3COM CORP, DEF 14A, 1997-08-26

3COM CORP
DEF 14A, 1997-08-26
COMPUTER COMMUNICATIONS EQUIPMENT

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[3COMLOGO]

5400 BAYFRONT PLAZA
SANTA CLARA, CALIFORNIA 95052-8145
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 7, 1997

TO THE STOCKHOLDERS:

Please take notice that the Annual Meeting of the Stockholders of 3Com
Corporation, a Delaware corporation (the "Company"), will be held on Tuesday,
October 7, 1997, at 10:30 a.m. at the Company's facility at 5400 Bayfront Plaza,
Building 500, Santa Clara, California for the following purposes:

1. To elect five (5) Class I directors to hold office for a two-year term.

2. To approve an increase in the share reserve under the Company's 1983
Stock Option Plan by 7,000,000 shares.

3. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending May 31, 1998.

4. To transact such other business as may properly come before the
meeting.

Stockholders of record at the close of business on August 15, 1997 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose germane to the meeting during ordinary business
hours at the offices of the Company at 5400 Bayfront Plaza, Building 500, Santa
Clara, CA 95052.

By Order of the Board of Directors,

/s/ Mark D. Michael

Mark D. Michael
Secretary

- --------------------------------------------------------------------------------
IMPORTANT: Please fill in, date, sign and promptly mail the enclosed proxy card
in the accompanying post-paid envelope to assure that your shares are
represented at the meeting. If you attend the meeting, you may choose to vote in
person even if you have previously sent in your proxy card.
- --------------------------------------------------------------------------------

August 27, 1997
Santa Clara, California

<PAGE>

3COM CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 7, 1997
AND
ANNUAL FINANCIAL REPORT TO STOCKHOLDERS
TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
Page
PROXY STATEMENT
GENERAL INFORMATION ................................................................ 1
ELECTION OF DIRECTORS .............................................................. 3
EXECUTIVE COMPENSATION AND OTHER MATTERS ........................................... 7
Executive Compensation ........................................................... 7
Employment and Change of Control Arrangements .................................... 9
Compensation of Directors ........................................................ 9
Compensation Committee Interlocks and Insider Participation ...................... 10
Compliance with Section 16(a) of the Securities Exchange Act of 1934 ............ 10
Changes to 1983 Stock Option Plan ................................................ 11
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION ..................... 12
COMPARISON OF STOCKHOLDER RETURN ................................................... 14
PROPOSAL TO APPROVE AN INCREASE IN THE SHARE RESERVE UNDER THE
3Com CORPORATION 1983 STOCK OPTION PLAN BY 7,000,000 SHARES ....................... 15
Summary of Provisions of the 1983 Option Plan .................................... 15
Summary of United States Federal Income Tax Consequences of the 1983 Option Plan . 16
Vote Required and Board of Directors' Recommendation ............................. 17
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS ...................... 18
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING ....................... 18
TRANSACTION OF OTHER BUSINESS ...................................................... 18

ANNUAL FINANCIAL REPORT TO STOCKHOLDERS
MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS .................. F-1
SELECTED FINANCIAL DATA ............................................................ F-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................................. F-3
INDEPENDENT AUDITORS' REPORT--Report of Deloitte & Touche LLP ...................... F-13
REPORT OF INDEPENDENT ACCOUNTANTS--Report of Price Waterhouse LLP .................. F-14
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED MAY 31, 1997,
1996 AND 1995 .................................................................... F-15
CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 1997 AND 1996 ............................ F-16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS
ENDED MAY 31, 1997, 1996 AND 1995 ................................................. F-17
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MAY 31,
1997, 1996 AND 1995 ............................................................... F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ......................................... F-19
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) ........................................ F-35
DIRECTORS AND EXECUTIVE OFFICERS ................................................... F-36
</TABLE>

<PAGE>

3COM CORPORATION
5400 BAYFRONT PLAZA
SANTA CLARA, CALIFORNIA 95052-8145
PROXY STATEMENT

The accompanying proxy is solicited by the Board of Directors of 3Com
Corporation, a Delaware corporation (the "Company" or "3Com"), for use at the
Annual Meeting of Stockholders to be held on Tuesday, October 7, 1997, at 10:30
a.m. local time or any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting. The meeting will be held at the Company's
facility at 5400 Bayfront Plaza, Building 500, Santa Clara, California. The
Company's telephone number is (408) 764-5000. The date of this Proxy Statement
is August 27, 1997, the approximate date on which this Proxy Statement and the
accompanying form of proxy were first sent or given to stockholders.

GENERAL INFORMATION

Certain Financial and other Information--Summary Annual Report. Please take
note that this year the Company's financial statements and related information
are included after the end of this Proxy Statement in an Annual Financial Report
to Stockholders. In addition, a Summary Annual Report for the fiscal year ended
May 31, 1997 is enclosed with this Proxy Statement.

Subsequent Event -- Merger with U.S. Robotics Corporation. Subsequent to the
end of the 1997 fiscal year, 3Com consummated a merger with U.S. Robotics
Corporation ("USR") on June 12, 1997. Executive Compensation information and
other information in this Proxy Statement that relates to the 1997 fiscal year
and earlier fiscal years of 3Com have not been restated to reflect results or
compensation of the combined company. See the Consolidated Financial Statements
included in the Annual Financial Report to Stockholders attached hereto.

Voting Securities. Only stockholders of record as of the close of business on
August 15, 1997 will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 344,644,309 shares of Common Stock of the
Company issued and outstanding. Stockholders may vote in person or by proxy.

Each holder of shares of Common Stock is entitled to one (1) vote on the
proposals presented in this Proxy Statement for each share of stock held. The
Company's Bylaws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting.

Solicitation of Proxies. The cost of soliciting proxies will be borne by the
Company. In addition to soliciting stockholders by mail and through its regular
employees, the Company will request banks and brokers, and other custodians,
nominees and fiduciaries, to solicit their customers who have stock of the
Company registered in the names of such persons and will reimburse them for
their reasonable, out-of- pocket costs. The Company may use the services of its
officers, directors, and others to solicit proxies, personally or by telephone,
without additional compensation. The Company has also retained Corporate
Investor Communications, Inc. to assist in obtaining proxies for the Annual
Meeting from brokers, nominees of stockholders and institutional investors. The
estimated fee for such services, which is not contingent upon the outcome of the
voting, is $6,000, plus out-of-pocket expenses.

Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted for all nominees
and in favor of the proposals. A stockholder giving a proxy has the power to
revoke his or her proxy, at any time prior to the time it is voted, by delivery
to the Secretary of the Company of a written instrument revoking the proxy or a
duly executed proxy with a later date, or by attending the meeting and voting in
person.

<PAGE>

Stock Ownership of Certain Beneficial Owners and Management. The following
table sets forth certain information, as of August 15, 1997, with respect to the
beneficial ownership of the Company's Common Stock by (i) each director and
director-nominee of the Company, (ii) the Chief Executive Officer and the four
other most highly compensated executive officers of the Company as of May 31,
1997, and (iii) all executive officers and directors of the Company as a group.

PERCENT OF
AMOUNT AND NATURE OF COMMON STOCK
BENEFICIAL OWNERSHIP
NAME (1) OUTSTANDING
- ------------------------------------------ --------------------- ------------
James L. Barksdale 90,000 *
Gordon A. Campbell 60,000 *
Casey Cowell (2) 4,883,519 1.36%
James E. Cowie (2) 95,000 *
David W. Dorman 76,000 *
Jean-Louis Gassee 90,000 *
Stephen C. Johnson (3) 171,300 *
Philip C. Kantz 124,004 *
Paul G. Yovovich (2) 206,150 *
William F. Zuendt 357,000 *
Eric A. Benhamou 1,637,817 *
Robert J. Finocchio, Jr. (4) 552,195 *
Alan J. Kessler 107,040 *
Janice M. Roberts 289,669 *
Douglas L. Spreng 570,437 *
All directors and executive officers as a 18,503,116 5.16%
group (28 persons)

- ----------
*Less than 1%.

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

Includes shares of the Company's Common Stock issuable pursuant to options
exercisable within 60 days of August 15, 1997, including options to acquire
90,000 shares of the Company's Common Stock held by Mr. Barksdale, options
to acquire 60,000 shares held by Mr. Campbell, options to acquire 2,470,000
shares held by Mr. Cowell, options to acquire 95,000 shares held by Mr.
Cowie, options to acquire 76,000 shares held by Mr. Dorman, options to
acquire 90,000 shares held by Mr. Gassee, options to acquire 132,000 shares
held by Mr. Johnson, options to acquire 114,000 shares held by Mr. Kantz,
options to acquire 183,750 shares held by Mr. Yovovich, options to acquire
169,000 shares held by Mr. Zuendt, options to acquire 1,222,848 shares held
by Mr. Benhamou, options to acquire 500,212 shares held by Mr. Finocchio,
options to acquire 107,040 shares held by Mr. Kessler, options to acquire
285,536 shares held by Ms. Roberts, options to acquire 554,540 shares held
by Mr. Spreng, and options to acquire an aggregate of 13,811,485 shares of
the Company's Common Stock and 19,500 restricted shares of Common Stock
subject to vesting held by directors and executive officers of the Company
as a group.

(2) Pursuant to the terms of the Amended and Restated Agreement and Plan of
Merger relating to the merger with USR, as approved by the Company's
Shareholders on June 11, 1997, Messrs. Cowell, Cowie and Yovovich were each
appointed to the Board of Directors of the Company.

(3) Mr. Johnson is serving as a director and as a member of the Company's Audit
Committee for a term expiring at the 1997 Annual Meeting. Mr. Johnson is not
standing for re-election.

(4) In May 1997, Mr. Finocchio resigned as an officer of the Company. For
additional information concerning Mr. Finocchio's resignation, see
"EXECUTIVE COMPENSATION AND OTHER MATTERS--Employment and Change of Control
Arrangements."

As of August 15, 1997, there were no persons known by the Company to be the
beneficial owners of more than 5% of the outstanding Common Stock of the
Company.

<PAGE>

ELECTION OF DIRECTORS

The number of directors authorized by the Company's Bylaws is to be fixed by
the Board. The exact number is currently fixed at eleven. The Company's Bylaws
provide that the directors shall be divided into two classes, with the classes
of directors serving for staggered two-year terms. Class I presently has six
members, one of whom has determined not to stand for re-election. As a result,
Class I will have one vacant seat following the 1997 Annual Meeting, which the
Board intends to eliminate by reducing the number of authorized directors to
ten. Proxies cannot be voted for more than the five named nominees. The five
Class I directors to be elected at the 1997 Annual Meeting are to be elected to
hold office until the 1999 Annual Meeting and until their successors have been
elected and qualified.

The nominees for election at the Annual Meeting of Stockholders to Class I of
the Board of Directors are Mr. Cowell, Mr. Dorman, Mr. Gassee, Mr. Yovovich, and
Mr. Zuendt. If a nominee declines to serve or becomes unavailable for any
reason, or if a vacancy occurs before the election (although Management knows of
no reason to anticipate that this will occur), the proxies may be voted for such
substitute nominee as Management may designate.

If a quorum is present and voting at the Annual Meeting, the five nominees
for Class I directors receiving the highest number of votes will be elected as
Class I directors. Abstentions and shares held by brokers that are present but
not voted because the brokers were prohibited from exercising discretionary
authority, i.e., "broker non-votes," will be counted as present for purposes of
determining if a quorum is present.

<TABLE>
The following table sets forth the name and age of each nominee and each
director of the Company whose term of office continues after the Annual Meeting,
the principal occupation of each during the past five years and the period
during which each has served as a director of the Company.

NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A TERM EXPIRING IN 1999

<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING PAST FIVE YEARS AGE SINCE
- --------------- ------------------------------------------------------------ --- --------
<S> <C> <C> <C>
Casey Cowell Mr. Cowell founded U.S. Robotics Corporation ("USR") in 44 1997
1976. Prior to the Company's combination with USR in June
1997, Mr. Cowell served as Chairman of the Board, Chief
Executive Officer and a director of USR since 1978. He also
served as President of USR from 1978 until January 1997. Mr.
Cowell also serves as a director of Eagle River Interactive,
Inc., May & Speh, Inc., and Northwestern Memorial Corp.,
parent company of Northwestern Memorial Hospital, and is a
trustee of the Illinois Institute of Technology.

David W. Dorman Mr. Dorman has been Executive Vice President--Strategic 43 1995
Planning of SBC Communications, Inc., one of the world's
leading diversified telecommunications companies, since
August 1997. Previously, Mr. Dorman had 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 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.

<PAGE>

NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A TERM EXPIRING IN 1999 (CONT'D)

PRINCIPAL OCCUPATION DIRECTOR
NAME DURING PAST FIVE YEARS AGE SINCE
- ----------------- ------------------------------------------------------------ --- --------

Jean-Louis Gassee Mr. Gassee is the Chairman of the Board and Chief Executive 53 1993
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 also a director of Electronics For Imaging,
Inc. and LaserMaster Technologies, Inc.

Paul G. Yovovich Mr. Yovovich served as a director of USR since 1991, prior 43 1997
to USR's combination with the Company in June 1997. Mr.
Yovovich served as President of Advance Ross Corporation
from 1993 to 1996. He served in several executive positions
with Centel Corporation from 1982 to 1992, where his last
position was that of President of its Central Telephone
Company unit. Mr. Yovovich also serves as a director of
Comarco, Inc., May & Speh, Inc., and APAC TeleServices, Inc.

William F. Zuendt Mr. Zuendt retired from his position as President and Chief 50 1988
Operating Officer of Wells Fargo & Company, a bank holding
company and of Wells Fargo Bank in July 1997. He joined
Wells Fargo in 1973. Mr. Zuendt is also a director of Wells
Fargo & Company, a director of the Federal Advisory Council,
a member of the California Chamber of Commerce and the
Stanford Advisory Board, and a past Chairman of MasterCard
International and of Golden Gate University.

INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 1998

PRINCIPAL OCCUPATION DIRECTOR
NAME DURING PAST FIVE YEARS AGE SINCE
- ------------------ ------------------------------------------------------------ --- --------

James L. Barksdale Mr. Barksdale has been the President, CEO and a Director of 54 1987
Netscape Communications Corporation 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.
("Bridge") from April 1986 until Bridge combined with the
Company in 1987. Mr. Barksdale also serves as a director of
Harrah's Entertainment, Inc., Home Corporation and Robert
Mondavi Corporation.

<PAGE>

INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 1998 (CONT'D)

PRINCIPAL OCCUPATION DIRECTOR
NAME DURING PAST FIVE YEARS AGE SINCE
- ---------------- ------------------------------------------------------------ --- --------

Eric A. Benhamou Mr. Benhamou has been President and Chief Executive Officer 41 1990
of the Company since April 1990 and September 1990,
respectively. Mr. Benhamou became Chairman of the Board of
Directors of the Company in July 1994. Mr. Benhamou served
as the Company's Chief Operating Officer from April 1990 to
September 1990. From October 1987 through April 1990, Mr.
Benhamou held various general management positions within
the Company. Prior to that, Mr. Benhamou was one of the
founders of Bridge in September 1981, and held various
executive positions in that company in the fields of
engineering and product development, most recently as Vice
President of Engineering, until Bridge combined with the
Company in September 1987. Mr. Benhamou also serves as a
director of Cypress Semiconductor, Inc., Legato Systems,
Inc. and Netscape Communications Corporation. Mr. Benhamou
serves on President Clinton's I.T. Advisory Council (PITAC).

