBITRATOR. The AAA Rules for the selection of the
arbitrator shall be followed by 3Com and the Shareholder Representative.

(iii) PAYMENT OF COSTS. 3Com and the Holders as a group (through the
Shareholder Representative) shall each pay fifty percent (50%) of the
initial compensation to be paid to the arbitrator in any such arbitration
and fifty percent (50%) of the costs of transcripts and other normal and
regular expenses of the arbitration proceedings; PROVIDED, HOWEVER, that the
arbitrator shall have the power to

AC-3
<PAGE>
award the prevailing party in any arbitration attorneys' fees and costs, and
all costs of arbitration, other than those provided for above, which if so
awarded will be paid by the losing party.

(iv) DISCOVERY. The parties shall be entitled to conduct discovery
proceedings in accordance with the provisions of the Federal Rules of Civil
Procedure, subject to any limitation imposed on all parties by the
arbitrator.

(v) BURDEN OF PROOF. For any claim submitted to arbitration, the
burden of proof shall be as it would be if the claim were litigated in a
judicial proceeding.

(vi) JUDGMENT. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator shall render findings of fact and conclusions of
law and a written opinion setting forth the basis and reasons for any
decision reached by him and shall deliver such documents to each party to
this Agreement along with a signed copy of the award.

(vii) TERMS OF ARBITRATION. The arbitrator chosen in accordance with
these provisions shall not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement or the Reorganization Agreement.

(viii) EXCLUSIVE REMEDY. Except as specifically provided in this
Agreement or the Reorganization Agreement, arbitration shall be the sole and
exclusive remedy of the parties for any Contested Claim arising out of such
agreement.

(d) DETERMINATION OF AMOUNT OF CLAIMS. Any amount owed to 3Com hereunder
determined pursuant to Section 4(a) or (b) above, will be immediately payable to
3Com in accordance with Section 11 of the Reorganization Agreement and will be
paid promptly.

(e) NO EXHAUSTION OF REMEDIES. 3Com need not exhaust any other remedies
that may be available to it but may proceed directly in accordance with the
provisions of this Agreement. 3Com may institute Claims against the Escrow
Shares and in satisfaction thereof may recover Escrow Shares, in accordance with
the terms of this Agreement, without making any other Claims directly against
the Holders and without rescinding or attempting to rescind the transactions
consummated pursuant to the Reorganization Agreement. The assertion of any
single Claim for indemnification hereunder will not bar 3Com from asserting
other claims hereunder. Notwithstanding the foregoing, if 3Com elects to make a
Claim against the Escrow Fund for an action against a third party, then the
Shareholder Representative, on behalf of the Holders, shall be subrogated to the
rights of 3Com with respect to such a Claim, and 3Com shall assign all of its
rights in connection with such Claim necessary for the Shareholder
Representative to assert such claim against such third party.

(f) PAYMENT OF COSTS. The Escrow Agent is authorized and directed to
disburse pro rata any payments due the Holders under this Agreement out of the
Escrow Fund in accordance with their interest, after (i) payment of any
attorney's and accountants' and other fees and expenses incurred on behalf of
the Holders as contemplated by this Agreement and (ii) withholding such amounts
to pay costs and expenses relating to potential disputes arising with respect to
indemnification or other obligations of other Holders under the Escrow
Provisions.

5. LIMITATION OF THE ESCROW AGENT'S LIABILITY.

(a) The parties acknowledge and agree that the Escrow Agent shall not be
responsible for any of the agreements referred to herein or in the
Reorganization Agreement but shall only be obligated for the performance of such
duties as are specifically set forth herein. The Escrow Agent will incur no
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by it to be genuine and to have been signed by the proper person (and
shall have no responsibility to determine the authenticity or accuracy thereof),
nor for any other action or inaction, except its own willful misconduct, bad
faith or gross negligence. In no event shall the Escrow Agent be liable for
indirect consequential damages. The Escrow Agent will not be responsible for

AC-4
<PAGE>
the validity or sufficiency of the Escrow Provisions, including the amount of
Escrow Shares. In all questions arising under the Escrow Provisions, the Escrow
Agent may rely on the advice of counsel, and for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice, the Escrow
Agent will not be liable to anyone. The Escrow Agent will not be required to
take any action under the Escrow Provisions involving any expense unless the
payment of such expense is made or provided for in a manner satisfactory to it.

(b) In the event conflicting demands are made or notices are served upon the
Escrow Agent with respect to the Escrow Fund or should a third party make a
claim on such Escrow Fund, the Escrow Agent will have the absolute right, at the
Escrow Agent's election, to do any of the following: (i) resign so a successor
can be appointed pursuant to Section 7, (ii) file a suit in interpleader and
obtain an order from a court of competent jurisdiction requiring the parties to
interplead and litigate in such court their several claims and rights among
themselves; or (iii) retain all or any of the Escrow Fund in its possession,
without liability to anyone, until such dispute shall have been settled as
contemplated in Section 4. In the event such interpleader suit is brought, the
Escrow Agent will thereby be fully released and discharged from all further
obligations imposed upon it under the Escrow Provisions, and 3Com will pay the
Escrow Agent (subject to reimbursement as to fifty percent (50%) of the
applicable amount from the Holders pursuant to Section 4) all costs, expenses
and reasonable attorney's fees expended or incurred by the Escrow Agent pursuant
to the exercise of the Escrow Agent's rights under this Section 5 (such costs,
fees and expenses will be treated as extraordinary fees and expenses for the
purposes of Section 6). The resignation of the Escrow Agent under this section
shall not affect the right of the Escrow Agent to be paid any amount due to the
Escrow Agent hereunder.

