10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 1, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 0-12867

3COM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-2605794
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
350 Campus Drive	01752
Marlborough, Massachusetts	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (508) 323-1000

Former name, former address and former fiscal year, if changed since last report: N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer þ  Accelerated Filer o  Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ

As of September 29, 2006, 396,597,686 shares of the registrant’s common stock were outstanding.

3COM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 1, 2006
TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION		1
Item 1.	Financial Statements		1
	Condensed Consolidated Statements of Operations
	Three Months Ended August 31, 2006 and 2005		1
	Condensed Consolidated Balance Sheets
	August 31 and May 31, 2006		2
	Condensed Consolidated Statements of Cash Flows
	Three Months Ended August 31, 2006 and 2005		3
	Notes to Condensed Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		23
PART II.	OTHER INFORMATION		23
Item 1.	Legal Proceedings		23
Item 1A.	Risk Factors		24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 6.	Exhibits		34
SIGNATURES			36
EXHIBITS			37
EX-10.2 STAND ALONE STOCK OPTION AGREEMENT, DATED SEPTEMBER 5, 2006
EX-10.3 2003 STOCK PLAN RESTRICTED STOCK UNIT GRANT AWARD AGREEMENT
EX-10.7 AGREEMENT FOR THE LEASE OF HANGZHOU REAL PROPERTY
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO & CFO

We use a 52 or 53 week fiscal year ending on the Friday nearest to May 31, with each fiscal quarter ending on the Friday generally nearest August 31, November 30 and February 28. For presentation purposes, the periods are shown as ending on August 31, November 30, February 28 and May 31, as applicable.

3Com, the 3Com logo, Digital Vaccine, NBX, IntelliJack, OfficeConnect, TippingPoint Technologies, and UnityOne are registered trademarks of 3Com Corporation or its subsidiaries. VCX and TippingPoint are trademarks of 3Com Corporation. Other product and brand names may be trademarks or registered trademarks of their respective owners.

This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future: future growth; H-3C, our joint venture in China, including strategy, growth, purchase of additional equity interest in H-3C and the financing thereof, dependence, statutory tax rate, expected benefits, allocations of purchase price, consolidation, and resources needed to comply with Sarbanes-Oxley and manage operations; TippingPoint acquisition; investments in TippingPoint business; strategy for improving profitability of our SCN segment; environment for enterprise networking equipment; challenges relating to sales growth; leveraging and enhancing our relationship with H-3C; development and execution of our “go-to-market” strategy; strategic product and technology development plans; designing an appropriate business model, strategic plan and infrastructure to reach sustained profitability; dependence on China; ability to satisfy cash requirements for the next twelve months; effect and benefits of restructuring activities; strategic investments and capital call requirements; potential acquisitions and strategic relationships; outsourcing; competition and pricing pressures; estimated changes, future possible effects and effects of changes in key assumptions made in the application of SFAS No. 123R; expected restructuring actions and expenses; expected decline in sales of connectivity products; and possible repurchase of shares; and you can identify these and other forward-looking statements by the use of words such as “may,” “can,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II Item 1A Risk Factors. All forward-looking statements included in this document are based on our assessment of information available to us at the time this report is filed. We have no intent, and disclaim any obligation, to update any forward-looking statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

3COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
	August 31,
(In thousands, except per share data)	2006			2005
Sales	$	300,144		$	177,636
Cost of sales (including stock-based compensation expense of $319 and $9, respectively)		163,715			107,570
Gross profit		136,429			70,066
Operating expenses:
Sales and marketing (including stock-based compensation expense of $1,237 and $67, respectively)		77,122			70,118
Research and development (including stock-based compensation expense of $1,168 and $30, respectively)		47,793			21,197
General and administrative (including stock-based compensation expense of $563 and $530, respectively)		20,276			18,213
Amortization and write-down of intangible assets		12,181			3,862
Restructuring (benefit) charges		(75	)		3,361
Total operating expenses		157,297			116,751
Operating loss		(20,868	)		(46,685	)
Gain (loss) on investments, net		2,292			(414	)
Interest income, net		10,090			5,835
Other income, net		4,718			154
Loss before income taxes, equity interest in loss of unconsolidated joint venture and minority interest		(3,768	)		(41,110	)
Income tax provision		(1,358	)		(915	)
Equity interest in loss of unconsolidated joint venture		—			(16	)
Minority interest in income of consolidated joint venture		(8,942	)		—
Net loss	$	(14,068	)	$	(42,041	)
Basic and diluted net loss per share	$	(0.04	)	$	(0.11	)
Shares used in computing per share amounts:
Basic and diluted		391,885			383,760

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

3COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands, except per share data)	August 31, 2006			May 31, 2006
ASSETS
Current assets:
Cash and equivalents	$	525,177		$	501,097
Short-term investments		390,482			363,250
Notes receivable		50,935			63,224
Accounts receivable, less allowance for doubtful accounts of $15,728 and $16,422, respectively		120,848			115,120
Inventories		171,366			148,819
Other current assets		56,970			57,835
Total current assets		1,315,778			1,249,345
Property and equipment, less accumulated depreciation and amortization of $240,631 and $232,944, respectively		80,309			89,109
Goodwill		354,259			354,259
Intangible assets, net		99,614			111,845
Deposits and other assets		28,929			56,803
Total assets	$	1,878,889		$	1,861,361
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	148,326		$	153,245
Accrued liabilities and other		338,342			318,036
Total current liabilities		486,668			471,281
Deferred revenue and long-term obligations		13,299			13,788
Minority interest		182,872			173,930
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; none outstanding		—			—
Common stock, $0.01 par value, 990,000 shares authorized; shares issued: 393,567 and 393,442, respectively		2,301,384			2,300,396
Treasury stock, at cost, of 552 and zero shares, respectively		(2,705	)		—
Unamortized stock-based compensation		—			(7,565	)
Retained deficit		(1,101,391	)		(1,087,512	)
Accumulated other comprehensive loss		(1,238	)		(2,957	)
Total stockholders’ equity		1,196,050			1,202,362
Total liabilities and stockholders’ equity	$	1,878,889		$	1,861,361

The accompanying notes are an integral part of these condensed consolidated financial statements.

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3COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	August 31,
(In thousands)	2006			2005
Cash flows from operating activities:
Net loss	$	(14,068	)	$	(42,041	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization		20,095			13,129
Stock-based compensation charges		3,287			1,115
Gain on property and equipment disposals		(7,605	)		(421	)
(Gain) loss on investments, net		(2,422	)		414
Minority interest in income of consolidated joint venture		8,942			—
Equity interest in loss of unconsolidated joint venture		—			16
Deferred income taxes		(3,716	)		(143	)
Changes in assets and liabilities:
Accounts receivable		(5,838	)		(12,695	)
Inventories		(21,662	)		(7,497	)
Other assets		14,314			(141	)
Accounts payable		(6,623	)		(7,546	)
Other liabilities		18,582			82
Net cash provided by (used in) operating activities		3,286			(55,728	)
Cash flows from investing activities:
Purchases of investments		(190,310	)		(211,421	)
Proceeds from maturities and sales of investments		180,524			170,964
Purchases of property and equipment		(6,012	)		(4,288	)
Proceeds from sale of property and equipment		33,108			—
Net cash provided by (used in) investing activities		17,310			(44,745	)
Cash flows from financing activities:
Issuances of common stock		2,934			655
Repurchases of common stock		(187	)		(672	)
Net cash provided by (used in) financing activities		2,747			(17	)
Effect of exchange rate changes on cash and equivalents		737			454
Net change in cash and equivalents during period		24,080			(100,036	)
Cash and equivalents, beginning of period		501,097			268,535
Cash and equivalents, end of period	$	525,177		$	168,499

The accompanying notes are an integral part of these condensed consolidated financial statements.

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3COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of our financial position as of September 1, 2006 and June 2, 2006, our results of operations for the three months ended September 1, 2006 and September 2, 2005 and our cash flows for the three months ended September 1, 2006 and September 2, 2005.

We use a 52 or 53 week fiscal year ending on the Friday nearest to May 31. For convenience, the condensed consolidated financial statements have been shown as ending on the last day of the calendar month. Accordingly, the three months ended August 31, 2006 ended on September 1, 2006, the three months ended August 31, 2005 ended on September 2, 2005, and the year ended May 31, 2006 ended on June 2, 2006. The results of operations for the three months ended September 1, 2006 may not be indicative of the results to be expected for the fiscal year ending June 1, 2007 or any future periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended June 2, 2006.

Effective June 3, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). Because we used the modified prospective transition method in adopting SFAS No. 123R we have not restated results for prior periods to reflect stock compensation on the fair value method. Under this transition method, stock-based compensation expense for the first quarter of fiscal 2007 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, May 31, 2006 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Stock-based compensation expense for all stock-based compensation awards granted after June 2, 2006 is based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. We recognize the compensation costs for awards granted after May 31, 2006 on a straight-line basis over the requisite service period of the award, which is generally equivalent to the vesting term. Prior to the adoption of SFAS No. 123R, we recognized stock-based compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). See Note 2 to the Condensed Consolidated Financial Statements for a further discussion of stock-based compensation.

Recently issued accounting pronouncements

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. This Interpretation is effective for the first fiscal year beginning after December 15, 2006. We are currently evaluating the impact FIN 48 may have on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. We have not yet determined the impact, if any, that the implementation of SFAS No. 157 will have on our results of operations or financial condition.

NOTE 2. STOCK-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, which requires all stock-based compensation to employees (as defined in SFAS No. 123R), including grants of employee stock options, restricted

4

stock awards, restricted stock units, and employee stock purchase plan shares to be recognized in the financial statements based on their fair values. We adopted SFAS No. 123R on June 3, 2006 using the modified prospective transition method and accordingly, prior period amounts have not been restated. In order to determine the fair value of stock options and employee stock purchase plan shares, we use the Black-Scholes option pricing model and apply the single-option valuation approach to the stock option valuation. In order to determine the fair value of restricted stock awards we use the closing market price of 3Com common stock on the date of grant. We recognize stock-based compensation expense on a straight-line basis over the requisite service period of the awards for options granted following the adoption of SFAS No. 123R. For unvested stock options outstanding as of May 31, 2006, we will continue to recognize stock-based compensation expense using the accelerated amortization method prescribed in FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.

Estimates of the fair value of equity awards in future periods will be affected by the market price of our common stock, as well as the actual results of certain assumptions used to value the equity awards. These assumptions include, but are not limited to, the expected volatility of the common stock, the expected term of options granted, and the risk free interest rate.

As noted above, the fair value of stock options and employee stock purchase plan shares is determined by using the Black-Scholes option pricing model and applying the single-option approach to the stock option valuation. The options generally have vesting on an annual basis over a vesting period of four years. We estimate the expected option term by analyzing the historical term period from grant to exercise and also consider the expected term for those options that are still outstanding. The expected term of employee stock purchase plan shares is the average of the remaining purchase periods under each offering period. For equity awards granted after May 31,2006, the volatility of the common stock is estimated using the historical volatility, as allowed in Staff Accounting Bulletin (“SAB”) No. 107. We believe that historical volatility represents the best information currently available for projecting future volatility.

The risk-free interest rate used in the Black-Scholes option pricing model is determined by looking at historical U.S. Treasury zero-coupon bond issues with terms corresponding to the expected terms of the equity awards. In addition, an expected dividend yield of zero is used in the option valuation model because we do not expect to pay any cash dividends in the foreseeable future. In accordance with SFAS No. 123R, we are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. In order to determine an estimated pre-vesting option forfeiture rate, we used historical forfeiture data, which yields a forfeiture rate of 27%. We currently believe this historical forfeiture rate to be reflective of our anticipated rate on a go-forward basis. This estimated forfeiture rate has been applied to all unvested options and restricted stock outstanding as of May 31, 2006 and to all options and restricted stock granted since May 31, 2006. Therefore, stock-based compensation expense is recorded only for those options and restricted stock that are expected to vest.

The following table summarizes the incremental effects of the share-based compensation expense resulting from the application of SFAS No. 123R to the options:

	Three Months Ended
	August 31,
(In thousands, except per share data)	2006			2005
Cost of sales	$	313		$	—
Sales and marketing		1,039			—
Research and development		584			—
General and administrative		684			—
Sare-based compensation effect of SFAS No. 123R on net loss	$	2,620		$	—
Share-based compensation effect of SFAS No. 123R on basic and diluted net loss per share	$	(0.01	)	$	—
Share-based compensation effect of SFAS No. 123R on cash flow from operations	$	2,620		$	—

As of August 31, 2006, total unrecognized stock-based compensation expense relating to unvested employee stock options, adjusted for estimated forfeitures, was $7.1 million. This amount is expected to be recognized over a weighted-average period of 1.4 years. If actual forfeitures differ from current estimates, total unrecognized stock-based compensation expense will be adjusted for future changes in estimated forfeitures.

5

Prior to June 1, 2006, we accounted for stock options using the intrinsic value method, pursuant to the provisions of APB No. 25. Under this method, stock-based compensation expense was measured as the difference between the option’s exercise price and the market price of the Company’s common stock on the date of grant.

Pro forma information required under SFAS No. 123 for the year ago period, as if we had applied the fair value recognition provisions of SFAS No. 123 to awards granted under our equity incentive plans, was as follows:

	Three Months Ended
(In thousands, except per share amounts)	August 31, 2005
Net loss as reported	$	(42,041	)
Add: Stock-based compensation included in reported net loss		1,115
Deduct: Total stock-based compensation determined under the fair value-based method, net of related tax effects		(3,644	)
Adjusted net loss	$	(44,570	)
Net loss per share-basic and diluted:
As reported	$	(0.11	)
Adjusted	$	(0.12	)

For purposes of this pro forma disclosure, the estimated fair values of employee stock options are assumed to be amortized over the applicable vesting periods, and the estimated fair values of employee stock purchase plan shares are assumed to be amortized over the applicable subscription periods.

Share-based compensation recognized in the three months ended August 31, 2006 as a result of the adoption of SFAS No. 123R as well as pro forma disclosures according to the original provisions of SFAS No. 123 for periods prior to the adoption of SFAS No. 123R use the Black-Scholes option pricing model for estimating the fair value of options granted under the company’s equity incentive plans. There were no employee stock purchase plan shares issued during the three months ended August 31, 2006 and 2005. Employee stock purchase shares normally occur only in the quarters ended November 30 and May 31. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The underlying assumptions used in the Black-Scholes model and the resulting estimates of fair value per share were as follows for options granted during the three months ended August 31, 2006 and 2005:

	Three Months Ended
	August 31,
	2006			2005 1
Employee stock options:
Volatility		42.8	%		46.0	%
Risk-free interest rate		5.0	%		3.9	%
Dividend yield		0.0	%		0.0	%
Expected life (years)		4.0			4.0
Fair value per share	$	1.84		$	1.42

1  —   Assumptions used in the calculation of fair value according to the provisions of SFAS No. 123.

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As of August 31, 2006, our outstanding stock options as a percentage of outstanding shares were approximately 12 percent. Stock option detail as of August 31, 2006, were as follows (shares in thousands):

	Number of			Weighted average
	shares			exercise price
Outstanding June 1, 2006		61,421		$	5.71
Granted		493			4.62
Exercised		(840	)		3.49
Cancelled		(15,702	)		5.32
Outstanding August 31, 2006		45,372		$	5.87
Exercisable		31,549		$	6.81
Weighted average grant-date fair value of options granted				$	1.84

During the quarter ended August 31, 2006 approximately 0.8 million options were exercised at an aggregate intrinsic value of $1.3 million. The intrinsic value is calculated as the difference between the market value as of September 1, 2006 and the exercise price of the shares. The market value as of September 1, 2006 was $4.43 as reported by the NASDAQ Global Select Market. The aggregate intrinsic value of options outstanding and options exercisable as of August 31, 2006 was $21.4 million and $8.4 million, respectively.

The number of options cancelled during the three months ended August 31, 2006 includes 12.0 million related to the former Chief Executive Officer. On September 5, 2006 we granted 12.0 million options to the new Chief Executive Officer and 9.7 million shares to other employees. Also granted on September 5, 2006 were 2.3 million restricted stock awards and 3.5 million restricted stock units to various employees.

Options outstanding that are vested and expected to vest as of August 31, 2006 are as follows:

					Weighted Average
			Weighted average		Remaining		Aggregate
	Number of		Grant-Date Fair		Contractual Life		Intrinsic Value
	shares		Value		(in years)		(in thousands)
Vested and expected to vest at August 31, 2006		40,756,529	$	6.09		0.3	$	17,980

Restricted stock awards activity during the three months ended August 31, 2006 and restricted stock awards detail as of August 31, 2006, were as follows (shares in thousands):

	Number of			Weighted average
	Shares (unvested)			Grant-Date Fair Value
Outstanding June 1, 2006		2,117		$	4.07
Granted		40			4.71
Vested		(131	)		3.96
Forfeited		(717	)		4.33
Outstanding August 31, 2006		1,309		$	3.97

During the quarter ended August 31, 2006 approximately 0.1 million restricted shares with an aggregate fair value of $0.6 million became rested.

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NOTE 3. ACQUISITIONS

On November 17, 2003, we formed the Huawei-3Com joint venture, or H-3C, with a subsidiary of Huawei Technologies, Ltd., or Huawei. H-3C is domiciled in Hong Kong, and has its principal operating center in Hangzhou, China.

At the time of formation, we contributed cash of $160.0 million, assets related to our operations in China and Japan, and licenses related to certain intellectual property in exchange for a 49 percent ownership interest. We recorded our initial investment in H-3C at $160.1 million, reflecting our carrying value for the cash and assets contributed. Huawei contributed its enterprise networking business assets — including Local Area Network, or LAN, switches and routers; engineering, sales and marketing resources and personnel; and licenses to its related intellectual property — in exchange for a 51 percent ownership interest. Huawei’s contributed assets were valued at $178.2 million at the time of formation. Two years after formation of H-3C, we had the one-time option to purchase an additional two percent ownership interest from Huawei. On October 28, 2005, we exercised this right and entered into an agreement to purchase an additional two percent ownership interest in H-3C from Huawei for an aggregate purchase price of $28.0 million. We were granted regulatory approval by the Chinese government and subsequently completed this transaction on January 27, 2006 (date of acquisition). Consequently, we now own a majority interest in the joint venture and have determined that the criteria of Emerging Issues Task Force No. 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights” have been met and, therefore, consolidated H-3C’s financial statements beginning February 1, 2006, a date used under the principle of a convenience close. As H-3C reports on a calendar year basis, we consolidate H-3C based on H-3C’s most recent financial statements, two months in arrears. Our Consolidated Statement of Operations for the quarter ended August 31, 2006 contains all three months of results from H-3C’s quarter ended June 30, 2006. As we only own 51% of H-3C our Consolidated Balance Sheet reflects a minority interest liability related to Huawei’s 49% ownership in H-3C and our Consolidated Statement of Operations contains an allocation to minority interest of amounts representing Huawei’s 49% share of H-3C’s net income. Under the terms of our existing shareholders’ agreement, and as previously disclosed, we and Huawei each have the right, commencing on or after November 15, 2006, to initiate a bid process to purchase the equity interest in H-3C held by the other.

Prior to February 1, 2006, we accounted for our investment in H-3C using the equity method. Under this method, we recorded our proportionate share of H-3C’s net income or loss based on the most recently available quarterly financial statements. The following pro forma financial information presents the consolidated results of operations of 3Com and H-3C as if the 2% acquisition had occurred as of the beginning of the period presented below. Preliminary adjustments, which reflect the amortization of purchased intangible assets and charges for in-process research and development have been made to the consolidated results of operations. We also eliminated the inter-company activity between the parties in the consolidated results. The unaudited pro forma financial information is not intended, and should not be taken, as representative of our future consolidated results of operations or the results that would have occurred if the acquisition occurred on March 1, 2005.

(in millions, except per share amounts)

	Three Months Ended
	August 31, 2005
Net sales	$	259.6
Net loss		(42.6	)
Basic and diluted net loss per share	$	(0.11	)

NOTE 4. RESTRUCTURING CHARGES

In recent fiscal years, we have undertaken several initiatives involving significant changes in our business strategy and cost structure.

In fiscal 2001, we began a broad restructuring of our business to enhance the focus and cost effectiveness of our businesses in serving their respective markets. These restructuring efforts continued through fiscal 2006. As of August 31, 2006, accrued liabilities related to actions initiated in fiscal 2001, 2002, 2003, 2004, 2005, and 2006 (the “Fiscal 2001 Actions”, “Fiscal 2002 Actions”, “Fiscal 2003 Actions”, “Fiscal 2004 Actions”, “Fiscal 2005 Actions”, and “Fiscal 2006 Actions”) mainly consist of lease obligations associated with vacated facilities and employee separation costs.

During the first quarter of fiscal 2007 (the “Fiscal 2007 Actions”), we took the following additional measures to reduce

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costs:

• further reductions in workforce; and

• continued efforts to consolidate and dispose of excess facilities.

Restructuring charges related to these various initiatives resulted in a net benefit of $0.1 million in the first quarter of fiscal 2007 and a charge of $3.4 million in the first quarter of fiscal 2006. The net restructuring benefit in the first quarter of fiscal 2007 resulted from severance, outplacement and other costs of $7.9 million, slightly more than offset by a gain on the sale of our Santa Clara facility of $8.0 million. Restructuring charges in the first quarter of fiscal 2006 included $2.0 million for severance and outplacement costs and $1.4 million for facilities-related charges and long-term asset write-downs.

Accrued liabilities associated with restructuring charges are included in the caption “Accrued liabilities and other” in the accompanying consolidated balance sheets. These liabilities are classified as current because we expect to satisfy such liabilities in cash within the next 12 months.

Fiscal 2007 Actions

Activity and liability balances related to the fiscal 2007 restructuring actions are as follows (in thousands):

	Employee			Facilities-			Other
	Separation			related			Restructuring
	Expense			Sales			Costs			Total
Balance as of June 1, 2006	$	—		$	—		$	—		$	—
Provisions (benefits)		7,619			(7,965	)		85			(261	)
Payments and non-cash charges		(2,933	)		7,965			(85	)		4,947
Balance as of August 31, 2006	$	4,686		$	—		$	—		$	4,686

Employee separation expenses include severance pay, outplacement services, medical and other related benefits. The reduction in workforce affected employees involved in research and development, sales and marketing, customer support, and general and administrative functions. Through August 31, 2006, the total reduction in workforce associated with actions initiated during fiscal 2007 included approximately 115 employees who had been separated or were currently in the separation process and approximately 30 additional employees who had been notified but had not yet worked their last day.

In the first quarter we recorded a benefit for the sale of our owned Santa Clara facility in the amount of $8.0 million.

Other restructuring charges were for payments to suppliers in support of the restructuring efforts.

Fiscal 2006 Actions

Activity and liability balances related to the fiscal 2006 restructuring actions are as follows (in thousands):

	Employee			Facilities-
	Separation			related
	Expense			Charges			Total
Balance as of June 1, 2006	$	4,877		$	891		$	5,768
Provisions (benefits)		(10	)		(13	)		(23	)
Payments and non-cash charges		(2,902	)		(60	)		(2,962	)
Balance as of August 31, 2006	$	1,965		$	818		$	2,783

Employee separation expenses include severance pay, outplacement services, medical and other related benefits. The reduction in workforce affected employees involved in research and development, sales and marketing, customer support, and general and administrative functions. Through August 31, 2006 separation payments associated with actions initiated in fiscal 2006 were approximately $7.6 million.

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The benefit recorded in our first quarter results was primarily for employees retained and revised lease obligation terms.

We expect to complete any remaining activities related to actions initiated in fiscal 2006 during fiscal 2007.

Fiscal 2005 Actions

Activity and liability balances related to the fiscal 2005 restructuring actions are as follows (in thousands):

	Employee			Long-term		Facilities-			Other
	Separation			Asset		related			Restructuring
	Expense			Write-downs		Charges			Costs		Total
Balance as of June 1, 2006	$	1,843		$	255	$	—		$	13	$	2,111
Provisions (benefits)		(11	)		—		14			—		3
Payments and non-cash charges		(145	)		—		(14	)		—		(159	)
Balance as of August 31, 2006	$	1,687		$	255	$	—		$	13	$	1,955

The separation benefit recorded in our first quarter results was primarily for employees retained.

We expect to complete any remaining activities related to actions initiated in fiscal 2006 during fiscal 2007.

Fiscal 2001, 2002, 2003 and 2004 Actions

Activity and liability balances related to the fiscal 2001, 2002, 2003 and 2004 restructuring actions are as follows (in thousands):

	Facilities-			Other
	related			Restructuring
	Charges			Costs		Total
Balance as of June 1, 2006	$	5,641		$	5	$	5,646
Provisions		205			—		205
Payments and non-cash charges		(921	)		—		(921	)
Balance as of August 31, 2006	$	4,925		$	5	$	4,930

Facilities related charges in the quarter were related to a provision of $0.4 million for fiscal 2003 actions for revised lease obligation terms offset by benefits for the 2001, 2002 and 2004 plans of $0.2 million for extended lease terms.

NOTE 5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

As described in Note 3 we formed H-3C with a subsidiary of Huawei.

