10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

(Mark one)

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

For the Fiscal Year Ended May 28, 2004

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 Marlborough, Massachusetts	01752
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code    (508) 323-5000

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value; Preferred Stock Purchase Rights

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 ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

The aggregate market value of the registrant's Common Stock held by non-affiliates, based upon the closing sale price of the Common Stock on November 28, 2003, as reported by the Nasdaq National Market, was approximately $2,309,395,022. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock, based on Schedule 13G filings, have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of July 23, 2004, 393,570,128 shares of the registrant's common stock were outstanding.

The registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 22, 2004 is incorporated by reference in Part III of this Form 10-K to the extent stated herein.

3Com Corporation
Form 10-K Annual Report
For the Fiscal Year Ended May 28, 2004
Table of Contents

			Page
Part I
	Item 1.	Business	1
	Item 2.	Properties	15
	Item 3.	Legal Proceedings	15
	Item 4.	Submission of Matters to a Vote of Security Holders	15
		Executive Officers of 3Com Corporation	16
Part II
	Item 5.	Market for 3Com Corporation's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
	Item 6.	Selected Financial Data	18
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
	Item 8.	Financial Statements and Supplementary Data	49
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	83
	Item 9A.	Controls and Procedures	84
Part III
	Item 10.	Directors and Executive Officers of 3Com Corporation	85
	Item 11.	Executive Compensation	85
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	85
	Item 13.	Certain Relationships and Related Transactions	86
	Item 14.	Principal Accountant Fees and Services	86
Part IV
	Item 15.	Exhibits, Financial Statement Schedule, and Reports on Form 8-K	87
		Exhibit Index	87
		Signatures	90
		Financial Statement Schedule	91

3Com, the 3Com logo, NBX, OfficeConnect, XRN, and SuperStack are registered trademarks and IntelliJack and VCX are trademarks of 3Com Corporation or its subsidiaries. CommWorks is a registered trademark of UTStarcom, Inc. Palm is a trademark of Palm Trademark Holding Company LLC. U.S. Robotics is a registered trademark of U.S. Robotics Corporation. Other product and brand names may be trademarks or registered trademarks of their respective owners.

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This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:

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Our target customers and the demand for our products;



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Emerging trends in networking technology;



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Our distributors;



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Our product portfolio;



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Our restructuring activities and future operating expenses;



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Our future revenue growth and profitability;



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Financial position and results of operations;



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Cash position and cash requirements;



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Sales and margins;



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Sources, amounts, and concentration of revenue;



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Costs and expenses;



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Accounting estimates, including doubtful accounts, inventory, treatment of goodwill and intangible assets, equity securities and other investments, restructuring, warranty, and income taxes;



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Operations, including international operations, supply chain, quality control, and manufacturing supply, capacity, and facilities;



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Products and services (including the exiting of product lines), price of products, product lines, and product and sales channel mix;



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Relationship with customers, suppliers and strategic partners, including increased reliance on strategic partners;



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Acquisitions of companies or technologies;



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Credit facility and ability to raise financial capital;



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Real estate arrangements including the sale and sublease of properties;



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Activities of 3Com Ventures;



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Joint venture with Huawei Technologies, Ltd.



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Global economic, social, and geopolitical conditions;



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Industry trends and our response to these trends;



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Tax position and audits;



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Our restructuring and cost-reduction efforts, including workforce reductions and the effect on employees;



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Sources of competition including Huawei Technologies, Ltd.;



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Protection of intellectual property;



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Outcome and effect of current and potential future litigation;



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Research and development efforts, including our investment in new technologies;

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Future lease obligations and other commitments and liabilities;



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Outsourcing of some of our functions and dependence on contract manufacturing; and



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Our common stock, including trading price, dividends, and repurchases.

You can identify these and other forward-looking statements by the use of words such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential," "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 Business Environment and Industry Trends. All forward-looking statements included in this document are based on our assessment of information available to us at this time. We undertake no obligation to update any forward-looking statements.

PRESENTATION OF DISCONTINUED OPERATIONS—COMMWORKS

The following information relates to the continuing operations of 3Com Corporation and our consolidated subsidiaries (3Com).

On May 23, 2003, we completed the sale of our CommWorks division and transferred certain assets and liabilities to UTStarcom, Inc. pursuant to the terms of an Asset Purchase Agreement. As a result, we began reporting the CommWorks division as a discontinued operation in the fourth quarter of fiscal 2003 and restated all prior periods presented on a comparative basis.

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PART I

ITEM 1. Business

GENERAL

3Com was incorporated on June 4, 1979. A pioneer in the computer networking industry, 3Com provides data and voice networking products and solutions, as well as support and customer services, for enterprises and public sector organizations of all sizes.

Building on our historical success in the networking infrastructure market, we deliver innovative, feature-rich networking products and solutions that support the increasingly complex and demanding application environments in today's businesses. Our products and solutions enable customers to manage business-critical information efficiently, enhance the productivity of their employees, and improve the effectiveness of their business relationships. At the same time, our products and solutions are based on open technology standards, and are designed and engineered to reduce reliance on proprietary systems, complexity and total cost of ownership. Thus, by enriching the user experience through innovative technology and high performance at an affordable cost, we provide practical solutions to meet the demanding real-world needs of customers today.

We believe that the leading enterprise networking company of the future will be the one that offers innovative, feature-rich products and solutions that excel at low cost of acquisition and ownership. Also, if that company demonstrates operational excellence, maintains a low cost structure and utilizes capital efficiently, it can generate attractive financial returns and deliver significant value to its shareholders. We aspire and intend to be that leading company, and we believe that our global presence, brand identity, intellectual property portfolio and strong balance sheet provide a sound foundation for growth and success in our targeted markets.

INDUSTRY BACKGROUND

During the 1980s and 1990s, we became a worldwide leader building enterprise networks and the equipment that connects computers to networks. In 1981, International Business Machines Corporation (IBM) introduced the personal computer (PC) and in 1983, we introduced the first network interface card (NIC) that connected the IBM PC to Ethernet networks.

In the early stages of enterprise networking, computers were initially connected to form local area networks (LANs) so that people in workgroups could more easily share information, such as spreadsheets, and resources, such as printers and servers. Later, network-based applications—email, for example—were developed, and these applications ignited the demand to connect workgroups together into enterprise-wide networks. More recently, going beyond self-contained enterprise networks, the emergence and pervasiveness of the Internet has led to substantial growth of network-based communications and transactions between commercial enterprises and their customers, partners and suppliers.

The increased use of self-contained enterprise computer networks for conducting day-to-day business operations, and related factors such as the development and proliferation of collaborative business software applications and the increased connectivity requirements of mobile employees, have created demand for networks that are increasingly more available, reliable, robust and capable of prioritizing network traffic. Also, the increased use of Internet-based applications for conducting business transactions with customers, partners and suppliers has created demand for networks that are capable of delivering high performance and quality, cost effectiveness and security.

The continued evolution of networking technology is now enabling convergence of data, voice and video over Internet Protocol (IP) networks. For example, traditionally, enterprises have deployed separate data networking and telephone infrastructures, with the attendant costs to install, operate and maintain the separate infrastructures. Now, in many cases, enterprises are finding that new IP

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telephony networking technology can enable them to converge their data and voice traffic over a single infrastructure and achieve substantial cost savings—in terms of initial purchase price as well as ongoing costs of operation and maintenance—and provide new productivity-enhancing telephony features to their employees. Similarly, the evolution of networking technology is now enabling enterprise-class wireless solutions as well as enhanced security solutions for both wired and wireless environments.

MARKETS AND CUSTOMERS

We offer enterprise networking products and solutions for enterprises and public sector organizations of all sizes. We understand that networking needs vary among customers and, therefore, we offer a broad line of networking solutions to fit the business needs of customers from the very small (10 to 100 users) to the very large (from one thousand to many thousands of users), in different industries, and around the world. We do this by delivering scalability, rich functionality, high performance, reliability, and security in networking solutions that are well suited for a variety of enterprise and public sector environments.

We have a large installed base of enterprise customers, and we deliver the performance, features, and flexibility demanded by these customers to meet their changing business needs. We also have developed and maintain a strong position in the small business marketplace, which stems from our understanding of the particular needs of small businesses and our ability to provide them with networking solutions that are easy to install, configure, use and manage, as well as reliable and affordable to own and operate.

We also target major customer groups who:

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view their networks as mission-critical tools that help them to deliver mandatory and/or value-add differentiated services to their customers or constituents;



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seek convergence-ready data/voice solutions and wireless solutions that are standards-based to reduce complexity and protect their investments; and



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value networking solutions that are affordable to acquire, operate and maintain, and expand.

These customers—often larger organizations found in vertical markets such as education, government, retail banking, finance, healthcare, manufacturing and distribution—generally have strict controls over capital and expense budgets and/or procurement policies that require open bidding processes. As a result of their business requirements and procurement practices, these customers are likely to purchase from a vendor that offers:

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networking products and solutions that are innovative and feature-rich;



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networking solutions that are affordable to acquire, maintain and operate, and expand; and



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global sales, support and customer service capabilities.

We believe that we offer these capabilities. Please refer to COMPETITION below for a further discussion of these and other competitive factors.

Our Ethernet connectivity products and solutions are targeted for worldwide distribution to enterprise customers via PC Original Equipment Manufacturers (OEMs) and value-added resellers (VARs). We sell directly to PC OEMs, who integrate our connectivity products primarily into their commercial PC product offerings. Our 3Com®-branded products are sold primarily though our two-tier distribution channel, which leverages the capabilities of our distributors and resellers.

As the market for Ethernet connectivity products has evolved, there has been a transition from higher priced NICs to lower priced application specific integrated circuits (ASICs) that are installed on the PC motherboard in a LAN-on-motherboard (LOM) configuration. Looking forward, connectivity products will increasingly reside in smaller and lower priced form factors, designed in coordination with the PC

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motherboard itself. As this trend continues, this configuration will become the form factor of choice for connectivity products, significantly impacting and eroding the market for NICs. In addition to changing form factors, users are beginning to implement higher speed connectivity products. We anticipate that a growing number of connectivity products will be based on Gigabit Ethernet (GbE) line speed, or 10/100/1000 megabits per second (Mbps).

PRODUCTS AND SOLUTIONS

Our portfolio of enterprise networking products and solutions includes the following offerings:

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LAN Switches—Fixed-configuration (fixed number of ports) and modular chassis (variable port capacity) devices called "switches" that are located in the network core and also at the network edge, serving as the foundation for transporting data over the network.

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IP Telephony—Voice over Internet Protocol (VoIP) solutions that enable customers to transport their standard voice traffic, as well as new IP-based voice-related applications, over their existing data networking infrastructure.

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Network Security—Advanced security technology that consolidates various security applications into a single hardware platform, thereby simplifying management of the security solution. Also, perimeter firewalls and host-based firewalls embedded into the network to protect against external and internal security breaches.

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Routers and Gateways—Devices that direct traffic flows on a network and direct incoming and outgoing traffic over the wide area network (WAN).

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Wireless LAN—Wireless network access points and adapter cards, based on Wi-Fi technology, giving wireless users the ability to connect to the network.

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Network Jack and IntelliJack™ Switches—A four-port switch in the form of a standard wall jack that offers Ethernet connectivity with more ports without the need to install additional cable.

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Connectivity Products—Adapter cards that enable client devices (for example, PCs) and servers to connect to the network.

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Network Management Software—Network management applications that enable IT managers to proactively manage the network through the software's alerts and reporting mechanisms, as well as more advanced features.

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Customer Services—Services provided by engineers, technicians and other support specialists who design, install and integrate networks, resolve customer issues and help customers plan for future upgrades and enhancements.

LAN Switches:

Core Switching.    We offer both fixed-configuration and modular chassis core solutions in our Switch 4000 series and SuperStack® 3 4900 series, delivering highly resilient (fault tolerant) and available Layer 2 and Layer 3 Fast Ethernet (100 Mbps) and GbE solutions for the core of the enterprise network. We offer an alternative to traditional modular chassis designs through the Switch 40x0 range. For enterprises requiring higher performance and flexibility, we offer Layer 4 traffic prioritization capabilities in the SuperStack 3 Switch 4400, as well as our innovative eXpandable Resilient Networking (XRN®) technology. XRN technology enables an enterprise to build a highly available network with multiple switches managed as one entity, providing ease of management and greater fault tolerance. Also, the scalability features of our XRN technology allows us to offer a "pay as you grow" approach to building portions of LANs.

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During fiscal 2004, we introduced the 3Com Switch 7700, a high performance Layer 3 modular switch based on technology developed by Huawei Technologies, Ltd., with whom we have formed a joint venture as discussed below. This new product family, initially introduced in 4-slot, 7-slot and 8-slot versions with available 20-port interface modules, has broadened the markets and customers that we can serve to include the larger enterprise segment. The Switch 7700 enables us to compete at the network core, especially for medium-sized enterprises. Also, the Switch 7700 family has scaled up our switch offerings to create a new growth path for small-to-medium-sized businesses.

Workgroup/Desktop Switching.    At the LAN workgroup/desktop, our fixed-configuration switches aggregate edge switches, larger server farms, and/or servers and desktops, optimizing and controlling data flow. We provide a full range of fixed-configuration switches to provide performance and flexibility at the edge of the network that includes the OfficeConnect series and the SuperStack 3 Baseline, 4200, 4300, and 4400 series of products.

For small-to-mid-sized networks and branch offices that do not require network management capabilities, we offer the OfficeConnect® series and SuperStack 3 Baseline series of switches that are cost-effective without sacrificing network performance or ease of use. These products are aggressively priced, compact and offered in many different port configurations; also, they can be installed and operated by non-technical IT managers. The SuperStack 3 Switch 4200 and 4300 series offer ease of configuration and robust network management software, as well as low cost of ownership.

The SuperStack 3 Switch 4400PWR is an example of an intelligent edge switch for enterprises that are deploying new applications that require advanced functionality. This product, which combines the advanced features and high performance of the SuperStack 3 Switch 4400 family with standards-based Power-over-Ethernet (PoE) technology, can be used to pull power from the wiring closet and supply it over an Ethernet cable to any compliant device, including 3Com NBX® phones, wireless LAN access points, Network Jack, and IntelliJack products. The Switch 4400PWR and the other switches in the 4400 series also provide advanced, multi-layer packet classification designed to enhance network control, improve efficiency, and automatically identify and prioritize real-time or business-critical applications, an important feature for converged data and voice networks.

Gigabit Switching.    Going forward, we believe that a growing number of networking products and solutions will be based on GbE technology as the demand for high-speed IP-based network infrastructures increases in enterprises of all sizes and prices continue to decrease. Also, we anticipate that GbE at the desktop will become more pervasive as GbE connectivity capability becomes standard on PCs. We expect that this will create greater demand for bandwidth in the cores of networks and at the aggregation points that, in turn, will create greater demand for 10 Gigabit products. Already, we have begun to see increased interest by enterprise customers in "10 Gigabit-ready" networks, as more enterprises develop strategic plans for scaling up in the core of the network.

To address the increasing market demand for Gigabit to the desktop applications, we recently introduced our SuperStack 3 Switch 3870 family of low cost, GbE workgroup switches. These stackable switches, offered in both 24- and 48-port models, deliver scalable Gigabit capability with advanced security features, along with ease of installation and high reliability. In addition, these switches include a built-in 10 Gigabit expansion slot, which means that a customer will be able to use a 10 Gigabit uplink module to boost performance by connecting to a 10 Gigabit core. Thus, these switches provide customers with increased performance over traditional 10/100 Mbps workgroup switches, as well as a migration path for connecting to 10 GbE core technology in the future. We plan to deliver additional 10 Gigabit switching products in the future to meet evolving enterprise requirements for bandwidth and higher density network cores.

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IP Telephony:

The next phase of IP telephony deployment is taking shape in the enterprise market worldwide. Currently, many enterprise customers are focusing on leveraging their existing hybrid networks, comprising any number of legacy systems and new technology, to create applications and features that facilitate enhanced communication and efficiency as well as lower network operating costs. By deploying IP-based services in hybrid networks, enterprise customers are able to provide their legacy private branch exchange (PBX) users with many of the same enhanced telephony services that they provide to their pure IP-based telephony users. Enhanced IP-based voice mail and unified communications platforms, centrally managed from the data center, allow messaging benefits not available on legacy voice mail systems distributed at each site. Subscribers can access voice mail, fax and e-mail messages from multiple devices and locations.

As enterprises continue to transition away from their legacy networks, moving to IP-based telephony solutions can provide powerful new business benefits, including:

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reduced connectivity charges;



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reduced administration costs;



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lower costs for phone moves, adds, and changes;



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savings on teleconference costs;



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enhanced employee productivity tools;



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mobility solutions; and



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call center management.

We have been a leader in IP telephony since the introduction of our first-to-market IP-PBX system in 1998. The 3Com SuperStack 3 NBX Networked Telephony Solution is designed for central or branch offices that have from two to more than 1,000 phones per location. With fourth-generation 3Com NBX (R4.2) system software, the SuperStack 3 NBX Networked Telephony solution helps reduce costs and increase efficiencies by converging data and voice communications on a single network, simplifying third-party applications integration, and offering extensive multi-site IP connectivity options. Intuitive management tools with simple, web-based administration and user programming can further reduce costs and increase productivity. This solution is available in 61 countries, supporting several languages and dialects.

The 3Com Voice Core eXchange (VCX™) V7000 IP Telephony Solution delivers reliable, highly scaleable, comprehensive standards-based IP telephony for larger enterprises with up to thousands of users. Leveraging wired and wireless LANs and WANs, the solution offers enterprise-wide features and functionality that are intended to enhance communications and productivity while reducing costs. Designed for enterprise campus, multi-site, and multinational networks, the VCX V7000 IP Telephony Solution consists of modular software components that perform call control, signaling, application creation, and media control, independent of access medium and speed. Applications can be custom tailored to fit the demands of any enterprise, regardless of its size or number of sites. The VCX 7000 product line includes robust software application modules, facilitating an array of IP-based applications that run on off-the-shelf, high-performance servers.

Network Security:

Because of increasing security breaches and e-mail viruses, integrated enterprise security has become a business-critical imperative. Most security offerings today are based on inflexible point-products or technologies designed to address specific network threats. This specialized security appliance approach does not accommodate the need for security to be built into the fundamental fabric of an enterprise

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network. Addressing security one component at a time creates higher costs, complexity and tactical fixes that could accentuate a future vulnerability.

We believe that a more centralized and standards-based approach to network and information security controls will be more effective in protecting against both insider threats as well as external threats, and we believe that solutions that consolidate various security applications and products onto a single security hardware platform will be attractive to enterprise customers.

Through our relationship with Crossbeam Systems, Inc., we offer a new security solution that is designed to consolidate security applications on a single platform, giving IT managers greater control and functionality. Our integrated security solution, the 3Com Security Switch 6200, is a high performance and cost effective enterprise-class security switch designed to address specific vulnerabilities or blended threats. The 3Com Security Switch 6200 supports multiple applications, such as intrusion detection and prevention, antivirus, content filtering and more. The 3Com Security Switch 6200 complements our existing security portfolio by delivering the security, performance and reliability required for larger enterprise deployments, such as regional or head office networks and data centers.

Additional security solutions that we offer are as follows:

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The 3Com Embedded Firewall solutions are host-based firewalls embedded onto Peripheral Component Interconnect (PCI) cards for desktops and servers and PC cards for laptops. These tamper-resistant hardware firewalls allow IT managers to deploy a company-wide, policy-based client and server security scheme.



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The SuperStack 3 Firewall is a high-performing, highly secure perimeter firewall and Virtual Private Network (VPN) solution.



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The 3Com OfficeConnect VPN Firewall and the OfficeConnect Secure Router, a small office/home office (SOHO) router, are for smaller offices that utilize broadband connections (cable or digital subscriber line) or already have WAN service in place.

Routers and Gateways:

Our WAN routers and gateways are the devices that connect businesses and other users over long distances and enable access to the Internet. The expansion of our product portfolio to include routers represents a significant step forward in offering our customers an end-to-end networking infrastructure solution, allowing them to connect multiple sites within an organization.

We focus on open standards and interoperability in all our solutions, including routing. The Tolly Group, a third party IT consulting group, tested and certified our router products to ensure complete functionality in standards-based networks with other vendors' routing technology. This enables us to offer enterprise customers our routing solutions when existing routers are already in-place in the network.

The 3Com Router 5000 product line is a series of branch office routers for enterprise customers. The 3Com Router 3000 series of small office routers provides the secure connections that are needed in small offices and remote sites. In the future, we plan to broaden our router product line with higher-end routers for larger enterprises. For small businesses and remote offices of enterprises, we offer the OfficeConnect solutions for small office WAN connectivity.

Wireless LAN:

We deliver wireless networking products and solutions that enable users to stay connected to information while at their desks or while roaming within the enterprise. The productivity increase associated with this ease of information access is driving many businesses to deploy wireless networks.

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We offer a large portfolio of standards-based wireless LAN solutions to meet a wide variety of application-specific needs.

We believe that standards will continue to play a major role in the increasing acceptance of wireless LANs, and we expect additional momentum in the trend toward integrated quality of service (QoS) in wireless LANs that may involve 802.11e, an emerging standard, to support bandwidth-intensive wireless applications such as voice and video. Simultaneously, wireless switching, has begun to emerge as a way to integrate management of wireless access points into a switch. Security concerns related to wireless technology have been addressed in standards-based ways already, including Advanced Encryption Service (AES), Wireless Equivalent Privacy (WEP) and Wireless Protected Access (WPA). We expect interest over the next year to be focused on eliminating compatibility issues by creating enterprise wireless networks that support all three Wi-Fi standards (802.11 a/b/g), removing the need for IT managers to choose one protocol over another.

Market shifts toward integrated solutions supporting all three Wi-Fi standards and new wireless data applications have already begun. Our next generation Wi-Fi-certified wireless LAN products include tri-mode and dual-mode access points and PC card solutions. Our wireless access point products support all 802.11 a/b/g wireless standards. This means that any user within a certain distance of the access point can access the network, regardless of which standard is supported by the user's client device. The 3Com Wireless Access Point 8750, 3Com Wireless Access Point 8250 and 3Com Wireless Access Point 7250 were designed for enterprise customers as a modular, upgradeable platform for configuration flexibility and investment protection. To ensure that users have secure access, our products support stringent security standards, such as Wireless Equivalent Privacy (WEP) to protect the wireless connection to users.

Our wireless LAN PC cards take advantage of the tri-mode 802.11 a/b/g Wi-Fi support. The cards can also be used with 3Com's OfficeConnect wireless products appropriate for small business customers. Our wireless PC adapters also work with competitors' access points, as long as the products are Wi-Fi standards compliant.

Network Jack and IntelliJack Switches:

As connectivity evolves, intelligent solutions at the edge of the network are adding increased value. We offer a series of products to capture this potential. 3Com Network Jack and IntelliJack switches provide a cost-saving way to expand LAN-port connectivity in almost any network environment. The Network Jack is a four port Ethernet switch that mounts conveniently into any common wall outlet area. It increases the number of network ports available at the desktop, without the cost and inconvenience of running additional cables through walls and ceilings. These switches are targeted for small-office or enterprise businesses, government offices, dormitories, hospitals, classrooms, laboratories, public kiosks, conference rooms, and shared office spaces, and they are particularly well suited for older or hard-to-wire structures.

A key feature of the NJ100 Network Jack is the ability to utilize power from either PoE or a local power supply. This product can also forward power to connected devices that comply with PoE standards. The NJ200 Network Jack has additional features such as network management, traffic prioritization, and virtual LAN support.

Connectivity Products:

Our desktop, mobile and server connectivity products enable computers and other devices to connect to Ethernet networks, thus allowing users to access information. Utilizing proprietary ASICs, hardware and software, we are one of the world's leading companies in providing 10/100/1000 Mbps Ethernet connectivity products. A major factor in our success has been our focus on ease of use, reliability, and

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performance. Our customers have come to expect our connectivity products to install easily, operate reliably and provide excellent performance over the life of the system.

We also offer IP security NIC products that contain a dedicated processor capable of processing operations including 3DES (Data Encryption Standard) encryption. Our IP security NIC products provide an added layer of distributed, tamper-resistant protection at the client device level, protecting desktop and mobile PCs and servers against network attacks and unauthorized access—from both internal and external security threats.

Network Management Software:

3Com Network Supervisor is a powerful, yet easy-to-use management application that discovers, maps, and displays network links and IP devices, including NBX telephones and some popular third-party products. It maps devices and connections for easy monitoring of stress levels, setting thresholds and alerts, viewing network events, launching device configuration tools and generating reports in user-defined formats. The detailed reports—on inventory, ports used, and network topology—make it easier to manage a network, and the software's advanced event processing reduces the time needed to resolve network problems. Automated operations, intelligent defaults, and the ability to detect network configuration errors and offer optimization suggestions give managers at all levels of experience support for robust network supervision. The 3Com Network Supervisor is included with most 3Com managed networking devices, and an advanced package is available for increased management functionality and capacity. This well-established, self-contained application has more than 60,000 registered customers worldwide.

The 3Com Network Director and 3Com Network Administrator are high-end applications that complement the 3Com Network Supervisor application in our suite of network management software applications. These applications are important for managing a network in order to ensure proper operation, verify authorization, anticipate and correct problems, and control changes in the network.

The 3Com Network Director is a network management application that enables faster change management of sophisticated networks and scales up to managing enterprises with 5,000 nodes. The application offers network topology-aware configuration, remote monitoring management support and performance reports, and historical reporting. It is a self-contained turnkey application requiring no additional management software to operate. The 3Com Network Administrator application, designed for enterprise customers who are using Hewlett Packard Corporation's OpenView as their management infrastructure, allows management of our products in a multi-vendor network and provides easier bulk administration in larger networks.

Customer Services:

Our maintenance offerings cover all aspects of support that customers need to keep their networks operating effectively, including telephone support, hardware replacement, software updates, and dedicated on-site engineers and spare parts. Because the new higher-end switches and routers that we have introduced over the past year require higher levels of service and support than our other products, we have expanded our service capabilities worldwide in the areas of technical support, training and professional services. We have recently introduced enhanced professional services to assist and support enterprise customers with planning, design, and implementation of our new higher-end products and solutions. We have also enhanced our training offerings to channel partners, so that they are better prepared to deliver a high quality service to their end customers. Channel partners can also purchase these support and professional services for resale.

We continue to support enterprise products from the past and have retained the technical and operational expertise to do so. We plan to augment this experience base in targeted growth areas such

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as VoIP, wireless and security, and to leverage strategic partnerships to enable full global coverage and expansion for our portfolio of service offerings.

SALES, MARKETING AND DISTRIBUTION

We have a broad distribution channel, allowing both reach and depth in terms of bringing our products and solutions to our customers. Our two-tier distribution channel comprises distributors and resellers. Distributors are the first tier of the channel providing global distribution, logistics, market development and other services. Distributors generally sell to the second tier of the channel, comprising VARs and other channel partners targeting the small and mid-sized enterprise businesses. Our resellers provide additional value to the end users through application, technology, or industry-specific expertise, and product and/or service offerings that complement our networking solutions.

Although a majority of our sales of enterprise networking products are made through our two-tier distribution channel, we also work with global systems integrators, service providers and direct marketers. For example, we have a strategic partnership with Electronic Data Systems Corporation (EDS), through which EDS gives its enterprise clients and customers the choice of 3Com data and VoIP networking solutions. We also maintain a field sales organization that works alongside our partners to assist them in achieving their sales goals. Our connectivity products are sold through Original Equipment Manufacturers (OEM) relationships with PC manufacturers, as well as through the two-tier distribution channel.

In addition, our marketing efforts focus on increasing 3Com awareness, consideration, and preference with our target enterprise, small business and public sector customers to create demand for our products with our channel partners. The marketing group supports activities to attract, retain and develop partner channels to ensure we have the right channel partners to support our business and to help their businesses to be successful. These activities include advertising and direct marketing activities, sales tools, collateral and training, and promotions and incentives.

COMPETITION

We compete in the enterprise networking infrastructure and Ethernet connectivity markets providing a broad portfolio of data, voice and connectivity products. Our principal competitors today include Allied Telesyn, Inc., Avaya Inc., Cisco Systems, Inc., D-Link Systems, Inc. (D-Link), Dell Inc., Enterasys Networks, Inc., Extreme Networks, Inc., Foundry Networks, Inc., Hewlett-Packard Company, Huawei Technologies Co., Ltd., Mitel Networks Corporation, Nortel Networks Corporation, and NETGEAR, Inc.

The primary competitive factors in the enterprise networking infrastructure market are as follows:

•

Tier-One capability and presence, which we define as encompassing:

—

Ability to deliver a broad line of networking solutions, including data, voice, security, and wireless solutions;

—

Broad distribution channels;

—

Financial strength;

—

A globally recognized and preferred brand;

—

Substantial intellectual property portfolio;

—

Strong service and support capabilities; and

—

Global reach.



•

Innovative, feature-rich products and solutions, including:

—

Ability to provide converged data and voice solutions for large, multi-site environments;

—

Convergence ready data, voice and wireless solutions built on an open architecture to protect network investments that support evolutionary migrations, heterogeneous networks, and ease of integration for new applications; and

9

—

An innovative product roadmap for GbE and 10 GbE switching, IP telephony, security, and wireless technologies.



•

Networking solutions that are affordable to acquire, maintain and grow, including:

—

Ability to price lower than the competition by leveraging industry standards and an innovative, cost-efficient business model;

—

Ease of setup, network and application management through product and network management software design, including auto-configuration and auto-diagnostic capabilities; and

—

Lower total cost of ownership.

In addition to delivering the performance, availability and functionality required of today's networks, we are focused on ensuring our solutions are easy to install, use and operate, as well as affordable to own.

In the Ethernet connectivity market, companies tend to be U.S.-based silicon providers that generally focus on the corporate market segment and Taiwan-based manufacturers that generally focus on the consumer market segment. Our principal competitors in this market include Accton Technology Corporation, Broadcom Corporation, D-Link and Intel Corporation (Intel). In this market, the migration away from the use of stand-alone Ethernet connectivity products as discussed in the MARKETS AND CUSTOMERS section above is expected to continue. Intel is well positioned in the Ethernet connectivity market due to the trend towards the use of integrated silicon products. Intel has used proprietary interfaces and its strength in processors to create a strong competitive position.

Going forward, we expect to utilize our strong brand, installed base and market share positions, as well as our intellectual property portfolio, to maximize the profitability and cash flows from our Ethernet connectivity products and solutions. We are well positioned to license our strong intellectual property portfolio in connectivity, which provides the potential to realize future royalty streams with minimal overhead investment. Also, we plan to leverage our existing alliances, which provide cost effective product development and manufacturing, allowing for the effective extension of connectivity products.

RESEARCH AND DEVELOPMENT

Our research and development approach focuses internal investments upon those core activities that are necessary to deliver differentiated products and solutions and drive reductions in product costs. This is particularly true for newer technologies and emerging growth markets, where it is important to develop intellectual property and platforms for future product offerings. Areas of focus include potential high growth areas such as data and voice convergence, wireless networking, security, and 10 GbE switching. For non-core activities that may include mature technologies or widely available components, we leverage contract developers for development work and third parties for sourcing components. This two-part approach increases our ability to bring products to market in a timely and low cost manner and ensures that we are focused upon those product attributes that matter most to our customers.

Research and development investments in ASICs and software remain a high priority for us. In certain applications, ASICs can provide powerful features, higher performance and cost advantages. Along with our ASICs, our software provides differentiation across our product lines. In many cases, sophisticated software underlies the reliability and ease of use that our customers have grown to associate with our products. Examples include self-configuration capabilities in our wireless LAN access points and switches, and automatic prioritization of networked telephony traffic when our NBX and VCX telephony solutions are used in combination with our SuperStack 3 Switch 4400 product.

In fiscal year 2004, we opened a design and engineering center in Taiwan and contracted with a third-party to provide design and engineering services in India. Our design and engineering center in Taiwan focuses on our switching and wireless networking products and also works with Original Design

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Manufacturers located in Taiwan. The design and engineering center located in India focuses on high-end VoIP software development, working with our research and development groups based in the United States to provide additional VoIP offerings.

For fiscal years 2004, 2003, and 2002, our total research and development expenditures were $95.2 million, $113.1 million, and $198.0 million, respectively.

JOINT VENTURE WITH HUAWEI

Our joint venture with Huawei Technologies Ltd., a leading Chinese communications equipment provider, began operations on November 17, 2003. The Huawei-3Com Joint Venture (H-3C) is domiciled in Hong Kong, and its principal operating centers are in Hangzhou and Beijing, China. 3Com president and chief executive officer, Bruce Claflin, is chairman of H-3C's board of directors and Ren Zhengfei, president and chief executive officer of Huawei, is chief executive officer of H-3C.

At the time of H-3C's formation, Huawei contributed its enterprise networking business assets valued at $178.2 million in exchange for a 51 percent ownership interest; the contributed assets consisted of LAN switches and routers; engineering, sales, and marketing resources; and licenses to related intellectual property. We contributed cash of $160.0 million, assets related to our operations in China and Japan with a carrying value of $0.1 million, and licenses related to certain intellectual property in exchange for a 49 percent ownership interest. On the second anniversary date of the formation of H-3C, provided we hold at least 49 percent of the net outstanding shares, we will have the one-time option to purchase from Huawei a number of shares equal to two percent of the net outstanding shares. The aggregate purchase price of these shares will be subject to negotiation between Huawei and us at the time of such purchase, but will not be greater than $28 million. On the third anniversary of the formation of H-3C, each shareholder will have the right to purchase all of the equity equivalents held by the other shareholder and its affiliates through a bid process.

We expect H-3C to provide three key benefits to our business—an expanded product line, access to low cost and highly effective engineering talent, and a significant presence in the China and Japan markets. These three benefits are discussed in greater detail below:

•

Expanded Product Line.  H-3C's product line complements and enhances our position in fixed-configuration products by providing modular Layer 2 and 3, 10/100/1000 Mbps switches. H-3C also provides a full line of enterprise routers. We currently market several H-3C product lines globally, including the 3Com Router Series 5000 and 3000 for medium and small enterprises, as well as the 3Com Switch 7700 for medium-to-large core enterprise applications. These products offer a rich feature set meeting a wide variety of wiring closet, core networking, and wide-area networking needs.



•

Access to Low Cost and Highly Effective Engineering Talent.  H-3C's highly skilled and low-cost engineering team provides a foundation for a lower total cost of ownership for H-3C solutions. We also plan to leverage H-3C's lower cost engineering talent for new, feature rich product development.



•

Significant Presence in the China and Japan Markets.  3Com's and Huawei's geographic footprints are highly complementary, which reduces Huawei's and 3Com's costs of expansion into new markets through H-3C. We have a strong presence in the Americas and Europe, while Huawei has an established sales network, strong brand name and excellent reputation in China and Japan. We provide our resellers with access to the full line of H-3C networking products, which are sold under the 3Com brand everywhere in the world except China and Japan, where the H-3C products are sold under H-3C's brand. In China and Japan, H-3C will continue to sell its own products as well as 3Com and Huawei branded products.

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SIGNIFICANT CUSTOMERS AND PRODUCTS

For the fiscal year ended May 28, 2004, Ingram Micro, Inc. and Tech Data Corp. accounted for 20 percent and 13 percent of our total sales, respectively. For the fiscal year ended May 30, 2003, Ingram Micro, Inc. and Tech Data Corp. accounted for 21 percent and 12 percent of our total sales, respectively. For the fiscal year ended May 31, 2002, Ingram Micro accounted for 18 percent of our total sales, and Tech Data accounted for ten percent of our total sales.

Although we operate as a single, integrated business, certain product groups accounted for a significant portion of our sales. For the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, our fixed-configuration 10/100 Mbps switching products accounted for 48%, 47%, and 42% of sales, respectively. For the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, our fixed-configuration Gigabit switching products accounted for 12%, 8%, and 5% of sales, respectively. For the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, our wired LAN connectivity products accounted for 16%, 26%, and 36% of sales, respectively.

INTERNATIONAL OPERATIONS

We market our products in all significant global markets, primarily through subsidiaries, sales offices, joint ventures, and relationships with OEMs and distributors with local presence. Outside the U.S., we have several research and development groups, with the most significant group being in the U.K. We maintain sales offices in 41 countries outside the U.S.

Although the U.S. represents our largest geographic marketplace, approximately 71 percent of 3Com's net sales in fiscal 2004 came from sales to customers outside the U.S. Gross margin on sales of our products in foreign countries, and sales of product that include components obtained from foreign suppliers, can be adversely affected by international trade regulations, including tariffs and antidumping duties, and by fluctuations in foreign currency exchange rates. Information concerning our sales by geographic region can be found in Note 18 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

BACKLOG

From time to time, based upon our forecasts of worldwide customer demand, we procure inventories from our contract manufacturers in advance of receiving firm product orders from our customers. Generally, orders are placed by our customers on an as-needed basis and may be canceled or rescheduled by the customers without significant penalty. Accordingly, backlog as of any particular date is not necessarily indicative of our future sales. As of May 28, 2004 and May 30, 2003, we had backlog of approximately $23.2 million and $32.1 million, respectively. We do not have backlog orders that cannot be filled within the next fiscal year.

MANUFACTURING

During fiscal 2004, we ceased in-house manufacturing of our products. We now use independent contract manufacturers to produce all of our products. We have contract manufacturing arrangements with several companies, of which Flextronics International and Jabil Circuits were the two most significant during fiscal 2004. Based on current and forecasted demand, our contract manufacturers are expected to have an adequate supply of components required in the production of our products.

INTELLECTUAL PROPERTY AND RELATED MATTERS

Through our research and development activities over many years, we have developed a substantial portfolio of patents covering a wide variety of networking technologies. This ownership of core networking technologies creates opportunities to leverage our engineering investments and develop more integrated, powerful, and innovative networking solutions for customers.

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We rely on U.S. and foreign patents, copyrights, trademarks, and trade secrets to establish and maintain proprietary rights in our technology and products. We have an active program to file applications for and obtain patents in the U.S. and in selected foreign countries where potential markets for our products exist. Our general policy has been to seek to patent those patentable inventions that we expect to incorporate in our products or that we expect will be valuable otherwise. As of May 28, 2004, we had 1,135 U.S. issued patents (including 1,102 utility patents and 33 design patents) and 362 foreign issued patents. Numerous patent applications that relate to our research and development activities are currently pending in the U.S. and other countries. We also have patent cross license agreements with other companies. During fiscal 2004, we continued our patent licensing program, whereby we identify potential sources of licensing revenue, including investigation of situations in which we believe that other companies may be improperly using our patented technology. We have entered into a number of licensing agreements, are in litigation against two other companies with respect to infringement of 3Com patents, and have identified a number of other companies that we believe require a license under specified 3Com patents.

We have registered 65 trademarks in the U.S. and have registered 101 trademarks in one or more of 61 foreign countries, for a total of 867 worldwide registrations. Numerous applications for registration of domestic and foreign trademarks are currently pending.

EMPLOYEES

As of May 28, 2004, we had approximately 1,925 regular employees, of whom approximately 392 were employed in research and development, 741 in sales and marketing, 382 in manufacturing and customer services, and 410 in administration. Our employees are not represented by a labor organization, and we consider our employee relations to be satisfactory.

SALE OF COMMWORKS

On March 4, 2003, we entered into an agreement (Asset Purchase Agreement) to sell selected assets and liabilities of our CommWorks division to UTStarcom in exchange for $100 million in cash, subject to certain closing adjustments. On May 23, 2003, we completed the sale pursuant to the terms of the Asset Purchase Agreement.

Prior to the sale, the CommWorks division was engaged in developing and deploying carrier-class, IP-based multi-service access and service creation platforms for telecommunications service providers.

RESTRUCTURING CHARGES

In recent fiscal years, we have undertaken several initiatives involving significant changes in our business strategy and cost structure. Restructuring charges related to these initiatives in fiscal 2004, 2003, and 2002 were $159.7 million, $184.9 million, and $109.0 million, respectively. These initiatives and charges are discussed further in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7 of this Annual Report on Form 10-K.

AVAILABLE INFORMATION

We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC electronically. The public may read or copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

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A free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports may be obtained as soon as reasonably practicable after we file such reports with the SEC by visiting our corporate internet website at http://www.3Com.com, or by contacting our Investor Relations Department by calling (508) 323-1198 or sending an e-mail message to investor_relations@3Com.com.

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ITEM 2. Properties

We operate in a number of locations worldwide. The following table summarizes our significant real estate properties as of May 28, 2004:

Location	Sq. Ft.	Owned/Leased	Primary Use
United States—Boston Area	168,000	Leased	Corporate headquarters, office, research and development, and customer service.
United States—San Francisco Bay Area	120,000	Owned	Office, research and development, and customer service.
United States—San Francisco Bay Area	132,000	Leased	Subleased to third-party tenant.
United States—Chicago Area	43,000	Leased	Office, research and development, and customer service.
United States—Salt Lake Area	78,000	Leased	Office and research and development.
Europe—Ireland	468,000	Owned	Property is vacant and held for sale.
Europe—U.K.	230,000	Owned	Office, research and development and customer service. A portion of the property is vacant and held for sale.
Europe—U.K.	45,000	Leased	Property is vacant.

As part of our initiatives to maximize our efficiency, we are consolidating our operations wherever feasible and are actively engaged in efforts to dispose of excess facilities, including facilities located in Dublin, Ireland and Hemel Hempstead, U.K. reflected in the table above. As of May 28, 2004, we lease and sublease to third-party tenants approximately 132,000 square feet of office space in our Mountain View, California leased facility and approximately 60,000 square feet in various other facilities throughout North America and Europe. These agreements expire at various times between 2004 and 2015.

During fiscal 2004, we concluded several significant real estate sales as described below:

•

During the first quarter of fiscal 2004, we sold our 490,000 square foot facility in Rolling Meadows, Illinois. The existing tenant lease associated with this facility was assigned to the new owner as of the closing date of the sale. Also, at the time of the sale, we leased back 43,000 square feet of office space from the new owner.



•

During the second quarter of fiscal 2004, we sold six buildings comprising 876,000 square feet in Santa Clara, California. The existing tenant lease associated with this facility was assigned to the new owner as of the closing date of the sale.



•

During the fourth quarter of fiscal 2004, we sold three buildings comprising 306,000 square feet and undeveloped land in Santa Clara, California.

See Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information related to significant property and equipment transactions.

ITEM 3. Legal Proceedings

The material set forth in Note 20 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K is incorporated herein by reference.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

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Executive Officers of 3Com Corporation

The following table lists the names, ages and positions held by all executive officers of 3Com as of July 23, 2004. There are no family relationships between any director or executive officer and any other director or executive officer of 3Com. Executive officers serve at the discretion of the Board of Directors.