6. EXPENSES.

(a) ESCROW AGENT. All fees and expenses including attorney's fees of the
Escrow Agent incurred in the ordinary course of performing its responsibilities
hereunder will be paid by 3Com upon receipt of a written invoice by the Escrow
Agent. Any extraordinary fees and expenses including attorney's fees, including
without limitation any fees or expenses incurred by the Escrow Agent in
connection with a dispute over the distribution of Escrow Shares or the validity
of a Claim or Claims by 3Com will be paid fifty percent (50%) by 3Com and fifty
percent (50%) by the Holders on a pro rata basis (it being understood that such
obligation shall be joint and several as between 3Com and the Holders
collectively, but several and not joint as among the Holders individually)
subject to Section 4(f). The Holders' liability for the extraordinary fees and
expenses of the Escrow Agent may be paid by 3Com and recovered as a Claim
hereunder out of the Escrow Fund. If 3Com has paid the Holders' portion of such
fees and expenses as permitted under this Section 6(a) then the Escrow Agent
will, upon demand by 3Com, transfer to 3Com a number of Escrow Shares having an
aggregate per share value equal to such portion of fees and expenses.

In the event the balance in the Escrow Fund is not sufficient to pay the
extraordinary fees and expenses of the Escrow Agent, as described in the prior
paragraph, or in the event the Escrow Agent incurs any liability to any person,
firm or corporation by reason of its acceptance or administration of this Escrow
Agreement, 3Com and the Holders, jointly and severally as between 3Com and the
Holders collectively, and severally and not jointly as among the Holders
individually, agree to indemnify the Escrow Agent, its officers, directors and
employees, against any such liability or for its extraordinary fees and expenses
or costs and expenses, including, without limitation, counsel fees and expenses,
as the case may be. Notwithstanding the foregoing, no indemnity need be paid in
the event of the Escrow Agent's gross negligence, bad faith or willful
misconduct.

3Com and the Holders, jointly and severally as between 3Com and the Holders
collectively, and severally and not jointly as among the Holders individually,
agree to assume any and all obligations imposed now or hereafter by any
applicable tax law with respect to the payment of Escrow Shares under this
Agreement, and to indemnify and hold the Escrow Agent harmless from and against
any taxes, additions of late payment, interest, penalties and other expenses,
that may be assessed against the Escrow

AC-5
<PAGE>
Agent on any such payment or other activities under this Agreement. 3Com and the
Holders undertake to instruct the Escrow Agent in writing with respect to the
Escrow Agent's responsibility for withholding and other taxes, assessments or
other governmental charges, certifications and governmental reporting in
connection with its acting as Escrow Agent under this Agreement. 3Com and the
Holders, jointly and severally as between 3Com and Holders collectively, and
severally and not jointly as among the Holders individually, agree to indemnify
and hold the Escrow Agent harmless from any liability on account of taxes,
assessments or other governmental charges, including without limitation the
withholding or deduction or the failure to withhold or deduct same, and any
liability for failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become subject in
connection with or which arises out of this Agreement, including costs and
expenses (including reasonable legal fees), interest and penalties.

(b) SHAREHOLDER REPRESENTATIVE. The Shareholder Representative will not be
entitled to receive any compensation from 3Com or the Holders in connection with
this Agreement. Any fees and expenses incurred by the Shareholder Representative
in connection with actions taken pursuant to the terms of the Escrow Provisions
will be paid by the Holders to the Shareholder Representative, and, to the
extent Escrow Shares remain available for distribution on the Release Date, such
fees and expenses shall be paid out from such Escrow Shares prior to
distribution to the Holders, but in any event after all distributions to 3Com
and only upon the written instruction of the Shareholder Representative.

7. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity as such, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
written notice of resignation to the parties to this Agreement, specifying not
less than thirty (30) days' prior written notice of such a date when such
resignation will take effect. 3Com will designate a successor Escrow Agent prior
to the expiration of such 30-day period by giving written notice to the Escrow
Agent and the Shareholder Representative. 3Com may appoint a successor Escrow
Agent without the consent of the Holders or the Shareholder Representative so
long as such successor is a bank or trust company with assets of at least Five
Hundred Million Dollars ($500,000,000), and may appoint any other successor
Escrow Agent with the consent of the Shareholder Representative, which consent
will not be unreasonably withheld. The Escrow Agent will promptly transfer the
Escrow Shares to such designated successor. In the event no successor Escrow
Agent is appointed as described in this Section 7, the Escrow Agent may apply to
a court of competent jurisdiction for the appointment of a successor Escrow
Agent.