Prior to the acquisition we accounted for our investment by the equity method. Under this method, we recorded our proportionate share of H-3C’s net income or loss based on the most recently available quarterly financial statements. Since H-3C follows a calendar year basis of reporting, we reported our equity in H-3C’s net loss for H-3C’s fiscal period from April 1, 2005 through June 30, 2005, in our results of operations for the first quarter of fiscal 2006. This represents reporting two months in arrears.

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The following summarized information is from the statement of operations for H-3C for the three month period ended June 30, 2005. The unaudited financial information is not intended, and should not be taken, as representative of future results of our H-3C segment.

(in thousands):

	Three months ended
	June 30, 2005
Statement of Operations:
Sales	$	95,772
Gross profit		40,450
Net loss		(33	)

In determining our share of the net loss of H-3C certain adjustments were made to H-3C’s reported results. These adjustments were made primarily to recognize the value and the related amortization expense associated with Huawei’s contributed assets, as well as to defer H-3C’s sales and gross profit on sales of products sold to us that remained in our inventory at the end of the accounting period.

3Com and H-3C are parties to agreements for the sale of certain products between each other. During the first quarter of fiscal 2006, we made sales of products to H-3C of $3.2 million and made purchases of products from H-3C of $16.9 million. Upon consolidation, these sales and purchases are eliminated in our consolidated results.

NOTE 6. COMPREHENSIVE LOSS

The components of comprehensive loss, net of tax, are as follows (in thousands):

	Three Months Ended
	August 31,
	2006			2005
Net loss	$	(14,068	)	$	(42,041	)
Other comprehensive income:
Net unrealized gain on investments		1,039			419
Change in accumulated translation adjustments		682			436
Total comprehensive loss	$	(12,347	)	$	(41,186	)

NOTE 7. NET LOSS PER SHARE

Employee stock options totaling 45.4 million shares for the three months ended August 31, 2006 and 62.5 million shares for the three months ended August 31, 2005 were not included in the computation of diluted earnings per share as the net loss for these periods would have made their effect antidilutive.

NOTE 8. INVENTORIES

The components of inventories are as follows (in thousands):

	August 31,		May 31,
	2006		2006
Finished goods	$	98,472	$	69,386
Work-in-process		15,851		12,777
Raw materials		57,043		66,656
Total	$	171,366	$	148,819

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NOTE 9. INTANGIBLE ASSETS, NET

The following table details our purchased intangible assets (in thousands):

	August 31, 2006							May 31, 2006
			Accumulated							Accumulated
	Gross		Amortization			Net		Gross		Amortization			Net
Existing technology	$	203,946	$	(124,344	)	$	79,602	$	203,946	$	(114,235	)	$	89,711
Maintenance contracts		19,000		(5,014	)		13,986		19,000		(4,222	)		14,778
Other		15,301		(9,275	)		6,026		15,301		(7,945	)		7,356
Total	$	238,247	$	(138,633	)	$	99,614	$	238,247	$	(126,402	)	$	111,845

NOTE 10. ACCRUED WARRANTY

Products are sold with varying lengths of warranty ranging from 90 days to the lifetime of the products. Allowances for estimated warranty costs are recorded in the period of sale, based on historical experience related to product failure rates and actual warranty costs incurred during the applicable warranty period. Also, on an ongoing basis, we assess the adequacy of our allowances related to warranty obligations recorded in previous periods and may adjust the balances to reflect actual experience or changes in future expectations.

The following table summarizes the activity in the allowance for estimated warranty costs for the three months ended August 31, 2006 and 2005 (in thousands):

	Three Months Ended
	August 31,
	2006			2005
Accrued warranty, beginning of period	$	41,791		$	41,782
Cost of warranty claims processed during the period		(11,592	)		(7,919	)
Provision for warranties related to products sold during the period		11,589			6,865
Accrued warranty, end of period	$	41,788		$	40,728

In prior years, we entered into several agreements whereby we sold products to resellers who, in turn, sold the products to others, and we guaranteed the payments of the end users. However, since deferred revenue and other associated accruals related to such sales approximate the guaranteed amounts, any payments resulting from end user defaults are not expected to have a material impact on our results of operations.

NOTE 11. SEGMENT INFORMATION

Based on the information provided to our chief operating decision-maker (CODM) for purposes of making decisions about allocating resources and assessing performance, prior to February 1, 2006, we reported one operating segment, 3Com.

As a result of the acquisition of H-3C, we have two segments that provide information to the CODM: the Secure Converged Networking, or SCN, business and the acquired H-3C business. Each of these segments has designated management teams with direct responsibility over the operations of the respective segments. Accordingly, our CODM now focuses primarily on information and analysis for purposes of making decisions about allocating resources and assessing performance. As a result, we currently report two operating segments, SCN and H-3C.

Management evaluates segment performance based on segment net revenue, operating income (loss), net income (loss), and net assets.

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Summarized financial information of our continuing operations by segment for the three months ended August 31, 2006 is as follows. Note that the three months ended August 31, 2005 is not presented as prior to February 1, 2006 we did not consolidate the H-3C segment.

(in thousands)

	Three Months Ended August 31, 2006
	SCN			H-3C		Eliminations1			Total
Revenue	$	155,823		$	169,968	$	(25,647	)	$	300,144
Gross profit		56,345			80,084		—			136,429
Sales and marketing, research and development, and general and administrative		85,403			59,788		—			145,191
Restructuring, amortization, and in-process research and development		3,516			8,590		—			12,106
Operating income (loss)		(32,574	)		11,706		—			(20,868	)
Net income (loss)	$	(23,375	)	$	18,249	$	(8,942	)	$	(14,068	)
Assets	$	1,453,244		$	453,885	$	(28,240	)	$	1,878,889

1 — Represents eliminations for inter-company sales as well as the recording of minority interest related to Huawei’s 49 percent ownership in the joint-venture.

Certain product groups accounted for a significant portion of our sales. Sales from these product groups as a percentage of total sales for the respective periods are as follows (in thousands except percentages):

	Three Months Ended August 31,
	2006				2005
Networking	$	244,033	81.3	%	$	127,054	71.5	%
Security		25,462	8.5			16,876	9.5
Voice		15,949	5.3			15,408	8.7
Services		8,351	2.8			7,835	4.4
Connectivity Products		6,349	2.1			10,463	5.9
Total	$	300,144			$	177,636

During the quarter Huawei Technologies together with its affiliates became a customer which represents at least 10% of total consolidated sales. The customer is part of the H-3C segment.

NOTE 12. GEOGRAPHIC INFORMATION

Sales by geographic region are as follows (in thousands):

	Three Months Ended August 31,
	2006		2005
North America	$	58,423	$	68,624
Latin and South America		15,319		14,117
Europe, Middle East, and Africa		69,534		74,908
Asia Pacific		156,868		19,987
Total	$	300,144	$	177,636

Sales information by geography to the extent available is reported based on the customer’s designated delivery point, except in the case of H-3C’s Original Equipment Manufacturer, or OEM, sales which are based on the hub locations of H-3C’s OEM partners.

NOTE 13. LITIGATION

We are a party to lawsuits in the normal course of our business. Litigation can be expensive and disruptive to normal

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business operations. Moreover, the results of complex legal proceedings are difficult to predict. We believe that we have meritorious defenses in the matter set forth below in which we are named as a defendant. An unfavorable resolution of the lawsuit described below could adversely affect our business, financial position, or results of operations. We cannot estimate the loss or range of loss that may be reasonably possible as a result of this litigation and, accordingly, we have not recorded any associated liability in our consolidated balance sheets.

On December 5, 2001, TippingPoint and two of its current and former officers and directors, as well as the managing underwriters in TippingPoint’s initial public offering, were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of New York. The lawsuit, which is part of a consolidated action that includes over 300 similar actions, is captioned In re Initial Public Offering Securities Litigation, Brian Levey vs. TippingPoint Technologies, Inc., et al. (Civil Action Number 01-CV-10976). The principal allegation in the lawsuit is that the defendants participated in a scheme to manipulate the initial public offering and subsequent market price of TippingPoint’s stock (and the stock of other public companies) by knowingly assisting the underwriters’ requirement that certain of their customers had to purchase stock in a specific initial public offering as a condition to being allocated shares in the initial public offerings of other companies. In relation to TippingPoint, the purported plaintiff class for the lawsuit is comprised of all persons who purchased TippingPoint stock from March 17, 2000 through December 6, 2000. The suit seeks rescission of the purchase prices paid by purchasers of shares of TippingPoint common stock. On September 10, 2002, TippingPoint’s counsel and counsel for the plaintiffs entered into an agreement pursuant to which the plaintiffs dismissed, without prejudice, TippingPoint’s former and current officers and directors from the lawsuit. In May 2003, a memorandum of understanding was executed by counsel for the plaintiffs, the issuer-defendants and their insurers setting forth the terms of a settlement that would result in the termination of all claims brought by the plaintiffs against the issuer-defendants and the individual defendants named in the lawsuit. In August 2003, TippingPoint’s Board of Directors approved the settlement terms described in the memorandum of understanding. In May 2004, TippingPoint signed a settlement agreement on behalf of itself and its current and former directors and officers with the plaintiffs. This settlement agreement formalizes the previously approved terms of the memorandum of understanding and, subject to certain conditions, provides for the complete dismissal, with prejudice, of all claims against TippingPoint and its current and former directors and officers. Any direct financial impact of the settlement is expected to be borne by TippingPoint’s insurers. On August 31, 2005, the District Court issued its preliminary approval of the settlement terms. The settlement remains subject to numerous conditions, including final approval by the District Court. There can be no assurance that such conditions will be met. If the District Court rejects the settlement agreement, in whole or in part, or the settlement does not occur for any other reason and the litigation against TippingPoint continues, we intend to defend this action vigorously, and to the extent necessary, to seek indemnification and/or contribution from the underwriters in TippingPoint’s initial public offering pursuant to its underwriting agreement with the underwriters. However, there can be no assurance that indemnification or contribution will be available to TippingPoint or enforceable against the underwriters.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion should be read in conjunction with the condensed consolidated financial statements and the related notes that appear elsewhere in this document.

BUSINESS OVERVIEW

We provide secure, converged networking solutions on a global scale to businesses of all sizes. Our products and solutions enable customers to manage business-critical voice and data in a secure and efficient network environment. We deliver networking products and services for enterprises that view their networks as mission critical and value superior performance. Our products form integrated solutions and function in multi-vendor environments. Our products are sold on a worldwide basis through a combination of value added partners and direct sales representatives.

Our long-term technology-based strategy centers on enterprises and public sector organizations migrating to secure Internet Protocol (IP) based infrastructures that deliver converged voice and data applications. Our products and services can generally be classified in the following categories:

• Networking;

• Security;

• Voice;

• Services; and

• Connectivity Products.

We have undergone significant changes in recent years, including:

• significant headcount reductions and consolidation of facilities;

• restructuring activities which included outsourcing of information technology, all manufacturing activity in our SCN segment, and other functions, and selling excess facilities;

• significant changes to our executive leadership;

• forming the Huawei-3Com joint venture (H-3C);

• acquisition of majority ownership of H-3C;

• acquiring TippingPoint Technologies, Inc.; and

• realigning our sales and marketing channels and expenditures.

We believe an overview of these significant recent events is helpful to an understanding of our operating results.

Significant Events

On November 17, 2003, we formed our joint venture, Huawei-3Com (H-3C), which is domiciled in Hong Kong and has its principal operating center in Hangzhou, China. We contributed $160.0 million in cash, assets related to our operations in China and Japan, and licenses to intellectual property related to those operations in exchange for a 49 percent ownership interest of the joint venture. In the first quarter of fiscal 2005, we expanded the joint venture’s market to include Hong Kong in addition to China and Japan. In the third quarter of fiscal 2006, we further expanded H-3C’s available markets to include several additional countries. We expect this venture to continue to provide three key benefits to us — an expanded product line, access to lower cost and highly effective engineering talent, and a significant presence in the China, Japan, Hong Kong, and other developing markets.

During fiscal 2006, we exercised our right to purchase an additional two percent ownership interest in H-3C and entered into an agreement with Huawei for an aggregate purchase price of $28.0 million in cash. We were granted regulatory approval by the Chinese government and subsequently completed this transaction on January 27, 2006 (date of acquisition). Consequently, we now own a majority interest in the joint venture and have determined that the criteria of Emerging Issues Task Force No. 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but

15

the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights” have been met. Accordingly, we consolidated H-3C’s financial statements from the date of acquisition. Both partners have the right to initiate a bid process to purchase all of the other partner’s ownership interest at any time after the third anniversary of H-3C’s formation.

We have introduced multiple new products targeted at the medium to large enterprise market, including modular switches and routers, as well as VoIP, security and wireless solutions. We also continue to develop solutions for the small to medium enterprise market, including a unified switch offering, VoIP, smart switches, and Power over Ethernet technology.

During the three months ended August 31, 2006 we continued to experience strong results in our H-3C segment and we reduced operating expenses in our SCN business segment, offset in-part by continued investment in the TippingPoint security business.

On October 5, 2006 we announced the election of Dominique Trempont to our board of directors and, effective October 9, 2006, to the Board’s Audit and Finance Committee. We also announced that Julie St. John resigned from our Board and its Audit and Finance Committee effective September 29, 2006. Following Ms. St. John’s departure, we were, for a brief period, not compliant with NASDAQ’s governance requirement to maintain three audit committee members. We regained compliance on October 9, 2006 when Mr. Tempont officially joined such committee.

Summary of Three Months Ended August 31, 2006 Financial Performance

• Our sales in the three months ended August 31, 2006 were $300.1 million, compared to sales of $177.6 million in the three months ended August 31, 2005, an increase of $122.5 million, or 69.0 percent.

• Our gross margin improved to 45.5 percent in the three months ended August 31, 2006 from 39.4 percent in the three months ended August 31, 2005.

• Our operating expenses in the three months ended August 31, 2006 were $157.3 million, compared to $116.8 million in the three months ended August 31, 2005, a net increase of $40.5 million, or 34.7 percent.

• Our net loss in the three months ended August 31, 2006 was $14.1 million, compared to a net loss of $42.0 million in the three months ended August 31, 2005. In the three months ended August 31, 2006 net loss in our SCN segment was $23.4 million which was partially offset by net income of $18.2 million in our H-3C segment before reflecting the minority interest to Huawei of $8.9 million.

• Our balance sheet remained strong with cash and equivalents and short-term investment balances of $915.7 million as of August 31, 2006, compared to cash and equivalents and short-term investment balances of $864.3 million at the end of fiscal 2006.

Business Environment and Future Trends

Networking industry analysts and participants differ widely in their assessments concerning the prospects for near-term industry growth. Industry factors and trends also present significant challenges in the medium term with respect to our goals for sales growth, gross margin improvement and profitability. Such factors and trends include:

• Intense competition in the market for higher end, enterprise core routing and switching products;

• Aggressive product pricing by competitors targeted at gaining share in market segments where we have had a strong position historically, such as the small to medium-sized enterprise market; and

• The advanced nature and ready availability of merchant silicon, which allows low-end competitors to deliver competitive products and makes it increasingly difficult for us to differentiate our products.

Our key focus in fiscal 2007 is to manage our H-3C operating segment for expected growth and to manage our SCN operating segment towards our goal of a return to profitability while maintaining strong investment levels in our TippingPoint security products and sales teams. In fiscal 2007, we plan to continue investment in the H-3C segment that provided strong growth in fiscal 2006. This involves continued investment in research and development, increased distribution both inside and outside of China, and growing the infrastructure. We continue to face significant challenges in the SCN segment with respect to sales growth, gross margin and profitability. Future sales growth for the SCN segment depends to a substantial degree on increased sales of our networking products, and we believe our best growth opportunity requires us to expand our product lines targeting selected enterprise customers. In order to achieve our sales goals in the

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SCN segment for fiscal 2007, it is imperative that we continue to enhance the features and capabilities of these products in a timely manner in order to expand our addressable market opportunities, distribution channels and market competitiveness. Also, we expect a very competitive, difficult pricing environment for the foreseeable future; this will likely exert downward pressure on our SCN sales, gross margin and profitability.

Another key priority will be to determine future H-3C ownership pursuant to a negotiated purchase or the bid process.

On August 8, 2006, we announced that we will begin negotiations with Huawei for the purchase by us of an additional equity interest in H-3C. We currently own 51% of H-3C and Huawei owns 49%. Under the terms of our existing shareholders’ agreement, and as previously disclosed, we each have the right, commencing on and after November 15, 2006, to initiate a bid process to purchase the equity interest in H-3C held by the other. The negotiations are intended to result in an agreement outside of the bid process. We cannot provide assurance that we will be able to negotiate acceptable terms with Huawei or that the transaction will be consummated at all. We may need to raise equity or debt capital in order to finance any such transaction, and such financing may not be available on terms acceptable to us. We may also use existing cash to finance a portion of the consideration for any such transaction, which, if used, would reduce available cash on hand.

Our action plan for fiscal 2007 are based on certain assumptions concerning the overall economic outlook for the markets in which we operate, the expected demand for our products, our ability to compete effectively and gain market share, and the cost and expense structure of our business. These assumptions could prove to be inaccurate. If current economic conditions deteriorate, or if our planned actions are not successful in achieving our goals, there could be additional adverse impacts on our financial position, sales, profitability or cash flows. In that case, we might need to modify our strategic focus and restructure our business again to realign our resources and achieve additional cost and expense savings.

We are committed to our objective of being a leading provider of secure, converged networking solutions for small, medium and large enterprises. We believe that our recent initiatives and our business strategy are consistent with our goals of growth and profitability over the longer term.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are described in Note 2 to our Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2006. These policies continue to be those that we feel are most important to a reader’s ability to understand our financial results. In addition, effective June 1, 2006, we adopted SFAS No. 123R, which we have identified as an additional critical accounting policy, and have provided a description of that policy below.

Stock-based Compensation. In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, which requires all stock-based compensation to employees (as defined in SFAS No. 123R), including grants of employee stock options, restricted stock awards, and restricted stock units, to be recognized in the financial statements based on their fair values.

Estimates of the fair value of equity awards in future periods will be affected by the market price of our common stock, as well as the actual results of certain assumptions used to value the equity awards. These assumptions include, but are not limited to, the expected volatility of the common stock, the expected term of options granted, and the risk free interest rate.

The fair value of stock options and employee stock purchase plan shares is determined by using the Black-Scholes option pricing model and applying the single-option approach to the stock option valuation. The options generally have vesting on an annual basis over a vesting period of four years. We estimate the expected option term by analyzing the historical term period from grant to exercise and also considers the expected term for those options that are outstanding. The expected term of employee stock purchase plan shares is the average of the remaining purchase periods under each offering period. For equity awards granted after June 1, 2006, the volatility of the common stock is estimated using the historical volatility, as allowed in Staff Accounting Bulletin (“SAB”) No. 107.

The risk-free interest rate used in the Black-Scholes option pricing model is determined by looking at historical U.S. Treasury zero-coupon bond issues with terms corresponding to the expected terms of the equity awards. In addition, an expected dividend yield of zero is used in the option valuation model, because we do not expect to pay any cash dividends in the foreseeable future. Lastly, in accordance with SFAS No. 123R, we are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. In order to determine an estimated pre-vesting option forfeiture rate, we used historical forfeiture data, which yields a forfeiture rate of 27%. We

17

believe this historical forfeiture rate to be reflective of our anticipated rate on a go-forward basis. This estimated forfeiture rate has been applied to all unvested options and restricted stock outstanding as of June 1, 2006 and to all options and restricted stock granted since June 1, 2006. Therefore, stock-based compensation expense is recorded only for those options and restricted stock that are expected to vest.

RESULTS OF OPERATIONS

THREE MONTHS ENDED AUGUST 31, 2006 AND 2005

The following table sets forth, for the periods indicated, the percentage of total sales represented by the line items reflected in our condensed consolidated statements of operations:

	Three Months Ended
	August 31,
	2006			2005
Sales		100.0	%		100.0	%
Cost of sales		54.5			60.6
Gross profit margin		45.5			39.4
Operating expenses:
Sales and marketing		25.7			39.5
Research and development		15.9			11.9
General and administrative		6.8			10.3
Amortization and write-down of intangible assets		4.1			2.2
Restructuring charges		0.0			1.9
Total operating expenses		52.4			65.7
Operating loss		(7.0	)		(26.3	)
Gain (loss) on investments, net		0.8			(0.2	)
Interest income, net		3.3			3.3
Other income, net		1.6			0.1
Loss before income taxes and equity interest		(1.3	)		(23.1	)
Income tax provision		(0.4	)		(0.5	)
Equity interest in loss of unconsolidated joint venture		—			(0.0	)
Minority interest in income of consolidated joint venture		(3.0	)		—
Net loss		(4.7	)%		(23.7	)%

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Sales

Sales increased $122.5 million, or 69.0%, in the three months ended August 31, 2006 compared to the same period in the previous fiscal year. This growth is primarily attributable to the inclusion of H-3C sales in the current period. The increase was partially offset by decreases in networking revenues in our SCN segment, largely resulting from the business challenges described earlier.

Sales by major product categories are as follows (dollars in millions):

	Three Months Ended
	August 31,
	2006				2005
Networking	$	244.0	81	%	$	127.1	72	%
Security		25.5	9	%		16.9	9	%
Voice		15.9	5	%		15.4	9	%
Services		8.4	3	%		7.8	4	%
Connectivity Products		6.3	2	%		10.4	6	%
Total	$	300.1	100	%	$	177.6	100	%

Networking revenue includes sales of our Layer 2 and Layer 3 stackable 10/100/1000 managed switching lines, our modular switching lines and routers, wireless switching offerings and our OfficeConnect and baseline-branded small to medium-sized enterprise market products. Sales of our networking products increased $116.9 million or 92% in the three months ended August 31, 2006 compared to the same period in the previous fiscal year. The increase in the three months ended August 31, 2006 is primarily attributable to the inclusion of H-3C’s sales in the current period partially off-set by lower revenue in the SCN segment.

Security revenue includes our TippingPoint products and services, as well as other security products, such as VPN offerings. Sales of our security products increased $8.6 million or 51% in the three months ended August 31, 2006 compared to the same period in the previous fiscal year. The increase is primarily driven by increased sales of our SCN security products and the inclusion of H-3C’s security offerings.

Voice revenue includes our VCX™ and NBX^® VoIP product lines, as well as voice gateway offerings. Sales of our Voice products increased $0.5 million or 3% in the three months ended August 31, 2006 compared to the same period in the previous fiscal year. This increase is primarily attributable to the inclusion of H-3C’s sales in the current period largely offset by lower SCN voice solution sales in the rest of the world.

Services revenue includes professional services and maintenance contracts, excluding TippingPoint maintenance which is included in security. Services revenue increased $0.6 million or 8% in the three months ended August 31, 2006, when compared to the same period in the previous fiscal year. The increase in the service revenue is primarily attributable to the inclusion of H-3C’s results in the current period.

Connectivity Products revenue includes our legacy network interface card, personal computer card, and mini-peripheral component interconnect form factors. Sales of our connectivity products decreased $4.1 million or 39% in the three months ended August 31, 2006 compared to the same period in the previous fiscal year. In the fourth quarter of fiscal 2006 we made a decision to end-of-life many connectivity products as we determined that the cost to ensure European Union Restriction of Hazardous Substance (RoHS) compliance was not commensurate to our future projected revenue streams. We expect sales from connectivity products to decline again in the remainder of fiscal 2007 due to reduced demand for our products, our end of life decision and continued pricing pressures.

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Gross Margin

Gross margin improved 6.1 points to 45.5% in the three months ended August 31, 2006 from 39.4% in the same period in the previous fiscal year. Significant components of the improvement in gross profit margins were as follows:

1) Consolidation of H-3C	9.3
2) SCN cost improvements	5.0
3) SCN product mix and selling price reductions	(6.5	)
4) SCN volume impact	(1.7	)
Total	6.1	%

1)	The increase is due to the consolidation of H-3C results in the current period. H-3C products generally have higher gross margins.
2)	The increase in the SCN margin was the result of lower product and service material and delivery costs.
3)	The decrease in the SCN margin was the result of lower average selling prices and an unfavorable shift in product mix.
4)	The decrease in the SCN margin was the result of lower revenue on the portion of our costs that are fixed in nature.

Operating Expenses

	Three Months Ended
(Dollars in millions)	August 31,					Change
	2006			2005		$			%
Sales and marketing	$	77.1		$	70.1	$	7.0			10	%
Research and development		47.8			21.2		26.6			125	%
General and administrative		20.3			18.2		2.1			12	%
Amortization of intangible assets		12.2			3.9		8.3			213	%
Restructuring		(0.1	)		3.4		(3.5	)	*
Total	$	157.3		$	116.8	$	40.5			35	%

* percentage calculation not meaningful

Sales and Marketing. The most significant factors in the increase in the three months ended August 31, 2006 compared to the same period in fiscal 2006 were the inclusion of H-3C’s expenses in the current fiscal period partially offset by a reduction in the SCN sales and marketing expenses. The reduction of the SCN sales and marketing expenses were primarily related to the reduction of marketing expenses, and a reduction in employee related expenses in the three months ended August 31, 2006.

Research and Development. The most significant factors contributing to the increase in the three months ended August 31, 2006 compared to the same period in fiscal 2006 were the inclusion of H-3C’s expenses in the current fiscal period and a slight increase in SCN research and development expenses. The slight increase in the SCN research and development costs were increased investment in the TippingPoint research and development team and the increase in performance related compensation expenses partially offset by reduced non recurring engineering projects and employee related expenses in the non-TippingPoint related SCN segment.