Gordon A. Campbell Mr. Campbell is the founder and since 1993 has been General 53 1990
Partner and Chairman of the Board of Techfarm, Inc., a
company formed to launch technology based start-up
companies. Mr. Campbell was the founder of Chips and
Technologies, Inc. ("Chips"), a company that designs and
distributes very large scale integrated circuit products,
and served as President, Chief Executive Officer and
Chairman of the Board of Chips from December 1984 until
November 1993 and as Chairman of the Board of Chips until
November 1995. 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., and as Chairman of the Board of 3D/Fx
Interactive Inc., Absolute Time Corporation, CoActive
Aesthestics, IN4S, N*Able, Resonate, Inc., and Quantum 3D.

James E. Cowie Mr. Cowie served as a director of USR since March 1994, 42 1997
prior to the Company's combination with USR in June 1997.
Mr. Cowie has been a General Partner of Frontenac Company, a
Chicago- based private equity investment firm since 1989. He
also is a director of PLATINUM technology, inc., and U.S.
Servis, Inc.

<PAGE>

INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 1998 (CONT'D)

PRINCIPAL OCCUPATION DIRECTOR
NAME DURING PAST FIVE YEARS AGE SINCE
- --------------- ------------------------------------------------------------ --- --------

Philip C. Kantz Mr. Kantz has been President, Chief Executive Officer and a 53 1992
director of TAB Products Co., a provider of automated file
management systems, since January 1997. He has also served
as President, Chief Operating Officer and a director of
Trans Ocean Ltd., a privately held transportation equipment
leasing company, from October 1995 to October 1996. In 1995,
he served as President and Chief Executive Officer of The
Sandros Enterprise, a private consulting firm. From February
1994 to January 1995, he served as President, Chief
Executive Officer and a director of Transcisco Industries,
Inc., an industrial service 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 Itel Containers International
Corporation from 1988 through 1991. Previously, Mr. Kantz
was President of the 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 Sonic Force LLP, ParcPlace-Digitalk, Inc.,
Search Systems Corporation, and Mine Reclamation
Corporation.
</TABLE>

During the fiscal year ended May 31, 1997, the Board held thirteen (13)
meetings. The Board has an Audit Committee and a Compensation Committee. The
Board does not have a standing Nominating Committee.

During the fiscal year ended May 31, 1997, the Company's Audit Committee met
four (4) times. Its current members are David W. Dorman, Stephen C. Johnson((1))
and William F. Zuendt. The Audit Committee makes recommendations to the Board
regarding engagement of the Company's independent public accountants, approves
services rendered by such accountants, reviews the activities and
recommendations of the Company's internal audit department, and reviews and
evaluates the Company's accounting systems, financial controls and financial
personnel.

During the fiscal year ended May 31, 1997, the Compensation Committee met
eight (8) times. Its current members are Philip C. Kantz and, effective
following the combination with USR, Paul G. Yovovich. Gordon A. Campbell
resigned from this committee as of June 12, 1997. 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 the Company, reviews the administration of the Company's stock
option and stock purchase plans, and advises the Board on general aspects of the
Company's compensation and benefit policies. For additional information
concerning the Compensation Committee, see "EXECUTIVE COMPENSATION AND OTHER
MATTERS--Compensation Committee Interlocks and Insider Participation" and
"REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION."
- ----------
(1) Mr. Johnson is serving as a director and as a member of the Company's Audit
Committee for a term expiring at the 1997 Annual Meeting, Mr. Johnson is not
standing for re-election.

<PAGE>

EXECUTIVE COMPENSATION AND OTHER MATTERS

EXECUTIVE COMPENSATION

<TABLE>

The following table sets forth information concerning the compensation of the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company as of May 31, 1997:

SUMMARY COMPENSATION TABLE

<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2) COMPENSATION(3)
- -------------------------- ---- -------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Eric A. Benhamou 1997 $645,789 $42,381 150,000 $1,214
President and Chief 1996 589,583 34,684 320,000 1,090
Executive Officer 1995 472,085 49,433 291,200 682
Robert J. Finocchio, Jr.(4) 1997 425,015 28,254 90,000 1,326
President 1996 395,000 23,241 192,000 911
3Com Systems 1995 338,335 35,423 174,720 587
Douglas C. Spreng 1997 377,831 25,178 90,000 1,915
Executive Vice President 1996 356,250 20,849 192,000 1,753
Interface Products Group 1995 311,918 32,674 174,720 1,492
Janice M. Roberts 1997 287,334 80,450(5) 60,000 498
Senior Vice President 1996 262,711 15,997 144,000 455
Marketing and Business 1995 214,975 25,857 145,000 317
Development
Alan J. Kessler 1997 330,476 21,158 72,000 460
Senior Vice President 1996 248,168 16,189 116,000 264
Enterprise Systems 1995 297,597(6) 1,309 87,360 158
Business Unit

<FN>
- ----------
(1) Amount shown includes payments made under the Company-wide profit-sharing
plan known as 3Share. Under that plan, the Company expensed approximately
three percent (3%), three percent (3%) and six percent (6%) of its income
before taxes in fiscal 1997, 1996 and 1995, respectively, after adjustments
for certain unusual or non-recurring income or expense items. These amounts
were subsequently distributed 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 Company-wide cash bonus
in an amount equal to two days salary.

(2) Amounts shown reflect the 2-for-1 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.

(3) Represents life insurance premiums.

(5) Includes special bonus of $61,130.

(6) Includes commissions of $127,597.
</FN>
</TABLE>

<PAGE>

<TABLE>
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended May 31,
1997 to the persons named in the Summary Compensation Table:

OPTION GRANTS IN FISCAL YEAR 1997

<CAPTION>
POTENTIAL REALIZABLE
% OF VALUE AT
TOTAL ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (3)
OPTIONS IN FISCAL PRICE PER EXPIRATION --------------------------------
NAME GRANTED (1) 1997 SHARE (2) DATE 5% 10%
- -------------------- ------------ ---------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou 150,000 1.98% $38.31 07-17-06 $ 3,613,943 $ 9,158,441
Robert J. Finocchio, 90,000 1.19% 38.31 07-17-06 2,168,366 5,495,065
Jr.
Alan J. Kessler 72,000 .95% 38.31 07-17-06 1,734,693 4,396,052
Janice M. Roberts 60,000 .79% 38.31 07-17-06 1,445,577 3,663,376
Douglas C. Spreng 90,000 1.19% 38.31 07-17-06 2,168,366 5,495,065
All Stockholders (4) N/A N/A N/A N/A $5,440,650,776 $13,787,677,272

<FN>
- ----------
(1) All of the above options are subject to the terms of the Company's 1983
Stock Option Plan (the "1983 Option Plan") and are exercisable only as they
vest. 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 the Company.

(2) All options were granted at an exercise price equal to the average of the
fair market values of the Company's Common Stock over a period of ten
trading days beginning on July 18, 1996 and ending on July 31, 1996.

(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 stockholders commensurably. A zero percent 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 option
holders' continued employment through the vesting period.

(4) Represents potential appreciation in aggregate stockholder value at the
assumed annual rates of stock price appreciation over a ten-year period
beginning May 30, 1997 (last trading date before fiscal year end) based on
the number of shares then outstanding, and using as a base value the $48.50
per share closing price of 3Com Common Stock on that date.
</FN>
</TABLE>

<PAGE>

<TABLE>
The following table provides the specified information concerning option
exercises during fiscal year 1997 and the exercisable and unexercisable options
held as of May 31, 1997, by the persons named in the Summary Compensation Table:

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND YEAR-END OPTION VALUES

<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 5/31/97 OPTIONS AT 5/31/97 (1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou 210,000 $11,993,324 992,548 635,600 $40,022,246 $13,923,522
Robert J. Finocchio, 150,000 8,728,791 387,032 381,360 14,520,204 8,354,113
Jr.
Alan J. Kessler 119,390 4,939,319 0 252,680 0 5,483,740
Janice M. Roberts 100,000 5,445,000 178,136 290,800 5,944,281 6,656,193
Douglas C. Spreng 115,000 7,227,969 380,360 381,360 14,211,159 8,354,113

<FN>
- ----------
(1) Based on a fair market value of $48.50 per share as of May 30, 1997 (last
trading date before fiscal year end), the closing sale price of the
Company's Common Stock on that date as reported by the Nasdaq Stock Market.
</FN>
</TABLE>

EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS

In May 1997, Robert J. Finocchio, Jr. resigned as an officer of the Company.
At the time of his resignation as an officer, Mr. Finocchio and the Company
entered into an agreement providing that he would continue to be employed at his
then-current monthly salary until September 1997.

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 all outstanding options
granted under the Director Plan will become fully vested and immediately
exercisable upon a merger or acquisition of the Company where the Company is not
the survivor or upon the sale of substantially all of the assets of the Company.

COMPENSATION OF DIRECTORS

Members of the Board who are not employees of the Company received an annual
retainer during fiscal 1997 as follows: Lead member of the Board $20,000, 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 outside of the local area.

Outside directors receive options to purchase Common Stock pursuant to the
Director Plan. The Director Plan provides for the initial automatic grant of an
option to purchase shares of the Company's Common Stock to each director of the
Company who is not an employee of the Company ("Outside Director"), with a
maximum of 30,000 shares to be subject to each such option (or 36,000 shares for
the "lead" director). In addition, each Outside Director is automatically
granted an option to purchase shares of the Company's 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 is established by the
Committee administering the Plan. For the fiscal year ended May 31, 1997, the
options granted to Outside Directors for service on the Board of Directors were
set at 30,000 shares, and 18,000 shares for service on Board Committees. All
options have a five year term, are immediately exercisable (subject to the
Company's right to repurchase any unvested shares) and vest over two years as
long as the option holder continues

<PAGE>

to serve on the Board or the Committee. An additional option to purchase the
number of shares of the Company's Common Stock then established by the Committee
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 1997, Messrs. Campbell and Kantz served as members of the
Compensation Committee of the Company's Board of Directors.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers, directors and persons who
beneficially own more than 10% of the Company's Common Stock to file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by such
persons.

Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% Stockholders were complied with during 1997.

<PAGE>

CHANGES TO 1983 STOCK OPTION PLAN

The Company has proposed an amendment to increase the share reserve under the
Company's 1983 Stock Option Plan by 7,000,000 shares. Non-employee directors are
not eligible to participate in the 1983 Option Plan.

The following table sets forth grants of stock options received during fiscal
1997 under the 1983 Option Plan to (1) the persons named in the Summary
Compensation Table; (2) all current executive officers as a group; (3) all
current directors who are not executive officers as a group; and (4) all
employees, including all officers who are not executive officers, as a group.
Grants under the 1983 Option Plan are made at the discretion of the Board of
Directors. Accordingly, future grants under the 1983 Option Plan are not yet
determinable.

NEW PLAN BENEFITS TABLE

3COM CORPORATION
1983 STOCK OPTION PLAN
-----------------------------------
EXERCISE PRICE
(WEIGHTED AVERAGE
NAME AND POSITION PER SHARE) (1) NUMBER OF SHARES
- ----------------------------------------- ------------------ ----------------

Eric A. Benhamou $38.31 150,000
President and Chief Executive Officer
Robert J. Finocchio, Jr. 38.31 90,000
President
3Com Systems
Alan J. Kessler 38.31 72,000
Senior Vice President
Enterprise Systems Business Unit
Janice M. Roberts 38.31 60,000
Senior Vice President
Marketing and Business Development
Douglas C. Spreng 38.31 90,000
Executive Vice President
Interface Products Group
Executive Group (11 persons) 38.31 729,500
Non-Executive Director Group (7 persons) N/A N/A
Non-Executive Officer Employee Group 0(2) 0

- ----------
(1) All options granted to named executive officers were granted at an exercise
price equal to the average of the fair market values of the Company's Common
Stock over a period of ten trading days beginning on July 18, 1996 and
ending on July 31, 1996. These grants represent incentive awards based on
success in attaining performance objectives established for the prior fiscal
year.

(2) No options were granted to non-executive officer employees in fiscal year
1997 under the 1983 Stock Option Plan; options were instead granted to such
employees under the 1994 Stock Option Plan, in which participation is
limited to non-executive officer employees. Under the 1994 Stock Option
Plan, options for 6,807,535 shares were granted to non-executive officer
employees in fiscal year 1997 at a weighted average price of $42.67 per
share. All grants had a per share exercise price equal to the fair market
value of the Company's common stock on the date of grant. These figures
reflect the weighted average of new-hire and other option grants occurring
at different times throughout the year.

<PAGE>

REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

SUMMARY OF COMPENSATION POLICIES FOR EXECUTIVE OFFICERS

The goals of the Company's compensation program are to: (i) enable the
Company to attract, retain and motivate highly-qualified employees and executive
officers who contribute to the long-term success of the Company; (ii) align
compensation with business objectives and performance; and, (iii) align
incentives for executive officers with the interests of stockholders in
maximizing stockholder value. The Company emphasizes paying for performance,
cost-competitiveness and clarity in the communication of performance objectives.
The Company annually reviews its compensation practices by comparing them to
surveys of relevant competitors and sets objective compensation parameters based
on this review. Compensation policies also reflect the competition for executive
talent and the unique challenges and opportunities facing the Company in the
global data networking market.

The Company's compensation program for all employees includes both cash- and
equity-based elements. Because equity-based compensation directly links the
interests of management with the interests of our stockholders, equity-based
compensation is the primary mechanism at the executive officer level for
rewarding contribution to the short- and long-term success of the Company. The
Company also has an individualized annual cash bonus plan which is based on
achievement of financial performance objectives.

CASH COMPENSATION

Salary. The Company sets a base salary range for each executive officer,
including the Chief Executive Officer, by reviewing the base salary for
comparable positions of a broad peer group including companies similar in size
and business who compete with the Company in the recruitment and retention of
senior personnel. Base pay is targeted at the 60th percentile of market on the
basis of external salary data provided to the Company by independent surveys;
individual salaries for each executive officer are set relative to this target
based on sustained individual performance and contribution to the Company's
results. Total compensation, including equity-based compensation, is targeted at
the market average for comparable positions.

Cash Profit-Sharing. Executive officers are eligible to participate in the
Company's profit-sharing plan, known as 3Share. The Company reserves a varying
percentage of its pre-tax profit for distribution to employees, based on the
view that there should be no payout at low levels of profit and, as the Company
achieves higher levels of profit, a larger percentage should be reserved for the
employee profit sharing plan. Unusual or non-recurring related income or
expenses may be excluded in determining pre-tax profit for purposes of 3Share.
In fiscal year 1997, 3Share was designed to yield approximately one month's
additional salary to employees when the Company achieves twenty to twenty one
percent (20-21%) income before taxes. 3Share did not accrue below thirteen
percent (13%) income before taxes. Under this plan the Company in fiscal year
1997 expensed approximately three percent (3%) of its income before taxes that
was subsequently distributed at six month intervals to all non-commissioned
employees worldwide, including executive officers, with individual payments
determined pro rata based on salary level.