8. LIMITATION OF RESPONSIBILITY; NOTICES. The Escrow Agent's duties are
limited to those set forth in the Escrow Provisions, and no implied duties or
obligations shall be implied; and the Escrow Agent may rely upon the written
notices delivered to the Escrow Agent hereunder and under the Escrow Provisions.

9. INCORPORATION BY REFERENCE OF SECTION 11. The parties agree that the
terms of Section 11 of the Reorganization Agreement shall be deemed to be
incorporated by reference in this Agreement as if such Section had been set
forth in its entirety herein except that the provisions of this Agreement shall
control the responsibilities and obligations of the Escrow Agent.

10. HOLDERS' REPRESENTATIVE. By virtue of their approval of the
Reorganization Agreement, the shareholders of OnStream will be deemed to have
irrevocably constituted and appointed, effective as of the Effective Date, James
Mongiello (together with his permitted successors, the "Shareholder
Representative"), as their true and lawful agent and attorney-in-fact to enter
into any agreement in connection with the transactions contemplated by this
Agreement or the Reorganization Agreement, including, without limitation, the
exercise of all or any of the powers, authority and discretion conferred on him
under any such agreement, to waive any terms and conditions of any such
agreement (other than the payment of the Escrow Shares), to give and receive
notices and communications, to authorize delivery to 3Com of the Escrow Shares
or other property from the Escrow Fund in satisfaction of claims by 3Com, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions

AC-6
<PAGE>
necessary or appropriate in the judgment of the Shareholder Representative for
the accomplishment of the foregoing. Such agency may be changed by the Holders
of a majority in interest of the Escrow Fund from time to time upon not less
than ten (10) days' prior written notice to 3Com. No bond shall be required of
the Shareholder Representative, and the Shareholder Representative shall receive
no compensation for his services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from each of the
Holders. This power of attorney is coupled with an interest and is irrevocable.
The Holders will be bound by all actions taken by the Shareholder Representative
in connection with this Agreement and 3Com shall be entitled to rely on any
action or decision of the Shareholder Representative. In performing his
functions hereunder, the Shareholder Representative will not be liable to the
Holders in the absence of gross negligence or willful misconduct.

11. NOTICES. Any notice provided for or permitted under the Escrow
Provisions will be treated as having been received (a) when delivered
personally, (b) when sent by confirmed telecopy, (c) one (1) day following when
sent by commercial overnight courier with written verification of receipt, or
(d) three (3) days following when mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 12.

<TABLE>
<S> <C>
Escrow Agent: State Street Bank and Trust Company
Two International Place
Corporate Trust Department
Boston, MA 02110
Attention: Brian Curtis
Facsimile: (617) 664-5371

Shareholder Representative: James Mongiello
OnStream Networks, Inc.
3393 Octavius Drive
Santa Clara, CA 95054
Attention: President
Facsimile: (408) 986-4731

With copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Elias J. Blawie
Facsimile: (415) 854-1121

3Com: 3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052
Attn: Jeff Chase
Facsimile: (408) 764-5000

With copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: J. Howard Clowes, Esq.
Facsimile: (415) 327-3699
</TABLE>

Such notice will be treated as having been received upon actual receipt.

12. GENERAL.

AC-7
<PAGE>
(a) GOVERNING LAWS. It is the intention of the parties hereto that the
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties to this Agreement.

(b) BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained in this Agreement shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties to this Agreement.

(c) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall constitute
one and the same instrument. This Agreement shall become binding when one or
more counterparts of this Agreement, individually or taken together, shall bear
the signatures of all of the parties reflected in this Agreement as signatories.

(d) ENTIRE AGREEMENT. Except as set forth in the Reorganization Agreement,
this Agreement, the documents referenced in this Agreement and the exhibits to
such documents, constitute the entire understanding and agreement of the parties
to this Agreement with respect to the subject matter of this Agreement and of
such documents and exhibits and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect to this Agreement, provided
that with respect to the Escrow Agent, this Agreement (without reference to any
other agreements) sets forth the entire understanding of the parties.
Notwithstanding anything to the contrary in the previous sentence, in the event
that any term(s) or provision(s) of this Agreement conflict(s) with a term or
provision of the Reorganization Agreement, the term(s) and condition(s) of the
Reorganization Agreement will control. The express terms of this Agreement
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms of this Agreement.

(e) WAIVERS. No waiver by any party to this Agreement of any condition or
of any breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained in this Agreement.

(f) AMENDMENT. This Agreement may be amended with the written consent of
3Com, the Escrow Agent and the Shareholder Representative, provided that if the
Escrow Agent does not agree to an amendment agreed upon by 3Com and the
Shareholder Representative (except an amendment which may adversely affect the
rights or interests of the Escrow Agent), 3Com will appoint a successor Escrow
Agent in accordance with Section 7.