Name	Age	Position
Bruce L. Claflin	52	President and Chief Executive Officer
Dennis Connors	50	Executive Vice President, Worldwide Operations
Nick V. Ganio	45	Executive Vice President, Worldwide Sales
Mark Slaven	47	Executive Vice President, Finance and Chief Financial Officer
Susan H. Bowman	51	Senior Vice President, Human Resources
Neal D. Goldman	53	Senior Vice President, Legal, General Counsel, and Secretary
Anik Bose	41	Vice President, Corporate Business Development

BRUCE L. CLAFLIN has been 3Com's President and Chief Executive Officer since January 2001 and President and Chief Operating Officer since August 1998. Prior to joining 3Com, Mr. Claflin worked for Digital Equipment Corporation (DEC) from October 1995 to June 1998. From July 1997 to June 1998, he was Senior Vice President and General Manager, Sales and Marketing at DEC and prior to that he served as Vice President and General Manager of DEC's Personal Computer Business Unit from October 1995 to June 1997. From April 1973 to October 1995, Mr. Claflin held a number of senior management and executive positions at IBM. Mr. Claflin serves as a director of Advanced Micro Devices, Inc.

DENNIS CONNORS has been 3Com's Executive Vice President, Worldwide Operations since April 2003. Prior to that time, Mr. Connors was President of CommWorks Corporation from June 2002 to May 2003, President of 3Com Business Connectivity Company from June 2001 to June 2002, Senior Vice President of e-Commerce Group from June 2000 to June 2001, and Senior Vice President of Global Customer Service from November 1999 to June 2000. Prior to joining 3Com, Mr. Connors was the Executive Vice President and General Manager of Business Operations and Services for Ericsson, Inc. Mr. Connors also served as Ericsson's Vice President and Global Business Manager for WorldCom in 1997. During his tenure in Private Radio Systems in the Ericsson/General Electric joint venture, Mr. Connors was the Vice President of Global Product Development and Operations from 1995 through 1997, and Vice President of Marketing and Research and Development from 1993 to 1995.

NICK V. GANIO has been 3Com's Executive Vice President, Worldwide Sales since July 2003. Before joining 3Com, Mr. Ganio was President of Bell Microproducts' Enterprise Division from March 2002 to May 2003. Prior to being named to that position, Mr. Ganio was Group Vice President of Worldwide Sales, Marketing and Services at Computer Network Technology (CNT) from March 1998 to March 2002. Prior to CNT, Mr. Ganio was employed at DEC from 1987 to 1998. Mr. Ganio was Vice President and General Manager of DEC's Networking Business Unit for the Americas. Mr. Ganio also worked in the office of the President at DEC and subsequently managed DEC's operations in Japan. Mr. Ganio also held positions in sales, marketing, and operations since beginning his career at IBM in 1981 through 1987.

MARK SLAVEN has been 3Com's Executive Vice President, Finance and Chief Financial Officer since March 2003 and 3Com's Senior Vice President, Finance and Chief Financial Officer from June 2002 to

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March 2003. Prior to his appointment to this role, Mr. Slaven served as Vice President of Treasury, Tax, Trade and Investor Relations. Prior to that time, Mr. Slaven had been Vice President and Treasurer since August 2000. Prior to that, Mr. Slaven was Vice President of Finance for Supply Chain Operations since joining the company through 3Com's acquisition of U.S. Robotics in June 1997, where he was Vice President of Finance for U.S. Robotics' manufacturing division. Before joining U.S. Robotics, Mr. Slaven was Chief Financial Officer of the personal printer division at Lexmark International Inc. Mr. Slaven serves as a director of Terayon Communication Systems, Inc.

SUSAN H. BOWMAN has been 3Com's Senior Vice President, Human Resources since September 2003. Prior to joining 3Com, Ms. Bowman was the Executive Vice President, Human Resources for Genuity, Inc., an Internet services company, from July 2000 to April 2003. Before joining Genuity, Ms. Bowman served as Vice President, Human Resources at GTE Internetworking, now Verizon, from September 1997 to July 2000.

NEAL D. GOLDMAN has been 3Com's Senior Vice President, Legal, General Counsel and Secretary since September 2003. Prior to joining 3Com, Mr. Goldman worked for Polaroid Corporation from August 1997 to September 2003. From March 2003 to September 2003, he was Executive Vice President, Business Development and Chief Legal Officer of Polaroid and prior to that Mr. Goldman served as Executive Vice President, Chief Administrative and Legal Officer from July 2001 to June 2002. From August 1997 to July 2001, Mr. Goldman held a number of senior management and executive positions at Polaroid, including Senior Vice President, General Counsel and Secretary and Deputy General Counsel. Before joining Polaroid, Mr. Goldman served as Vice President, General Counsel and Secretary at Nets, Inc. from March 1996 to June 1997. Before joining Nets, Inc., Mr. Goldman held a number of positions with Lotus Development Corporation, including Vice President and General Counsel from November 1995 to February 1996 and Deputy General Counsel and Assistant Secretary from April 1990 to November 1995.

ANIK BOSE has been 3Com's Vice President, Corporate Business Development since July 2000. Prior to joining 3Com, Mr. Bose was a partner at Deloitte Consulting in the firm's High Tech Strategy Practice from November 1999 to June 2000. From October 1995 to November 1999, he was Vice President, Business Development at Monsanto Company. Before joining Monsanto, Mr. Bose was a Principal at Gemini Consulting from August 1991 to September 1995.

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PART II

ITEM 5. Market for 3Com Corporation's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Fiscal 2004	High		Low		Fiscal 2003	High		Low
First Quarter	$	5.77	$	4.61	First Quarter	$	5.38	$	4.03
Second Quarter		8.00		5.57	Second Quarter		5.20		3.87
Third Quarter		9.09		6.87	Third Quarter		5.22		4.15
Fourth Quarter		7.46		5.82	Fourth Quarter		5.73		4.08

Our common stock has been traded on the Nasdaq National Market under the symbol COMS since our initial public offering on March 21, 1984. The preceding table sets forth the high and low closing sale prices as reported on the Nasdaq National Market during the last two fiscal years. As of July 23, 2004, we had approximately 5,160 stockholders of record. We have not paid, and do not anticipate that we will pay, cash dividends on our common stock.

During the fourth quarter of fiscal 2003, our Board of Directors approved a new stock repurchase program that authorizes expenditures of up to $100.0 million and is effective for a two-year period through March 2005. We did not repurchase shares of our common stock pursuant to this authorization in fiscal 2003 or 2004. However, we began repurchasing shares of our common stock pursuant to this authorization in the first quarter of fiscal 2005, and we may use cash to repurchase additional shares in future periods. In addition, upon vesting of restricted stock awards, employees are permitted to return to us a portion of the newly vested shares to satisfy the tax withholding obligations that arise in connection with such vesting.

The following table summarizes repurchases of our stock, including shares returned to satisfy tax withholding obligations, in the quarter ended May 28, 2004:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
February 28, 2004 through March 27, 2004	1,984	$	6.85	—	$	100,000,000
March 28, 2004 through April 27, 2004	1,289		7.01	—	$	100,000,000
April 28, 2004 through May 28, 2004	—		—	—	$	100,000,000
Total	3,273	$	6.91	—	$	100,000,000

(1)

Our current stock repurchase program was announced on March 19, 2003 and permits expenditures of up to $100.0 million through March 2005. We did not repurchase shares of our common stock pursuant to this authorization in fiscal 2003 or 2004. However, we began repurchasing shares of our common stock pursuant to this authorization in the first quarter of fiscal 2005, and we may use cash to repurchase additional shares in future periods.

ITEM 6. Selected Financial Data

The following selected financial information has been derived from the audited consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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On May 23, 2003, we completed the sale of our CommWorks division. Also, on July 27, 2000, we distributed the Palm, Inc. common stock we owned to our stockholders in the form of a stock dividend. Accordingly, the information set forth in the table below has been restated to reflect the CommWorks division and Palm, Inc. as discontinued operations.

		Fiscal Years Ended
		May 28, 2004			May 30, 2003			May 31, 2002			June 1, 2001			June 2, 2000
		(In thousands, except per share and employee data)
Sales		$	698,884		$	932,866		$	1,258,969		$	2,421,165		$	3,756,175
Net income (loss)			(349,263	)		(283,754	)		(595,950	)		(965,376	)		674,303
Income (loss) from continuing operations before cumulative effect of accounting change			(346,863	)		(230,093	)		(453,652	)		(790,166	)		559,458
Income (loss) per share from continuing operations before cumulative effect of accounting change
	Basic	$	(0.92	)	$	(0.64	)	$	(1.30	)	$	(2.29	)	$	1.61
	Diluted		(0.92	)		(0.64	)		(1.30	)		(2.29	)		1.56
Number of employees			1,900			3,300			3,500			6,600			9,100

The provisions of Statement of Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," are applicable to disposals occurring after our adoption of SFAS 144, effective June 1, 2002. In accordance with such provisions, the table below has not been restated to reflect the CommWorks division as a discontinued operation.

	Balances as of
	May 28, 2004			May 30, 2003			May 31, 2002		June 1, 2001		June 2, 2000
	(In thousands)
Total assets	$	1,820,818		$	2,062,360		$	2,526,792	$	3,456,872	$	6,617,774
Assets, net of discontinued operations of Palm		1,820,818			2,062,360			2,526,792		3,456,872		5,559,537
Working capital, net of discontinued operations of Palm(1)		1,213,108			1,314,012			1,159,822		1,397,977		3,181,420
Long-term obligations		15,135			4,595			73,365		10,536		141,285
Retained earnings (deficit)		(755,244	)		(405,981	)		35,814		771,639		1,982,079
Stockholders' equity		1,499,114			1,718,597			1,950,205		2,505,421		4,043,064

(1)

Working capital is defined as total current assets less total current liabilities.

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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of Part II of this Annual Report on Form 10-K.

On May 23, 2003, 3Com completed the sale of the CommWorks division and transferred certain assets and liabilities to UTStarcom, Inc. pursuant to the terms of the Asset Purchase Agreement. As a result of the sale, 3Com reported the CommWorks division as a discontinued operation beginning in the fourth quarter of fiscal 2003 and restated all prior periods presented on a comparative basis. Accordingly, the Consolidated Financial Statements reflect the CommWorks division as a discontined operation for all periods presented. Unless otherwise indicated, the following discussion relates to our continuing operations.

BUSINESS OVERVIEW

3Com provides innovative, practical and high-value data and voice networking products, services and solutions for enterprises of all sizes and public sector organizations. We are a company with a global presence, strong brand identity, large intellectual property portfolio and strong balance sheet. We believe that our relationships with strategic partners, broad product portfolio and significant distribution channels provide us with strong foundation for future growth.

We generally sell our products through a two-tier distribution channel comprised of distributors and resellers. Distributors are the first tier of the channel providing global distribution, logistics, market development and other services. Distributors generally sell to the second tier of the channel, comprising value added resellers (VARs) and other channel partners targeting the small and mid-sized enterprise businesses. Although a majority of our product sales are made through our two-tier distribution channel, we also work closely with systems integrators, major telecom service providers, and direct marketers. We also maintain a field sales organization that works alongside our channel partners to assist them in achieving their sales goals.

A substantial portion of our sales has been derived from a limited number of distributors, the largest of which are Ingram Micro Inc. and Tech Data Corporation. We expect that these distributors will continue to represent a significant percentage of our sales for the foreseeable future. The table below sets forth the percentage of sales derived from these major distributors for the years ended May 28, 2004, May 30, 2003 and May 31, 2002, respectively.

	Fiscal Years Ended
	May 28, 2004		May 30, 2003		May 31, 2002
Ingram Micro, Inc.	20	%	21	%	18	%
Tech Data Corporation	13		12		10
Total	33	%	33	%	28	%

We have undergone significant changes in recent years, including:

•

exiting product lines that were not expected to yield a satisfactory return on investment;



•

significant headcount reductions;



•

outsourcing of information technology (IT) and other functions;



•

outsourcing of all manufacturing activity;



•

selling excess facilities; and



•

forming the Huawei-3Com Joint Venture (H-3C).

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

Significant Events

In the fourth quarter of fiscal 2001, we undertook several broad initiatives in an attempt to return 3Com to profitability. These initiatives included exiting certain product lines that were not expected to yield a satisfactory return on investment. During fiscal 2002, we continued to experience declining revenue. In response to this decline, we undertook additional measures to further reduce costs, including headcount reductions, long term asset retirements, and outsourcing manufacturing operations.

In fiscal 2003, as our revenue and overall financial performance continued to decline, we undertook several additional broad initiatives to achieve further cost savings. The first of these actions included the integration of certain central functions of our business units in order to achieve cost savings. This integration did not substantially change our management and operating structure. Other actions pursued in fiscal 2003 were headcount reductions, outsourcing of certain IT functions, and continuing efforts to consolidate and sell excess facilities. All of these actions generated restructuring charges, but also resulted in reductions of sales and marketing, research and development, and general and administrative expenses.

During fiscal 2004, we undertook a number of actions, affecting both revenue and expenses, with the objective of restoring 3Com to profitability. We expanded our product portfolio to include more Layer 3-plus and higher-end products, additional modular switches and routers, and a higher-end Voice-over-Internet Protocol (VoIP) offering. We believe that such an expanded product portfolio will allow us to deliver converged data and voice networking solutions not only to our traditional customers but also to larger and multi-site enterprises. We consolidated our company's operations into a single integrated business organized along functional lines, and we relocated headquarters and key management positions and functions from our Santa Clara, California location to our Marlborough, Massachusetts location as a more effective way to run this simplified business model. Also, we consolidated our operations into fewer facilities, disposed of excess real estate, relocated transaction processing activities to lower cost locations, outsourced our Dublin, Ireland manufacturing operations to our contract manufacturers, and upgraded and modified our IT infrastructure and systems to more cost-effective alternatives. In addition, during fiscal 2004, we reduced our overall workforce by approximately forty percent.

On November 17, 2003, we formed and began operations of our joint venture, Huawei-3Com (H-3C), which is domiciled in Hong Kong and has its principal operating centers in Hangzhou and Beijing, China. We contributed $160 million in cash, assets related to our operations in China and Japan, and licenses to related intellectual property in exchange for 49 percent ownership interest of the joint venture. We expect this venture to provide three key benefits to 3Com—an expanded product line, access to low cost and highly effective engineering talent, and a significant presence in the China and Japan markets.

Summary of Fiscal 2004 Financial Performance

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Our revenue for fiscal 2004 was $698.9 million, a 25% decrease from fiscal 2003 revenue of $932.9 million. Revenue from our enterprise networking products for fiscal 2004 was $585.9 million, a 15% decrease from fiscal 2003 revenue of $690.2 million.



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Our gross margin decreased from 45.2% in fiscal 2003 to 34.8% in fiscal 2004.



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Our operating expenses in fiscal 2004 were $580.9 million, compared to $646.4 million in fiscal 2003, a net decrease of $65.5 million. Operating expenses in fiscal 2004 and 2003 included restructuring charges of $159.7 million and $184.9 million, respectively.

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•

Our net loss in fiscal 2004 was $349.3 million compared to a net loss in fiscal 2003 of $283.8 million.



•

Our balance sheet remains strong with cash and short-term investment balances at the end of fiscal 2004 of $1,383.4 million, compared to cash and short-term investment balances of $1,484.6 million at the end of fiscal 2003.

Business Environment and Future Trends

We believe that the actions that we have taken are consistent with our goals of increasing revenue and reducing expenses in order to achieve profitability over the longer term. However, we expect that some of the steps that we are taking to improve our business over the longer term will result in ongoing downward pressure on profitability in the near term. For example, as we complete the transition of our business in China and Japan to H-3C, there could be continuing adverse impacts on volumes, as well as lower average selling prices since the pricing of products sold to H-3C under an original equipment manufacturer (OEM) agreement is lower than the pricing of products sold through our distribution channels.

However, we believe that we have begun to see the positive impacts of some of our fiscal 2004 growth-related and restructuring initiatives. In the fourth quarter of fiscal 2004, total revenue and revenue from enterprise networking products increased five percent and 22 percent, respectively, compared to the same period of fiscal year 2003. Also, as a result of the aforementioned fiscal 2004 restructuring actions and related charges, and based on our current projections for revenue, costs and expenses, which are subject to significant uncertainty, we expect that operating expenses will be reduced by approximately $4 million per quarter, from the amount reported for the fourth quarter of fiscal 2004. Approximately $3 million of this reduction is expected to be realized during the first quarter of fiscal 2005; the full reduction is expected to be realized in the fourth quarter of fiscal 2005.

During fiscal 2005, we continue to face significant challenges with respect to revenue growth, gross margin and profitability. Future revenue growth for our company depends on increased sales of our enterprise networking products, and our largest growth opportunity continues to be linked to the expansion of our product lines targeting mid to large enterprise customers. These product lines include modular switching and routing products sourced from H-3C, as well as products such as VoIP, wireless and security. In order to achieve our revenue goals for fiscal 2005, it is imperative that we continue to enhance the features and capabilities of these products in a timely manner in order to expand our distribution channels and compete more effectively in the market. Also, we expect a very competitive, difficult pricing environment for the foreseeable future; this will exert downward pressure on our revenue, gross margin and profitability. Based on our current projections for revenue and gross margin, which are subject to significant uncertainty, we believe that we must hold total operating expenses including restructuring charges to an amount less than $100 million per quarter in order to achieve profitability. Our total operating expenses including restructuring charges were approximately $99.6 million in the fourth quarter of fiscal 2004.

Our planned actions for fiscal 2005 are based on certain assumptions concerning the overall economic outlook for the markets in which we operate, the expected demand for enterprise networking 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, revenue, 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.

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CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are outlined in Note 2 to the Consolidated Financial Statements, which appear in Part II, Item 8 of this Annual Report on Form 10-K. Some of those accounting policies require us to make estimates and assumptions that affect the amounts reported by us. The following items require the most significant judgment and often involve complex estimation:

Revenue recognition:    We recognize a sale when the product has been delivered and risk of loss has passed to the customer, collection of the resulting receivable is reasonably assured, persuasive evidence of an arrangement exists, and the fee is fixed or determinable. The assessment of whether the fee is fixed or determinable considers whether a significant portion of the fee is due after our normal payment terms. If we determine that the fee is not fixed or determinable, we recognize revenue at the time the fee becomes due, provided that all other revenue recognition criteria have been met. Also, sales arrangements may contain customer-specific acceptance requirements for both products and services. In such cases, revenue is deferred at the time of delivery of the product or service and is recognized upon receipt of customer acceptance.

For arrangements that involve multiple elements, such as sales of products that include maintenance or installation services, revenue is allocated to each respective element based on its relative fair value and recognized when revenue recognition criteria for each element have been met. We use the residual method to recognize revenue when an arrangement includes one or more elements to be delivered at a future date and vendor-specific objective evidence of the fair value of all the undelivered elements exists. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. If evidence of fair value of one or more undelivered elements does not exist, revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established.

We assess collectibility based on a number of factors, including general economic and market conditions, past transaction history with the customer, and the creditworthiness of the customer. If we determine that collection of the fee is not reasonably assured, then we defer the fee and recognize revenue upon receipt of payment. We do not typically request collateral from our customers.

A significant portion of our sales is made to distributors and VARs. Revenue is generally recognized when title and risk of loss pass to the customer, assuming all other revenue recognition criteria have been met. Sales to these customers are recorded net of appropriate allowances, including estimates for product returns, price protection, and excess channel inventory levels.

For sales of products that contain software that is marketed separately, we apply the provisions of AICPA Statement of Position 97-2, "Software Revenue Recognition" as amended. Sales of services, including professional services, system integration, project management, and training, are recognized upon delivery and completion of performance. Other service revenue, such as that related to maintenance and support contracts, is recognized ratably over the contract term, provided that all other revenue recognition criteria have been met. Royalty revenue from licensing is recognized as earned.

Allowance for doubtful accounts:    We continuously monitor payments from our customers and maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. When we evaluate the adequacy of our allowances for doubtful accounts, we take into account various factors including our accounts receivable aging, customer creditworthiness, historical bad debts, and geographic and political risk. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required. As of May 28, 2004, our net accounts receivable balance was $66.4 million.

Inventory:    Inventory is stated at the lower of standard cost, which approximates cost, or net realizable value. Cost is determined on a first-in, first-out basis. We perform detailed reviews related to the net

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realizable value of inventory on an ongoing basis, for both inventory on hand and inventory that we are committed to purchase, giving consideration to deterioration, obsolescence, and other factors. If actual market conditions differ from those projected by management and our estimates prove to be inaccurate, additional write-downs or adjustments to cost of sales might be required; alternatively, we might realize benefits through cost of sales for sale or disposition of inventory that had been previously written off. As of May 28, 2004, our inventory balance was $27.7 million.

Goodwill and intangible assets:    We review the value of our long-lived assets, including goodwill, in accordance with the applicable accounting literature for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. As of May 28, 2004, we had $5.0 million of net intangible assets and $0.9 million of goodwill remaining on the balance sheet, which we believe to be realizable based on the estimated future cash flows of the associated products and technology. However, it is possible that the estimates and assumptions used in assessing the carrying value of these assets, such as future sales and expense levels, may need to be reevaluated in the case of continued market deterioration, which could result in further impairment of these assets.

Equity securities and other investments:    As of May 28, 2004, we had $159.8 million of equity securities and other investments, including $142.9 million related to our investment in H-3C. We account for non-marketable equity securities and other investments at historical cost or, if we have the ability to exert significant influence over the investee, by the equity method. Investments accounted for by the equity method include investments in limited partnership venture capital funds and our investment in H-3C. In accounting for these investments by the equity method, we record our proportionate share of the fund's net income or loss, or H-3C's net income or loss, based on the most recently available quarterly financial statements. Since H-3C has adopted a calendar year basis of reporting, we report our equity in H-3C's net income or loss based on H-3C's most recent quarterly financial statements, two months in arrears.

We review all of our investments for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investment may not be fully recoverable. The impairment review requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the fair value of the investment. Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment is other than temporary; in the event that the indicated impairment is other than temporary, we write the investment down to its impaired value.

Restructuring charges:    Over the last several years we have undertaken significant restructuring initiatives. These initiatives have required us to record restructuring charges related to severance and outplacement costs, lease cancellations, accelerated depreciation and write-downs of held for sale properties, write-downs of other long-term assets, and other restructuring costs. Given the significance of our restructuring activities and the time required for execution and completion of such activities, the process of estimating restructuring charges is complex and involves periodic reassessments of estimates made at the time the original decisions were made. The accounting for restructuring costs and asset impairments requires us to record charges when we have taken actions or have the appropriate approval for taking action, and when a liability is incurred. Our policies require us to continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. As we continue to evaluate the business, we might be required to record additional charges for new restructuring activities as well as changes in estimates to amounts previously recorded.

Warranty:    A limited warranty is provided on our products for periods ranging from 90 days to the lifetime of the product, depending upon the product, and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires us to make estimates of product return rates and expected costs to repair or replace the products under warranty. If actual

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return rates and/or repair and replacement costs differ significantly from our estimates, adjustments to recognize additional cost of sales might be required.

Income taxes:    We are subject to income tax in a number of jurisdictions. A certain degree of estimation is required in recording the assets and liabilities related to income taxes, and it is reasonably possible that such assets may not be recovered and that such liabilities may not be paid or that payments in excess of amounts initially estimated and accrued may be required. We assess the likelihood that our deferred tax assets will be recovered from our future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. We consider historical taxable income, estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. Based on various factors, including our recent losses, retained deficit, operating performance in fiscal 2004, and estimates of future profitability, we have concluded that future taxable income will, more likely than not, be insufficient to recover our U.S. net deferred tax assets as of May 28, 2004. Accordingly, we have established an appropriate valuation allowance to offset such deferred tax assets. Adjustments could be required in the future if we determine that the amount to be realized is greater or less than the valuation allowance we have recorded.

RESTRUCTURING ACTIVITIES

During the past several fiscal years, we have undertaken several initiatives involving significant changes in our business strategy and cost structure. Restructuring charges related to these initiatives in fiscal 2004, 2003, and 2002 were $159.7 million, $184.9 million, and $109.0 million, respectively. These restructuring initiatives and charges are discussed further in BUSINESS OVERVIEW and CRITICAL ACCOUNTING POLICIES above and in Note 4 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Accrued liabilities related to restructuring activities are classified as current as of May 28, 2004 because we intend to satisfy such liabilities within the next 12 months. We expect to incur additional restructuring charges in the first half of fiscal 2005 related to our ongoing cost reduction efforts; however, based on actions taken or decided to date, such additional charges are not expected to be significant. Also, as of May 28, 2004, property and equipment classified as held for sale totaled approximately $42.1 million; additional write-downs could result from future changes in the net realizable values of those properties.

JOINT VENTURE

On November 17, 2003, we formed the Huawei-3Com Joint Venture (H-3C) with a subsidiary of Huawei Technologies, Ltd. (Huawei). H-3C is domiciled in Hong Kong, and has its principal operating centers in Hangzhou and Beijing, China. At the time of formation, we contributed cash of $160.0 million, assets related to our operations in China and Japan with a carrying value of $0.1 million, and licenses related to certain intellectual property in exchange for a 49 percent ownership interest in H-3C. Huawei contributed assets valued at $178.2 million in exchange for a 51 percent ownership interest; Huawei's contributed assets included its enterprise networking business assets, including Local Area Network (LAN) switches and routers, engineering and sales and marketing resources and personnel, and licenses to its related intellectual property.

Two years after formation of H-3C, we have the one-time option to purchase an additional two percent ownership interest from Huawei for an amount not to exceed $28 million. Three years after formation of H-3C, both partners have the right to purchase all of the other partner's ownership interest through a bid process.

In China and Japan, H-3C sells its own products, as well as products it purchases directly from Huawei and us. Outside of China and Japan, we resell H-3C's products under the 3Com® brand. Through this

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reseller agreement, we are expanding our product line to include router products and modular switching products. The addition of these products to our product portfolio increases the size of the market opportunity for which we can compete.

We account for our investment in H-3C by the equity method. Under this method, we record our proportionate share of H-3C's net income or loss based on the most recently available quarterly financial statements of H-3C. Since H-3C has adopted a calendar year basis of reporting, we have reported our equity in H-3C's net loss for H-3C's fiscal period from the date of formation (November 17, 2003) through March 31, 2004 in our results of operations for fiscal 2004. Our proportionate share of the reported loss from operations for the period from the date of formation through March 31, 2004 was $4.6 million, and is included in our results of operations for fiscal 2004 under the caption "Equity interest in loss of unconsolidated joint venture" in our consolidated financial statements. Also, at the time of formation of H-3C, we recorded a charge of $12.6 million representing our ownership share (49 percent) of the value attributed to in-process technology contributed to H-3C by Huawei that had not yet reached technological feasibility and had no alternative future use. This charge also was included in our results of operations for fiscal 2004 under the caption "Equity interest in loss of unconsolidated joint venture." In fiscal 2004, our total reported loss related to H-3C was $17.2 million. Prospectively, we will continue to report our equity in H-3C's net income or loss based on H-3C's most recent financial statements, two months in arrears. We do not expect H-3C's results to significantly affect our results of operations in the near term.

For additional information concerning our investment in H-3C, see Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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RESULTS OF OPERATIONS

As mentioned above, effective for fiscal 2004, we now manage and report our operations as a single, integrated business. The following discussion reflects the results of operations of the business as it was organized and managed during fiscal 2004.

The following table sets forth, for the fiscal years indicated, the percentage of total sales represented by the line items reflected in our consolidated statements of operations. Information related to the fiscal year ended May 31, 2002 has been restated to account for the CommWorks division as a discontinued operation.

			Fiscal Years Ended
			May 28, 2004		May 30, 2003		May 31, 2002
Sales			100.0	%	100.0	%	100.0	%
Cost of sales			65.2		54.8		70.8
Gross margin			34.8		45.2		29.2
Operating expenses:
	Sales and marketing		35.0		26.0		21.7
	Research and development		13.6		12.1		15.7
	General and administrative		10.6		10.2		8.9
	Amortization and write down of intangibles		1.0		1.1		6.9
	Restructuring charges		22.9		19.8		8.7
	Loss on land and facilities, net		—		0.1		0.1
		Total operating expenses	83.1		69.3		62.0
Operating loss			(48.3	)	(24.1	)	(32.8	)
Loss on investments, net			(1.6	)	(3.9	)	(1.4	)
Interest and other income, net			2.3		2.2		5.3
Loss from continuing operations before income taxes, equity interests, and cumulative effect of change in accounting principle			(47.6	)	(25.8	)	(28.9	)
Income tax provision (benefit)			(0.5	)	(1.1	)	7.1
Equity interest in loss of unconsolidated joint venture			(2.5	)	—		—
Loss from continuing operations before cumulative effect of change in accounting principle			(49.6	)	(24.7	)	(36.0	)
Discontinued operations, net of taxes			(0.4	)	(0.9	)	(11.3	)
Loss before cumulative effect of change in accounting principle			(50.0	)	(25.6	)	(47.3	)
Cumulative effect of change in accounting principle			—		(4.8	)	—
Net loss			(50.0	)%	(30.4	)%	(47.3	)%

Comparison of fiscal years ended May 28, 2004 and May 30, 2003

Sales

Fiscal 2004 sales totaled $698.9 million, a decrease of 25 percent from fiscal 2003 sales of $932.9 million.

Sales of enterprise networking products in fiscal 2004 were $585.9 million, a decrease of 15 percent from fiscal 2003 sales of $690.2 million. The decrease in revenue was driven by a reduction in average selling prices (ASPs) resulting from significant price competition, particularly for our 10/100 Mbps switching products as the industry migrates to Gigabit switching solutions, and by an unfavorable shift

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in mix towards lower-priced products. Although sales of enterprise networking products declined overall, sales of certain products in targeted high-growth technology areas increased; such products included fixed-configuration Gigabit switches, wireless LAN, and modular switches and routers sourced from H-3C. Increased sales of these products was largely due to higher unit volumes, resulting from both the industry shift towards Gigabit switching solutions mentioned above, as well as enhanced sales and marketing efforts targeting enterprise customers. Enterprise networking products represented 84 percent of total sales in fiscal 2004 compared to 74 percent of total sales in fiscal 2003.

Sales of our desktop, mobile and server connectivity products in fiscal 2004 were $112.9 million, a decrease of 53 percent from fiscal 2003 sales of $242.6 million. The decrease in sales was due largely to lower volumes, with unit shipments decreasing 47 percent compared to fiscal 2003, as well as to lower overall ASPs. We believe the lower volumes resulted from a continuing shift in technology from traditional network interface card (NIC), personal computer (PC) card, and mini-peripheral component interconnect (Mini-PCI) form factors to PC chipsets with embedded networking technology for which we have lower market share. Additionally, the decline in sales was partially attributable to the recognition in fiscal 2003 of $15.0 million of royalty revenue from a paid-up license resulting from settlement of patent litigation with Xircom, Inc. Sales of connectivity products represented 16 percent of total sales in fiscal 2004 compared to 26 percent of total sales in fiscal 2003. We expect sales from connectivity products to decline again in fiscal 2005 due to both reduced demand for our products and continued pricing pressures.

By Geography.

U.S. sales represented approximately 29 percent of total sales in fiscal 2004, compared to approximately 35 percent in fiscal 2003, and decreased 37 percent when compared to fiscal 2003. The major factor contributing to the decrease in sales from year to year was lower sales of connectivity products as discussed above. International sales in fiscal 2004 decreased 19 percent when compared to fiscal 2003. The major factor contributing to this decrease was lower sales of connectivity products; other important factors contributing to the decrease were lower sales of our 10/100 Mbps switching products, as well as a decline in sales to customers in China and Japan following H-3C's assumption of responsibility for sales of enterprise networking products into these countries.

Gross Margin

Gross margin as a percentage of sales declined 10.4 percentage points from 45.2 percent of sales in fiscal 2003 to 34.8 percent of sales in fiscal 2004. Significant components of the decrease in gross margins were as follows:

Decrease in standard-related margin	(4.6	)%
Volume-related impacts	(0.9	)
Transition related costs associated with closure of the Dublin manufacturing facility	(1.0	)
Duty refunds and proceeds from inventory previously written off	(1.8	)
Impact of royalty revenue	(0.9	)
Other	(1.2	)
Total	(10.4	)%

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The decrease in standard-related margin was primarily the result of lower ASPs, and, to a lesser extent, an unfavorable shift in product mix. These unfavorable factors were partially offset by product cost reductions.

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•

Volume-related impacts include higher post-sale technical support costs, manufacturing overhead costs, and warranty costs as a percent of sales. Since a portion of these costs is not directly variable with sales, these costs did not decline at the same rate as sales.



•

We recorded charges related to manufacturing assets and other transition-related costs in fiscal 2004 as a result of our decision to outsource our remaining manufacturing operations in Dublin.



•

Gross margin in fiscal 2004 did not benefit to any significant degree from duty refunds or proceeds from the sale of inventory that was previously written off. However, gross margin in fiscal 2003 included benefits related to such items.



•

Sales in fiscal 2003 included royalty revenue of $15.0 million related to the settlement of litigation with Xircom. This revenue did not have any associated cost of sales.

Operating Expenses

Operating expenses in fiscal 2004 were $580.9 million, compared to $646.4 million in fiscal 2003, a net decrease of $65.5 million. Included in the net decrease in operating expenses were decreases in research and development expenses of approximately $17.9 million, general and administrative expenses of $20.3 million, amortization and write down of intangibles of $3.3 million, restructuring charges of approximately $25.1 million, and loss on land and facilities of $0.9 million. Partially offsetting these decreases was an increase in sales and marketing expenses of $2.0 million.

As a percent of sales, total operating expenses in fiscal 2004 were 83.1 percent, compared to 69.3 percent in fiscal 2003. In aggregate, sales and marketing, research and development, and general and administrative expenses were 59.2 percent of sales in fiscal 2004, compared to 48.3 percent in fiscal 2003, and decreased a net $36.2 million in fiscal 2004 compared to fiscal 2003. To a significant degree, these expenses are controllable and discretionary over time, but they are not directly variable with sales levels within a particular period.

The most significant component of the decrease of $36.2 million was a reduction of IT-related expenses. We allocate and report both IT and facilities-related expenses as a component of cost of sales and operating expenses. On an overall basis, total operating expenses in fiscal 2004 reflected a decrease of $30.0 million in IT-related expenses compared to fiscal 2003, largely as a result of employee reductions and asset write offs associated with our IT outsourcing initiatives during fiscal 2003. Partially offsetting the decrease in IT-related expenses was a net increase of $4.6 million in facilities-related expenses. Although our facilities consolidation efforts have resulted in lower gross facilities spending, these savings have been more than offset by a reduction in rental and sublease income received. Such rental and sublease income totaled $8.9 million and $23.8 million in fiscal 2004 and 2003, respectively, and is recorded as an offset to the associated facilities-related expenses.

A more detailed discussion of the factors affecting each major component of total operating expenses is provided below.

Sales and Marketing.    Sales and marketing expenses in fiscal 2004 were relatively flat compared to fiscal 2003, increasing $2.0 million. Sales and marketing expenses as a percent of sales increased to 35.0 percent in fiscal 2004, compared to 26.0 percent in fiscal 2003. The most significant factors in the increase were higher workforce-related and travel and entertainment expenses and an increase in facilities-related expenses. Largely offsetting these increases were reduced IT expenses, as well as reduced marketing expenses as a result of a shift in spending towards more focused, product and channel specific programs.

Research and Development.    Research and development expenses in fiscal 2004 decreased $17.9 million, or 16 percent, compared to fiscal 2003. Research and development expenses as a percent of sales increased to 13.6 percent in fiscal 2004 compared to 12.1 percent in fiscal 2003. The most significant

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factors in the decrease were reduced IT expenses, reduced workforce expenses as a result of restructuring activities and movement towards lower cost geographies, lower depreciation expense related to engineering assets reflecting write-downs and disposals associated with our restructuring initiatives, and decreased spending for project tools and materials. Partially offsetting these reductions were increased use of third parties for development work, as well as an increase in facilities-related expenses.

General and Administrative.    General and administrative expenses in fiscal 2004 decreased $20.3 million, or 21 percent, from fiscal 2003. As a percent of sales, general and administrative expenses were relatively flat, increasing to 10.6 percent in fiscal 2004 from 10.2 percent in fiscal 2003. The most significant factors in the decrease were reduced workforce-related expenses due to our restructuring initiatives, reduced legal and professional services costs related to the formation of H-3C, and reduced IT expenses. Partially offsetting these reductions was the impact of sales tax refunds in fiscal 2003 that did not recur at the same level in fiscal 2004, as well as lower credits in fiscal 2004 relating to bad debt expense.

Amortization and Write Down of Intangibles.    Amortization and write down of intangibles were $7.0 million and $10.3 million for fiscal 2004 and 2003, respectively, a decrease of $3.3 million. Amortization and write down of intangibles decreased due to a lower base of intangible assets as a result of an impairment charge during the first quarter of fiscal 2004, as well as reduced impairment charges. In fiscal 2004, we recorded an impairment charge of $1.9 million related to developed and core technology associated with the acquisition of assets from Alteon in fiscal 2001. Additionally, there were impairment charges of $0.4 million and $3.2 million in fiscal 2004 and fiscal 2003, respectively, related to developed and core technology associated with the fiscal 1999 acquisition of NBX.

Restructuring Charges.    Restructuring charges in fiscal 2004 and fiscal 2003 were $159.7 million and $184.9 million, respectively. Restructuring charges in fiscal 2004 were composed primarily of charges for actions taken in fiscal 2004, including facilities-related charges of $89.7 million, severance and outplacement costs of $59.2 million, and long-term asset write downs and other costs of $3.2 million. Facilities-related charges in fiscal 2004 included $47.7 million for an impairment and accelerated depreciation of a Santa Clara facility due to our plan to vacate the facility and move to a smaller Santa Clara facility already owned, offset by a $0.4 million gain on the sale of this vacated facility later in fiscal 2004; $25.1 million for an impairment and accelerated depreciation of our Dublin manufacturing facility; an $11.2 million impairment and $1.4 million loss on sale of certain other Santa Clara properties; a loss of $1.1 million related to the sale of our Rolling Meadows, Illinois facility; charges of $2.7 million related to fair value adjustments of properties classified as held for sale prior to fiscal 2004; and $0.9 million related to estimated lease termination costs. Restructuring charges for fiscal 2004 were the result of reductions in workforce, outsourcing of our remaining manufacturing operations in Dublin, and continued efforts to consolidate and dispose of excess facilities. Additionally, in fiscal 2004 we incurred charges of $7.6 million relating to the completion of restructuring activities initiated in fiscal years 2001, 2002, and 2003.

Restructuring charges in fiscal 2003 were composed primarily of charges for actions taken in fiscal 2003 relating to accelerated depreciation and write downs of facilities of $151.4 million, severance and outplacement costs of $20.5 million, and long-term asset write downs and other costs of $4.0 million. Facilities charges in fiscal 2003 included $85.4 million for write-downs of facilities located in Rolling Meadows; Santa Clara; Ireland; and the U.K.; accelerated depreciation of $34.3 million on certain Santa Clara facilities; a $29.4 million loss on the sale of our Marlborough, Massachusetts facility; and lease termination costs of $2.3 million. Restructuring charges in fiscal 2003 were the result of the consolidation of our real estate portfolio, the integration of the support infrastructure of our former Connectivity and Enterprise Networking segments, IT outsourcing efforts, and continued cost reduction

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actions. Additionally, in fiscal 2003 we incurred charges of $8.9 million relating to the completion of restructuring activities initiated in fiscal years 2001 and 2002.

Further actions may be taken if our business activity continues to decline and additional cost reduction efforts are necessary. In addition, a number of our facilities are classified as held for sale as a result of our restructuring program. Although these properties are being carried at their estimated net realizable values, additional write downs could result from changes in such values. As of May 30, 2004, the aggregate net realizable value of properties held for sale was $42.1 million, and included properties located in Ireland and the U.K.

Loss on Investments, Net

During fiscal 2004, net losses on investments were $10.9 million, reflecting $16.1 million of write downs of long term equity investments partially offset by a gain of $4.3 million recognized upon the sale of an investment in a privately-held company. In fiscal 2003, net losses on investments were $36.1 million, including $28.7 million of net losses recognized due to fair value adjustments of investments in limited partnership venture capital funds and write downs of investments in private companies for other-than-temporary declines in value and $7.4 million of net losses realized on sales of publicly traded equity securities and investments in limited partnership venture capital funds.

Interest and Other Income, Net

Interest and other income, net, was $15.9 million in fiscal 2004, a decrease of $4.3 million compared to $20.2 million in fiscal 2003. A decline in interest income accounted for $14.3 million of this decline, primarily driven by lower interest rates applicable to short-tem investments and lower interest income relating to income tax refunds. We collected $1.4 million and $5.1 million of interest income in fiscal 2004 and 2003, respectively, relating to income tax refunds received in those years. Partially offsetting the decrease in interest income was lower interest expense that resulted from the repayment of borrowings, as well as lower charges related to warrants issued to Broadcom Corporation (Broadcom). In fiscal 2003, we recorded a charge of $1.7 million in interest and other income, net, related to a one-year extension of the expiration date for the Broadcom warrants that was agreed in connection with our settlement of litigation with Broadcom. These warrants expired unexercised in December 2003.

Income Tax Provision (Benefit)

Our income tax benefit was $3.1 million in fiscal 2004, compared to an income tax benefit of $10.5 million in fiscal 2003. Included in our fiscal 2004 income tax benefit was an $8.5 million benefit of a foreign net operating loss carryback. Offsetting this benefit was a tax provision for tax in certain foreign and domestic state jurisdictions. Included in our fiscal 2003 income tax benefit was a $17.7 million benefit of a net operating loss carryback made possible by the Job Creation and Worker Assistance Act of 2002, and a $15.6 million benefit that was recorded to offset the net tax provision for discontinued operations. Offsetting these benefits was a tax provision for certain foreign and domestic state jurisdictions.

Equity Interest in Loss of Unconsolidated Joint Venture

As described more fully above, we account for our investment in H-3C by the equity method. In fiscal 2004, we recorded a charge of $4.6 million representing our share of the net loss from operations incurred by H-3C from the date of formation through March 31, 2004. In addition, at the time of formation of H-3C, we recorded a charge of $12.6 million representing our ownership share (49 percent) of the value attributed to in-process technology contributed to H-3C by Huawei that had not yet reached technological feasibility and had no alternative future use. In fiscal 2004, our total reported loss related to H-3C was $17.2 million.

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Discontinued Operations

Discontinued operations in fiscal 2004 and fiscal 2003 related to our CommWorks division that was sold in the fourth quarter of fiscal 2003. We recorded a loss of $2.4 million in fiscal 2004 due to adjustments to previous estimates of liabilities related to the sale of CommWorks. Discontinued operations in fiscal 2003 included a gain on the sale of CommWorks of $88.9 million, which was offset by $17.1 million of taxes. Also included in fiscal 2003 were losses from operations of $81.5 million, which were offset by a $1.5 million tax benefit.

Comparison of fiscal years ended May 30, 2003 and May 31, 2002

Sales

Fiscal 2003 sales totaled $932.9 million, a decrease of 26 percent from fiscal 2002 sales of $1,259.0 million.

Sales of enterprise networking offerings in fiscal 2003 of $682.2 million decreased 14 percent from sales in fiscal 2002 of $791.6 million. The decrease resulted from a decline in sales of wireline data products, partially offset by moderate increases in sales of voice and wireless products. Within the wireline data product line, LAN revenue decreased by $87.3 million, due to lower sales of shared hubs due to competition from low priced switches, and lower sales of our 3300 fixed-configuration switches which have matured. Also affecting the wireline data product line was a decline of $25.0 million in sales of digital subscriber line (DSL) router products due to our withdrawal from this product line at the end of fiscal 2002. Sales of voice products were up $8.3 million due to the overall growth in the market. Sales of wireless products experienced growth of $5.0 million due to an increased demand for home office products. Service revenue declined by $22.3 million due to fewer maintenance contract renewals.