General and Administrative. The most significant factors in the increase in the three months ended August 31, 2006 compared to the same period in fiscal 2006 were the inclusion of H-3C’s expenses in the current fiscal period partially offset by a reduction in the SCN general and administrative expenses. The reduction of the SCN general and administrative expenses were primarily related to the reduced workforce-related expenses due to our restructuring initiatives and reduced IT and facilities-related expenses in three months ended August 31, 2006. Because we granted options and restricted stock to our new CEO and other employees on September 5, 2006 (i.e., after our August 31, 2006 quarter end) we currently expect that stock-based compensation expense allocable to general and administrative expenses will increase on a sequential basis.

Amortization of Intangible Assets. Amortization of intangible assets increased in the three months ended August 31, 2006 when compared to the previous fiscal year due to the consolidation of H-3C’s results beginning in the fourth quarter in fiscal year 2006. These assets are being amortized on a straight-line basis over their estimated useful lives of between two and six

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years.

Restructuring Charges

Restructuring charges in the three months ended August 31, 2006 included $7.6 million for severance and outplacement costs and $0.3 million for facilities-related charges and long-term asset write-downs more than offset by an $8.0 gain on the sale of our Santa Clara facility.

Restructuring charges in the three months ended August 31, 2005 included $2.0 million for severance and outplacement costs and $1.4 million for facilities-related charges and long-term asset write-downs as we consolidated facilities and vacated leased offices.

See Note 4 to Condensed Consolidated Financial Statements for a more detailed discussion of restructuring charges.

Gain (loss) on Investments, Net

Net gains on investments were $2.3 million in the three months ended August 31, 2006 primarily reflecting a $2.4 million gain from the sale of certain investment portfolios. Net loss on investments was $0.4 million in the three months ended August 31, 2005 primarily due to fair value adjustments of investments in limited partnership venture capital funds, which have subsequently been sold.

Interest Income, Net

Interest income, net was $10.1 million in the three months ended August 31, 2006, an increase of $4.3 million compared to the corresponding period in the previous fiscal year. This increase is primarily attributable to the inclusion of H-3C’s cash balance in the current period and higher interest rates applicable to cash, cash equivalents and short term investments in the SCN segment.

Other Income, Net

Other income, net was $4.7 million in the three months ended August 31, 2006, an increase of $4.6 million compared to the three months ended August 31, 2005. The increase was primarily due to other income from H-3C for an operating subsidy program by the Chinese tax authorities funded by VAT taxes collected by H-3C from purchasers of certain software products. Future subsidy payments are subject to the discretion of the Chinese tax authorities

Income Tax (Provision) Benefit

Our income tax provision was $1.4 million, an increase of $0.4 million for the three months ended August 31, 2006 when compared to the previous fiscal period. The income tax provision increase was primarily due to the inclusion of H-3C’s results in the current period. The income tax provision in both periods was the result of providing for taxes in certain state and foreign jurisdictions. Chinese tax authorities approved a change in H-3C’s enacted tax rate from a 24% rate before tax holidays to a 15% rate before tax holidays. Consequently, we currently expect the H-3C statutory rate to be 7.5% for the calendar years 2006, 2007 and 2008.

Equity Interest in Loss of Unconsolidated Joint Venture

In the three months ended August 31, 2005 we accounted for our investment in H-3C by the equity method. In the three months ended August 31, 2005, we recorded an insignificant charge representing our share of the net loss reported by H-3C in its three months ended June 30, 2005. In fiscal 2007 H-3C is consolidated for accounting purposes.

Minority Interest of Huawei in the Income of Consolidated Huawei-3Com Joint Venture

In the three months ended August 31, 2006 we recorded an allocation to minority interest of $8.9 million representing Huawei’s 49% interest in the net income reported by the H-3C joint venture for the three months ended June 30, 2006. In the three months ended August 31, 2005 H-3C was accounted for under the equity method.

Net Loss

Our net loss in the three months ended August 31, 2006 was $14.1 million, a $27.9 million reduction in net loss when

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compared to the previous fiscal period. This improvement is driven by an $18.6 million improvement in the overall performance of our SCN segment and a net $9.3 million improvement from our ownership in our H-3C segment.

LIQUIDITY AND CAPITAL RESOURCES

Cash and equivalents and short-term investments as of August 31, 2006 were $915.7 million, an increase of $51.4 million compared to the balance of $864.3 million as of May 31, 2006. The following table shows the major components of our condensed consolidated statements of cash flows for the three months ended August 31, 2006 and 2005:

(In millions)	Three Months Ended
	August 31,
	2006		2005
Cash and equivalents, beginning of period	$	501.1	$	268.5
Net cash provided by (used in) operating activities		3.3		(55.7	)
Net cash provided by (used in) investing activities		17.3		(44.8	)
Net cash provided by (used in) financing activities		2.7		(0.0	)
Other		0.8		0.5
Cash and equivalents, end of period	$	525.2	$	168.5

In the three months ended August 31, 2005 H-3C was accounted for under the equity method. The three months ended August 31, 2006 include $196.4 million of H-3C cash and equivalents.

Net cash provided by operating activities was $3.3 million in the three months ended August 31, 2006, primarily reflecting our net loss of $14.1 million, gains on sales of assets of $10.0 million, and increased deferred income taxes of $3.7 million, more than offset by $20.1 million of depreciation and amortization, the minority interest in H-3C of $8.9 million and $3.3 million of stock based compensation. Changes in assets and liabilities resulted in a net use of cash of $1.1 million, with inventory increasing $21.7 million primarily due to increased inventory positions in our H-3C segment, largely offset by $18.5 million in increased other liabilities, primarily in our H-3C segment.

Net cash provided by investing activities was $17.3 million for the three months ended August 31, 2006, consisting of $33.1 million of proceeds from the sale of the Santa Clara facility and insurance proceeds for the previously disclosed damage to our Hemel Hemstead facility, partially offset by $9.8 million of net outflows related to purchases, sales and maturities of investments and by $6.0 million of outflows related to purchases of property and equipment. We made investments totaling $190.3 million in the three months ended August 31, 2006 in municipal and corporate bonds and government agency instruments. In the three months ended August 31, 2006 proceeds from maturities and sales of investments includes sales of municipal and corporate bonds and government agency instruments of $163.5 million. In August 2006 we sold certain limited partnership interests and generated cash of approximately $17.0 million with a gain on sale of investments of $2.4 million and eliminated our future capital call requirements.

Net cash provided by financing activities was $2.7 million in the three months ended August 31, 2006. During the three months ended August 31, 2006, we repurchased $.2 million of shares of restricted stock awards upon vesting from employees including those shares to satisfy the tax withholding obligations that arise in connection with such vesting. This was offset by proceeds of $2.9 million from issuances of our common stock upon exercise of stock options. On March 23, 2005, our Board of Directors approved a stock repurchase program providing for expenditures of up to $100.0 million through March 31, 2007. Under the stock repurchase program, we may repurchase shares of our common stock having an aggregate purchase price of up to $100.0 million in the open market, in privately negotiated transactions with shareholders or using derivative transactions; provided, however, that all repurchases must be pre-approved by the Audit and Finance Committee of the Board of Directors. We have not made any purchases to date under this program. There is no requirement that we repurchase shares under the program and the program may be discontinued at any time.

During the year ended May 31, 2005, we entered into an agreement facilitating the issuance of standby letters of credit and bank guarantees required in the normal course of business. As of August 31, 2006, such bank-issued standby letters of credit and guarantees totaled $6.8 million, including $6.1 million relating to potential foreign tax, custom, and duty assessments.

We currently have no material capital expenditure purchase commitments other than ordinary course purchases of computer hardware, software and leasehold improvements.

We currently believe that our existing cash, cash equivalents and short-term investments will be sufficient to satisfy our

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anticipated cash requirements for at least the next 12 months.

EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with Statement of Financial Accounting Standard (SFAS) No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. This Interpretation is effective for the first fiscal year beginning after December 15, 2006. We are currently evaluating the impact FIN 48 will have on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. We have not yet determined the impact, if any, that the implementation of SFAS No. 157 will have on our results of operations or financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We hold marketable equity traded securities that have a brief trading history and are highly subject to market price volatility. We do not believe the equity security price fluctuations of plus or minus 50 percent would have a material impact on the value of these securities as of August 31, 2006.

There have been no material changes in market risk exposures from those disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2006.

ITEM 4. CONTROLS AND PROCEDURES

Our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of our quarter ended September 1, 2006 pursuant to Exchange Act Rule 13a-15(b). The term “disclosure controls and procedures,” as defined under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of our quarter ended September 1, 2006, our disclosure controls and procedures were effective.

The annual evaluation of internal control over financial reporting will first include H-3C with respect to our fiscal year ending June 1, 2007 and the related annual report on Form 10-K. We anticipate that we will incur considerable costs and use significant management time and other resources in the effort to bring H-3C into compliance with Section 404 and other requirements of the Sarbanes-Oxley Act.

There have been no changes in our internal control over financial reporting that occurred during the three months ended August 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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The information set forth in Note 13 to the Notes to the Condensed Consolidated Financial Statements is incorporated by reference herein.

ITEM 1A. RISK FACTORS

Risk factors may affect our future business and results. The matters discussed below could cause our future results to materially differ from past results or those described in forward-looking statements and could have a material adverse effect on our business, financial condition, results of operations and stock price.

We have incurred significant net losses in recent fiscal periods, including $14 million for the three months ended August 31, 2006, $101 million for the year ended May 31, 2006, and $196 million for year ended May 31, 2005, and we may not be able to return to profitability.

Although we are taking steps designed to improve our results of operations, such as the restructuring we announced in June 2006, we cannot provide assurance that we will return to profitability.

We have faced a number of challenges that have affected our operating results during the current and past several fiscal years. Specifically, we have experienced, and may continue to experience, the following, particularly in our SCN segment:

• declining sales due to price competition and reduced incoming order rate;

• risk of increased excess and obsolete inventories;

• excess facilities;

• operating expenses that, as a percentage of sales, have exceeded our desired financial model; and

• disruptions resulting from our workforce reductions and employee attrition.

If we do not respond effectively to increased competition caused by industry volatility and consolidation our business could be harmed.

Our business could be seriously harmed if we do not compete effectively. We face competitive challenges that are likely to arise from a number of factors, including the following:

• industry volatility resulting from rapid product development cycles;

• increasing price competition due to maturation of basic networking technologies;

• industry consolidation resulting in competitors with greater financial, marketing, and technical resources; and

• the presence of existing competitors with greater financial resources together with the potential emergence of new competitors with lower cost structures and more competitive offerings.

We may not be able to compensate for lower sales or unexpected cash outlays with cost reductions sufficient to generate positive net income or cash flow.

Although we have implemented cost and expense reductions with the goal to achieve profitability, we may need to further reduce costs which may in turn reduce our sales. If we are not able to effectively reduce our costs and expenses, particularly in our SCN segment, we may not be able to generate positive net income or cash flow from operations. If we continue to experience negative cash flow from operations over a prolonged period of time or if we suffer unexpected cash outflows, our liquidity and ability to operate our business effectively could be adversely affected.

We are unable to predict the exact amount of cost reductions required for us to generate positive net income or cash flow from operations because it is difficult to predict the amount of our future sales and gross margins. The amount of our future sales depends, in part, on future economic and market conditions, which are difficult to forecast accurately.

Efforts to reduce operating expenses have involved, and could involve further, workforce reductions, closure of offices and sales or discontinuation of businesses, leading to reduced sales and other disruptions in our business.

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Our operating expenses as a percent of sales continue to be higher than our desired long-term financial model. We have taken, and will continue to take, actions to reduce these expenses. Such actions have and may in the future include reductions in our workforce, closure of facilities, relocation of functions and activities to lower cost locations, the sale or discontinuation of businesses, changes or modifications in IT systems or applications, or process reengineering. As a result of these actions, the employment of some employees with critical skills may be terminated and other employees have, and may in the future, leave our company voluntarily due to the uncertainties associated with our business environment and their job security. In addition, reductions in overall staffing levels could make it more difficult for us to sustain historic sales levels, to achieve our growth objectives, to adhere to our preferred business practices and to address all of our legal and regulatory obligations in an effective manner, which could, in turn, ultimately lead to missed business opportunities, higher operating costs or penalties.

We are significantly dependent on our H-3C joint venture in China and if H-3C is not successful, it could materially and adversely impact our business, business prospects and operating results.

H-3C, which is domiciled in Hong Kong and has its principal operations in Hangzhou, China, is subject to all of the operational risks that normally arise for a technology company with global operations including risks relating to research and development, manufacturing, sales, service, marketing, and corporate functions. Given the significance of H-3C to our financial results, if H-3C is not successful, our business will likely be adversely affected.

Our business, business prospects and operating results have significant dependencies upon product deliveries from H-3C and the results of our H-3C operating segment. In particular, our product development activities, product manufacturing and procurement of certain products, intellectual property and channel activities have become increasingly interdependent with those of H-3C.

Sales from our H-3C joint venture and therefore China constitute a material portion of our total sales, and our business, financial condition and results of operations will to a significant degree be subject to economic, political and social events in China.

Our sales are significantly dependent on China. We expect that a significant portion of our sales will be derived from China for the foreseeable future. As a result, our business, financial condition and results of operations are to a significant degree subject to economic, political, legal and social developments and other events in China and surrounding areas.

Our China joint venture, H-3C, is dependent on Huawei, our co-owner in this venture, in several material respects, including as an important customer; should Huawei reduce its business with or operational assistance to H-3C, our business could be materially affected.

H-3C derives a material portion of its sales from or through Huawei. In the three months ended August 31, 2006 for the H-3C segment Huawei accounted for 30% of the revenue for the segment. Should Huawei reduce its business with H-3C, H-3C’s sales will suffer. Further, Huawei provides certain foreign office support platforms for H-3C. If Huawei ceases this support, international operations will be more burdensome and expensive for H-3C. Huawei also provides certain information technology, software licensing and rental of premises to H-3C.

If we fail to adequately evolve our financial and managerial control and reporting systems and processes, including the management of our H-3C segment, our ability to manage and grow our business will be negatively affected.

Our ability to successfully offer our products and implement our business plan in a rapidly evolving market depends upon an effective planning and management process. We will need to continue to improve our financial and managerial control and our reporting systems and procedures in order to manage our business effectively in the future. If we fail to implement improved systems and processes, our ability to manage our business and results of operations could be adversely affected. For example, now that we control and consolidate our joint venture in China, H-3C, we are spending additional time, resources and capital to manage its business, operations and financial results. We will need to adequately incentivize H-3C management and other key employees. We will also need to manage the multiple channels to our markets. If we are not able to successfully manage our H-3C venture, our business results could be adversely affected.

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We may not be able to complete or finance a transaction with Huawei to purchase additional interest in our joint venture, H-3C, on favorable terms or at all; if we cannot complete a transaction, our strategy to further invest in H-3C may not occur, we will be subject to the risks of the bid process described below and our business may suffer.

On August 8, 2006, we announced that we will begin negotiations with Huawei for the purchase by us of an additional equity interest in H-3C. We currently own 51% of H-3C and Huawei owns 49%. Under the terms of our existing shareholders’ agreement, and as previously disclosed, we each have the right, commencing on and after November 15, 2006, to initiate a bid process to purchase the equity interest in H-3C held by the other. The negotiations are intended to result in an agreement outside of the bid process. We cannot provide assurance that we will be able to negotiate acceptable terms with Huawei or that the transaction will be consummated at all. In addition, any such transaction is subject to regulatory approval by the Chinese government and we cannot provide assurance that such approval will be granted. We may need to raise equity or debt capital in order to finance any such transaction, and such financing may not be available on terms acceptable to us. Any equity financing would be dilutive to our existing stockholders. Any debt financing would involve using cash generated from operations to service the interest and pay down the principal, diverting funds that might otherwise be invested in our businesses. We may also use existing cash to finance a portion of the consideration for any such transaction, which, if used, would reduce available cash on hand. If we cannot complete a transaction, the bid process risks described below would apply. If we cannot complete a transaction, our strategy to increase our investment in H-3C may not be available to us and our business may suffer as a result unless we employ successful alternative strategies.

We, and our joint venture partner, Huawei, each have the right, starting in November 2006, to initiate a bid process to buy the other out of our China joint venture, H-3C; if Huawei wins the bid process, we will no longer be able to consolidate H-3C’s results and may, over time, lose the right to source and resell H-3C’s products.

Starting in November 2006, Huawei and 3Com each can initiate a bid process to purchase the equity interest in H-3C owned by the other. Under the bid process, if one party makes a bid to buy out the other, the party receiving the bid offer must either accept that offer or make its own, higher, bid to buy out the other party. The bidding process would alternate until one party either accepts the other’s bid or fails to make a higher bid. If Huawei wins the bid process to buy out our equity ownership in H-3C, upon consummation of the closing of that transaction we will no longer be able consolidate H-3C’s results with ours. Our OEM agreement with H-3C, pursuant to which we source products from H-3C and resell them, has an initial five-year term ending November 2008. This agreement automatically renews for successive two-year terms unless a party gives the other party at least 180-days prior written notice that it does not wish to renew the agreement. Should Huawei win the bid process, it may cause H-3C to terminate its OEM agreement with us effective November 2008 or during one of the successive terms. Because we source networking products from H-3C for resale and such products are material to our success, if H-3C terminated its OEM agreement with us it would adversely impact our financial results.

We may not be successful at identifying and responding to new and emerging market and product opportunities, or at responding quickly enough to technologies or markets that are in decline.

The markets in which we compete are characterized by rapid technology transitions and short product life cycles. Therefore, our success depends on our ability to do the following:

• identify new market and product opportunities;

• predict which technologies and markets will see declining demand;

• develop and introduce new products and solutions in a timely manner;

• gain market acceptance of new products and solutions, particularly in targeted emerging markets; and

• rapidly and efficiently transition our customers from older to newer enterprise networking technologies.

Our financial position or results of operations could suffer if we are not successful in achieving these goals. For example, our business would suffer if any of the following occurs:

• there is a delay in introducing new products;

• we lose certain channels of distribution or key partners;

• our products do not satisfy customers in terms of features, functionality or quality; or

• our products cost more to produce than we expect.

Because we will continue to source products from OEMs and from H-3C and rely on original design manufacturers to assist in product design, we may not be able to independently identify current product and technology trends or to respond to such

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trends through the design and production of new products as well as if we were working independently.

Our success is dependent on continuing to hire and retain qualified managers and other personnel; if we are not successful in attracting and retaining these personnel, our business will suffer.

Competition for qualified employees is intense. If we fail to attract, hire, or retain qualified personnel, our business will be harmed. We have experienced significant turnover in our management team in the last several years and we may continue to experience change at this level. If we cannot retain qualified senior managers, our business may not succeed. In addition, in order to calculate our stock-based compensation charge, we make assumptions regarding several factors, including the forfeiture rate for our equity instruments. If we are successful in retaining management and other key employees with significant equity compensation, we will likely decrease our future forfeiture rate assumptions, which will in turn likely increase our stock-based compensation charge.

We expect to utilize strategic relationships and other alliances as key elements in our strategy. If we are not successful in forming desired ventures and alliances or if such ventures and alliances are not successful, our ability to achieve our growth and profitability goals could be adversely affected.

We have announced alliances with third parties, such as IBM, Trapeze Networks and Siemens Business Services. In the future, we expect to evaluate other possible strategic relationships, including joint ventures and other types of alliances, and we may increase our reliance on such strategic relationships to broaden our sales channels, complement internal development of new technologies and enhancement of existing products, and exploit perceived market opportunities.

If we fail to form the number and quality of strategic relationships that we desire, or if such strategic relationships are not successful, we could suffer missed market opportunities, channel conflicts, delays in product development or delivery, or other operational difficulties. Further, if third parties acquire our strategic partners or if our competitors enter into successful strategic relationships, we may face increased competition. Any of these difficulties could have an adverse effect on our future sales and results of operations.

Our strategy of outsourcing functions and operations may fail to reduce cost and may disrupt our operations.

We continue to look for ways to decrease cost and improve efficiency by contracting with other companies to perform functions or operations that, in the past, we have performed ourselves. We have outsourced the majority of our manufacturing and logistics for our SCN products. We now rely on outside vendors to meet the majority of our manufacturing needs as well as a significant portion of our IT needs for the SCN segment. Additionally, we outsource certain functions to Siemens Business Services for technical support and product return services. To achieve future cost savings or operational benefits, we may expand our outsourcing activities to cover additional services which we believe a third party may be able to provide in a more efficient or effective manner than we could do internally ourselves.

Although we believe that outsourcing will result in lower costs and increased efficiencies, this may not be the case. Because these third parties may not be as responsive to our needs as we would be ourselves, outsourcing increases the risk of disruption to our operations. In addition, our agreements with these third parties sometimes include substantial penalties for terminating such agreements early or failing to maintain minimum service levels. Because we cannot always predict how long we will need the services or how much of the services we will use, we may have to pay these penalties or incur costs if our business conditions change.

Our reliance on industry standards, technological change in the marketplace, and new product initiatives may cause our sales to fluctuate or decline.

The enterprise networking industry in which we compete is characterized by rapid changes in technology and customer requirements and evolving industry standards. As a result, our success depends on:

• the convergence of technologies, such as voice, data and video on single, secure networks;

• the timely adoption and market acceptance of industry standards, and timely resolution of conflicting U.S. and international industry standards; and

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• our ability to influence the development of emerging industry standards and to introduce new and enhanced products that are compatible with such standards.

Slow market acceptance of new technologies, products, or industry standards could adversely affect our sales or overall results of operations. In addition, if our technology is not included in an industry standard on a timely basis or if we fail to achieve timely certification of compliance to industry standards for our products, our sales of such products or our overall results of operations could be adversely affected.

We focus on enterprise networking, and our results of operations may fluctuate based on factors related entirely to conditions in this market.

Our focus on enterprise networking may cause increased sensitivity to the business risks associated specifically with the enterprise networking market and our ability to execute successfully on our strategies to provide superior solutions for larger and multi-site enterprise environments. To be successful in the enterprise networking market, we will need to be perceived by decision making officers of large enterprises as committed for the long-term to the high-end networking business. Also, expansion of sales to large enterprises may be disruptive in a variety of ways, such as adding larger systems integrators that may raise channel conflict issues with existing distributors, or a perception of diminished focus on the small and medium enterprise market.

A significant portion of our SCN sales is derived from a small number of resellers. If any of these partners reduces its business with us, our business could be seriously harmed.

We distribute many of our products through two-tier distribution channels that include distributors, systems integrators and Value Added Resellers (“VARs”). A significant portion of our sales is concentrated among a few distributors; our two largest distributors accounted for a combined 35 percent of SCN sales for the three months ended August 31, 2006, a combined 34 percent of SCN sales for the year ended May 31, 2006 and a combined 34 percent of SCN sales for year ended May 31, 2005. If either of these distributors reduces its business with us, our sales and overall results of operations could be adversely affected.

We depend on distributors who maintain inventories of our products. If the distributors reduce their inventories of our products, our sales could be adversely affected.

We work closely with our distributors to monitor channel inventory levels and ensure that appropriate levels of products are available to resellers and end users. Our target range for channel inventory levels is between three and five weeks of supply on hand at our distributors. Partners with a below-average inventory level may incur “stock outs” that would adversely impact our sales. Our distribution agreements typically provide that our distributors may cancel their orders on short notice with little or no penalty. If our channel partners reduce their levels of inventory of our products, our sales would be negatively impacted during the period of change.

If we are unable to successfully develop relationships with system integrators, service providers, and enterprise VARs, our sales may be negatively affected.

As part of our sales strategy, we are targeting system integrators (SIs), service providers (SPs), and enterprise VARs (eVARs). In addition to specialized technical expertise, SIs, SPs and eVARs typically offer sophisticated services capabilities that are frequently desired by larger enterprise customers. In order to expand our distribution channel to include resellers with such capabilities, we must be able to provide effective support to these resellers. If our sales, marketing or services capabilities are not sufficiently robust to provide effective support to such SIs, SPs, and eVARs, we may not be successful in expanding our distribution model and current SI, SP, and eVAR partners may terminate their relationships with us, which would adversely impact our sales and overall results of operations.

The members of the board of our China joint venture designated by our co-owner, Huawei, have protective rights over the approval of certain matters; accordingly if Huawei does not agree with us on these matters, these rights could harm 3Com’s business by preventing us from taking desired actions.

The governance documents applicable to our joint venture in China, H-3C, include the requirement that certain actions be approved by an affirmative vote of two-thirds of H-3C’s board of directors, including at least one director appointed by

28

3Com Corporation and one director appointed by Huawei. This right gives Huawei’s board members the right to approve certain matters at the H-3C level, including the following:

• any amendment to the Articles or charter documents;

• any voluntary bankruptcy, liquidation, dissolution or winding up;

• changes in authorized capital stock or the issuance of capital stock (or rights to acquire capital stock);

• any significant merger, acquisition, disposition or other corporate reorganization;

• determining the amount of dividends to pay and whether to pay special dividends not required by the dividend policy;

• related party transactions, including loans and capital contributions;

• incurrence of debt over a specified amount that falls outside of the approved budget; and

• any sale, exclusive license or other transfer or disposition of any significant technology or intellectual property.