(g) ACTS OF GOD. Neither 3Com nor the Holders nor the Escrow Agent shall
be responsible for delays or failures in performance resulting from acts beyond
their control. Such acts shall include but not be limited to acts of God,
strikes, lockouts, riots, acts of war, epidemics, governmental regulations
superimposed after the fact, fire communication line failures, power failures,
earthquakes or other disasters.

AC-8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written and will be effective as to all the Holders
when executed by 3Com, the Escrow Agent and the Shareholder Representative.

3Com:

3Com Corporation, a California
corporation By:
--------------------------------------

Its:
--------------------------------------

Escrow Agent:

State Street Bank and Trust Company

By:
--------------------------------------

Its:
--------------------------------------

SHAREHOLDER REPRESENTATIVE:

--------------------------------------
James Mongiello

AC-9
<PAGE>
EXHIBIT A

<TABLE>
<CAPTION>
PERCENTAGE INTEREST
IN
HOLDER ESCROW SHARES ADDRESS TIN OR SS#
- ----------------------------------------------------- --------------------- --------------------- -------------
<S> <C> <C> <C>
</TABLE>

[To be provided prior to Closing Date]

AC-10
<PAGE>
APPENDIX A

SECTION 11. INDEMNIFICATION AND ESCROW.

11.1 SURVIVAL OF REPRESENTATIONS.

11.2 INDEMNIFICATION BY SHAREHOLDERS.

(a) From and after the Closing Date (but subject to Section 11.1(a)), the
Shareholders of OnStream shall hold harmless and indemnify each of the
Indemnitees from and against, and shall compensate and reimburse each of the
Indemnitees for, any Damages which are suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
which arise from or as a result of (i) any inaccuracy in or breach of any
representation or warranty set forth in Section 2 hereunder or in any
certificate delivered by OnStream in connection with this Agreement, (ii) any
breach of any covenant or obligation of OnStream hereunder, or (iii) any Legal
Proceeding relating to any inaccuracy, breach or expense of the type referred to
in clause "(i)" or "(ii)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section 11
if such Indemnitee is the prevailing party in any such Legal Proceeding).

11.3 THRESHOLD; CEILING; EXCLUSIVITY.

AC-11
<PAGE>
otherwise become subject, exceeds Two Hundred Fifty Thousand Dollars ($250,000)
in the aggregate, and then only to the extent Damages exceed such amount.

(a) NOTICE. 3Com shall give prompt written notice of the commencement
of any such Legal Proceeding against 3Com or the Surviving Corporation for
which indemnity may be sought under Section 11 together with a description
of such Legal Proceeding and the specific bases upon which such indemnity
may be sought consistent with the provisions of this Agreement; PROVIDED,
HOWEVER, that any failure on the part of 3Com to so notify OnStream shall
not limit any of the obligations of OnStream under this Section 11 (except
to the extent such failure materially prejudices the defense of such Legal
Proceeding). The Indemnification Period shall be tolled solely with respect
to a particular claim for the period beginning on the date the Indemnifying
Party receives written notice of that claim until the final resolution of
such claim so long as such claim is made within the Indemnification Period.

If the Shareholders so elect to assume the defense of any such claim or
Legal Proceeding:

(i) the Shareholders shall proceed to defend such claim or Legal
Proceeding in a diligent manner with counsel reasonably satisfactory to the
Indemnitee;

(ii) the Indemnitee shall make available to the Shareholders any
documents and materials in the possession of the Indemnitee that may be
necessary to the defense of such claim or Legal Proceeding;

AC-12
<PAGE>
(iii) the Shareholders shall keep the Indemnitee informed of all material
developments and events relating to such claim or Legal Proceeding;

(iv) the Indemnitee shall have the right to participate in the defense
of such claim or Legal Proceeding at the Indemnitee's expense; and

(viii) the Indemnitee shall keep the Shareholders informed of all material
developments and events relating to such claim or Legal Proceeding; and

11.8 ESCROW FUND. As soon as practicable after the Effective Date, the
Escrow Shares shall be registered in the name of, and be deposited with State
Street Bank and Trust Company, an institution selected by 3Com with the
reasonable consent of OnStream as escrow agent (the "Escrow Agent"), such
deposit to constitute the Escrow Fund and to be governed by the terms set forth
herein and in the Escrow Fund Agreement attached hereto as EXHIBIT C.

11.9 ESCROW PERIOD. The Escrow Period shall terminate upon the termination
of the Indemnification Period.

11.10 SHAREHOLDER REPRESENTATIVE; APPROVAL OF SHAREHOLDERS.

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<PAGE>
from the Shareholder Representative shall constitute notice to or from each of
the OnStream shareholders.

AC-14
<PAGE>
EXHIBIT D

CHAPTER 13 OF THE GENERAL CORPORATIONS LAW
OF THE STATE OF CALIFORNIA

CALIFORNIA CORPORATIONS CODE

CHAPTER 13
DISSENTERS' RIGHTS
<PAGE>
EXHIBIT D

CHAPTER 13 OF THE GENERAL CORPORATIONS LAW
OF THE STATE OF CALIFORNIA

CALIFORNIA CORPORATIONS CODE

CHAPTER 13
DISSENTERS' RIGHTS

SECTION1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.