Sales of desktop, mobile and server connectivity products in fiscal 2003 of $242.6 million decreased 47 percent compared to sales in fiscal 2002 of $456.9 million. The decline in sales as compared to the prior year was due largely to lower volumes, with unit shipments decreasing 45 percent compared to fiscal 2002, as well as to lower overall ASPs.

Factors that reduced volumes were a shift in the market from network interface card, personal computer (PC) card, and mini-peripheral component interconnect form factors to PC chipsets with embedded networking technology for which we have lower market share, as well as lower sales to our OEM partners. In addition to lower volumes, our overall ASPs decreased in fiscal 2003. Declining ASPs resulted primarily from intense price competition, but were mitigated to some degree by a favorable product mix shift towards Gigabit and security fiber products that carry higher ASPs, and a decrease in sales to OEMs, which normally have lower ASPs. Additionally, the decline in sales in fiscal 2003 was partially offset by the recognition of $15.0 million of royalty revenue from a paid-up license resulting from settlement of patent litigation with Xircom, Inc.

By Geography

U.S. sales represented approximately 35 percent of total sales in fiscal 2003, compared to approximately 37 percent in fiscal 2002, and decreased 31 percent when compared to fiscal 2002. International sales in fiscal 2003 decreased 23 percent when compared to fiscal 2002. The decline in sales of enterprise networking products described above was experienced primarily in the U.S. and in the Europe, Middle East, and Africa region, whereas the decline in sales of connectivity products was experienced primarily in the U.S. and in the Asia Pacific region.

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Gross Margin

Gross margin as a percentage of sales increased 16.0 percentage points from 29.2 percent of sales in fiscal 2002 to 45.2 percent of sales in fiscal 2003. Significant components of the increase in gross margins were as follows:

Increase in standard-related margin	9.1	%
Volume-related impacts	3.1
Duty refunds	1.3
Excess and obsolete inventory	2.2
Impact of royalty revenue	0.9
Other	(0.6	)
Total	16.0	%

•

The increase in standard-related margin was due largely to reductions in materials costs resulting from design changes and component cost improvements, and a mix shift towards higher margin products. Included in the mix shift was an increase in sales of connectivity products through the distribution channel versus sales to OEM customers, which generally have lower ASPs.



•

Volume-related impacts include lower manufacturing overhead costs due to reduced unutilized capacity and lower post-sale technical support costs as a percent of sales.



•

Year over year, gross margin in fiscal 2003 benefited from duty refunds of $11.8 million. Gross margin in fiscal 2002 did not benefit from such items to any significant degree.



•

Year over year, gross margin in fiscal 2003 benefited from sales of inventory that had been written off in prior periods ($4.9 million) and from lower provisions for excess and obsolete inventory ($15.6 million). These provisions in fiscal 2002 were due largely to reduced demand for and discontinuance of certain desktop, mobile and server connectivity products.



•

Sales in fiscal 2003 included royalty revenue of $15.0 million related to the settlement of litigation with Xircom. This revenue did not have any associated cost of sales.

Operating Expenses

Operating expenses in fiscal 2003 were $646.4 million compared to $780.5 million in fiscal 2002, or a net decrease of $134.1 million. Included in the net decrease in operating expenses were decreases in research and development expenses of $84.9 million, amortization and write down of intangibles expenses of $76.3 million, sales and marketing expenses of $30.8 million, general and administrative expenses of $17.4 million, and loss on land and facilities of $0.5 million. Partially offsetting these declines was an increase in restructuring charges of $75.8 million.

As a percent of sales, total operating expenses in fiscal 2003 were 69.3 percent, compared to 62.0 percent in fiscal 2002. In aggregate, sales and marketing, research and development, and general and administrative expenses were 48.3 percent of sales in fiscal 2003, compared to 46.3 percent fiscal 2002, and decreased by $133.2 million, net in fiscal 2003 compared to fiscal 2002. To a significant degree, these expenses are controllable and discretionary over time, but they are not directly variable with sales levels within a particular period. The most significant components of the decrease of $133.2 million were reductions of $58.5 million of direct employee and alternative workforce expenses, $33.8 million of project and research related expenses such as project materials and depreciation on engineering assets, $27.2 million of IT-related expenses, and $5.0 million of spending on marketing and advertising. These decreases were the result of cost reduction actions primarily related to our restructuring initiatives, which included headcount reductions, IT outsourcing, long term asset write

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offs, a decline in the number of research projects, and general spending reductions. Offsetting these decreases was an increase of $6.8 million for legal and professional services.

A more detailed discussion of the factors affecting each major component of total operating expenses is provided below.

Sales and Marketing.    Sales and marketing expenses in fiscal 2003 decreased $30.8 million, or 11 percent, from fiscal 2002. Sales and marketing expenses as a percent of sales increased to 26.0 percent in fiscal 2003 compared to 21.7 percent in fiscal 2002. The largest factor in the decrease was direct employee-related expenses, and the second largest factor was IT-related expenses. Together, these two factors accounted for a majority of the reduction of sales and marketing expenses. The reduction in spending on marketing and advertising noted above was the third most significant contributing factor to the decrease in expenses.

Research and Development.    Research and development expenses in fiscal 2003 decreased $84.9 million, or 43 percent, compared to fiscal 2002. Research and development expenses as a percent of sales decreased to 12.1 percent in fiscal 2003 compared to 15.7 percent in fiscal 2002. The largest factor in the decrease was lower project and research related expenses such as project materials and depreciation on engineering assets, and the second largest factor was a decline in direct employee-related expenses. Together, these two factors accounted for a majority of the decrease in research and development expenses. The third most significant factor contributing to the decrease was IT-related expenses.

General and Administrative.    General and administrative expenses in fiscal 2003 decreased $17.4 million, or 16 percent, from fiscal 2002. As a percent of sales, general and administrative expenses increased to 10.2 percent in fiscal 2003 compared to 8.9 percent in fiscal 2002. A decline in direct employee-related expenses was the primary factor contributing to the $17.4 million decrease. Reductions in IT-related spending were offset by increases in expenditures for legal and professional services in connection with litigation that we settled during the year and start-up activities related to H-3C.

Amortization and Write Down of Intangibles.    Amortization and write down of intangibles were $10.3 million and $86.6 million for fiscal 2003 and 2002, respectively. Charges in 2003 included a $3.2 million write down for the impairment of intangible assets related to the NBX acquisition, and $7.1 million for amortization. Charges in 2002 included $50.9 million of write downs for impairments of intangibles relating to the goodwill and developed product technology associated with the acquisition of Alteon, and $35.7 million for amortization. Due to the adoption of Statement of Financial Accounting Standard (SFAS) 142 on June 1, 2002, we stopped amortizing goodwill in fiscal 2003. Fiscal 2002 included amortization of $25.2 million relating to continuing operations. (Fiscal 2002 also included goodwill amortization of $6.8 million that related to discontinued operations.)

Restructuring Charges.    Restructuring charges in fiscal 2003 and fiscal 2002 were $184.9 million and $109.0 million, respectively. Restructuring charges for fiscal 2003 were composed primarily of charges for actions taken in fiscal 2003 relating to accelerated depreciation and write downs of facilities of $151.4 million, severance and outplacement costs of $20.5 million, and long-term asset write downs and other costs of $4.1 million. Facilities charges in fiscal 2003 included $59.2 million related to accelerated depreciation and impairments of facilities in Santa Clara, $45.8 million relating to the impairment of our Rolling Meadows facility, a $29.4 million loss on the sale of our Marlborough facility, write downs of properties in Ireland and the U.K. of $7.5 million and $7.2 million, respectively, and lease terminations of $2.3 million. Restructuring charges for fiscal 2003 were the result of the consolidation of our real estate portfolio, the integration of the support infrastructure of our former Connectivity and Enterprise Networking segments, IT outsourcing efforts, and continued cost reduction actions. Additionally, in fiscal 2003, we incurred charges of $8.9 million relating to the completion of restructuring activities initiated in fiscal years 2001 and 2002.

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Restructuring charges for fiscal 2002 included $47.8 million for facility-related charges, comprised of $24.4 million in write downs of property held for sale, $13.2 million for the loss on the sale of our Singapore manufacturing facility, and $10.2 million for other facility charges; $43.4 million for severance and outplacement costs; $13.6 million for long-term asset write-downs; and $4.4 million for other restructuring charges. These charges were the result of cost reduction actions we took to restructure our operations that were announced on December 21, 2000, as well as consolidation of our manufacturing facilities and the discontinuation of our consumer cable and DSL modem product lines as announced during June 2001. We also recorded a $0.2 million benefit in fiscal 2002 relating to revisions of previous estimates of a restructuring initiative that had begun in the fourth quarter of fiscal 2000.

Loss on Land and Facilities, Net.    The net loss on land and facilities in fiscal 2003 and fiscal 2002 was $0.9 million and $1.4 million, respectively. The net loss in both periods represented write downs of our Salt Lake City, Utah facility that was sold in the second quarter of fiscal 2003. This facility was classified as held for sale prior to the inception of our restructuring programs and, therefore, the related net losses were not the result of restructuring actions and were not recorded as a part of restructuring charges.

Loss on Investments, Net

During fiscal 2003, net losses on investments were $36.1 million, including $28.7 million of net losses recognized due to fair value adjustments of investments in limited partnership venture capital funds and write downs of investments in private companies for other-than-temporary declines in value and $7.4 million of net losses realized on sales of publicly traded equity securities and investments in limited partnership venture capital funds. In fiscal 2002, net losses on investments were $17.9 million, composed of $30.5 million of net losses recognized due to fair value adjustments of investments in limited partnership venture capital funds and write downs of investments in private companies for other-than-temporary declines in value, offset by $12.6 million of net gains realized on sales of publicly traded equity securities.

Interest and Other Income, Net

Interest and other income, net, was $20.2 million in fiscal 2003, a decrease of $47.2 million compared to $67.4 million in fiscal 2002. A decline in interest income accounted for $37.7 million of this decline, primarily driven by lower interest rates, and lower interest income relating to our fiscal 2002 income tax refund. We collected $5.1 million and $12.1 million of interest income in fiscal 2003 and 2002, respectively, relating to our fiscal 2002 income tax refund. Additionally, borrowing-related costs increased $5.1 million in fiscal 2003 due mainly to higher average outstanding balances on our term loan and revolving line of credit as well as higher amortization of deferred loan costs, which included accelerated amortization relating to the early repayment of the term loan. Also, in fiscal 2003, we recorded a charge of $1.7 million related to the one-year extension of the expiration date for the warrants issued to Broadcom.

Income Tax Provision (Benefit)

Our income tax benefit was $10.5 million in fiscal 2003, compared to an income tax provision of $89.9 million in fiscal 2002. Included in our fiscal 2003 income tax benefit was a $17.7 million benefit of a net operating loss carryback made possible by the Job Creation and Worker Assistance Act of 2002, and a $15.6 million benefit that was recorded to offset the net tax provision for discontinued operations. Offsetting these benefits was a tax provision for tax in certain foreign and domestic state jurisdictions. The fiscal 2002 tax provision was the result of write downs of the domestic deferred tax asset that had been previously supported by the appreciation in our real estate portfolio, as well as a provision for income taxes in foreign and domestic state jurisdictions.

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Discontinued Operations

Discontinued operations in fiscal 2003 and fiscal 2002 related to our CommWorks business. Discontinued operations in fiscal 2003 included a gain on the sale of CommWorks of $88.9 million, which was offset by $17.1 million of taxes. Also included in fiscal 2003 were losses from operations of $81.5 million, which were offset by a $1.5 million tax benefit. The loss from operations in fiscal 2002 was $142.3 million, net of taxes of $1.4 million.

Cumulative Effect of Change in Accounting Principle

As a result of our adoption of SFAS 142, we conducted a transitional goodwill impairment evaluation of the $66.5 million of goodwill recorded as of May 31, 2002 and wrote off goodwill totaling $45.4 million relating to continuing operations as a change in accounting principle effective June 1, 2002. We also wrote off $20.2 million of goodwill relating to the CommWorks business unit, which is included in discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

Cash and equivalents and short-term investments at May 28, 2004 were $1,383.4 million, a decrease of approximately $101.2 million compared to the balance of $1,484.6 million at May 30, 2003.

Net cash used in operating activities was $175.3 million for fiscal 2004, primarily reflecting our loss from continuing operations of $346.9 million. We expect that cash flows from operating activities will continue to be negative during the first half of fiscal 2005, and possibly longer, primarily due to continuing net losses. There are no assurances that we can reduce our net losses and negative cash flow in the foreseeable future, or that we can raise capital as needed to fund our operations on an ongoing basis. However, based on current business conditions and our current operating and financial plans, but subject to the discussion in Business Environment and Industry Trends below, we believe that our existing cash and equivalents and short-term investments will be sufficient to satisfy our anticipated cash requirements for at least the next 12 months. As a result of the aforementioned fiscal 2004 restructuring actions and related charges, and based on our current projections for revenue, costs and expenses, which are subject to significant uncertainty, we expect net cash flow from operations to be improved by approximately $5 million per quarter from the levels reported for the fourth quarter of fiscal 2004. This improvement excludes the impact of cash disbursements to be made in settlement of liabilities accrued as of May 28, 2004.

Significant commitments that will require the use of cash in future periods include obligations under lease, contract manufacturing, royalty and patent licensing, IT outsourcing, and guarantee agreements, as shown in the following table (in thousands):

	Payments due by Period
Contractual Obligations	Total		Less than one year		1-3 years		3-5 years		More than 5 years
Operating leases	$	56,648	$	19,020	$	27,542	$	4,331	$	5,755
Purchase commitments with contract manufacturers(1)		94,300		94,300		—		—		—
Royalty and patent licenses		22,100		10,100		12,000		—		—
IT outsourcing agreements(2)		49,300		5,646		11,293		9,896		22,465
Guarantees(3)		4,085		3,951		134		—		—
Total	$	226,433	$	133,017	$	50,969	$	14,227	$	28,220

(1)

We have entered into purchase agreements with our contract manufacturers. Pursuant to these agreements, if our actual orders and purchases fall below forecasted levels, we may be required to

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purchase finished goods inventory manufactured to meet our requirements. In addition, we may be required to purchase raw material and work in process inventory on-hand that is unique to our products, and we may be required to compensate the contract manufacturers with respect to their non-cancelable purchase orders for such inventory. The amount shown in the table above represents our estimate of inventory held by contract manufacturers at May 28, 2004 that we could be required to purchase within the next 12 months. We do not expect any such required purchases to exceed our requirements for inventory to meet expected sales of our products to our customers.

(2)

Under our IT outsourcing agreements, we are subject to service level commitments providing for annual minimum payments that vary depending on the service levels we choose. The amounts shown in the table above represent the amounts that would be payable, based on current service levels, through the expiration of the agreements. However, the agreements may be terminated at any time upon 120 days notice, subject to early termination penalties that decline over time. If we were to terminate the agreements at the end of the first quarter of fiscal 2005, such penalties would be approximately $3.4 million.

(3)

We have several agreements whereby we have sold products to resellers who have, in turn, sold the products to end users, and we have guaranteed the payments of the end users to our customers. Since deferred revenue and accrued liabilities related to such sales approximate the guaranteed amounts, any payments resulting from end user defaults would not have a material impact on our results of operations.

Net cash provided by investing activities was $106.1 million for fiscal 2004, including $147.2 million of net proceeds related to sales, maturities and purchases of debt and equity securities, and $118.8 million of net proceeds related to sales and purchases of fixed assets, partially offset by our $160.0 million investment in H-3C. For the fiscal years ended May 28, 2004 and May 30, 2003, we made investments totaling $904.9 million and $1,283.5 million, respectively, in municipal and corporate bonds and government agency instruments, as well as investments totaling $4.0 million and $6.8 million, respectively, in equity securities. For the fiscal years ended May 28, 2004 and May 30, 2003, proceeds from maturities and sales of municipal and corporate bonds and government agency instruments were $1,047.1 million and $1,009.2 million, respectively, and proceeds from the sales of equity investments totaled $9.0 million and $9.2 million, respectively.

Our investments in equity securities include investments made by 3Com Ventures. Through 3Com Ventures, we selectively make strategic investments in privately held companies and in limited partnership venture capital funds, which in turn invest in privately held companies. These investment activities are entered into with the intention of complementing our business strategies and research and development efforts, and may include a strategic commercial or technology relationship, such as a component supply agreement or technology license arrangement, with these privately held companies. We made strategic investments of $3.9 million in fiscal 2004 and have committed to make additional capital contributions to venture capital funds totaling $9.0 million. We are contractually obligated to provide funding upon calls for capital. The expiration dates for such capital calls are generally five to eight years from the inception of the fund, and the amounts and timing of such calls during that period are at the discretion of the funds' general partners. Based upon projections provided by the funds' general partners, we estimate that we will pay approximately $5.1 million over the next 12 months as capital calls are made.

During fiscal 2004, we collected $134.9 million from sales of property and equipment, primarily relating to the sale of our Rolling Meadows facility and certain properties in Santa Clara. Also, during this same period, we made $16.0 million in capital expenditures. As of May 28, 2004, capital expenditure commitments outstanding were not material.

Net cash provided by financing activities was $128.5 million for fiscal 2004, which included proceeds of $120.4 million from the issuance of common stock and $8.4 million from collection of the final

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installments due under a note receivable related to the sale of warrants to Broadcom during fiscal 2002, offset by $0.3 million for payments due under capital leases. During fiscal 2004, there were no borrowings or repayments under our revolving line of credit. As of May 28, 2004, total available borrowings under the revolving line of credit were $23.5 million, net of bank-issued standby letters of credit and guarantees that are supported by this credit arrangement. As of May 28, 2004, such bank-issued standby letters of credit and guarantees totaled $9.2 million, including $8.3 million relating to potential foreign tax, custom, and duty assessments.

During fiscal 2004, we issued approximately 24.9 million shares of our common stock in connection with our employee stock purchase and option plans. As indicated above, total proceeds from such issuances were $120.4 million. As of May 28, 2004, our outstanding stock options as a percentage of outstanding shares were 14 percent. This potential dilution is mainly the result of our distribution of Palm, Inc. common stock in the first quarter of fiscal 2001. As a result of the distribution, the number of shares of 3Com common stock subject to option grants was adjusted to preserve the intrinsic value of the stock options, resulting in an increase of 134 million options, and bringing the total option shares outstanding to 169 million at the time of the distribution. We have closely managed new options grants during recent fiscal years with the goal of reducing the potential dilution associated with outstanding stock options. As a result of these efforts, as well as the effects of option exercises and cancellations, the total number of outstanding options has been reduced approximately 66 percent since the Palm distribution. In addition, the total number of options available for future grants was reduced by 108 million shares due to approval of a proposal submitted to our stockholders at our annual stockholder meeting in September 2003.

Our current stock repurchase authorization permits expenditures of up to $100.0 million through March 2005. We did not repurchase shares of our common stock under this program in fiscal 2004. However, we began repurchasing shares of our common stock pursuant to this authorization in the first quarter of fiscal 2005, and we may use cash to repurchase additional shares in future periods.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation Number 46 (FIN 46), "Consolidation of Variable Interest Entities". FIN 46 establishes accounting guidance for consolidation of a variable interest entity, formerly referred to as a special purpose entity. In December 2003, the FASB issued FIN 46(R), which deferred the effective date of FIN 46 for certain variable interest entities created before February 1, 2003 to the first interim or annual reporting period that ends after March 15, 2004. We determined that FIN 46 and FIN 46(R) are not applicable to any of our investments.

BUSINESS ENVIRONMENT AND INDUSTRY TRENDS

Industry trends and specific risks may affect our future business and results. The matters discussed below could cause our future results to 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 $349 million, $284 million and $596 million in fiscal years 2004, 2003 and 2002, respectively, and we may not be able to return to profitability.

We incurred a net loss of $349 million for fiscal 2004, and net losses of $284 million and $596 million in fiscal 2003 and 2002, respectively. Although we are taking steps designed to improve our results of operations, we cannot assure you that we will return to profitability.

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We have faced a number of challenges that have affected our operating results over the last several fiscal years. Specifically, we have experienced, and may continue to experience, the following:

•

declining revenue due to price competition and reduced incoming order rate;



•

increased risk of excess and obsolete inventories;



•

excess facilities;



•

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



•

disruptions resulting from our workforce reductions and employee attrition.

We entered into a joint venture in China with Huawei that, if not successful, could materially and adversely impact our business, business prospects and operating results.

In November 2003, we announced the formation of a joint venture for enterprise networking products with Huawei, a leading Chinese company. 3Com currently has a 49 percent minority interest in H-3C, which is domiciled in Hong Kong has its principal operations in Hangzhou and Beijing, China. Pursuant to the joint venture agreements, 3Com has the right to market and support the H-3C products under the 3Com brand in all countries except China and Japan. In China and Japan, the joint venture will sell products sourced internally as well as from 3Com and Huawei under H-3C's brand as well as the 3Com brand and the Huawei brand. H-3C commenced operations in November 2003. We began reflecting our share of the operating results of H-3C in our operating results in the third quarter of fiscal 2004.

The business of H-3C is subject to all of the operational risks that normally arise for a technology company with global operations pertaining to research and development, manufacturing, sales, service, marketing, and corporate functions. In addition, there could be disagreements between 3Com and Huawei with respect to important strategic and operational decisions. A key factor in the success of H-3C is that product sourced from it remains competitive over time particularly with respect to features, performance, quality and cost. For example, one factor that could affect cost competitiveness is future adverse exchange rate movements between H-3C's local currency of operations and the U.S. Dollar. In addition, competition in the enterprise networking market will involve challenges from numerous, well-established companies with substantial resources and significant market share.

Our business, business prospects and operating results have dependencies upon the success of H-3C. In particular, our product development activities will become increasingly interdependent with those of H-3C. If H-3C and our transactions with it are not successful, we may not introduce new products needed to broaden our high-end enterprise networks product line, which may adversely affect our revenue and overall results of operations. Even if H-3C is successful, there may be disruption to our existing distribution channels and conflicts with our current channel partners resulting from the establishment of H-3C's operations and distribution arrangements.

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

As Huawei expands its international operations, there will be increasing instances where we compete directly with Huawei in the enterprise networking market. We expect to be able to compete effectively with Huawei in this market as a result of our strengths in a number of areas including our brand identity, breadth of products and solutions offerings, and professional services capabilities. We also are free to engineer derivative models of products sourced from H-3C that would not be available to Huawei or other H-3C customers. However, as a co-owner and OEM customer of H-3C, Huawei will have access to many of H-3C's products just as we do, thereby enhancing Huawei's current ability to

39

compete directly with us in markets outside of China and Japan. If this occurs, we could lose a competitive advantage in those markets, which could have a material adverse effect on our revenue and overall 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 we, in the past, have performed ourselves. We rely on outside vendors to meet a significant portion of our IT and manufacturing needs. In the third quarter of fiscal 2004, we completed the outsourcing of all manufacturing of our products. To achieve more cost savings or operational benefits, we may expand our outsourcing activities where we believe a third party may be able to provide those services in a more efficient manner. 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 that are no longer competitive if our business conditions change.

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

Although we have implemented strict cost and expense reductions, if we are unable to achieve our growth objectives, we will need to further reduce costs which may in turn reduce our revenue. If we are not able to effectively reduce our costs and expenses commensurate with, and at the same pace as, any further deterioration in our revenue, 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, our liquidity and ability to operate our business effectively could be adversely affected. For example, our ability to raise financial capital may be hindered due to the possibility of continuing net losses and negative cash flow in the future. An inability to raise financial capital would limit our operating flexibility.

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 we cannot accurately predict the amount of our future revenue. Our future revenue depends, in part, on future economic and market conditions, which we are unable to forecast accurately. Although we cannot accurately predict the amount of our future revenue overall, we expect that revenue from sales of desktop, mobile and server connectivity products, which represented approximately 16 percent of total revenue for fiscal 2004, will decline further due to pricing pressures and technological changes and trends in the networking industry.

Our increasing reliance on strategic relationships may negatively impact our business.

As discussed above, in November 2003, we formed a joint venture in China for enterprise networking products. In addition, we recently announced alliances with Crossbeam Systems, Inc., Electronic Data Systems Corporation (EDS) and Aspect Communications Corporation. We expect to evaluate other possible strategic relationships, including joint ventures and other types of arrangements, and we may increase our reliance on such strategic relationships to complement internal development of new technologies and enhancement of existing products and to exploit perceived market opportunities. Strategic relationships can present challenges since we often compete in some business areas with companies with which we, at the same time, have strategic alliances in other business areas. If these companies fail to perform, or if these relationships fail to materialize as expected, we could suffer delays in product or market development or other operational difficulties. Strategic relationships may

40

also lead to potential conflicts within our distribution channel. Furthermore, our financial position or results of operations could be adversely affected if we experience difficulties managing relationships with our partners or if projects with partners are unsuccessful. In addition, if third parties acquire our strategic partners or if our competitors enter into successful strategic relationships, we may face increased competition.

Efforts to reduce operating expenses could involve further workforce reductions and lead to reduced revenue and other disruptions in our business.

Our operating expenses, particularly general and administrative expenses, as a percent of revenue have been higher than our desired long-term financial model. We have taken, and will continue to take, actions to reduce these expenses. Future actions could include further reductions in our workforce, relocation of functions and activities to lower cost locations, 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 might be terminated, and other employees might leave our company voluntarily due to the uncertainties associated with our business environment and their job security. In addition, reductions in overall staffing levels might make it more difficult for us 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 may not respond effectively to increased competition caused by industry volatility and consolidation.

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:

•

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;



•

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; and



•

greater competition for fewer customers as a result of consolidation in the distribution and reseller channels.

Our investment in technologies which are unproven or for which we have not yet demonstrated success in the marketplace may not produce the benefits we expect.

We are making significant investments in various new technologies and product lines. These investments have included XRN (eXpandable Resilient Networking) technology, Gigabit Ethernet technology, Internet Protocol (IP) telephony, wireless LANs, Layer 3+ switching, network security technology (such as our embedded firewall products), and Network Jack switches. We expect new products and solutions based on these technologies to contribute to future growth in our revenue. However, the markets for some of these products and solutions are still emerging and the market potential for our products and solutions based on these technologies remains unproven. If customer demand for our products and solutions based on these technologies does not develop as we expect, or if our sales and marketing strategies for these technologies are not effective, our financial results could be adversely affected and we might need to change our business strategy.

41

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:

•

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 the targeted emerging markets discussed above; 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:

•

there is a delay in introducing new products;



•

there are fewer customers interested in our products than we expected;



•

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



•

our products cost more to produce than we expect.

Our business would suffer if negative effects such as these were to occur in those product markets that we have identified as emerging high-growth opportunities. One factor that may cause greater difficulty for us in quickly and effectively introducing new products with the features, functionality, quality, and costs that are optimal for the market is our increased reliance on relationships with strategic partners, such as original design manufacturers (ODMs). Because ODMs manufacture the products of other companies as well as ours, the timeliness of the availability of our products depends, in part, on their production schedules. In addition, we are relying on ODMs to manufacture products that meet our specifications with regard to quality and cost. We will continue to source other products from OEMs and from H-3C. Finally, since we rely on our strategic partners, we may not be able to independently identify current product and technology trends and to respond to such trends as well as if we were working independently.

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

The networking business is highly competitive. As a result, our success is dependant, in part, on our ability to meet the needs of new customers and markets by enhancing existing products and solutions, and introducing new products and solutions, on a timely basis. Our efforts to enhance existing offerings and develop new offerings include internal research and development activities, the H-3C joint venture, and other strategic relationships. In the future, we may pursue acquisitions of other companies with established market access and position or promising technology and products to enhance our existing capabilities.

Acquisitions involve numerous risks, including the following:

•

potential difficulties related to integrating the technologies, products and operations of the acquired company;



•

diverting management's attention from the normal daily operations of the business;

42

•

potential difficulties in completing projects associated with purchased in-process research and development;



•

entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;



•

potential loss of key employees of the acquired company; and



•

an uncertain revenue and earnings stream from the acquired company, which may result in unexpected dilution to our earnings.

There can be no assurances that any 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, products or operations successfully, our business, financial position or results of operations could be adversely affected.

A significant portion of our revenue is derived from sales to a small number of partners. 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 VARs. A significant portion of our revenue is concentrated among a few distributors; our two largest customers accounted for a combined 33 percent of total sales for both fiscal 2004 and fiscal 2003 and a combined 28 percent of total sales for fiscal 2002. Consolidation in our distribution channels and among personal computer manufacturers is reducing the number of customers in our domestic and international markets. In an effort to streamline our operations, we may increase the focus of our distribution sales resources on selected distribution channel customers.

We also sell to personal computer manufacturers and telecommunications service providers. There has been a trend of decreased demand for connectivity products from our OEM customers due to increased integration of networking connections with semiconductor components, and also to factors specific to our OEM customers.

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

Our distributors maintain inventories of our products. 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. We have improved certain of our supply chain processes so that deliveries to our channel partners can be done more rapidly, thereby enabling our channel partners to hold fewer weeks of supply of our products in their inventory. Our target range for channel inventory levels is between four and five weeks supply on hand at our distributors. At the end of fiscal year 2004, channel inventory levels were at approximately 4.5 weeks supply. We expect to operate our business with no greater than 4.5 weeks of channel inventory for fiscal 2005. At this level of channel inventory, some of our channel partners will hold less than the average level of inventory, and others will be at a higher level. Partners with a below-average inventory level may incur stock outs that would adversely impact our revenue. If our channel partners further reduce their levels of inventory of our products, our revenue would be negatively impacted during the period of change.

We are in the process of making adjustments to the manner in which we sell our products and services. If those adjustments are unsuccessful, our revenue may be negatively affected.

As part of our distribution strategy, we are targeting System Integrators (SIs), Service Providers (SPs), and enterprise VARs (eVARs). These resellers typically have expertise in network design and implementation, which is important when deploying end-to-end networking infrastructure solutions in larger enterprises. In addition to specialized technical expertise, SIs, SPs and eVARs typically offer

43

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 services, marketing, or sales organization does not 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 revenue and overall results of operations.

Our strategies to outsource all of our manufacturing requirements to contract manufacturers, and for contract manufacturers to ship directly to our customers, 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 revenue 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. The inability of any contract manufacturer to meet our cost, quality, performance, and availability standards could adversely impact our revenue and overall results of operations. 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.

Also, our ability to control the quality of products produced by contract manufacturers may be limited and quality issues may not be resolved in a timely manner, which could adversely impact our revenue and overall results of operations. 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 revenue and overall results of operations.

We may be unable to manage our supply chain successfully, which would adversely impact our revenue, 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;



•

there are a smaller number of suppliers and we have narrowed our supplier base, including, in some cases, the sole sourcing of specific components from a single supplier;



•

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, especially in light of general economic weakness and uncertainty following wars and terrorist events;



•

our significantly increased 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.

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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.

Increasingly, we have been sourcing a greater number of components from a smaller number of vendors. Also, there has recently been a trend toward consolidation of vendors of electronic components. This greater 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.

More recently, supplies of certain key components, such as memory, have become tighter as industry demand for such components has increased. This is putting upward pressure on cost as well as increasing the time necessary to obtain these components. If this persists, we may experience an adverse impact to gross margin as costs either increase or do not decline as fast as they had in the past.

Operation of the supply chain requires accurate forecasting of demand, which has become more challenging. 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, revenue, results of operations or financial position.

Our past and possible future decisions to exit certain product lines may have unforeseen negative impacts to our business.

We previously exited or sold some of our businesses and product lines. In some cases, we continue to be responsible pursuant to the original warranty obligations for these products. Our exiting of these businesses and product lines may have adversely affected our relationships with channel partners and end customers. Many of these channel partners and customers perceived our remaining products as not being part of a larger integrated or complementary solution, or questioned our commitment to their markets. Consequently, they chose to purchase products from alternative vendors. We may consider exiting other businesses or product lines that do not meet our goal of delivering satisfactory financial returns. Future decisions to exit businesses or product lines could result in deterioration of our channel partner and customer relationships, increased employee costs (such as severance, outplacement and other benefits), contract termination costs, and asset impairments.

Our reliance on industry standards, a favorable regulatory environment, technological change in the marketplace, and new product initiatives may cause our revenue to fluctuate or decline.

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

•

the emergence of new technology or the convergence of technologies such as data and voice networking or IP telephony;



•

our ability to develop new products to address changes in technologies and related customer requirements on a timely basis;



•

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



•

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



•

a favorable regulatory environment.

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Slow market acceptance of new technologies, products, or industry standards could adversely affect our revenue or overall financial performance. 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 revenue from sales of such products or our overall financial performance could be adversely affected.

Our customer order fulfillment capabilities fluctuate and may negatively impact our operating results.

The timing and amount of our sales depend on a number of factors that make estimating future operating results difficult. Throughout our business, we do not typically maintain a significant amount of backlog, and sales are partially dependent on our ability to appropriately forecast product demand. In addition, our customers historically request fulfillment of orders in a short time period, resulting in limited visibility to sales trends and potential pricing pressures. Consequently, our operating results depend on the volume and timing of orders and our ability to fulfill orders in a timely manner. Historically, sales in the third month of the quarter have been higher than sales in each of the first two months of the quarter. Non-linear sales patterns make business planning difficult, and increase the risk that our quarterly results will fluctuate due to disruptions in functions such as manufacturing, order management, information systems, and shipping.

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 is moving towards aggressive assertion, licensing, and litigation of patents and other intellectual property rights.

In the course of our business, we frequently 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.

We may need to engage in complex and costly litigation in order to protect or maintain our intellectual property rights.

In addition to disputes relating to the validity or alleged infringement of other parties' rights, we may become involved in disputes relating to our assertion of our intellectual property rights. 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 by diverting 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, ODM, or joint venture partners

46

become involved in intellectual property disputes and are unable to hold us harmless, then we may incur liabilities or suffer temporary disruption of our business. Any one of these factors could adversely affect our revenue, gross margin, overall results of operations, cash flow or financial position.

Our future quarterly operating results are subject to factors that can cause fluctuations in our stock price.

Historically, our stock price has experienced substantial 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 short term investment balances;



•

variations between our actual financial results and the published analysts' expectations; and



•

announcements by our competitors.

In addition, over the past several quarters, 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.

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

In fiscal 2004, we began operating in a single business segment focused primarily on enterprise networking. This single enterprise networking business reflects a streamlined management and operating structure encompassing all of our operations, including our connectivity business that we previously operated and reported as a separate segment and which we expect will continue to diminish. Our focus on enterprise networking may cause increased risk or volatility associated with decreased diversification of our business. There will be 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 overcome negative perceptions of our company held by certain chief information officers of large enterprises, who may be skeptical of our long-term commitment to the high-end networking business as a result of our withdrawal from that business in fiscal 2000. 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 any diminished focus on the small and medium enterprise market.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures.    The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates, and equity security price risk. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity.    Our short-term investments consist mainly of fixed-income securities with a weighted average maturity of less than one year. These available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by ten percent from levels at May 28, 2004, the fair value of our short-term investments would decline by an immaterial amount. We currently have the ability and intention to hold our fixed income investments until maturity and, therefore, we would not expect our

47

operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates. If necessary, we may sell short-term investments prior to maturity to implement management strategies and meet our liquidity needs.

The current portion of long-term lease obligations was $0.3 million as of May 30, 2003. We had no long-term lease obligations, or other long-term debt as of May 28, 2004 or May 30, 2003. We do not hedge any interest rate exposures.

Foreign Currency Exchange Risk.    We enter into foreign exchange forward contracts to hedge certain balance sheet exposures and intercompany balances against future movements in foreign exchange rates. We attempt to reduce the impact of foreign currency fluctuations on corporate financial results by hedging existing foreign currency exposures and anticipated foreign currency transactions expected to occur within one month. Anticipated foreign currency transaction exposures with a maturity profile in excess of one month may be selectively hedged. Translation exposures are not hedged.

Gains and losses on the forward contracts are largely offset by gains and losses on the underlying exposure. A hypothetical ten percent appreciation of the U.S. Dollar from May 28, 2004 market rates would increase the unrealized value of our forward contracts by $3.0 million. Conversely, a hypothetical ten percent depreciation of the U.S. Dollar from May 28, 2004 market rates would decrease the unrealized value of our forward contracts by $3.0 million. The gains or losses on the forward contracts are largely offset by the gains or losses on the underlying transactions and consequently a sudden or significant change in foreign exchange rates would not have a material impact on future net income or cash flows.

Equity Security Price Risk.    We hold publicly traded equity securities that are subject to market price volatility. Equity security price fluctuations of plus or minus 50 percent would not have had a material impact on the value of these securities held at May 28, 2004.

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ITEM 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and Financial Statement Schedule

		Page
Financial Statements:
	Report of Independent Registered Public Accounting Firm	50
	Consolidated Statements of Operations for the years ended May 28, 2004, May 30, 2003, and May 31, 2002	51
	Consolidated Balance Sheets at May 28, 2004 and May 30, 2003	52
	Consolidated Statements of Stockholders' Equity for the years ended May 28, 2004, May 30, 2003, and May 31, 2002	53
	Consolidated Statements of Cash Flows for the years ended May 28, 2004, May 30, 2003, and May 31, 2002	54
	Notes to Consolidated Financial Statements	55
Financial Statement Schedule:
	Schedule II—Valuation and Qualifying Accounts and Reserves	91

All other schedules are omitted, because they are not required, are not applicable, or the information is included in the consolidated financial statements and notes thereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of 3Com Corporation and subsidiaries (3Com) as of May 28, 2004 and May 30, 2003, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 28, 2004. Our audits also included the consolidated financial statement schedule listed in the Index at Item 8. These financial statements and financial statement schedule are the responsibility of 3Com's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of 3Com at May 28, 2004 and May 30, 2003, and the results of its operations and its cash flows for each of the three years in the period ended May 28, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the financial statements, in 2003, 3Com changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."

DELOITTE & TOUCHE LLP

Boston, Massachusetts
July 19, 2004

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Consolidated Statements of Operations

		Years ended
		May 28, 2004			May 30, 2003			May 31, 2002
		(In thousands, except per share data)
Sales		$	698,884		$	932,866		$	1,258,969
Cost of sales			455,813			511,140			891,713
Gross margin			243,071			421,726			367,256
Operating expenses:
	Sales and marketing		244,703			242,722			273,552
	Research and development		95,195			113,057			197,958
	General and administrative		74,245			94,535			111,945
	Amortization and write down of intangibles		7,026			10,287			86,606
	Restructuring charges		159,727			184,880			109,036
	Loss on land and facilities, net		—			887			1,375
	Total operating expenses		580,896			646,368			780,472
Operating loss			(337,825	)		(224,642	)		(413,216	)
Loss on investments, net			(10,899	)		(36,131	)		(17,888	)
Interest and other income, net			15,905			20,158			67,371
Loss from continuing operations before income taxes, equity interests and cumulative effect of change in accounting principle			(332,819	)		(240,615	)		(363,733	)
Income tax provision (benefit)			(3,135	)		(10,522	)		89,919
Equity interest in loss of unconsolidated joint venture			(17,179	)		—			—
Loss from continuing operations before cumulative effect of change in accounting principle			(346,863	)		(230,093	)		(453,652	)
Discontinued operations, net of taxes (Note 3)			(2,400	)		(8,214	)		(142,298	)
Loss before cumulative effect of change in accounting principle			(349,263	)		(238,307	)		(595,950	)
Cumulative effect of change in accounting principle			—			(45,447	)		—
Net loss		$	(349,263	)	$	(283,754	)	$	(595,950	)
Basic and diluted loss per share:
	Continuing operations, before cumulative effect of change in accounting principle	$	(0.91	)	$	(0.64	)	$	(1.30	)
	Discontinued operations		(0.01	)		(0.02	)		(0.41	)
	Cumulative effect of change in accounting principle		—			(0.13	)		—
	Net loss	$	(0.92	)	$	(0.79	)	$	(1.71	)
Shares used in computing per share amounts:
	Basic and diluted		379,766			360,520			349,489

See notes to consolidated financial statements.

51

Consolidated Balance Sheets

			May 28, 2004			May 30, 2003
			(In thousands, except par value)
ASSETS
Current assets:
	Cash and equivalents		$	575,824		$	515,848
	Short-term investments			807,532			968,740
	Accounts receivable, less allowance for doubtful accounts ($16,276 and $22,323 in 2004 and 2003, respectively)			66,372			90,290
	Inventories			27,679			27,068
	Other current assets			42,270			51,234
		Total current assets		1,519,677			1,653,180
Investment in Huawei-3Com joint venture				142,891			—
Property and equipment, net				72,452			248,790
Property and equipment held for sale				42,147			101,283
Deposits and other assets				34,806			43,962
Deferred income taxes				2,937			2,211
Intangible assets, net				5,009			12,035
Goodwill				899			899
Total assets			$	1,820,818		$	2,062,360
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	80,408		$	105,583
	Accrued liabilities and other			226,161			233,239
	Current portion of debt			—			346
		Total current liabilities		306,569			339,168
Deferred revenue and long-term obligations				15,135			4,595
Commitments and contingencies (Notes 12 and 20)
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 outstanding: 2004—392,738 shares; 2003—367,796 shares			2,262,223			2,138,016
	Note receivable from sale of warrants			—			(8,421	)
	Unamortized stock-based compensation			(2,577	)		(1,474	)
	Retained deficit			(755,244	)		(405,981	)
	Accumulated other comprehensive loss			(5,288	)		(3,543	)
		Total stockholders' equity		1,499,114			1,718,597
Total liabilities and stockholders' equity			$	1,820,818		$	2,062,360

See notes to consolidated financial statements.