EQUITY-BASED COMPENSATION

Options granted to executive officers are subject to vesting restrictions
that lapse in annual increments to motivate recipients to stay with the Company.
Performance options granted by the Company after the end of a fiscal year at the
then-current fair market value become valuable and exercisable only if the
executive officer continues to serve the Company and the price of the Company's
stock subsequently increases. Initial or "new-hire" options are granted to
executive officers when they first join the Company. Thereafter, additional
options are granted to each executive officer on an annual basis as an equity
bonus if specified individual and Company performance goals are achieved
("performance options"). The relevant performance goals and the range of
potential option grants are established and communicated at the beginning of
each fiscal year. The amount of actual options granted reflect the percentage of
the Company's and the officer's objectives that is realized.

<PAGE>

Based on its policy that equity-based compensation continues to be a key
method for aligning incentives with performance and stockholder value, the
Company annually establishes performance goals and the range of potential option
grants for each executive officer. The purpose of using performance options is
to focus the efforts of executive officers on predetermined specific goals and
objectives that are of critical importance to the Company.

The performance options granted to the Company's executive officers in fiscal
year 1998 were based upon the Company's success in attaining specific financial
and operating objectives established for fiscal year 1997 relating to sales
growth rate, growth in the Company's system sales and earnings per share.
Likewise, performance options may be granted to the Company's executive officers
in fiscal year 1999 based upon their success in attaining specific financial and
operating objectives established for fiscal year 1998 in the growth of overall
revenue and earnings per share.

Each metric included in the objectives for a year is assigned a weight. The
target size of the performance options offered to specific executive officers is
intended to provide a total compensation opportunity equivalent to positions at
the Company's competitors for available executive talent. Upon completion of the
fiscal year, the Company computes the total weighted result of the fiscal year
performance metrics and multiplies each executive officer's target grant amount
by that weighted result to determine the recommended grant amount, if any. The
performance options granted to the Company's executive officers in fiscal year
1998 are based upon the Company's success in meeting or exceeding its financial
and operational targets for fiscal year 1997 in the areas described above.

In designing executive compensation for fiscal year 1998, the Company
retained an outside consultant to perform a comprehensive assessment of
compensation for its Chief Executive Officer and to extend such methodology to
other executive officers. The services rendered by the consultant to the
Committee included surveying competitors' practices, assessing the mix of pay
relative to competitive practices, evaluating the linkage between pay and
performance, and recommending compensation strategies.

The Committee has considered the potential impact of Section 162(m) (the
"Section") of the Internal Revenue Code adopted under the federal Revenue
Reconciliation Act of 1993. The Section disallows a tax deduction for any
publicly-held corporation for individual compensation exceeding $1 million in
any taxable year for any of the named executive officers, other than
compensation that is performance-based. Since the targeted cash compensation of
the majority of the named executive officers is below the $1 million threshold
and the Company believes that any options granted under the 1983 Option Plan
will meet the requirement of being performance-based under the transition
provisions provided in the regulations under the Section, the Committee
concluded that the Section should not materially reduce the tax deductions
available to the Company and that no changes to the Company's compensation
program were needed in this regard.

CEO COMPENSATION

The Chief Executive Officer's salary and performance stock option grants
follow the policies set forth above. Mr. Benhamou's base annual salary for
fiscal year 1997 of $645,789 reflects his position, duties and responsibilities.
The CEO's salary increase in fiscal year 1997 was based on the Compensation
Committee's evaluation of his performance and the Company's performance. In
addition, Mr. Benhamou received a small cash bonus, which bonus was paid to all
employees. Under the provisions of the Company's profit-sharing plan, Mr.
Benhamou was awarded $42,381. In fiscal year 1997, the Company's performance was
measured against goals for total revenues, product line revenues, earnings per
share and operating income. The performance option for 118,800 shares received
by Mr. Benhamou in fiscal year 1998 was granted based on the Company's fiscal
year 1997 results and the corresponding computation of weighted results for
determination of the option grant amount.

THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS

Gordon A. Campbell
Philip C. Kantz

<PAGE>

COMPARISON OF STOCKHOLDER RETURN

Set forth below is a line graph comparing the annual percentage change in the
cumulative total return on the Company's Common Stock with the cumulative total
return of the Standard & Poor's 500 Stock Index and the Standard & Poor's
Technology Sector Index(1) for the period commencing on May 31, 1992 and ending
on May 31, 1997.

Comparison of Cumulative Total Return From May 31, 1992 through May 31, 1997(2):

[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T.]

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG 3COM CORPORATION, THE S & P 500 INDEX
AND THE S & P TECHNOLOGY SECTOR INDEX

5/92 5/93 5/94 5/95 5/96 5/97
---- ---- ---- ---- ---- ----
3COM CORPORATION 100 230 400 1089 1677 1651
S & P 500 100 112 116 140 180 232
S & P TECHNOLOGY SECTOR 100 115 129 186 246 358

- ---------
(1) The S&P Technology Sector Index was previously called the S&P High Tech
Composite Index.

(2) Assumes that $100.00 was invested on May 31, 1992 in the Company's Common
Stock and each index, and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Stock. On August 16,
1994, the Company effected a 2-for-1 stock split (payable in the form of a
stock dividend) on each outstanding share. On August 4, 1995, the Company
effected a further 2-for-1 stock split (payable in the form of a stock
dividend) on each outstanding share. The Company's cumulative total return
for the fiscal years prior to the stock split have been adjusted to take
into account the stock splits. Stockholder returns over the indicated period
should not be considered indicative of future stockholder returns.

<PAGE>

PROPOSAL TO APPROVE AN INCREASE IN THE SHARE RESERVE
UNDER THE 3COM CORPORATION 1983 STOCK OPTION PLAN
BY 7,000,000 SHARES

The Board has approved an increase in the number of shares of Company Common
Stock reserved under the 1983 Option Plan by 7,000,000 shares. As of August 15,
1997, 3,680,870 shares of Common Stock (excluding the 7,000,000 shares now
proposed for shareholder approval) were available for future option grants under
the 1983 Option Plan. The Board believes that the adoption of this proposal is
in the best interest of the Company for the reasons discussed below.

The Company seeks to attract, motivate and retain talented and enterprising
employees by rewarding performance and encouraging behavior that will improve
the Company's profitability. The Company believes that the 1983 Option Plan
plays an important role in achieving these objectives. The Company's primary
incentive program is through equity compensation; the Company does not use any
material form of cash bonus or cash incentive plan, other than profit sharing,
for management or key engineering contributors, nor any form of cash incentive
plan for other employees. This practice is fairly unique among the Company's
competitors; most choose some form of cash bonus or cash/equity compensation
mix. However, the Company believes that equity-based incentive programs for all
employees help ensure a tight link between the interests of the stockholders and
the interests of our employees, and enhance our ability to continue recruiting
and retaining top talent. Management believes that the continued operation of
the 1983 Option Plan necessitates an increase in the share reserve under the
1983 Option Plan.

SUMMARY OF PROVISIONS OF THE 1983 OPTION PLAN

The summary of the 1983 Option Plan included in this Proxy Statement is
qualified in its entirety by the specific language of the 1983 Option Plan, as
amended. Copies of the 1983 Option Plan are available to any stockholder upon
request addressed to Mark D. Michael, Senior Vice President, General Counsel and
Secretary, 3Com Corporation, 5400 Bayfront Plaza, Santa Clara, CA 95052-8145.

Administration and Share Reserve. As of August 15, 1997, 3,680,870 shares
were available to support future option grants under the 1983 Plan. The 1983
Plan is administered by the Board or a committee appointed by the Board. Options
granted may be either "incentive stock options," that is, options which meet the
requirements of Section 422 of the Internal Revenue Code (the "Code"), or
"nonqualified stock options," that is, options which do not meet those
requirements. Virtually all options granted in recent years and virtually all
options currently outstanding under the 1983 Option Plan are nonqualified stock
options.

Eligibility. All employees of the Company and its present subsidiaries and
future parent and/or subsidiary corporations (including officers and directors
who are also employees) may be granted options under the 1983 Option Plan. As of
August 15, 1997, approximately 13,253 employees were eligible to participate in
the 1983 Option Plan. All options must be granted, if at all, not later than
July 8, 2002. An employee may not be granted options to purchase more than
1,000,000 shares in any fiscal year, and may not be granted incentive stock
options which would permit that employee to acquire stock with a fair market
value (determined at the date of grant) in excess of $100,000 in any calendar
year by exercising such options when they first become exercisable.

Terms of Exercise. Incentive stock options granted under the 1983 Option Plan
must have an option price equal to at least 100% of the fair market value of the
Common Stock of the Company, as determined by the Board, on the date that the
option is granted. Nonqualified stock options granted under the 1983 Option Plan
must have an option price equal to at least 85% of the fair market value of the
Common Stock of the Company, as determined by the Board, on the date that the
option is granted. As of August 15, 1997, the closing sale price for the
Company's Common Stock as reported by the Nasdaq Stock Market was $54.1875. The
Board may set the time or times within which each option is exercisable or the
event or events upon the occurrence of which all or a portion of each option
shall be exercisable and the term of each option (which may not exceed ten
years). An option may either be immediately exercisable in its entirety (subject
to the Company's right to repurchase any unvested shares acquired upon exercise)
or may be exercisable to the extent that shares subject to the option have
vested, or may become exercisable

<PAGE>

as otherwise specified by the Board. Options generally terminate after ten years
from the date of grant. 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 outstanding options which are not exercised
or assumed will terminate effective as of the date of a transfer of control of
the Company, as defined for purposes of options granted under the 1983 Option
Plan.

Payment. Options may be exercised by payment of the option price (a) in cash,
by check or other cash equivalent, (b) by tender of shares of Common Stock of
the Company which (i) have a fair market value equal to the option price and
(ii) have been owned by the optionee for more than one year or were not acquired
either directly or indirectly from the Company, or (c) by such other
consideration, including either promissory notes representing not more than
ninety-five percent (95%) of the option price or retained proceeds from an
immediate sale of some or all of the shares acquired upon the option's exercise,
as the Board may approve at the time the option is granted. The optionee is
obligated to make adequate provision for federal and state tax withholding
obligations, if any, of the Company relating to the exercise of the option or
subsequent events triggering a tax liability for the optionee.

Non-Assignment of Options. During the lifetime of the optionee, an option is
exercisable only by the optionee. An option may not be transferred or assigned,
except by will or the laws of descent and distribution.

Vesting. Options generally become exercisable only as they vest, or provide
that shares purchased by an optionee upon the exercise of an option, to the
extent they are unvested, are subject to repurchase by the Company until they
have vested. Most options granted to new employees under the 1983 Option Plan
use the following four-year vesting schedule: during the first six months from
the date of grant, none of the shares subject to option are vested, one-eighth
of the shares vest at the end of the first six months, and the remaining shares
vest ratably on a monthly basis over a forty-two month period. Most options
granted to employees, other than new employees, vest ratably on a monthly basis
over a forty-eight month period. Unless otherwise provided by the Board, any
unvested shares of the Company's Common Stock obtained upon exercise of an
option may be repurchased by the Company within sixty days upon termination of
the optionee's employment for any reason (or exercise of an option by the
terminated employee, if later) or upon the attempted transfer of such unvested
shares, at the price paid for those shares by the optionee.

Termination of Employment. The standard forms of stock option agreement under
the 1983 Option Plan generally provide that in the event an optionee ceases to
be an employee of the Company for any reason, except death or disability, the
optionee may exercise the option (to the extent exercisable on the date of
termination of employment) within three months after the date of termination of
employment. In the event of termination of employment due to death or
disability, an optionee (or his or her legal representative) may exercise the
option within twelve months after such date of termination of employment (to the
extent exercisable on that date).

Amendment or Termination. The Board may terminate or amend the 1983 Option
Plan at any time, but, without the approval of the Company's shareholders, the
Board may not amend the 1983 Option Plan to increase the number of shares
subject to the plan, to change the class of persons eligible to receive options
under the plan, to reduce the exercise price at which options may be granted, or
to extend the time periods during which options may be granted or exercised.

SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE 1983 OPTION
PLAN

The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to
participation in the 1983 Option Plan and does not attempt to describe all
potential tax consequences. Accordingly, a taxpayer's situation may be such that
some variation from the described rules is applicable. Optionees should consult
their own tax advisors prior to the exercise of any option and prior to the
disposition of any shares acquired upon the exercise of an option.

Incentive Stock Options. Options designated as incentive stock options are
intended to fall within the provisions of Section 422 of the Code. An optionee
recognizes no taxable income as the result of the grant or exercise of an
option.

<PAGE>

For optionees who neither dispose of their shares for two years following the
date the option was granted nor within one year following exercise of the
option, the gain on sale of the shares (which is defined to be the difference
between the sale price and the purchase price of the shares) will be taxed as
long-term capital gain. If an optionee is entitled to long-term capital gain
treatment upon a sale of the stock, the Company will not be entitled to any
deduction for federal income tax purposes. If an optionee disposes of shares
within two years after the date of grant or within one year from the date of
exercise (a "disqualifying disposition"), the difference between the option
price and the fair market value of the shares on the date of exercise (not to
exceed the gain realized on the sale, if the sale is at a loss) will be taxed at
ordinary income rates at the time of disposition. Any gain in excess of that
amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee has held the shares more than twelve months.
Any ordinary income recognized by the optionee upon the disposition of stock
should be deductible by the Company for federal income tax purposes.

The difference between the option price and the fair market value of the
shares on the date of exercise of an incentive stock option may be tax
preference income subject to an alternative minimum tax which is to be paid if
such tax exceeds the regular tax for the year. Special rules may apply with
respect to certain subsequent sales of the shares in a disqualifying
disposition, certain basis adjustments for purposes of computing the alternative
minimum taxable income on a subsequent sale of the shares, and tax credits which
may arise with respect to optionees subject to the alternative minimum tax in
years beginning on or after January 1, 1987.

Nonqualified Stock Options. Nonqualified stock options have no special tax
status. An optionee generally recognizes no taxable income as the result of the
grant of such an option. Upon exercise of an option, the optionee normally
recognizes ordinary income in the amount of the difference between the option
price and the fair market value of the stock on that date. If the optionee is an
employee, such ordinary income generally is subject to withholding of income and
employment taxes. Upon the sale of stock acquired by the exercise of a
nonqualified stock option, any gain or loss, based on the difference between the
sale price and the fair market value on the date of recognition of income, will
be taxed as a capital gain or loss. A capital gain or loss will be long-term if
the optionee has held the shares more than twelve months from the date of
recognition of income. The Company should be entitled to a deduction equal to
the amount of ordinary income recognized by the optionee as a result of the
exercise of the option.

VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION

In accordance with the Company's current Bylaws, the affirmative vote of a
majority of the shares present and voting affirmatively or negatively at the
Annual Meeting of Stockholders, at which a quorum representing a majority of all
outstanding shares of Common Stock of the Company is present, either in person
or by proxy, is required for approval of this proposal. Abstentions and broker
non-votes will each be counted as present for purposes of determining the
presence of a quorum. Abstentions and broker non-votes will each be disregarded
and have no effect on the approval or disapproval of this proposal.