(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.

(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:

(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; PROVIDED, HOWEVER, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.

(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisions in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; PROVIDED, HOWEVER, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.

(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.

(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.

(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record. LEG.H. 1975 ch. 682,
1976 ch. 641, effective January 1, 1977, 1982 ch. 36, effective February 17,
1982, 1990 ch. 1018, 1993 ch. 543.

1993 NOTE: Nothing in this act shall be construed to modify or alter the
prohibition contained in Sections 15503 and 15616 of the Corporations Code or
Section 1648 of the Insurance Code, or modify or

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alter any similar prohibition relating to the operation of a business in limited
partnership form. Stats. 1993 ch. 543 24.

Nothing in this act shall be construed to modify or impair any rights of
limited partners under the Thompson-Killea Limited Partners Protection Act of
1992 (Chapter 1183 of the Statutes of 1992). Stats. 1993 ch. 543 25.

SECTION1301. DEMAND FOR PURCHASE.

(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.

(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price. LEG.H.
1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1980 chs. 501, 1155.

SECTION1302. ENDORSEMENT OF SHARES.

Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares. LEG.H. 1975 ch. 682, effective
January 1, 1977, 1986 ch. 766.

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SECTION1303. AGREED PRICE--TIME FOR PAYMENT.

(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.

(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement. LEG.H. 1975 ch. 682, effective January
1, 1977, 1980 ch. 501, 1986 ch. 766.

SECTION1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.

(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.

(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.

(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares. LEG.H. 1975 ch.
682, effective January 1, 1977.

SECTION1305. APPRAISERS' REPORT--PAYMENT--COSTS.

(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.

(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.

(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.

(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.

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(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301). LEG.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1977 ch.
235, 1986 ch. 766.

SECTION1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.

To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5. LEG.H. 1975 ch. 682, effective
January 1, 1977.

SECTION1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.

Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor. LEG.H. 1975 ch. 682, effective January 1, 1977.

SECTION1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.

Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto. LEG.H. 1975 ch. 682, effective January 1, 1977.

SECTION1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.

Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:

(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.

(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.

(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as
dissenting shares or upon the purchase price of the shares, and neither
files a complaint or intervenes in a pending action as provided in Section
1304, within six months after the date on which notice of the approval by
the outstanding shares or notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder.

(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
LEG.H. 1975 ch. 682, effective January 1, 1977.

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SECTION1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.

If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation. LEG.H. 1975 ch. 682, effective January 1, 1977.

SECTION1311. EXEMPT SHARES.

This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger. LEG.H. 1975 ch. 682,
effective January 1, 1977, 1988 ch. 919.

SECTION1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.

(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.

(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter, but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.

(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled. LEG.H. 1975 ch. 682, 1976 ch.
641, effective January 1, 1977, 1988 ch. 919.

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EXHIBIT E

OPINION OF COUNSEL TO 3COM
<PAGE>
EXHIBIT E

FORM OF OPINION OF COUNSEL TO 3COM

October , 1996

To the Board of Directors of
OnStream Networks, Inc.
3393 Octavius Drive
Santa Clara, CA 95054
Attention: President

To the Board of Directors of OnStream Networks, Inc.:

We have acted as counsel to 3Com Corporation, a California corporation
("3Com"), in connection with the merger (the "Merger") of OnStream Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of 3Com
("Sub"), with and into OnStream Networks, Inc., a California corporation
("OnStream"), pursuant to that certain Agreement and Plan of Reorganization
dated as of October 5, 1996 by and among 3Com, Sub and OnStream (the
"Reorganization Agreement"). This opinion (this "Opinion") is furnished to you
pursuant to Section 8.4 of the Reorganization Agreement. Unless otherwise
defined herein, the capitalized terms used in this opinion have the meaning
ascribed to them in the Reorganization Agreement.

We have acted as counsel for 3Com and Sub in connection with the negotiation
of the Reorganization Agreement and the effectuation of the Merger. As such
counsel, we have made such legal and factual examinations and inquiries as we
have deemed advisable or necessary for the purposes of rendering this Opinion.
In addition, we have examined originals or copies of documents, corporate
records and other writings which we consider relevant for the purposes of this
Opinion. In such examination, we have assumed the genuineness of all signatures
on original documents, the conformity to original documents of all copies
submitted to us and the due execution and delivery of all documents by any party
other than 3Com and Sub where due execution and delivery are a prerequisite to
the effectiveness thereof.

As used in this Opinion, the expression "to our knowledge" or "known to us"
with reference to matters of fact means that, after an examination of documents
made available to us by 3Com and Sub, and after inquiries of officers of 3Com
and Sub, but without any further independent factual investigation, we find no
reason to believe that the opinions expressed herein are factually incorrect.
Further, the expression "to our knowledge" with reference to matters of fact
refers to the current actual knowledge of the attorneys of this firm who have
worked on matters for 3Com and Sub (i) in connection with the Reorganization
Agreement and the transactions (including the Registration Statement and the HSR
application) contemplated therein and (ii) in connection with the preparation of
3Com's periodic disclosure documents described in Section 3.5 of the
Reorganization Agreement. Except to the extent expressly set forth herein, we
have not undertaken any independent investigation to determine the existence or
absence of any fact, and no inference as to our knowledge of the existence or
absence of any fact should be drawn from our representation of 3Com and Sub or
the rendering of the opinions set forth below.