52

Consolidated Statements of Stockholders' Equity

			Common Stock					Treasury Stock														Accumulated Other Comprehensive Income (Loss)
													Note Receivable			Unamortized Stock-based Compensation			Retained Earnings (Deficit)
			Shares		Amount			Shares		Amount															Total
			(In thousands)
Balances, June 1, 2001			365,711		$	2,127,803		(21,412	)	$	(373,661	)	$	(21,052	)	$	(9,820	)	$	771,639		$	10,512		$	2,505,421
Components of comprehensive income (loss):
	Net loss																			(595,950	)					(595,950	)
	Change in unrealized gain on available-for-sale securities, net of tax benefit of $1,715																						(14,454	)		(14,454	)
	Accumulated translation adjustments																						173			173
		Total comprehensive loss																								(610,231	)
Repurchase of common stock								(1,050	)		(3,660	)														(3,660	)
Common stock issued under stock plans, net of cancellations			(262	)		(3,752	)	14,719			194,980						(1,914	)		(139,875	)					49,439
Stock-based compensation expense						2,532											6,704									9,236
Balances, May 31, 2002			365,449			2,126,583		(7,743	)		(182,341	)		(21,052	)		(5,030	)		35,814			(3,769	)		1,950,205
Components of comprehensive income (loss):
	Net loss																			(283,754	)					(283,754	)
	Change in unrealized gain on available-for-sale securities, net of tax expense of $278																						(559	)		(559	)
	Accumulated translation adjustments																						785			785
		Total comprehensive loss																								(283,528	)
Repurchase of common stock								(400	)		(1,548	)														(1,548	)
Common stock issued under stock plans, net of cancellations			2,347			9,385		8,143			183,889						(362	)		(158,041	)					34,871
Stock-based compensation expense						336											3,918									4,254
Collection on note receivable for warrants issued														12,631												12,631
Charge for extension of exercise period of warrant						1,712																				1,712
Balances, May 30, 2003			367,796			2,138,016		—			—			(8,421	)		(1,474	)		(405,981	)		(3,543	)		1,718,597
Components of comprehensive income (loss):
	Net loss																			(349,263	)					(349,263	)
	Unrealized loss on available-for-sale securities, net of tax benefit of $193																						(2,612	)		(2,612	)
	Net unrealized gain on derivative instruments																						141			141
	Accumulated translation adjustments																						726			726
		Total comprehensive loss																								(351,008	)
Common stock issued under stock plans, net of cancellations			24,942			122,675											(2,252	)								120,423
Stock-based compensation expense						1,532											1,149									2,681
Collection on note receivable for warrants issued														8,421												8,421
Balances, May 28, 2004			392,738		$	2,262,223		—		$	—		$	—		$	(2,577	)	$	(755,244	)	$	(5,288	)	$	1,499,114

See notes to consolidated financial statements.

53

Consolidated Statements of Cash Flows

				Years ended
				May 28, 2004			May 30, 2003			May 31, 2002
				(In thousands)
Cash flows from operating activities:
	Loss from continuing operations, including cumulative effect of change in accounting principle			$	(346,863	)	$	(275,540	)	$	(453,652	)
	Adjustments to reconcile loss from continuing operations, including cumulative effect of change in accounting principle to net cash provided by (used in) operating activities:
		Loss from discontinued operations			(2,400	)		(8,214	)		(142,298	)
		Gain on sale of CommWorks			—			(88,947	)		—
		Depreciation and amortization			109,407			159,323			257,584
		Loss on property and equipment			41,034			129,067			74,442
		Write-down of intangibles			2,307			73,251			70,093
		Stock-based expense			2,681			5,966			9,236
		Loss on investments, net			10,899			36,131			17,888
		Deferred income taxes			(533	)		3,959			78,396
		Equity interest in loss of unconsolidated joint venture			17,179			—			—
		Changes in assets and liabilities, net of effects of acquisitions and divestitures:
			Accounts receivable		23,918			56,823			143,770
			Inventories		(12,999	)		19,611			125,311
			Other assets		1,620			22,750			69,698
			Accounts payable		(25,175	)		(20,320	)		(152,212	)
			Accrued liabilities and other		802			(54,829	)		(313,794	)
			Income taxes receivable/payable		2,803			20,751			76,176
Net cash provided by (used in) operating activities					(175,320	)		79,782			(139,362	)
Cash flows from investing activities:
	Purchase of investments				(908,874	)		(1,290,303	)		(757,979	)
	Proceeds from maturities and sales of investments				1,056,097			1,018,439			806,615
	Purchase of property and equipment				(16,014	)		(25,381	)		(351,813	)
	Proceeds from sale of property and equipment				134,855			81,083			16,213
	Proceeds from sale of business, net of transaction costs				—			95,687			—
	Investment in Huawei-3Com joint venture				(160,000	)		—			—
Net cash provided by (used in) investing activities					106,064			(120,475	)		(286,964	)
Cash flows from financing activities:
	Issuance of common stock				120,423			34,871			49,439
	Repurchase of common stock				—			(1,548	)		(3,660	)
	Net borrowings (payments) on line of credit				—			(70,000	)		70,000
	Repayments of long-term borrowings				—			(97,500	)		(7,500	)
	Net proceeds from issuance of debt				—			—			105,000
	Repayments of capital lease obligations				(346	)		(1,826	)		(766	)
	Capitalization of deferred financing costs				—			—			(5,165	)
	Collection of note receivable issued for warrants				8,421			12,631			—
	Other, net				—			(45	)		63
Net cash provided by (used in) financing activities					128,498			(123,417	)		207,411
Effect of rate changes on cash and cash equivalents					734			903			173
Increase (decrease) in cash and equivalents					59,976			(163,207	)		(218,742	)
Cash and equivalents, beginning of period					515,848			679,055			897,797
Cash and equivalents, end of period				$	575,824		$	515,848		$	679,055
Other cash flow information:
	Interest paid			$	1,143		$	4,492		$	2,605
	Income tax refunds received, net				5,696			21,778			74,464

See notes to consolidated financial statements.

54

Notes to Consolidated Financial Statements

Note 1: Description of Business

3Com Corporation (3Com or the Company) was incorporated on June 4, 1979. A pioneer in the computer networking industry, 3Com provides data and voice networking products and solutions, as well as maintenance and support services, for enterprises and public sector organizations of all sizes. Headquartered in Marlborough, Massachusetts, 3Com has worldwide operations, including sales, marketing, research and development, and customer service and support capabilities.

Note 2: Significant Accounting Policies

Fiscal year.    3Com uses a 52-53 week fiscal year ending on the Friday nearest to May 31. Fiscal years 2002 through 2004 contained 52 weeks.

Use of estimates in the preparation of consolidated financial statements.    The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires 3Com to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales, costs and expenses during the reporting periods. Such management assumptions and estimates include allowances for doubtful accounts receivable, product returns, rebates and price protection; provisions for inventory to reflect net realizable value; estimates of fair value for investments in privately held companies, goodwill and other intangible assets, and properties held for sale; valuation allowances against deferred income tax assets; and accruals for severance costs, product warranty, other liabilities, and income taxes. Actual results could differ from those estimates.

Basis of presentation.    The consolidated financial statements include the accounts of 3Com and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. As discussed in Note 5, 3Com accounts for its investment in the Huawei-3Com Joint Venture by the equity method.

Discontinued operations.    The financial information related to the CommWorks division that was sold during fiscal 2003 is reported as discontinued operations for all periods presented, as discussed in Note 3.

Cash equivalents.    Cash equivalents consist of highly liquid investments in debt securities acquired with a remaining maturity of three months or less.

Short-term investments.    Short-term investments consist of investments in debt securities acquired with maturities exceeding three months but less than three years. 3Com's intent is to hold its investments in debt securities to maturity. However, consistent with Statement of Financial Accounting Standards (SFAS) 115, "Accounting for Certain Investments in Debt and Equity Securities," 3Com has classified all investments in debt securities and all investments in equity securities that have readily determinable fair values as available-for-sale, since the sale of such investments may be required prior to maturity to implement management strategies. Such investments are reported at fair value, with unrealized gains or losses excluded from earnings and included in other comprehensive income (loss), net of applicable taxes. Short-term investments are evaluated quarterly for other than temporary declines in fair value, which are reported in earnings. The cost of investments sold is based on the specific identification method.

Non-marketable equity securities and other investments.    Non-marketable equity securities and other investments consist primarily of direct investments in private companies and investments in limited partnership venture capital funds. Non-marketable equity securities and other investments are

55

accounted for at historical cost or, if 3Com has significant influence over the investee, by the equity method. Cost basis investments are evaluated quarterly for other than temporary declines in fair value, which are reported in earnings. Investments accounted for by the equity method include investments in limited partnership venture capital funds. The net income or loss of limited partnership venture capital funds, and the fair value of the funds are obtained from the funds' most recently issued financial statements. 3Com records its proportionate share of the net income of loss of the funds, and adjustments reflecting changes in the fair value of the funds, in loss on investments, net. Net investment gains and losses recorded as a result of sales of 3Com's investments in the limited partnership venture capital funds are based on the difference between the net sales proceeds and the carrying value of the investment at the time of sale. Generally, in connection with such sales and with the approval of the applicable fund's general partners, 3Com is released from all obligations with respect to future capital calls associated with the investment sold.

Concentration of credit risk.    Financial instruments that potentially subject 3Com to concentrations of credit risk consist principally of cash and equivalents, short-term investments and accounts receivable. For its short-term investments, 3Com maintains a minimum weighted average credit quality of AA and invests in instruments with an investment credit rating of A- and better; also, by policy, the Company limits the amount of credit exposure from any one institution or issuer. 3Com places its investments for safekeeping with a high-credit-quality financial institution.

For each of the three fiscal years in the period ended May 28, 2004, and as of May 28, 2004 and May 30, 2003, 3Com had two significant customers. One customer accounted for 20 percent of total sales in fiscal year 2004, 21 percent of total sales in fiscal year 2003, and 18 percent of total sales in fiscal year 2002. This customer also accounted for 22 percent of total accounts receivable as of May 28, 2004 and May 30, 2003, respectively. The second customer accounted for 13 percent of total sales in fiscal 2004, 12 percent of total sales in fiscal 2003, and ten percent of total sales in fiscal year 2002. The second customer also accounted for 13 percent and 14 percent of total accounts receivable as of May 28, 2004 and May 30, 2003, respectively.

Inventories.    Inventories are stated at the lower of standard cost, which approximates cost, or net realizable value. Cost is determined on a first-in, first-out basis.

Property and equipment.    Property and equipment is stated at cost, with the exception of assets classified as held for sale, which are stated at the lower of cost or net realizable value. Equipment under capital leases is stated at the lower of fair market value or the present value of the minimum lease payments at the inception of the lease. 3Com capitalizes eligible costs related to the application development phase of software developed internally or obtained for internal use. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated useful lives of the assets, which range from three to five years; the amounts charged to amortization expense were $1.1 million, $9.7 million, and $5.9 million in fiscal years 2004, 2003, and 2002, respectively.

Long-lived assets.    The carrying value of long-lived assets is evaluated whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, is less than the carrying value of the asset. Impairment is measured as the amount by which the carrying amount exceeds the fair value. Impairments of long-lived assets are discussed more fully in Recent accounting pronouncements below and Note 9.

Depreciation and amortization.    Depreciation and amortization are computed over the shorter of the estimated useful lives, lease, or license terms on a straight-line basis. Estimated useful lives generally are 2-15 years, except for buildings for which the useful lives are 25-40 years. Purchased technology is amortized over estimated useful lives that generally are 2-7 years. As discussed in Recent accounting

56

pronouncements below, 3Com adopted SFAS 142 effective June 1, 2002 and discontinued the amortization of indefinite-life assets.

Revenue recognition.    3Com recognizes product revenue in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" and Staff Accounting Bulletin No. 104, "Revenue Recognition." Specifically, product revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and risk of loss has passed to the customer, the fee is fixed or determinable, and collectibility is reasonably assured. In instances where the customer specifies final acceptance of the product or service, revenue and related costs are deferred until all acceptance criteria have been met. For sales of products that contain software that is marketed separately, 3Com applies the provisions of AICPA Statement of Position 97-2 "Software Revenue Recognition," as amended.

Certain of 3Com's sales are made to distributors and resellers through a two-tier distribution channel. Revenue related to such sales is reduced for allowances for product returns, price protection, rebates and other offerings established in 3Com's sales agreements. 3Com allows for product return rights that are generally limited to a percentage of sales over a one to three month period.

Sales of services, including professional services, system integration, project management, and training, are recognized upon delivery and completion of performance. Other service revenue, such as that related to maintenance and support contracts, is recognized ratably over the contract term, provided that all other revenue recognition criteria have been met. Royalty revenue from technology licensing is recognized as earned.

For arrangements that involve multiple elements, such as sales of products that include maintenance or installation services, revenue is allocated to each respective element based on its relative fair value and recognized when the revenue recognition criteria for each element have been met. 3Com uses the residual method to recognize revenue when an arrangement includes one or more elements to be delivered at a future date and objective and reliable evidence of the fair value of all the undelivered elements exits. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue for the delivered elements, provided that all other revenue recognition criteria have been met. If objective and reliable evidence of fair value of one or more undelivered elements does not exist, revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established.

Product Warranty.    3Com provides limited warranty on 3Com products for periods ranging from 90 days to the lifetime of the product, depending upon the product. The warranty generally includes parts, labor and service center support. 3Com estimates the costs that may be incurred under its warranty obligations and records a liability in the amount of such costs at the time revenue is recognized. Factors that affect 3Com's warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. 3Com periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Advertising.    Costs associated with cooperative advertising programs are estimated and expensed at the time the related sales are recognized. All other advertising costs are expensed as incurred.

Restructuring Charges.    In recent fiscal years, 3Com has undertaken several initiatives involving significant changes in its business strategy and cost structure. In connection with these initiatives, 3Com has recorded significant restructuring charges, as more fully described in Note 4. Generally, costs associated with an exit or disposal activity are recognized when the liability is incurred. Costs related to employee separation arrangements requiring future service beyond a specified minimum retention period are recognized over the future service period.

Foreign currency translation.    The majority of 3Com's foreign operations have the local currency as the functional currency; however, the majority of sales transactions are denominated in U.S. dollars. For

57

foreign operations with the local currency as the functional currency, local currency denominated assets and liabilities are translated at the year-end exchange rates, and revenue, costs and expenses are translated at the average exchange rates during the year. Gains or losses resulting from foreign currency translation are included as a component of other comprehensive income (loss) in the consolidated balance sheet. For foreign operations with the U.S. Dollar as the functional currency, foreign currency denominated assets and liabilities are remeasured at the year-end exchange rates except for inventories, prepaid expenses, and property and equipment, which are remeasured at historical exchange rates. Foreign currency denominated revenue, costs and expenses are recorded at the average exchange rates during the year, except for costs and expenses related to items such as inventories and property and equipment, which are remeasured using historical exchange rates. Gains or losses resulting from foreign currency remeasurement are included in interest and other income, net, in the consolidated statement of operations.

3Com enters into foreign exchange forward contracts to hedge certain balance sheet exposures and intercompany balances against future movements in foreign exchange rates. In accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, these contracts are marked to market, and market value changes are expensed in the current period in interest and other income, net. In addition, 3Com enters into foreign exchange forward contracts to hedge exposures related to anticipated foreign currency cash flows. These contracts, designated as cash flow hedges, also are marked to market. The gain or loss from the effective portion of the hedge is reported initially as a component of other comprehensive income (loss) in the consolidated balance sheet; subsequently, the gain or loss is reclassified and reported in the consolidated statement of operations in the same period or periods and manner as the hedged transaction. The gain or loss from the ineffective portion of the hedge is recognized in interest and other income, net, during the period of change.

Net foreign currency gains (losses) included in interest and other income, net, were $(0.9) million, zero, and $0.2 million for the years ended May 28, 2004, May 30, 2003, and May 31, 2002, respectively.

Stock-based compensation.    3Com accounts for its employee stock option grants and employee stock purchase plan by the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees," as described more fully in Note 13. The following table illustrates the pro forma effect on 3Com's reported net loss and net loss per share of applying the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation" to stock-based employee compensation (in thousands, except per share amounts):

		Years ended
		May 28, 2004			May 30, 2003			May 31, 2002
Net loss as reported		$	(349,263	)	$	(283,754	)	$	(595,950	)
	Add stock-based compensation included in reported net loss		2,681			4,254			9,236
	Deduct total stock-based compensation determined by the fair value-based method, net of tax		(19,041	)		(25,235	)		(75,175	)
Pro forma net loss		$	(365,623	)	$	(304,735	)	$	(661,889	)
Net loss per share:
	As reported—basic and diluted	$	(0.92	)	$	(0.79	)	$	(1.71	)
	Pro forma—basic and diluted		(0.96	)		(0.85	)		(1.89	)

For purposes of this pro forma disclosure, it is assumed that the estimated fair value of an option is amortized to expense over the option's vesting period.

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Net loss per share.    Basic earnings per share is computed using the weighted average number of common shares outstanding. Diluted earnings per share is computed using the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of employee stock options, warrants, and restricted stock, and are excluded from the diluted earnings per share computation in periods where the Company has incurred a net loss.

Recent accounting pronouncements:    In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets". SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather tested at least annually for impairment, and intangible assets that have finite useful lives be amortized over their useful lives. In addition, SFAS 142 expands the disclosure requirements about goodwill and other intangible assets in the years subsequent to their acquisition. Impairment losses for goodwill and other indefinite-lived intangible assets that arise due to the initial application of SFAS 142 are to be reported as a change in accounting principle. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets.

3Com adopted SFAS 142 and SFAS 144 effective June 1, 2002. At the time of adoption, 3Com ceased amortization of net goodwill totaling $66.5 million, which included $0.7 million of acquired workforce intangible assets previously classified as purchased intangible assets. In the first quarter of fiscal 2003, 3Com completed the first phase of the SFAS 142 analysis, which indicated that an impairment may have existed for the goodwill associated with both its continuing operations and its discontinued CommWorks operations. In the second quarter of fiscal 2003, 3Com completed the transitional goodwill impairment evaluation and recorded a charge totaling $65.6 million effective June 1, 2002; of this amount, $45.4 million was reported as the cumulative effect of a change in accounting principle and $20.2 million was reported in discontinued operations. The remaining recorded goodwill after this impairment charge was $0.9 million. A reconciliation of previously reported net loss and net loss per share to the amounts adjusted for the exclusion of amortization of goodwill and acquired workforce is provided below (in thousands, except per share amounts):

	Years ended
	May 28, 2004			May 30, 2003			May 31, 2002
Reported net loss	$	(349,263	)	$	(283,754	)	$	(595,950	)
Add back amortization of goodwill and acquired workforce		—			—			31,813
Adjusted net loss	$	(349,263	)	$	(283,754	)	$	(564,137	)
Reported net loss per share—basic and diluted	$	(0.92	)	$	(0.79	)	$	(1.71	)
Add back amortization of goodwill and acquired workforce		—			—			0.10
Adjusted net loss per share—basic and diluted	$	(0.92	)	$	(0.79	)	$	(1.61	)

As discussed in Note 9, the carrying value of intangible assets with finite lives was approximately $5.0 million as of May 28, 2004. These assets continue to be amortized over their estimated useful lives.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS 146 also establishes that the liability initially should be

59

measured and reported at fair value, and that employee benefit arrangements requiring future service beyond a "minimum retention period" should be recognized over the future service period. 3Com adopted the provisions of SFAS 146 for exit or disposal activities that were initiated after December 31, 2002. The adoption of SFAS 146 did not have a material impact on 3Com's financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under the guarantee. 3Com adopted the provisions of FIN 45 for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on 3Com's financial position or results of operations.

In November 2002, the FASB Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF 00-21 is effective for fiscal periods beginning after June 15, 2003; for 3Com, EITF 00-21 became effective for the second quarter of fiscal 2004. 3Com's historical revenue recognition policies and practices conform to the requirements of EITF 00-21 and, thus, the adoption of EITF 00-21 did not have a material impact on 3Com's financial position or results of operations.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," which amends SFAS 123, "Accounting for Stock-Based Compensation." SFAS 148 provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects an entity's accounting policy decisions with respect to stock-based employee compensation on reported net income in both annual and interim periods. 3Com adopted the disclosure requirements of SFAS 148 effective March 1, 2003 and continues to account for stock based compensation under APB Opinion 25 and related interpretations. The adoption of the disclosure requirements of SFAS 148 did not have a material impact on 3Com's financial position or results of operations.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities". FIN 46 establishes accounting guidance for consolidation of a variable interest entity, formerly referred to as a special purpose entity. In December 2003, the FASB issued FIN 46(R), which deferred the effective date of FIN 46 for certain variable interest entities created before February 1, 2003 to the first interim or annual reporting period that ends after March 15, 2004. 3Com has determined that FIN 46 and FIN 46(R) are not applicable to any of its investments.

In December 2003, the Securities and Exchange Commission released Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). SAB 104 clarifies existing guidance regarding revenue recognition for contracts that contain multiple deliverables to make it consistent with EITF No. 00-21. As indicated above, 3Com's revenue recognition policies and practices conform to the requirements of EITF 00-21.

Note 3: Discontinued Operations

On March 4, 2003, 3Com entered into an agreement (Asset Purchase Agreement) to sell selected assets and liabilities of the CommWorks division to UTStarcom, Inc. (UTStarcom) in exchange for $100.0 million in cash, subject to certain closing adjustments. On May 23, 2003, 3Com completed the sale pursuant to the terms of the Asset Purchase Agreement. As a result, 3Com reported the CommWorks division as a discontinued operation beginning in the fourth quarter of fiscal 2003 and restated all prior periods presented on a comparative basis. The sale of the CommWorks division generated net cash proceeds of approximately $95.7 million, reflecting transaction costs of $4.3 million.

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Following is a breakdown of amounts related to the CommWorks division included in the caption "Discontinued operations" in the consolidated statements of operations (in thousands):

	Years ended
	May 28, 2004			May 30, 2003			May 31, 2002
Loss from operations (net of tax benefit of $0, $1,521 and $1,380 in 2004, 2003 and 2002, respectively)	$	(2,400	)	$	(80,022	)	$	(142,298	)
Gain on sale (net of tax provision of $17,139 in 2003)		—			71,808			—
Total	$	(2,400	)	$	(8,214	)	$	(142,298	)

The loss from operations in fiscal 2004 resulted from adjustments to previous estimates of liabilities related to the sale of the CommWorks division. The loss from operations in fiscal 2003 and 2002 reflected sales of $112.7 million and $219.0 million, respectively, and restructuring charges specific to the CommWorks division of $17.8 million and $58.4 million, respectively. Restructuring charges in fiscal 2003 consisted primarily of severance and outplacement costs; such charges in fiscal 2002 consisted primarily of facilities-related expenses associated with the Mount Prospect, Illinois facility that was associated with CommWorks' operations and severance and outplacement costs. Additionally, as discussed in Note 2, the adoption of SFAS 142 resulted in a write-off of goodwill that arose from acquisitions related to CommWorks' operations, resulting in a charge of $20.2 million that was recorded in loss from discontinued operations in fiscal 2003.

Note 4: Restructuring Charges

In recent fiscal years, 3Com has undertaken several initiatives involving significant changes in its business strategy and cost structure.

In fiscal 2001, 3Com announced and began a broad restructuring of its business to enhance the focus and cost effectiveness of its business units in serving their respective markets. These restructuring efforts continued through fiscal 2002. The Company took the following specific actions in fiscal 2001 and 2002 (the "Fiscal 2001 and 2002 Actions"): it organized around independent businesses that utilized shared central services; it exited product lines; it outsourced the manufacturing of certain high volume server, desktop and mobile connectivity products in a contract manufacturing arrangement; it implemented a reduction in workforce; and it consolidated its real estate facilities and made plans to sell excess facilities.

As a result of further revenue declines and net losses, 3Com took additional restructuring actions in fiscal 2003 (the "Fiscal 2003 Actions"). The Company announced the integration of the support infrastructure of two of its business units to leverage a common infrastructure in order to drive additional costs out of the business. In addition, the Company entered into an agreement to outsource certain information technology (IT) functions, reduced its workforce, and continued to consolidate and dispose of excess facilities.

In response to continuing revenue declines and net losses, 3Com took additional measures to reduce costs in fiscal 2004 (the "Fiscal 2004 Actions"). These actions included reductions in workforce, outsourcing of the Company's remaining manufacturing operations in Dublin, Ireland, and continuing efforts to consolidate and dispose of excess facilities.

Restructuring charges related to these various initiatives in fiscal 2004, 2003, and 2002 were $159.7 million, $184.9 million, and $109.0 million, respectively. Such charges were net of credits of $8.0 million, $2.8 million and $6.5 million for fiscal 2004, 2003, and 2002, respectively, related primarily to revisions of previous estimates of employee separation expenses. The credit in fiscal 2004 also

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reflected adjustments that resulted from settlement of obligations related to outsourcing of manufacturing operations in Dublin at amounts less than originally estimated.

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 3Com intends to satisfy such liabilities in cash within the next 12 months.

Fiscal 2004 Actions

The following table provides a summary of the components of accrued restructuring charges related to restructuring actions initiated in fiscal 2004 and the ending balances of the associated accrued liabilities as of May 28, 2004 (in thousands):

	Employee Separation Expense			Long-term Asset Write-downs			Facilities- related Charges			Other Restructuring Costs			Total
Balance at May 30, 2003	$	—		$	—		$	—		$	—		$	—
Provision		59,170			2,052			89,702			1,165			152,089
Payments and non-cash charges		(53,641	)		(2,052	)		(89,172	)		(1,165	)		(146,030	)
Balance at May 28, 2004	$	5,529		$	—		$	530		$	—		$	6,059

Employee separation expenses include severance pay, outplacement services, medical, and other related benefits. The reduction in workforce affected employees involved in sales and marketing, customer support, manufacturing, research and development, and general and administrative functions. Through May 28, 2004, the total reduction in workforce associated with actions initiated during fiscal 2004 included approximately 1,200 employees who had been separated or were currently in the separation process, and approximately 100 additional employees who had been notified but had not yet worked their last day. Also, through May 28, 2004, total separation payments associated with actions initiated during fiscal 2004 were approximately $52.5 million.

Long-term asset write-downs were associated with assets that no longer support 3Com's continuing operations. The provision of $2.1 million was related to capitalized software licenses with no future benefit ($0.7 million) and leasehold improvements in vacated facilities ($1.4 million).

Facilities-related charges included write-downs and accelerated depreciation of properties, including properties that were classified as held for sale prior to fiscal 2004, as well as expenses related to lease terminations. In fiscal 2004, 3Com recorded $89.7 million in facilities-related charges, including $47.7 million for impairment and accelerated depreciation of a Santa Clara, California facility due to 3Com's plan to vacate the facility and move to a smaller Santa Clara facility already owned, offset by a $0.4 million gain on the sale of this vacated facility later in fiscal 2004; $25.1 million for impairment and accelerated depreciation of the Dublin manufacturing facility; $11.2 million for write-down and $1.4 million for loss on the sale of certain other Santa Clara properties; $1.1 million for loss on the sale of its Rolling Meadows, Illinois facility; $2.7 million related to fair value adjustments of properties classified as held for sale prior to fiscal 2004; and $0.9 million related to estimated lease termination costs.

Other restructuring costs of $1.2 million included payments to suppliers and contract breakage fees. 3Com expects to complete any remaining activities related to restructuring actions initiated in fiscal 2004 during fiscal 2005.

Fiscal 2003 Actions

The following table provides a summary of the components of accrued restructuring charges related to restructuring actions initiated in fiscal 2003, together with changes in the accrued amounts during fiscal

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2003 and fiscal 2004, and the ending balances of the associated accrued liabilities as of May 30, 2003 and May 28, 2004 (in thousands):

	Employee Separation Expense			Long-term Asset Write-downs			Facilities- related Charges			Other Restructuring Costs			Total
Balance at May 31, 2002	$	—		$	—		$	—		$	—		$	—
Provision		20,531			3,566			151,385			475			175,957
Payments and non-cash charges		(16,014	)		(3,566	)		(149,044	)		(475	)		(169,099	)
Balance at May 30, 2003		4,517			—			2,341			—			6,858
Provision (benefit)		(39	)		—			1,681			—			1,642
Payments and non-cash charges		(4,478	)		—			(1,456	)		—			(5,934	)
Balance at May 28, 2004	$	—		$	—		$	2,566		$	—		$	2,566

Employee separation expenses include severance pay, outplacement services, medical, and other related benefits. The reduction in workforce affected employees involved in sales, customer support, product development, and general and administrative positions.

Long-term asset write-downs were associated with assets that no longer support 3Com's continuing operations. The provision of $3.6 million was related primarily to disposal of computer equipment in connection with the outsourcing of certain IT operations ($1.9 million), and leasehold improvements in vacated facilities ($1.3 million).

Facilities-related charges included accelerated depreciation of buildings, write-downs of land and buildings held for sale, a loss on the sale of a facility, and lease terminations. In fiscal 2003, 3Com recorded a charge of $151.4 million relating to these items, consisting of $85.4 million for write downs of facilities located in Rolling Meadows, Santa Clara, Ireland, and the U.K.; accelerated depreciation of $34.3 million on certain Santa Clara facilities; a $29.4 million loss on the sale of its Marlborough, facility; and lease terminations costs of $2.3 million. Included in the $85.4 million of write-downs of facilities are charges related to assets classified as held for sale during fiscal 2003, and additional write-downs on assets that were classified as held for sale as of May 31, 2002 as a result of further deterioration in the real estate market during fiscal 2003. In fiscal 2004, 3Com recorded a charge of $1.7 million related primarily to lease obligations for vacated facilities in Salt Lake City, Utah.

3Com expects to complete any remaining activities related to restructuring actions initiated in fiscal 2003 during fiscal 2005.

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Fiscal 2001 and 2002 Actions

Components of accrued restructuring charges associated with the cost reduction actions that were initiated in fiscal 2001 and 2002 were as follows (in thousands):

	Employee Separation Expense			Long-term Asset Write-downs			Facilities- related Charges			Other Restructuring Costs			Total
Balance at June 1, 2001	$	39,902		$	—		$	—		$	1,782		$	41,684
Provision		43,356			13,636			47,824			4,379			109,195
Payments and non-cash charges		(78,305	)		(13,636	)		(42,470	)		(2,714	)		(137,125	)
Balance at May 31, 2002		4,953			—			5,354			3,447			13,754
Provision (benefit)		(337	)		3,064			6,196			—			8,923
Payments and non-cash charges		(4,616	)		(3,064	)		(5,170	)		(2,216	)		(15,066	)
Balance at May 30, 2003		—			—			6,380			1,231			7,611
Provision		—			1,317			4,662			17			5,996
Payments and non-cash charges		—			(1,317	)		(4,319	)		(1,166	)		(6,802	)
Balance at May 28, 2004	$	—		$	—		$	6,723		$	82		$	6,805

Employee separation expenses include severance pay, outplacement services, medical, and other related benefits. The reduction in workforce affected employees involved in sales, customer support, manufacturing and logistics, product development, and general and administrative functions.

Long-term asset write-downs were associated with assets that no longer support 3Com's continuing operations. Fiscal 2002 charges were $13.6 million, primarily for manufacturing and engineering equipment. Fiscal 2003 and 2004 charges were $3.1 million and $1.3 million, respectively, primarily for manufacturing and engineering equipment sold at a price below the Company's original estimates.

Facilities-related charges included accelerated depreciation of buildings, write-downs of land and buildings held for sale, losses on sales of facilities, and lease terminations. In fiscal 2002, 3Com recorded $47.8 million in facilities-related charges, including $24.4 million for write downs of land and buildings held for sale in Santa Clara and Mount Prospect, Illinois; a $13.2 million loss on the sale of the Singapore manufacturing facility; and approximately $10.2 million for other facilities-related charges. In fiscal 2003 and 2004, 3Com recorded charges of $6.2 million and $4.7 million, respectively, related to lease obligations for vacated facilities.

Other restructuring costs included payments to suppliers and contract breakage fees. In fiscal 2002, 3Com recorded an additional provision of $4.4 million. Total payments made in fiscal 2002, 2003 and 2004 were $2.7 million, $2.2 million, and $1.2 million, respectively.

3Com expects to complete any remaining actions related to restructuring actions initiated in fiscal 2001 and 2002 during fiscal 2005.

Note 5: Investment in Unconsolidated Joint Venture

On November 17, 2003, 3Com formed the Huawei-3Com Joint Venture (H-3C) with a subsidiary of Huawei Technologies, Ltd. (Huawei). H-3C is domiciled in Hong Kong, and has its principal operating centers in Hangzhou and Beijing, China. At the time of formation, 3Com contributed cash of $160.0 million, assets related to its operations in China and Japan with a carrying value of $0.1 million, and licenses related to certain intellectual property in exchange for 49 percent of the outstanding common shares of H-3C. 3Com recorded its initial investment in H-3C at $160.1 million, reflecting 3Com's carrying value for the assets contributed in exchange for the common shares received. Huawei

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contributed assets valued at $178.2 million in exchange for a 51 percent ownership interest; Huawei's contributed assets included its enterprise networking business assets, including Local Area Network (LAN) switches and routers; engineering, sales, marketing resources and personnel; and licenses to its related intellectual property. Two years after formation of H-3C, 3Com has the one-time option to purchase an additional two percent ownership interest from Huawei for an amount not to exceed $28 million. Three years after formation of H-3C, 3Com and Huawei each have the right to purchase all of the other partner's ownership interest through a bid process.

3Com accounts for its investment in H-3C by the equity method. Under this method, 3Com records its proportionate share of H-3C's net income or loss based on the most recently available quarterly financial statements of H-3C. Since H-3C has adopted a calendar year basis of reporting, 3Com has reported its equity in H-3C's net loss for H-3C's fiscal period from the date of formation (November 17, 2003) through March 31, 2004 in 3Com's results of operations for fiscal 2004. 3Com's proportionate share of the reported loss from operations for the period from the date of formation to March 31, 2004 was $4.6 million, and is included in 3Com's results of operations for fiscal 2004 under the caption "Equity interest in loss of unconsolidated joint venture." Also, at the time of formation of H-3C, 3Com recorded a charge of $12.6 million representing 3Com's ownership share (49 percent) of the value attributed to in-process technology contributed to H-3C by Huawei that had not yet reached technological feasibility and had no alternative future use. This charge also was included in 3Com's results of operations for fiscal 2004 under the caption "Equity interest in loss of unconsolidated joint venture." For fiscal 2004, 3Com's total reported loss related to H-3C was $17.2 million. Prospectively, 3Com will continue to report its equity in H-3C's net income or loss based on H-3C's most recent financial statements, two months in arrears.

Summarized information from the balance sheet and statement of operations for H-3C as of and for the period ended March 31, 2004, and as of the date of its formation on November 17, 2003 were as follows (in thousands):

	March 31, 2004		November 17, 2003
Current assets	$	242,904	$	160,000
Non-current assets		199,605		204,088
Current liabilities		86,825		—
Sales		61,508		—
Gross margin		23,182		—
Net loss		34,086		—

In determining 3Com's share of the net loss of H-3C for the fiscal period ended March 31, 2004, certain adjustments were made to H-3C's financial statements. These adjustments included the deferral of profit for products sold to 3Com that remained in 3Com's inventory as of the end of March 31, 2004, as well as the elimination of expense for the amortization of intangible assets that 3Com contributed to H-3C at the time of formation. After such adjustments, 3Com recorded a loss of $4.6 million as its share of H-3C's net loss for H-3C's fiscal period from the date of formation through March 31, 2004; this loss is included in 3Com's results of operations for fiscal 2004 under the caption "Equity interest in loss of unconsolidated joint venture."

3Com and H-3C are parties to agreements for the sale of certain products from 3Com to H-3C as well as from H-3C to 3Com. In addition, 3Com provides certain services to H-3C related to warranty for its products sold to H-3C, as well as information technology services. During fiscal 2004, 3Com recorded sales to H-3C of approximately $6.4 million and made purchases of approximately $9.7 million. As of May 28, 2004, 3Com had deferred approximately $1.1 million of sales made to H-3C that had not yet been shipped to H3-C's end customer. Also, as of May 28, 2004, 3Com had trade receivables and payables with H-3C of approximately $2.1 million and $2.7 million, respectively, which are included in

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the captions "Accounts receivable" and "Accounts payable," respectively, in the accompanying consolidated balance sheet. Also, as of May 28, 2004, 3Com had an additional receivable from H-3C of approximately $0.7 million related to amounts due in reimbursement of costs paid on H-3C's behalf; this receivable is included in the caption "Other current assets" in the accompanying consolidated balance sheet.

Note 6: Investments

Available-for-sale securities consist of (in thousands):

	May 28, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
State and municipal securities	$	47,747	$	—	$	(278	)	$	47,469
U.S. Government and agency securities		146,355		6		(436	)		145,925
Corporate debt securities		615,358		11		(1,231	)		614,138
Short-term investments		809,460		17		(1,945	)		807,532
Publicly traded corporate equity securities		213		202		(6	)		409
Total	$	809,673	$	219	$	(1,951	)	$	807,941
	May 30, 2003
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
State and municipal securities	$	19,558	$	17	$	—		$	19,575
U.S. Government and agency securities		292,118		455		(30	)		292,543
Corporate debt securities		655,879		785		(42	)		656,622
Short-term investments		967,555		1,257		(72	)		968,740
Publicly traded corporate equity securities		729		—		(475	)		254
Total	$	968,284	$	1,257	$	(547	)	$	968,994

The total cost and carrying value of corporate equity securities consist of (in thousands):

	May 28, 2004
	Initial Cost		Carrying Value
Investments in limited partnership venture capital funds	$	18,495	$	13,935
Direct investments in private companies		37,149		2,591
Total private equity investments		55,644		16,526
Publicly traded corporate equity securities				409
Total corporate equity securities			$	16,935
	May 30, 2003
	Initial Cost		Carrying Value
Investments in limited partnership venture capital funds	$	19,017	$	10,950
Direct investments in private companies		46,986		21,286
Total private equity investments		66,003		32,236
Publicly traded corporate equity securities				254
Total corporate equity securities			$	32,490

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Gross unrealized losses as of May 28, 2004 relate to securities owned less than 12 months. Such unrealized losses were the result of declining market interest rates. As 3Com intends to hold such securities to maturity, the Company expects to realize the amortized cost of the securities.

Publicly traded corporate equity securities are included in other current assets. Private equity instruments are included in deposits and other assets.

During the fiscal year ended May 28, 2004, publicly traded corporate equity securities and investments in limited partnership venture capital funds were sold for proceeds of $9.0 million. Net realized losses on investments of $10.9 million were recorded during fiscal 2004, composed of $5.2 million of net gains realized on sales of publicly traded equity securities and investments in limited partnership venture capital funds, and $16.1 million of net losses recognized due to fair value adjustments of investments in limited partnership venture capital funds and impairments of investments in private companies whose declines in value have been determined to be other than temporary.

During the fiscal year ended May 30, 2003, publicly traded corporate equity securities and investments in limited partnership venture capital funds were sold for proceeds of $9.2 million. Net realized losses on investments of $36.1 million were recorded during fiscal 2003, composed of $7.4 million of net losses realized on sales of publicly traded equity securities and investments in limited partnership venture capital funds, and $28.7 million of net losses recognized due to fair value adjustments of investments in limited partnership venture capital funds and impairments of investments in private companies whose declines in value have been determined to be other than temporary.

During the fiscal year ended May 31, 2002, publicly traded corporate equity securities were sold for proceeds of $32.2 million. Net realized losses on investments of $17.9 million were recorded during fiscal 2002, composed of $30.5 million of net losses recognized due to fair value adjustments of investments in limited partnership venture capital funds and impairments of investments in private companies whose declines in value have been determined to be other than temporary. The losses were partially offset by $12.6 million of net gains realized on sales of publicly traded equity securities.

The contractual maturities of available-for-sale debt securities at May 28, 2004 are as follows (in thousands):

	Amortized Cost		Fair Value
Within one year	$	675,510	$	674,686
Between one year and two years		133,950		132,846
Total	$	809,460	$	807,532

Note 7: Inventories

Inventories consist of (in thousands):

	May 28, 2004		May 30, 2003
Finished goods	$	25,869	$	15,891
Work-in-process		485		3,228
Raw materials		1,325		7,949
Total	$	27,679	$	27,068

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Note 8: Property and Equipment

Property and equipment, net, consists of (in thousands):

	May 28, 2004			May 30, 2003
Land	$	15,964		$	54,001
Buildings and improvements		29,727			210,476
Machinery and equipment		206,099			345,031
Software		105,943			148,823
Furniture and fixtures		26,880			54,690
Leasehold improvements		10,274			34,321
Construction in progress		1,664			2,988
Total		396,551			850,330
Accumulated depreciation and amortization		(324,099	)		(601,540	)
Property and equipment, net	$	72,452		$	248,790

Property and equipment held for sale as of May 28, 2004 totaled $42.1 million, net and included land, buildings, and equipment related to facilities in Ireland and the U.K. Property and equipment held for sale as of May 30, 2003 totaled $101.3 million, net and included land, buildings, and equipment related to facilities in Santa Clara, Ireland, and the U.K.

Significant property and equipment transactions

For the Year Ended May 28, 2004.    In the first quarter of fiscal 2004, 3Com sold its 511,000 square foot office and research and development facility in Rolling Meadows. Net proceeds from the sale were $35.8 million, resulting in a loss on the sale of $1.1 million that was recorded in restructuring charges in the first quarter of fiscal 2004. As part of the terms of the transaction, 3Com entered into an agreement to lease back approximately 43,000 square feet of space at then-prevailing market rates. This property was not classified as held for sale as of May 30, 2003 due to 3Com's intention to lease back a portion of the facility.

As a result of 3Com's workforce reductions and relocation of its headquarters from Santa Clara to Marlborough during fiscal 2004, 3Com had excess office space in several buildings it owned in Santa Clara. During the first quarter of fiscal 2004, 3Com decided to consolidate its office space and relocate from its current locations into a smaller, vacant facility that was classified as held for sale as of May 30, 2003, and had a carrying value of $10.1 million. Due to this decision, 3Com reclassified this previously held for sale facility as held for use. No impairment charge was recorded as a result of this reclassification because the carrying value of the facility, which reflected fair value, was less than what the net book value would have been had depreciation continued on the facility during the period it was classified as held for sale.

In the second quarter of fiscal 2004, 3Com sold certain properties in Santa Clara that were classified as held for sale as of May 30, 2003. These properties, consisting of approximately 876,000 square feet of office and manufacturing space and related furniture and fixtures, previously had been used by 3Com in its administrative, customer service, research and development, and manufacturing activities. Net proceeds from the sale were $62.4 million, resulting in a loss on the sale of $1.4 million that was recorded in restructuring charges in fiscal 2004. Prior to the sale, 3Com had also recorded impairment charges of $11.2 million as restructuring charges during fiscal 2004 related to this property, as discussed in Note 4.

In the fourth quarter of fiscal 2004, 3Com sold certain properties in Santa Clara that were not classified as held for sale as of May 30, 2003. These properties, consisting of approximately 306,000

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square feet of office and manufacturing space and related furniture and fixtures, previously had been used by 3Com in its administrative, customer service, research and development, and manufacturing activities. As a result of 3Com's decision during fiscal 2004 to vacate and sell this property, 3Com recorded $47.7 million in accelerated depreciation and impairment charges, which were recorded as restructuring charges, as discussed in Note 4. Net proceeds from the sale were $34.5 million, resulting in a gain on the sale of $0.4 million that was recorded in restructuring charges in fiscal 2004.

For the Year Ended May 30, 2003.    In the first quarter of fiscal 2003, 3Com sold its 639,000 square foot manufacturing and office facility in Mount Prospect that was classified as held for sale as of May 31, 2002. The estimated net realizable value of this property as of May 31, 2002 was $17.4 million. Net proceeds from the sale were $17.8 million, resulting in a $0.4 million credit that was recorded in discontinued operations in fiscal 2003. Additionally, as a portion of 3Com's term loan was collateralized by the Mount Prospect facility, 3Com repaid approximately $7.5 million of the term loan balance with the proceeds of this sale as was required under the terms of the financing agreement.

In the second quarter of fiscal 2003, 3Com sold its 185,000 square foot office and research and development facility in Salt Lake City that was classified as held for sale prior to the inception of its restructuring programs. Net proceeds from the sale were $4.2 million, and 3Com recorded a $0.9 million net loss relating to this property in fiscal 2003 in loss on land and facilities, net. Since this facility was classified as held for sale prior to the inception of 3Com's restructuring programs, the net losses associated with it were not the result of restructuring actions and were not recorded as a part of restructuring charges.