If there are disagreements between us and Huawei with respect to these matters, we may not be able to implement certain actions and the success of this joint venture may be adversely affected.

Our competition with Huawei in the enterprise networking market could have a material adverse effect on our sales and our results of operations.

As Huawei expands its international operations, there could be increasing instances where we compete directly with Huawei in the enterprise networking market. As a co-owner and OEM customer of H-3C, Huawei has access to many of H-3C’s products thereby enhancing Huawei’s current ability to compete directly with us. We could lose a competitive advantage in markets where we compete with Huawei, which could have a material adverse effect on our sales and overall results of operations.

We may pursue acquisitions of other companies that, if not successful, could adversely affect our business, financial position and results of operations.

In the future, we may pursue acquisitions of companies to enhance our existing capabilities. There can be no assurances that acquisitions that we might pursue will be successful. If we pursue an acquisition but are not successful in completing it, or if we complete an acquisition but are not successful in integrating the acquired company’s technology, employees, products or operations successfully, our business, financial position or results of operations could be adversely affected.

We may be unable to manage our supply chain successfully, which would adversely impact our sales, gross margin and profitability.

Current business conditions and operational challenges in managing our supply chain affect our business in a number of ways:

• in the past, some key components have had limited availability;

• as integration of networking features on a reduced number of computer chips continues, we are increasingly facing competition from parties who are our suppliers;

• our ability to accurately forecast demand is diminished;

• our reliance on, and long-term arrangements with, third-party manufacturers places much of the supply chain process out of our direct control and heightens the need for accurate forecasting and reduces our ability to transition quickly to alternative supply chain strategies; and

• we may experience disruptions to our logistics.

Some of our suppliers are also our competitors. We cannot be certain that in the future our suppliers, particularly those who are also in active competition with us, will be able or willing to meet our demand for components in a timely and cost-effective manner.

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There has been a trend toward consolidation of vendors of electronic components. Our reliance on a smaller number of vendors and the inability to quickly switch vendors increase the risk of logistics disruptions, unfavorable price fluctuations, or disruptions in supply, particularly in a supply-constrained environment.

Supplies of certain key components can become tighter as industry demand for such components has increased. If the resulting increase in component costs and time necessary to obtain these components persists, we may experience an adverse impact to gross margin.

If overall demand for our products or the mix of demand for our products is significantly different from our expectations, we may face inadequate or excess component supply or inadequate or excess manufacturing capacity. This would result in orders for products that could not be manufactured in a timely manner, or a buildup of inventory that could not easily be sold. Either of these situations could adversely affect our market share, sales, and results of operations or financial position.

Our strategies to outsource the majority of our manufacturing requirements to contract manufacturers may not result in meeting our cost, quality or performance standards. The inability of any contract manufacturer to meet our cost, quality or performance standards could adversely affect our sales and overall results from operations.

The cost, quality, performance, and availability of contract manufacturing operations are and will be essential to the successful production and sale of many of our products. We may not be able to provide contract manufacturers with product volumes that are high enough to achieve sufficient cost savings. If shipments fall below forecasted levels, we may incur increased costs or be required to take ownership of inventory. In addition, a significant component of maintaining cost competitiveness is the ability of our contract manufacturers to adjust their own costs and manufacturing infrastructure to compensate for possible adverse exchange rate movements. To the extent that the contract manufacturers are unable to do so, and we are unable to procure alternative product supplies, then our own competitiveness and results of operations could be adversely impacted.

We have implemented a program with our manufacturing partners to ship products directly from regional shipping centers to customers. Through this program, we are relying on these partners to fill customer orders in a timely manner. This program may not yield the efficiencies that we expect, which would negatively impact our results of operations. Any disruptions to on-time delivery to customers would adversely impact our sales and overall results of operations.

China’s governmental and regulatory reforms and changing economic environment may impact our ability to do business in China.

As a result of the historic reforms of the past several decades, multiple government bodies are involved in regulating and administrating affairs in the enterprise networking industry in China. These government agencies have broad discretion and authority over all aspects of the networking, telecommunications and information technology industry in China; accordingly their decision may impact our ability to do business in China. While we anticipate that the basic principles underlying the reforms China has made will remain unchanged, any of the following changes in China’s political and economic conditions and governmental policies could have a substantial impact on our business:

• the promulgation of new laws and regulations and the interpretation of those laws and regulations;

• enforcement and application of rules and regulations by the Chinese government;

• the introduction of measures to control inflation or stimulate growth; or

• any actions that limit our ability to develop, manufacture, import or sell our products in China, or to finance and operate our business in China.

Furthermore, China’s economic environment has been changing as a result of China’s entry, in December of 2001, into the World Trade Organization, or the WTO. If China’s entry into the WTO results in increased competition or has a negative impact on China’s economy, our business could suffer. Since early 2004, the Chinese government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition.

Uncertainties with respect to the Chinese legal system may adversely affect us.

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We conduct our business in China primarily through our joint venture, H-3C, a Hong Kong entity which in turn owns a Chinese entity. These entities are generally subject to laws and regulations applicable to foreign investment in China. In addition, there are uncertainties regarding the interpretation and enforcement of laws, rules and policies in China. Because many laws and regulations are relatively new and the Chinese legal system is still evolving, the interpretations of many laws, regulations and rules are not always uniform. Moreover, the interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Finally, enforcement of existing laws or contracts based on existing law may be uncertain, and it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction. Any litigation in China may be protracted and result in substantial costs and diversion of resources and management’s attention.

If tax benefits available to our China joint venture, H-3C, are reduced or repealed, our business could suffer.

The Chinese government is considering the imposition of a “unified” corporate income tax that would phase out, over time, the preferential tax treatment to which H-3C is currently entitled. While it is not certain whether the government will implement a unified tax structure or whether H-3C will receive “grandfathered” status from any new tax, if a new tax structure is implemented, such new tax structure may adversely affect our financial condition.

H-3C is subject to restrictions on paying dividends and making other payments to us.

Chinese regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with Chinese accounting standards and regulations. Our joint venture, a Hong Kong entity, does business through a Chinese entity that is required to set aside a portion of its after-tax profits according to Chinese accounting standards and regulations to fund certain reserves. The Chinese government also imposes controls on the conversion of Renminbi into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. These restrictions may in the future limit our ability to receive dividends or repatriate funds from H-3C.

If we fail to maintain an effective system of internal control over financial reporting that includes our China joint venture, H-3C, we may not be able to accurately report our financial results or prevent fraud.

The annual evaluation of internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 will first include H-3C with respect to our fiscal year ending June 1, 2007 and the related annual report on Form 10-K. If we cannot enhance H-3C’s existing controls by the evaluation date, our management may conclude that our internal control over financial reporting at the end of that period is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may not be able to attest to our management’s conclusions or may reach an opposite conclusion. Furthermore, having effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. If we fail to achieve and maintain effective internal control over financial reporting on a consolidated basis, it could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to bring H-3C into compliance with Section 404 and the other requirements of the Sarbanes-Oxley Act.

We are subject to risks relating to currency rate fluctuations and exchange controls and we do not hedge this risk in China.

Due to our consolidation of our joint venture in China, a significant portion of our sales and a portion of our costs will be made in China and denominated in Renminbi. In July 2005, China uncoupled the Renminbi from the U.S. dollar and let it float in a narrow band against a basket of foreign currencies. The move initially revalued the Renminbi by 2.1% against the U.S. dollar; however, it is uncertain what further adjustments may be made in the future. The Renminbi-U.S. dollar exchange rate could float, and the Renminbi could appreciate or depreciate relative to the U.S. dollar. Any movement of the Renminbi may materially and adversely affect our cash flows, revenues, operating results and financial position.

We do not currently hedge the currency risk in H-3C through foreign exchange forward contracts or otherwise and China employs currency controls restricting Renminbi conversion, limiting our ability to engage in currency hedging activities in

31

China. Various foreign exchange controls are applicable to us in China, and such restrictions may in the future make it difficult for H-3C or us to repatriate earnings, which could have an adverse effect on our cash flows and financial position.

We may need to engage in complex and costly litigation in order to protect, maintain or enforce our intellectual property rights; in some jurisdictions, such as China, our rights may not be as strong as the rights we enjoy in the U.S.

Whether we are defending the assertion of intellectual property rights against us, or asserting our intellectual property rights against others, intellectual property litigation can be complex, costly, protracted, and highly disruptive to business operations because it may divert the attention and energies of management and key technical personnel. Further, plaintiffs in intellectual property cases often seek injunctive relief and the measures of damages in intellectual property litigation are complex and often subjective or uncertain. Thus, the existence of this type of litigation, or any adverse determinations related to such litigation, could subject us to significant liabilities and costs. If any of our OEM, Original Design Manufacturer, or ODM, or joint venture partners become involved in intellectual property disputes and are unable to hold us harmless, then we may incur liabilities or suffer disruption of our business. Any one of these factors could adversely affect our sales, gross margin, overall results of operations, cash flow or financial position.

In addition, the legal systems of many foreign countries do not protect or honor intellectual property rights to the same extent as the legal system of the United States. For example, in China, the legal system in general, and the intellectual property regime in particular, are still in the development stage. It may be very difficult, time-consuming and costly for us to attempt to enforce our intellectual property rights, and those of H-3C, in these jurisdictions.

We may not be able to defend ourselves successfully against claims that we are infringing the intellectual property rights of others.

Many of our competitors, such as telecommunications, networking, and computer equipment manufacturers, have large intellectual property portfolios, including patents that may cover technologies that are relevant to our business. In addition, many smaller companies, universities, and individual inventors have obtained or applied for patents in areas of technology that may relate to our business. The industry continues to be aggressive in assertion, licensing, and litigation of patents and other intellectual property rights.

In the course of our business, we receive claims of infringement or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties. We evaluate the validity and applicability of these intellectual property rights, and determine in each case whether we must negotiate licenses or cross-licenses to incorporate or use the proprietary technologies, protocols, or specifications in our products. If we are unable to obtain and maintain licenses on favorable terms for intellectual property rights required for the manufacture, sale, and use of our products, particularly those that must comply with industry standard protocols and specifications to be commercially viable, our financial position or results of operations could be adversely affected. In addition, if we are alleged to infringe the intellectual property rights of others, we could be required to seek licenses from others or be prevented from manufacturing or selling our products, which could cause disruptions to our operations or the markets in which we compete. Finally, even if we have indemnification rights in respect of such allegations of infringement, from our suppliers or licensors, we may not be able to recover our losses under those indemnity rights.

Fluctuations in our operating results and other factors may contribute to volatility in the market price of our stock.

Historically, our stock price has experienced volatility. We expect that our stock price may continue to experience volatility in the future due to a variety of potential factors such as:

• fluctuations in our quarterly results of operations and cash flow;

• changes in our cash and equivalents and short term investment balances;

• variations between our actual financial results and published analysts’ expectations; and

• announcements by our competitors.

In addition, over the past several years, the stock market has experienced significant price and volume fluctuations that have affected the stock prices of many technology companies. These factors, as well as general economic and political conditions or investors’ concerns regarding the credibility of corporate financial statements and the accounting profession, may have a material adverse affect on the market price of our stock in the future.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes repurchases of our stock, including shares returned to satisfy employee tax withholding obligations, in the three months ended August 31, 2006:

						Total Number of		Dollar
						Shares Purchased as		Value of Shares
	Total Number			Average		Part of Publicly		that May Yet Be
	of Shares			Price Paid		Announced Plans or		Purchased Under the
Period	Purchased			per Share		Programs(1)		Plans or Programs
June 3, 2006 through June 30, 2006		1,223	(2)	$	4.56		—	$	100,000,000
July 1, 2006 through July 28, 2006		34,127	(2)		5.04		—	$	100,000,000
July 29, 2006 through September 1, 2006		2,093	(2)		4.41		—	$	100,000,000
Total		37,443		$	4.99		—	$	100,000,000

(1)

On March 23, 2005, our Board of Directors approved a new stock repurchase program providing for expenditures of up to $100.0 million through March 31, 2007, provided that all repurchases are pre-approved by the Audit and Finance Committee of the Board of Directors. We did not repurchase shares of our common stock pursuant to this authorization in the three months ended August 31, 2006. However, we may use cash to repurchase shares in future periods. Our last open market purchase was made in August, 2004 for 10,700,041 shares.

(2)

Represents shares returned to us to satisfy tax withholding obligations that arose upon the vesting of restricted stock awards.

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ITEM 6. EXHIBITS

Exhibit		Incorporated by Reference				Filed
Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Herewith
2.1	Master Separation and Distribution Agreement between the Registrant and Palm, Inc. effective as of December 13, 1999	10-Q	002-92053	2.1	4/4/00
2.2	Indemnification and Insurance Matters Agreement between the Registrant and Palm, Inc.	10-Q	002-92053	2.11	4/4/00
2.3	Asset Purchase Agreement by and between the Registrant and UTStarcom, Inc. dated March 4, 2003	8-K	000-12867	10.1	6/9/03
2.4	Agreement and Plan of Merger, dated December 13, 2004, by and among the Registrant, Topaz Acquisition Corporation and TippingPoint Technologies, Inc.	8-K	000-12867	2.1	12/16/04
2.5	Securities Purchase Agreement by and among 3Com Corporation, 3Com Technologies, Huawei Technologies Co., Ltd. and Shenzen Huawei Investment & Holding Co., Ltd., dated as of October 28, 2005	8-K/A	000-12867	2.1	3/30/06
3.1	Corrected Certificate of Merger filed to correct an error in the Certificate of Merger	10-Q	002-92053	3.4	10/8/99
3.2	Registrant’s Bylaws, as amended on March 23, 2005	8-K	000-12867	3.1	3/28/05
3.3	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock	10-Q	000-12867	3.6	10/11/01
4.1	Third Amended and Restated Preferred Shares Rights Agreement, dated as of November 4, 2002	8-A/A	000-12867	4.1	11/27/02
10.1	3Com Corporation Employment Agreement, dated as of August 8, 2006 between the registrant and Edgar Masri *	8-K	000-12867	10.1	8/9/06
10.2	3Com Corporation Stand Alone Stock Option Agreement dated September 5, 2006 by and between Edgar Masri and 3Com Corporation *					X
10.3	Form of 3Com Corporation 2003 Stock Plan Restricted Stock Unit Grant Award Agreement*					X
10.4	Executive Officer Fiscal 2007 Compensation*	8-K	000-12867	Text of Item 1.01	6/26/06
10.5	3Com Corporation Consultant Services Agreement made as of August 8, 2006 by and between 3Com Corporation and Anik Bose	8-K	000-12867	10.1	8/11/06
10.6	Purchase and Sale Agreement made as of July 24, 2006 by and between 3Com Corporation and SSC II, L.P.	8-K	000-12867	10.1	7/26/06
10.7	Agreement for the Lease of Hangzhou Real Property between Huawei Technologies Co. Ltd. and Hangzhou Huawei-3Com					X

34

Exhibit		Incorporated by Reference				Filed
Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Herewith
	Technology Co., Ltd. dated January 1, 2004
31.1	Certification of Principal Executive Officer					X
31.2	Certification of Principal Financial Officer					X
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

* Indicates a management contract or compensatory plan

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	3Com Corporation (Registrant)
Dated: October 10, 2006	By:	/s/ DONALD M. HALSTED, III
		Donald M. Halsted, III
		Executive Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer and a duly authorized officer of the registrant)

36

EXHIBIT INDEX

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit		Filing Date	Filed Herewith
2.1	Master Separation and Distribution Agreement between the Registrant and Palm, Inc. effective as of December 13, 1999	10-Q	002-92053		2.1	4/4/00
2.2	Indemnification and Insurance Matters Agreement between the Registrant and Palm, Inc.	10-Q	002-92053		2.11	4/4/00
2.3	Asset Purchase Agreement by and between the Registrant and UTStarcom, Inc. dated March 4, 2003	8-K	000-12867		10.1	6/9/03
2.4	Agreement and Plan of Merger, dated December 13, 2004, by and among the Registrant, Topaz Acquisition Corporation and TippingPoint Technologies, Inc.	8-K	000-12867		2.1	12/16/04
2.5	Securities Purchase Agreement by and among 3Com Corporation, 3Com Technologies, Huawei Technologies Co., Ltd. and Shenzen Huawei Investment & Holding Co., Ltd., dated as of October 28, 2005	8-K/A	000-12867		2.1	3/30/06
3.1	Corrected Certificate of Merger filed to correct an error in the Certificate of Merger	10-Q	002-92053		3.4	10/8/99
3.2	Registrant’s Bylaws, as amended on March 23, 2005	8-K	000-12867		3.1	3/28/05
3.3	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock	10-Q	000-12867		3.6	10/11/01
4.1	Third Amended and Restated Preferred Shares Rights Agreement, dated as of November 4, 2002	8-A/A	000-12867		4.1	11/27/02
10.1	3Com Corporation Employment Agreement, dated as of August 8, 2006 between the registrant and Edgar Masri *	8-K	000-12867		10.1	8/9/06
10.2	3Com Corporation Stand Alone Stock Option Agreement dated September 5, 2006 by and between Edgar Masri and 3Com Corporation *						X
10.3	Form of 3Com Corporation 2003 Stock Plan Restricted Stock Unit Grant Award Agreement*						X
10.4	Executive Officer Fiscal 2007 Compensation*	8-K	000-12867	Text of Item 1.01		6/26/06
10.5	3Com Corporation Consultant Services Agreement made as of August 8, 2006 by and between 3Com Corporation and Anik Bose	8-K	000-12867		10.1	8/11/06
10.6	Purchase and Sale Agreement made as of July 24, 2006 by and between 3Com Corporation and SSC II, L.P.	8-K	000-12867		10.1	7/26/06
10.7	Agreement for the Lease of Hangzhou Real Property between Huawei Technologies Co. Ltd. and Hangzhou Huawei-3Com						X

37

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
	Technology Co., Ltd. dated January 1, 2004
31.1	Certification of Principal Executive Officer					X
31.2	Certification of Principal Financial Officer					X
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

* Indicates a management contract or compensatory plan

38

EX-10.2

                                                                    Exhibit 10.2

                                3COM CORPORATION
                       STAND ALONE STOCK OPTION AGREEMENT

     3Com Corporation has granted Participant an Option to purchase certain
Shares in accordance with Participant's Employment Agreement, subject to the
following terms and conditions as set forth in this Award Agreement. The
"Effective Date" of this Award Agreement shall be September 5, 2006.

     1. DEFINITIONS. As used herein, the following definitions shall apply:

          (a) "Administrator" means the Board or any of its Committees as shall
be administering the Award.

          (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
the Commonwealth of Massachusetts.

          (c) "Award" means, individually or collectively, the grant of an
Option under the Award Agreement.

          (d) "Award Agreement" means this stand alone stock option agreement
between the Company and Participant evidencing the terms and conditions of this
Award.

          (e) "Board" means the Board of Directors of 3Com Corporation.

          (f) "Cause" means:

               (i) Participant's willful and continued failure to perform the
duties and responsibilities of his position after there has been delivered to
Participant a written demand for performance from the Board which describes in
reasonable detail the basis for the Board's belief that Participant has not
substantially performed his duties and provides Participant the opportunity to
present to the Board his good faith reasons for not so performing and, if the
Board does not agree with such reasons, with thirty (30) days to take corrective
action;

               (ii) Any act of personal dishonesty taken by Participant in
connection with his responsibilities as an employee of the Company with the
intention or reasonable expectation that such action may result in the
substantial personal enrichment of Participant;

               (iii) Participant's conviction of, or plea of nolo contendere to,
a felony that the Board reasonably believes has had or will have a material
detrimental effect on the Company's reputation or business;

               (iv) A breach of any fiduciary duty owed to the Company by
Participant that has a material detrimental effect on the Company's reputation
or business;

               (v) Participant being found liable in any Securities and Exchange
Commission or other civil or criminal securities law action or entering any
cease and desist order with respect to such action (regardless of whether or not
Participant admits or denies liability);

               (vi) Participant (A) obstructing or impeding; (B) endeavoring to
influence, obstruct or impede, or (C) failing to materially cooperate with, any
investigation authorized by the Board or any governmental or self-regulatory
entity (an "Investigation"). However, Participant's failure to


                                      -1-



waive attorney-client privilege relating to communications with Participant's
own attorney in connection with an Investigation will not constitute "Cause"; or

               (vii) Participant's disqualification or bar by any U.S.
governmental or self-regulatory authority from serving in the capacity
contemplated by the Employment Agreement or Participant's loss of any U.S.
governmental or self-regulatory license that is reasonably necessary for
Participant to perform his responsibilities to the Company under the Employment
Agreement, if (A) the disqualification, bar or loss continues for more than
thirty (30) days, and (B) during that period the Company uses its good faith
efforts to cause the disqualification or bar to be lifted or the license
replaced. While any disqualification, bar or loss continues during Participant's
employment, Participant will serve in the capacity contemplated by the
Employment Agreement to whatever extent legally permissible and, if
Participant's employment is not permissible, Participant will be placed on leave
(which will be paid to the extent legally permissible).

          (g) "Change in Control" means the occurrence of any of the following
events:

               (i) The consummation by the Company of a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation;

               (ii) The approval by the stockholders of the Company, or if
stockholder approval is not required, approval by the Board, of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets;

               (iii) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities; or

               (iv) A change in the composition of the Board within any twelve
(12) month period during the Employment Term (as defined in the Employment
Agreement) and pursuant to a plan in which the proponent proposes alternative
directors to the Board, and as a result of which fewer than a majority are
Incumbent Directors. "Incumbent Directors" will mean directors who either (A)
are directors of the Company as of the Effective Date hereof, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of those directors whose election or nomination was not in
connection with any transactions described in subsections (i), (ii), or (iii) of
this Section 1(g) or in connection with an actual or threatened proxy contest
relating to the election of directors of the Company.

          (h) "Code" means the U.S. Internal Revenue Code of 1986, as amended.

          (i) "Committee" means a committee, which may consist of one or more
persons whom may or may not be Board members, as is consistent with the
Applicable Laws, appointed by the Board.

          (j) "Common Stock" means the common stock of the Company.

          (k) "Company" shall mean 3Com Corporation and any successor
corporation thereto.


                                       2



          (l) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary as an independent contractor to render
services to such entity.

          (m) "Date of Option Grant" shall mean the "Date of Grant" as set forth
in the Notice of Grant.

          (n) "Director" means a member 3Com's Board of Directors.

          (o) "Disability" means Participant's absence from his responsibilities
with the Company on a full-time basis for 120 calendar days in any consecutive
twelve (12) month period as a result of Participant's mental or physical illness
or injury.

          (p) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or any leave for which a return to employment is
guaranteed under Applicable Laws, or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

          (q) "Employment Agreement" means the employment agreement entered into
by and between Participant and the Company as of August 8, 2006.

          (r) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

          (s) "Exercise Price" shall mean the "Option Price per Share" as set
forth in the Notice of Grant.

          (t) "Good Reason" means the occurrence of any of the following,
without Participant's express written consent:

               (i) A significant reduction of Participant's duties, position, or
responsibilities, relative to Participant's duties, position, or
responsibilities in effect immediately prior to such reduction;

               (ii) A substantial reduction by the Company of the facilities and
perquisites (including office space and location) available to Participant
immediately prior to such reduction;

               (iii) A material reduction in the kind or level of employee
benefits to which Participant is entitled immediately prior to such reduction
with the result that Participant's overall benefits package is significantly
reduced other than pursuant to a reduction that also is applied to substantially
all other executive officers of the Company and that reduces the level of
employee benefits by a percentage reduction that is no greater than 15%;

               (iv) A reduction in Participant's Base Salary (as defined in the
Employment Agreement) or annual cash incentive as in effect immediately prior to
such reduction other than pursuant to a reduction that also is applied to
substantially all other executive officers of the Company and which reduction
reduces the Base Salary and/or annual cash incentive by a percentage reduction
that is no greater than 15%;

               (v) The relocation of Participant to a facility or location more
than fifty (50) miles from his current place of employment; or

               (vi) The failure of the Company to obtain the assumption of the
Employment Agreement by a successor and an agreement that Participant will
retain the same role and responsibilities


                                       3



in the merged or surviving parent company as he had prior to the merger under
Section 1 of the Employment Agreement.

The failure of the Company's stockholders to elect or reelect Participant to the
Board will not constitute Good Reason for purposes of this Award Agreement.

          (u) "In Connection with a Change of Control" means within three (3)
months prior to or twelve (12) months following a Change of Control.

          (v) "Initial Vesting Date" shall be the date occurring one (1) year
after the Date of Option Grant.

          (w) "Nonstatutory Stock Option" means any Option not intended to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.

          (x) "Notice of Grant" shall mean the "3COM CORPORATION NOTICE OF GRANT
OF STOCK OPTION". The Notice of Grant is part of this Award Agreement.

          (y) "Number of Option Shares" shall mean the "Total Number of Option
Shares Granted" as set forth in the Notice of Grant.

          (z) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (aa) "Option" means this option to purchase Shares of Common Stock
granted pursuant to this Award Agreement.

          (bb) "Optioned Stock" means the Common Stock subject to the Option.

          (cc) "Option Termination Date" shall mean the date occurring seven (7)
years after the Date of Option Grant.

          (dd) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

          (ee) "Service Provider" means an Employee, Director or Consultant.