For purposes of this Opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate action, to
execute and deliver the Reorganization Agreement and each of the Transaction
Documents to which you are a party, and we assume that the representations

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and warranties made by you in the Reorganization Agreement and pursuant thereto
are true and correct. We are also assuming that the OnStream shareholders have
purchased their shares of OnStream capital stock for value, in good faith and
without notice of any adverse claim within the meaning of the Uniform Commercial
Code.

The opinions hereinafter expressed are subject to the following
qualifications:

A. We express no opinion as to the effect of rules of law governing
specific performance, injunctive relief or other equitable remedies
(regardless of whether any such remedy is considered in a proceeding at law
or in equity);

B. We express no opinion as to the effect of (i) applicable bankruptcy,
insolvency, the relief of debtors, reorganization, moratorium and other
similar federal or state laws affecting the rights of creditors generally
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies;

C. We express no opinion as to compliance with the anti-fraud
provisions of state and federal laws, rules and regulations concerning the
issuance of securities.

D. We are members of the Bar of the State of California and we are not
expressing any opinion as to any matter relating to laws of any jurisdiction
other than the laws of the United States of America and the laws of the
State of California.

Based upon and subject to the foregoing, and as except as set forth in the
Reorganization Agreement, we are of the opinion that:

1. Each of 3Com and Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
Each of 3Com and Sub has all requisite power and authority to own, operate
and lease their respective properties and to carry on their respective
businesses as now being conducted.

2. The issuance of the shares (the "Shares") of 3Com Common Stock to be
issued and delivered to the shareholders of OnStream in exchange for shares
of OnStream Capital Stock, will, when issued in accordance with the terms of
the Reorganization Agreement, be validly issued, fully paid and
nonassessable and free of liens, encumbrances or preemptive or similar
rights contained in the Articles of Incorporation or Bylaws of 3Com other
than pursuant to the 3Com Rights Plan. The shares of 3Com Common Stock which
will be issuable upon exercise of the OnStream Options and Onstream Warrants
to be assumed by 3Com in accordance with the Reorganization Agreement have
been duly reserved and authorized for issuance upon exercise of such options
and such warrants and, when issued in accordance with the respective terms
of such options and such warrants, such shares will be duly authorized and
validly issued, fully paid and nonassessable. Assuming the OnStream Options
and Warrants to be assumed by 3Com in the Merger were valid and binding
obligations of OnStream prior to the assumption thereof and assuming the
consummation of the Merger will not cancel or invalidate the respective
terms of such options and such warrants, such options and such warrants will
represent valid and binding obligations of 3Com when assumed by 3Com in
accordance with the terms of the Reorganization Agreement subject to (i)
laws of general application relating to bankruptcy, insolvency, and the
relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.

3. Each of 3Com and Sub has all requisite corporate power and authority
to enter into the Reorganization Agreement and the Transaction Documents to
which it is a party, to perform its obligations thereunder and to consummate
the transactions contemplated therein. The execution and delivery of the
Reorganization Agreement and the Transaction Documents, the performance by
each of 3Com and Sub of its respective obligations thereunder and the
consummation of the transactions contemplated therein have been duly and
validly authorized by all necessary corporate action on the part of 3Com and
Sub, and have been approved by the respective boards of directors of 3Com
and

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Sub and 3Com as the sole shareholder of Sub. No other corporate proceeding
on the part of either 3Com and Sub is necessary to authorize the
Reorganization Agreement or any of the Transaction Documents to which it is
a party or the performance of 3Com's and Sub's obligations thereunder or the
consummation of the transactions contemplated therein. The Reorganization
Agreement has, and the Transaction Documents have (to the extent that each
of 3Com and Sub are a party thereto), been duly executed and delivered by
3Com and Sub and, assuming due execution and delivery by OnStream,
constitute the legal, valid and binding obligations of 3Com and Sub
enforceable against 3Com and Sub in accordance with its terms.

4. The Registration Statement has become effective under the Securities
Act and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect and no proceedings
for that purpose have been instituted or are pending or contemplated by the
SEC.

5. The 3Com Common Stock to be issued to the shareholders of OnStream
has either been registered or is exempt from registration in each state
where a shareholder of record of OnStream resides as listed in the OnStream
Shareholder List.

6. To our knowledge, there is no action, suit, proceeding, claim or
investigation pending or threatened against 3Com and Sub which challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated in the Reorganization Agreement or any of the Transaction
Documents.

7. Upon completion of the filing of the Merger Agreement and
certification of the completion of such filing by the Office of the
Secretary of State of the State of California on and as of such date, Sub
shall be merged with and into OnStream effective as of the date of such
filing, assuming all necessary corporate action by or on the part of
OnStream has been duly or validly taken.