Also in the second quarter of fiscal 2003, 3Com sold its 550,000 square foot Marlborough property, and has leased back approximately 168,000 square feet of the property at prevailing market rates. Net proceeds from the sale were $56.6 million, resulting in a loss of $29.4 million that was recorded in restructuring charges in fiscal 2003.

For the Year Ended May 31, 2002.    In the second quarter of fiscal 2002, 3Com paid $316.7 million for land and buildings at its Santa Clara and Marlborough locations that were previously under operating lease arrangements.

In the third quarter of fiscal 2002, 3Com sold its Singapore manufacturing and distribution facility for net proceeds of approximately $10.7 million. As a result of this transaction, 3Com recorded a loss in restructuring charges of $13.2 million. Also included in restructuring charges is $24.4 million for impairments of held for sale properties located in Santa Clara and Mount Prospect.

In fiscal 2002, 3Com recorded an impairment charge of $1.4 million relating to its Salt Lake City facility in loss on land and facilities, net.

Note 9: Intangible Assets, Net

Intangible assets, net, consist of (in thousands):

	May 28, 2004			May 30, 2003
Intangible assets, gross	$	37,156		$	43,050
Accumulated amortization		(32,147	)		(31,015	)
Total intangible assets, net	$	5,009		$	12,035

During fiscal 2004, 3Com recorded an impairment of intangible assets, consisting mainly of core and developed technology associated with its acquisition of the Gigabit Ethernet network interface card business of Alteon Websystems (Alteon) in fiscal 2001. 3Com determined the amount of the impairment by comparing the carrying value of the intangible assets against the fair value, which was

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estimated as the present value of expected future net cash flows discounted at a rate of ten percent per year. The impairment resulted from reduced revenue and gross margin projections as compared to the initial projections at the time of the acquisition, due to the earlier-than-expected discontinuance of an acquired product. As a result of the impairment analysis, 3Com recorded a write down of $1.9 million in the caption "Amortization and write down of intangibles" in the consolidated statements of operations for the year ended May 28, 2004.

During both fiscal 2004 and 2003, 3Com recorded impairments of intangible assets, consisting mainly of core and developed technology associated with its acquisition of NBX Corporation (NBX). 3Com determined the amount of the impairments by comparing the carrying values of the intangible assets against the fair values, which were estimated as the present value of expected future net cash flows; the discount rates assumed for these analyses during fiscal 2004 and 2003 were ten percent and 14 percent, respectively. During fiscal 2004, the impairment resulted primarily from reduced revenue projections overall, as well as a lower percentage of projected revenue coming from existing technology. During fiscal 2003, the impairment resulted from significantly reduced revenue projections as compared to the initial projections that existed at the date of acquisition, reflecting both lower projected market growth and a lower percentage of projected revenue coming from existing technology. As a result of these analyses, 3Com recorded write downs of $0.4 million and $3.2 million in the caption "Amortization and write down of intangibles" in the consolidated statements of operations for the years ended May 28, 2004 and May 30, 2003, respectively.

In fiscal 2003, as discussed in Note 2, 3Com wrote off indefinite-lived intangible assets with a carrying value of $45.4 million, net upon the adoption of SFAS 142 as a change in accounting principle effective June 1, 2002. These charges included a $12.1 million write off of indefinite-lived intangible assets that arose from the acquisition of Nomadic Technologies, and an additional $33.3 million write off of indefinite-lived intangible assets that arose from the NBX acquisition.

In fiscal 2002, 3Com determined that lower than anticipated revenue growth resulted in an impairment of the goodwill and developed product technology that arose from the Alteon acquisition described above. As a result of the analysis, all of the goodwill and a portion of the developed technology were written down $50.9 million to fair value, which was estimated using discounted future cash flows. The impairment charge was included in amortization and write down of intangibles in the consolidated statement of operations.

3Com also recorded impairments of intangible assets related to its discontinued operations. In fiscal 2003, upon the adoption of SFAS 142, 3Com wrote off net remaining indefinite-lived intangible assets related to discontinued operations of $20.2 million. In addition, in fiscal 2003 and fiscal 2002, 3Com recorded impairments of goodwill, core and existing technology, and customer relationships, which were mainly the results of significantly reduced revenue projections as compared to the initial projections that existed at the date of acquisition due primarily to the overall economic downturn in the telecommunications sector. As a result of its analyses, 3Com recorded impairments of $4.5 million and $19.2 million in fiscal 2003 and 2002, respectively. All of these charges are included in the caption "Discontinued operations" in the consolidated statement of operations.

Based on the carrying value of 3Com's intangible assets as of May 28, 2004, remaining amortization is expected to be $3.3 million in fiscal 2005 and $1.7 million in fiscal 2006.

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Note 10: Accrued Liabilities and Other

Accrued liabilities and other consist of (in thousands):

	May 28, 2004		May 30, 2003
Accrued payroll and related expenses	$	37,995	$	48,333
Accrued product warranty		43,825		44,775
Accrued rebates		29,536		31,604
Income and other taxes payable		34,184		35,060
Deferred revenue		25,942		10,329
Other		54,679		63,138
Total	$	226,161	$	233,239

Note 11: Accrued Warranty and Other Guarantees

Products are sold with varying lengths of warranty ranging from 90 days to the lifetime of the products. Allowances for estimated warranty obligations 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, 3Com assesses the adequacy of its 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 (in thousands):

	Years ended
	May 28, 2004			May 30, 2003			May 31, 2002
Accrued warranty, beginning of period	$	44,775		$	53,289		$	53,571
Cost of warranty claims		(34,645	)		(42,137	)		(62,092	)
Accrual for warranties issued during the period		33,795			31,027			59,871
Adjustments to preexisting warranties		(100	)		6,668			1,939
Net change associated with discontinued operations		—			(4,072	)		—
Accrued warranty, end of period	$	43,825		$	44,775		$	53,289

Prior to fiscal 2003, 3Com entered into several agreements whereby it had sold products to resellers who had, in turn, sold the products to others, and 3Com guaranteed the payments of the end users. If all end users under these agreements were to default on their payment obligations as of May 28, 2004, the Company would be required to pay approximately $4.1 million. However, since deferred revenue and accrued liabilities related to such sales approximate the guaranteed amounts, any payments resulting from end user defaults would not have a material impact on 3Com's results of operations.

In connection with the development of its facility in Rolling Meadows, 3Com guaranteed a municipal bond in the amount of $2.5 million for site improvements. 3Com's obligation pursuant to the guarantee had been accrued as of May 30, 2003. In connection with the completion of the sale of the Rolling Meadows facility in the first quarter of fiscal 2004 as discussed in Note 8, 3Com repaid the $2.5 million municipal bond. As of May 28, 2004, 3Com's liabilities included $2.8 million for similar obligations related to various facilities that 3Com has vacated.

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Note 12: Borrowing Arrangements and Commitments

In the second quarter of fiscal 2002, 3Com entered into new financing arrangements whereby the Company borrowed $105.0 million under a term loan and $102.2 million under a $105.0 million revolving line of credit. 3Com applied the proceeds from these borrowings towards the purchase of land and buildings at its Santa Clara and Marlborough locations that were previously subject to operating lease arrangements. In accordance with the lease terms, 3Com paid $316.7 million for the properties and terminated such leases. As discussed in Note 8, the Santa Clara and Marlborough facilities acquired in these transactions were subsequently sold.

Under the term loan, quarterly principal payments of $7.5 million were due from March 2002 through September 2004, with the balance due in November 2004. During fiscal 2003, 3Com prepaid and cancelled the term loan such that there were no amounts outstanding as of May 30, 2003. The revolving line of credit expires in November 2004, at which time any outstanding amounts are due. Amounts understanding under the revolving line of credit bear interest at either the lender's base rate or LIBOR rate, at 3Com's option, plus an applicable margin; interest is payable monthly. During fiscal 2004 and as of May 28, 2004, there were no amounts outstanding under the revolving line of credit. Total interest expense related to the term loan and revolving line of credit was zero, $4.9 million and $3.4 million for fiscal 2004, fiscal 2003 and fiscal 2002, respectively.

As of May 28, 2004, total available borrowings under the revolving line of credit were $23.5 million, net of bank-issued standby letters of credit and guarantees that are supported by this credit arrangement. As of May 28, 2004, such bank-issued standby letters of credit and guarantees totaled $9.2 million, including $8.3 million relating to potential foreign tax, custom, and duty assessments.

3Com leases certain of its facilities under operating leases. Leases expire at various dates from 2004 to 2015, and certain leases have renewal options with rentals based upon changes in the Consumer Price Index or the fair market rental value of the property. 3Com also rents certain of its leased and owned facilities to third party tenants. The rental agreements expire at various dates from 2004 to 2015.

Future operating lease commitments and future rental income are as follows (in thousands):

Fiscal year	Future Lease Payments		Future Rental Income
2005	$	19,020	$	5,994
2006		16,757		5,918
2007		10,785		2,588
2008		2,810		342
2009		1,521		342
Thereafter		5,755		1,979
Total	$	56,648	$	17,163

Rent expense was approximately $21.1 million, $23.4 million, and $35.7 million for the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, respectively. Rental income, which includes rents received for both owned and leased property, was $8.9 million, $23.8 million, and $37.6 million for the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, respectively, and is recorded as an offset to operating expenses. Included in rental income was rental income from Palm, Inc. of $0.8 million, $15.3 million, and $25.1 million for the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, respectively.

From time to time, 3Com makes investments in privately-held companies and in limited partnership venture capital funds, which in turn invest in privately-held companies. 3Com made investments of $3.9 million in fiscal 2004. Also, as of May 28, 2004, the Company was contractually obligated to make additional capital contributions totaling $9.0 million to certain venture capital funds in the future. The

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expiration dates for capital calls related to such obligations are generally five to eight years from the inception of the fund, and the amounts and timing of such calls during that period are at the discretion of the funds' general partners. Based upon projections provided by the funds' general partners, 3Com estimates that it will pay approximately $5.1 million over the next twelve months as capital calls are made.

Note 13: Common Stock

Stock Option Plans.    3Com has stock option plans under which employees and directors may be granted options to purchase common stock. Options generally are granted with exercise prices at not less than the fair market value at the date of the grant, vest annually over two to four years, and expire seven to ten years after the grant date. In September 2003, 3Com's stockholders approved 3Com's 2003 Stock Plan (the new plan), which replaced the 1983 Stock Option Plan, the 1994 Stock Option Plan, the Director Plan, and the Restricted Stock Plan (the prior plans) for all stock awards granted subsequent to the approval date. In connection with the approval of the new plan, 3Com cancelled all shares available for issuance under the prior plans (other than those shares underlying outstanding awards), which included approximately 128 million shares at the time of approval; at the same time, 20 million shares were reserved for issuance under the new plan.

A summary of option transactions under the plans follows (shares in thousands):

	Number of Shares		Weighted Average Exercise Price
Outstanding, June 1, 2001	148,141		$	7.80
Granted	23,628			4.86
Exercised	(8,174	)		3.98
Canceled	(52,493	)		8.24
Outstanding, May 31, 2002	111,102			7.25
Granted	13,585			4.51
Exercised	(6,129	)		3.67
Canceled	(33,056	)		7.36
Outstanding, May 30, 2003	85,502			7.03
Granted	10,046			5.58
Exercised	(22,288	)		5.01
Canceled	(16,375	)		8.35
Outstanding, May 28, 2004	56,885		$	7.18

	Outstanding Options as of May 28, 2004				Exercisable at May 28, 2004
Range of Exercise Prices	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Number of Shares	Weighted Average Exercise Price
	(in thousands)			(in years)	(in thousands)
$  0.13 - $  4.29	5,171	$	4.21	7.6	1,649	$	4.09
4.30 -     5.10	7,573		4.83	7.7	4,511		4.82
5.12 -     5.54	12,367		5.38	6.8	7,041		5.48
5.56 -     6.09	9,885		5.93	4.2	9,202		5.94
6.10 -   10.09	12,954		8.13	5.0	10,479		8.30
10.11 -   21.57	8,935		13.39	5.8	7,440		13.36
Total	56,885	$	7.18	6.0	40,322	$	7.64

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As shown above, there were approximately 40.3 million options exercisable as of May 28, 2004 with a weighted average exercise price of $7.64 per share. By comparison, there were 58.8 million and 59.1 million options exercisable as of May 30, 2003 and May 31, 2002 with weighted average exercise prices of $7.18 and $6.97 per share, respectively.

Stock-Based Compensation.    As discussed above, 3Com's 2003 Stock Plan replaced 3Com's Restricted Stock Plan for the issuance of restricted stock. Restricted stock represents shares of common stock that are reserved for issuance at no cost to key employees. Compensation expense, equal to the fair market value on the date of the grant, is recognized as the granted shares vest over a one to four-year period. 3Com also grants time accelerated restricted stock awards whereby shares with a specified time-based vesting period may be accelerated if specific milestones are accomplished. In addition, 3Com has recorded deferred compensation expense in connection with certain of its acquisitions. Compensation expense recognized for the amortization of stock-based compensation was $1.1 million, $3.9 million, and $6.7 million for the years ended May 28, 2004, May 30, 2003, and May 31, 2002, respectively.

Employee Stock Purchase Plan.    3Com has an employee stock purchase plan (ESPP) under which eligible employees may authorize payroll deductions of up to ten percent of their compensation, as defined, to purchase common stock at a price of 85 percent of the lower of the fair market value as of the beginning or the end of the six-month offering period. In September 2003, 3Com's stockholders approved an increase of five million shares available for issuance under the ESPP.

Preferred Shares Rights Plan.    In September 1989, the Board of Directors approved a common stock purchase rights plan, which was amended and restated in December 1994, and again in March 2001. In November 2002, the Board of Directors approved a Third Amended and Restated Preferred Shares Rights Plan (the Preferred Shares Rights Plan), which replaced the March 2001 Plan. The Preferred Shares Rights Plan provides that the preferred share rights (the Rights) will become exercisable only following the acquisition by a person or a group of 15 percent or more of the outstanding common stock or ten days following the announcement of a tender or exchange offer for 15 percent or more of the outstanding common stock (the Distribution Date). After the Distribution Date, each Right will entitle the holder to purchase for $55.00 (the Exercise Price), one-one thousandth of a share of 3Com's Series A Participating Preferred Stock (or cash, stock or other assets approved by the Board of Directors) with economic terms similar to that of one share of 3Com's common stock. Upon a person or a group acquiring 15 percent or more of the outstanding common stock, each Right will allow the holder (other than the acquirer) to purchase common stock or securities of 3Com having a then current market value of two times the Exercise Price of the Right. In the event that following the acquisition of 15 percent of the common stock by an acquirer, 3Com is acquired in a merger or other business combination or 50 percent or more of 3Com's assets or earning power is sold, each Right will entitle the holder to purchase for the Exercise Price, common stock or securities of the acquirer having a then current market value of two times the Exercise Price. In certain circumstances, the Rights may be redeemed by 3Com at a redemption price of $0.001 per Right. If not earlier exchanged or redeemed, the Rights will expire on March 8, 2011.

Stock Reserved for Issuance.    As of May 28, 2004, 3Com had reserved common stock for issuance as follows (in thousands):

Stock option and restricted stock plans	74,881
Employee Stock Purchase Plan	8,777
Total shares reserved for issuance	83,658

In addition, as of May 28, 2004, 3Com had 0.4 million shares of preferred stock reserved for issuance under its Preferred Shares Rights Plan.

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Stock Repurchase and Option Programs.    During the fourth quarter of fiscal 2003, the Board of Directors approved a new stock repurchase program that authorizes expenditures of up to $100.0 million during a two-year period expiring in March 2005. This new stock repurchase program was subject to certain conditions that were met on March 19, 2003, and it superseded the stock repurchase program that was approved in the second quarter of fiscal 2003. Prior to fiscal 2003, in the fourth quarter of fiscal 2000, the Board of Directors had authorized a stock repurchase program in the amount of up to one billion dollars that was effective for a two-year period.

During fiscal 2004, 3Com did not repurchase any shares of its common stock pursuant to these authorizations. During fiscal 2003 and 2002, the Company repurchased 0.4 million shares and 1.1 million shares of its common stock at costs of $1.5 million and $3.7 million, respectively.

Note Receivable from Broadcom Corporation (Broadcom) for Sale of Warrants to Purchase 3Com Common Stock.    During fiscal 2001, 3Com announced a strategic alliance with Broadcom to accelerate the deployment of Gigabit Ethernet into business networks. As part of the strategic alliance, 3Com issued to Broadcom a warrant to acquire up to 7.1 million shares of 3Com common stock, representing approximately two percent of 3Com's current outstanding shares. The original term of the warrant was from January 1, 2001 through December 4, 2002, the per-share exercise price was $9.31, and the purchase price of the warrant was approximately $21.1 million. Broadcom paid for the warrant by issuance of a full recourse promissory note, which later became the subject of litigation between 3Com and Broadcom. This litigation was subsequently settled in the second quarter of fiscal 2003. Under the terms of the settlement, Broadcom agreed to pay 3Com $22.0 million, representing principal and a portion of prior periods' accrued interest, plus additional interest as it accrued during the repayment period, and 3Com agreed to extend the terms of the warrant held by Broadcom for an additional 12 months to December 4, 2003. 3Com recorded a charge of $1.7 million in interest and other income, net, relating to the change in terms. As of May 28, 2004, all principal and interest amounts owed by Broadcom had been collected, and the warrants expired unexercised.

Accounting for Stock-Based Compensation.    As permitted under SFAS 123, 3Com has elected to follow APB Opinion 25 and related Interpretations in accounting for stock-based awards to employees. Under APB Opinion 25, compensation expense associated with employee awards is measured as the difference, if any, between the price to be paid by an employee and the fair value of the underlying common stock on the grant date, which is usually the measurement date for accounting purposes. 3Com generally recognizes no compensation expense with respect to stock option awards. To the extent that 3Com has modified employee awards in connection with its restructuring activities (usually through extensions of the period of exercise for employees following their involuntary termination), a charge for compensation expense is recognized at the time the related cash severance is recorded.

Pro forma information regarding net income and earnings per share is required by SFAS 123. This information is required to be determined as if 3Com had accounted for its stock-based awards to employees, including grants of employee stock options (ESOs) and rights to purchase shares under the ESPP, under the fair value method prescribed by that Statement. See Note 2 for information concerning the pro forma effect on 3Com's reported net loss and net loss per share of applying the fair value recognition provisions of SFAS 123 to stock-based employee compensation.

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The fair value of ESOs and purchase rights granted under the ESPP in fiscal years 2004, 2003, and 2002 has been estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions, and resulting in the following weighted average estimated per-share fair values:

	Employee Stock Option Plans									Employee Stock Purchase Plan
	2004			2003			2002			2004			2003			2002
Risk-free interest rate		2.6	%		2.6	%		3.7	%		1.1	%		1.4	%		1.9	%
Volatility		66.0	%		67.0	%		73.1	%		42.0	%		49.0	%		62.0	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Per-share fair value	$	2.88		$	2.33		$	2.48		$	1.79		$	1.67		$	1.38

As of May 28, 2004, May 30, 2003 and May 31, 2002, the expected average life of ESOs was estimated at approximately one and a half years after the vesting date. As of May 28, 2004, May 30, 2003, and May 31, 2002, the expected average life of purchase rights granted under the ESPP was estimated at six months from the subscription date.

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. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because 3Com's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, 3Com's management believes that the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options.

Note 14: Financial Instruments

The following summary disclosures concerning 3Com's financial instruments are made in accordance with the provisions of SFAS 107, "Disclosures About Fair Value of Financial Instruments," which requires the disclosure of fair value information about both on- and off-balance sheet financial instruments where it is practicable to estimate the value. Fair value is defined in SFAS 107 as the amount at which an instrument could be exchanged in a current transaction between willing parties, rather than in a forced or liquidation sale.

	May 28, 2004				May 30, 2003
(in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Cash and equivalents	$	575,824	$	575,824	$	515,848	$	515,848
Short-term investments		807,532		807,532		968,740		968,740
Corporate equity securities		16,935		16,413		32,490		32,123

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

Cash and equivalents.    The carrying amounts reported in the consolidated balance sheets for cash and equivalents approximate their estimated fair values.

Short-term investments.    The fair values of short-term investments are based on quoted market prices.

Corporate equity securities.    Fair value of publicly traded corporate equity securities is based on quoted market prices. Fair value of privately held corporate equity securities is based on all available information. For these non-quoted investments, 3Com's policy is to regularly review the assumptions underlying the financial performance of the privately held companies in which the investments are maintained. If and when a determination is made that a decline in fair value below the cost basis is other than temporary, the related investment is written down to its estimated fair value. Differences

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between the estimated fair value and carrying amount of equity securities as of May 28, 2004 and May 30, 2003 were the result of declines in fair value that were considered temporary.

Foreign exchange contracts.    3Com enters into foreign exchange forward contracts to hedge certain balance sheet exposures and intercompany balances against future movements in foreign exchange rates. In addition, 3Com enters into foreign exchange forward contracts to hedge exposures related to anticipated foreign currency cash flows. 3Com does not use foreign forward exchange contracts for speculative or trading purposes.

3Com's foreign exchange forward contracts require the Company to exchange foreign currencies for U.S. Dollars or vice versa, and generally mature in one month or less. As of May 28, 2004 and May 30, 2003, 3Com had outstanding foreign exchange forward contracts with aggregate notional amounts of $76.3 million and $58.4 million, respectively, that had remaining maturities of one month or less. The fair value of foreign exchange forward contracts is based on prevailing financial market information. As of May 28, 2004 and May 30, 2003, the carrying amounts, which were also the estimated fair values, of foreign exchange forward contracts were not significant. See Note 2 for information concerning 3Com's significant accounting policies for foreign exchange contracts.

Because SFAS 107 excludes certain financial instruments and all non-financial instruments from its dislosure requirements, any aggregation of the fair value amounts presented in the table above would not necessarily represent the underlying value of all of 3Com's financial instruments.

Note 15: Interest and Other Income, Net

Interest and other income, net, consists of (in thousands):

	Years ended
	May 28, 2004			May 30, 2003			May 31, 2002
Interest income	$	19,309		$	33,559		$	71,254
Interest expense		(2,775	)		(9,909	)		(4,853	)
Other		(629	)		(3,492	)		970
Total	$	15,905		$	20,158		$	67,371

Note 16: Income Taxes

The provision (benefit) for income taxes consists of the following (in thousands):

		Years ended
		May 28, 2004			May 30, 2003			May 31, 2002
Current:
	Federal	$	—		$	(30,940	)	$	—
	State		520			(888	)		540
	Foreign		(2,929	)		17,325			11,644
	Total current		(2,409	)		(14,503	)		12,184
Deferred:
	Federal		—			—			49,484
	State		—			—			28,972
	Foreign		(726	)		3,981			(721	)
	Total deferred		(726	)		3,981			77,735
Total		$	(3,135	)	$	(10,522	)	$	89,919

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The components of net deferred tax assets consist of the following (in thousands):

		May 28, 2004			May 30, 2003
Deferred tax assets:
	Operating loss carryforwards, net	$	787,112		$	682,358
	Amortization and depreciation		57,051			58,730
	Tax credit carryforwards		85,402			96,006
	Unrealized losses on private investments, net		30,569			28,776
	Royalty and purchased research and development		4,086			—
	Other		3,853			8,333
	Valuation allowance		(819,645	)		(672,838	)
	Total deferred tax assets		148,428			201,365
Deferred tax liabilities:
	Reserves recognized in different periods for tax purposes		(145,105	)		(109,525	)
	Unremitted earnings		—			(87,500	)
	Royalty and purchased research and development		—			(912	)
	Other		(386	)		(1,217	)
	Total deferred tax liabilities		(145,491	)		(199,154	)
Net deferred tax assets		$	2,937		$	2,211

3Com has net operating loss carryforwards related to the following income tax jurisdictions and expiration periods: U.S. federal loss carryforwards of approximately $1.99 billion expiring between fiscal years 2005 and 2024; various state loss carryforwards of approximately $1.91 billion expiring between 2005 and 2024; and various foreign loss carryforwards with $2.6 million expiring between 2005 and 2011, and $27.4 million with an unlimited carryforward period. 3Com also has a U.S. federal research credit carryforward of $21.9 million expiring between 2010 and 2021; a U.S. federal foreign tax credit carryforward of $15.4 million expiring between 2005 and 2008; and a U.S. federal alternative minimum tax credit carryforward of $33.2 million that has an unlimited carryforward period.

SFAS 109 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The valuation allowance shown in the table above relates to net operating loss and credit carryforwards and temporary differences for which 3Com believes that realization is uncertain. The valuation allowance increased $146.8 million and $114.6 million in fiscal years 2004 and 2003, respectively. The total valuation allowance of $819.6 million includes $128.8 million attributable to the tax benefit of stock option deductions, which, if recognized, will be allocated directly to paid-in-capital.

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

	Years ended
	May 28, 2004		May 30, 2003		May 31, 2002
Tax computed at federal statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State income taxes, net of federal effect	(0.5	)	(1.3	)	(4.3	)
Provision for combined foreign and U.S. taxes on certain foreign income at rates greater than U.S. rates	26.5		27.4		4.1
Net operating loss carryback	—		(7.3	)	—
Valuation allowance	34.0		0.5		58.0
Purchased in-process technology and acquisition-related charges	(0.3	)	10.6		2.7
Reversal of previously accrued taxes on undistributed earnings of subsidiaries	(26.1	)	—		—
Other	0.5		0.7		(0.8	)
Total	(0.9	)%	(4.4	)%	24.7	%

Loss before income taxes for the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, includes foreign income (loss) of ($263.0) million, ($129.9) million, and ($5.8) million, respectively. In prior periods, 3Com had provided $87.5 million for the potential repatriation of certain undistributed earnings of its foreign subsidiaries. During fiscal 2004, 3Com reduced that provision to zero because losses during the period reduced the amount of undistributed foreign earnings from which such a potential repatriation would have been made. The reduction in the provision had the effect of increasing the Company's net deferred tax asset. However, because 3Com believes that realization of the net deferred tax asset is uncertain, the aforementioned reduction was offset by a corresponding increase in the valuation allowance. Accordingly, the net effect on the provision for income taxes in fiscal 2004 was zero. As of May 28, 2004, 3Com has not provided for federal tax on approximately $267.1 million of undistributed earnings of its foreign subsidiaries because 3Com considers these earnings to be indefinitely reinvested in foreign subsidiary operations

3Com has certain domestic and foreign income tax audits that are currently in progress. The outcome of these examinations cannot be predicted with certainty and, should unfavorable rulings be made, assessments against the Company could be significant. However, the Company believes that the ultimate resolution of the examinations will not have a material adverse effect on its consolidated financial position or results of operations.

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Note 17: Net Income (Loss) per Share

The following table presents the calculation of basic and diluted earnings per share (in thousands, except per share data):

		Years ended
		May 28, 2004			May 30, 2003			May 31, 2002
Loss from continuing operations before cumulative effect of change in accounting principle		$	(346,863	)	$	(230,093	)	$	(453,652	)
Discontinued operations			(2,400	)		(8,214	)		(142,298	)
Cumulative effect of change in accounting principle			—			(45,447	)		—
Net Loss		$	(349,263	)	$	(283,754	)	$	(595,950	)
Weighted average shares—Basic			379,766			360,520			349,489
Effect of dilutive securities:
	Employee stock options		—			—			—
	Restricted stock		—			—			—
Weighted average shares—Diluted			379,766			360,520			349,489
Net loss per share—Basic and Diluted:
	Continuing operations before cumulative effect of change in accounting principle	$	(0.91	)	$	(0.64	)	$	(1.30	)
	Discontinued operations		(0.01	)		(0.02	)		(0.41	)
	Cumulative effect of change in accounting principle		—			(0.13	)		—
	Net Loss	$	(0.92	)	$	(0.79	)	$	(1.71	)

Employee stock options and restricted stock totaling 7.1 million, 2.8 million, and 6.6 million shares for the years ended May 28, 2004, May 30, 2003, and May 31, 2002, respectively, were not included in the diluted weighted average shares calculation because the effects of these securities were antidilutive.

Note 18: Business Segment Information

During fiscal 2003, 3Com had three reportable operating segments. Two of these segments represented ongoing operations—enterprise networking and connectivity; the third segment included product lines that 3Com decided to exit during the period from the fourth quarter of fiscal 2000 through the first quarter of fiscal 2002. The enterprise networking segment manufactured and sold network infrastructure solutions for the enterprise and small business markets, including switches and hubs, as well as services associated with sales of these products. The connectivity segment sold products that enabled computing devices to access computer networks, such as desktop network interface cards and personal computer (PC) cards. Exited products included analog-only modems, high-end LAN and WAN (Wide Area Network) chassis products, internet appliances, and consumer cable and DSL (digital subscriber line) modem products. The exited products segment did not include discontinued operations. The CommWorks division is reported as a discontinued operation beginning in the fourth quarter of fiscal 2003 and all prior periods presented have been restated on a comparative basis. Effective for fiscal 2004, 3Com streamlined its management and operating structure, and merged its previous multiple operating segments into a single, integrated enterprise networking business. As a result, effective for fiscal 2004, 3Com now presents financial information related to its business on the basis of a single segment.

Although 3Com operates as a single, integrated business as discussed above, certain product groups accounted for a significant portion of the Company's sales. For the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, fixed-configuration 10/100 Mbps switching products accounted for 48%, 47%, and 42% of sales, respectively. For the fiscal years ended May 28, 2004, May 30, 2003, and

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May 31, 2002, fixed-configuration Gigabit switching products accounted for 12%, 8%, and 5% of sales, respectively. For the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, wired LAN connectivity products accounted for 16%, 26%, and 36% of sales, respectively.

3Com's foreign operations consist primarily of central distribution, order administration, and research and development facilities in Western Europe, Singapore and Taiwan. Sales, marketing, and customer service activities are conducted through sales subsidiaries throughout the world. Sales to unaffiliated customers and long-lived assets by geographic region are as follows (in thousands):

		Years ended
		May 28, 2004		May 30, 2003		May 31, 2002
Sales
	Americas	$	263,428	$	395,636	$	565,738
	Europe, Middle East, and Africa		319,705		383,614		478,041
	Asia Pacific		115,751		153,616		215,190
	Total	$	698,884	$	932,866	$	1,258,969

Sales information by geography is reported based on the customer's designated delivery point. For the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, sales to customers in the United States (Americas region) totaled $205.6 million, or 29 percent of total sales, $324.2 million, or 35 percent of total sales, and $467.9 million, or 37 percent of total sales, respectively. There were no other individual countries for which sales exceeded ten percent of total sales.

		May 28, 2004		May 30, 2003
Property and Equipment
	United States	$	36,976	$	244,349
	Ireland		32,233		58,812
	United Kingdom		40,234		42,508
	Other		5,156		4,404
	Total	$	114,599	$	350,073

Property and equipment includes both assets held for use as well as assets held for sale, and is reported by geography based on the physical location of the assets at the end of the fiscal year. As of May 28, 2004 and May 30, 2003, property and equipment in the United States, Ireland and United Kingdom exceeded ten percent of total property and equipment, as shown in the table above. There were no other individual countries for which property and equipment exceeded ten percent of total property and equipment.

Note 19: Employee Benefit Plan

3Com has adopted a plan known as the 3Com 401(k) Plan (the 401(k) Plan) to provide retirement benefits to its domestic employees. As allowed under Section 401(k) of the Internal Revenue Code, the 401(k) Plan provides tax-deferred salary deductions for eligible employees. Participants may elect to contribute from one percent to 22 percent of their annual compensation to the 401(k) Plan each calendar year, limited to a maximum annual amount as set periodically by the Internal Revenue Service. In addition, the 401(k) Plan provides for contributions as determined by the Board of Directors. 3Com matches 50 percent for each dollar on the first six percent of eligible annual compensation contributed by the employee. Employees become vested in 3Com matching contributions according to a three-year vesting schedule based on initial date of hire. Matching contributions to the 401(k) Plan totaled $2.6 million in fiscal 2004, $4.3 million in fiscal 2003, and $5.4 million in fiscal 2002.

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Note 20: Litigation

3Com is a party to lawsuits in the normal course of its business. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. 3Com believes that it has meritorious defenses in each of the cases set forth below in which it is named as a defendant and is vigorously contesting each of these matters. An unfavorable resolution of one or more of these lawsuits could adversely affect its business, financial position, or results of operation. 3Com cannot estimate the loss or range of loss that may be reasonably possible for any of the contingencies described and, accordingly, has not recorded any associated liabilities in its consolidated balance sheets.

On March 4, 2003, 3Com filed suit against PCTEL, Inc. (PCTEL) in the United States District Court for the Northern District of Illinois, Civil Action Number 03C 1582, alleging infringement of United States Patents Numbered 5,872,836, 5,646,983, 5,724,413, 6,097,794, 6,696,660, 5,532,898 and 5,777,836. On March 5, 2003, PCTEL filed suit against 3Com in the United States District Court for the Northern District of California, Civil Action Number C 03 0982, alleging infringement of United States Patent Number 4,841,561 entitled "Operating default group selectable data communication equipment" seeking damages and injunctive relief, and further seeking a declaration that PCTEL does not infringe 3Com Patents Numbered 5,872,836, 5,646,983, 5,724,413, 6,097,794, 6,696,660, 5,532,898 and 5,777,836, and that such patents are void and invalid. The action which 3Com initiated in the District Court for the Northern District of Illinois was transferred to the District Court for the Northern District of California on June 11, 2003 and assigned Civil Action Number C 03 2710. On August 18, 2003, that action was consolidated for certain purposes with the action PCTEL initiated against 3Com in the Northern District of California.

On May 30, 2003, PCTEL filed suit against 3Com in the Superior Court of the State of California in and for the County of Santa Clara, CV 817522, alleging violations of California unfair competition laws and seeking damages and injunctive relief. 3Com removed the action to the United States District Court for the Northern District of California on July 3, 2003 and it was assigned Civil Action Number C 03 3124. On December 12, 2003, PCTEL voluntarily dismissed this suit without prejudice.

In November 2000, a shareholder derivative and class action lawsuit, captioned Shaev v. Claflin, et al., No. CV794039, was filed in California Superior Court. The complaint alleges that 3Com's directors and officers breached their fiduciary duties to 3Com in connection with the adjustment of employee and director stock options in connection with the separation of 3Com and Palm, Inc. (since renamed palmOne). On May 13, 2003, the Court dismissed the Second Amended Complaint. The plaintiff has appealed the Court's decision. On June 21, 2004, the Court of Appeal for the State of California, Sixth Appellate District, upheld the Court's dismissal of the lawsuit without leave to amend or refile.

On April 28, 1997, Xerox Corporation (Xerox) filed suit against U.S. Robotics Corporation and U.S. Robotics Access Corporation in the United States District Court for the Western District of New York. 3Com completed its acquisition of these companies on June 12, 1997. The case is now captioned Xerox Corporation v. 3Com Corporation, U.S. Robotics Corporation, U.S. Robotics Access Corporation, Palm Computing, Inc., and Palm, Inc. (Civil Action Number 97-CV-6182T). Xerox alleged willful infringement of United States Patent Number 5,596,656, entitled "Unistrokes for Computerized Interpretation of Handwriting." Xerox sought to recover damages and to permanently enjoin the defendants from infringing the patent in the future. In 2000, the District Court dismissed the case, ruling that there was no infringement. On appeal, the Court of Appeals for the Federal Circuit affirmed-in-part, reversed-in-part and remanded the case to the District Court for further action. On December 20, 2001, the District Court granted Xerox's motion for summary judgment that the patent is valid, enforceable, and infringed. The defendants then filed a Notice of Appeal. On February 22, 2002, the District Court denied Xerox's motion for an injunction prohibiting further alleged infringement during the appeal and ordered the defendants to post a bond in the amount of $50 million. Xerox then appealed the denial of the injunction. On February 20, 2003, the Court of Appeals issued its decision

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affirming in part and reversing in part the order of the trial court. The Court of Appeals affirmed the grant of summary judgment of infringement, reversed the grant of summary judgment of validity and remanded the case to the trial court to conduct a complete validity analysis. In connection with the separation of Palm from 3Com, pursuant to the terms of the Indemnification and Insurance Matters Agreement, dated February 26, 2000, between 3Com and Palm, Palm agreed to indemnify and hold 3Com harmless for any damages or losses that might arise out of the Xerox litigation. On May 21, 2004, the District Court awarded summary judgment to the defendant, holding that Xerox's patent was invalid, and dismissed the remaining claims.

On September 25, 2000 Northrop Grumman Corporation (Northrop) filed suit in the United States District Court for the Eastern District of Texas, Civil Action No. 1:00CV-652, against Intel Corporation, 3Com Corporation, Xircom, Inc., D-Link Systems, Inc. and The Linksys Group, Inc. alleging infringement of United States Patent Number 4,453,229 which was issued in 1982. Based on the trial court's claim construction after a Markman Hearing on June 8, 2001, and after briefing by the parties, the trial court entered a judgment of noninfringement in favor of defendants 3Com and Linksys Group, Inc., from which Northrop appealed. On March 31, 2003, the United States Court of Appeals for the Federal Circuit issued its ruling reversing the order of the trial court and remanding the case back to the trial court for further proceedings. 3Com and Northrop settled this matter in the first quarter of fiscal 2004.

Note 21: Quarterly Results of Operations (Unaudited)

	Fiscal 2004 Quarters Ended												Fiscal 2003 Quarters Ended
	May 28, 2004			Feb 27, 2004			Nov. 28, 2003			Aug. 29, 2003			May 30, 2003			Feb 28, 2004			Nov. 29, 2002			Aug. 30, 2002
	(In thousands, except per share data)
Sales	$	183,345		$	171,769		$	181,891		$	161,879		$	175,000		$	216,503		$	272,186		$	269,177
Gross margin		75,908			60,269			56,950			49,944			63,400			96,038			137,620			124,668
Gross margin %		41.4	%		35.1	%		31.3	%		30.9	%		36.2	%		44.4	%		50.6	%		46.3	%
Operating loss		(23,649	)		(83,557	)		(114,879	)		(115,740	)		(107,371	)		(69,773	)		(36,602	)		(10,896	)
Loss from continuing operations before cumulative effect of accounting change		(18,857	)		(84,887	)		(137,416	)		(105,703	)		(98,204	)		(71,953	)		(43,495	)		(16,441	)
Loss from continuing operations before cumulative effect of accounting change %		(10.3	)%		(49.4	)%		(75.5	)%		(65.3	)%		(56.1	)%		(33.2	)%		(16.0	)%		(6.1	)%
Discontinued operations		141			(685	)		(1,565	)		(291	)		59,786			(7,289	)		(25,018	)		(35,693	)
Discontinued operations %		0.1	%		(0.4	)%		(0.9	)%		(0.2	)%		34.2	%		(3.4	)%		(9.2	)%		(13.3	)%
Basic and diluted income (loss) per share from continuing operations before cumulative effect of accounting change	$	(0.05	)	$	(0.22	)	$	(0.37	)	$	(0.29	)	$	(0.27	)	$	(0.20	)	$	(0.12	)	$	(0.05	)
Basic and diluted income (loss) per share—discontinued operations	$	0.00		$	(0.00	)	$	(0.00	)	$	(0.00	)	$	0.16		$	(0.02	)	$	(0.07	)	$	(0.09	)

During the fourth quarter of fiscal 2004, operating expenses benefited approximately $7 million from reductions in various reserves and accruals including bad debt, property and sales and use taxes, and other miscellaneous items.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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ITEM 9A. Controls and Procedures

a.

We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our fourth fiscal quarter pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports we file or submit with the SEC are recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

Our review of our internal controls was made within the context of the relevant professional auditing standards defining "internal controls," "reportable conditions," and "material weaknesses." "Internal controls" are processes designed to provide reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use, and our transactions are properly recorded and reported, all to permit the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States. "Significant deficiencies" are referred to as "reportable conditions," or control issues that could have a significant adverse effect on our ability to properly authorize transactions, safeguard our assets, or record, process, summarize or report financial data in the consolidated financial statements. A "material weakness" is a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the consolidated financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions. As part of our internal controls procedures, we also address other, less significant control matters that we identify, and we determine what revision or improvement to make, if any, in accordance with our on-going procedures.

b.

There have been no changes in our internal control over financial reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART III

ITEM 10. Directors and Executive Officers of 3Com Corporation

The information required by Item 10 of this Annual Report on Form 10-K with respect to identification of directors is incorporated by reference from the information contained in the section captioned "Election of Directors" in 3Com's definitive Proxy Statement for the Annual Meeting of Stockholders to be held September 22, 2004 (the Proxy Statement), a copy of which will be filed with the Securities and Exchange Commission before the meeting date. For information with respect to the executive officers of 3Com, see "Executive Officers of 3Com Corporation" included in Part I, Item 4 of this report.

ITEM 11. Executive Compensation

The information required by Item 11 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the section captioned "Executive Compensation and Other Matters" in the Proxy Statement.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except as set forth below, the information required by Item 12 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the section captioned "General Information" in the Proxy Statement.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes information related to our equity compensation plans as of May 28, 2004:

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options	Weighted average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in 1st column)
	(Shares in thousands)
Equity compensation plans approved by stockholders	22,084	$	7.76	26,773
Equity compensation plans not approved by stockholders*	34,518		6.82	—
Total	56,602	$	7.19	26,773

*

Excludes 0.3 million outstanding options with an average exercise price of $5.75. These options were assumed in connection with acquisitions and no additional options are available for future issuance under such plans.

Options issued outside of the stockholder-approved plans were issued under our broad-based 1994 Stock Option Plan, as amended. Options granted from this plan were granted at fair value, vest over two to four years, and expire ten years after the date of grant. Effective September 2003, the 2003 Stock Plan was approved by stockholders and replaced the 1994 Stock Option Plan for all grants subsequent to the approval date. Also in September 2003, stockholders approved an increase of five

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million shares in the number of total shares available for issuance under the Employee Stock Purchase Plan.

ITEM 13. Certain Relationships and Related Transactions

The information required by Item 13 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the section captioned "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement.

ITEM 14. Principal Accountant Fees and Services

The information required by Item 14 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the section captioned "Ratification of Selection of Independent Registered Public Accounting Firm" in the Proxy Statement.

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PART IV

ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a)	(1)	Financial Statements—See Index to Consolidated Financial Statements and Financial Statement Schedule at page 49 of this Form 10-K.
	(2)	Financial Statement Schedule—See Index to Consolidated Financial Statements and Financial Statement Schedule at page 49 of this Form 10-K.
	(3)	Exhibits—See Exhibit Index at page 87 of this Form 10-K.
(b)	Reports on Form 8-K.
	(i)	On March 18, 2004, we furnished a Current Report on Form 8-K dated March 18, 2004 under Item 12 of Form 8-K, attaching a press release announcing our third quarter of fiscal 2004 operating results. This Current Report on Form 8-K shall not be deemed to be incorporated by reference into this Annual Report on Form 10-K.
	(ii)	On May 25, 2004, we filed a Current Report on Form 8-K dated May 25, 2004 under Item 5 of Form 8-K, announcing the completion of the sale of certain properties in Santa Clara, California.
(c)	See Exhibit Index at page 87 of this Form 10-K.
(d)	See Index to Consolidated Financial Statements and Financial Statement Schedule at page 49 of this Form 10-K.