          (ff) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Agreement.

          (gg) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code and also include
partnerships, limited liability companies and other entities that are at least
30% owned by the Company.


                                       4



          (hh) "Vested Ratio" means:



                                                                    Vested Ratio
                                                                    ------------
                                                                 
Prior to Initial Vesting Date                                             0

On Initial Vesting Date, for each full year of Participant's
remaining a Service Provider from the Date of Option Grant until
the Initial Vesting Date                                                 1/4

Plus

For each subsequent full year thereafter of Participant's
remaining a Service Provider from the Initial Vesting Date               1/4

In no event shall the Vested Ratio exceed 1/1.


     Notwithstanding the foregoing, in the event that Participant is terminated
without Cause or resigns for Good Reason other than in Connection with a Change
of Control, Participant shall receive twelve (12) months accelerated vesting
with respect to Participant's then outstanding unvested portion of the Award,
provided that Participant signs the separation agreement and release of claims
as set forth in Section 8(d) of the Employment Agreement.

     Notwithstanding the foregoing, in the event that Participant is terminated
without Cause or resigns for Good Reason in Connection with a Change of Control,
Participant shall become fully vested in Participant's then outstanding unvested
portion of the Award, provided that Participant signs the separation agreement
and release of claims as set forth in Section 8(d) of the Employment Agreement.

     2. GRANT OF OPTION. The Administrator hereby grants to Participant the
Option to purchase the number of Shares set forth in the Notices of Grant, at
the exercise price per Share set forth in the Notices of Grant, subject to the
provisions of this Award Agreement and the Notices of Grant, which are
incorporated herein by reference. The Option referenced herein are not intended
to qualify as Incentive Stock Options as defined in Section 422 of the Code and
shall be treated as a Nonstatutory Stock Option. The term of each Option shall
be stated in the Notice of Grant and shall be seven (7) years from the Date of
Grant.

     3. EXERCISE OF THE OPTION.

          (a) Right to Exercise. The Option shall be exercisable during its
terms in accordance with the Notice of Grant and this Award Agreement and at
such times and under such conditions as determined by the Administrator. The
Option shall first become exercisable on the Initial Vesting Date. Each Option
shall be exercisable on and after the Initial Vesting Date and prior to the
termination of the Option in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as set forth in Section 3(hh) above less the
number of Shares previously acquired upon exercise of the Option. In no event
shall an Option be exercisable for more Shares than the Number of Option Shares.
Exercising an Option in any manner approved hereunder shall decrease the number
of Shares thereafter available for sale under the Option by the number of Shares
as to which the Option is exercised.

          (b) Method of Exercise. Each Option shall be exercisable by written or
electronic notice to the Company which shall state the election to exercise the
Option, the number of Shares being exercised, and such other representations and
agreements as to Participant's investment intent with


                                       5



respect to the Shares as may be required pursuant to the provisions of this
Award Agreement. Such notice shall be signed by Participant or person entitled
to exercise the Option and shall be delivered to the Company's Stock
Administration Department, or other authorized representative of the Company,
prior to the termination of the Option as set forth in Section 5 below,
accompanied by full payment of the option price for the number of Shares being
purchased.

          (c) Form of Payment of Option Price. Subject to the Applicable Laws,
such payment shall be made (1) in cash, by check, or cash equivalent, (2) by
tender of Shares of the Company's stock owned by Participant and having a fair
market value not less than the option price, which (i) either have been owned by
Participant for more than six (6) months or were not acquired, directly or
indirectly from the Company, and (ii) have a fair market value not less than the
option price, (3) proceeds from a broker-assisted cashless exercise program
acceptable to the Company, in its sole discretion, or (4) by any combination of
the foregoing.

          (d) Withholding. At the time the Option is exercised, in whole or in
part, or at any time thereafter as determined by the Company, the Company shall
have the right to withhold the applicable minimum withholding taxes, including
but not limited to federal tax, state tax, foreign taxes, or social taxes, if
any, which arise in connection with the Option including, without limitation,
obligations arising upon (i) the exercise of the Option in whole or in part,
(ii) the transfer, in whole or in part, of any Shares acquired on exercise of
the Option, or (iii) the lapsing of any restriction with respect to any Shares
acquired on exercise of the Option. Participant shall make adequate provision
for the Company to meet its minimum withholding obligations.

          (e) Certificate Registration. The Shares as to which an Option shall
be exercised shall be issued in the the name of Participant, the heirs of
Participant (if applicable), or, if requested in writing by Participant, in the
name of Participant and his spouse. If payment of the option price is
accomplished using a broker-assisted cashless exercise program acceptable to the
Company, in its sole discretion, the certificate or certificates may, at the
Company's sole discretion be registered in the name of a nominee who is an
authorized broker for the Company's same-day sale program. Until the Shares are
issued (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 10 herein.

          (f) Restriction on Grant of Option and Issuance of Shares. The grant
of the Option and the issuance of Shares pursuant to the Option shall be subject
to compliance with all Applicable Laws. The Option may not be exercised if the
issuance of Shares upon such exercise would constitute a violation of any
Applicable Laws. In addition, no Option may be exercised unless (i) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of any Option be in effect with respect to the Shares
issuable upon exercise of the Option, or (ii) in the opinion of legal counsel to
the Company, the Shares issuable upon exercise of any Option may be issued in
accordance with the terms of an applicable exemption from the registration
requirements of said Act. As a condition to the exercise of any Option, the
Company may require Participant to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any Applicable Laws and to
make any representation or warranty with respect thereto as may be requested by
the Company.

          (g) Fractional Shares. The Company shall not be required to issue
fractional Shares upon the exercise of the Option.


                                       6



          (h) Survival of Award Agreement Provisions. To the extent contemplated
herein, the provisions of this Award Agreement shall survive any exercise of the
Option and shall remain in full force and effect.

     4. NON-TRANSFERABILITY OF THE OPTION. The Option may not be sold, pledged,
assigned, hypotencated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of Participant, only by Participant. The terms of this Award Agreement
shall be binding upon the executors, administrators, heirs, successors and
assignees of Participant.

     5. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (i) the Option Termination Date as defined
above, (ii) the last date for exercising the Option following termination as a
Service Provider as described in Section 6 herein, or as otherwise set forth in
this Award Agreement.

     6. TERMINATION OF PARTICIPANT'S RELATIONSHIP AS A SERVICE PROVIDER.

          (a) Termination of the Option. If Participant ceases to be a Service
Provider for any reason except by reason of death or Disability, the Option, to
the extent unexercised and exercisable by Participant on the date on which
Participant ceased to be a Service Provider, may be exercised by Participant
within three (3) months after the date on which Participant's relationship as a
Service Provider terminates, but in any event no later than the Option
Termination Date. If Participant's Service Provider relationship is terminated
because of the death of Participant or Disability of Participant, the Option, to
the extent unexercised and exercisable by Participant on the date on which
Participant ceased to be a Service Provider, may be exercised by Participant (or
Participant's estate or legal representative) at any time prior to the
expiration of twelve (12) months from the date of such termination, but in any
event no later than the Option Termination Date. Participant's Service Provider
relationship shall be deemed to have terminated on account of death if
Participant dies within three (3) months after Participant's termination of the
Service Provider relationship.

          (b) Extension of Option Exercise Period. Notwithstanding the above, in
the event that Participant's employment is terminated by the Company without
Cause or by Participant for Good Reason (regardless of whether such termination
is in Connection with a Change of Control), the Option, to the extent
unexercised and exercisable by Participant on the date of Participant's
termination, may be exercised by Participant until the earlier of (i) 165
calendar days after the Participant's date of termination or (ii) the Option
Termination Date, provided that Participant signs the separation agreement and
release of claims as set forth in Section 8(d) of the Employment Agreement.

          (c) Change in Status. Notwithstanding the above, in the event of
Participant's change in status from Consultant, Employee or Director to
Employee, Consultant or Director (e.g., an Employee becoming a Consultant),
Participant's's status as a Service Provider shall continue notwithstanding the
change in status.

          (d) Exercise Prevented by Applicable Laws. Except as provided in this
Section 6, the Option shall terminate and may not be exercised after
Participant's Service Provider relationship terminates unless the exercise of
the Option in accordance with this Section 6 would constitute a violation of any
Applicable Laws. If the exercise of the Option is so prevented, the Option shall
remain exercisable until three (3) months after the date Participant is notified
by the Company or its Parent or Subsidiary for


                                       7



whom Participant provides service that the Option is exercisable but in no event
later than the Option Termination Date.

     7. LEAVES OF ABSENCE. Unless the Administrator provides otherwise or as
otherwise required by Applicable Laws, the Option shall cease to vest on the
91st day of any unpaid leave of absence and shall only recommence upon
Participant's return to active service.

     8. RIGHTS AS A SHAREHOLDER OR EMPLOYEE. Participant shall have no rights as
a stockholder with respect to any Shares until the date of the issuance of a
certificate or certificates for the Shares for which the Option has been
exercised. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date such stock certificate or
certificates are issued.

     9. NO GUARANTEE OF CONTINUED SERVICE. PARTICIPANT ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS AN EMPLOYEE OR OTHER SERVICE PROVIDER AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR
ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
CONTINUED ENGAGEMENT AS AN EMPLOYEE OR OTHER SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH
PARTICIPANT'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PARTICIPANT'S
RELATIONSHIP AS AN EMPLOYEE OR OTHER SERVICE PROVIDER OF THE COMPANY AT ANY
TIME, WITH OR WITHOUT CAUSE OR NOTICE.

     10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION OR
CHANGE OF CONTROL.

          (a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Award, as well as the price per share of Common Stock covered
by each such outstanding Award, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Award.

          (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
Participant as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for Participant to
have the right to exercise his Award until ten (10) days prior to such
transaction as to all of the stock covered thereby, including Shares as to which
the Award would not otherwise be vested or exercisable.


                                       8



          (c) Change of Control. In the event of a Change of Control, each
outstanding Option shall be assumed or an equivalent option substituted by the
successor corporation or a Parent or subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or substitute for the
Option, Participant shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would
not otherwise be vested or exercisable. If the Option becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a Change of
Control, the Administrator shall notify Participant in writing or electronically
that the Option shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option shall terminate upon the
expiration of such period. For the purposes of this paragraph, an Option shall
be considered assumed if, following the Change of Control, the Option confers
the right to purchase or receive, for each Share of Optioned Stock subject to
the Option immediately prior to the Change of Control, the consideration
(whether stock, cash, or other securities or property) received in the Change of
Control by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the Change of Control
is not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of any Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the Change of Control.

     11. CONDITIONS UPON ISSUANCE OF SHARES.

          (a) Legal Compliance. Shares shall not be issued pursuant to the
exercise or vesting of an Award unless the exercise or vesting of such Award and
the issuance and delivery of such Shares shall comply with Applicable Laws and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.

          (b) Investment Representations. As a condition to the exercise of an
Award, the Company may require Participant or any authorized person exercising
such Award to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present intention
to sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.

          (c) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

     12. LEGENDS. The Company may at any time place legends referencing any
applicable federal and/or state securities restrictions on all certificates
representing shares of stock subject to the provisions of this Award Agreement.
Participant shall, at the request of the Company, promptly present to the
Company any and all certificates representing Shares acquired pursuant to the
Option in the possession of Participant in order to effectuate the provisions of
this Section 12.

     13. BINDING EFFECT. This Award Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.


                                       9



     14. AMENDMENT OR TERMINATION. The Administrator may at any time amend,
alter, suspend or terminate the Agreement; provided, however, that no such
amendment, alteration, suspension or termination may adversely affect the Option
or any unexercised portion hereof without the written consent of Participant.
Termination of the Agreement shall not affect the Administrator's ability to
exercise the powers granted to it hereunder with respect to Awards granted under
the Agreement prior to the date of such termination.

     15. ENTIRE AGREEMENT; APPLICABLE LAW. This Award Agreement, along with
Participant's Employment Agreement, constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes in their
entirety all prior undertakings and agreements of the Company and Participant
with respect to the subject matter hereof. To the extent that this Award
Agreement sets forth terms and conditions that are less beneficial to the
Particpant than the Employment Agreement, the terms of the Employment Agreement
shall prevail. This Award Agreement shall be construed in accordance with, and
all disputes hereunder shall be governed by, the laws of the Commonwealth of
Massachusetts without regard to its conflict of laws rules. Any dispute relating
to the terms of this Award Agreement shall be resolved in accordance with
Section 16 of the Employment Agreement.

     16. NOTICES. Any notice to be given to the Company hereunder shall be in
writing and shall be addressed to the Company at its then current principal
executive office or to such other address as the Company may hereafter designate
to Participant by notice as provided in Section 14 of the Employment Agreement.
Any notice to be given to Participant hereunder shall be addressed to
Participant at the last address known to the Company, or at such other address
as Participant may hereafter designate to the Company by notice as provided in
Section 14 of the Employment Agreement. A notice shall be deemed to have been
duly given when personally delivered or mailed by registered or certified mail
to the party entitled to receive it.

PARTICIPANT                             3COM CORPORATION


/s/ EDGAR MASRI                         /S/ NEAL D. GOLDMAN
- -------------------------------------   ----------------------------------------
Edgar Masri                             Neal D. Goldman
                                        Senior Vice President Management
                                        Services, General Counsel & Secretary

9/5/06                                  9/5/06
Date                                    Date


                                       10

EX-10.3

                                                                    Exhibit 10.3

                                3COM CORPORATION

                                 2003 STOCK PLAN

                           RESTRICTED STOCK UNIT GRANT

                                 AWARD AGREEMENT

     THIS RESTRICTED STOCK UNIT GRANT AWARD AGREEMENT (the "Award Agreement") is
made on ((DATE)) (the "Grant Date"), by and between 3Com Corporation (the
"Company"), and ((RECIPIENT)) (the "Participant").

     The Company desires to issue and the Participant desires to acquire
Restricted Stock Units as herein described, pursuant to the Company's 2003 Stock
Plan, as amended (the "Plan"), on the terms and conditions set forth in this
Award Agreement and the Plan, the terms and conditions of which are incorporated
herein by reference. Unless otherwise defined herein, capitalized terms shall
have the meaning given to them in the Plan.

     IT IS AGREED between the parties as follows:

     1. Issuance of Restricted Stock Units. On the Grant Date, the Company shall
issue to the Participant, subject to the provisions hereof and the Plan,
((INSERT NUMBER)) Restricted Stock Units (the "RSUs"). Each RSU shall be the
equivalent of one Share of Common Stock. No Shares shall be issued upon
execution of this Award Agreement. Unless and until the RSUs have vested in
accordance with this Award Agreement, the Participant shall have no right to
receive any Shares.

     2. Administration. All questions of interpretation concerning this Award
Agreement shall be determined by the Administrator in its sole discretion. All
determinations by the Administrator shall be final and binding upon all persons
having an interest in this Award Agreement.

     3. Vesting Schedule and Conversion of RSUs.

          (a) Vesting. Subject to the terms and conditions of this Award
Agreement and the Plan, and provided that the Participant remains a Service
Provider through each vesting date, the RSUs shall become vested in ___ (__)
installments, with the first installment vesting on [_____] and the remaining
[___] installments vesting semiannually thereafter, and upon vesting shall be
converted into an equivalent number of Shares of Common Stock that will be
distributed to the Participant. In the event that any vesting date occurs on a
weekend, holiday or other non-trading day on the applicable NASDAQ market, the
applicable RSUs shall become vested on the first trading day thereafter.

          (b) Issuance of Common Stock. Upon vesting of the RSUs, except as set
forth in this Award Agreement or the Plan, the Company shall issue one or more
certificates registered in the name of the Participant for the appropriate
number of Shares or use other appropriate means of distributing the vested
Shares of Common Stock, at its discretion, free of any restrictions on
transferability or forfeiture except for restrictions required by applicable
laws and/or regulations. Such Shares will be issued to the Participant as soon
as practicable after the vesting of the RSUs, but in any event, within the
period ending on the later to occur of the date that is 2 1/2 months from the
end of (i) the Participant's tax year that includes the applicable

2003 Plan Restricted Stock Unit Agreement


                                      -1-



vesting date, or (ii) the Company's tax year that includes the applicable
vesting date (which payment schedule is intended to comply with the "short-term
deferral" exemption from the application of Section 409A ("Section 409A") of the
Code). As a condition to the issuance and delivery of the Shares, the Company
may require the Participant to satisfy any qualifications that may be necessary
or appropriate, in the Company's sole discretion, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.

     4 Rights as a Stockholder. The Participant shall have no rights as a
stockholder with respect to the Shares until such time the Shares are issued to
the Participant. Except as provided in Section 14(a) of the Plan, no adjustment
shall be made for dividends or distributions or other rights for which the
record date is prior to the date such Shares are issued.

     5. No Right of Continued Employment. The Participant understands and agrees
that neither the award of the RSUs nor any provision of the Plan or this Award
Agreement shall confer upon the Participant any right to continue as a Service
Provider or interfere in any way with the right of the Company, the
Participant's actual employer (the "Employer") or the Participant to terminate
the Participant's Service Provider relationship at any time.

     6. Termination of Award Agreement. In the event that the Participant's
Service Provider relationship with the Company or the Employer is terminated for
any reason, with or without cause, the Participant's rights under this Award
Agreement or the Plan in any unvested RSUs shall immediately and irrevocably
terminate and the Participant shall immediately and irrevocably forfeit all RSUs
that are unvested as of the date of termination of the Participant's active
status as a Service Provider. Further, if the Participant's Service Provider
relationship with the Company or the Employer is terminated (whether or not in
breach of local labor law), the Participant's right to receive RSUs and vest
under the Plan, if any, will terminate effective as of the date that the
Participant is no longer actively providing service and will not be extended by
any notice period mandated under local law (e.g., active service would not
include a period of "garden leave" or similar period pursuant to any applicable
local law); the Administrator shall have the exclusive discretion to determine
when the Participant is no longer actively providing service for purposes of the
Plan.

     7. Withholding. Regardless of any action the Company or the Employer takes
with respect to any and all income tax including federal, state or local taxes,
social insurance contributions, payroll tax, payment on account or other
tax-related withholding ("Tax-Related Items"), the Participant acknowledges that
the ultimate liability for all Tax-Related Items legally due by the Participant
is and remains the Participant's responsibility and that the Company and/or the
Employer (i) make no representations or undertakings regarding any Tax-Related
Items in connection with any aspect of the RSUs, including the grant of the
RSUs, the vesting of RSUs, the issuance of Shares upon vesting, the subsequent
sale of any Shares acquired at vesting and the receipt of any dividends and (ii)
do not commit to structure the terms of the grant or any aspect of the RSUs to
reduce or eliminate the Participant's liability for Tax-Related Items.

     Further, notwithstanding any contrary provision of this Award Agreement, no
Shares will be issued to the Participant, unless and until satisfactory
arrangements (as determined by the Administrator) have been made by the
Participant to satisfy all Tax-Related Items obligations of the Company and/or
the Employer with respect to the issuance of such Shares.

     In this regard, the Participant authorizes the Company and/or the Employer
to withhold from the Shares deliverable to the Participant upon vesting a number
of Shares having a Fair


                                      -2-



Market Value sufficient to satisfy the minimum statutory amount of Tax-Related
Items (or such higher amount as is allowable without adverse accounting
consequences). If the Company or the Employer satisfies the obligation for
Tax-Related Items by withholding a number of whole Shares as described herein,
the Participant is deemed to have been issued the full number of Shares subject
to the award of RSUs, notwithstanding that a number of the Shares is held back
solely for the purpose of paying the Tax-Related Items due as a result of the
vesting of the RSUs. Alternatively, or in addition, in the sole discretion of
the Company and/or the Employer, (i) the Participant authorizes the Company
and/or the Employer to withhold all applicable Tax-Related Items legally payable
by the Participant from the wages or other cash compensation payable to the
Participant by the Company or the Employer and/or, (ii) the Participant agrees
that the obligation for Tax-Related Items may be satisfied by the sale of Shares
to be issued on the vesting of the RSUs and agrees to sell the Shares, as
necessary.

     Finally, the Participant will pay to the Company or the Employer any amount
of Tax-Related Items that the Company or the Employer may be required to
withhold as a result of the Participation's participation in the Plan that
cannot be satisfied by the means previously described. The Company shall have no
obligation to issue the Shares or otherwise transfer ownership of the Shares to
the Participant until the applicable obligations for Tax-Related Items have been
satisfied.

     8. Non-Transferability of RSUs. The Participant's right and interest in the
RSUs awarded under this Award Agreement may not be sold, pledged, assigned,
transferred or disposed of in any manner, prior to the distribution of Common
Stock in respect of vested RSUs.

     9. No Compensation Deferral. Neither the Plan nor this Agreement is
intended to provide for an elective deferral of compensation that would be
subject to Section 409A. Instead, as stated above, it is the intent of this
Agreement to satisfy the "short-term deferral" exemption described in Treas.
Reg. Section 1.409A-1(b)(4). The Company reserves the right, to the extent the
Company deems necessary or advisable in its sole discretion, to unilaterally
amend or modify the Plan and/or this Agreement to ensure that no Awards
(including without limitation, the RSUs) become subject to the requirements of
Section 409A, provided however that the Company makes no representation that the
RSUs are not subject to Section 409A nor makes any undertaking to preclude
Section 409A from applying to the RSUs.

     10. Broker. The Shares acquired by the Participant under the Plan will be
deposited directly into the Participant's brokerage account with the Company's
approved broker when vested and the applicable obligations for Tax-Related Items
have been satisfied.

     11. Nature of the Grant. In accepting the grant of RSUs, the Participant
acknowledges that:

          (a) the Plan is established voluntarily by the Company, it is
discretionary in nature and may be modified, amended, suspended or terminated by
the Company at any time, unless otherwise provided in the Plan and this Award
Agreement;

          (b) the grant of RSUs is voluntary and occasional and does not create
any contractual or other right to receive future awards of RSUs, or benefits in
lieu of RSUs even if RSUs have been awarded repeatedly in the past;

          (c) all decisions with respect to future grants of RSUs, if any, will
be at the sole discretion of the Company;


                                      -3-



          (d) the Participant's participation in the Plan is voluntary;

          (e) RSUs are an extraordinary item that do not constitute regular
compensation for services of any kind rendered to the Company or to the
Employer, and RSUs are outside the scope of the Participant's employment
contract, if any;

          (f) RSUs are not part of normal or expected compensation or salary for
any purpose, including, but not limited to, calculation of any severance,
resignation, termination, redundancy, end of service payments, bonuses,
long-service awards, pension or retirement benefits or similar payments;

          (g) the future value of the underlying Shares is unknown and cannot be
predicted with certainty;

          (h) if the Participant receives Shares upon vesting, the value of such
Shares acquired on vesting of RSUs may increase or decrease in value; and

          (i) in consideration of the grant of RSUs, no claim or entitlement to
compensation or damages arises from termination of the RSUs or diminution in
value of the RSUs or Shares received upon vesting of RSUs resulting from
termination of the Participant's employment or other service-providing
relationship with the Company or the Employer (for any reason whatsoever and
whether or not in breach of local labor laws) and the Participant irrevocably
releases the Company and the Employer from any such claim that may arise; if,
notwithstanding the foregoing, any such claim is found by a court of competent
jurisdiction to have arisen, then, by accepting the grant of RSUs, the
Participant shall be deemed irrevocably to have waived his or her entitlement to
pursue such claim.

     12. Registration. Any Shares acquired pursuant to this Award Agreement
shall be registered and/or deposited in the name of the Participant.

     13. Further Instruments. The parties hereto agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Award Agreement.

     14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
electronic delivery, or upon delivery by certified mail, addressed to the
Company at the address below and addressed to the Participant at his/her home
address on file with the Company or at such other address as either party may
designate by ten (10) days' advance written notice to the other party.

                    RESTRICTED STOCK ADMINISTRATOR
                    3COM CORPORATION
                    350 CAMPUS DRIVE
                    MARLBOROUGH, MA 01752
                    STOCK_ADMINISTRATION@3COM.COM

     15. Binding Effect. This Award Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Participant and the Participant's
heirs, executors, administrators, successors and assigns.


                                      -4-



     16. Integrated Agreement. This Award Agreement (including any
country-specific Addendum or sub-plan, if any) and the Plan constitute the
entire understanding and agreement of the Participant and the Company with
respect to the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations, or warranties among the
Participant and the Company other than those set forth or provided for herein or
therein. The terms of this Award Agreement shall be subject to the terms of the
Plan, and this Award Agreement is subject to all Plan interpretations,
amendments, and rules approved by the Company.

     17. Severability. If one or more provisions of this Award Agreement are
held invalid, illegal and/or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby and the invalid, illegal or unenforceable
provision(s) shall be deemed null and void; provided, however, to the extent
permissible under applicable law, that any such provision(s) shall be first
construed, interpreted and/or revised to permit this Award Agreement to be
construed so as to foster the intent of this Award Agreement and the Plan.

     18. Governing Law. This Award Agreement is governed by the laws of the
Commonwealth of Massachusetts, without reference to conflicts of law provisions.
The parties hereby understand and agree that any action to enforce or interpret
or otherwise regarding this Award Agreement shall be filed in the state or
federal courts in the Commonwealth of Massachusetts.