The Board believes that the proposed amendment to the 1983 Option Plan is in
the best interest of the Company and the stockholders for the reasons stated
above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THIS PROPOSAL TO INCREASE THE SHARE RESERVE UNDER THE 3Com
CORPORATION 1983 STOCK OPTION PLAN BY 7,000,000 SHARES.

<PAGE>

RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board has selected Deloitte & Touche LLP as the independent public
accountants of the Company for the fiscal year ending May 31, 1998. Deloitte &
Touche LLP has acted in such capacity since its appointment for fiscal year
1980. A representative of Deloitte & Touche LLP will be present at the Annual
Meeting, will be given the opportunity to make a statement, if he or she so
desires, and will be available to respond to appropriate questions.

In the event ratification by the stockholders of the appointment of Deloitte
& Touche LLP as the Company's independent public accountants is not obtained,
the Board will reconsider such appointment.

STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING

Proposals of stockholders intended to be presented at the next Annual Meeting
of the Stockholders of the Company must be received by the Company at its
offices at 5400 Bayfront Plaza, Santa Clara, California 95052-8145, not later
than April 29, 1998 and satisfy the conditions established by the Securities and
Exchange Commission for Stockholder proposals to be included in the Company's
proxy statement for that meeting.

TRANSACTION OF OTHER BUSINESS

At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.

By Order of the Board of Directors

/s/ Mark D. Michael

Mark D. Michael
Secretary

August 27, 1997

<PAGE>

3COM CORPORATION
5400 BAYFRONT PLAZA
SANTA CLARA, CALIFORNIA 95052-8145

ANNUAL FINANCIAL REPORT TO STOCKHOLDERS

Subsequent to the end of its fiscal year ended May 31, 1997, 3Com Corporation
consummated a merger with U.S. Robotics Corporation ("U.S. Robotics") on June
12, 1997. U.S. Robotics is the world's leading supplier of products and systems
that provide access to information across the wide area network, including
modems and remote access products. 3Com issued approximately 158 million shares
of its common stock in exchange for all outstanding common stock of U.S.
Robotics and assumed and exchanged all options to purchase U.S. Robotics' stock
for options to purchase approximately 31 million shares of 3Com common stock.
The transaction was accounted for as a pooling-of-interests. The following
information has not been restated to include the operating results of U.S.
Robotics, and does not represent the results of the combined company. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Subsequent Event and Note 17 of Notes to Consolidated Financial
Statements included elsewhere in this Annual Financial Report to Stockholders.

MARKET FOR COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS

Fiscal 1997 High Low Fiscal 1996 High Low
- --------------- ------- ------- --------------- ------- -------
First Quarter $50 7/8 $33 1/2 First Quarter $40 7/8 $30 7/16
Second Quarter 76 1/2 45 Second Quarter 53 5/8 38 3/8
Third Quarter 81 3/8 33 Third Quarter 51 7/8 35 1/2
Fourth Quarter 51 1/8 24 Fourth Quarter 52 36 1/8

3Com Corporation common stock has been traded in the over-the-counter market
under the symbol COMS since the Company's initial public offering on March 21,
1984. The preceding table sets forth the high and low sales prices as reported
on the Nasdaq Stock Market during the last two years (adjusted to reflect a
two-for-one stock split paid on August 25, 1995 to stockholders of record as of
August 4, 1995). As of May 31, 1997, the Company had approximately 4,900
stockholders of record. 3Com has not paid and does not anticipate it will pay
cash dividends on its common stock.

F-1

<PAGE>

SELECTED FINANCIAL DATA
<TABLE>

The following selected financial information has been derived from the
audited Consolidated Financial Statements. The information set forth below is
not necessarily indicative of results of future operations, and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
Notes thereto included elsewhere in this Annual Financial Report to
Stockholders.

(DOLLARS IN THOUSANDS, YEARS ENDED MAY 31,
EXCEPT -------------------------------------------------------------
PER SHARE AND EMPLOYEE DATA) 1997 1996 1995 1994 1993
- --------------------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Sales $3,147,106 $2,327,101 $1,593,469 $1,011,533 $723,231
Net income (loss) 373,950 177,854 144,559 (11,870) 45,047
Net income (loss) per share:
Primary 2.02 1.01 0.85 (0.08) 0.31
Fully diluted 2.01 1.00 0.84 (0.08) 0.30
- ------------------------------------------------------------------------------------------
Total assets $2,266,275 $1,525,117 $1,074,810 $ 614,688 $458,869
Working capital 1,234,232 825,190 570,691 307,017 244,767
Long-term obligations 115,391 115,492 116,221 4,642 4,833
Retained earnings 736,881 379,358 200,030 73,686 98,699
Shareholders' equity 1,517,510 978,805 633,724 414,122 323,307

Number of employees 7,109 5,190 4,048 3,019 2,514
- ------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
Net income for fiscal 1997 included a charge of approximately $6.6 million ($.04
per share) for merger- related costs. Net income for fiscal 1996 included a
charge of approximately $69.0 million ($.28 per share) for merger-related costs,
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 fiscal 1995 included
a charge of approximately $68.7 million ($.25 per share) for purchased
in-process technology, a charge of approximately $11.2 million ($.06 per share)
for merger- related costs 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, a gain of $17.7 million ($.07 per share) on the sale of an
investment and a tax benefit of $1.2 million ($.01 per share) resulting from tax
law changes. Net income for fiscal 1993 included a charge of approximately $1.3
million ($.01 per share) for non-recurring items. See Notes 3 and 12 to the
Consolidated Financial Statements for additional information on the above
transactions for fiscal years 1997, 1996 and 1995. Excluding the non- recurring
items noted above, net income and net income per share on a fully diluted basis
would have been as follows:

YEARS ENDED MAY 31,
(DOLLARS IN THOUSANDS, -----------------------------------------------------
EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993
- ----------------------------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net income excluding non-recurring $380,550 $280,033 $195,545 $103,713 $46,255
items
Net income per share excluding non- $ 2.05 $ 1.58 $ 1.14 $ 0.66 $ 0.31
recurring items
</TABLE>

F-2

<PAGE>

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

The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Annual
Financial Report to Stockholders.

SUBSEQUENT EVENT

On June 12, 1997, 3Com Corporation ("the Company") consummated a merger with
U.S. Robotics Corporation (U.S. Robotics) the leading supplier of products and
systems for accessing information across the wide area network, including modems
and remote access products. The Company issued approximately 158 million shares
of its common stock in exchange for all outstanding common stock of U.S.
Robotics and assumed and exchanged all options to purchase U.S. Robotics' stock
for options to purchase approximately 31 million shares of the Company's common
stock. The transaction was accounted for as a pooling-of-interests. U.S.
Robotics' sales and net income for the twelve months ended March 30, 1997 were
$2,493.8 million and $237.3 million, respectively. As of March 30, 1997, U.S.
Robotics' assets and stockholder's equity totaled $1,407.3 million and $863.5
million, respectively.

The following information has not been restated to include the operating
results of U.S. Robotics, and does not represent results of the combined
company. The following discussion, including Business Environment and Risk
Factors, represents 3Com on a standalone basis. For information regarding 3Com
and U.S. Robotics on a combined basis, refer to the Joint Proxy
Statement/Prospectus dated May 8, 1997. For historical information regarding
U.S. Robotics on a standalone basis, refer to its quarterly report on Form 10-Q
for the quarter ended March 30, 1997, and its report on Form 10-K for the year
ended September 29, 1996.

BUSINESS COMBINATIONS

On October 31, 1996, the Company acquired OnStream Networks, Inc. (OnStream),
a provider of Asynchronous Transfer Mode (ATM) and broadband wide area network
(WAN) and access products. The Company issued approximately 3.3 million shares
of its common stock in exchange for all the outstanding stock of OnStream, and
assumed and exchanged all options to purchase OnStream stock for options to
purchase approximately 400,000 shares of the Company's common stock. The
acquisition was accounted for as a pooling-of-interests. Financial data of the
Company has been restated for the quarter ended August 31, 1996 to include the
historical financial information of OnStream for that period. As the historical
operations of OnStream were not significant to any period presented, the
Company's financial statements for periods prior to fiscal 1997 have not been
restated.

To enhance its product offerings and accelerate its time-to-market in new
technologies, the Company completed several business combinations in previous
years. In fiscal 1996, the Company acquired Chipcom Corporation (Chipcom), a
provider of computer networking multi-function platforms, including hubs,
switching, and network management products, Primary Access Corporation (Primary
Access), a provider of integrated network access systems, and AXON Networks,
Inc. (AXON), a developer and manufacturer of remote network management and data
network traffic management products. In fiscal 1995, the Company acquired Sonix
Communications, Ltd. (Sonix), a provider of ISDN connectivity solutions in the
United Kingdom, and NiceCom, Ltd. (NiceCom), an innovator of ATM technology, and
Chipcom acquired Artel Communications Corporation (Artel), a provider of
high-performance communication systems for the internetworking and video
distribution markets and DSI ExpressNetworks, Inc. (DSI), a developer of
intelligent hubs and internetworking products.

The impact of acquisition-related charges on the Company's operating
expenses, net income and earnings per share are discussed below. See Notes 3 and
12 of Notes to Consolidated Financial Statements for additional information on
the above business combinations.

F-3

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth for the fiscal years indicated, the percentage
of total sales represented by the line items reflected in the Company's
consolidated statements of income:

YEARS ENDED MAY 31,
-----------------------------
1997 1996 1995
----- ----- -----

Sales 100.0% 100.0% 100.0%
Cost of sales 46.1 47.1 46.3
---- ---- ----
Gross margin 53.9 52.9 53.7
Operating expenses:
Sales and marketing 21.0 20.5 20.0
Research and development 10.7 10.0 10.5
General and administrative 4.1 4.2 4.2
Non-recurring charges:
Purchased in-process technology -- 2.2 4.3
Acquisition-related charges and other 0.2 3.0 0.6
---- ---- ----
Total operating expenses 36.0 39.9 39.6
---- ---- ----
Operating income 17.9 13.0 14.1
Other income -- net 0.7 0.3 0.3
---- ---- ----
Income before income taxes 18.6 13.3 14.4
Income tax provision 6.7 5.7 5.3
---- ---- ----
Net income 11.9% 7.6% 9.1%
==== ==== ====
Excluding non-recurring charges:
Total operating expenses 35.7% 34.6% 34.6%
Operating income 18.1 18.2 18.9
Net income 12.1 12.0 12.3

COMPARISON OF FISCAL YEARS ENDED MAY 31, 1997 AND 1996

Fiscal 1997 sales increased 35 percent to $3.1 billion from $2.3 billion in
fiscal 1996. The Company believes that the increase in fiscal 1997 sales is due
to several factors, including growth in the data networking market as the
Internet, corporate intranets, client server applications and remote access
services stimulate customers to migrate from shared to switched media and to
larger bandwidth and higher speed technologies, such as Fast Ethernet and ATM,
to support data, voice and video multimedia traffic. The Company also believes
that the strength of the Company's product offerings at the edge of the network,
including workgroup switches and hubs, the impact of a strong new product cycle
in systems and adapter products, the continuous expansion of 3Com's product
offerings, and the ability to deliver complete data networking solutions for
different connectivity environments contributed to the increase in sales over
the prior year.

Although the Company experienced relatively strong year over year growth, the
Company's growth rate has moderated in the last half of fiscal 1997. The Company
believes this moderation reflects recent slowed growth in the networking
industry, in combination with increased competitive pricing pressures in the
form of aggressive price reductions and product promotions for certain products,
particularly network adapters, stackable hubs, and workgroup switches. The
Company also experienced declines in its router business, which the Company
believes are primarily due to delays in certain large enterprise customer
orders. The Company believes that the industry is transitioning from shared to
switched networks, from lower to higher-speed technologies, and to more
volume-based pricing and distribution, and that these transitions may be
adversely affecting customer purchasing decisions. Competitive pricing pressures
in adapters, stackable hubs and workgroup switches have resulted in average
selling prices declining more rapidly than in the past. The Company believes
such pricing trends, as well as the uncertainties created by the trend towards
switched networks, may adversely affect the industry's and the Company's growth

F-4

<PAGE>

rates in the coming quarters, and consequently, the Company's historical growth
rates should not be relied upon as an indication of its future performance. See
Business Environment and Risk Factors discussed below.

Sales of network systems products (i.e., internetworking platforms, remote
access servers, hubs, switching products and customer service) increased 30
percent from fiscal 1996, and represented 57 and 59 percent of total sales in
fiscal years 1997 and 1996, respectively. The increase in fiscal 1997 network
systems product sales was led primarily by the SuperStack II workgroup switching
family, the CELLplex ATM High-Function switching family, SuperStack II Ethernet
and Fast Ethernet hubs, and the ONcore intelligent switching system. The
increase in network systems products was partially offset by declines in sales
of the AccessBuilder 8000 access concentrator. The Company experienced a
significant increase in unit volume in workgroup switching products and Ethernet
and Fast Ethernet stackable hubs, partially offset by a decline in average
selling prices resulting from increased competition and pricing pressures.
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 increased 45 percent from fiscal 1996, and
represented 42 and 40 percent of total sales in fiscal years 1997 and 1996,
respectively. The increase in fiscal 1997 network adapter sales represented a
significant increase in unit volume, partially offset by a decline in average
selling prices. The increase in sales was led primarily by the Fast EtherLink
PCI adapters, the EtherLink PC Card adapters, and the EtherLink III family of
network adapters. During the third quarter of fiscal 1997, a major competitor
reduced its average selling prices on Fast Ethernet adapter products by
approximately 40 percent. The Company immediately responded with similar price
cuts. As a result, the Company has recently experienced an accelerated
transition from 10 Mb Ethernet to Fast Ethernet adapters.

Sales of other products represented one percent of total sales in fiscal 1997
and 1996, and are not significant to the Company's operations.

Sales outside of the United States increased 36 percent from the same period
a year ago, and comprised 53 percent of total sales in fiscal years 1997 and
1996. International sales increased in all major geographic regions, with
especially strong growth in the Asia Pacific and Latin America regions, however,
in the latter half of fiscal 1997, sales in certain European countries
moderated. 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. Sales in the U.S. increased 34 percent compared to fiscal
1996. Substantially all of the Company's sales are denominated in U.S. Dollars.
The Company's operations were not significantly impacted by fluctuations in
foreign currency exchange rates in fiscal years 1997, 1996 and 1995.

Gross margin as a percentage of sales was 53.9 percent in fiscal 1997,
compared to 52.9 percent in fiscal 1996. The 1.0 percentage point increase in
gross margin in fiscal 1997 primarily reflected an improved shipment mix of
higher margin workgroup switching and hub products and lower margin network
access concentrators, and lower product material costs of certain adapter
products. Factors causing the increase in gross margin were partially offset by
a higher mix of certain lower margin adapter products. During the third quarter
of fiscal 1997, the Company reduced its average selling prices on Fast Ethernet
adapter products by approximately 40 percent in response to the aforementioned
increased competition, thus causing a recent decline in gross margins, which was
not completely reflected in fiscal 1997. The Company believes that the
competitive pricing pressures in the Fast Ethernet adapters, stackable hub and
workgroup switching products may well result in future declines in gross
margins.