EXHIBIT INDEX

		Incorporated by Reference
Exhibit Number						Filed Herewith
	Exhibit Description	Form	File No.	Exhibit	Filing Date
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	Tax Sharing Agreement between the Registrant and Palm, Inc.	10-Q	002-92053	2.7	4/4/00
2.3	Indemnification and Insurance Matters Agreement between the Registrant and Palm, Inc.	10-Q	002-92053	2.11	4/4/00
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 July 15, 2003					X
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 1983 Stock Option Plan, as amended and restated effective September 30, 2001*	10-Q	000-12867	10.1	1/11/02

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10.2	3Com Corporation 1984 Employee Stock Purchase Plan, as amended and restated as of July 15, 2003*	10-K	000-12867	10.3	8/1/03
10.3	3Com Corporation Director Stock Option Plan, as amended*	10-Q	000-12867	10.4	10/10/03
10.4	3Com Corporation Restricted Stock Plan, as amended July 1, 2001*	10-K	000-12867	10.6	8/2/02
10.5	3Com Corporation 1994 Stock Option Plan, as amended and restated effective April 30, 2002*	10-K	000-12867	10.7	8/2/02
10.6	3Com Corporation 2003 Stock Plan*	S-8	333-109983	10.1	10/24/03
10.7	Employment Agreement with Bruce Claflin, effective as of January 1, 2001*	10-Q	333-34726	10.8	1/16/01
10.8	3Com Section 16 Officer Severance Plan*					X
10.9	Credit Agreement dated as of November 28, 2001 between the Registrant, Bank of America, N.A., as Administrative Agent, Bank of America Securities, LLC, as Lead Arranger and Sole Book Manager, Foothill Capital Corporation, as Syndication Agent, and the Financial Institutions Named Herein, as Lenders	10-Q	000-12867	10.10	1/11/02
10.10	Credit Agreement dated as of November 28, 2001 between 3Com Technologies and 3Com Europe Limited, Bank of America, N.A., as Administrative Agent, Bank of America Securities, LLC, as Lead Arranger and Sole Book Manager, Foothill Capital Corporation, as Syndication Agent, and the Financial Institutions Named Herein, as Lenders	10-Q	000-12867	10.11	1/11/02
10.11	Security Agreement dated as of November 28, 2001, between the Registrant and Bank of America, N.A., in its capacity as Agent for Lenders	10-Q	000-12867	10.12	1/11/02
10.12	Continuing Guaranty dated as of November 28, 2001, made by the Registrant in favor of the Lenders and Bank of America, N.A., as Agent for the Lenders	10-Q	000-12867	10.14	1/11/02
10.13	Intercompany Subordination Agreement dated as of November 28, 2001, made among the Registrant and Bank of America, N.A., as Agent for itself and the Lenders	10-Q	000-12867	10.15	1/11/02

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10.14	Deed of Trust, Assignment of Rents, Security Agreement and Fixture Financing dated November 28, 2001, between the Registrant, as Trustor, and First American Title Guaranty Company, as Trustee, and Bank of America, N.A., as Agent, for the Santa Clara, CA, Betsy Ross site	10-Q	000-12867	10.16	1/11/02
10.15	Amendment Number One to Security Agreement dated July 25, 2002, between the Registrant and Bank of America, N.A., as Administrative Agent	10-Q	000-12867	10.20	1/7/03
10.16	Form of Indemnity Agreement between the Registrant and its officers and directors	S-3/A	333-102591	10.1	4/9/03
10.17	Form of Management Retention Agreement for Bruce Claflin, effective July 15, 2003*	10-Q	000-12867	10.1	1/12/04
10.18	Form of Management Retention Agreement for Dennis Connors, effective July 15, 2003*	10-Q	000-12867	10.2	1/12/04
10.19	Form of Management Retention Agreement for Mark Slaven, effective July 15, 2003*	10-Q	000-12867	10.3	1/12/04
10.20	Office Lease by and between Marlborough Campus Limited Partnership as landlord and 3Com Corporation as tenant					X
10.21	Management Retention Agreement for Nick Ganio, effective July 24, 2003	10-Q	000-12867	10.4	4/10/03
10.22	Management Retention Agreement for Anik Bose, effective July 28, 2003	10-Q	000-12867	10.5	4/10/03
10.23	3Com Corporation Deferred Compensation Plan*					X
21.1	Subsidiaries of Registrant					X
23.1	Consent of Deloitte & Touche LLP					X
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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on the 5th day of August, 2004.

3COM CORPORATION (Registrant)
By	/s/  BRUCE L. CLAFLIN Bruce L. Claflin President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 5th day of August, 2004.

Signature	Title
/s/  BRUCE L. CLAFLIN(Bruce L. Claflin)	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/  MARK SLAVEN(Mark Slaven)	Executive Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/  ERIC A. BENHAMOU(Eric A. Benhamou)	Chairman of the Board
/s/  GARY T. DICAMILLO(Gary T. DiCamillo)	Director
/s/  JAMES R. LONG(James R. Long)	Director
/s/  RAJ REDDY(Raj Reddy)	Director
/s/  JULIE ST. JOHN(Julie St. John)	Director
/s/  DAVID C. WAJSGRAS(David C. Wajsgras)	Director
/s/  PAUL G. YOVOVICH(Paul G. Yovovich)	Director

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SCHEDULE II

3Com Corporation

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

For the Years Ended May 31, 2002, May 30, 2003, and May 28, 2004

(In thousands)

Description	Balance at beginning of period		Additions charged to costs and expenses			Other			Deductions			Balance at end of period
Year ended May 31, 2002:
Allowance for doubtful accounts	$	47,309	$	(7,037	)	$	—		$	6,397	(1)	$	33,875
Allowance for product returns		29,133		58,230			—			78,030			9,333
Accrued product warranty		53,571		61,810			—			62,092			53,289
Year ended May 30, 2003:
Allowance for doubtful accounts	$	33,875	$	(8,403	)	$	—		$	3,149	(1)	$	22,323
Allowance for product returns		9,333		40,439			—			43,964			5,808
Accrued product warranty		53,289		37,695			(4,072	)(2)		42,137			44,775
Year ended May 28, 2004:
Allowance for doubtful accounts	$	22,323	$	(5,033	)	$	—		$	1,014	(1)	$	16,276
Allowance for product returns		5,808		27,216			—			27,107			5,917
Accrued product warranty		44,775		33,695			—			34,645			43,825

(1)

Accounts written off—net of recoveries.

(2)

Represents net change related to discontinued operations

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QuickLinks

3Com Corporation Form 10-K Annual Report For the Fiscal Year Ended May 28, 2004 Table of Contents
PART I

ITEM 1. Business

ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders

PART II

ITEM 5. Market for 3Com Corporation's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6. Selected Financial Data

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

ITEM 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures

PART III

ITEM 10. Directors and Executive Officers of 3Com Corporation
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions
ITEM 14. Principal Accountant Fees and Services

PART IV

ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

SIGNATURES
3Com Corporation VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended May 31, 2002, May 30, 2003, and May 28, 2004 (In thousands)

EX-3.2

                                                                     Exhibit 3.2

                                     BYLAWS

                                       OF

                                3COM CORPORATION
                          (as amended on July 15, 2003)

                                    ARTICLE I

                                  STOCKHOLDERS

     SECTION 1.1    ANNUAL MEETING.

     An annual meeting of the stockholders of 3Com Corporation (the
"Corporation"), for the election of directors and for the transaction of such
other business as may properly come before the meeting, shall be held at such
place, on such date, and at such time as the Board of Directors shall each year
fix, which date shall be within thirteen months after the organization of the
Corporation or after its last annual meeting of stockholders.

     SECTION 1.2    SPECIAL MEETINGS.

     Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by (a) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption), (b) the Chairman of the Board, (c) the President or (d) the
holders of shares entitled to cast not less than twenty percent (20%) of the
votes at the meeting, and shall be held at such place, on such date, and at such
time as they shall fix. Business transacted at special meetings shall be
confined to the purpose or purposes stated in the notice.

     SECTION 1.3    NOTICE OF MEETINGS.

     Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).

     When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.

     SECTION 1.4    QUORUM.

     At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes,

                                      - 1 -


unless or except to the extent that the presence of a larger number may be
required by law or by the Certificate of Incorporation.

     If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.

     If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.

     SECTION 1.5    ORGANIZATION.

     Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his absence,
such person as may be chosen by the holders of a majority of the shares entitled
to vote who are present, in person or by proxy, shall call to order any meeting
of the stockholders and act as chairman of the meeting. The secretary of the
meeting shall be such person as the chairman appoints.

     SECTION 1.6    CONDUCT OF BUSINESS.

     The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him in order.

     SECTION 1.7    NOTICE OF STOCKHOLDER BUSINESS.

     At an annual or special meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) properly brought before the meeting by or at the direction of
the Board of Directors, or (c) properly brought before an annual meeting by a
stockholder and if, and only if, the notice of a special meeting provides for
business to be brought before the meeting by stockholders, properly brought
before the special meeting by a stockholder. For business to be properly brought
before a meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal offices of the Corporation no later than (i) in the case of an annual
meeting, ninety (90) days before the anticipated date of the next annual
meeting, under the assumption that the next annual meeting will occur on the
same calendar day as the day of the most recent annual meeting, and (ii) in the
case of a special meeting, ten (10) days prior to date of such meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual or special meeting (1) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting, (2) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, (3) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, and (4) any
material interest of the stockholder in such business. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at an annual or
special meeting except in accordance with the procedures set forth in this
Section 1.7. The chairman of an annual or special meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this Section
1.7, and if he should so determine, he shall so

                                      - 2 -


declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.

     SECTION 1.8    PROXIES AND VOTING.

     At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.

     Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law.

     All voting, including on the election of directors, and except where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting. Every vote
taken by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.

     All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation or the
Bylaws of this Corporation, all other matters shall be determined by a majority
of the votes cast.

     SECTION 1.9    STOCK LIST.

     A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
name, shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.

     The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.

     SECTION 1.10   STOCKHOLDER ACTION BY WRITTEN CONSENT.

     An action which may be taken at any annual or special meeting of
stockholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the actions so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes which
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. All such consents shall
be filed with the Secretary of the Corporation and shall be maintained in the
corporate records. Prompt notice of the taking of a corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.

                                      - 3 -


                                   ARTICLE II

                               BOARD OF DIRECTORS

     SECTION 2.1    NUMBER AND TERM OF OFFICE.

     The authorized number of directors of this corporation shall be not less
than six (6) nor more than twelve (12). The exact number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors.

     SECTION 2.2    VACANCIES AND NEWLY CREATED DIRECTORSHIPS

     Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, or other cause
(other than removal from office by a vote of the stockholders) may be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

     SECTION 2.3    REMOVAL.

     Subject to the rights of the holders of any series of Preferred Stock then
outstanding, any director, or the entire Board of Directors, may be removed from
office at any time, with or without cause, but only by the affirmative vote of
the holders of at least a majority of the voting power of the then outstanding
shares of stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class. Vacancies in the Board of
Directors resulting form such removal may be filled by (i) a majority of the
directors then in office, though less than a quorum, or (ii) the stockholders at
a special meeting of the stockholders properly called for that purpose, by the
vote of the holders of a plurality of the shares entitled to vote at such
special meeting. Directors so chosen shall hold office until the next annual
meeting of stockholders.

     SECTION 2.4    REGULAR MEETINGS.

     Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.

     SECTION 2.5    SPECIAL MEETINGS.

     Special meetings of the Board of Directors may be called by a majority of
the directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or by the President and shall be held at such place, on
such date, and at such time as they or he shall fix. Notice of the place, date,
and time of each such special meeting shall be given to each director who does
not waive the right to a notice by (i) mailing written notice not less than five
(5) days before the meeting, (ii) sending notice one (1) day before the meeting
by an overnight courier service and two (2) days before the meeting if by
overseas courier service, or (iii) by telephoning, telecopying, telegraphing or
personally delivering the same not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.

     SECTION 2.6    QUORUM.

                                      - 4 -


     At any meeting of the Board of Directors, a majority of the total number of
authorized directors shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof.

     SECTION 2.7    PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.

     Members of the Board of Directors, or of any committee of the Board of
Directors, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.

     SECTION 2.8    CONDUCT OF BUSINESS.

     At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.

     SECTION 2.9    POWERS.

     The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:

          (1)   To declare dividends from time to time in accordance with law;

          (2)   To purchase or otherwise acquire any property, rights or
     privileges on such terms as it shall determine;

          (3)   To authorize the creation, making and issuance, in such form as
     it may determine, of written obligations of every kind, negotiable or
     non-negotiable, secured or unsecured, and to do all things necessary in
     connection therewith;

          (4)   To remove any officer of the Corporation with or without cause,
     and from time to time to pass on the powers and duties of any officer upon
     any other person for the time being;

          (5)   To confer upon any officer of the Corporation the power to
     appoint, remove and suspend subordinate officers, employees and agents;

          (6)   To adopt from time to time such stock option, stock purchase,
     bonus or other compensation plans for directors, officers, employees and
     agents of the Corporation and its subsidiaries as it may determine;

          (7)   To adopt from time to time such insurance, retirement, and other
     benefit plans for directors, officers, employees and agents of the
     Corporation and its subsidiaries as it may determine; and

          (8)   To adopt from time to time regulations, not inconsistent with
     these Bylaws, for the management of the Corporation's business and affairs.

                                      - 5 -


     SECTION 2.10   ACTION WITHOUT MEETING.

     Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.

     SECTION 2.11   COMPENSATION OF DIRECTORS.

     Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.

     SECTION 2.12   NOMINATION OF DIRECTOR CANDIDATES.

     Subject to any limitations stated in the Certificate of Incorporation of
this Corporation, nominations for the election of directors may be made by the
Board of Directors or a proxy committee appointed by the Board of Directors or
by any stockholder entitled to vote in the election of directors.

                                   ARTICLE III

                                   COMMITTEES

     SECTION 3.1    COMMITTEES OF THE BOARD OF DIRECTORS.

     The Board of Directors, by a vote of a majority of the whole Board, may
from time to time designate one or more committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his place, the member or members of the committee present at the
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.

     SECTION 3.2    CONDUCT OF BUSINESS.

     Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-half of the authorized members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event all members of the committee shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing. Such written consent or consents shall be filed with the
minutes of the proceedings of such committee.

                                      - 6 -


                                   ARTICLE IV

                                    OFFICERS

     Section 4.1    GENERALLY.

     The officers of the Corporation shall consist of a President, a Secretary
and a Chief Financial Officer. The Corporation may also have, at the discretion
of the Board of Directors, a Chairman of the Board, a Chief Executive Officer, a
Chief Operating Officer, a President, one or more Vice Presidents, a Treasurer,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may from time to time be appointed by the Board of Directors.
Officers shall be elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of stockholders. Each
officer shall hold office at the pleasure of the Board, until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any number of offices may be held by the same person.

     SECTION 4.2    CHAIRMAN OF THE BOARD.

     The Chairman of the Board, if there shall be such an officer, shall, if
present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
or her by the Board of Directors or as provided by these Bylaws.

     SECTION 4.3    CHIEF EXECUTIVE OFFICER.

     Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, if there be such an officer, the Chief
Executive Officer (the "CEO") shall perform the duties normally expected of a
chief executive officer and shall, subject only to the higher authority and
control of the Board of Directors, have primary responsibility for general
supervision, direction and control of the business (including long-term strategy
and policy) and of the other officers, employees and agents of the Corporation.
The CEO shall preside at all meetings of the stockholders. He or she shall be an
ex-officio member of all the standing committees including the executive
committee, if any, shall have the general powers and duties of management
usually vested in the office of chief executive officer of a corporation, and
shall have such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws. The CEO shall have power to sign all stock
certificates, contracts and other instruments of the Corporation that are
authorized by the Board of Directors.

     SECTION 4.4    PRESIDENT.

     Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board and the CEO, if there be such officers,
the President shall be the general manager of the Corporation and shall, subject
to the control of the Board of Directors and the powers of the CEO, have general
day-to-day supervision, direction and control of the business and other officers
(other than the Chairman of the Board, the CEO and the CEO's staff), employees
and agents of the Corporation. In the absence of the CEO, the President shall
have all of the powers of the CEO (as enumerated in Section 4.3 hereof) and
shall preside at all meetings of the stockholders. The President shall have the
general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the CEO, the Board of Directors or these Bylaws. The President
shall have power to sign all stock certificates, contracts and other instruments
of the Corporation that are authorized by the Board of Directors.

                                      - 7 -


     SECTION 4.5    CHIEF OPERATING OFFICER.

     Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, the Chief Executive Officer and the
President, if there be such officers, the Chief Operating Officer (the "COO")
shall be responsible for implementing on an operational basis the strategy and
policies of the Corporation (as set by the Board of Directors and the CEO) and
shall, subject to the control of the Board of Directors and the powers of the
CEO and the President, have general day-to-day supervision, direction and
control of the business and other officers (other than the Chairman of the
Board, the CEO and the President, and their respective staffs), employees and
agents of the Corporation. The COO shall have the general powers and duties of
management usually vested in the office of a chief operating officer or general
manager of operations of a corporation, and shall have such other powers and
duties as may be prescribed by the CEO, the President, the Board of Directors or
these Bylaws. The COO shall have power to sign all stock certificates, contracts
and other instruments of the Corporation that are authorized by the Board of
Directors.

     SECTION 4.6    VICE PRESIDENT.

     In the absence or disability of the CEO, the President and the COO, the
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors, or, if not ranked, the Vice President designated by the Board of
Directors, shall perform the duties of the CEO, President or COO, as the case
may be, and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the CEO, President or COO, as the case may be. The Vice
Presidents, if any, shall have such other powers and perform such other duties
as from time to time may be prescribed for them by the Board of Directors or
these Bylaws.

     SECTION 4.7    CHIEF FINANCIAL OFFICER.

     The Chief Financial Officer (the "CFO") shall keep and maintain, or cause
to be kept and maintained, adequate and correct financial books and records of
account of the Corporation in written form or any other form capable of being
converted into written form.

     The CFO shall deposit all monies and other valuables in the name and to the
credit of the Corporation with such depositories as may be designated by the
Board of Directors. The CFO shall disburse all funds of the Corporation as may
be ordered by the Board of Directors, shall render to the CEO, the President and
the Board of Directors, whenever they or any of them request it, an account of
all of his or her transactions as CFO and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by these Bylaws.

     SECTION 4.8    SECRETARY.

     The Secretary shall keep, or cause to be kept, a book of minutes in written
form of the proceedings of the Board of Directors, committees of the Board and
stockholders. Such minutes shall include all waivers of notice, consents to the
holding of meetings and approvals of the minutes of meetings executed pursuant
to these Bylaws or the Delaware General Corporation Law. The Secretary shall
keep, or cause to be kept, at the principal executive office or at the office of
the Corporation's transfer agent or registrar, a record of its stockholders,
giving the names and addresses of all stockholders and the number and class of
shares held by each.

     The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the

                                      - 8 -


Corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or these Bylaws.

     SECTION 4.9    DELEGATION OF AUTHORITY.

     The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.

     SECTION 4.10   REMOVAL.

     Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.

     SECTION 4.11   ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.

     Unless otherwise directed by the Board of Directors, the CEO, the
President, the COO and any officer of the Corporation authorized by the CEO
shall have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of stockholders of or with respect to any
action of stockholders of any other corporation in which this Corporation may
hold securities and otherwise to exercise any and all rights and powers that
this Corporation may possess by reason of its ownership of securities in such
other corporation.

                                    ARTICLE V

                                      STOCK

     SECTION 5.1    CERTIFICATES OF STOCK.

     Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and the
Secretary, an Assistant Secretary or the Chief Financial Officer, certifying the
number of shares owned by him or her. Any or all the signatures on the
certificate may be facsimile.

     SECTION 5.2    TRANSFERS OF STOCK.

     Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 5.4 of these Bylaws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.

     SECTION 5.3    RECORD DATE.

     The Board of Directors may fix a record date, which shall not be more than
sixty (60) nor fewer than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for the other
action hereinafter described, as of which there shall be determined the
stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to express consent to corporate action
in writing without a meeting; to receive payment of any dividend or other
distribution or allotment of any rights; or to exercise any rights with respect
to any change, conversion or exchange of stock or with respect to any other
lawful action.

                                      - 9 -


     SECTION 5.4    LOST, STOLEN OR DESTROYED CERTIFICATES.

     In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.

     SECTION 5.5    REGULATIONS.

     The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.

                                   ARTICLE VI

                                     NOTICES

     SECTION 6.1    NOTICES.

     Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram, mailgram or
commercial courier service. Any such notice shall be addressed to such
stockholder, director, officer, employee or agent at this last known address as
the same appears on the books of the Corporation. The time when such notice is
received by such stockholder, director, officer, employee or agent, or by any
person accepting such notice on behalf of such person, if hand delivered, or
dispatched, if delivered through the mails or by telegram, courier or mailgram,
shall be the time of the giving of the notice.

     SECTION 6.2    WAIVERS.

     A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a person at a meeting shall constitute a waiver of notice for such
meeting, except when the person attends a meeting for the express purpose of
objecting, and does in fact object, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

                                   ARTICLE VII

                                  MISCELLANEOUS

     SECTION 7.1    FACSIMILE SIGNATURES.

     In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.

                                     - 10 -


     SECTION 7.2    CORPORATE SEAL.

     The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Chief Financial Officer or by an Assistant
Secretary or other officer designated by the Board of Directors.

     SECTION 7.3    RELIANCE UPON BOOKS, REPORTS AND RECORDS.

     Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account or
other records of the Corporation, including reports made to the Corporation by
any of its officers, by an independent certified public accountant, or by an
appraiser.

     SECTION 7.4    FISCAL YEAR.

     The fiscal year of the Corporation shall be as fixed by the Board of
Directors.

     SECTION 7.5    TIME PERIODS.

     In applying any provision of these Bylaws which require that an act be done
or not done a specified number of days prior to an event or that an act be done
during a period of a specified number of days prior to an event, calendar days
shall be used, the day of the doing of the act shall be excluded, and the day of
the event shall be included.

                                  ARTICLE VIII

                    INDEMNIFICATION OF DIRECTORS AND OFFICERS

     SECTION 8.1    RIGHT TO INDEMNIFICATION.

     Each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of Delaware, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; PROVIDED,
HOWEVER, that, except as provided in Section 8.2, the Corporation shall
indemnify any such person seeking indemnity in connection with a Proceeding (or
part thereof) initiated by such person only if such Proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. Such right shall be
a contract right

                                     - 11 -


and shall include the right to be paid by the Corporation expenses incurred in
defending any such Proceeding in advance of its final disposition; PROVIDED,
HOWEVER, that, if required by the General Corporation Law of Delaware, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of such Proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this Section or
otherwise.

     Any indemnification as provided herein (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of a director, officer, employee or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the General Corporation Law of Delaware. Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.

     SECTION 8.2    RIGHT OF CLAIMANT TO BRING SUIT.

     If a claim under Section 8.1 is not paid in full by the Corporation within
ninety (90) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any Proceeding in advance of
its final disposition where the required undertaking, if any, has been tendered
to the Corporation) that the claimant has not met the standards of conduct which
make it permissible under the General Corporation Law of Delaware for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.

     SECTION 8.3    INDEMNIFICATION OF EMPLOYEES AND AGENTS.

     The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and to the advancement of
related expenses, to any employee or agent of the Corporation to the fullest
extent of the provisions of this Article with respect to the indemnification of
and advancement of expenses to directors and officers of the Corporation.

     SECTION 8.4    NON-EXCLUSIVITY OF RIGHTS.

     The rights conferred on any person by Sections 8.1, 8.2 and 8.3 shall not
be exclusive of any other right which such persons may have or hereafter acquire
under any statute, provisions of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.

                                     - 12 -


     SECTION 8.5    INDEMNIFICATION CONTRACTS.

     The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the Corporation, or any person serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for indemnification rights
equivalent to those provided for in this Article VIII.

     SECTION 8.6    INSURANCE.

     The Corporation may maintain insurance, at its expense, to protect itself
and any such director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expenses, liability or loss under
Delaware General Corporation Law.

     SECTION 8.7    EFFECT OF AMENDMENT.

     Any amendment, repeal or modification of any provision of this Article VIII
by the stockholders or the directors of the Corporation shall not adversely
affect any right or protection of a director or officer of the Corporation
existing at the time of such amendment, repeal or modification.

     SECTION 8.8    SAVINGS CLAUSE.

     If this Article or any portion hereof shall be invalidated on any ground by
any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each director, officer, employee and agent of the Corporation as to
costs, charges and expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the Corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the fullest extent permitted by applicable law.

                                   ARTICLE IX

                                   AMENDMENTS

     The Board of Directors is expressly empowered to adopt, amend, alter or
repeal Bylaws of the Corporation, subject to the right of the stockholders to
adopt, amend, alter or repeal the Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the Board). The stockholders shall also have power to adopt, amend,
alter or repeal the Bylaws of the Corporation.

                                     - 13 -

EX-10.8

                                                                    Exhibit 10.8

               3COM CORPORATION SECTION 16 OFFICER SEVERANCE PLAN

                Amended and Restated Effective September 10, 2003

     Section 16 executive officers who are either (i) involuntarily terminated
without Cause (as defined in the Company's form Management Retention Agreement
as in effect at the time of termination) by the Company, (ii) undergo a
Voluntary Termination for Good Reason (as defined below), or (iii) terminate
their employment with the Company pursuant to a mutual written agreement with
the Company specifying that they are covered hereunder shall, subject to
entering into and not revoking a release of claims in favor of the Company upon
their termination of employment, receive the following benefits:

     -    Base pay - one year of salary, which may be paid in lump sum or over
          time, at the Company's discretion.
     -    Bonus - one year target bonus, which may be paid in lump sum or over
          time, at the Company's discretion.
     -    Stock Options
          -    Vesting accelerates by one (1) year
          -    Exercise period extended from ninety (90) days to one (1) year
               (or original term of option, if shorter)
     -    Group health, dental and vision benefits continuation - COBRA subsidy
          so treated the same as active employee for one year following
          employment termination, or if earlier, until covered by another
          employer's plans
     -    Term life insurance continuation for one year following employment
          termination, or if earlier, until covered by another employer's plans
          - subject to 3Com obtaining rider from insurance carrier on
          commercially reasonable terms.

     For purposes of this Plan, "Voluntary Termination for Good Reason" shall
mean the Employee voluntarily resigns after the occurrence of any of the
following without the Employee's consent: (i) a material reduction of the
Employee's material duties or title, relative to the Employee's material duties
or title as in effect immediately prior to such reduction; (ii) a material
reduction by the Company in the base salary of the Employee as in effect
immediately prior to such reduction, other than a reduction generally applicable
to Section 16 officers of the Company; or (iii) the relocation of the Employee
to a facility or a location more than fifty (50) miles from the Employee's then
present location (other than a relocation to the Company's Marlborough,
Massachusetts offices); provided, however, that no grounds for Voluntary
Termination for Good Reason shall exist hereunder unless the participant
provides 3Com with 30 days written notice specifying the purported grounds for
the Voluntary Termination for Good Reason and at least 30 days opportunity for
3Com to cure the purported grounds.

     All payments and benefits hereunder shall be subject to applicable
withholding. The Board or the Compensation Committee may amend or terminate this
Plan at any time. The Compensation Committee shall have the discretionary
authority to construe and interpret the terms of this Plan, and their
determinations shall be binding on all participants. The benefits



provided hereunder are in lieu of, and not cumulative with, any other severance
benefits to which a participant may be entitled.

EX-10.20

                                                                   Exhibit 10.20

                                  OFFICE LEASE


                                 by and between


                     MARLBOROUGH CAMPUS LIMITED PARTNERSHIP
                                   as landlord

                                       and

                                3COM CORPORATION
                                    as tenant

                                  OFFICE LEASE



                                                                                     
OFFICE LEASE.............................................................................1

ARTICLE 1  PREMISES, BUILDING, PROJECT, AND COMMON AREAS.................................3
     1.1    The Premises.................................................................3
     1.2    The Building and The Project.................................................4
     1.3    Common Areas.................................................................4
     1.4    Furniture....................................................................6
     1.5    Card Key Access..............................................................6

ARTICLE 2  LEASE TERM....................................................................7
     2.1    Lease Term...................................................................7
     2.2    Option to Extend.............................................................7

ARTICLE 3  BASE RENT.....................................................................8
     3.1    Base Rent....................................................................8

ARTICLE 4  ADDITIONAL RENT...............................................................8
     4.1    General Terms................................................................8
     4.2    Definitions of Key Terms Relating to Additional Rent.........................9
     4.3    Allocation of Direct Expenses...............................................12
     4.4    Calculation and Payment of Additional Rent..................................13
     4.5    Taxes and Other Charges for Which Tenant Is Directly Responsible............14
     4.6    Landlord's Books and Records................................................15
     4.7    Tenant's Electricity Cost...................................................15
     4.8    Additional Rent for Additional Premises.....................................15

ARTICLE 5  USE OF PREMISES..............................................................16
     5.1    Permitted Use...............................................................16
     5.2    Prohibited Uses.............................................................16
     5.3    CC&Rs.......................................................................16
     5.4    Condition of Premises.......................................................17
     5.5    Demising Plan...............................................................17
     5.6    Rules and Regulations.......................................................18

ARTICLE 6  SERVICES AND UTILITIES.......................................................18
     6.1    Standard Tenant Services....................................................18
     6.2    Requirements of Tenant......................................................19
     6.3    Interruption of Use.........................................................19

ARTICLE 7  REPAIRS......................................................................20
     7.1    Landlord's Obligations......................................................20
     7.2    Tenant's Obligations........................................................21

ARTICLE 8  ADDITIONS AND ALTERATIONS....................................................21
     8.1    Landlord's Consent to Alterations...........................................21
     8.2    Manner of Construction......................................................22
     8.3    Payment for Improvements....................................................23





                                                                                     
     8.4    Construction Insurance......................................................23
     8.5    Landlord's Property.........................................................23

ARTICLE 9  COVENANT AGAINST LIENS.......................................................24

ARTICLE 10 INSURANCE....................................................................24
     10.1   Indemnification and Waiver..................................................24
     10.2   Tenant's Compliance With Landlord's Fire and Casualty Insurance.............25
     10.3   Tenant's Insurance..........................................................25
     10.4   Form of Policies............................................................26
     10.5   Subrogation.................................................................26
     10.6   Landlord's Insurance........................................................26

ARTICLE 11 DAMAGE AND DESTRUCTION.......................................................27
     11.1   Repair of Damage by Landlord................................................27
     11.2   Landlord's Option to Repair.................................................28
     11.3   Tenant's Option to Terminate................................................29
     11.4   Waiver of Statutory Provisions..............................................29

ARTICLE 12 NON-WAIVER...................................................................29

ARTICLE 13 CONDEMNATION.................................................................29
     13.1   Condemnation................................................................29
     13.2   Tenant's Right to Award.....................................................30

ARTICLE 14 ASSIGNMENT AND SUBLETTING....................................................30
     14.1   Transfers...................................................................30
     14.2   Landlord's Consent..........................................................31
     14.3   Transfer Premium............................................................32
     14.4   Landlord's Option as to Subject Space.......................................33
     14.5   Effect of Transfer..........................................................33
     14.6   Occurrence of Default.......................................................34
     14.7   Non-Transfers...............................................................34

ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES...............35
     15.1   Surrender of Premises.......................................................35
     15.2   Removal of Tenant Property by Tenant........................................35

ARTICLE 16 HOLDING OVER.................................................................35
     16.1   Interim Premises............................................................35
     16.2   Additional Premises.........................................................36
     16.3   Premises....................................................................36

ARTICLE 17 ESTOPPEL CERTIFICATES........................................................37

ARTICLE 18 SUBORDINATION................................................................37



                                       ii


                                                                                     
ARTICLE 19 DEFAULTS: REMEDIES...........................................................38
     19.1   Events of Default...........................................................38
     19.2   Remedies Upon Default.......................................................39
     19.3   Subleases of Tenant.........................................................40
     19.4   No Relief From Forfeiture After Default.....................................40
     19.5   Efforts to Relet............................................................40
     19.6   Landlord Default............................................................40

ARTICLE 20 COVENANT OF QUIET ENJOYMENT..................................................41

ARTICLE 21 INTENTIONALLY OMITTED........................................................41

22.1 SATELLITE DISH.....................................................................41
     22.2   Indemnification.............................................................43

ARTICLE 23 SIGNS........................................................................43

ARTICLE 24 COMPLIANCE WITH LAW..........................................................44

ARTICLE 25 LATE CHARGES.................................................................45

ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT: PAYMENTS BY TENANT.........................45
     26.1   Landlord's Cure.............................................................45
     26.2   Tenant's Reimbursement......................................................46

ARTICLE 27 ENTRY BY LANDLORD............................................................46

ARTICLE 28 TENANT PARKING...............................................................47

ARTICLE 29  MISCELLANEOUS PROVISIONS....................................................48
     29.1   Terms; Captions.............................................................48
     29.2   Binding Effect..............................................................48
     29.3   No Air Rights...............................................................48
     29.4   Transfer of Landlord's Interest.............................................48
     29.5   Notice of Lease.............................................................48
     29.6   Landlord's Title............................................................48
     29.7   Relationship of Parties.....................................................48
     29.8   Application of Payments.....................................................49
     29.9   Time of Essence.............................................................49
     29.10  Partial Invalidity..........................................................49
     29.11  No Warranty.................................................................49
     29.12  Landlord Exculpation........................................................49
     29.13  Entire Agreement............................................................49
     29.14  Right to Lease..............................................................50
     29.15  Force Majeure...............................................................50
     29.16  Notices.....................................................................50
     29.17  Joint and Several...........................................................51
     29.18   Authority..................................................................51



                                       iii


                                                                                     
     29.19  Attorneys' Fees.............................................................51
     29.20  Governing Law...............................................................51
     29.21  Submission of Lease.........................................................52
     29.22  Brokers.....................................................................52
     29.23  Independent Covenants.......................................................52
     29.24  Project or Building Name and Signage........................................52
     29.25  Counterparts................................................................52
     29.26  Confidentiality.............................................................53
     29.27  Transportation Management...................................................53
     29.28  Building Renovations........................................................53
     29.29  No Violation................................................................53
     29.30  Communications and Computer Lines...........................................53
     29.31  Hazardous Substances........................................................54
     29.32  Development of the Project..................................................54
     29.33  No Consequential Damages....................................................55
     29.34  Waiver of Landlord's Lien...................................................55

29.35 COMPLIANCE WITH TIF AGREEMENT.....................................................55




LIST OF EXHIBITS

           
Exhibit A     Plan of the Premises (and labeling "Lab Areas")
Exhibit A-1   Plan for Loading Dock area in Building 2
Exhibit B     Plan of the Project identifying Buildings 1, 2, 3, and 4
Exhibit C     Furniture Inventory List
Exhibit C-1   Excluded Personal Property
Exhibit D     Rules and Regulations
Exhibit E-1   Form of Tenant Estoppel Certificate
Exhibit E-2   Form of Landlord Estoppel Certificate
Exhibit F     Plan of the Interim Premises
Exhibit G     Notice of Lease
Exhibit H     Plan of Additional Premises



                                       iv


     This Office Lease (the "LEASE"), dated as of the date set forth in SECTION
1 of the Summary of Basic Lease Information (the "SUMMARY"), below, is made by
and between Marlborough Campus Limited Partnership, a Massachusetts limited
partnership ("LANDLORD"), and 3Com Corporation, a Delaware corporation
("TENANT").

SUMMARY OF BASIC LEASE INFORMATION



     TERMS OF LEASE                              DESCRIPTION
     --------------                              -----------
                                              
1.   Date:                                       November 26, 2002

2.   Premises
     (Article 1)
     2.1    Building:                            That certain four-story building located at 3Com Drive,
                                                 Marlborough, Massachusetts in the "Project," commonly referred
                                                 to in the Project as "BUILDING 2."

     2.2    Premises:                            Approximately 168,315 rentable square feet of space,
                                                 calculated per BOMA Standard Z65.1-1996 ("BOMA Standard")
                                                 comprising the entire Building, as further set forth in
                                                 EXHIBIT A to this Lease ("PREMISES").

     2.3    Interim Premises                     Approximately 5,621 rentable square feet of space, calculated
                                                 per BOMA Standard, comprising a portion of the first and
                                                 second floors of Building 1, as further set forth in EXHIBIT F
                                                 to this Lease ("INTERIM PREMISES").

     2.4    Project:                             The Building is part of that certain building complex (the
                                                 "PROJECT") consisting of four (4) buildings ( the "BUILDINGS")
                                                 comprising 530,895 rentable square feet of space, calculated
                                                 per BOMA Standard, and other improvements, as depicted on
                                                 EXHIBIT B and as further set forth in SECTION 1.2 of this Lease.

     2.5    Additional Premises                  Approximately _____ square feet of space, located in Building
                                                 4, as further set forth in EXHIBIT H to this Lease
                                                 ("ADDITIONAL PREMISES")

3.   Lease Term
     (Article 2)

     3.1    Length of Initial Term:              Approximately four (4) years.

     3.2    Lease Commencement Date:             The date Landlord acquires title to the Project

     3.3    Lease Expiration Date:               11:59 p.m. EST on the last day of the month in which the fourth
                                                 (4th) anniversary of the Lease Commencement Date occurs, unless
                                                 sooner




                                              
                                                 terminated pursuant to the provisions hereof.

     3.4    Option(s) to Extend                  Two options to extend for three (3) years each

4.   Base Rent (Article 3):





                                                                     Monthly               Annual Rental Rate
                                             Annual                Installment               Per Rentable
        Lease Years                         Base Rent              of Base Rent               Square Foot
        -----------                         ---------              ------------               -----------
                                                                                       
            1-4                            $ 3,534,615             $ 294,551.25                 $ 21.00
    First Option Term (5-7)                $ 3,871,245             $ 322,603.75                 $ 23.00
   Second Option Term (8-10)               $ 4,207,875             $ 350,656.25                 $ 25.00


                                              
5.   Base Year                                   Calendar year 2003; it being understood that in calculating
     (Article 4):                                Tax Expenses for the Base Year, Landlord shall use one-half of
                                                 the taxes for the fiscal year from July 1, 2002 to June 30, 2003
                                                 and one-half of the taxes for the fiscal year from July 1,2003
                                                 to June 30, 2004.

6.   Tenant's Share                              31.70% as of the Effective Date, subject to adjustment in
     (Article 4):                                accordance with SECTION 4.3.

7.   Permitted Use                               Tenant shall use the Premises for general office use,
     (Article 5):                                including but not limited to research and development, sales,
                                                 training.

8.   Security Deposit                            None.
     (Article 21):

9.   Parking                                     Tenant shall have non-exclusive use of 550 parking spaces, as
     (Article 28):                               more particularly set forth in ARTICLE 28.

10.  Address of Tenant                           See SECTION 29.16 of this Lease.
     (Section 29.16):

11.  Address of Landlord                         See SECTION 29.16 of this Lease.
     (Section 29.16):

12.  Broker(s)                                   None
     (Section 29.22):



                                        2


                                    ARTICLE 1

                  PREMISES, BUILDING, PROJECT, AND COMMON AREAS

     1.1   THE PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the premises set forth in SECTION 2.2 of the Summary (the
"PREMISES") and shown on EXHIBIT A, attached hereto. The Premises consist of all
space within Building 2 (the "Building"), save and except only the Loading Dock
(defined in SECTION 5.5, below), and shall be deemed to be the number of
rentable square feet set forth in SECTION 2.2 of the Summary, subject to
adjustment in accordance with SECTION 4.3, below. Tenant shall not have the
right to remeasure the Premises. The parties hereto agree that the lease of the
Premises is upon and subject to the terms, covenants and conditions (the "TCCS")
herein set forth, and Landlord and Tenant covenant as a material part of the
consideration for this Lease to keep and perform each and all of such terms,
covenants and conditions by it to be kept and performed and that this Lease is
made upon the condition of such performance. During the term of the Lease,
Tenant shall have access to Building 4, such use to be in common with other
tenants and occupants of the Project, either (at Landlord's option): (i) through
Building 1 (via such floor and in such location(s) as shall be specified by
Landlord, in its reasonable discretion), or (ii) through an alternate, enclosed
weather-tight link, to be constructed by Landlord linking Building 2 and
Building 4 (directly or through the existing connector which links Building 1
and Building 4, and, in the event that Landlord elects to construct said link,
once said link is substantially complete and available for Tenant's use (which
use may be in common with other occupants of the Project), then Tenant shall not
longer have any right of access through Building 1 as set forth in clause (i)
above, and Landlord, at its option, may eliminate and/or prohibit Tenant's
access via the door referred to in SECTION 5.5(A), below). Tenant also
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty regarding the condition of the Premises, the Building
or the Project or with respect to the suitability of any of the foregoing for
the conduct of Tenant's business, except as specifically set forth in this
Lease. Landlord shall not be obligated to provide or pay for any improvement
work related to the improvement of the Premises except as expressly set forth in
SECTIONS 1.5 AND 5.5, below.

            1.1.1   INTERIM PREMISES. Notwithstanding anything to the contrary
contained herein, from the Commencement Date through the date which is sixty
(60) days after the Commencement Date (the "TRANSITION PERIOD"), the Premises
shall include the Interim Premises. On or before the last day of the Transition
Period, Tenant shall vacate the Interim Premises, leaving the same in broom
clean condition, and shall surrender the Furniture and the raised flooring
located in the Interim Premises on the Commencement Date to Landlord in the same
condition and repair as on the Lease Commencement Date, reasonable wear and tear
and damage by casualty excepted. Tenant shall remove from the Interim Premises
and other areas of Building 1, and shall repair and restore any damage to the
Interim Premises and/or Building 1 caused by such removal, on or before the
expiration of the Transition Period the items owned or leased by Tenant from
third parties as set forth on EXHIBIT C-1. Notwithstanding anything to the
contrary, Landlord shall have access to the PBX Room shown on EXHIBIT F at all
times during the Transition Period.

            1.1.2   TRANSITION PERIOD. During the Transition Period, Tenant
will, at its sole cost and expense, and subject to the provisions of ARTICLE 8,
separate Tenant's network cabling

                                        3


and telecommunications infrastructure in order to move all of Tenant's personnel
and equipment into the Premises, and to vacate the Interim Premises.