     19. DATA PRIVACY. THE PARTICIPANT HEREBY EXPLICITLY AND UNAMBIGUOUSLY
CONSENTS TO THE COLLECTION, USE AND TRANSFER, IN ELECTRONIC OR OTHER FORM, OF
HIS OR HER PERSONAL DATA AS DESCRIBED IN THIS AWARD AGREEMENT BY AND AMONG, AS
APPLICABLE, THE EMPLOYER, THE COMPANY AND ITS SUBSIDIARIES FOR THE EXCLUSIVE
PURPOSE OF IMPLEMENTING, ADMINISTERING AND MANAGING THE PARTICIPANT'S
PARTICIPATION IN THE PLAN.

          (a) THE PARTICIPANT UNDERSTANDS THAT THE EMPLOYER, THE COMPANY AND ITS
SUBSIDIARIES HOLD CERTAIN PERSONAL INFORMATION ABOUT THE PARTICIPANT INCLUDING,
BUT NOT LIMITED TO, THE PARTICIPANT'S NAME, HOME ADDRESS AND TELEPHONE NUMBER,
DATE OF BIRTH, SOCIAL SECURITY NUMBER OR EQUIVALENT TAX IDENTIFICATION NUMBER,
SALARY, NATIONALITY, JOB TITLE, ANY SHARES OF STOCK OR DIRECTORSHIPS HELD IN THE
COMPANY, DETAILS OF ALL SHARES OR OTHER ENTITLEMENTS TO SHARES AWARDED,
CANCELLED, EXERCISED, VESTED, UNVESTED OR OUTSTANDING IN THE PARTICIPANT'S
FAVOUR, FOR THE PURPOSE OF MANAGING AND ADMINISTERING THE PLAN ("DATA"). THE
PARTICIPANT FURTHER UNDERSTANDS THAT THE COMPANY AND/OR ITS SUBSIDIARIES WILL
TRANSFER DATA AMONGST THEMSELVES AS NECESSARY FOR THE PURPOSES OF
IMPLEMENTATION, ADMINISTRATION, AND MANAGEMENT OF THE PARTICIPANT'S
PARTICIPATION IN THE PLAN, AND THAT THE COMPANY AND/OR ITS SUBSIDIARIES MAY EACH
FURTHER TRANSFER DATA TO ANY THIRD PARTIES ASSISTING THE COMPANY IN THE
IMPLEMENTATION, ADMINISTRATION AND MANAGEMENT OF THE PLAN ("DATA RECIPIENTS").
WHERE THE COMPANY OR ANY OF ITS SUBSIDIARIES TRANSFER DATA TO ANY DATA
RECIPIENTS, IT WILL TAKE INTO ACCOUNT ANY LEGAL OBLIGATIONS WHICH APPLY WITH
RESPECT TO THE PROCESSING OF THAT DATA. THE PARTICIPANT UNDERSTANDS THAT THESE
DATA RECIPIENTS MAY BE LOCATED IN THE PARTICIPANT'S COUNTRY OF RESIDENCE, THE
EUROPEAN ECONOMIC AREA, OR ELSEWHERE THROUGHOUT THE WORLD, INCLUDING, BUT NOT
LIMITED TO, THE UNITED STATES. THE PARTICIPANT HEREBY AUTHORIZES THE DATA
RECIPIENTS TO


                                      -5-



RECEIVE, POSSESS, USE, RETAIN AND TRANSFER DATA IN ELECTRONIC OR OTHER FORM, FOR
THE PURPOSES OF IMPLEMENTING, ADMINISTERING AND MANAGING THE PARTICIPANT'S
PARTICIPATION IN THE PLAN, INCLUDING ANY TRANSFER OF SUCH DATA, AS MAY BE
REQUIRED FOR THE ADMINISTRATION OF THE PLAN AND/OR THE SUBSEQUENT HOLDING OF
SHARES ON THE PARTICIPANT'S BEHALF, TO A BROKER OR THIRD PARTY WITH WHOM THE
SHARES ACQUIRED UPON VEST MAY BE DEPOSITED.

          (b) TO THE EXTENT THAT THE PARTICIPANT RESIDES OUTSIDE THE UNITED
STATES, THE PARTICIPANT MAY HAVE DIFFERENT RIGHTS WITH REGARD TO HIS OR HER
DATA, THAN EMPLOYEES RESIDING IN THE U.S. SUCH PARTICIPANTS UNDERSTAND THAT DATA
WILL BE HELD AS LONG AS IS REASONABLY NECESSARY TO IMPLEMENT, ADMINISTER AND
MANAGE THEIR PARTICIPATION IN THE PLAN AND THAT THEY MAY, AT ANY TIME, REVIEW
THE DATA, REQUIRE ANY NECESSARY AMENDMENTS TO IT, REQUEST A LIST WITH THE NAMES
AND ADDRESSES OF ANY DATA RECIPIENTS OR WITHDRAW THE CONSENT PROVIDED HEREIN, BY
CONTACTING IN WRITING THE COMPANY'S STOCK ADMINISTRATION DEPARTMENT. THE
PARTICIPANT FURTHER UNDERSTANDS THAT WITHDRAWING CONSENT MAY AFFECT THE
PARTICIPANT'S ABILITY TO PARTICIPATE IN THE PLAN. WITHOUT PREJUDICE TO OTHER
PROVISIONS OF THE PLAN AND THIS AWARD AGREEMENT, THE COMPANY HEREBY RESERVES THE
RIGHT TO TERMINATE THE PARTICIPANT'S PARTICIPATION IN THE PLAN (INCLUDING, BUT
NOT LIMITED TO, THE PARTICIPANT'S ABILITY TO VEST IN THE SHARES GRANTED
HEREUNDER) IF, BY WITHDRAWAL OF THE PARTICIPANT'S CONSENT TO THE COLLECTION, USE
AND TRANSFER OF DATA, THE COMPANY AND/OR DATA RECIPIENTS MAY NOT, IN THE
COMPANY'S SOLE DISCRETION, LAWFULLY ADMINISTER THE PARTICIPANT'S PARTICIPATION
IN THE PLAN.

     20. Language. If the Participant has received this Award Agreement or any
other document related to the Plan translated into a language other than English
and if the translated version is different than the English version, the English
version will control.

     21. Electronic Delivery. The Company may, in its sole discretion, decide to
deliver any documents related to participation in the Plan, RSUs granted under
the Plan or future RSUs that may be granted under the Plan by electronic means
or to request the Participant's consent to participate in the Plan by electronic
means. The Participant hereby consents to receive such documents by electronic
delivery and, if requested, to agree to participate in the Plan through an
on-line or electronic system established and maintained by the Company or
another third party designated by the Company.

     22. Addendum. Notwithstanding any provision in this Award Agreement, the
RSUs and the Shares acquired under the Plan shall be subject to any special
terms and provisions set forth in the Addendum for the Participant's country of
residence, if any.

     IN WITNESS WHEREOF, the parties hereto have executed this Award Agreement
as of the day and year first above written. By signing below or electronically
accepting this Award Agreement, as applicable, the Participant acknowledges that
he/she has read, understood and accepted all of the terms, conditions and
restrictions of this Award Agreement and the Plan.


                                      -6-



COMPANY: 3COM CORPORATION               PARTICIPANT:


BY:
    ---------------------------------   ----------------------------------------
TITLE:
       ------------------------------
ADDRESS: STOCK ADMINISTRATION           ADDRESS:
         DEPARTMENT                              -------------------------------
         3COM CORPORATION
         350 CAMPUS DRIVE                        -------------------------------
         MARLBOROUGH, MA 01752
                                                 -------------------------------


                                      -7-

EX-10.7

                                                                    Exhibit 10.7

                AGREEMENT FOR THE LEASE OF HANGZHOU REAL PROPERTY

                                     BETWEEN

                          Huawei Technologies Co. Ltd.

                                       AND

                    Hangzhou Huawei-3Com Technology Co., Ltd.

                                   ----------

                                 January 1, 2004



PARTIES TO THIS AGREEMENT:

The lessor of the real property:

Huawei Technologies Co. Ltd., a limited liability company registered in Shenzhen
city of Guangdong province and legally existing pursuant to the PRC laws
(hereinafter "Huawei" or "Party A")

AND

The lessee of the real property: Hangzhou Huawei-3Com Technology Co., Ltd., a
limited company established and legally existing pursuant to the PRC laws
(hereinafter "Party B").

(Together " the Parties")

WHEREAS, Huawei, 3Com Corporation, a Delaware corporation ("3Com") and 3Com
Technologies, a corporation organized under the laws of the Cayman Islands,
entered into that certain Contribution Agreement, dated March 19, 2003 (the
"Contribution Agreement"), pursuant to which Huawei agreed to lease the Hangzhou
Real Property to Party B; and

WHEREAS, the Parties wish to enter into this Agreement for the Lease of Hangzhou
Real Property (this "Agreement") and this Agreement is signed pursuant to
provisions of the relevant State and local published laws and regulations
published and available to foreign investors and according to the principles of
equality, voluntariness and consideration for use.

NOW, THEREFORE, in consideration of the premises and the mutual agreements and
covenants hereinafter set forth and intending to be legally bound hereby, the
Parties hereby agree as follows:

1.   SCOPE OF LEASE

     Party A hereby leases to Party B that certain portion of the Hangzhou Real
     Property referred to in Clause 2.5 as the "Premises" in accordance with
     this Agreement. Ownership of the land over the Hangzhou Real Property shall
     belong to the People's Republic of China ("PRC"). The right to lease of the
     real property over the land does not include any underground natural
     resources, buried objects and municipal and public utilities.

2.   TITLE AND LOCATION OF THE HANGZHOU REAL PROPERTY

     2.1  Subject to Articles 16 and 17 hereof, Party A warrants that it has and
          will maintain, throughout the Term of the Lease (as hereinafter
          defined in Clause 3), (i) full ownership of the Buildings and other
          improvements located on the Hangzhou Real Property and (ii) the right
          to use the


                                       1



          Hangzhou Real Property for the purposes set forth herein and for a
          period of not less than fifty (50) years pursuant to a land use
          certificate ("Land Use Certification") granted by the PRC, free and
          clear of (a) any liens, encumbrances, covenants, charges, burdens or
          claims except those which do not materially and adversely affect the
          operation of the Hangzhou Real Property by Party B and (b) any future
          liens, mortgages or other encumbrances which provide that this
          Agreement shall be subject to forfeiture or termination following a
          foreclosure of such mortgage or other encumbrance. Party A further
          warrants that Party B, on making the payments to Party A in accordance
          with this Agreement and fulfilling its other obligations hereunder,
          shall and may peaceably and quietly manage and operate the Hangzhou
          Real Property during the entire Term of the Lease.

     2.2  Notwithstanding anything to the contrary herein, Party A shall defend,
          indemnify, protect and hold harmless Party B from and against any and
          all liability, loss, claim, damage and cost (including reasonable
          attorneys' fees) due to any termination of this Agreement or Party B's
          right to occupy the Premises prior to the expiration of the Term of
          the Lease as a result of any default by Party A under any current or
          future mortgage or financing arrangement secured by the Hangzhou Real
          Property or as a result of a failure to comply with any governmental
          requirements.

     2.3  Party A shall pay and discharge any ground rents or other rental
          payments, concession charges and any other charges payable by Party A
          in respect of the Hangzhou Real Property and, at its own expense,
          undertake and prosecute all appropriate actions, judicial or
          otherwise, required to assure such quiet and peaceable possession to
          Party B. Party A shall further pay all real estate taxes and
          assessments which may become a lien on the Hangzhou Real Property or
          which may be due and payable during the Term of the Lease unless
          payment thereof is in good faith being contested by Party A and
          enforcement thereof is stayed. Party A shall not later than twenty
          (20) days following written demand by Party B furnish to Party B
          copies of official tax bills and assessments and tax receipts showing
          the payment of such taxes and assessments.

     2.4  The term "Hangzhou Real Property" as used herein means the office and
          manufacturing facilities and other improvements and buildings,
          including, without limitation, the Improvements defined and described
          in Clause 9.1 hereof (the "Buildings") and the land upon which such
          office and manufacturing facilities and other improvements and
          buildings are located (the "Land") in Hangzhou, PRC and commonly known
          as Huawei Hangzhou Production Centre. The location and size of the
          Hangzhou Real Property is as follows:

               Lot Number 11-01-(002)-0003 located on Liuhe Road,
               Zhijiang Sci-Tech Industrial Park, Binjiang District,


                                       2



               Hangzhou, Zhejiang Province, PRC, with a total land area of
               132,938 square meters and a total property gross floor area of
               69,777.2 square meters which shall be determined by and recorded
               in the Real Estate Certificate issued by the Hangzhou local
               government. Such total property gross floor area includes (i)
               7,687.34 square meters for the office tower (the "Office Tower
               Space"), (ii) 4,204.72 square meters for the canteen (the
               "Canteen Space"), (iii)31,592.87 square meters for the production
               space, excluding the Expansion Premises (the "Initial Production
               Space") and (iv)24,714.01 square meters for the Expansion
               Premises.

          The specific location of the Hangzhou Real Property is shown per the
          co-ordinates in the maps attached hereto as Schedule 1. The
          measurements provided in this Clause 2.4 are subject to confirmation
          by the Real Estate Certificate as set forth in Clause 5.2 hereof.

     2.5  The term "Premises" as used herein means that portion of the Hangzhou
          Real Property to be leased to Party B on the Commencement Date (as
          defined herein) consisting of the entire Hangzhou Real Property less
          approximately 24,714.01 square meters of gross floor area located on
          the second floor of the plant/production building (the "Expansion
          Premises"), which Premises are more particularly described on Schedule
          2 attached hereto.

     2.6  Notwithstanding anything to the contrary herein, with the prior
          consent of Party A, which consent shall not be unreasonably withheld,
          Party B shall have the continuing right during the Term of the Lease
          (as defined in Clause 3 below) to lease from Party A all or any
          portion of the Expansion Premises for the remainder of the Term of the
          Lease at the applicable rental rate specified in Clause 5.1 of this
          Agreement for the Initial Production Space and otherwise upon the same
          terms and conditions of this Agreement (the "Expansion Right"). Party
          B may exercise such Expansion Right from time to time during the Term
          of the Lease by delivering to Party A written notice (an "Expansion
          Notice") specifying (i) the location and size of any portion of the
          Expansion Premises to be leased and (ii) the date upon which Party B
          intends to lease such Expansion Premises (or portion thereof), which
          date shall be not less than thirty (30) days after the date of such
          notice (each such date, an "Expansion Space Commencement Date").
          Effective as of each Expansion Space Commencement Date, the Premises
          herein shall be deemed to include that portion of the Expansion
          Premises described in the applicable Expansion Notice and the rent
          payable by Party B hereunder shall be increased by an amount equal to
          the product of the gross floor


                                       3



          area of the portion of the Expansion Space set forth in the Expansion
          Notice and the rental rate applicable from time to time to the Initial
          Production Space set forth in Clause 5.1 of this Agreement. Party A
          shall deliver the Expansion Premises (or any portion thereof) to Party
          B in the condition required pursuant to Clause 3 hereof. The Expansion
          Right shall continue until the earlier to occur of (i) the leasing of
          the entire Expansion Premises by Party B pursuant to this Clause 2.6
          and (ii) the termination or expiration of this Agreement.

3.   TERM

          Subject to the any provisions in this Agreement regarding the
          expiration or early termination of this Agreement, the term of the
          lease for the Premises shall be sixty (60) months (the "Term of the
          Lease") commencing on the later of January 1, 2004 or the date by
          which all of the following have occurred: (i) Party A has
          substantially completed the Improvements (as defined in Clause 9) in
          accordance with this Agreement; (ii) Party A has delivered possession
          of the Premises to Party B in good, vacant, broom clean condition,
          with all building systems in good working order, with all Utilities
          (as defined in Clause 7.5 hereof) completed and installed and serving
          the Hangzhou Real Property and otherwise in compliance with all laws
          and in the condition required under this Agreement; and (iii) Party A
          has obtained all approvals, certificates and permits from the
          appropriate governmental authorities required for the legal occupancy
          of the Hangzhou Real Property for the permitted use, including,
          without limitation, the permits and approvals described in Clause 7.1
          (a) - (c) hereof (the "Commencement Date"). Party B acknowledges that
          Party A may not obtain the Real Estate Certificate, the building
          ownership certificate and the registration of this Agreement with the
          local government authorities (collectively, the "Outstanding Permits")
          prior to the Commencement Date; however, Party A shall use its best
          efforts to obtain such items as soon as possible and shall deliver a
          notice or a copy of each such item to Party B within 15 days of the
          date each such item is obtained.

4.   USE OF THE HANGZHOU REAL PROPERTY

          4.1  The Hangzhou Real Property may be used for the following
               purposes:

               4.1.1 industrial purposes including but not limited to the
                    production, manufacturing, blending, packaging, processing,
                    transportation, supply, distribution, marketing, sale and
                    storage of industrial products;

               4.1.2 office, laboratory, warehouse and factory purposes and
                    other ancillary facilities in support of the activities
                    listed in paragraph 4.1.1 above;

               4.1.3 for any purposes of the operation of Party B including but
                    not


                                       4



                    limited to dormitories of employees, food and beverage
                    facilities, public, medical and recreation facilities; and

               4.1.4 for all other lawful commercial and business purposes and
                    any other uses incidental or related to the foregoing.

               Party A represents and warrants that each of the uses described
               in this Clause 4.1 are authorized by applicable law and
               governmental certificates and permits in effect as of the date of
               this Agreement and shall be permitted under the Real Estate
               Certificate and the building ownership certificate.

     4.2  If the purpose of the Hangzhou Real Property specified in this
          Agreement needs to be changed during the Term of the Lease beyond the
          usage scope of the Hangzhou Real Property set forth in Clause 4.1 and
          approved by the appropriate governmental authorities, the consent of
          Party A shall be obtained by Party B, a new lease contract or relevant
          amendment contract shall be executed, the rents for the lease of the
          Premises shall be increased or decreased in accordance with the fee
          charge criteria for the land use right of the Hangzhou Real Property
          by the PRC and the relevant formalities of registering the land use
          rights and real property shall be completed, all in accordance with
          the relevant published laws and regulations available to foreign
          investors.

5.   RENT, TAXES, INSURANCE, OPERATING EXPENSES AND UTILITIES

     5.1  Party A guarantees to Party B that save for the payment due under this
          Clause 5, Party B shall not be required to pay any other fees, rates,
          levies, expenses, charges or taxes of' any kind (such as land contract
          tax, stamp duties, acquisition of agricultural land tax and
          reclamation fees) related to or payable for the Outstanding Permits or
          the signature of this Agreement, or any fees, compensation or taxes
          payable for compensation of crops and trees and for removal or
          relocation of existing users or occupants (if any) on the Hangzhou
          Real Property. Party B agrees to pay Party A the rents in respect of
          the Premises for the period from the Commencement Date to the date of
          termination of the "Term of the Lease" (provided that the specific
          payment terms and conditions shall be in accordance with the
          provisions of Clause 6). The rents shall be calculated from the
          Commencement Date.

          Both Parties hereby agree and confirm that the monthly rents for the
          Premises shall be as follows:

               For the period beginning on the Commencement Date and continuing
               through the expiration of the Term of the Lease, the monthly
               rents shall be (i) RMB 60 yuan/square meter/month of the gross
               floor area of the Office Tower Space and the Canteen Space


                                       5



               and (ii) RMB 40 yuan/square meter/month of the gross floor area
               of the Initial Production Space.

     5.2  The Parties acknowledge that the Real Estate Certificate has not been
          issued as of the execution date of this Agreement. The Parties
          covenant and agree to jointly instruct the Hangzhou local government
          authority to issue the Real Estate Certificate so as to include
          separate measurements of the gross floor area for each floor of each
          Building. Upon receipt of the Real Estate Certificate in the required
          form, the Parties agree to calculate the gross floor area for each of
          the Office Tower Space, the Canteen Space, the Initial Production
          Space and the Expansion Premises based on such Real Estate Certificate
          and, if such amounts differ from those currently set forth in Clause
          2.4 hereof, either revise such amounts in Clause 2.4 hereof or execute
          a separate memorandum or agreement which sets forth such information.
          If the gross floor area amounts set forth in the Real Estate
          Certificate differ from those set forth in Clause 2.4, within thirty
          (30) days of notice from either Party, Party B shall pay any
          underpayment or Party A shall refund any overpayment made as a result
          of payment of monthly rents prior to such date based on the gross
          floor area amounts set forth in Clause 2.4.

     5.3  Party A shall be responsible for and shall pay when due any and all
          real estate taxes and assessments in connection with the Hangzhou Real
          Property. Party A shall furnish to the Party B copies of (i) any tax
          invoice or receipt or any other evidence of tax payment and (ii) any
          notice or documents from the tax authority in relation to the tax
          payment or tax fine. Party B agrees to coordinate with Party A for any
          claims that may arise relating to the taxation of the Hangzhou Real
          Property and Party A shall indemnify, defend, protect and hold
          harmless Party B from and against any actual costs, claims or expenses
          incurred therefore by Party B (including, without limitation, all
          legal fees and expenses).

     5.4  Party A shall, at its expense, at all times during the Term of the
          Lease procure and maintain adequate insurance to cover the full
          replacement cost of the Hangzhou Real Property against loss or damage
          to the Hangzhou Real Property from fire, explosion, aircraft, water
          apparatus, flood, earthquake, boiler and machinery breakdown and such
          other perils considered necessary, customary or practical in fully
          protecting the Hangzhou Real Property and maintain adequate
          comprehensive general liability insurance fully protecting Party A
          arising out of the ownership, possession and use of the Hangzhou Real
          Property.

          All such liability insurances shall note the interest of Party B as an
          "additional insured".

          Party A shall furnish to Party B satisfactory evidence of all
          insurances maintained by Party A pursuant to this Clause.


                                       6



     5.5  Subject to the provisions of this Contact, Party B shall be
          responsible for and bear the full cost for the operation of its
          business at the Premises and for all utilities (including heating,
          cooling and ventilating) and telecommunications (including
          telephone/fax and internet connection) used by Party B at the
          Premises. Party B agrees to pay all electricity, water and gas (if
          any) consumed by Party B at the Premises on the basis of separate
          meters installed or to be installed at Party B's option and/or to
          refund to Party A the costs thereof on reasonable written notice to
          Party B (in case any of the same are payable or charged in respect of
          the Party A's account). In case any of the foregoing costs in this
          Clause are paid or charged in respect of Party A's account, they shall
          be refunded by Party B to Party A within thirty (30) days after
          receipt by Party B of written notice and upon Party B's verification
          of the costs are correct and in order.

6.   PAYMENT AND CURRENCY

     Party B will pay the rents for the Premises in RMB.

     Party B will pay to Party A as a security deposit an amount equal to the
     monthly rent for the first two (2) months of the Term of the Lease. Such
     security deposit will be refunded to Party B within fifteen (15) days of
     the date of the expiration of the Term of the Lease or the date of its
     early termination in accordance with Clause 13 of this Agreement or
     otherwise.

     Both Parties hereby agree the payment terms are as follows:

     6.1  Within 15 days after the Commencement Date, Party B will pay Party A
          in one installment the rent at the rates set forth in Clause 5.1.1
          from the Commencement Date through the last day of the calendar
          quarter in which the Commencement Date occurs.

     6.2  Commencing from the first day of the calendar quarter immediately
          succeeding the calendar quarter in which the Commencement Date occurs
          through the remainder of the Term of the Lease, Party B shall pay rent
          at the rates set forth in Clause 5.1.1 quarterly on the fifth day of
          the first month of each calendar quarter (January 5, April 5, July 5
          and October 5) of each year of the Term of the Lease.

     6.3  For any lease period shorter than a quarter, the rent thereof shall be
          calculated on a daily basis.

     6.4  Party A shall issue to Party B the relevant payment notice in respect
          of any payment 30 days before the due payment date. If Party A has not
          issued any payment notice in time, the relevant due payment period
          shall be extended correspondingly. Party A shall issue to Party B the
          official receipt within 5 days after any payment of Party B has been
          effected in the bank account designated by Party A.


                                       7



     6.5  With 60 days of the expiry or termination of the Term of the Lease of
          the Premises, Party A shall refund to Party B any advance payment
          (including rent).

7.   GUARANTEES BY PARTY A

     Party A hereby guarantees to Party B that:

     7.1  Party A has received (a) the land use rights certificate relating to
          the Hangzhou Real Property pursuant to which the PRC has granted to
          Party A the right to use the Hangzhou Real Property for the purposes
          specified herein for a period of not less than fifty (50) years, (b)
          the approval relating to the change in scope of use and (c) the
          approval of the renovations of the Hangzhou Real Property and the
          construction of the Improvements. Party A agrees to use its best
          efforts to obtain the building ownership certificate as soon as
          possible and will provide a copy to Party B within 15 days after
          obtaining it.

     7.2  Party A has the right to sign this Agreement with and lease the
          Hangzhou Real Property to Party B, and Party A has completed all
          necessary formalities and obtained all documents, permits and
          approvals as necessary for the signature and performance of this
          Agreement as well as the lease of the Hangzhou Real Property hereunder
          and the construction of the Improvements, including but not being
          limited to completing the relevant registration and obtaining the
          relevant approvals, approval documents and certificates (except
          registration of this Agreement with the local government, which Party
          A agrees to use its best effort to obtain as soon as possible and will
          provide a copy to Party B within 15 days after obtaining it).