Total operating expenses in fiscal 1997 were $1,131.4 million, compared to
$928.6 million in fiscal 1996. Excluding an acquisition-related charge of $6.6
million related to the acquisition of OnStream (see Note 12 of Notes to
Consolidated Financial Statements), total operating expenses in fiscal 1997
would have been $1,124.8 million, or 35.7 percent of sales. Excluding an
acquisition-related charge of $69.0 million related to the acquisition of
Chipcom, a charge of $52.4 million for purchased in-process technology
associated with the acquisition of AXON and a charge of approximately $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.

F-5

<PAGE>

Sales and marketing expenses in fiscal 1997 increased $183.8 million or 39
percent from fiscal 1996. The increase in such expenses reflected increased
costs associated with the 35 percent increase in sales, a 52 percent
year-over-year increase in sales and marketing personnel, as the Company
continued to invest in the expansion of its direct sales force, and an increase
in the Company's customer support programs and marketing promotions. As a
percentage of sales, sales and marketing expenses were 21.0 percent in fiscal
1997, compared to 20.5 percent in fiscal 1996.

Research and development expenses in fiscal 1997 increased $102.2 million or
44 percent from the prior year. As a percentage of sales, research and
development expenses increased to 10.7 percent in fiscal 1997, from 10.0 percent
in fiscal 1996. The increase in research and development expenses was primarily
attributable to the cost of developing 3Com's new products and technologies,
primarily switching, network management and value-added software, 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 or strategic investments to
accelerate time to market where appropriate. As of May 31, 1997, 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 increase in
research and development expenses is consistent with the Company's continued
commitment to develop and introduce high quality, innovative products.

General and administrative expenses in fiscal 1997 increased $32.6 million or
33 percent from the prior year. The increase in general and administrative
expenses reflects the worldwide expansion of the Company's infrastructure
through internal growth and acquisitions, including an increase in personnel of
35 percent compared to the prior year, increased investment in the Company's
worldwide information systems and costs associated with the Company's expansion
into the Asia Pacific region. As a percentage of sales, such expenses decreased
to 4.1 percent in fiscal 1997, compared to 4.2 percent in fiscal 1996.

Other income (net) was $20.9 million in fiscal 1997, compared to $6.8 million
in fiscal 1996. These amounts consist primarily of interest income, which
increased $12.8 million in fiscal 1997, due primarily to larger cash and
investment balances.

The Company's effective income tax rate was 36.0 percent in fiscal 1997.
Excluding the merger costs associated with the OnStream merger which were not
tax deductible, the effective tax rate for fiscal 1997 would have been 35.6
percent. The Company's effective income tax rate was 42.3 percent in fiscal
1996. Excluding the charge for purchased in-process technology associated with
the acquisition of AXON, which was not tax deductible, and the nondeductible
portion of the merger costs associated with the Chipcom acquisition, the
effective tax rate for fiscal 1996 would have been 35.0 percent.

Net income for fiscal 1997 was $374.0 million, or $2.01 per share, compared
to net income of $177.9 million, or $1.00 per share for fiscal 1996. Excluding
the aforementioned acquisition-related charge of $6.6 million, the Company would
have realized net income of $380.6 million, or $2.05 per share for fiscal 1997.
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.

COMPARISON OF FISCAL YEARS ENDED MAY 31, 1996 AND 1995

Fiscal 1996 sales increased 46 percent to $2.3 billion from $1.6 billion in
fiscal 1995. The Company believes that the increase in fiscal 1996 sales was 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 increased 56 percent from fiscal 1995, and
represented 59 and 55 percent of total sales in fiscal years 1996 and 1995,
respectively. The increase in fiscal 1996 network

F-6

<PAGE>

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.

Sales of network adapters increased 35 percent from fiscal 1995, and
represented 40 and 43 percent of total sales in fiscal years 1996 and 1995,
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.

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

Sales outside of the United States increased 48 percent from the same period
a year ago, and comprised 53 percent of total sales in fiscal 1996, compared to
52 percent in fiscal 1995. 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. Sales in the U.S.
increased 44 percent compared to fiscal 1995.

Gross margin as a percentage of sales was 52.9 percent in fiscal 1996,
compared to 53.7 percent in fiscal 1995. 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. 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.

Total operating expenses in fiscal 1996 were $928.6 million, compared to
$630.9 million in fiscal 1995. 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, and a
charge of approximately $1.0 million for a settlement of litigation (see Note 12
of Notes to Consolidated Financial Statements), total operating expenses in
fiscal 1996 would have been $806.3 million, or 34.6 percent of sales. Excluding
a charge of $68.7 million for purchased in-process technology associated with
the acquisitions of NiceCom and DSI, 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.

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, 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 was also a direct
result of the Chipcom acquisition. As a percentage of sales, sales and marketing
expenses were 20.5 percent in fiscal 1996, compared to 20.0 percent in fiscal
1995.

Research and development expenses in fiscal 1996 increased $66.8 million or
40 percent from the prior year. 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 in fiscal 1996. As a
percentage of sales, research and development expenses were 10.0 percent in
fiscal 1996, compared to 10.5 percent in fiscal 1995.

General and administrative expenses in fiscal 1996 increased $30.9 million or
47 percent from the prior year. The increase in general and administrative
expenses reflected 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.

F-7

<PAGE>

Other income (net) was $6.8 million in fiscal 1996, compared to $4.9 million
in fiscal 1995. The fiscal 1996 increase was primarily caused by interest
income, which increased $9.3 million in fiscal 1996, due 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 an increase in interest expense of $5.5
million in fiscal 1996.

The Company's effective income tax rate was 42.3 percent in fiscal 1996.
Excluding the purchased in-process technology charge associated with the
acquisition of AXON, 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 35.0 percent. The Company's effective income tax rate was
36.9 percent in fiscal 1995. Excluding the charges for purchased in-process
technology associated with the acquisitions of NiceCom and DSI and the merger
costs associated with the Sonix and Primary Access acquisitions, which were not
tax deductible, the effective tax rate would have been 36.0 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. 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 credits, the Company would have realized
net income of $195.5 million, or $1.14 per share for fiscal 1995.

BUSINESS ENVIRONMENT AND RISK FACTORS

This report contains certain forward looking statements, including statements
regarding future trends in sales, gross margin, expense and liquidity levels,
and the amount of the expected non-recurring charge to operations for the U.S.
Robotics merger. Actual results could vary materially based upon a number of
factors, including but not limited to those set forth below. The Company's
future operating results may be affected by various trends and factors which the
Company must successfully manage in order to achieve favorable operating
results. In addition, there are trends and factors beyond the Company's control
which affect its operations. 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 report. Such trends and factors include, but are not limited to, adverse
changes in general economic conditions or conditions in the specific markets for
the Company's products, governmental regulation or intervention affecting
communications or data networking, fluctuations in foreign exchange rates, and
other factors, including those listed below.

The Company 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 has in the past resulted and could result in aggressive pricing practices,
such as those recently adopted by a competitor in the adapter market, and
growing competition, both from start-up companies and from well-capitalized
computer systems and communications companies. The Company'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 report and other factors.

The market for the Company's products is intensely competitive and
characterized by rapidly changing technology. The Company'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, such as the
recent change from shared to switched networks and the slowdown in sales of
certain products for the edge of the network, could have a material adverse
effect on the Company's operating results if the Company does

F-8

<PAGE>

not respond timely and effectively to such changes. The Company is engaged in
research and development activities in certain emerging LAN and WAN high-speed
technologies, such as ATM, ISDN, DSL, Fast Ethernet, Gigabit Ethernet and
data-over-cable. As the industry standardizes on high- speed technologies, there
can be no assurance that the Company will be able to respond promptly and
cost-effectively to compete in the marketplace. In addition, if the PC industry
migrates toward standardizing the integration of network interface capabilities
on the PC motherboard, and if the Company does not manage its business to
cost-effectively transition toward this technology, it could have an adverse
impact on the Company.

Although long-term annual growth rates for the networking industry have
recently been in the 30 to 50 percent range, there can be no assurance that this
industry growth rate will continue at the same level, or that the Company's
results in any particular quarter will fall within that range. In particular,
based on recent softening of demand for networking products and competitive
pricing pressures, the Company anticipates that its results may fall below those
levels in the coming quarters.

The Company's customers historically request fulfillment of orders in a short
period of time, resulting in a minimal backlog. Quarterly sales and results of
operations generally depend on the volume and timing of orders, and the ability
to fulfill them within the quarter. As a result, the lack of backlog provides
limited visibility to the Company's future sales trends.

Recruiting and retaining skilled personnel, especially in certain locations
in which the Company operates, is highly competitive. Unless the Company can
successfully recruit and retain such personnel, the Company's ability to achieve
continued growth in sales and earnings may be adversely affected.

The Company operates in an industry in which the ability to compete is
dependent on the development or acquisition of proprietary technology, which
must be protected both to preserve the benefits of exclusive use of the
Company's own technology, and enable the Company to license technology from
other parties on acceptable terms. The Company attempts to protect its
intellectual property rights through a combination of patents, copyrights,
trademarks and trade secret laws. There can be no assurance that the steps taken
by the Company will be sufficient to prevent misappropriation of intellectual
properties or that competitors will not independently develop technologies that
are equivalent or superior to the technologies of the Company.

Some key components of the Company's products are currently available only
from single sources. There can be no assurance that in the future the Company's
suppliers will be able to meet the Company's demand for components in a timely
and cost-effective manner. The Company'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.

The Company distributes a significant portion of its products through third
party distributors and resellers. Due to 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.
While the Company continually 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. Likewise, the Company's expansion into
certain emerging geographic markets, characterized by economic and political
instability and currency fluctuations, may subject the Company's resellers to
financial difficulties which may have an adverse impact on the Company.

The Company will continue to invest in expanding its sales, marketing,
service, logistics and manufacturing operations worldwide. The Company's sales
and earnings may be adversely affected unless the Company can successfully
assimilate and train new employees in a timely manner. The Company may also be
adversely affected if it cannot successfully expand its sales and distribution
capabilities, in particular, the new manufacturing and distribution facility in
the Asia Pacific region, in a timely manner.

Acquisitions of complementary businesses and technologies, including
technologies and products under development, are an active part of the Company's
overall business strategy. Certain of the Company's major competitors have also
been engaged in merger and acquisition transactions. Such consolidations by
competitors are creating entities with increased market share, customer base,
technology and

F-9

<PAGE>

marketing expertise, sales force size, or proprietary technology in segments in
which the Company competes. These developments may adversely affect the
Company's ability to compete in such segments.

On June 12, 1997, the Company merged with U.S. Robotics (see Note 17 of Notes
to Consolidated Financial Statements) and has completed several other
acquisitions in recent years. There can be no assurance that products,
technologies, distribution channels, management information systems, key
personnel and businesses of acquired companies will be effectively assimilated
into the Company's business or product offerings, or that such integration will
not adversely affect the Company'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, such as the U.S. Robotics merger. There
can be no assurance that any acquired products, technologies or businesses will
contribute at anticipated levels to the Company's sales or earnings, or that the
sales, earnings and technologies under development from acquired businesses will
not be adversely affected by the integration process or other general factors.
If the Company is not successful in the integration of such acquisitions, there
could be an adverse impact on the financial results of the Company.

The high-growth nature 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 cost of computer networking companies. Future acquisitions are
therefore more likely to result in costs that are material to the Company's
operations. There can be no assurance that the Company will continue to be able
to identify and consummate suitable acquisition transactions in the future.
However, should the Company consummate acquisitions in the future, the impact
may result in increased dilution of the Company's earnings.

The Company'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, the Company faces the challenge of managing the inventory of its older
products, including materials, work-in-process, and products held by resellers.
If the Company is not successful in managing these transitions, there could be
an adverse impact on the financial results of the Company.

The Company's products are covered by product warranties and the Company 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 the Company is not successful in resolving product
quality or performance issues, there could be an adverse impact on sales and
earnings.

The market price of the Company's common stock has been, and may continue to
be, extremely volatile. Factors such as new product or pricing announcements by
the Company or its competitors, quarterly fluctuations in the Company's
operating results, challenges associated with integration of businesses and
general conditions in the data networking market, such as a decline in industry
growth rates, may have a significant impact on the market price of the Company's
common stock. These conditions, as well as factors which generally affect the
market for stocks of high technology companies, could cause the price of the
Company's stock to fluctuate substantially over short periods.

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

Because of the foregoing factors, as well as other factors affecting the
Company's operating results, past trends and performance should not be presumed
by investors to be an accurate indicator of future results or trends.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and temporary cash investments at May 31, 1997 were
$889.9 million, increasing $390.6 million, or 78 percent from May 31, 1996. At
the end of fiscal 1996, cash, cash equivalents and temporary cash investments
were $499.3 million.

F-10

<PAGE>

For the fiscal year ended May 31, 1997, net cash generated from operating
activities was $600.9 million. Trade receivables at May 31, 1997 increased
$164.3 million to $523.5 million from May 31, 1996. Days sales outstanding in
receivables was 57 days at the end of fiscal 1997, compared to 49 days at the
end of fiscal 1996. The increase in the days sales outstanding metric was
primarily a result of the non-linearity of sales during the fourth quarter of
fiscal 1997. Inventory levels at May 31, 1997 decreased $12.3 million from the
prior fiscal year-end to $228.8 million. Inventory turnover increased to 6.5
turns at May 31, 1997, compared to 5.4 turns at May 31, 1996.

During the fiscal year ended May 31, 1997, the Company made $247.8 million in
capital expenditures. Major capital expenditures included purchases and upgrades
of desktop systems, purchases of land in Santa Clara, California, the U.K. and
Ireland, upgrades and additions to product manufacturing lines and facilities in
Ireland and Santa Clara, purchase of a building in the U.K., and the continuing
development of the Company's worldwide information systems. As of May 31, 1997,
the Company had outstanding approximately $95 million in capital expenditure
commitments primarily associated with the construction and expansion of office
and manufacturing space in the U.K., Singapore, and Ireland.

During the year ended May 31, 1997, the Company received cash of $68.7
million from the sale of its common stock to employees through its employee
stock purchase and option plans.

During the third quarter of fiscal 1997, the Company signed an operating
lease which combines and replaces three prior operating lease agreements on the
Company's existing headquarters site and on land adjacent to its existing
headquarters site. The combined lease includes approximately 870,000 square feet
of office and manufacturing space and two parking garages, and expires in
November 2001 with an option to extend the lease term for two successive periods
of five years each. The Company has an option to purchase the combined property
for $152.6 million, or at the end of the lease arrange for the sale of the
property to a third party with the Company retaining an obligation to the owner
for the difference between the sale price and $152.6 million, subject to certain
provisions of the lease. Lease payments on the new lease commenced in the third
quarter of fiscal 1997 and are not materially different from the aggregate
payments under the previously separate leases.

During the second quarter of fiscal 1997, a wholly-owned subsidiary of the
Company signed a lease for seven acres of land in Changi, Republic of Singapore.
The Company began construction of 325,000 square feet of office and
manufacturing space in December 1996, and plans to occupy the manufacturing
facility in the third quarter of fiscal 1998.