            1.1.3   ADDITIONAL PREMISES. Notwithstanding anything to the
contrary contained herein, commencing on the Commencement Date and continuing on
a month-to-month basis, terminable by Tenant at any time upon thirty (30) days
advance written notice to Landlord and terminable by Landlord effective at any
time after the first anniversary of the Commencement Date upon thirty (30) days
advance written notice to Tenant, the Premises shall include the Additional
Premises. Upon termination of this Lease with respect to the Additional
Premises, Tenant shall vacate the Additional Premises, leaving the same in broom
clean condition, and shall either: (i) relocate the Furniture located in the
Additional Premises on the Commencement Date to the Premises (to be surrendered
to Landlord at the expiration or earlier termination of the Lease), or (ii)
surrender the Furniture located in the Additional Premises on the Commencement
Date to Landlord in the same condition and repair as on the Lease Commencement
Date, reasonable wear and tear and damage by casualty excepted. Tenant shall
remove from the Additional Premises and other areas of Building 4, and shall
repair and restore any damage to the Additional Premises and/or Building 4
caused by such removal, on or before the expiration or earlier termination of
the Lease with respect to the Additional Premises the items owned or leased by
Tenant from third parties as set forth on EXHIBIT C-1. Landlord and Tenant agree
that the Additional Premises have not been used for the calculation of the
useable square footage contained in the Premises, but have been included in the
"load factor" in calculating the rentable square footage contained in the
Premises, and this method of calculation shall remain in effect for the one year
period commencing on the Lease Commencement Date. Landlord must give Tenant at
least forty-five (45) days notice prior to any recalculation of the size of the
Premises to include the Additional Space. Notwithstanding anything to the
contrary, Landlord shall have no obligation to provide any services, other than
standard Building system services for electric, mechanical and HVAC (which are
part of CAM), for the Additional Premises and Tenant shall at its sole cost and
expense provide janitorial services, as required.

     1.2   THE BUILDING AND THE PROJECT. The Building is part of a complex of
buildings located on the Property consisting of four (4) buildings and other
improvements. The term "PROJECT," as used in this Lease, shall mean (i) the
Building and the Common Areas (as such term is defined in SECTION 1.3 below),
(ii) the land (which is improved with landscaping, parking areas, access roads
and other improvements) upon which the Building and the Common Areas are located
as shown on the Project Site Plan, and (iii) the three other office buildings
(including without limitation, "BUILDING 1", "BUILDING 3" and "BUILDING 4")
located adjacent to the Building and the land upon which such adjacent office
buildings are located, all substantially as shown on the Project Site Plan
attached hereto as EXHIBIT B.

     1.3   COMMON AREAS. Tenant shall have the non-exclusive right to use in
common with Landlord and other tenants in the Project, and subject to the Rules
and Regulations (as defined in Section 5.6, below), those portions of the
Building and the Project which are provided, from time to time, for
non-exclusive use in common by Landlord, Tenant and any other tenants of the
Project (such areas, including without limitation parking areas, access roads
and sidewalks on the Project, whether or not shown on the Project Site Plan, and
common facilities within the Buildings, such as lobbies, corridors, stairwells,
elevators and restrooms, the Conference Facilities (as defined in Section 1.31,
below), Cafeteria (as defined in Section 1.3.2, below) and

                                        4


Fitness Center (as defined in Section 1.3.2, below), together with such other
portions of the Project designated to Tenant in writing by Landlord to be shared
by Landlord and certain tenants, are collectively referred to herein as the
"COMMON AREAS"). Landlord shall maintain and operate the Common Areas in a
manner consistent with Comparable Buildings (as defined in SECTION 6.1).
Landlord reserves the right to close temporarily or permanently, make
alterations or additions to, or change the location of elements of the Project
and the Common Areas, including, without limitation, the right to (a) make
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways; (b) to close temporarily any of the
Common Areas for maintenance purposes so long as reasonable access to the
Premises remains available; (c) to add additional improvements to the Common
Areas; (d) to use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project, or any portion thereof; (e)
to do and perform such other acts and make such other changes in, to or with
respect to the Project, Building and Common Areas as Landlord may deem to be
appropriate; and (f) to remove areas from use as Common Areas; provided,
however, that Landlord's exercise of the foregoing rights shall not materially,
adversely interfere with Tenant's use and occupancy of the Premises or the
Common Areas, other than and excluding the Common Areas of Building 4, any or
all of which may, in Landlord's sole discretion, be closed temporarily or
permanently, or be withdrawn from Common Areas, subject only to the last two
sentences of SECTION 1.3.2. Notwithstanding anything to the contrary in this
SECTION 1.3, during the Lease Term no expansion of the rentable square feet of
space included within the Common Areas (whether or not in connection with future
development of the Project) or removal from service of rentable square feet
which was not part of the Common Areas as of the Lease Commencement Date shall
result in an increase in the load factor included within the calculation of the
size of the Premises for purposes of computing Tenant's Share.

            1.3.1   CONFERENCE AND TRAINING ROOMS. Subject to availability, and
prior reservation in accordance with any procedures implemented by Landlord and
provided in writing to Tenant and applied uniformly to all tenants, Tenant shall
have the right to use the meeting and training rooms and the auditorium located
in Building 4 (collectively, the "CONFERENCE FACILITIES") in common with
Landlord and other tenants of the Project, to the extent otherwise permitted by
Landlord. The use of the Conference Facilities shall be subject to such rules
and requirements as Landlord may establish and provide in writing to Tenant in
accordance with Section 5.6, below, and to all other provisions of this SECTION
1.3. Tenant shall have the right to use the Conference Facilities without any
additional charge (beyond Tenant's Share of Operating Expenses) so long as its
use does not exceed Tenant's Share of the available days per month, with
Landlord reserving the right to monitor and limit to Tenant's Share Tenant's
utilization during normal working hours (versus other hours) or business days
(versus holiday and/or weekend days), in its reasonable business judgment.
Notwithstanding any other provision in this Lease to the contrary, Landlord
reserves the right, upon written notice to Tenant, to eliminate Tenant's right
to use the Conference Facilities (or portions thereof) if Landlord leases,
assigns, or otherwise transfers or assigns Landlord's rights to use such
portions of the Conference Facilities to another party, provided, however, if
Landlord leases the Conference Facilities to a third party that is not required
to make the Conference Facilities available for use by Tenant, then the portion
of the Conference Facilities that are no longer available to Tenant as set forth
above, shall no longer be considered to be Common Areas, and Tenant's Share
shall be adjusted in accordance with SECTION 4.3, below.

                                        5


            1.3.2   CAFETERIA AND FITNESS CENTER. Tenant and its employees,
contractors, visitors and consultants shall have the right to use the cafeteria
(the "CAFETERIA") located in the Project so long as it is operational provided
such parties shall be responsible for payment of all charges for meals and other
items purchased at the cafeteria. Tenant and its employees, contractors and
consultants shall have access to and the right to use the fitness center (the
"FITNESS CENTER") located in the Project so long as it is operational provided
such parties shall be responsible for payment of all charges customarily charged
by Landlord (or the operator of the Fitness Center) for the use of the Fitness
Center (currently $20.00 per month, not to be increased for Tenant's employees
and contractors by more than five percent (5%) per year). The use of such
facilities by Tenant and/or its employees, contractors, visitors and consultants
shall be subject to compliance with the other provisions of this SECTION 1.3.
Landlord shall have the right to require that Tenant's employees sign customary
waivers of claims and comply with all safety and other procedures applicable to
use of the Fitness Center. Notwithstanding any other provision herein to the
contrary, Landlord reserves the right, upon written notice to Tenant, (a) to
eliminate Tenant's right to use the Cafeteria and Fitness Center if Landlord
transfers or assigns its rights to use those facilities to another party and (b)
to otherwise reduce, modify or terminate in whole or in part all or any such
services or access to the Cafeteria or Fitness Center. Landlord shall provide
not less than ninety (90) days prior written notice to Tenant if the fitness
facility will be closed or materially reduced in size. If Landlord discontinues
cafeteria service during the Term, Landlord shall provide an alternative fresh
food (including breakfast items, sandwiches, and salads, but not hot food) and
vending service (not necessarily including any seating area) at the Project
sufficient to reasonably accommodate Tenant's employees, contractors, visitors
and consultants located at the Project.

     1.4   FURNITURE. For no additional charge, Landlord hereby leases to Tenant
and Tenant hereby leases from Landlord those items of furniture situated in the
Premises (the "FURNITURE") and described on the inventory list attached hereto
as EXHIBIT C (the "INVENTORY LIST"). Landlord and Tenant acknowledge that Tenant
is currently using said Furniture and Tenants accepts the Furniture in its
"as-is" condition, without any representation or warranty by Landlord. LANDLORD
SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS AND/OR WARRANTIES, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO THE FURNITURE. During the Term of this Lease, Tenant
shall maintain and repair the Furniture as reasonably necessary; provided,
however, that Tenant shall be entitled to remove and store and/or reconfigure
the Furniture (e.g., cubicle density and design). Upon the expiration or earlier
termination of this Lease, Tenant shall surrender the Furniture to Landlord in
substantially the same condition and repair as on the Lease Commencement Date,
reasonable wear and tear and damage by casualty excepted; provided, however,
that Tenant shall not be required to relocate the Furniture to the same location
within the Premises (but shall relocate the Furniture to the Premises if it has
been stored outside the Premises) nor restore the Furniture to the configuration
and design as existed on the Lease Commencement Date. Any new or replacement
furniture purchased by Tenant and placed into service in the Premises during the
Lease Term shall remain the personal property of Tenant and shall not be
surrendered to Landlord on the expiration or earlier termination of this Lease.

     1.5   CARD KEY ACCESS. As of the Lease Commencement Date, the Premises are
equipped with a portion of the Project-wide card key access system, Tenant's use
of which shall

                                        6


be subject to the Rules and Regulations (as defined in Section 5.6, below).
Within sixty (60) days after the Lease Commencement Date, or such longer time as
shall be reasonably required by Landlord (not to exceed six months after the
Lease Commencement Date), Landlord shall remove all equipment relating to the
Project-wide card key system from Building 2 (excluding the equipment which
pertains only to Building 2) and relocate the same outside the Premises at
Landlord's sole cost. At any time during the Lease Term, Tenant shall have the
right to separate the card key access system for the Premises from the system
for the remainder of the Project at Tenant's sole cost. Except as expressly
provided herein, Tenant shall not have access to those portions of the Building
not comprising the Common Areas or the Premises, which shall remain subject to
Landlord's sole and exclusive control. Nothing herein shall preclude Landlord
from accessing the Premises, subject to the requirements of ARTICLE 27, for
purposes of undertaking maintenance or repairs or as otherwise provided in this
Lease. Landlord makes no representations or warranties (AND HEREBY EXPRESSLY
DISCLAIMS ANY REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OF
MERCHANTABILITY) regarding the suitability of any key card access system for
Tenant's particular purposes. In no event shall Landlord be responsible or
liable to Tenant or its employees for any unauthorized entry upon the Premises
or for any failure of the access system to prevent such entry.

                                    ARTICLE 2

                                   LEASE TERM

     2.1   LEASE TERM. The TCCs of this Lease shall be effective as of the date
of this Lease as set forth in SECTION 1 of the Summary (the "EFFECTIVE DATE").
The initial term of this Lease (the "INITIAL TERM") shall be as set forth in
SECTION 3.1 of the Summary, shall commence on the date set forth in SECTION 3.2
of the Summary (the "LEASE COMMENCEMENT DATE"), and shall terminate on the date
set forth in SECTION 3.3 of the Summary (the "LEASE EXPIRATION DATE") unless
this Lease is sooner terminated as hereinafter provided. As used herein, "Lease
Term" shall refer to the Initial Term and to any Option Term(s) which have been
duly exercised.

     2.2   OPTION TO EXTEND. Provided Tenant is not in default under this Lease
(beyond applicable notice and cure periods) and has not been in default in the
payment of recurring monthly payments of Base Rent, AP Rent, Tenant's
Electricity Cost and/or Tenant's Share of the Estimated Excess (beyond
applicable notice and cure periods, as set forth in SECTION 19.1.1, below) under
this Lease more than three (3) times in the prior twelve month period, at the
time it exercises the option or at commencement of the applicable Option Term,
Tenant shall have the right and option to extend this lease ("Option to Extend")
for two additional option periods of three years each (each, an "Option Term")
upon the same terms and conditions herein set forth except that the Base Rent
shall be adjusted in accordance with SECTION 4 of the Summary. To exercise its
Option to Extend, Tenant must give Landlord notice in writing sent so as to be
received at least twelve (12) months but not more than eighteen (18) months
prior to the expiration of the initial Lease Term or the then current Option
Term, as applicable. At Landlord's election, Tenant's exercise of its Option(s)
shall be void and of no effect if Tenant is in default under this Lease (beyond
applicable notice and cure periods) or has been in default of any monetary
obligation (beyond applicable notice and cure periods) under this Lease more
than

                                        7


three times in the prior twelve month period on the date it exercises its
Option(s) to Extend or on the expiration of the Lease Term or Option Term
immediately preceding such Option Term, as applicable. Notwithstanding anything
to the contrary, in no event shall Tenant be allowed to exercise an Option to
Extend if Tenant has assigned the Lease to a Transferee other than pursuant to
SECTION 14.7, below, or if the Tenant and/or its Affiliates are not in
possession of at least forty-five percent (45%) of the Premises (free of any
subleases, other than subleases pursuant to SECTION 14.7, below).

                                    ARTICLE 3

                                    BASE RENT

     3.1   BASE RENT. Commencing on the Lease Commencement Date, Tenant shall
pay, without prior notice or demand, to Landlord or Landlord's agent at the
management office of the Project, or, at Landlord's option, at such other place
as Landlord may from time to time designate in writing, by a check for currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America, base rent ("BASE RENT") as set forth in SECTION 4
of the Summary, payable in equal monthly installments as set forth in SECTION 4
of the Summary in advance on or before the first day of each and every calendar
month during the Lease Term, without any setoff or deduction whatsoever, but
subject to abatement as expressly provided in SECTIONS 6.3, 11.1 AND 13.1, to
the extent applicable, and subject to adjustment in accordance with Section 4.3,
to the extent applicable. The Base Rent for the first full month of the Lease
Term shall be paid on the Commencement Date. If any Rent payment date (including
the Lease Commencement Date) falls on a day of the month other than the first
day of such month or if any payment of Rent is for a period which is shorter
than one month, the Rent for any fractional month shall accrue on a daily basis
for the period from the date such payment is due to the end of such calendar
month or to the end of the Lease Term at a rate per day which is equal to l/365
of the applicable annual Rent. All other payments or adjustments required to be
made under the TCCs of this Lease that require proration on a time basis shall
be prorated on the same basis.

                                    ARTICLE 4

                                 ADDITIONAL RENT

     4.1   GENERAL TERMS. In addition to paying the Base Rent specified in
ARTICLE 3 of this Lease, Tenant shall pay "TENANT'S SHARE" of the annual "DIRECT
EXPENSES," as those terms are defined in SECTIONS 4.2.6 and 4.2.2 of this Lease,
respectively, which are in excess of the amount of Direct Expenses applicable to
the "Base Year," as that term is defined in SECTION 4.2.1, below; provided,
however, that in no event shall any decrease in Direct Expenses for any Expense
Year below Direct Expenses for the Base Year entitle Tenant to any decrease in
Base Rent or any credit against sums due under this Lease. In addition to the
foregoing obligations, Tenant shall also pay "TENANT'S ELECTRICITY COST," as
defined in Section 4.7 of this Lease, separately from any increases in Direct
Expenses. Such payments by Tenant, together with any and all other amounts
payable by Tenant to Landlord pursuant to the TCCs of this Lease, are
hereinafter collectively referred to as the "ADDITIONAL RENT," and the Base Rent
and the Additional Rent are herein collectively referred to as "RENT." All
amounts due under this ARTICLE 4 as Additional

                                        8


Rent shall be payable for the same periods and in the same manner as the Base
Rent. The obligations of Tenant to pay the Additional Rent provided for in this
ARTICLE 4 shall survive the expiration or earlier termination of the Lease for
such period of time as is required to reconcile the Estimated Excess and
Overpayment Amount of Direct Expenses pursuant to SECTION 4.4.1 hereof;
provided, however, that any other contingent or unliquidated contractual claims
of Landlord or Tenant (e.g., indemnity) shall survive the expiration or earlier
termination of this Lease only for so long as any applicable statute of
limitations would permit such actions under Massachusetts law.

     4.2   DEFINITIONS OF KEY TERMS RELATING TO ADDITIONAL RENT. As used in this
ARTICLE 4, the following terms shall have the meanings hereinafter set forth:

            4.2.1        "BASE YEAR" shall mean the period set forth in SECTION
5 of the Summary.

            4.2.2        "DIRECT EXPENSES" shall mean "Operating Expenses" and
"Tax Expenses".

            4.2.3        "EXPENSE YEAR" shall apply only to Operating Expenses
and shall mean each calendar year in which any portion of the Lease Term falls,
through and including the calendar year in which the Lease Term expires,
provided that Landlord, upon notice to Tenant, may change the Expense Year from
time to time to any other twelve (12) consecutive month period, and, in the
event of any such change, Tenant's Share of Operating Expenses shall be
equitably adjusted for any Expense Year involved in any such change.

            4.2.4        "OPERATING EXPENSES" shall mean, except as otherwise
provided in this SECTION 4.2.4 or otherwise in this Lease, all expenses, costs
and amounts of every kind and nature which Landlord pays or accrues during any
Expense Year because of or in connection with the ownership, management,
maintenance, security, repair, replacement, restoration or operation of the
Project, or any portion thereof, subject to the allocation thereof as set forth
in SECTION 4.3, below. Without limiting the generality of the foregoing,
Operating Expenses shall specifically include any and all of the following: (i)
the cost of supplying utilities (excepting Tenant's Electricity Cost),
operating, repairing, maintaining, and renovating the utility, telephone, and
all other systems and equipment and components thereof of the Buildings and the
Project, and the cost of maintenance and service contracts in connection
therewith and payments under any equipment rental agreements; (ii) the cost of
all insurance carried by Landlord in connection with the Project and any
deductibles; (iii) the cost of landscaping the Project, or any portion thereof;
(iv) costs incurred in connection with repairs, replacements, resurfacing, and
sealing of the parking areas servicing the Project; (v) actual fees and other
costs including management fees (not to exceed three percent (3%) of gross
receipts, or, if payable to Landlord or an affiliate of Landlord, not to exceed
the lesser of three percent (3%) of gross receipts or the prevailing management
fees charged by third parties for Comparable Buildings), consulting fees, legal
fees and accounting fees in connection with the management, operation,
maintenance and repair of the Project; (vi) wages, salaries and other
compensation and benefits, including taxes levied thereon, of all persons
engaged in the operation, maintenance and security of the Project; provided,
however, that wages and/or benefits attributable to personnel above the level of
Project manager or Project engineer shall not be included in Operating Expenses;
and provided further,

                                        9


if such persons are employees of Landlord or an affiliate of Landlord and also
work at projects other than the Property, such costs shall be allocated based on
the percentage of time spent at each project; (vii) the cost of janitorial,
alarm, security and other services, replacement of wall and floor coverings,
ceiling tiles and fixtures in Common Areas, maintenance and replacement of curbs
and walkways, repair to roofs and re-roofing; (viii) costs, fees, charges or
assessments imposed by, or resulting from any mandate imposed on Landlord by,
any federal, commonwealth, state or local government for fire and police
protection, trash removal, community services, or other services which are not
duplicative of "Tax Expenses" as that term is defined in SECTION 4.2.5, below;
(ix) any expenses incurred in repair, restoration or other work necessitated by
fire or other casualty to the extent of the deductible, and (x) any operating
expenses and/or deficits from the operation of the Fitness Facility and/or
Cafeteria. Parking lot expenses for resurfacing and replacement under SUBSECTION
4.2.4(iv), above, replacement of wall and floor covering and all roof repair and
resurfacing (including membrane) under SUBSECTION 4.2.4(vii), above, and all
other repairs or replacements and other costs incurred in connection with the
Project that are capital in nature under generally accepted accounting
principles shall be amortized (with interest at a commercially reasonable rate)
over the useful life of such items (determined in accordance with Treasury
Regulations) and the amortized portion and interest applicable to the respective
Expense Year shall be included in Operating Expenses.

     Notwithstanding anything in this SECTION 4.2.4 to the contrary, for
purposes of this Lease, Operating Expenses shall not, however, include the
following:

            (A) marketing costs, costs of leasing commissions, renovations,
     attorneys' fees and other costs and expenses incurred in connection with
     negotiations, disputes or litigation with present or prospective tenants or
     other occupants of the Project;

            (B) any expense resulting from the gross negligence or willful
     misconduct of Landlord, its agents, contractors or employees;

            (C) interest, principal, points and fees on debts or amortization on
     any mortgage or mortgages or any other debt instrument encumbering the
     Building or the Project;

            (D) the original costs of constructing the Building and the Project,
     any capital additions thereto and expenses incurred in converting any
     Common Areas to useable square feet intended for the exclusive use of other
     occupants of the Project, and depreciation of any of the foregoing
     expenses;

            (E) expenses to the extent Landlord will be reimbursed by another
     source (excluding Operating Expense reimbursements by tenants), including
     without limitation replacement of any items covered by warranties;

            (F) costs incurred to benefit (or resulting from) a specific tenant
     or items and services selectively supplied to any tenant other than Tenant
     (e.g., excess utilities);

            (G) expenses for the defense of Landlord's title to the Project;

            (H) expenses that are at Landlord's sole cost under SECTION 7.1;

                                       10


            (I) charitable or political contributions;

            (J) expenses incurred to comply with governmental regulations
     (including without limitation all environmental laws and the Americans with
     Disabilities Act), court order, decree or judgment in effect prior to the
     Effective Date, except to the extent any noncompliance results from
     Tenant's use and occupancy of the Premises;

            (K) costs to correct any latent defects in the design, construction
     or equipment of the Building or the Project;

            (L) rental on ground leases or other underlying leases;

            (M) cost of the initial stock of tools and equipment for operation,
     repair and maintenance of the Building;

            (N) costs associated with maintaining Landlord's existence as a
     corporation or other legal entity; and

            (O) all electrical charges included in Tenant's Electricity Cost.

            4.2.5        TAXES.

                    4.2.5.1   "TAX EXPENSES" shall mean all federal, state,
commonwealth, county, or local governmental or municipal taxes, fees, charges or
other impositions of every kind and nature, whether general, special, ordinary
or extraordinary, (including, without limitation, real estate taxes, general and
special assessments, transit taxes, leasehold taxes or taxes based upon the
receipt of rent, measured as if the Project were the only property owned by
Landlord, including gross receipts, service tax, value added tax or sales taxes
applicable to the receipt of rent or services provided herein, and unless
required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Project, or
any portion thereof), which shall be paid or accrued during any Tax Year (as
defined in SECTION 4.2.5.4) because of or in connection with the ownership,
leasing and operation of the Project, or any portion thereof.

                    4.2.5.2   Tax Expenses shall include, without limitation:
(i) any tax on the rent, right to rent or other income from the Project, or any
portion thereof, or as against the business of leasing the Project, or any
portion thereof (measured as if the Project were the only property owned by
Landlord); (ii) any assessment, tax, fee, levy, or charge allocable to or
measured by the area of the Premises or the Rent payable hereunder, including,
without limitation, any business or gross income tax or excise tax with respect
to the receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof (measured as if the Project were
the only property owned by Landlord); (iii) any assessment, tax, fee, levy or
charge, upon this transaction; and (iv) the amount of any payments or other
consideration (in cash or otherwise) that Landlord is required to make to any
taxing authority in connection with any tax abatement agreements benefiting the
Project.

                                       11


                    4.2.5.3   Any costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred in attempting to protest,
reduce or minimize Tax Expenses shall be included in Tax Expenses in the Tax
Year such expenses are paid. Tenant's Share of any refunds of Tax Expenses in
excess of the Base Year Tax Expenses shall be credited against Tenant's Tax
Expenses and any excess shall be refunded to Tenant regardless of when received,
based on the Tax Year to which the refund is applicable, provided that in no
event shall the amount to be refunded to Tenant for any such Tax Year exceed the
total amount paid by Tenant as Additional Rent under this ARTICLE 4 for such Tax
Year. If Tax Expenses for any period during the Lease Term are increased after
payment thereof for any reason, including, without limitation, error or
reassessment by applicable governmental or municipal authorities, Tenant shall
pay Landlord within fifteen (15) business days after receipt of Landlord's
written demand Tenant's Share of any such increased Tax Expenses included by
Landlord as Tax Expenses pursuant to the TCCs of this Lease. Notwithstanding
anything to the contrary contained in this SECTION 4.2.5 (except as set forth in
SECTION 4.2.5.1, above), there shall be excluded from Tax Expenses (i) all
excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, federal and commonwealth/state
income taxes, and other taxes to the extent applicable to Landlord's general or
net income (as opposed to rents, receipts or income attributable to operations
at the Project), (ii) any items included as Operating Expenses, (iii) any items
paid by Tenant under SECTION 4.5 of this Lease.

                    4.2.5.4   Landlord and Tenant agree that the Base Year for
the purposes of calculating Tenant's Additional Rent liability for Tax Expenses
shall be the calendar year 2003 (which shall be the sum of one-half of the Tax
Expenses for the period from July 1, 2002 through June 30, 2003 and one-half of
the Tax Expenses for the period from July 1, 2003 through June 30, 2004). Each
subsequent twelve (12) month calendar year period (i.e., January 1 - December
31) during the Lease Term shall be referred to as a "TAX YEAR", prorated for any
partial Tax Year at the end of the Lease Term. At Landlord's election, Tenant
shall pay Tenant's Share of any Tax Excess (as defined in SECTION 4.4) pursuant
to SECTIONS 4.4.1 and 4.4.2, or within fifteen (15) business days after receipt
of Landlord's written demand following the expiration or earlier termination of
the Lease Term. Landlord shall provide copies of any invoices or other notices
from the taxing authorities evidencing the Tax Expenses to Tenant with
Landlord's annual Statement (as defined in Section 4.4.1) or after receipt of
Tenant's written request for such documentation.

            4.2.6   "TENANT'S SHARE" of Operating Expenses and Tax Expenses
shall mean the percentage set forth in SECTION 6 of the Summary, subject to
adjustment as set forth in SECTION 4.3.

     4.3   ALLOCATION OF DIRECT EXPENSES. The parties acknowledge that the
Building is a part of a multi-building project and that the costs and expenses
incurred in connection with the Project (i.e. the Direct Expenses) will be
shared between the tenants and occupants of the Building and the tenants and
occupants of the other buildings in the Project. Accordingly, as set forth in
SECTION 4.2 above, Direct Expenses shall be determined for the Project as a
whole, and Tenant shall be responsible for paying Tenant's Share of the Direct
Expenses, provided, however, Landlord in its sole discretion, may determine and
allocate some or all Direct Expenses for each Building, in which case Tenant's
Share of such Direct Expenses shall be based on the percentage equal to its
proportionate share of the building in question. To the extent the entire

                                       12


Project is not fully occupied, Landlord shall adjust the variable components of
Operating Expenses for the Base Year (and at Landlord's option, Landlord may
adjust the variable components of Operating Expenses for any Expense Year if the
Project is not fully occupied in such Expense Year), based on Landlord's
reasonable, good faith estimate based on historical operating expense
information for the Project or other reasonable data available to Landlord, to
determine the amount of Operating Expenses that would have been incurred in the
Project had the Project been one hundred percent (100%) occupied; and the amount
so determined shall be deemed to have been the amount of Operating Expenses for
such year attributable to the Project. If, during the Lease Term: (a) any
portion of rentable square feet of the Common Areas is converted for exclusive
use by occupants of the Project other than Tenant, such that Tenant no longer
has use thereof as contemplated by the terms of this Lease, the rentable square
feet of the Premises shall be recalculated according to the BOMA Standard, and
Base Rent for the Premises and Tenant's Share shall be reduced accordingly as of
the date such areas are no longer available for use by Tenant as contemplated by
this Lease, and /or (b) additional rentable square feet of improvements which
are not Common Areas are added to the Project, Tenant's Share shall be reduced
accordingly as of the date such rentable square feet are occupied by a tenant or
occupant that is entitled to the exclusive use thereof. In no event shall
Tenant's Share be increased. In no event shall Landlord be entitled to collect
from tenants more than 100% of Direct Expenses.

     4.4   CALCULATION AND PAYMENT OF ADDITIONAL RENT. With respect to Operating
Expenses, if for any Expense Year ending or commencing within the Lease Term,
Tenant's Share of Operating Expenses for such Expense Year exceeds the
annualized amount of Tenant's Share of Operating Expenses applicable to the Base
Year, then Tenant shall pay to Landlord, in the manner set forth in SECTIONS
4.4.1 AND 4.4.2, below, and as Additional Rent, an amount equal to the excess
(the "OE EXCESS"). With respect to Tax Expenses, if for any Tax Year ending or
commencing within the Lease Term, Tenant's Share of Tax Expenses for such Tax
Year exceeds the annualized amount of Tenant's Share of Tax Expenses applicable
to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in
SECTIONS 4.4.1 AND 4.4.2, below, and as Additional Rent, an amount equal to the
excess (the "TAX EXCESS"). The OE Excess plus the Tax Excess are sometimes
referred to herein collectively as the "EXCESS".

            4.4.1   STATEMENT OF ACTUAL DIRECT EXPENSES AND PAYMENT BY TENANT.
Within one hundred fifty (150) days after the end of each applicable Expense
Year, Landlord will deliver to Tenant a statement (the "STATEMENT"), which shall
state the Direct Expenses incurred or accrued for such preceding Expense Year,
and which shall indicate the amount of the Excess, if any. Upon receipt of the
Statement for each applicable Expense Year, if an Excess is present, Tenant
shall pay, with its next installment of Base Rent due, the full amount of the
Excess for such Expense Year, less the amounts, if any, paid during such Expense
Year as "ESTIMATED EXCESS," as that term is defined in SECTION 4.4.2, below. In
the event the Statement shows that the amount paid by Tenant under SECTION
4.4.2, below, exceeded Tenant's Share of Direct Expenses for the Expense Year in
question (the "OVERPAYMENT AMOUNT"), then Landlord shall credit the Overpayment
Amount against the next due installments of Base Rent and Additional Rent;
provided, however, that with respect to the final Expense Year of the Lease
Term, Landlord shall pay to Tenant the Overpayment Amount, if any, on or before
fifteen (15) business days after Tenant's receipt of such Statement. The failure
of Landlord to timely furnish the Statement for any Expense Year shall not
prejudice Landlord or Tenant from enforcing its rights under this ARTICLE 4.
Even though the Lease Term has expired and Tenant has vacated the

                                       13


Premises, when the final determination is made of Tenant's Share of Direct
Expenses for the Expense Year in which this Lease terminates, if an Excess if
present, Tenant shall pay such amount to Landlord within fifteen (15) business
days after Tenant's receipt of such final determination. If Tenant provides a
written request to Landlord within one (1) year after receipt of the Statement
provided in this SECTION 4.4.1, Tenant shall be entitled, during reasonable
business hours, to review Landlord's books and records on which Landlord has
calculated all Direct Expenses and shall promptly thereafter provide its written
analysis of Direct Expenses to Landlord. If Tenant's review discloses any
overpayment by Tenant, Landlord shall refund such amounts within fifteen (15)
business days after receipt of Tenant's calculations; if Tenant's review
discloses any underpayment by Tenant, Tenant shall pay such amounts at the time
it provides its calculations to Landlord. Tenant's audit shall be conducted by
either Tenant or a certified public accountant. Tenant's audit may not be
conducted by an individual or entity that is retained by Tenant primarily on a
contingent fee basis, other than PricewaterhouseCoopers, Deloitte & Touche,
Ernst & Young, or KPMG. The results of the audit shall be kept confidential by
Tenant and shall remain a private matter between Landlord and Tenant. Any
dispute between Landlord and Tenant concerning any item of Direct Expenses shall
not relieve Tenant of liability for payment of all other Excess amounts of
Direct Expenses. The provisions of this SECTION 4.4.1 shall survive the
expiration or earlier termination of the Lease.

            4.4.2   STATEMENT OF ESTIMATED DIRECT EXPENSES. In addition,
Landlord shall cause to be delivered from time to time, at least annually, an
expense estimate statement (the "ESTIMATE STATEMENT") which shall set forth
Landlord's reasonable estimate (the "ESTIMATE") of what the total amount of
Direct Expenses for the then-current Expense Year shall be and the estimated
Excess (the "ESTIMATED EXCESS") as calculated by comparing the Direct Expenses
for such Expense Year, which shall be based upon the Estimate, over the amount
of Direct Expenses for the Base Year. The failure of Landlord to furnish an
Estimate Statement for any Expense Year shall not preclude Landlord from
enforcing its rights to collect any Estimated Excess under this ARTICLE 4, nor
shall Landlord be prohibited from revising any Estimate Statement or Estimated
Excess theretofore delivered to the extent necessary in Landlord's reasonable
business judgment. Upon receipt of any Estimate Statement, Tenant shall pay,
with its next installment of Base Rent due, the monthly amount of the Estimated
Excess for the then-current Expense Year indicated on the Estimate Statement.
Until a new Estimate Statement is furnished (which Landlord shall have the right
to deliver to Tenant at any time), Tenant shall continue to pay monthly, with
the monthly Base Rent installments, the monthly amount of the Estimated Excess
set forth in any previous Estimate Statement delivered by Landlord to Tenant.

     4.5   TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY RESPONSIBLE.

            4.5.1   Tenant shall be liable for and shall pay before delinquency
taxes levied against Tenant's equipment, furniture, fixtures and any other
personal properly located in or about the Premises (including without limitation
taxes levied against the Furniture, if any). If any such taxes on Tenant's
equipment, furniture, fixtures and any other personal property are levied
against Landlord or Landlord's property or if the assessed value of Landlord's
property is increased by the inclusion therein of a value placed upon such
equipment, furniture, fixtures or any other personal property and if Landlord
pays any properly assessed taxes based upon such increased assessment, which
Landlord shall have the right to do upon fifteen (15) business days prior
written notice to Tenant, including reasonably satisfactory backup documentation

                                       14


evidencing such expenses, Tenant shall upon fifteen (15) business days notice to
Tenant repay to Landlord the taxes so levied against Landlord or the proportion
of such taxes resulting from such increase in the assessment, as the case may
be.

            4.5.2   If the Alterations in the Premises, whether installed and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which tenant improvements conforming to
Landlord's standard tenant improvements in other space in the Building leased to
or offered to lease to other tenants, which improvements are substantially
similar to those in the Premises as of the Lease Commencement Date (the
"BUILDING STANDARD"), are assessed (as reasonably determined by Landlord), then
the Tax Expenses levied against Landlord or the property by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of SECTION 4.5.1,
above. Landlord shall reciprocally enforce this provision against other tenants
in the Project.

     4.6   LANDLORD'S BOOKS AND RECORDS. Subject to Tenant's right to review as
provided in SECTION 4.4.1, Landlord's books and records evidencing Operating
Expenses will be conclusive absent manifest error.

     4.7   TENANT'S ELECTRICITY COST. The Premises are currently not separately
metered and, to account for Tenant's electrical use in the Premises, Tenant
shall pay to Landlord as Additional Rent an initial flat monthly fee of Fourteen
Thousand Twenty-six and 26/100 Dollars ($14,026.00), which amount is calculated
based on the rate of One Dollar ($1.00) per year per rentable square foot of the
Premises ("TENANT'S ELECTRICITY COST"), and is subject to adjustment based on
Landlord's reasonable estimate of Tenant's electrical usage based on comparison
of actual invoices and/or check metering. Tenant's Electricity Cost shall
include all electricity used by Tenant for lights, light fixtures and electrical
usage for Tenant's personal property and equipment in the Premises.

            4.7.1   Notwithstanding anything to the contrary contained in this
Lease, Landlord shall have the right to separately meter (or install a sub-meter
or check meter for) the Premises and/or for certain systems or equipment in the
Building, at Landlord's sole cost, any time during the Lease Term and thereafter
charge Tenant for its electrical use as measure by such meter(s).

            4.7.2   In the event that Landlord, in its sole discretion, installs
meters (direct, submeters or checkmeters) which enable Landlord to measure the
electricity usage for the air handlers and chillers which service the Lab Areas
(as defined in SECTION 6.1.1, below) of the Premises, then, in addition to
Tenant's Electricity Cost, Tenant shall pay to Landlord, as Additional Rent,
seventy percent (70%) of the electrical expenses attributable to the chillers
and air handlers which service the labs within the Premises and such costs shall
thereafter not be included in the calculation of Operating Expenses.

     4.8   ADDITIONAL RENT FOR ADDITIONAL PREMISES. Notwithstanding anything to
the contrary contained herein, in addition to all other sums payable pursuant to
this Lease, until such time as this Lease has been terminated with respect to
the Additional Premises and Tenant has

                                       15


vacated the Additional Premises in accordance with the provisions of SECTION
1.1.3, above, Tenant shall pay to Landlord, as Additional Rent, the sum of $4.00
per square foot times the number of square feet of space contained in the
Additional Premises per annum (the "AP RENT"), payable in equal monthly
installments, (along with Tenant's payment of Base Rent and Tenant's Share of
the Estimated Excess for the Premises other than the Additional Premises). In
the event that Landlord, in its sole discretion, installs meters (direct,
submeters or checkmeters) or otherwise reasonably estimates the utility usage
for the Additional Premises then, at Landlord's option, Tenant shall pay to
landlord, in lieu of the AP Rent, the actual cost of utilities utilized in the
Additional Premises.

                                    ARTICLE 5

                                 USE OF PREMISES

     5.1   PERMITTED USE. Tenant shall use the Premises solely for the Permitted
Use set forth in SECTION 7 of the Summary, and Tenant shall not use or permit
the Premises or the Project to be used for any other purpose or purposes
whatsoever without the prior written consent of Landlord, which may be withheld
in Landlord's sole discretion.

     5.2   PROHIBITED USES. The uses prohibited under this Lease shall include,
without limitation, use of the Premises or a portion thereof for (i) offices of
any agency or bureau of the United States or any commonwealth or state or
political subdivision thereof; (ii) offices or agencies of any foreign
governmental or political subdivision thereof; (iii) offices of any health care
professionals or service organization; (iv) schools or other training facilities
which are not ancillary to corporate, executive or professional office use; (v)
retail or restaurant uses; (vi) commercial broadcast radio or television
stations; (vii) marketing or call center if it would increase the parking
requirements for the Premises beyond the parking spaces allocated pursuant to
Section 9 of the Summary of Basic Lease Information; or (viii) collection
agency. Tenant further covenants and agrees that Tenant shall not use, or suffer
or permit any person or persons to use, the Premises or any part thereof for any
use or purpose contrary to the provisions of the Rules and Regulations (as
defined in Section 5.6, below), or in violation of the laws of the United States
of America, the Commonwealth of Massachusetts, or the ordinances, regulations or
requirements of the local municipal or county governing body or other lawful
authorities having jurisdiction over the Project) including, without limitation,
any such laws, ordinances, regulations or requirements relating to Hazardous
Materials as defined in SECTION 29.31.1 below. Tenant shall not do or permit
anything to be done in or about the Premises which will in any material way
interfere with the rights of other tenants or occupants of the Building, or use
or allow the Premises to be used for any unlawful purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises.

     5.3   CC&Rs. Tenant shall comply with all recorded covenants, conditions,
and restrictions currently affecting the Project to the extent they apply to the
Premises or the Common Areas. Additionally, Tenant acknowledges that the Project
may be subject to any future covenants, conditions, and restrictions (the
"CC&Rs"), to the extent that Landlord, in its reasonable discretion, deems
reasonably necessary or appropriate, and Tenant agrees that this Lease shall be
subject and subordinate to such CC&Rs to the extent they apply to the Premises
or the Common Areas; provided, however, that this Lease shall only be
subordinate to any future

                                       16


CC&Rs if such CC&Rs do not materially interfere with Tenant's use and occupancy
of the Premises and Common Areas.

     5.4   CONDITION OF PREMISES. Landlord shall deliver the Premises
(including, but not limited to HVAC (as hereinafter defined), electrical,
plumbing, sewer and other Building systems, and the exterior walls, roof,
parking area, landscaping and walkways) to Tenant on the Lease Commencement Date
and Tenant shall accept the Premises in their "AS IS" condition. Tenant
acknowledges that Tenant, not Landlord was responsible for the construction of
the Project, and Landlord makes no representation or warranty, and specifically
disclaims any representation or warranty concerning the following: (a) whether
the Project was constructed in compliance with all Applicable Laws (as defined
in ARTICLE 24), and whether any written notice of noncompliance with Applicable
Laws concerning the Project was issued by any governmental authorities prior to
the Lease Commencement Date; (b) whether the Project and the Premises are free
of Hazardous Materials (as defined in SECTION 29.31) that are required to be
reported to governmental authorities under Applicable Laws, or which would be in
violation of any Applicable Laws; and (c) whether the Building's electrical,
plumbing, heating and ventilation systems are of a type, design, quality and
capacity as commensurate with Comparable Buildings (as defined in SECTION 6.1),
and whether they are in good working condition and repair as of the Lease
Commencement Date. Other than as expressly set forth in this Lease, Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Premises or with respect to the
present or future suitability of any part of the Premises for the conduct of
Tenant's business or the uses proposed by Tenant. Tenant hereby accepts the
Premises, the Building, and all improvements thereon, in their existing
condition, subject to all applicable zoning, municipal, county and state
(commonwealth) laws, ordinances and regulations governing and regulating the use
of the Premises, and any covenants or restrictions of record, and accepts this
Lease subject to all of the foregoing and to all matters disclosed in this
Lease. Notwithstanding the foregoing, Landlord shall be responsible for
repairing or replacing, as necessary, any latent or other defect or change of
condition in the Premises or the Project which materially and adversely affects
Tenant's use or occupancy of the Premises; provided, however, the Rent hereunder
shall in no case be withheld or diminished because of any such latent or other
defect, any change in the condition thereof or the existence with respect
thereto of any violations of Applicable Laws. Tenant shall have no right to any
abatement of Rent except as expressly provided in SECTIONS 6.3, 11.1 and 13.1.

     5.5   DEMISING PLAN. The Premises are shown on the space plan attached
hereto as EXHIBIT A and hereby made a part hereof. Tenant shall pay its costs
associated with the installation of Tenant's network and other cabling,
telecommunications infrastructure, and all of its moving costs incurred in
connection with Tenant's occupancy of the Premises. Within sixty (60) days after
the Lease Commencement Date, subject to force majeure, Landlord, at its sole
cost, shall demise the Premises by constructing: (A) a secure doorway between
the Premises and the access provided by Landlord under Section 1.1(i), above,
and (B) a secure doorway between the Building 2 loading dock area shown on
EXHIBIT A (the "LOADING DOCK") and the Premises, together with card key access
controls for both of the foregoing doorways integrated with the existing,
Project-wide card key access system (such work, collectively, the "DEMISING
WORK"). Attached hereto as EXHIBIT A-1 is a plan for the Building 2 Loading Dock
area, which indicates an existing caged holding area which shall be deemed to be
part of the Premises (but shall not be counted as useable square footage for the
purposes of calculating the number of rentable square

                                       17


feet in the Premises) and available for Tenant's exclusive use; Tenant shall pay
all costs associated with the demising and securing of said holding area. The
use of the Loading Dock by Tenant and other occupants or tenants of the Project
shall be subject to the Rules and Regulations (as defined in Section 5.6, below)
respecting the use of the Loading Dock. Within sixty (60) days after the Lease
Commencement Date, or such longer time as shall be reasonably required by
Landlord (not to exceed six months after the Commencement Date), Landlord shall
remove the energy management equipment for the Project located within the
Premises and relocate the same outside the Premises, at Landlord's sole cost.