     7.3  No Hazardous Materials are present on the Hangzhou Real Property,
          except in compliance with applicable Environmental Laws. The
          operations and activities conducted by Party A, and its agents,
          employees and contractors on the Hangzhou Real Property, including,
          without limitation, the construction of the Improvements, have been
          conducted at all times during the past two years, in compliance with
          all applicable Environmental Laws and Environmental Permits. To the
          knowledge of Party A, no Action is pending or threatened under any
          Environmental Laws against or relating to the Hangzhou Real Property,
          Party A or the operations and activities conducted by Party A on the
          Hangzhou Real Property.

     7.4  Except as contemplated by this Agreement, Party A has not leased or
          subleased any portion of the Hangzhou Real Property to any other
          Person, and, to the knowledge of Party A, no other Person has any
          right to the use, occupancy or enjoyment thereof, nor has Party A
          assigned any of its interest under the Hangzhou Real Property. The
          execution, delivery and


                                       8



          performance of this Agreement will not materially adversely affect the
          continued use or possession of Hangzhou Real Property.

     7.5  As of the Commencement Date, all telephone, telecommunication, water,
          sewer, gas, steam and electrical lines and cables and surface drainage
          systems necessary for the use of the Hangzhou Real Property by Party B
          and the conduct of its business and operations thereon (collectively,
          the "Utilities") will be completed and installed on the Hangzhou Real
          Property in compliance with all applicable laws. As of the
          Commencement Date, all utility lines serving the Premises will be
          separately metered and located in the rights of way of public roadways
          bordering the Hangzhou Real Property and will be set up to serve the
          Hangzhou Real Property independently of the neighboring properties.

     7.6  Capitalized terms used but not otherwise defined in this Clause 7
          shall have the meanings set forth in the Contribution Agreement.

8.   GUARANTEES BY PARTY B

     Party B hereby guarantees to Party A during the Term of the Lease when
     Party B shall remain the lessee that it shall:

     8.1  pay rents for the Premises in accordance with this Agreement;

     8.2  not use the Premises for any illegal purpose, or beyond the purpose
          described in Clause 4.1; and

     8.3  abide by the publicly applicable laws and regulations of the PRC
          affecting the use of the Premises.

9.   CONSTRUCTION OF IMPROVEMENTS

     9.1  Party A shall construct improvements and renovations to the Hangzhou
          Real Property (the "Improvements") in accordance with (i) the plans
          and specifications (the "Plans") previously delivered to and approved
          in writing by 3Com, (ii) the estimate of the total cost of the
          Improvements (the "Cost Estimate") attached hereto as Schedule 3 and
          (iii) the terms of this Agreement.

     9.2  Party A represents that it has submitted the Plans to all appropriate
          governmental agencies and has obtained all governmental approvals
          required for such Plans and the construction of the Improvements.
          Party A shall have no right to require extra work or change orders
          with respect to the construction of the Improvements. Party B shall
          have the right to request changes to the Plans by way of written
          change orders (each, a "Change Order", and collectively, "Change
          Orders"). Provided such Change Order is reasonably acceptable to Party
          A, Party A shall prepare and submit promptly to Party B a memorandum
          setting forth the impact


                                       9



          on cost and schedule resulting from said Change Order (the "Change
          Order Memorandum of Agreement"). Party B shall, within three (3) days
          following Party B's receipt of the Change Order Memorandum of
          Agreement, either (i) execute and return the Change Order Memorandum
          of Agreement to Party A, or (ii) retract its request for the Change
          Order. Party B shall pay to Party A, upon completion of the
          Improvements, any increase in the actual total cost to construct the
          Improvements solely resulting from the Change Order, as set forth in
          the Change Order Memorandum of Agreement.

     9.3  The Improvements shall be constructed by Party A in accordance with
          all rules, regulations, codes, ordinances, statutes, and laws of any
          governmental or quasi-governmental authority and in accordance with
          the Plans as amended.

     9.4  Party B shall have the right to submit a written "punch list" to Party
          A setting forth any defective item of construction, and Party A shall
          promptly cause such items to be corrected. Party B's acceptance of the
          Premises or submission of a "punch list" shall not be deemed a waiver
          of Party B's rights to have defects in the Improvements or the
          Hangzhou Real Property repaired at no cost to Party B. Party B shall
          give notice to Party A whenever any such defect becomes reasonably
          apparent, and Party A shall repair such defect as soon as possible.

     9.5  Notwithstanding anything to the contrary in this Agreement, effective
          upon delivery of the Premises to Party B, Party A does hereby warrant
          that (i) the construction of the Improvements was performed in
          accordance with all rules, regulations, codes, statutes, ordinances,
          and laws of all governmental and quasi-governmental authorities, in
          accordance with the Plans, and in a good and workman-like manner, (ii)
          all material and equipment installed in the Hangzhou Real Property
          conformed to the Plans and was new and otherwise of good quality,
          (iii) the electrical, plumbing, and mechanical systems servicing the
          Hangzhou Real Property are in working order and in good condition, and
          (iv) the roof is in good condition and water tight.

     9.6  Party A shall pay for all costs of the design, permitting,
          development, construction and installation of the Improvements;
          provided, however, that, within thirty (30) days after the later of
          the Commencement Date and the date that Party A delivers to Party B
          paid invoices and such other documents as may be reasonably required
          by Party B to evidence the payment by Party A of the Party B Costs (as
          hereinafter defined), Party B shall reimburse Party A for (i) the
          costs and expenses of those portions of the Improvements identified on
          Schedule 4 attached hereto and (ii) any increase in the actual total
          cost to construct the Improvements solely resulting from any Change
          Order, as set forth in any Change Order Memorandum of Agreement that
          has been accepted and approved by


                                       10



          Party B (collectively, the "Party B Costs"). Notwithstanding anything
          to the contrary herein, Party B's obligation to pay the Party B Costs
          described in clause (i) of the immediately preceding sentence shall in
          no event exceed $5,250,000 (U.S.). Party B shall have the right to
          review and audit the construction documents, contractor quotations and
          contracts, change orders, invoices and applications for payment
          submitted by Party A's contractors.

     9.7  The Party B Costs shall not include and in no event shall Party B have
          any obligation to pay for the following: (i) costs for improvements
          which are not shown on or described in the Plans unless otherwise
          approved by Party B; (ii) costs incurred to remove Hazardous Materials
          (as defined in the Contribution Agreement) from the Hangzhou Real
          Property or the surrounding area; (iii) attorneys' fees incurred in
          connection with negotiation of construction contracts, and reasonable
          attorneys' fees, experts' fees and other costs in connection with
          disputes with third parties; (iv) costs incurred as a consequence of
          delay (unless the delay is caused by Party B), construction defects or
          default by a contractor; (v) costs recoverable by Party A upon account
          of warranties and insurance; (vi) restoration costs in excess of
          insurance proceeds as a consequence of casualties; (vii) penalties and
          late charges attributable to Party A's failure to pay construction
          costs, delay or default under any construction contract; (viii) costs
          to bring the Hangzhou Real Property into compliance with applicable
          laws and restrictions, including, Environmental Laws (as defined in
          the Contribution Agreement); (ix) wages, labor and overhead for
          overtime and premium time; (x)offsite management or other general
          overhead costs incurred by Party A; and (xi) construction management,
          profit and overhead charges. Party B shall be entitled to surrender
          the Improvements upon the termination of this Agreement.

     9.8  So long as such occupancy does not interfere with Party A's
          construction of the Improvements, with prior approval of Party A,
          which approval shall not be unreasonably withheld, Party B shall have
          the right to enter the Hangzhou Real Property prior to the completion
          of the Improvements for the purpose of installing its equipment, data,
          telecommunications systems and trade fixtures. Such occupancy shall be
          subject to all of the terms of this Agreement except the obligation to
          pay rent.

10.  TERMS AND CONDITIONS OF THE HANGZHOU REAL PROPERTY LEASE

     10.1 Positioning of Boundary Markers

          Prior to the official signing of this Agreement, Party A and Party B
          shall have inspected and ascertained the boundary markers at various
          boundary location points from the marks at various boundary location
          points shown on the Hangzhou Real Property and shall have confirmed
          the areas of the Hangzhou Real Property.


                                       11



     10.2 Vacant Possession of the Hangzhou Real Property

          10.2.1 Party A shall clear the Hangzhou Real Property and deliver the
               same to Party B free of inhabitants and cleared of all buildings,
               structures, foundations thereof, and other properties, articles
               and materials that Party B considers to be unnecessary. Party B
               shall not have any responsibility for or be liable to any
               inhabitant or other person claiming to have any right with
               respect to the Hangzhou Real Property or for any land use right,
               building, structure and foundation thereof, or other property,
               articles and materials remaining on the Hangzhou Real Property
               belonging to such other persons after the delivery of the
               Hangzhou Real Property by Party A to Party B.

          10.2.2 Party A shall be responsible for the payment of any
               compensation or taxes payable to the existing inhabitants or
               occupants of the Hangzhou Real Property for their relocation,
               resettlement or the loss of their buildings, structures or other
               properties, crops or trees and shall indemnify, defend, protect
               and hold harmless Party B in full amount against any expenses or
               costs (including, without limitation, legal fees and expenses)
               incurred by Party B or claims against Party B as a result of a
               breach of Party A's obligations under this clause.

     10.3 Delivery

          10.3.1 Party A represents that it expects the Commencement Date to
               occur on or about January 1, 2004 and guarantees that the
               Commencement Date shall occur by February 1, 2004 (the "Outside
               Date").

               For the avoidance of doubt, both Parties agree and confirm that
               commencing from the Commencement Date, Party B shall have the
               right to use the Premises according to the uses as provided in
               this Agreement.

          10.3.2 In addition to and without prejudice to other rights and
               remedies of Party B, in the event that Party A fails to deliver
               the Premises to Party B on or before the Outside Date as a result
               of Party A's action or omission, Party B shall have the right to
               terminate this Agreement partly or wholly, and Party A shall
               indemnify, defend, protect and hold harmless Party B against any
               loss, cost, claim or damage suffered by Party B in connection
               therewith. Upon any termination of this Agreement by Party B
               pursuant to this Clause 10.3.2, any monies previously paid by
               Party B to Party A in connection with this Agreement shall be
               returned to Party B.


                                       12



     10.4 Environmental Protection and Breach of Guarantees

          10.4.1 Party A warrants that as at the date of this Agreement:

               10.4.1.1 The Hangzhou Real Property complies with all
                    Environmental Laws and Environmental Permits; and

               10.4.1.2 Party A shall retain, remain liable for and indemnify,
                    defend, protect and hold harmless Party B from and against
                    and under no circumstances shall Party B be liable for any
                    Liabilities, obligations, judgments, penalties, fines, costs
                    or expenses (including reasonable attorneys' fees and
                    environmental consultant costs) of any kind or nature, or
                    the duty to indemnify, defend or reimburse any Person with
                    respect to: (i) the presence on or before the Commencement
                    Date of any Hazardous Material in the soil, groundwater,
                    surface water, air or building materials of the Hangzhou
                    Real Property, or known to be migrating to the Hangzhou Real
                    Property as of the Commencement Date or otherwise resulting
                    from the operations of Party A, and its agents, employees
                    and contractors, at the Hangzhou Real Property prior to the
                    Commencement Date ("Pre-Existing Contamination"); (ii) the
                    migration at any time prior to or after the Commencement
                    Date of Pre-Existing Contamination to any other real
                    property, or the soil, groundwater, surface water, air or
                    building materials thereof; (iii) the exposure of any Person
                    to Pre-Existing Contamination or to Hazardous Materials in
                    the course of or as a consequence of any activities of Party
                    A and its agents, employees and contractors on the Hangzhou
                    Real Property, without regard to whether any health effect
                    of the exposure has been manifested as of the Commencement
                    Date; (iv) the violation of any Environmental Laws relating
                    in any manner to the operations of Party A and its agents,
                    employees and contractors or the Hangzhou Real Property
                    prior to the Commencement Date; (v) any actions or
                    proceedings brought or threatened by any third party with
                    respect to any of the foregoing; and (vi) any of the
                    foregoing to the extent they continue after the Commencement
                    Date.

               10.4.1.3 Notwithstanding anything to the contrary herein, Party A
                    agrees to assist and cooperate with Party B to obtain any
                    Environmental Permits required to be obtained by Party B in
                    connection with the conduct of its business at


                                       13



                    the Premises.

               10.4.1.4 For purposes of this Clause 10.4.1, capitalized terms
                    used but not otherwise defined in this Agreement shall have
                    the meanings set forth in the Contribution Agreement.

               The above warranties shall be true and correct as of the date of
               this Agreement and the Commencement Date.

          10.4.2 Party A shall indemnify, defend, protect and hold harmless
               Party B and hold Party B harmless from and against all expenses,
               liability, loss, damages, including (but not limited to) interest
               and fines, incurred by, or claims against, Party B as a result of
               a breach of the warranties in Clauses 7 and 10.4.1.

          10.4.3 Party B shall indemnify, defend, protect and hold Party A
               harmless from and against all expenses, liability, loss, damages,
               including (but not limited to) interest and fines, incurred by or
               claims against, Party A as a result of a breach of Clause 8 of
               this Agreement.

     10.5 Rights of Way

          10.5.1 Party A shall, free of any charge over and above the rents,
               also provide or procure the provision of all necessary
               permissions and rights (including but not being limited to
               convenient and safe rights of way as necessary for the access to
               the Hangzhou Real Property and rights of access without
               obstruction) for the use, construction, operation and maintenance
               by Party B and/or its contractors/licensors/suppliers/ patentees
               of the following facilities or infrastructure outside the
               Hangzhou Real Property for the duration of the Term of the Lease:

               10.5.1.1 storm water drainage corridor and perimeter storm drain
                    channel and outfall;

               10.5.1.2 pipelines including the effluent discharge pipeline;

               10.5.1.3 access for roads and utility provisions; and

               10.5.1.4 others; ditches, tunnels, bridges etc.

     10.6 Erection of Fences, Walls etc.

          Party B shall be entitled, based on the relevant regulations, to erect
          or install in accordance with PRC laws such fences, walls, rails or
          other partitions on and within the boundaries of the Hangzhou Real
          Property as


                                       14



          it sees fit and to affix, exhibit, erect or paint any nameplate,
          signboard, placard, poster or other advertisement or boarding on such
          partitions or on the Hangzhou Real Property.

     10.7 Quiet Enjoyment

          Party A guarantees that for the duration of the Term of the Lease,
          Party B shall enjoy the undisturbed use of the Hangzhou Real Property
          and shall peaceably and quietly have, hold and enjoy the Premises for
          the Term of the Lease, without disturbance, hindrance, ejection or
          molestation by or from Party A or anyone claiming by, through or under
          Party A, and free of any encumbrance created or suffered by Party A.

11.  EXPIRATION OF THE TERM OF THE LEASE

     11.1 Party B shall return the Premises to Party A at the expiration of the
          Term of the Lease in the condition existing at the Commencement Date,
          ordinary wear and tear, casualties, condemnation or other taking or
          repossession by the PRC, Hazardous Materials (other than those
          released or emitted by Party B), alterations or other interior
          improvements which it is permitted to surrender at the termination of
          this Agreement and repairs, replacements and renewals for which Party
          A is responsible hereunder, excepted.

12.  REPAIRS AND CHANGES

     12.1 Repairs and Maintenance.

          12.1.1 In this Clause:

               12.1.1.1 "the specific problems" means:

                    (i)  fire or any other event against which Party A is
                         obliged to insure under Clause 5.3 or has insured;

                    (ii) any non-performance by Party A of its obligations under
                         subclauses 12.1.3 or 12.1.4 of this Clause or under any
                         other provision of this Agreement;

                    (iii) any lack of repair in the Hangzhou Real Property
                         arising from or caused by any defect in design
                         workmanship or materials in the construction or fitting
                         out of the Hangzhou Real Property by Party A or any
                         alterations carried out to the Hangzhou Real Property
                         by Party A or any other latent defect;

                    (iv) any repairs or work to the Hangzhou Real Property
                         required in order to comply with any requirement or


                                       15



                         recommendation of any statute, statutory instrument,
                         by-law or any public governmental or statutory
                         authority or person or by insurers.

               12.1.1.2 "Plant Machinery and Equipment" means all the pipes,
                    cabling and equipment, be it a fitting, fixture, or chattel
                    in the Hangzhou Real Property used in connection with, or
                    involved in providing the following:

                    (i)  heating, ventilation and air-conditioning;

                    (ii) plumbing, sprinkler systems, drainage, water
                         purification and sewage or surface water disposal;

                    (iii) electricity, telecommunications installations,
                         aerials, facsimile, telex, lighting, radio alarm,
                         security, fire safety, public address and intercom
                         systems, computer systems including any hardware and
                         keying;

                    (iv) filter pumps, pumping stations, and all other equipment
                         plant and machinery on the Hangzhou Real Property;

                    (v)  sanitary ware and fitted furniture;

                    (vi) elevators and escalators; and

                    (vii) all other building systems and services within the
                         Hangzhou Real Property.

          12.1.2 Party B, subject to the provisions of this Clause 12, shall
               maintain the Premises and the Plant Machinery and Equipment
               serving the Premises in the state of repair and condition
               existing at the Commencement Date excluding (i) any work of
               renewal or replacement other than renewal or replacement of
               insubstantial components of the Plant Machinery and Equipment
               which renewal or replacement would be involved in normal routine
               maintenance and servicing and (ii) any loss or damage or lack of
               repair constituting or resulting from fair wear and tear and/or
               the specific problems or any of them. Party B shall keep the
               interior of the Premises well and suitably decorated at all
               times.

          12.1.3 Notwithstanding anything to the contrary herein, Party A shall
               at its expense throughout the Term of the Lease where reasonably
               necessary renew replace and rebuild the whole or any part of the
               structure and fabric of the Hangzhou Real Property together with
               any extensions, additions, alterations and improvements thereto
               and shall further remedy any damage or defect constituting or
               resulting from the specific problems or any of them.


                                       16


          12.1.4 Party A shall at its expense where reasonably necessary renew
               or replace the whole or any part of the Plant Machinery and
               Equipment and in particular shall be obliged to effect such
               renewal or replacement at the request of Party B if the same has
               ceased to be fit for its purpose or has ceased to be of the
               standard appropriate for the proper operation of the Hangzhou
               Real Property or if maintenance and/or servicing of the same
               ceases to be reasonably economic.

          12.1.5 In clarification of the foregoing, Party A agrees that Party A
               shall perform and construct, and Party B shall have no
               responsibility to perform or construct, any repair, maintenance
               or improvements to the Hangzhou Real Property, including, without
               limitation, the Plant Machinery and Equipment (i) necessitated by
               the acts or omissions of Party A or its agents, employees or
               contractors, (ii) for which Party A has a right of reimbursement
               from others, (iii) to the structural portions of the Hangzhou
               Real Property and (iv) which could be treated as a "capital
               expenditure" under generally accepted accounting principles.

          12.1.6 Notwithstanding anything to the contrary herein, in the event
               Party A fails to perform any of its obligations under this
               Agreement and (except in case of emergency posing an immediate
               threat to persons or property, in which case no prior notice
               shall be required) fails to cure such default within thirty (30)
               days after written notice from Party B specifying the nature of
               such default where such default could reasonably be cured within
               said thirty (30) day period, or fails to commence such cure
               within said thirty (30) day period and thereafter continuously
               with due diligence prosecute such cure to completion where such
               default could not reasonably be cured within said thirty (30) day
               period, then Party B may, in addition to its other remedies, cure
               any default of Party A at Party A's cost and deduct the cost of
               such cure from rent.

     12.2 Party B shall have the right to make, from time to time, such
          alterations, additions or improvements in or to the Hangzhou Real
          Property ("Alterations") which are customarily made in the operation
          of the Hangzhou Real Property or reasonably required by Party B
          subject to the prior approval of Party A, which shall not be
          unreasonably withheld or delayed. The cost of such customary
          alterations, additions or improvements shall be paid for by Party B in
          line with the relevant laws and regulations of the PRC.
          Notwithstanding anything to the contrary herein, Party B may construct
          non-structural alterations, additions and improvements in or to the
          Hangzhou Real Property without Party A's prior approval, if the cost
          of any such project does not exceed 207,000 RMB ("Permitted
          Alterations"); provided, however, that Party A shall


                                       17



          assist and cooperate with Party B to obtain any consents or approvals
          from the relevant governmental authorities required in connection with
          any Alterations performed or requested by Party B.

     12.3 If at any time during the Term of the Lease, repairs (other than as
          required under 12.1 of this Article), changes in the Hangzhou Real
          Property, or replacements shall be required by reason of any laws,
          ordinances or regulations, or by any order of governmental authority,
          or shall be essential to the functioning of the Hangzhou Real
          Property, such repairs, changes or replacements shall be paid for by
          Party A and shall be made promptly and with as little hindrance to the
          operation of the Hangzhou Real Property as possible.

     12.4 Any extensions, alterations, additions or improvements not provided
          for in 12.1, 12.2 and 12.3 of this Article shall, if mutually agreed
          upon, be made promptly by Party A and shall be paid for by Party A in
          line with the relevant laws and regulations of the PRC.

     12.5 Notwithstanding anything to the contrary herein, in the event that the
          Hangzhou Real Property suffers damages caused by the specific
          problems, Party A shall remedy, repair and rebuild the Hangzhou Real
          Property immediately and use its best efforts to guarantee Party B's
          normal use of the Hangzhou Real Property during the course of such
          repairs. Party A shall pay all costs and expenses of and related to
          such repairs and remedies. If Party A does not perform its obligation
          to make remedies as set forth above, Party B may make the remedies
          itself and responsibility for the fees relating to the remedies shall
          be born by Party A. If, after the aforesaid serious damages occur,
          which affect Party B's ability to normally use the Premises, and Party
          A can not, or fails to, fully remedy the same within ninety (90) days
          thereafter, Party B may choose to issue written notice to Party A,
          asking for termination of this Agreement. If Party B's use of the
          Premises is interfered with due to any damage caused by the specific
          problems which is not due to Party B's negligence or willful
          misconduct, commencing five (5) days after the occurrence of such
          damage, Party B's obligation to pay rent shall be equitably abated
          based on the extent to which Party B's use of the Premises has been
          diminished. If Party B's use of the Premises is interfered with due to
          any damage caused by the specific problems which is due to Party B's
          negligence or willful misconduct, then there shall be no abatement of
          rent as aforesaid; provided, however, that, rent shall abate (or Party
          B shall receive a refund of rent already paid) in an amount equal to
          the proceeds of any rental loss insurance that Party A may be entitled
          to receive in connection with such damage. In the event Party B elects
          to terminate this Agreement, Party B's obligation to pay rent
          hereunder shall terminate as of the occurrence of such event.

     12.6 Notwithstanding anything to the contrary herein, the Parties release
          each


                                       18



          other and their respective agents, employees, successors, assignees
          and subtenants from all liability for injury to any person or damage
          to any property that is caused by or results from a risk which is
          actually insured against, which is required to be insured against
          under this Agreement, or which would normally be covered by all risk
          property insurance, without regard to the negligence or willful
          misconduct of the entity so released. All of Party A's and Party B's
          repair and indemnity obligations under this Agreement shall be subject
          to the waiver contained in this paragraph.

13.  EARLY TERMINATION

     Both Parties agree and confirm that, notwithstanding anything to the
     contrary herein, Party B may, at any time after two (2) years following the
     Commencement Date of this Agreement, partly or wholly early terminate this
     Agreement with respect to all or any portion of the Hangzhou Real Property
     based on the sole discretion of Party B without any liability (including
     that Party B shall have no further no liability to pay rents and other fees
     after such termination). The relevant rents shall be adjusted accordingly,
     and Party A shall refund to Party B any overpaid rents or charges. Party B
     shall give Party A at least six (6) month's prior written notice of
     termination. As a consideration of the early termination, Party B agrees to
     pay Party A the equivalent of one month's rent of the Premises under this
     Agreement upon Party B's delivery of notice of termination.

14.  REMOVAL OF ASSETS AND OTHERS

     14.1 Upon the expiry, or early termination of the Term of the Lease, Party
          B shall be entitled and obligated to remove all of its movable trade
          fixtures, furniture, equipment and other personal property (including
          any which Party B may have in the Hangzhou Real Property under Party
          B's control) (the "Personal Property"), and in the event of Party B's
          failure to do so, Party A shall be entitled to cause any such property
          on the Hangzhou Real Property to be removed and stored for the account
          of Party B; and Party B shall be entitled but not obligated to remove
          fixtures, fittings and other assets affixed or fastened to or upon the
          Hangzhou Real Property. Notwithstanding anything to the contrary
          herein, (i) Party B shall not be required to remove any portion of the
          Improvements constructed on the Hangzhou Real Property upon the
          expiration or early termination of this Agreement and (ii) Party A
          shall have no lien or other interest in the Personal Property.

     14.2 Party A shall allow Party B ten (10) days after the expiry or early
          termination of the Term of the Lease to carry out the procedures for
          the removal of the assets referred to in Clause 14.1 above. Party B
          shall be exempted from paying any rents or other fees during this
          period.