During the second quarter of fiscal 1997, the Company purchased a 14 acre
parcel of land and signed a lease for an adjacent 58 acre parcel of land, both
of which are near its existing headquarters in Santa Clara. The lease expires in
November 1998 with an option to extend the lease term for two successive periods
of five years each. The Company has an option to purchase the property for $49.5
million, or at the end of the lease arrange for the sale of the property to a
third party with the Company retaining an obligation to the owner for the
difference between the sale price and $49.5 million, subject to certain
provisions of the lease.

The three aforementioned leases require the Company to maintain specified
financial covenants, all of which the Company was in compliance with as of May
31, 1997.

The Company has a $100 million revolving bank credit agreement which expires
December 20, 1999. Payment of cash dividends are permitted under the credit
agreement, subject to certain limitations based on net income levels of the
Company. The Company has not paid and does not anticipate it will pay cash
dividends on its common stock. The credit agreement requires the Company to
maintain specified financial covenants. As of May 31, 1997, there were no
outstanding borrowings under the credit agreement and the Company was in
compliance with all required covenants.

The Company anticipates a significant decrease in cash and cash equivalents
and temporary cash investments in the first half of fiscal 1998 to retire some
or all of U.S. Robotics' existing debt, and to fund the cash components of the
merger reserve. See Note 17 of Notes to Consolidated Financial Statements.

F-11

<PAGE>

Based on current plans and business conditions, the Company believes that its
existing cash and cash equivalents, temporary cash investments, cash to be
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.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per
Share." This Statement establishes and simplifies standards for computing and
presenting earnings per share. SFAS 128 will be effective for the Company's
third quarter of fiscal 1998, and requires restatement of all previously
reported earnings per share data that are presented. Early adoption of this
Statement is not permitted. SFAS 128 replaces primary and fully diluted earnings
per share with basic and diluted earnings per share. The Company expects that
basic earnings per share amounts will be accretive compared to the Company's
primary earnings per share amounts, and diluted earnings per share amounts will
not be materially different from the Company's fully diluted earnings per share
amounts.

F-12

<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, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended May 31, 1997. 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 merger of 3Com
Corporation with Chipcom Corporation, which has been accounted for as a
pooling-of-interests as described in Note 3 to the consolidated financial
statements. We did not audit the consolidated statements of income,
shareholders' equity, and cash flows of Chipcom Corporation for the year ended
December 31, 1994, which were combined with 3Com Corporation's statements for
the year ended May 31, 1995, and reflect revenues of $267,776,000, and net
income of $18,560,000. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Chipcom Corporation for fiscal year 1995, is based solely
on the report 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 report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report 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, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended May 31, 1997 in
conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

San Jose, California
June 23, 1997

F-13

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Chipcom Corporation

In our opinion, the 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, the results of
their operations and their cash flows for the year 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 audit. We conducted our audit 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 audit provides 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-14

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED MAY 31,
------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA) 1997 1996 1995
---------- ---------- ----------

Sales $3,147,106 $2,327,101 $1,593,469
Cost of sales 1,452,350 1,096,846 738,093
---------- ---------- ----------
Gross margin 1,694,756 1,230,255 855,376
Operating Expenses:
Sales and marketing 659,573 475,769 319,310
Research and development 335,266 233,107 166,327
General and administrative 129,952 97,395 66,462
Purchased in-process technology -- 52,353 68,696
Acquisition-related charges and other 6,600 69,950 10,125
---------- ---------- ----------
Total 1,131,391 928,574 630,920
---------- ---------- ----------
Operating income 563,365 301,681 224,456
Other income-net 20,889 6,788 4,895
---------- ---------- ----------
Income before income taxes 584,254 308,469 229,351
Income tax provision 210,304 130,615 84,792
---------- ---------- ----------
Net income $ 373,950 $ 177,854 $ 144,559
========== ========== ==========
Net income per common and equivalent share:
Primary $ 2.02 $ 1.01 $ 0.85
Fully diluted $ 2.01 $ 1.00 $ 0.84
Common and equivalent shares used
in computing per share amount:
Primary 185,316 176,517 169,443
Fully diluted 186,019 176,972 171,079

See Notes to Consolidated Financial Statements.

F-15

<PAGE>
CONSOLIDATED BALANCE SHEETS

YEARS ENDED MAY 31,
-----------------------
(DOLLARS IN THOUSANDS) 1997 1996
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 351,237 $ 216,759
Temporary cash investments 538,706 282,578
Trade receivables, less allowance for doubtful
accounts ($37,259 and $26,921 in 1997 and 1996,
respectively) 523,501 359,182
Inventories 228,754 241,018
Deferred income taxes 108,360 79,259
Other 80,725 60,915
---------- ----------
Total current assets 1,831,283 1,239,711

Property and equipment -- net 377,349 246,652
Deposits and other assets 57,643 38,754
---------- ----------
Total $2,266,275 $1,525,117
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 148,846 $ 120,211
Accrued and other liabilities 279,263 211,620
Income taxes payable 168,942 82,690
---------- ----------
Total current liabilities 597,051 414,521

Long-term debt 110,000 110,000
Other long-term obligations 5,391 5,492
Deferred income taxes 36,323 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: 1997--178,373,867;
1996--168,799,586 784,685 597,452
Unamortized restricted stock grants (5,165) (4,487)
Retained earnings 736,881 379,358
Unrealized net gain on available-for-sale securities 2,320 7,159
Accumulated translation adjustments (1,211) (677)
---------- ----------
Total shareholders' equity 1,517,510 978,805
---------- ----------
Total $2,266,275 $1,525,117
========== ===========

See Notes to Consolidated Financial Statements.

F-16

<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
UNREALIZED NET
GAIN (LOSS) ON
UNAMORTIZED AVAILABLE ACCUMULATED
COMMON STOCK RESTRICTED RETAINED FOR-SALE TRANSLATION
(IN THOUSANDS) SHARES AMOUNT STOCK GRANTS EARNINGS SECURITIES ADJUSTMENTS TOTAL
------- -------- ------------ -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 1, 1994 151,288 $340,943 $ (202) $ 73,686 $ -- $ (305) $ 414,122
Common stock issued under
stock plans and for
business acquisitions 8,494 44,364 (2,128) 42,236
Repurchase of common stock (1,570) (2,674) (16,916) (19,590)
Tax benefit from employee
stock transactions 45,794 45,794
Amortization of restricted
stock grants 293 293
Stock options assumed in
connection with
acquisitions 6,508 6,508
Adjustment to conform
pooled entity-Sonix 2,416 844 (2,079) (69) (1,304)
Adjustment to conform
fiscal year of pooled 284 143 780 923
entity-Primary Access
Unrealized loss on
available-for-sale
securities (22) (22)
Accumulated translation
adjustments 205 205
Net income 144,559 144,559
------- -------- ------- -------- ------- ------- ----------
BALANCES, MAY 31, 1995 160,912 435,922 (2,037) 200,030 (22) (169) 633,724

Common stock issued under
stock plans 7,619 74,648 (3,502) 71,146
Repurchase of common stock (23) (52) (923) (975)
Tax benefit from employee
stock transactions 79,774 79,774
Amortization of restricted
stock grants 1,052 1,052
Stock options assumed in
connection with
acquisitions 3,671 3,671
Adjustment to conform
fiscal year of pooled
entity-Chipcom 292 3,489 2,397 151 6,037
Unrealized gain on
available-for-sale
securities 7,030 7,030
Accumulated translation
adjustments (508) (508)
Net income 177,854 177,854
------- -------- ------- -------- ------- ------- ----------
BALANCES, MAY 31, 1996 168,800 597,452 (4,487) 379,358 7,159 (677) 978,805

Common stock issued under
stock plans 6,282 71,102 (2,412) 68,690
Tax benefit from employee
stock transactions 90,757 90,757
Amortization of restricted
stock grants 1,734 1,734
Adjustment to conform
pooled entity-OnStream 3,292 25,374 (16,427) 8,947
Unrealized loss on
available-for-sale
securities (4,839) (4,839)
Accumulated translation
adjustments (534) (534)
Net income 373,950 373,950
------- -------- ------- -------- ------- ------- ----------
BALANCES, MAY 31, 1997 178,374 $784,685 $(5,165) $736,881 $ 2,320 $(1,211) $1,517,510
======= ======== ======= ======== ======= ======= ==========
<FN>

See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

F-17

<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 373,950 $ 177,854 $ 144,559
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 140,540 90,969 57,687
Deferred income taxes (4,498) (7,474) (27,980)
Purchased in-process technology -- 52,353 68,696
Adjustments to conform pooled entities 4,850 (3,048) 3,013
Non-cash acquisition-related charges and other -- 44,320 (1,100)
Changes in assets and liabilities net of
effects of acquisitions:
Trade receivables (162,960) (124,753) (87,348)
Inventories 8,140 (71,852) (81,738)
Other current assets (29,741) (21,088) (13,667)
Accounts payable 28,010 11,636 48,754
Accrued and other liabilities 65,573 57,707 44,934
Income taxes payable 177,009 103,719 82,429
--------- --------- ---------
Net cash provided by operating activities 600,873 310,343 238,239
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (247,803) (179,982) (100,706)
Purchase of temporary cash investments (479,249) (301,960) (246,313)
Proceeds from temporary cash investments 221,228 231,904 140,377
Businesses acquired in purchase transactions -- (60,246) (70,174)
Other--net (26,654) (9,874) (1,378)
--------- --------- ---------
Net cash used for investing activities (532,478) (320,158) (278,194)
--------- --------- ---------
Cash flows from financing activities:
Common stock issued under stock plans 68,690 71,146 38,556
Repayments of notes payable and capital
lease obligations (1,740) (2,997) (7,263)
Repurchase of common stock -- (975) (19,590)
Net proceeds from issuance of debt -- -- 107,330
Other--net (867) (508) 205
--------- --------- ---------
Net cash provided by financing activities 66,083 66,666 119,238
--------- --------- ---------
Increase in cash and cash equivalents 134,478 56,851 79,283
Cash and cash equivalents at beginning of year 216,759 159,908 80,625
--------- --------- ---------
Cash and cash equivalents at end of year $ 351,237 $ 216,759 $ 159,908
========= ========= =========
Other cash flow information:
Interest paid $ 11,830 $ 12,961 $ 5,903
Income taxes paid 46,523 34,921 33,272
Non-cash investing and financing activities--
Tax benefit from employee stock option
transactions 90,757 79,774 45,794
Fair value of stock issued and options assumed
in business combinations -- 3,671 10,188

<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

F-18

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: DESCRIPTION OF BUSINESS

Description of business. 3Com Corporation, founded in 1979, is committed to
providing customers global access to critical information through high-speed
networks designed to serve large enterprises, Internet service providers, small
businesses and homes. 3Com offers a broad range of networking products which
include routers, switches, hubs, remote access servers, adapters and network
management software for Ethernet, Token Ring, FDDI, ATM and other high-speed
networks. Headquartered in Santa Clara, California, 3Com has worldwide research
and development, manufacturing, marketing, sales and support capabilities.

On June 12, 1997, the Company merged with U.S. Robotics Corporation (U.S.
Robotics). U.S. Robotics is one of the world's leading suppliers of products and
systems that provide access to information. U.S. Robotics designs, manufactures,
markets and supports remote access servers, enterprise communications systems
and desktop and mobile client products, including modems, LAN adapter cards,
hand-held computing devices and telephony products, that connect computers and
other equipment over analog, digital, wireless and switched cellular networks,
enabling users to gain access to, manage, and share data, fax, voice, sound and
video information. The accompanying Consolidated Financial Statements and
related Notes thereto have not been restated to include the operating results
and financial position of U.S. Robotics. See Note 17.

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 (the
"Company"). 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 temporary cash 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 from
any one financial institution.

Due to 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. As of and for the year ended May 31,
1997, the Company had one customer which accounted for 13 percent of total sales
and 15 percent of trade receivables. The Company did not have any customers
which individually accounted for more than 10 percent of total sales or trade
receivables for fiscal years 1996 and 1995.

F-19

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (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.

In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company adopted this statement effective as of
the beginning of fiscal 1997. The adoption did not have a material effect on the
Company's consolidated financial statements.

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 depreciated 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 to six-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. Substantially all of the Company's revenues
are denominated in U.S. dollars. For foreign operations with the local currency
as the functional currency, assets and liabilities are translated at year-end
exchange rates, and statements of income 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 income 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 income and were not significant for any of the years
presented.

Stock-based compensation. In October 1995, the FASB issued SFAS 123,
"Accounting for Stock- Based Compensation." As permitted under the provisions of
SFAS 123, the Company has elected to follow Accounting Principles Board Opinion
No. 25 (APB 25) and related Interpretations in accounting for its stock-based
awards to employees. Under APB 25, the Company generally recognizes no
compensation expense with respect to such awards. See Note 9.

Net income per common and equivalent share is computed using the weighted
average number of common and common equivalent shares outstanding including 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.

Effects of recent accounting pronouncement. In February 1997, the FASB issued
SFAS 128, "Earnings per Share." This Statement establishes and simplifies
standards for computing and presenting earnings per share. SFAS 128 will be
effective for the Company's third quarter of fiscal 1998, and requires
restatement of all previously reported earnings per share data that are
presented. Early adoption of this

F-20

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Statement is not permitted. SFAS 128 replaces primary and fully diluted earnings
per share with basic and diluted earnings per share. The Company expects that
basic earnings per share amounts will be accretive compared to the Company's
primary earnings per share amounts, and diluted earnings per share amounts will
not be materially different from the Company's fully diluted earnings per share
amounts.

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. No
significant adjustments were required to conform the accounting policies of the
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.

For the Year Ended May 31, 1997. On October 31, 1996, the Company acquired
OnStream Networks, Inc. (OnStream) by issuing approximately 3.3 million shares
of its common stock in exchange for all the outstanding stock of OnStream. The
Company also assumed and exchanged all options to purchase OnStream stock for
options to purchase approximately 400,000 shares of the Company's common stock.
The acquisition was accounted for as a pooling-of-interests. Financial data of
the Company has been restated for the quarter ended August 31, 1996 to include
the historical financial information of OnStream for that period, in accordance
with generally accepted accounting principles and pursuant to Regulation S-X.
Such restatement increased the Company's sales and decreased net income by $3.2
million and $1.5 million, respectively, for the quarter ended August 31, 1996.
Financial information as of May 31, 1997 and for the year then ended reflects
the Company's and OnStream's operations for those periods. As the historical
operations of OnStream were not significant to any period presented, the
Company's financial statements for periods prior to fiscal 1997 have not been
restated. The financial effect of the results of operations of OnStream prior to
fiscal 1997 has been accounted for as a $16.4 million charge against retained
earnings in fiscal 1997. As a result of the acquisition, in the second quarter
of fiscal 1997 the Company recorded acquisition-related charges, primarily
transaction costs, totaling $6.6 million. OnStream was a provider of
Asynchronous Transfer Mode (ATM) and broadband wide area network (WAN) and
access products.

For the Year Ended May 31, 1996. On June 9, 1995, the Company acquired
Primary Access Corporation (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 maintained its financial records on a
52-53 week fiscal year ending nearest to September 30. The results of operations
of Primary Access for the eight-month period ended May 31, 1994 reflected sales
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. Primary Access
developed, manufactured and marketed network access systems.