This opinion is solely for your benefit and is not to be made available to
or relied upon by any other person without our express prior written consent.

Very truly yours,

GRAY CARY WARE & FREIDENRICH
A Professional Corporation

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EXHIBIT F

OPINION OF COUNSEL TO ONSTREAM
<PAGE>
EXHIBIT F

, 1996

3Com Corporation
5400 Bay Front Plaza
P.O. Box 58145
Santa Clara, CA 95052-8145

Ladies and Gentlemen:

We have acted as counsel for OnStream Networks, Inc., a California
corporation (the "Company"), in connection with the negotiation and execution of
the Agreement and Plan of Reorganization among 3Com Corporation ("3Com"),
OnStream Acquisition Corporation, a California corporation and wholly owned
subsidiary of 3Com ("Sub"), and the Company dated October 5, 1996 (the
"Reorganization Agreement"), that certain Agreement of Merger dated ,
1996 (the "Merger Agreement") and the Escrow Agreement dated , 1996.
This opinion is given to you in compliance with Section 9.6 of the
Reorganization Agreement. The Reorganization Agreement and the Agreement of
Merger are referred to herein collectively as the "Agreements." Unless defined
herein, capitalized terms have the meaning given them in the Agreements.

In rendering this opinion, we have made such legal and factual examinations
and inquiries as we have deemed advisable or necessary for the purpose of
rendering this opinion. In addition, we have examined originals or copies of
documents, corporate records and other writings which we consider relevant for
the purposes of this opinion. In such examination we have assumed the
genuineness of all signatures on original documents, the conformity to original
documents of all copies submitted to us and the due execution and delivery of
all documents where due execution and delivery are a prerequisite to the
effectiveness thereof. In making our examination of documents executed by
entities or persons other than the Company, we have assumed that each other
entity or person had the power to enter into and perform all its obligations
thereunder and we also have assumed the due authorization by each such other
entity or person of all requisite actions and the due execution and delivery of
such documents by each such other entity or person.

Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or belief, it is intended to
signify that in the course of our representation of the Company in connection
with the transactions referred to in the first paragraph hereof, no information
has come to the attention of Elias J. Blawie, Laura A. Gordon, Sanjay K. Khare
or Mitchell S. Zuklie that would give them actual knowledge of the existence or
absence of such facts. We have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company.

In rendering the opinion set forth in paragraph 1 below, (a) in order to
determine in which states qualification is appropriate, we have assumed that
qualification may be required only in those states in which the Company owns or
leases real property, maintains offices or has employees, and we have relied on
the Company's listing of those states in the Management Certificate of even date
herewith, executed by James Mongiello, President of the Company (the "Management
Certificate"), and (b) as to the qualification and good standing of the Company
in the states so identified in such Management Certificate, we have relied
exclusively on certificates of public officials, although we have not obtained
tax good standing

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certificates (other than a California franchise tax certificate for the Company)
and no opinion is provided with respect to tax good standing (other than with
respect to the Company in California).

In rendering the opinion set forth in paragraph 2 below, relating to the
fully paid status of all of the OnStream Securities, we have relied without
independent verification on the Management Certificate to the effect that the
Company has received the consideration approved by the Board of Directors for
all of the issued shares of capital stock of the Company.

The opinions hereinafter expressed are subject to the following further
qualifications:

(i) Our opinions are qualified by the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors generally, including, without limitation,
laws relating to fraudulent transfers or conveyances, preferences and
equitable subordination;

(ii) Our opinions are qualified by the limitations imposed by general
principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Agreements and the effect of judicial
decisions which have held that certain provisions are unenforceable when
their enforcement would violate the implied covenant of good faith and fair
dealing, or would be commercially unreasonable, or where their breach is not
material;

(iii) Our opinions are qualified by the enforceability of provisions of
the Agreements providing that rights or remedies are not exclusive, that
every right or remedy is cumulative, or that the election of a particular
remedy or remedies does not preclude recourse to one or more other remedies;

(iv) We express no opinion as to compliance with applicable antifraud
provisions of federal or state securities laws, rules and regulations; and

(v) We express no opinion as to the indemnification provisions contained
in Section 11.2 of the Reorganization Agreement insofar as the
enforceability thereof may be limited by principles of public policy.

Based upon and subject to the foregoing, except as set forth in the
Reorganization Agreement and on the OnStream Disclosure Schedule delivered
pursuant to the Reorganization Agreement, we are of the opinion that:

1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all
requisite corporate power and authority to carry on its business as it is
now being conducted. The Company is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the nature of
its business or properties makes such qualification or licensing necessary,
except where the failure to be so qualified would not have a Material
Adverse Effect on the Company's business.