     14.3 Party A shall ensure that Party B and any party, shall not be claimed,


                                       19



          sued, prosecuted and penalized for using the Hangzhou Real Property
          according to the uses as provided in this Agreement and otherwise
          shall fully indemnify, defend, protect and hold harmless Party B and
          other parties for losses, damages, liabilities, claims, attorneys'
          fees, costs and expenses arising from (i) such claims, suits,
          prosecutions and penalties, (ii) the negligence or willful misconduct
          of Party A or its agents, contractors, licensees or invitees, (iii)
          Party A's violation of any law, order or regulation, (iv) a breach of
          Party A's obligations or representations under this Agreement or (v)
          Party A's failure to have the Outstanding Permits. In addition, Party
          B shall indemnify, defend, protect and hold harmless Party A from all
          losses, damages, liabilities, claims, attorneys' fees, costs and
          expenses arising from the negligence or willful misconduct of Party B
          or its agents, contractors, licensees or invitees, Party B's violation
          of any law, order or regulation, or a breach of Party B's obligations
          or representations under this Agreement.

15.  RESUMPTION OR REMOVAL OF THE HANGZHOU REAL PROPERTY

     15.1 During the subsistence of this Agreement, Party A shall not resume,
          remove or consent to remove the Hangzhou Real Property for any reason
          (including but not limited to urban planning). However, if the
          People's Government of the Municipality of Hangzhou resume, remove or
          consent to remove the Hangzhou Real Property prior to the expiration
          of the Term of the Lease for the need of public welfare in accordance
          with the relevant legal procedures under extraordinary and compelling
          circumstances, then the remaining Term of the Lease and all rent and
          other obligations of Party B hereunder shall cease as of the date of
          such termination. The aforesaid extraordinary and compelling
          circumstances shall in no circumstance include any actions or
          involvement by Party A' that initiate or would otherwise result in a
          taking of the Hangzhou Real Property.

     15.2 In the event Party A has to resume, remove or consent to remove the
          Hangzhou Real Property in accordance with Clause 15.1, Party B shall
          be entitled to remove its assets on the Hangzhou Real Property in
          accordance with Clause 14. Party A shall give Party B sufficient time
          of notice of such event. In addition, in the event that any award or
          other monetary compensation is made in connection with such event,
          Party B shall be entitled to receive a portion of such award or
          monetary compensation equal to an amount determined by multiplying the
          total amount of such award or monetary compensation by a fraction, the
          numerator of which shall be the amount of the Party B Costs and the
          denominator of which shall be the total construction cost for the
          Hangzhou Real Property, which total construction cost shall not exceed
          USD $55,000,000 for purposes of such calculation. Notwithstanding the
          foregoing, if the governmental authorities provide any assistance or


                                       20



          compensation intended for lessees of the Hangzhou Real Property, then
          Party B shall be entitled to seek and retain such assistance or
          compensation and such assistance or compensation shall not be included
          in the calculation described in the immediately previous sentence.

16.  TRANSFER

     16.1 Party B shall use the Premises only in accordance with the terms and
          condition of this Agreement. During the Term of the Lease, with prior
          consent of Party A, which consent shall not be unreasonably withheld,
          Party B may assign, relet or sublet in whole or part the Premises.
          Notwithstanding anything to the contrary herein, (i) Party B may,
          without Party A's prior written consent but with prior written notice
          to Party A, sublet the Premises or assign this Agreement to (a) an
          entity controlling, controlled by or under common control with Party
          B, (b) a successor entity related to Party B by merger, consolidation,
          nonbankruptcy reorganization, or government action, or (c) a purchaser
          of substantially all of Party B's assets located at the Premises and
          (ii) a sale or transfer of Party B's capital stock shall not require
          any consent of Party A; provided; however, that Party A agrees to
          assist and cooperate with Party B to obtain any required governmental
          consent or approval in connection with any assignment of this
          Agreement, sublease of the Premises or sale or transfer of Party B's
          capital stock or other transaction or event that may constitute an
          assignment or sublease under applicable law.

     16.2 In the event Party B assigns part or all of its rights and obligations
          under this Agreement to an unrelated third party, Party B shall obtain
          the prior written consent from Party A, which shall not be
          unreasonably withheld. Upon the occurrence of any assignment of all or
          any portion of this Agreement by Party B, whether to an unrelated
          party or otherwise, the assignee shall be responsible for the payment
          of rent or for the performance of any other obligations so assigned
          and Party B shall be released and exempted from the payment and
          performance of such rent and other obligations from and after the date
          of such assignment.

     16.3 During the lease period, Party A shall not transfer the Hangzhou Real
          Property or its rights under this Agreement or its ownership of the
          state-owned land use right with respect to the Hangzhou Real Property
          to any third party, including, without limitation, to its parent or
          any subsidiary or affiliate in whole or part unless Party A has
          complied with the terms of Article 17 hereof.

17.  RIGHT OF FIRST NEGOTIATION AND RIGHT OF FIRST REFUSAL

     17.1 Party A covenants and agrees that, if Party A at any time intends to
          sell, market for sale or otherwise transfer its interest in the
          Hangzhou Real Property during the Term of the Lease, Party A shall
          deliver to Party B a written notice (the "Right of First Negotiation
          Notice") thereof and shall negotiate in good faith exclusively with
          Party B for a period of twenty


                                       21



          (20) business days after Party B's receipt of such Right of First
          Negotiation Notice (the "Standstill Period") to sell the Hangzhou Real
          Property to Party B for a purchase price equal to the fair market
          value of the Hangzhou Real Property (excluding the value of any
          improvements or alterations to the Premises paid for by Party B) and
          upon such other reasonable terms and conditions as to which Party A
          and Party B may agree (the "Right of First Negotiation"). During the
          Standstill Period, Party A shall not solicit any other offers for the
          purchase or sale of the Hangzhou Real Property or otherwise market the
          Hangzhou Real Property or negotiate with any other potential
          transferees of the Hangzhou Real Property. If the Parties fail to
          agree on terms for the sale of the Hangzhou Real Property during the
          Standstill Period, then, subject to the Right of First Refusal below
          and any other applicable provisions of this Agreement, Party A shall
          thereafter be free to market and sell the Hangzhou Real Property;
          provided, however, that if Party A fails to sell the Hangzhou Real
          Property within one hundred eighty (180) days after the expiration of
          such Standstill Period, then Party B shall again have a Right of First
          Negotiation in the event Party A thereafter intends to or continues to
          sell, market for sale or otherwise transfer its interest in the
          Hangzhou Real Property during the Term of the Lease (including any
          extensions thereof).

     17.2 If at any time during the Term of the Lease, Party A shall solicit or
          receive an offer (an "Offer") to purchase or otherwise acquire Party
          A's interest in the Hangzhou Real Property that it is willing to
          accept, then Party B shall have a right of first refusal (the "Right
          of First Refusal") to purchase the Hangzhou Real Property on the same
          terms and conditions set forth in the Offer. Party A, promptly
          following Party A's receipt of the Offer, shall deliver written notice
          to Party B (the "Offer Notice") specifying the terms and conditions
          contained in the Offer, together with a copy of the Offer. Party B may
          exercise its Right of First Refusal by providing Party A with written
          notice of its exercise within ten (10) business days after the date of
          receipt of the Offer Notice (the "Offer Acceptance Period"); provided,
          however, that if Party B receives an Offer Notice within a Standstill
          Period, the Offer Acceptance Period shall not commence until the
          expiration of the Standstill Period. If Party B fails to exercise its
          Right of First Refusal within such Offer Acceptance Period, then Party
          B shall be deemed to have elected not to exercise its Right of First
          Refusal with respect to the particular Offer at issue. Notwithstanding
          the foregoing, if Party A negotiates with the proposed purchaser terms
          that differ from those contained in the Offer, then Party A shall be
          required to submit such different terms to Party B and Party B shall
          have an additional ten (10) business days after the receipt of such
          different terms to accept or reject such revised Offer.
          Notwithstanding anything to the contrary herein, if Party A receives
          an Offer and Party A has not delivered a Right of First Negotiation
          Notice to Party B within one


                                       22



          hundred eighty (180) days prior to Party A's receipt of such Offer,
          then Party B shall be entitled to exercise both the Right of First
          Negotiation and the Right of First Refusal; provided, however, that if
          Party B exercises the Right of First Negotiation in connection with
          any such Offer, then the Offer Acceptance Period shall not commence
          until the expiration of the Standstill Period.

     17.3 The Right of First Refusal and Right of First Negotiation shall be
          continuous during the Term of the Lease. Party B's rejection of any
          particular Offer or Right of First Negotiation Notice shall not
          relieve Party A of its obligation to again deliver an Offer Notice or
          Right of First Negotiation Notice to Party B with respect to any
          subsequent Offer received or solicited by Party A or any subsequent
          intention by Party A to sell, market for sale or otherwise transfer
          its interest in the Hangzhou Real Property. Any transfer of the
          Hangzhou Real Property or Party A's interest therein shall be subject
          to the terms and conditions of this Agreement. Notwithstanding
          anything to the contrary herein, Party A may not sell, market for sale
          or otherwise transfer its interest in less than all of the Hangzhou
          Real Property.

18.  LIABILITY FOR BREACH OF AGREEMENT

     18.1 Subject to the following provisions, in the event that a Party commits
          a breach of one or more of its obligations under this Agreement, then
          the non-breaching Party shall deliver notice to the breaching Party
          promptly upon the non-breaching Party's knowledge of such breach, and,
          upon receipt of such notice, the breaching Party shall be liable to
          pay damages to the non-breaching Party for any loss suffered by such
          non-breaching Party that was reasonably foreseeable as likely to
          result from the breach.

     18.2 If Party B fails to pay any amount payable hereunder on the date that
          such payment is due under this Agreement, Party A shall be entitled,
          for as long as the said breach continues to prevail, to issue a notice
          in writing (the "Notice of Breach") to Party B requiring Party B to
          remedy the breach within thirty (30) days of the Notice of Breach (the
          "Remedy Period"). If Party B still fails to pay the required amount
          within the Remedy Period, Party B shall pay to Party A a penalty on
          the overdue amount from the thirty-first (31st) day after the amount
          becomes overdue to the date of actual payment at the rate of five one
          hundredths of a percent (0.05%) per day.

          If Party B fails to pay the required amount within thirty (30) days
          after the expiry of the Remedy Period and such failure is not due to a
          breach by Party A of any provision of this Agreement, Party A shall
          have the right to terminate this Agreement forthwith by written notice
          to Party B. In the event that Party A chooses to terminate this
          Agreement, Party B shall not be discharged any liability for payment
          of any overdue amount and any


                                       23



          penalty assessed pursuant to the immediately preceding paragraph
          payable by Party B to Party A under this Agreement.

19.  APPLICABLE LAW

     19.1 This Agreement, including but not by way of limitation its validity,
          application, interpretation and implementation, and the merits of any
          dispute, controversy or claim arising out of or relating to this
          Agreement, shall be governed by PRC Law

     19.2 In this Agreement, PRC Law means the laws, regulations, provisions,
          measures, rules, and decrees of the PRC which are of general
          application ("PRC Law").

     19.3 The Parties have entered into this Agreement in reliance on the terms
          as set out herein and a reasonable interpretation thereof.

     19.4 If Party B in implementing this Agreement or in carrying out its
          activities would encounter any material difficulties in or as a result
          of the implementation, application or interpretation of PRC Law, Party
          A shall, at the request of Party B, render all reasonable assistance
          with respect to the same.

20.  SOVEREIGN IMMUNITY

     Each Party hereby irrevocably and unconditionally waives and agrees not to
     claim or plead:

     20.1 any right of immunity (whether characterized as sovereign immunity or
          otherwise) in respect of itself or any of its property or assets,
          including immunity from jurisdiction, immunity, from attachment prior
          to entry of judgment, immunity of attachment in aid of execution of
          judgment, and immunity from execution of judgment; or

     20.2 any defense based on the fact or allegation that it is an agency or
          instrumentality of a sovereign state;

          all in respect of any legal suit, action or proceeding arising out of
          or relating to this Agreement. The term "judgment" as used herein
          shall also refer to the recognition and enforcement of an arbitral
          award.

21.  PARTIAL INVALIDITY

     21.1 The validity, of the remaining provisions of this Agreement shall not
          be affected by a decision by a court, arbitration panel,
          administrative board or agency or other institution having competent
          jurisdiction to the effect that any provision of this Agreement is
          void, illegal, unenforceable or contrary to law or public policy.


                                       24



     21.2 If as a result of such decision any of the rights or obligations of a
          Party hereto are adversely affected, then such Party shall be entitled
          to notify the other Party in writing thereof, asking for joint
          consultations specifying the rights or obligations so affected and the
          amendment proposed. Thereupon the Parties shall promptly meet and
          negotiate in good faith to arrive at an amendment of the provision of
          this Agreement so affected, in such manner as will most closely and
          accurately reflect the intents and purposes of this Agreement so that
          such provision becomes legal, enforceable and consistent with the law
          and public

     21.3 If the Parties within a period of two (2) months from the date of
          commencement of such consultations do not agree that the Party's
          rights or obligations have been adversely affected or do not agree
          upon an appropriate amendment to this Agreement, then there shall be
          deemed to exist a dispute that may be referred to arbitration pursuant
          to Clause 23.

22.  CHANGE IN THE LAW

     22.1 Unless otherwise expressly specified in the laws and regulations of
          the PRC, any subsequent legislation or subsequent amendments to laws
          and regulations shall have no retroactive force.

     22.2 The Parties may, if they so agree in writing, make variation or
          amendments to this Agreement according to subsequent legislation or
          laws and regulations.

     22.3 If any relevant provisions of the current regulations and/or documents
          of the Zhejiang Province or Hangzhou Municipality are amended or any
          relevant new provisions are stipulated by the regulations and/or
          documents of the Zhejiang Province or Hangzhou Municipality or any act
          or decision by an authority, is taken or made which adversely affect
          Party B's rights or obligations under this Agreement, the Parties
          hereby agree that these rights and obligations can still be exercised
          and performed by Party B on the basis of this Agreement.

     22.4 Subject to Clause 22.3, Party A further agrees that if any relevant
          provisions of the current PRC law are amended or any relevant new
          provisions are stipulated by PRC law or any act or decision by an
          authority is taken or made (any such event hereinafter referred to as
          an "Event of Change") which adversely affect Party B's rights or
          obligations under this Agreement, then the Parties shall, at Party B's
          request, promptly meet and discuss in good faith and in a spirit of
          mutual understanding and cooperation to determine the action that
          should be taken by Party A to put Party B as closely or as accurately
          as possible back into the position it was in prior to the Event of
          Change. Party A shall use its best endeavors to assist Party B in this
          regard.


                                       25



     22.5 If the Parties within a period of two (2) months from the date of
          commencement of such consultations do not agree that the Parties'
          rights or obligations have been materially affected or do not agree
          upon an appropriate amendment to this Agreement, then there shall be
          deemed to exist a dispute that may be referred to arbitration pursuant
          to Clause 23.

23.  ARBITRATION

     23.1 The Parties shall endeavor to resolve any dispute, claim or
          controversy which may arise out of or in connection with this
          Agreement or the application, implementation, validity, breach or
          termination thereof (a "Dispute") through friendly consultations
          between them.

          In the event that any Dispute cannot be or has not been solved through
          consultation within a period of two (2) months from the date of
          commencement of such consultations or any Party refuses to enter into
          or persistently delays in entering into consultations, such Dispute
          shall be exclusively submitted to and finally settled by arbitration
          by the China International Economic and Trade Arbitration Commission
          ("CIETAC") in Beijing under the Arbitration Rules of CIETAC in force
          on the date of this Agreement (the "CIETAC Rules"). In the event of
          any conflict between the CIETAC Rules and the provisions of this
          Agreement, the provisions of this Agreement shall prevail to the
          extent permitted by the PRC Law and the CIETAC Rules.

     23.2 The number of arbitrators shall be three (3). Each of the Parties
          shall appoint one (1) arbitrator. The Chairman of CIETAC shall appoint
          the third arbitrator who shall be the chairman of the arbitration
          panel.

     23.3 The arbitrators shall in all respects be impartial and independent. So
          far as possible, the arbitrators shall not be nationals or former
          nationals of the PRC.

     23.4 The arbitration proceedings shall be conducted in both the Chinese and
          English languages.

     23.5 The arbitration award shall be in lieu of any other remedy, shall be
          final and binding on the Parties and shall in all respects be fully
          valid and enforceable against the Parties or their assets wherever
          they may be found.

     23.6 At any oral hearing of evidence in connection with the arbitration,
          each Party thereto or its legal counsel shall have the right to
          examine its witnesses and to cross-examine the witnesses of the
          opposing Party. No evidence of any witness shall be presented in
          written form unless the opposing Party shall have the opportunity to
          cross-examine such witness, except as the Parties to the Dispute
          otherwise agree in writing or except


                                       26



          under extraordinary circumstances where the arbitrators determine that
          the interests of justice require a different procedure.

     23.7 Without in any way limiting the foregoing and notwithstanding anything
          herein to the contrary, the Parties may, upon the prior mutual written
          consent, submit any Dispute to one expert or as the case may be three
          experts acceptable to the Parties for consideration and advice. Each
          Party agrees, in the event such submission is made, to reasonably
          consider the advice of such expert in connection with such Dispute and
          to bear the cost of obtaining such advice in equal shares. Prior to
          submitting such Dispute to such an expert or such experts, the Parties
          may agree that the advice of the expert or experts shall be binding on
          the Parties.

     23.8 This Agreement shall be performed continuously by the Parties during
          the course of arbitration except for matters in dispute and any matter
          reasonably relating thereto.

24.  FORCE MAJEURE

     24.1 Any obligation of a Party and the corresponding obligation of the
          other Party shall be temporarily suspended during the period in which
          such Party is unable to perform by reason of a Force Majeure Event,
          but only to the extent of such inability to perform.

     24.2 The Party asserting the occurrence of a Force Majeure Event shall
          before the occurrence of a Force Majeure Event if it is predicted, and
          in any case immediately after the commencement of a Force Majeure
          Event notify the other Party of the occurrence of such Event,
          specifying the estimated period and degree of suspension or disruption
          of its operations. Such notice shall be by the most rapid and
          effective means available in the circumstances.

     24.3 The Party asserting such suspension of obligations shall have the
          burden of proving that the circumstances constitute valid grounds
          therefore under this Clause.

     24.4 For the purposes of this Agreement, "Force Majeure Event" means any of
          the following objective circumstances which is unforeseeable,
          unavoidable and not able to be overcome:

          24.4.1 Act of God, fire, explosion, earthquake, thunder, storm,
               typhoon, tornado, hurricanes, landslide, flood, washout or
               epidemic;

          24.4.2 war, riot, civil war, blockade, insurrection, sabotage, acts of
               public enemies, civil disturbances;

          24.4.3 boycott, strike (including a general strike), lockout or other


                                       27



               similar industrial disturbance; and

          24.4.4 any other act or omission beyond the reasonable control of the
               Party asserting the occurrence of the Force Majeure Event.

               An order, judgment, ruling, decision or other act, or failure to
               act, of any governmental, civil or military authority shall not
               be considered a "Force Majeure Event".

25.  NOTICES

     25.1 All notices and communications required or permitted to be delivered
          hereunder shall be in writing and delivered by hand or sent by post or
          by facsimile to the other Party. Such notices or communications shall
          be deemed to have been received, unless proved otherwise:

          25.1.1 if delivered by hand, when left at the other Party's address
               against written receipt:

          25.1.2 if sent by post, ten (10) days after the date of posting; and

          25.1.3 if sent by facsimile upon receipt by the sender of the
               recipient Party's answer back code at the end of transmission.

     25.2 All notices and communications shall be delivered to the addresses or
          fax number set out in the "Schedule of Notice Address and Account
          Information" attached to the execution clause to this Agreement until
          such address or fax number is changed by written notice from one Party
          to the other Party in accordance with the procedures of this Clause.

26.  EFFECT

     This Agreement shall come into force and effect upon signature by the legal
     or authorized representatives of the Parties and affixing by them the
     official chop of the Parties.

27.  LANGUAGE

     This Agreement is written in both the Chinese and English language. Both
     language versions shall have equal effect.

28.  EXECUTION

     This Agreement is executed as of January 1, 2004.

29.  AMENDMENT AND WAIVER

     29.1 No amendment of any of the provisions of this Agreement or waiver of
          any rights or obligations of the Parties under this Agreement shall be
          valid


                                       28



          and effective unless it is in writing, refers specifically to this
          Agreement and:

          29.1.1 In the case of an amendment, is signed by both Parties: or

          29.1.2 In the case of a waiver, is signed by the Party waiving its
               right or the other Party's obligation.

     29.2 The waiver by a Party of its right to either exercise any right it has
          under this Agreement or enforce any obligation the other Party has
          under this Agreement shall not operate as a waiver such Party's right
          to exercise such right or enforce such obligation on any future
          occasion, unless the waiver is expressly stated to have such effect.

30.  FILING

     Party A shall be responsible for any registrations related to this
     Agreement from time to time throughout the Term of the Lease including the
     filing of this Agreement with applicable local authorities in charge of
     land and building registration within 15 days from the execution of the
     Agreement and including any additional filings, registrations or permits
     required from time to time to maintain this Agreement; provided, however,
     that Party B shall cooperate with Party A in connection with any such
     filing or registrations. The costs and fees for such filings and
     registrations shall be borne by the Parties in accordance with applicable
     law and custom; however, Party A shall indemnify, defend, protect and hold
     harmless Party B from any failure to file this Agreement or obtain such
     registrations.

31.  EFFECTIVENESS

     The Agreement shall be in effective upon the execution thereof by all
     Parties.

32.  ADDITIONAL IMPROVEMENTS

     Notwithstanding anything to the contrary herein, Party B shall have the
     continuing right during the Term of the Lease (as defined in Clause 3
     below) to lease from Party A any additional buildings and improvements
     constructed by Party A on the Land (the "Additional Improvements") upon the
     same terms and conditions of this Agreement, including the applicable
     rental rate hereunder. Party A agrees to notify Party B of its intent to
     construct any such Additional Improvements and to allow Party B to
     participate in the design and planning of such Additional Improvements,
     including any interior tenant finishes and improvements, which shall be
     constructed and paid for pursuant to the framework set forth in Clause 9 of
     this Agreement.

33.  THIRD PARTY BENEFICIARY

     The Parties hereby acknowledge and agree that 3Com shall be an express
     third


                                       29



     party beneficiary to this Agreement and that, so long as 3Com continues to
     be a shareholder of the JVCO (as such term is defined in the Contribution
     Agreement), this Agreement may not be amended or modified without the prior
     written consent of 3Com.

34.  COUNTERPART SIGNATURES

     This Agreement may be executed in two or more counterparts, each of which
     shall constitute an original, but all of which, taken together, shall
     constitute but one agreement.


                                       30



IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and
year first above written

HUAWEI TECHNOLOGIES CO., LTD.

[COMPANY CHOP]


By: /s/ MR. DU CHUNPING
    ---------------------------------
Name: Mr. Du Chunping
Title: Head of Facilities


HANGZHOU HUAWEI-3COM TECHNOLOGY CO., LTD.

[COMPANY CHOP]


By: /S/ DANTE YIP
    ---------------------------------
Name: Dante Yip
Title: General Counsel



               SCHEDULE OF NOTICE ADDRESS AND ACCOUNT INFORMATION

PARTY A

Legal Address:

Huawei Technologies Co., Ltd.
4th Fl., R&D Building
Huawei Industrial Base
Bantian, Longgang
Shenzhen 518129, China
Attention: Zhang Xu Ting
           General Counsel
Fax:       86-755-2878-7544

Payment Recipient Bank Account Name: Huawei Technologies Co., Ltd.
Account Opening Bank: [SPECIFIC INFORMATION OMITTED]
Account No.: [SPECIFIC INFORMATION OMITTED]

PARTY B

Legal Address:

Huawei Hangzhou Manufacture Base
East of Liuhe Road, Zhijiang Science Park
Hangzhou Hi-tech Industry Park
Hangzhou 310053, China
Attention: Chief Operating Officer & General Counsel
Fax No:    86-571-8676-0025

Bank: [SPECIFIC INFORMATION OMITTED]
Account No.: [SPECIFIC INFORMATION OMITTED]

With a copy to:

3Com Corporation
350 Campus Drive
Marlborough, MA 01752
U.S.A.
Attention: Chief Financial Officer
           General Counsel
Fax:       (1-508) 323-1111



          [Schedules of Maps and Related Build-Out Information Omitted]

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Edgar Masri, certify that:

1. I have reviewed this quarterly report on Form 10-Q of 3Com Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 10, 2006

/s/ EDGAR MASRI  

Edgar Masri 

President and Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Donald M. Halsted, III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of 3Com Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 10, 2006

/s/ DONALD M. HALSTED, III  

Donald M. Halsted, III 

Executive Vice President, Finance and Chief Financial Officer 

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Edgar Masri, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of 3Com Corporation on Form 10-Q for the fiscal quarter ended September 1, 2006 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of 3Com Corporation.

Date: October 10, 2006	By:	/s/ EDGAR MASRI
		Name:	Edgar Masri
		Title:	President and Chief Executive Officer

I, Donald M. Halsted, III, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of 3Com Corporation on Form 10-Q for the fiscal quarter ended September 1, 2006 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of 3Com Corporation.

Date: October 10, 2006	By:	/s/ Donald M. Halsted, III
		Name:	Donald M. Halsted, III
		Title:	Executive Vice President, Finance and Chief Financial Officer