On October 13, 1995, the Company acquired Chipcom Corporation (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-of-interests. Chipcom maintained its financial
records on a 52-53 week fiscal year ending nearest to December 31. The restated
consolidated statements of income and cash flows for the year ended May 31, 1995
includes the statement of operation and cash flows of Chipcom for the year ended
December 31, 1994. The results of operations of Chipcom for the five-month
period ended

F-21

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

May 31, 1995 reflected sales 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. As a result of the acquisition, during the second quarter of fiscal
1996, the Company recorded acquisition-related charges of approximately $69.0
million. See Note 12. Chipcom designed, manufactured and distributed computer
networking multifunction platforms.

On March 12, 1996, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of AXON Networks, Inc. (AXON). The
aggregate purchase price of $65.3 million consisted of cash, net of cash
acquired, of approximately $60.2 million, which was paid using funds from the
Company's working capital, assumption of stock options with a fair value of
approximately $3.7 million, and $1.4 million of costs directly attributable to
the completion of the acquisition. 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. The
acquisition was accounted for as a purchase. AXON developed, manufactured and
marketed remote network management and data network traffic management products.

For the Year Ended May 31, 1995. On October 18, 1994, the Company acquired
substantially all of the assets and assumed substantially all of 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 approximately 186,000 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 developed 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. Acquired assets and
liabilities were recorded at their estimated fair value at the date of
acquisition. 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 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 has been
accounted for as a $2.1 million charge against retained earnings in fiscal 1995.
Sonix developed, manufactured and marketed 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 designed,
manufactured and marketed high-performance communication systems for the
internetworking and video distribution markets.

F-22

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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 no
alternative future use and was charged to the Company's operations in fiscal
1995. DSI was engaged in the development of intelligent hubs and related
internetworking products.

NOTE 4: INVESTMENTS

Available-for-sale securities consist of:

MAY 31, 1997
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
(DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------

State and municipal securities $361,052 $ 498 $ (288) $361,262
Corporate debt securities 130,519 83 (99) 130,503
U.S. Government and agency securities 47,024 12 (95) 46,941
-------- ------ ------ --------
Temporary cash investments 538,595 593 (482) 538,706
Corporate equity securities 9,330 3,754 -- 13,084
-------- ------ ------ --------
Total $547,925 $4,347 $ (482) $551,790
======== ====== ====== ========

MAY 31, 1996
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
(DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------

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
======== ======= ====== ========

Corporate equity securities are included in other current assets.

Realized gains or losses on sales of available-for-sale securities for the years
ended May 31, 1997 and 1996 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, 1997
are as follows:

AMORTIZED ESTIMATED
(DOLLARS IN THOUSANDS) COST FAIR VALUE
--------- ----------

Within one year $ 317,983 $ 317,963
Over one year to two years 220,612 220,743
--------- ---------
Temporary cash investments $ 538,595 $ 538,706
========= =========

F-23

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

NOTE 5: INVENTORIES

Inventories at May 31 consist of:

(DOLLARS IN THOUSANDS) 1997 1996
--------- --------
Finished goods $ 148,316 $132,363
Work-in-process 17,652 22,310
Raw materials 62,786 86,345
--------- --------
Total $ 228,754 $241,018
========= ========

NOTE 6: PROPERTY AND EQUIPMENT

Property and equipment at May 31 consists of:

(DOLLARS IN THOUSANDS) 1997 1996
---------- ---------
Land $ 36,495 $ 15,257
Buildings 43,471 35,226
Machinery and equipment 455,460 325,262
Furniture and fixtures 45,522 35,475
Leasehold improvements 47,297 30,218
Construction in progress 66,909 29,514
---------- ---------
Total 695,154 470,952
Accumulated depreciation and
amortization (317,805) (224,300)
---------- ---------
Property and equipment -- net $ 377,349 $ 246,652
========== =========

NOTE 7: ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities at May 31 consist of:

(DOLLARS IN THOUSANDS) 1997 1996
--------- --------
Accrued payroll and related expenses $ 63,512 $ 49,761
Accrued product warranty 44,987 30,574
Accrued distributor rebates 29,164 14,976
Deferred revenue 28,950 19,448
Other accrued liabilities 112,650 96,861
--------- --------
Accrued and other liabilities $ 279,263 $211,620
========= ========

NOTE 8: BORROWING ARRANGEMENTS AND COMMITMENTS

F-24

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

During the second quarter of fiscal 1997, the Company purchased a 14 acre
parcel of land and signed a two-year lease for an adjacent 58 acre parcel of
land, both of which are near its existing headquarters in Santa Clara. The lease
expires in November 1998 with an option to extend the lease term for two
successive periods of five years each. The Company has an option to purchase the
property for $49.5 million, or at the end of the lease arrange for the sale of
the property to a third party with the Company retaining an obligation to the
owner for the difference between the sale price and $49.5 million, subject to
certain provisions of the lease.

The three aforementioned leases require the Company to maintain specified
financial covenants, all of which the Company was in compliance with as of May
31, 1997. 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 1997 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:

FISCAL YEAR (IN THOUSANDS)
-------------
1998 $ 39,321
1999 29,782
2000 22,903
2001 16,354
2002 8,955
Thereafter 9,976
--------
Total $127,291
========

Rent expense was $36.4 million, $28.2 million, and $19.9 million for fiscal
years ended May 31, 1997, 1996 and 1995, respectively.

As of May 31, 1997, the Company had approximately $95 million in capital
expenditure commitments, primarily associated with the construction and
expansion of office and manufacturing space in the U.K., Singapore, and Ireland.

The Company has a $100 million revolving bank credit agreement which expires
on December 20, 1999. Under the agreement, the Company may select among various
interest rate options, including borrowing at the bank's prime rate. The credit
agreement requires that the Company maintain specified financial ratios and
minimum net worth. Payment of cash dividends are permitted under the credit
agreement, subject to certain limitations based on net income levels of the
Company. The Company has not paid and does not anticipate it will pay cash
dividends on its common stock. As of May 31, 1997, there were no outstanding
borrowings under the credit agreement and the Company was in compliance with all
required covenants.

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 3.2 million shares of common stock
for the conversion of these notes.

F-25

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

NOTE 9: COMMON STOCK

On September 26, 1996, the Company's Board of Directors approved an amendment
to the Company's articles of incorporation establishing a par value of $.01 per
share for the Company's common stock. On June 11, 1997, the shareholders of the
Company approved a proposal to change the Company's state of incorporation from
California to Delaware. The reincorporation was effected immediately prior to
the consummation of the merger with U.S. Robotics and, among other things,
resulted in an increase in the number of authorized shares of its common stock
from 400 million to 990 million, and preferred stock from 3 million to 10
million.

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 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 two- or four-year period, and expire ten years after the grant date.

A summary of option transactions under the plans follows:

NUMBER WEIGHTED AVERAGE RANGE OF
(SHARES IN THOUSANDS) OF SHARES EXERCISE PRICE EXERCISE PRICES
--------- ---------------- ---------------
Outstanding, June 1, 1994 27,566 $ 0.22-$51.29
Granted and assumed 8,164 0.02- 46.93
Exercised (6,932) 0.22- 33.33
Canceled (1,271) 0.37- 51.29
------ -------------
Outstanding, May 31, 1995 27,527 0.02- 46.93

Granted and assumed 6,912 $39.39 4.65- 51.63
Exercised (6,661) 8.43 0.02- 46.13
Canceled (1,489) 20.12 0.02- 51.00
------ ------ -------------
Outstanding, May 31, 1996 26,289 16.65 0.02- 51.63

Granted and assumed 8,220 50.83 1.72- 80.13
Exercised (5,459) 8.50 0.02- 62.88
Canceled (1,012) 38.82 0.02- 80.13
------ ------ -------------
Outstanding, May 31, 1997 28,038 $26.69 $ 0.02-$80.13
====== ====== =============

As of May 31, 1997, there were 4.8 million shares available for future grant.

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS AS OF MAY 31, 1997 EXERCISABLE AT MAY 31, 1997
------------------------------------------------- -------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES: OF SHARES EXERCISE PRICE CONTRACTUAL LIFE OF SHARES EXERCISE PRICE
-------------- ---------------- ----------------- -------------- ----------------
(IN THOUSANDS) (IN YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 0.02-$13.21 11,101 $ 6.05 5.4 9,028 $ 5.42
$13.28-$48.25 12,030 $32.28 8.1 4,323 $28.22
$48.38-$80.13 4,907 $59.68 9.2 757 $57.67
------ ------ --- ------ ------
Total 28,038 $26.69 7.2 14,108 $15.21
====== ====== === ====== ======
</TABLE>

F-26

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

There were 12.8 million options exercisable as of May 31, 1996, with a
weighted average exercise price of $8.43 per share.

In connection with the fiscal 1997 business combination with OnStream, the
Company assumed all outstanding options to purchase common stock of OnStream and
exchanged them for options to acquire approximately 400,000 shares of the
Company's common stock at exercise prices of $0.43 to $42.79 per share. See Note
3.

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 of 85 percent of the lower of the fair market value as of the beginning or
the end of the offering period.

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.

Common Stock Reserved for Issuance. As of May 31, 1997, the Company had
common stock reserved for issuance as follows:

(In thousands)
Shareholder Rights Plan 178,374
Stock Option Plans 32,805
Employee Stock Purchase Plan 5,283
Convertible subordinated notes 3,183
Restricted Stock Plan 633
-------
Total shares reserved for issuance 220,278
=======

Stock Repurchase Program. In the second quarter of fiscal 1997, the Board of
Directors voted to rescind the Company's previously announced share repurchase
program. This action was taken by the Board as a result of uncertainties
regarding the Securities and Exchange Commission's interpretation of Staff
Accounting Bulletin No. 96 (SAB 96). Specifically, SAB 96 raises the possibility
that under certain circumstances, companies which have announced share
repurchase programs will not have the flexibility to employ the
pooling-of-interests accounting method when making acquisitions. The Company's
previously announced share repurchase program was authorized by the Board of
Directors in March of 1990. The Company did not repurchase any shares of common
stock during fiscal 1997.

Accounting for Stock-Based Compensation. As permitted under SFAS 123, the
Company has elected to follow APB 25 and related Interpretations, in accounting
for stock-based awards to employees. Under APB 25, the Company generally
recognizes no compensation expense with respect to such awards.

F-27

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Pro forma information regarding net income and earnings per share is required
by SFAS 123. This information is required to be determined as if the Company had
accounted for its stock-based awards to employees (including employee stock
options and shares issued under the Employee Stock Purchase Plan, collectively
called "options") granted subsequent to May 31, 1995 under the fair value method
of that statement. The fair value of options granted in fiscal years 1997 and
1996 reported below has been estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions:

EMPLOYEE EMPLOYEE STOCK
STOCK OPTION PLANS PURCHASE PLAN
------------------ --------------
1997 1996 1997 1996
----- ----- ----- -----
Risk-free interest rate 6.1% 5.4% 5.4% 5.4%
Volatility 54.0% 54.0% 54.0% 54.0%
Dividend yield 0.0% 0.0% 0.0% 0.0%

The expected lives of options under the Employee Stock Option and Employee
Stock Purchase Plans are estimated at one year after vest date, and six months,
respectively.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options. The weighted average estimated fair value of employee
stock options granted during fiscal years 1997 and 1996 was $23.18 and $18.02
per share, respectively. The weighted average estimated fair value of shares
granted under the Employee Stock Purchase Plan during fiscal years 1997 and 1996
was $12.46 and $12.86, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is assumed to be amortized to expense over the options' vesting period.
The Company's pro forma information follows:

1997 1996
-------- --------
Net income: As reported $373,950 $177,854
Pro forma 312,009 152,398
Earnings per share: As reported $ 2.01 $ 1.00
Pro forma 1.68 .86

The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to May 31,
1995, the full effect on pro forma net income and earnings per share will not be
reflected until fiscal 1999.

F-28

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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, 1997, the Company had outstanding foreign exchange
forward contracts of $18.9 million which have remaining maturities of one month.
At May 31, 1997, the Company did not have any outstanding foreign exchange
forward contracts with maturities greater than one month.

At May 31, 1996, the Company had outstanding foreign exchange forward
contracts of $24.1 million, excluding the foreign exchange contracts related to
the purchase of manufacturing equipment and the refurbishment of a U.K.
facility. At May 31, 1996, the outstanding foreign exchange contracts related to
the manufacturing equipment and refurbishment of the U.K. facility were $5.6
million and $10.7 million, respectively. During fiscal 1997, the manufacturing
equipment was purchased and the refurbishment of the U.K. facility was
completed.

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 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.

MAY 31, 1997 MAY 31, 1996
-------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Assets:
Cash and cash equivalents $351,237 $351,237 $216,759 $216,759
Temporary cash investments 538,706 538,706 282,578 282,578
Corporate equity securities 13,084 13,084 15,619 15,619
Liabilities:
Convertible subordinated notes $110,000 $161,425 $110,000 $182,463
Commitments:
Foreign exchange contracts $ 18,856 $ 18,864 $ 29,752 $ 29,711

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.

F-29

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

NOTE 12: ACQUISITION-RELATED CHARGES AND OTHER

Acquisition-related charges for the year ended May 31, 1997 consisted of
direct transaction costs of $6.6 million, primarily investment banking and other
professional fees, related to the acquisition of OnStream. See Note 3.

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. The $69.0 million charge included $60.8 million of exit expenses and
$8.2 million of direct transaction costs, primarily for investment banking and
other professional fees. Exit expenses included 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 duplicate facilities and $13.6
million of other acquisition-related costs. In addition to the
acquisition-related charges in fiscal 1996 was a charge of approximately $1.0
million for a litigation settlement.

Acquisition-related charges for the year ended May 31, 1995 consisted 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 13: OTHER INCOME -- NET

Other income -- net consists of:

YEARS ENDED MAY 31,
-----------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
-------- -------- -------
Interest income $ 34,447 $ 21,636 $12,338
Interest expense (11,830) (12,611) (7,144)
Other (1,728) (2,237) (299)
-------- -------- -------
Total $ 20,889 $ 6,788 $ 4,895
======== ======== =======

NOTE 14: INCOME TAXES

The provision for income taxes consists of:

YEARS ENDED MAY 31,
---------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
--------- --------- ---------
Current:
Federal $ 126,610 $ 67,645 $ 69,113
State 39,648 22,957 22,112
Foreign 49,520 46,163 23,380
--------- --------- ---------
Total current 215,778 136,765 114,605
--------- --------- ---------
Deferred:
Federal (4,254) (3,195) (22,333)
State (7,166) (3,449) (7,790)
Foreign 5,946 494 310
--------- --------- ---------
Total deferred (5,474) (6,150) (29,813)
--------- --------- ---------
Total $ 210,304 $ 130,615 $ 84,792
========= ========= =========

F-30

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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

(DOLLARS IN THOUSANDS) 1997 1996
-------- --------
Deferred tax assets:
Reserves not recognized for tax
purposes $ 99,526 $ 65,537
Net operating loss carryforwards 23,691 24,229
Amortization and depreciation 17,918 20,418
Other 18,016 17,494
Valuation allowance (26,785) (27,491)
-------- --------
Total deferred tax assets 132,366 100,187
-------- --------
Deferred tax liabilities:
Unremitted earnings (57,863) (32,406)
Net unrealized gain on available-
for-sale securities (1,546) (4,821)
Other (920) --
-------- --------
Net deferred tax assets $ 72,037 $ 62,960
======== ========

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
$706,000 and $491,000 in fiscal 1997 and 1996, respectively, and increased $15.8
million in fiscal 1995.