*** FOLLOWING OPINION TO BE UPDATED AS NECESSARY TO REFLECT OPTION GRANT,
OPTION EXERCISE, OPTION *** CANCELLATION AND WARRANT EXERCISE ACTIVITY
PRIOR TO CLOSING

2. The capitalization of the Company is as follows:

(a) PREFERRED STOCK. The Company is authorized to issue 11,298,600
shares of Preferred Stock, of which: (i) 1,750,000 shares have been
designated Series A Preferred Stock, 1,715,000 of which are issued and
outstanding prior to giving effect to any conversion of such shares into
Common Stock immediately prior to the Closing, (ii) 2,100,000 shares have
been designated Series B Preferred Stock, 2,049,443 of which are issued and
outstanding prior to giving effect to any conversion of such shares into
Common Stock immediately prior to the Closing, (iii) 2,701,268 shares have
been designated Series C Preferred Stock, 2,675,602 of which are issued and
outstanding prior to giving effect to any conversion of such shares into
Common Stock immediately prior to the Closing, (iv) 2,916,667 shares have
been designated Series D Preferred Stock, 2,916,666 of which are issued and
outstanding prior to

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giving effect to any conversion of such shares into Common Stock immediately
prior to the Closing and (v) 1,830,665 shares have been designated Series E
Preferred Stock, all of which are issued and outstanding prior to giving
effect to any conversion of such shares into Common Stock immediately prior
to the Closing. All such shares of issued and outstanding Preferred Stock
have been duly authorized and validly issued, are nonassessable and fully
paid.

(b) COMMON STOCK. The Company is authorized to issue 20,000,000 shares
of Common Stock, 3,017,205 of which are issued and outstanding prior to
giving effect to any conversion of shares of Preferred Stock into Common
Stock referred to in the preceding paragraph immediately prior to the
Closing. All such shares of Common Stock have been duly authorized and
validly issued, are nonassessable and fully paid.

(c) OTHER SECURITIES. Except for (i) the conversion privileges of the
outstanding Preferred Stock, (ii) warrants to purchase 25,000 shares of
Series A Preferred Stock, 20,429 shares of Series B Preferred Stock and
25,666 shares of Series C Preferred Stock, (iii) outstanding options to
purchase 1,920,245 shares of Common Stock pursuant to the Company's 1990
Stock Option Plan, (iv) the agreements referred to in Section 2.2(c) of the
OnStream Disclosure Schedule, and (v) the right of first offer set forth in
the Series E Preferred Stock Purchase Agreement dated January 22, 1996, to
our knowledge, there are no preemptive rights, options, warrants, conversion
privileges or other rights (or agreements for any such rights) outstanding
to purchase or otherwise obtain from the Company any of the OnStream Capital
Stock.

3. The Company has the corporate power and authority to enter into the
Agreements and to carry out its obligations thereunder. The execution and
delivery of the Agreements and the consummation of the transactions
contemplated therein have been duly authorized by the board of directors of
the Company and approved by the shareholders of the Company, and no other
corporate proceedings are necessary to authorize the Agreements.

4. Each of the Agreements has been duly executed and delivered by the
Company and, assuming due execution and delivery thereof by the other
parties thereto, constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights, and subject to general equity principles and to limitations on
availability of equitable relief, including specific performance.

5. The execution and delivery of each of the Agreements by the Company
and the performance by the Company of its obligations as set forth therein
(including the consummation of the Merger), do not: (a) conflict with,
violate or breach any provision of the Company's Articles of Incorporation
or Bylaws, each as amended to date, or (b) violate or contravene: (i) any
order, writ, judgment, injunction, decree or determination of award known to
us which has been entered against the Company or (ii) any statute, rule or
regulation of any Governmental Body applicable to the Company.

6. To our knowledge, there is no action, suit, proceeding, claim or
investigation pending or threatened against the Company which challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated in the Agreements or to prevent or enjoin the enforcement of
the Noncompetition Agreements.

7. Except for (i) the filing of the Merger Agreement and any required
officers' certificates with the Secretary of State of the State of
California and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business, (ii) filings under
applicable securities laws and (iii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under the laws of any foreign country in which the Company or any of its
subsidiaries conducts any business or owns any property or assets, no
consent of any Governmental Body is required to be obtained by the Company
to permit the transactions

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contemplated by the Agreements and continue the business activities of the
Company as previously conducted by the Company.

8. Upon completion of the filing of the Merger Agreement with, and
certification of the completion of such filing by, the office of the
Secretary of State of the State of California on and as of such date, Sub
shall be merged with and into the Company effective as of the date of such
filing, assuming all necessary corporate action by or on the part of 3Com
and Sub has been duly or validly taken.

We express no opinion as to matters governed by any laws other than the laws
of the State of California and the federal law of the United States of America.
We express no opinion as to whether the laws of any particular jurisdiction
apply, and no opinion to the extent that the laws of any jurisdiction other than
those identified above are applicable to the Agreements or the transactions
contemplated thereby.

This opinion is furnished to you pursuant to Section 9.6 of the
Reorganization Agreement and is solely for your benefit and may not be relied on
by, nor may copies be delivered to, any other person without our prior written
consent. We assume no obligation to inform you of any facts, circumstances,
events or changes in the law that may hereafter be brought to our attention that
may alter, affect or modify the opinions expressed herein.

Sincerely,

VENTURE LAW GROUP,
A Professional Corporation

EJB

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