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

YEARS ENDED MAY 31,
---------------------
1997 1996 1995
----- ----- -----
Tax computed at federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal effect 3.6 4.1 4.1
Foreign sales corporation (0.4) (0.7) (1.1)
Tax exempt investment income (0.6) (0.6) (0.9)
Provision for combined foreign and U.S. taxes on
certain foreign income at rates less than U.S.
rates (2.4) (4.6) (3.5)
Research tax credits (0.5) (0.1) (1.5)
Non-deductible purchased in-process technology and
acquisition-related charges 0.6 7.6 3.1
Other 0.7 1.6 1.8
----- ----- -----
Total 36.0% 42.3% 37.0%
===== ===== =====

Income before income taxes for the fiscal years ended May 31, 1997, 1996 and
1995 includes income of $340.9 million, $241.1 million, and $131.2 million,
respectively from the Company's foreign subsidiaries. The Company has not
provided for federal income taxes on approximately $173.5 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 $48.2
million.

F-31

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

NOTE 15: 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, 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:

(DOLLARS IN THOUSANDS) 1997 1996 1995
---------- ---------- ----------
Sales to unaffiliated customers:
United States operations $1,482,438 $1,104,350 $ 767,484
Export sales from United States operations 560,485 456,906 302,670
European operations 1,104,183 764,992 523,151
Other -- 853 164
---------- ---------- ----------
Total $3,147,106 $2,327,101 $1,593,469
========== ========== ==========

Transfers from geographic areas
(eliminated in consolidation):
United States operations $ 237,470 $ 218,500 $ 144,862
European operations 573,180 300,482 123,360
Other 25,461 28,154 439
---------- ---------- ----------
Total $ 836,111 $ 547,136 $ 268,661
========== ========== ==========
Operating income (loss):
United States operations $ 162,377 $ 103,020 $ 105,305
European operations 395,017 247,399 143,349
Other 5,215 21,185 (2,351)
Eliminations 756 (69,923) (21,847)
---------- ---------- ----------
Total $ 563,365 $ 301,681 $ 224,456
========== ========== ==========
Identifiable assets:
United States operations $1,614,593 $1,091,091
European operations 617,229 441,668
Other 84,799 32,015
Eliminations (50,346) (39,657)
---------- ----------
Total $2,266,275 $1,525,117
========== ==========

Operating income for the United States operations for the years ended May 31,
1996 and 1995 included charges of approximately $52.4 million and $68.7 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 12. Transfers between
geographic areas are accounted for at prices representative of unaffiliated
party transactions.

F-32

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

NOTE 16: 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, financial position, or
liquidity. Pursuant to the settlement which was approved by the District Court
on June 26, 1997, all claims of all persons which are related to the subject
matter of the Consolidated Complaint were settled and released.

On March 24, 1997, a putative shareholder class action lawsuit, entitled
Hirsch v 3Com Corporation, et al., Civil Action No. CV764977 was filed against
the Company and certain of its officers and directors in the California Superior
Court, Santa Clara County. The complaint alleges, among other things, fraud,
negligent misrepresentation and violations of the California securities laws,
including that during the putative class period, sales of the Company's stock by
officers and directors of 3Com and acquisitions made with the Company's stock
occurred at inflated prices in light of undisclosed information. Specifically,
the complaint alleges violations of Sections 25400 and 25500 of the California
Corporations Code, Sections 1709 and 1710 of the California Civil Code, and
Sections 17200 et seq. and 17500 et seq. of the California Business and
Professions Code. The complaint, which covers a putative period of September 24,
1996 through February 10, 1997, does not specify the damages sought. Management
believes that the action is not meritorious and intends to vigorously contest
it. An adverse resolution of the action could have a material adverse effect on
the Company's results of operations and financial condition in the quarter in
which such adverse resolution occurs.

U.S. Robotics and certain of its directors were named as defendants in eleven
lawsuits relating to the merger between the Company and U.S. Robotics (the
Merger) brought in the Delaware Chancery Court ("the Court"). See Note 17. The
Company has been named as a defendant in nine of these actions. The lawsuits,
which purport to be stockholder class actions brought on behalf of all U.S.
Robotics stockholders, allege, inter alia, that the directors of U.S. Robotics
have breached their fiduciary duties by approving the Merger Agreement, and that
the Company aided and abetted this alleged breach of duty. An agreement in
principle to settle this litigation has been reached with plaintiffs' counsel on
what the Company considers to be favorable financial terms, which amount the
Company does not consider to be material to its operations, financial position,
or liquidity. This settlement will not be final until approved by the Court
after a hearing.

NOTE 17: SUBSEQUENT EVENT

On June 12, 1997 the Company merged with U.S. Robotics by issuing
approximately 158 million shares of its common stock in exchange for all
outstanding common stock of U.S. Robotics. The Company also assumed and
exchanged all options to purchase U.S. Robotics' stock for options to purchase
approximately 31 million shares of the Company's common stock. The transaction
was accounted for as a pooling-of-interests. U.S. Robotics is the leading
supplier of products and systems for accessing information across the wide area
network, including modems and remote access products.

F-33

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The Company anticipates that as a result of the merger, the combined company
will incur restructuring charges and direct transaction costs relating to the
business combination, estimated to be between $325 million and $375 million.
These non-recurring costs will be charged to operations in the first quarter of
fiscal 1998. Restructuring charges will include costs related to the closure and
elimination of duplicate owned and leased facilities, the write-off of inventory
associated with duplicate and discontinued products, the write-off of fixed
assets, and severance and outplacement costs. Direct transaction costs will
consist primarily of investment banking and other professional fees.

The following unaudited pro forma summary presents the consolidated results
of operations assuming the merger with U.S. Robotics had occurred on June 1,
1994. U.S. Robotics maintained its financial records on a 52-53 week fiscal year
ending nearest to September 30. The pro forma consolidated statement of income
for the year ended May 31, 1997 includes the U.S. Robotics' statement of income
for the twelve months ended March 30, 1997. The pro forma consolidated
statements of income for the fiscal years ended May 31, 1996 and 1995 include
the U.S. Robotics' statements of income for the fiscal years ended September 29,
1996 and October 1, 1995, respectively. This presentation has the effect of
including U.S. Robotics' results of operations for the six month period ended
September 29, 1996 in both the combined years ended May 31, 1997 and 1996, and
reflects sales of $1,158.2 million and net income of $76.8 million, which has
been reported as a decrease to the Company's fiscal 1997 retained earnings. The
pro forma combined results below reflect reclassifications to conform financial
statement presentation and adjustments to conform the companies fixed asset
capitalization policies. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had this transaction been effected on the date indicated above or of
results which may occur in the future.

(UNAUDITED. IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEARS ENDED MAY 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales:
3Com $3,147,106 $2,327,101 $1,593,469
U.S. Robotics 2,493,791 1,977,512 889,347
Reclassifications to conform accounting policies (36,751) (20,105) (3,056)
---------- ---------- ----------
Combined $5,604,146 $4,284,508 $2,479,760
========== ========== ==========
Net income:
3Com $ 373,950 $ 177,854 $ 144,559
U.S. Robotics 237,258 170,021 65,951
Adjustments to conform accounting policies (13,585) (7,259) (6,954)
---------- ---------- ----------
Combined $ 597,623 $ 340,616 $ 203,556
========== ========== ==========
Net income per share (on a fully diluted basis):
3Com $ 2.01 $ 1.00 $ 0.84
U.S. Robotics (1) 1.41 1.02 0.43
Adjustments to conform accounting policies (0.04) (0.02) (0.02)
---------- ---------- ----------
Combined $ 1.69 $ 0.99 $ 0.63
========== ========== ==========
<FN>
- ----------
(1) Adjusted for effect of exchange ratio of 1.75 shares of 3Com Common Stock
for each share of U.S. Robotics common stock.

</FN>
</TABLE>

If the merger with U.S. Robotics had been consummated on May 31, 1997,
consolidated total assets, liabilities, shareholders' equity and working capital
would have increased by $1,342.9 million, $520.3 million, $822.6 million, and
$529.5 million, respectively. Such May 31, 1997 pro forma consolidated balance
sheet information includes the balance sheet of U.S. Robotics as of March 30,
1997.

F-34

<PAGE>

<TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<CAPTION>
FISCAL 1997 QUARTERS ENDED FISCAL 1996 QUARTERS ENDED
----------------------------------------- -----------------------------------------
(DOLLARS IN THOUSANDS, MAY 31, FEB. 28, NOV. 30, AUG. 31, MAY 31, FEB. 29, NOV. 30, AUG. 31,
EXCEPT PER SHARE DATA) 1997 1997 1996 1996 1996 1996 1995 1995
-------- -------- -------- -------- -------- -------- -------- --------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $829,892 $786,778 $820,296 $710,140 $660,266 $606,002 $563,544 $497,289
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin 433,811 428,462 448,990 383,493 350,508 321,183 296,825 261,739
Gross margin % 52.3% 54.5% 54.7% 54.0% 53.1% 53.0% 52.7% 52.6%
-------- -------- -------- -------- -------- -------- -------- --------
Operating income 131,584 129,371 162,518 139,892 71,711 113,010 29,921 87,039
-------- -------- -------- -------- -------- -------- -------- --------
Net income 89,164 87,645 105,569 91,572 29,498 74,590 16,345 57,421
Net income % 10.7% 11.1% 12.9% 12.9% 4.5% 12.3% 2.9% 11.5%
-------- -------- -------- -------- -------- -------- -------- --------
Fully diluted net
income per share $ 0.48 $ 0.47 $ 0.56 $ 0.50 $ 0.16 $ 0.42 $ 0.09 $ 0.33
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
Net income for the quarter ended November 30, 1996 included a charge of
approximately $6.6 million ($.04 per share) for merger-related costs. 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. See
Notes 3 and 12 to the Consolidated Financial Statements for additional
information on the above transactions. Excluding the non-recurring items noted
above, net income and net income per share on a fully diluted basis would have
been as follows:

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income excluding
non-recurring items $89,164 $87,645 $112,169 $91,572 $82,469 $74,590 $65,553 $57,421
Net income per share
excluding non-
recurring items $ 0.48 $ 0.47 $ 0.60 $ 0.50 $ 0.46 $ 0.42 $ 0.37 $ 0.33
-------- ------- -------- ------- -------- ------- ------- -------
</TABLE>

F-35

<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS

Following is a list of the Directors and Executive Officers of the Company:

DIRECTORS EXECUTIVE OFFICERS

Eric A. Benhamou Eric A. Benhamou
Chairman, President and Chairman, President and
Chief Executive Officer Chief Executive Officer
3Com Corporation
Richard L. Edson
Casey Cowell Senior Vice President, Client Access,
Vice Chairman New Business Initiatives
3Com Corporation
Debra J. Engel
James L. Barksdale Senior Vice President
President and Chief Executive Officer Corporate Services
Netscape Communications Corporation
Ralph Godfrey
Gordon A. Campbell Senior Vice President, Client Access,
President and Chief Executive Officer America Sales
Techfarm, Inc.
John H. Hart
James E. Cowie Senior Vice President and
Partner Chief Technical Officer
Frontenac Company
Randy R. Heffner
David W. Dorman Senior Vice President, Client Access,
Executive Vice President Operations
SBC Communications, Inc.
Richard W. Joyce
Jean-Louis Gassee Senior Vice President, Client Access,
Chairman, President and Chief Executive Remote Access Products Division
Officer
Be, Inc. Alan J. Kessler
Senior Vice President
Stephen C. Johnson Enterprise Systems, Global Sales
President and Chief Executive Officer
Komag, Inc. Ross W. Manire
Senior Vice President, Carrier Systems
Philip C. Kantz
President and Chief Executive Officer John W. McCartney
Tab Products President, Client Access

Paul G. Yovovich Mark D. Michael
Private Investor Senior Vice President, General Counsel
and Corporate Director and Corporate Secretary

William F. Zuendt Christopher B. Paisley
Former President and Chief Operating Senior Vice President, Finance
Officer and Chief Financial Officer
Wells Fargo Bank
Janice M. Roberts
Senior Vice President, Marketing and
Business Development

Michael S. Seedman
Senior Vice President, Client Access,
Personal Communications Division

Ronald A. Sege
Senior Vice President
Enterprise Systems, Global Products

Douglas C. Spreng
Executive Vice President, Client
Access
Interface Products Group

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

F-36

<PAGE>

700200-007 1610-PS-97

<PAGE>
3COM CORPORATION

THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS

The undersigned hereby appoints Eric A. Benhamou and Mark D. Michael, and
either of them, as attorneys of the undersigned with full power of substitution,
to vote all shares of stock which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of 3Com Corporation, to be held at 5400 Bayfront
Plaza, Building 500, Santa Clara, California 95052-8145 on Tuesday, October 7,
1997 at 10:30 a.m., local time, and at any continuation or adjournment thereof,
with all the powers which the undersigned might have if personally present at
the meeting.

The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
and Proxy Statement, dated August 27, 1997, and a copy of the Company's 1997
Annual Report to Stockholders. The undersigned hereby expressly revokes any and
all proxies heretofore given or executed by the undersigned with respect to the
shares of stock represented by this Proxy and, by filing this Proxy with the
Secretary of the Company, gives notice of such revocation.

WHERE NO CONTRARY CHOICE IS INDICATED BY THE STOCKHOLDER, THIS PROXY, WHEN
RETURNED, WILL BE VOTED FOR SUCH PROPOSALS, FOR SUCH NOMINEES AND WITH
DISCRETIONARY AUTHORITY UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.

<PAGE>

<TABLE>
<CAPTION>
[X] Please mark
votes as in this
example.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING:
<S> <C> <C>
1. ELECTION OF FIVE CLASS I
DIRECTORS TO SERVE A TWO-YEAR
TERM EXPIRING IN 1999.

Nominees:

David W. Dorman
Casey Cowell
Jean-Louis Gassee
Paul G. Yovovich
William F. Zuendt

FOR WITHHELD
[ ] [ ]

[ ] 2. To approve an increase in the share FOR AGAINST ABSTAIN
- ---------------------------------------- reserve under the Company's 1983
For all nominees except as noted above. Stock Option Plan by 7,000,000 [ ] [ ] [ ]
shares.

3. To ratify the appointment of FOR AGAINST ABSTAIN
Deloitte & Touche LLP as
independent public accountants for [ ] [ ] [ ]
the fiscal year ending May 31, 1998.

4. With discretionary authority, upon
such other matters as may properly
come before the meeting.

PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.

Please date and sign exactly as your names Signature:_______________________________ Date:______________
appear herein. Corporate or partnership proxies
should be signed in full corporate or partnership Signature:_______________________________ Date:______________
name by an authorized person. Persons signing in a
fiduciary capacity should indicate their full title in
such capacity.

</TABLE>
21