     5.6   RULES AND REGULATIONS. Tenant shall comply with Landlord's rules and
regulations respecting the management, care, use and safety of the Premises,
Building and Project, including without limitation, parking areas, landscaped
areas, walkways, elevators, loading docks, hallways and other Common Areas and
facilities provided for the common use and convenience of tenants. Such rules
and regulations are attached hereto as EXHIBIT D and may be amended from time to
time at Landlord's reasonable discretion, upon written notice to Tenant (as
amended from time to time, the "RULES AND REGULATIONS"). Landlord agrees that
any enforcement of the Rules and Regulations shall be done in a reasonable,
uniform and non-discriminatory manner.

                                    ARTICLE 6

                             SERVICES AND UTILITIES

     6.1   STANDARD TENANT SERVICES. Landlord shall maintain and operate the
Building in a manner consistent with other Comparable Buildings (as defined
below), and provide ingress and egress control services to the Building in a
first-class manner consistent with the Comparable Buildings, shall keep the
Building Structure and Building Systems in first-class condition and repair
consistent with the Comparable Buildings, and all of such expenses shall be
included in Operating Expenses. (As used in this Lease, the term "COMPARABLE
BUILDINGS" means buildings which are comparable to the Building in terms of age,
quality of construction, level of service and amenities, size and appearance and
located in a comparable geographical area, as reasonably determined by
Landlord.) During the Lease Term, Landlord shall provide the following services:

            6.1.1   Subject to limitations imposed by all governmental rules,
regulations guidelines applicable thereto, (a) from Monday through Friday from 8
a.m. to 6 p.m. (but excluding Holidays, as defined below) (such dates and times
herein called "BUILDING HOURS"), Landlord shall provide heating and air
conditioning ("HVAC") to the office portion of the Premises, and (b) subject to
the provisions of SECTIONS 4.7.2 AND 7.1, Landlord shall provide continuous HVAC
to the "LAB AREAS" designated on EXHIBIT A. Tenant may request and Landlord
shall provide HVAC service at times other than during Building Hours at the rate
of $50.00 per hour, with a minimum charge of $100.00; provided, however, that
Tenant shall only be charged for after hours HVAC actually requested by Tenant.
Landlord reserves the right reasonably to increase the cost for after hours air
conditioning in accordance with increases in Comparable Buildings, not to exceed
the increase in actual costs, including, without limitation, utility costs and
depreciation for equipment.

                                       18


            6.1.2   Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes in the Common Areas within
the Building.

            6.1.3   On weekdays during the Lease Term, Landlord shall provide
janitorial services to the Premises, except the date of observation of the
Holidays, in and about the Premises and window washing services in a manner
consistent with Comparable Buildings.

            6.1.4   Landlord shall provide nonexclusive, non-attended automatic
passenger elevator service for all elevators in the Building during Building
Hours and, subject to closures for routine maintenance or repair, shall have one
(1) elevator available at all other times to provide service to the Premises;
provided, however, Landlord shall use reasonable efforts to schedule the timing
of such routine maintenance or repair, and shall otherwise use commercially
reasonable efforts to minimize any interference with Tenant's Permitted Use and
enjoyment of the Premises.

            6.1.5   Landlord shall provide electricity for lights and electrical
outlets within the Premises, subject to Tenant's obligation to pay Tenant's
Electricity Charge.

     For the purposes of this Lease the term "HOLIDAY" shall mean and refer to
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, day
after Thanksgiving Day and Christmas Day.

     6.2   REQUIREMENTS OF TENANT. At all times during the Lease Term, Tenant
shall cooperate with Landlord and abide by all regulations and requirements that
Landlord may reasonably prescribe and provide to Tenant in writing for the
proper functioning and protection of the Building HVAC, electrical, mechanical
and plumbing systems.

     6.3   INTERRUPTION OF USE. Except as expressly provided herein, Tenant
agrees that Landlord shall not be liable for damages, by abatement of Rent or
otherwise, for failure to furnish or delay in furnishing any service (including
telephone and telecommunication services), or for any diminution in the quality
or quantity thereof, when such failure or delay or diminution is occasioned, in
whole or in part, by breakage, repairs, replacements, or improvements, by any
strike, lockout or other labor trouble, by inability to secure electricity, gas,
water, or other fuel at the Building or Project after reasonable effort to do
so, by any riot or other dangerous condition, emergency, accident or casualty
whatsoever, by act or default of Tenant or other parties, or by any other cause;
and such failures or delays or diminution shall never be deemed to constitute an
eviction or disturbance of Tenant's use and possession of the Premises or
relieve Tenant from paying Rent or performing any of its obligations under this
Lease. Furthermore, Landlord shall not be liable under any circumstances for a
loss of, or injury to, property or for injury to, or interference with, Tenant's
business, including, without limitation, loss of profits, however occurring,
through or in connection with or incidental to a failure to furnish any of the
services or utilities as set forth in this ARTICLE 6. Landlord may comply with
voluntary controls or guidelines promulgated by any governmental entity relating
to the use or conservation of energy, water, gas, light or electricity or the
reduction of automobile or other emissions without creating any liability of
Landlord to Tenant under this Lease, provided that (i) the Premises are not
thereby rendered untenantable, and (ii) the same does not materially adversely
interfere with Tenant's Permitted Use of the Premises. Notwithstanding the
foregoing, in the event any utility services or other

                                       19


services provided to or appurtenant to the Premises are interrupted for a period
of more than three (3) consecutive business days, and such interruption (a)
prevents Tenant from operating in the Premises for its Permitted Use, and (b) is
caused solely by the negligent act or omission or willful misconduct of
Landlord, its employees, agents and contractors with respect to any facilities
or equipment located on the Project and used in providing such utilities to the
Premises, then Tenant shall be entitled to an abatement of Rent for each day
such interruption continues beyond the initial period of three (3) consecutive
business days.

                                    ARTICLE 7

                                     REPAIRS

     7.1   LANDLORD'S OBLIGATIONS. Landlord shall maintain, repair and replace
as necessary the structural portions of the Building, including the foundation,
floor/ceiling slabs, roof structure, exterior walls, columns, beams and shafts
(including elevator shafts) (collectively, "BUILDING STRUCTURE") at its sole
cost and expense. Landlord shall also maintain, repair and replace as necessary
the parking areas, sidewalks and access roads (including snow and ice removal),
landscaping, fountains, water falls, exterior Project signage, exterior glass
and mullions, stairs and stairwells, elevator cabs and equipment, plazas, art
work, sculptures, men's and women's washrooms, Building mechanical, electrical
and telephone closets, and all common and public areas and the Building
security, mechanical, electrical, life safety, plumbing, sprinkler systems and
HVAC systems (collectively, the "BUILDING SYSTEMS") and all other Common Areas
within the Project, and the cost of such maintenance and repair shall be
included in Operating Expenses. In addition, as requested by Tenant and as
Landlord reasonably deems necessary, Landlord shall maintain, repair and replace
all damaged, broken, or worn fixtures, floor covering, mechanical and electrical
systems and appurtenances (including without limitation light fixtures, light
bulbs and fans) within the Premises (subject to the provisions of ARTICLE 27
regarding Landlord's access to the Premises), excepting any Alterations (as
defined in ARTICLE 8) or personal property within the Premises, and excluding
damage caused by Tenant (other than ordinary wear and tear and damage covered by
insurance, to the extent of such coverage) and shall include the costs thereof
in Operating Expenses. Landlord shall undertake reasonable efforts to perform
all maintenance, repairs and replacements pursuant to this SECTION 7.1 promptly
after Landlord learns of the need for such maintenance, repairs and
replacements, but in any event within thirty (30) days after Tenant provides
written notice to Landlord of the need for such maintenance, repairs and
replacements; provided, however, that in cases of "EMERGENCY" (i.e.,
circumstances which, if not addressed promptly, could result in material damage
to persons and property, and/or damage or destruction to or of a structural
component or any electrical, plumbing, mechanical or telecommunications systems
in or providing service to the Building which materially impairs Tenant's
ability to utilize the Premises as intended for more than 24 consecutive hours
or more than 24 hours within any five (5) day period), Landlord shall perform
any maintenance, repairs and replacements as soon as reasonably practicable
after it learns of the need for such maintenance, repairs and replacements.

     Notwithstanding anything herein to the contrary, Tenant shall reimburse
Landlord as Additional Rent, within thirty (30) days after receipt of Landlord's
invoice, for seventy percent (70%) of all costs paid to third parties associated
with the repair, maintenance and replacement of the air handlers and chillers
which service the Lab Areas (as defined in SECTION 6.1.1, above)

                                       20


of the Premises and such costs shall thereafter not be included in the
calculation of Operating Expenses. Notwithstanding the foregoing, with respect
to all costs for replacements of the air handlers and chillers (or components
thereof) which service the Lab Area that are capital in nature under generally
accepted accounting principles, at Tenant's option, to be exercised within
thirty days after receipt of Landlord's first invoice for such costs, in lieu of
reimbursing Landlord within thirty days, such costs shall be amortized (with
interest at ten percent (10%) per annum) over the lesser of (i) the remaining
Term of the Lease, or (ii) the useful life of the item being replaced, and
Tenant shall pay Landlord, as Additional Rent, on a monthly basis, the amortized
portion and interest applicable thereto.

     In the event that Tenant is dissatisfied with the quality or cost of
repairs, maintenance and/or replacement of the air handlers and chillers which
service the Lab Areas, then upon thirty (30) days advance written notice to
Landlord, Tenant may elect to repair, maintain and replace said air handlers and
chillers, in which case, Tenant shall provide Landlord with a copy of any
maintenance contract(s), and all invoices, receipts, statements, guaranties and
warranties for such repair, maintenance or replacement, and Landlord shall
reimburse Tenant, within thirty (30) days after receipt of Tenant's invoice for
thirty percent (30%) of all costs paid to third parties associated with the
repair, maintenance and replacement of said air handlers and chillers, provided
that the cost to Landlord shall in no event exceed the amount which would have
been payable by Landlord if Landlord had retained responsibility for such work.

     7.2   TENANT'S OBLIGATIONS. Notwithstanding anything in this Lease to the
contrary, Tenant shall be required to repair any damage to the Building
Structure and/or the Building Systems to the extent caused due to Tenant's use
of the Premises for other than its Permitted Use, unless and to the extent such
damage is covered by insurance carried by Landlord pursuant to ARTICLE 10 and to
which the waiver of subrogation is applicable. Tenant shall, at Tenant's own
expense, pursuant to the TCCs of this Lease, including without limitation
ARTICLE 8 hereof, maintain the Furniture and all Alterations and other personal
property of Tenant within the Premises in good order, repair and condition at
all times during the Lease Term. Tenant hereby waives any and all rights to
terminate this Lease, complete repairs, and offset the rent as may be provided
under the laws of the Commonwealth of Massachusetts, now or hereafter in effect.

                                    ARTICLE 8

                            ADDITIONS AND ALTERATIONS

     8.1   LANDLORD'S CONSENT TO ALTERATIONS. Tenant may not make any
improvements, alterations, additions or changes to the Premises or any
mechanical, plumbing or HVAC facilities or systems pertaining to the Premises
which affect the Building Structure, Building Systems or exterior appearance of
the Building (collectively, the "ALTERATIONS") without first procuring the prior
written consent of Landlord to such Alterations, which consent shall be
requested by Tenant not less than ten (10) days prior to the commencement
thereof, and which consent shall not be unreasonably withheld, conditioned or
delayed by Landlord, provided it shall be deemed reasonable for Landlord to
withhold its consent to any Alteration which materially or adversely affects the
Building Structure, Building Systems or exterior appearance of the Building.
Tenant shall have the right to make interior modifications to the Premises
without Landlord's consent provided that such alterations do not materially or
adversely affect

                                       21


the mechanical, electrical, plumbing or structural systems in the Building, and
provided further that Tenant shall give Landlord notice of such modifications at
least ten (10) days prior to the commencement of such modifications.
Notwithstanding the foregoing, Landlord's consent shall not be required, and
Tenant shall be deemed to have provided notice to Landlord, of the following
Alterations: (a) installation in the Premises of the personal property removed
from Building 1 pursuant to SECTION 1.1.1; (b) changes in the card key security
system as provided in SECTION 1.5 provided that (i) ten days advance written
notice is provided to Landlord together with a detailed description of the work
to be done and (ii) such work does not adversely affect the Project-wide card
key security system; and (c) installation of and upgrades to communications and
electrical equipment connecting the Premises to the Conference Facilities
provided that (i) ten days advance written notice is provided to Landlord
together with a detailed description, and plans and specifications if
applicable, of the work to be done; (ii) such work does not adversely affect the
use of the Conference Facilities or any other Common Area by Landlord and/or
other occupants of the Project; (iii) the Conference Facilities are Common Areas
at the time said work is done.

     8.2   MANNER OF CONSTRUCTION. Tenant shall utilize only competent
contractors, subcontractors, materials, mechanics and materialmen reasonably
approved by Landlord for the construction of any Alterations, which approval
shall not be unreasonably withheld, conditioned or delayed; provided, however,
that Tenant shall be entitled to use its employees to make Alterations which do
not affect the mechanical or structural portions of the Premises or the Building
Structure so long as Tenant complies with all other provisions of this ARTICLE
8. Upon Landlord's request (unless Landlord waived, at the time of Landlord's
approval of any Alterations pursuant to the provisions of SECTION 8.5, below,
its right to make such request), Tenant shall, at Tenant's expense, remove such
Alterations upon the expiration or any early termination of the Lease. If such
Alterations will involve the use of or disturb Hazardous Materials or substances
existing in the Premises, Tenant shall comply with Landlord's rules and
regulations concerning, and all Applicable Laws pertaining to, Hazardous
Materials or substances with respect to such Alterations. Tenant shall construct
such Alterations and perform such repairs in a good and workmanlike manner, in
conformance with any and all applicable federal, commonwealth, county or
municipal laws, rules and regulations and pursuant to a valid building permit,
issued by the City of Marlborough, and in conformance with Landlord's
construction rules and regulations, if any, provided to Tenant in writing prior
to construction of such Alterations. In the event Tenant performs any
Alterations in the Premises which require or give rise to governmentally
required changes to the "Base Building," as that term is defined below, then
Landlord shall, at Tenant's expense, make such changes to the Base Building. The
"BASE BUILDING" shall include the Building Structure, and the public restrooms
and the systems and equipment located in the internal core of the Building on
the floor or floors on which the Premises are located. In performing the work of
any such Alterations, Tenant shall have the work performed in such manner so as
not to obstruct access to the Project or any portion thereof, by any other
tenant of the Project, and so as not to obstruct the business of Landlord or
other tenants in the Project. Tenant shall not use (and promptly after notice
from Landlord shall cease using) contractors, services, workmen, labor,
materials or equipment that, in Landlord's reasonable judgment, would disturb
labor harmony with the workforce or trades engaged in performing other work,
labor or services in or about the Building or the Common Areas. In addition to
Tenant's obligations under ARTICLE 9 of this Lease, upon completion of any
Alterations which affect the Building Systems and Building Structures, Tenant
agrees to cause

                                       22


such notices as may be necessary to evidence completion of any work undertaken
by Tenant to be recorded in the office of the Recorder of the County of
Middlesex in accordance with the laws of the Commonwealth of Massachusetts or
any successor statute, and Tenant shall deliver to the Project management office
a reproducible copy of the "as built" drawings of the Alterations as well as all
permits, approvals and other documents issued by any governmental agency in
connection with the Alterations.

     8.3   PAYMENT FOR IMPROVEMENTS. If payment is made directly to contractors,
Tenant shall comply with all Applicable Laws relating to final lien releases and
waivers in connection with Tenant's payment for work to contractors. Whether or
not Tenant orders any work directly from Landlord, Tenant shall reimburse
Landlord for Landlord's reasonable out-of-pocket costs and expenses reasonably
incurred in connection with Landlord's review of any Alterations, not to exceed
One Thousand Dollars ($1,000).

     8.4   CONSTRUCTION INSURANCE. In addition to the requirements of ARTICLE 10
of this Lease, in the event that Tenant makes any Alterations, prior to the
commencement of such Alterations, Tenant shall provide Landlord with evidence
that Tenant carries "BUILDER'S ALL RISK" insurance in an amount reasonably
related to the value of such Alterations, it being understood and agreed that
all of such Alterations shall be insured by Tenant pursuant to ARTICLE 10 of
this Lease immediately upon completion thereof.

     8.5   LANDLORD'S PROPERTY. All Alterations, improvements, fixtures,
equipment and/or appurtenances other than Tenant's trade fixtures and equipment
which may be installed or placed in or about the Premises, from time to time,
shall be and become the property of Landlord upon the expiration of this Lease,
subject to the requirements of SECTION 8.2 and Landlord's right to require
Tenant to remove such items as provided in this SECTION 8.5. Upon the expiration
or earlier termination of this Lease, Tenant may remove any equipment or
fixtures installed by Tenant, provided Tenant repairs any damage to the Premises
and Building caused by such removal and returns the affected portion of the
Premises to Building Standard condition. Furthermore, Landlord may, by written
notice to Tenant prior to the end of the Lease Term, or given following any
earlier termination of this Lease, require Tenant, at Tenant's expense, to
remove any Alterations in the Premises and to repair any damage to the Premises
and Building caused by such removal (reasonable wear and tear excepted) and
return the affected portion of the Premises to Building Standard condition;
provided, however, if, in connection with its request for Landlord's approval
for particular Alterations, (1) Tenant requests Landlord's decision with regard
to the removal of such Alterations, and (2) Landlord thereafter agrees in
writing to waive the removal requirement when approving such Alterations, then
Tenant shall not be required to so remove such Alterations; provided further,
however, that if Tenant requests such a determination from Landlord and
Landlord, in its approval of any Alterations, fails to address the removal
requirement with regard to such Alterations, Landlord shall be deemed to have
agreed to waive the removal requirement with regard to such Alterations. If
Tenant fails to complete such removal and/or to repair any damage caused by the
removal of any Alterations in the Premises and return the affected portion of
the Premises to Building Standard condition, then, after written notice and a
reasonable period in which to complete such removal and repairs, Landlord may do
so and may charge the cost thereof to Tenant, and Tenant shall reimburse
Landlord for such costs within ten (10) days after receipt of Landlord's invoice
therefore. Tenant hereby protects, defends, indemnifies and holds Landlord
harmless from any liability,

                                       23


cost, obligation, expense or claim of lien in any manner relating to the
Tenant's installation, placement, removal or financing of any such Alterations,
improvements, fixtures and/or equipment in, on or about the Premises, which
obligations of Tenant shall survive the expiration or earlier termination of
this Lease for one (1) year following such expiration or earlier termination. At
all times during the Term of this Lease, Tenant shall be entitled to remove, and
Landlord shall have no interest in, Tenant's trade fixtures, equipment and other
personal property in the Premises.

                                    ARTICLE 9

                             COVENANT AGAINST LIENS

     Tenant shall keep the Project and Premises free from any liens or
encumbrances arising out of the work performed, materials furnished or
obligations incurred by or on behalf of Tenant, and shall protect, defend,
indemnify and hold Landlord harmless from and against any claims, liabilities,
judgments or costs (including, without limitation, reasonable attorneys' fees
and costs) arising out of same or in connection therewith. Tenant shall give
Landlord notice at least ten (10) business days prior to the commencement of any
such work on the Premises (or such additional time as may be necessary under
Applicable Laws) to afford Landlord the opportunity of posting and recording
appropriate notices of non-responsibility. Tenant shall remove any such lien or
encumbrance by bond or otherwise within ten (10) business days after notice by
Landlord, and if Tenant shall fail to do so, Landlord may pay the amount
necessary to remove such lien or encumbrance, without being responsible for
investigating the validity thereof. The amount so paid shall be deemed
Additional Rent under this Lease payable upon demand, without limitation as to
other remedies available to Landlord under this Lease. Nothing contained in this
Lease shall authorize Tenant to do any act which shall subject Landlord's title
to the Building or Premises to any liens or encumbrances whether claimed by
operation of law or express or implied contract.

                                   ARTICLE 10

                                    INSURANCE

     10.1  INDEMNIFICATION AND WAIVER. Tenant hereby assumes all risk of damage
to property or injury to persons in, upon or about the Premises from any cause
whatsoever and agrees that Landlord, its partners, subpartners and their
respective officers, agents, servants, employees, and independent contractors
(collectively, "LANDLORD PARTIES") shall not be liable for, and are hereby
released from any responsibility for, any damage either to person or property or
resulting from the loss of use thereof, which damage is sustained by Tenant or
by other persons claiming through Tenant, except to the extent such damage
results from the negligent acts or omissions or willful misconduct of Landlord,
its agents, employees and contractors or from Landlord's failure to perform its
obligations under this Lease, and in such event, only to the extent not covered
by Tenant's insurance required to be carried hereunder. Tenant shall indemnify,
defend, protect, and hold harmless the Landlord Parties from any and all loss,
cost, damage, expense and liability (including without limitation court costs
and reasonable attorneys' fees) incurred in connection with or arising from any
cause in the Premises, and to the extent arising from the negligent act or
omission of Tenant or of any person claiming by, through or

                                       24


under Tenant, or of the contractors, agents, servants, employees, invitees,
guests or licensees of Tenant or any such person, in, on or about the Project,
either prior to, during, or after the expiration or earlier termination of the
Lease, except to the extent such damage results from the negligent acts or
omissions or willful misconduct of Landlord, its agents, employees and
contractors or from Landlord's failure to perform its obligations under this
Lease, and in such event, only to the extent not covered by Landlord's insurance
required to be carried hereunder. Landlord shall indemnify, defend, protect, and
hold harmless Tenant and its officers, agents, employees and contractors from
any and all loss, cost damage, expense and liability (including without
limitation court costs and reasonable attorneys' fees) to the extent arising
from the negligent acts or omissions or willful misconduct of Landlord, its
agents, employees and contractors in, on or about the Project, either prior to,
during, or after the expiration or earlier termination of the Lease except to
the extent such damage results from the negligent acts or omissions or willful
misconduct of Tenant, its agents, employees and contractors or from Tenant's
failure to perform its obligations under this Lease, and in such event, only to
the extent not covered by Landlord's insurance required to be carried hereunder.
Further, Landlord's and Tenant's agreements to indemnify pursuant to this
SECTION 10.1 are not intended and shall not relieve any insurance carrier of its
obligations, to the extent such policies cover the matters subject to the
foregoing indemnification obligations; nor shall they supersede any inconsistent
agreement of the parties set forth in any other provision of this Lease. The
provisions of this SECTION 10.1 shall survive the expiration or sooner
termination of this Lease with respect to any claims or liability arising in
connection with any event occurring prior to such expiration or termination.

     10.2  TENANT'S COMPLIANCE WITH LANDLORD'S FIRE AND CASUALTY INSURANCE.
Tenant shall, at Tenant's expense, comply with all insurance company
requirements pertaining to the use of the Premises to the extent such
requirements are provided by Landlord to Tenant in writing. If Tenant's conduct
or use of the Premises causes any increase in the premium for such insurance
policies then Tenant shall reimburse Landlord for any such increase within
fifteen (15) business days after receipt of Landlord's written demand; provided,
however, that Landlord shall provide reasonably sufficient documentation or
other evidence to Tenant that its use and occupancy of the Premises caused such
increase in connection with any demand for payment. Tenant, at Tenant's expense,
shall comply with all rules, orders, regulations or requirements of the American
Insurance Association (formerly the National Board of Fire Underwriters) and
with any similar body.

     10.3  TENANT'S INSURANCE. Tenant shall maintain the following coverages in
the following amounts.

            10.3.1  Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage (including
loss of use thereof) arising out of Tenant's operations, and contractual
liabilities (covering the performance by Tenant of its indemnity agreements)
including the equivalent of the coverage provided by a Broad Form endorsement
covering the insuring provisions of this Lease and the performance by Tenant of
the indemnity agreements set forth in SECTION 10.1 of this Lease, for limits of
liability not less than:

                                       25


                                
           Bodily Injury and                  $5,000,000 each occurrence
           Property Damage Liability          $5,000,000 annual aggregate

           Personal Injury Liability          $5,000,000 each occurrence
                                              $5,000,000 annual aggregate

           

            10.3.2  Physical Damage Insurance covering any Alterations made to
the Premises in accordance with ARTICLE 8 of this Lease and property insurance
covering the Furniture and Tenant's personal property, trade fixtures and
equipment in the Premises at 100% replacement cost. Such insurance shall be
written on an "all risks" of physical loss or damage basis, for the full
replacement cost value (subject to reasonable deductible amounts) new without
deduction for depreciation of the covered items and in amounts that meet any
co-insurance clauses of the policies of insurance and shall include coverage for
damage or other loss caused by fire or other peril including, but not limited
to, vandalism and malicious mischief, theft, water damage of any type, including
sprinkler leakage, bursting or stoppage of pipes, and explosion.

            10.3.3  Worker's Compensation and Employer's Liability or other
similar insurance pursuant to all applicable commonwealth, state and local
statutes and regulations.

     10.4  FORM OF POLICIES. The minimum limits of policies of insurance
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Tenant's liability insurance shall (i) name Landlord,
Landlord's lender and Landlord's managing agent, if any, as an additional
insured; (ii) specifically cover the liability assumed by Tenant under this
Lease, including, but not limited to, Tenant's obligations under SECTION 10.1 of
this Lease; (iii) be issued by an insurance company having a rating of not less
than A-VII in Best's Insurance Guide and licensed to do business in the
Commonwealth of Massachusetts; (iv) be primary insurance as to all claims
thereunder and provide that any insurance carried by Landlord is excess and is
non-contributing with any insurance requirement of Tenant; and (v) provide that
Tenant's insurance carrier shall endeavor to give Landlord ten days' written
notice prior to such insurance being canceled or coverage reduced. Tenant shall
deliver evidence of such coverage to Landlord on or before the Lease
Commencement Date and at the time of any renewal thereof. In the event Tenant
shall fail to procure such insurance, or to deliver such evidence, including a
certificate of insurance, Landlord may, at its option, if Tenant fails to
provide evidence of such insurance within five (5) business days after notice
from Landlord, procure such policies for the account of Tenant, and the cost
thereof shall be paid to Landlord within five (5) business days after delivery
to Tenant of bills therefor.

     10.5  SUBROGATION. Landlord and Tenant shall cause their insurers to waive
all rights of subrogation in their respective insurance policies during the
Lease Term. The parties agree that their respective insurance policies, which
include a waiver of subrogation provision, shall not affect the right of the
insured to recover thereunder, and no additional premium is charged therefor.

     10.6  LANDLORD'S INSURANCE. Landlord shall insure the Building (including
the Building Structure and Building Systems), the Furniture and the Project
during the Lease Term against loss or damage due to fire and other casualties
covered within the classification of fire and extended coverage at the full
replacement cost of the Buildings and other improvements which

                                       26


constitute the Project (excluding footings and foundations). Such coverage shall
be in such amounts, from such companies, and on such other terms and conditions,
as Landlord may from time to time reasonably determine, consistent with the
practices of landlords of Comparable Buildings, with a deductible not to exceed
$100,000 per occurrence. Additionally, at the sole option of Landlord, such
insurance coverage may include the risk of flood damage and additional hazards,
a rental loss endorsement and one or more loss payee endorsements in favor of
the holders of any mortgages or deeds of trust encumbering the interest of
Landlord in the Building or the ground or underlying lessors of the Building, or
any portion thereof. Landlord shall maintain a Commercial General Liability
Insurance policy covering the insured against claims of bodily injury and
personal injury, for limits of liability not initially less than $5,000,000 each
occurrence and $5,000,000 annual aggregate for each of bodily injury and
personal injury.

                                   ARTICLE 11

                             DAMAGE AND DESTRUCTION

     11.1  REPAIR OF DAMAGE BY LANDLORD. Tenant shall promptly notify Landlord
of any damage to, or affecting, the Premises resulting from fire or any other
casualty. If the Premises, the Building or any Common Areas serving or providing
access to the Premises shall be damaged by fire or other casualty, Landlord
shall promptly and diligently, subject to reasonable delays for insurance
adjustment or other delays due to Force Majeure, and subject to all other TCCs
of this ARTICLE 11, restore the Premises, the Building and such Common Areas.
Such restoration shall be to substantially the same condition as existed prior
to the casualty, except for modifications required by zoning and building codes
and other laws, provided that access to the Premises and any common restrooms
serving the Premises and Tenant's use of the Premises shall not be materially
impaired. Within sixty (60) days after the occurrence of such fire or other
casualty, Landlord shall provide Tenant with a statement setting forth the time
within which Landlord expects such restoration to be substantially completed.
Upon the occurrence of any damage to the Furniture, Landlord shall replace the
Furniture to the extent of such insurance proceeds or, if this Lease is
terminated as a result of such casualty, Landlord shall retain such proceeds.
Upon notice to Tenant from Landlord, and provided this Lease has not terminated
as provided in this ARTICLE 11, Tenant shall proceed to restore and repair any
injury or damage to any Alterations which have been completed or installed by or
on behalf of Tenant in the Premises after the Lease Commencement Date and which
will be retained by Landlord upon the expiration or earlier termination of this
Lease. Tenant shall restore such Alterations to substantially the same condition
as existed immediately prior to the casualty, but Tenant shall otherwise have no
obligation to restore any other Alterations, equipment or trade fixtures within
the Premises. Prior to the commencement of any restoration work in the Premises,
Tenant shall submit to Landlord, for Landlord's review and approval, all plans,
specifications and working drawings relating thereto, and Landlord shall approve
such plans and specifications and Tenant's contractors to be used for such work
pursuant to the provisions of ARTICLE 8. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's
business resulting in any way from such damage or the repair thereof; provided
however, that if such fire or other casualty shall have damaged the Premises or
Common Areas necessary to Tenant's occupancy, Landlord shall allow Tenant a
proportionate abatement of Rent to the extent Tenant is unable to operate its
business in the Premises (measured by the proportion of square feet of the
Premises in which Tenant is unable to operate as compared to the total size of
the

                                       27


Premises, and continuing until such time as such areas are restored
substantially to their condition prior to the casualty), regardless of whether
Landlord is reimbursed from the proceeds of rental interruption insurance
purchased or required to be purchased by Landlord as part of Operating Expenses,
during the time and to the extent the Premises are unfit for occupancy for the
purposes permitted under this Lease, and not occupied by Tenant as a result
thereof; provided, further, however, that if the damage or destruction is due to
the negligence or intentional misconduct of Tenant, Tenant shall be responsible
for any reasonable, applicable insurance deductible (which shall be payable to
Landlord upon demand).

     11.2  LANDLORD'S OPTION TO REPAIR. Notwithstanding the TCCs of SECTION 11.1
of this Lease, Landlord may elect not to rebuild and/or restore the Premises,
Building and/or Project, and instead terminate this Lease (or the applicable
portion thereof), by notifying Tenant in writing of such termination within
sixty (60) days after the date of discovery of the damage, such notice to
include a termination date giving Tenant sixty (60) days to vacate the Premises,
but Landlord may so elect only if the Building or Project shall be damaged by
fire or other casualty or cause, if one or more of the following conditions is
present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be
completed within twelve (12) after the date of discovery of the damage (when
such repairs are made without the payment of overtime or other premiums)
(provided, however, if the repair of Building 2 can be completed within twelve
months, Landlord may not terminate this Lease merely because the repair of other
portions of the Project cannot be completed within said period) ; (ii) the
damage is not fully covered by Landlord's insurance policies (except with regard
to any applicable deductibles); (iii) the damage occurs during the last twelve
(12) months of the Lease Term; or (iv) Landlord's mortgagee does not permit the
insurance proceeds to be applied to the rebuilding or repair of the Building or
Project. If Landlord delivers a termination notice based on the insufficiency of
Landlord's insurance proceeds, Landlord shall provide documentation for the
shortfall in insurance proceeds as compared to Landlord's repair estimates, and
Tenant shall be entitled, at its sole discretion, to void Landlord's termination
notice by agreeing to pay the excess repair and restoration expenses by
providing written notice of such election within thirty (30) days after receipt
of Landlord's termination notice. If Landlord does not elect to terminate this
Lease pursuant to Landlord's termination right as provided above, and if the
repairs to be made by Landlord are not actually completed within twelve (12)
months after the date of discovery of the damage, which period may be extended
up to two (2) additional months for Force Majeure delays and/or delays in
insurance adjustment as reasonably demonstrated by Landlord to Tenant), Tenant
shall have the right to terminate this Lease by providing written notice to
Landlord (the "DAMAGE TERMINATION NOTICE"), such termination to be effective
five (5) business days after Landlord's receipt of the Damage Termination Notice
(the "DAMAGE TERMINATION DATE"); provided, however, that Landlord shall have the
right to suspend the occurrence of the Damage Termination Date for a period of
thirty (30) days after the Damage Termination Date by delivering to Tenant, on
or before the Damage Termination Date, a certificate of Landlord's contractor
responsible for the repair of the damage certifying that it is such contractor's
good faith judgment that the repairs to be made by Landlord shall be completed
within thirty (30) days after the Damage Termination Date. If such repairs shall
be completed prior to the expiration of such thirty-day period, then the Damage
Termination Notice shall be of no force or effect, but if such repairs shall not
be completed within such thirty (30) day period, then this Lease shall terminate
upon the expiration of such thirty (30) day period.

                                       28


     11.3  TENANT'S OPTION TO TERMINATE. In the event that the damage or
destruction to the Premises from fire or other casualty either (i) will, in
Landlord's reasonable judgment take more than twelve months to repair, or (ii)
takes place during the last twelve months of the Lease Term and such damage
cannot reasonably be repaired within ninety (90) days after the date of such
damage, Tenant shall have the option, to be exercised by written notice given to
Landlord within twenty (20) days after the date of the damage, to terminate this
Lease effective as of the date of said notice or such later date as shall be
specified in Tenant's notice of termination.

     11.4  WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including this ARTICLE 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or the Project, and any statute or regulation of
the Commonwealth of Massachusetts, with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any other statute or regulation, now or hereafter in effect,
shall have no application to this Lease or any damage or destruction to all or
any part of the Premises, the Building or the Project.

                                   ARTICLE 12

                                   NON-WAIVER

     No provision of this Lease shall be deemed waived by either party hereto
unless expressly waived in a writing signed thereby. The waiver by either party
hereto of any breach of any term, covenant or condition herein contained shall
not be deemed to be a waiver of any subsequent breach of same or any other term,
covenant or condition herein contained. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular Rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be
deemed a waiver of Landlord's right to receive the full amount due, nor shall
any endorsement or statement on any check or payment or any letter accompanying
such check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the full amount due. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant's right of possession hereunder, or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit, or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.

                                   ARTICLE 13

                                  CONDEMNATION

     13.1  CONDEMNATION. If the whole or any part of the Premises, Building or
Project shall be taken by power of eminent domain or condemned by any competent
authority for any public

                                       29


or quasi-public use or purpose, or if any adjacent property or street shall be
so taken or condemned, or reconfigured or vacated by such authority in such
manner as to require the use, reconstruction or remodeling of any part of the
Premises, Building or Project, and if as a result thereof Tenant cannot conduct
its business operations in substantially the same manner such business
operations were conducted prior to such taking while still retaining
substantially the same material rights and benefits it bargained to receive
under this Lease, or if Landlord shall grant a deed or other instrument in lieu
of such taking by eminent domain or condemnation as a result thereof, Landlord
and Tenant shall each have the option to terminate this Lease on ninety (90)
days notice to the other party effective as of the date possession is required
to be surrendered to the authority. Subject to SECTION 13.2 below, Tenant shall
not because of such taking assert any claim against Landlord or the authority
for any compensation because of such taking and Landlord shall be entitled to
the entire award or payment in connection therewith, except that Tenant shall
have the right to file any separate claim available to Tenant for any taking of
Tenant's personal property and fixtures belonging to Tenant and removable by
Tenant upon expiration of the Lease Term pursuant to the TCCs of this Lease, and
for moving expenses, so long as such claims do not diminish the award available
to Landlord or its ground lessor, if any, with respect to the Building or
Project, or its mortgagee, and such claim is payable separately to Tenant. All
Rent shall be apportioned as of the date of such termination. If any part of the
Premises shall be taken, and this Lease shall not be so terminated, the Rent
shall be proportionately abated. Notwithstanding anything to the contrary
contained in this ARTICLE 13, in the event of a temporary taking of all or any
portion of the Premises for a period of sixty (60) days or less, then this Lease
shall not terminate but the Base Rent and the Additional Rent shall be abated
for the period of such taking in proportion to the ratio that the amount of
rentable square feet of the Premises taken bears to the total rentable square
feet of the Premises. Subject to SECTION 13.2 below, Landlord shall be entitled
to receive the entire award made in connection with any such temporary taking.
Landlord and Tenant hereby waive the provisions of any statutes or other laws
relating to the termination of leases in the event of condemnation, and agrees
that the rights and obligations of the parties in such event shall be governed
by the terms of this Lease.

     13.2  TENANT'S RIGHT TO AWARD. Subject to the provisions of SECTION 13.1
above, Tenant shall have the right to claim and recover (i) the fair market
value of the Alterations to the extent paid for solely by Tenant, (ii) any sum
awarded to Tenant for damages to or loss of Tenant's business, and (iii) such
compensation as may be separately awarded or recoverable by Tenant on account of
any and all costs or losses related to removing Tenant's merchandise, furniture,
fixtures, leasehold improvements, and equipment to a new location.

                                   ARTICLE 14

                            ASSIGNMENT AND SUBLETTING

     14.1  TRANSFERS. Tenant shall not: (A) mortgage, pledge, hypothecate,
encumber, or permit any lien to attach to this Lease or any interest hereunder
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld; nor (B) without the prior written consent (except as
otherwise provided in SECTION 14.7, below) of Landlord, which consent will not
be unreasonably withheld, conditioned or delayed, assign, or otherwise transfer,
this Lease or any interest hereunder, permit any assignment, or other transfer
of this Lease or any interest

                                       30


hereunder by operation of law, sublet the Premises or any part thereof, or enter
into any license or concession agreements or otherwise permit the occupancy or
use of the Premises or any part thereof by any persons other than Tenant and its
employees and contractors; (all of the foregoing (in Clauses (A) and (B)) are
hereinafter sometimes referred to collectively as "TRANSFERS" and any person to
whom any Transfer is made or sought to be made is hereinafter sometimes referred
to as a "TRANSFEREE"). If Tenant desires Landlord's consent to any Transfer,
Tenant shall notify Landlord in writing, which notice (the "TRANSFER NOTICE")
shall include (i) the proposed effective date of the Transfer, which shall not
be less than twenty (20) days nor more than sixty (60) days after the date of
delivery of the Transfer Notice, (ii) a description of the portion of the
Premises to be transferred (the "SUBJECT SPACE"), (iii) all of the TCCs of the
proposed Transfer and the consideration therefor, including calculation of the
"TRANSFER PREMIUM," as that term is defined in SECTION 14.3 below, in connection
with such Transfer, (iv) the name and address of the proposed Transferee, and a
copy of all existing executed and/or proposed documentation pertaining to the
proposed Transfer, including all existing operative documents to be executed to
evidence such Transfer or the agreements incidental or related to such Transfer,
(v) current financial statements of the proposed Transferee certified by an
officer, partner or owner thereof, business credit and personal references and
history of the proposed Transferee and any other information required by
Landlord which will enable Landlord to determine the financial responsibility,
character, and reputation of the proposed Transferee, nature of such
Transferee's business and proposed use of the Subject Space and (vi) an executed
estoppel certificate from Tenant in the form attached hereto as EXHIBIT E-1. Any
Transfer made without Landlord's prior written consent shall, at Landlord's
option, be null, void and of no effect, and shall, at Landlord's option,
constitute a default by Tenant under this Lease. Whether or not Landlord
consents to any proposed Transfer, Tenant shall, within thirty (30) days after
written request by Landlord, reimburse Landlord for all reasonable and actual
out-of-pocket third-party costs and expenses incurred by Landlord in connection
with its review of a proposed Transfer; provided that such costs and expenses
shall not exceed One Thousand and No/100 Dollars ($1,000.00) for a Transfer in
the ordinary course of business.

     14.2  LANDLORD'S CONSENT. Landlord shall not unreasonably withhold,
condition or delay its consent to any proposed Transfer under clause 14.2(B) of
the Subject Space to the Transferee on the terms specified in the Transfer
Notice. Without limitation as to other reasonable grounds for withholding
consent, the parties hereby agree that it shall be reasonable under this Lease
and under any Applicable Law for Landlord to withhold consent to any proposed
Transfer where one or more of the following apply:

            14.2.1  Landlord reasonably determines that the Transferee is of a
character or reputation or engaged in a business which is not consistent with
the quality of the Building or the Project;

            14.2.2  The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease;

            14.2.3  The Transferee is either a governmental agency or
instrumentality thereof;

            14.2.4  Tenant has defaulted in the payment of rent (beyond
applicable notice and cure provisions) more than three times in the prior twelve
month period;

                                       31


            14.2.5  Landlord reasonably determines that the Transferee's
financial worth and/or financial stability is insufficient to meet the proposed
financial obligations on the date consent is requested;

            14.2.6  The Transferee is an existing tenant of the Project and
Landlord has other comparable space available in the Project;

            14.2.7  The parking requirements of the Transferee are in excess of
the proportionate share of parking which would be allocable to the Subject Space
based on the rentable square footage of the Subject Space compared to the total
rentable square footage of the Project;

            14.2.8  There is an uncured event of default under the Lease (beyond
any applicable notice and cure provisions).

     If Landlord consents to any Transfer pursuant to the TCCs of this SECTION
14.2 (and does not exercise any Landlord's Option (as defined in SECTION 14.4,
below) Landlord may have under SECTION 14.4 of this Lease), Tenant may within
one (1) month after Landlord's consent, but not later than the expiration of
said one-month period, enter into such Transfer of the Premises or portion
thereof, upon substantially the same terms and conditions as are set form in the
Transfer Notice furnished by Tenant to Landlord pursuant to SECTION 14.1 of this
Lease, provided that if there are any material changes in the terms and
conditions from those specified in the Transfer Notice (i) such that Landlord
would initially have been entitled to refuse its consent to such Transfer under
this SECTION 14.2, or (ii) which would cause the proposed Transfer to be
materially more favorable to the Transferee than the terms set forth in Tenant's
original Transfer Notice, Tenant shall again submit the Transfer to Landlord for
its approval and other action under this ARTICLE 14 (including Landlord's Option
rights, if any, under SECTION 14.4 of this Lease). Notwithstanding anything to
the contrary in this Lease, if Tenant or any proposed Transferee claims that
Landlord has unreasonably withheld or delayed its consent under SECTION 14.2 or
otherwise has breached or acted unreasonably under this ARTICLE 14, their
remedies shall be restricted to a declaratory judgment and an injunction for the
relief sought, and shall exclude money damages. Tenant shall indemnify, defend
and hold harmless Landlord from any and all liability, losses, claims, damages,
costs, expenses, causes of action and proceedings involving any third party or
parties (including without limitation Tenant's proposed subtenant or assignee)
who claim they were damaged by Landlord's wrongful withholding or conditioning
of Landlord's consent.

     14.3  TRANSFER PREMIUM. If Landlord consents to a Transfer, as a condition
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined
in this SECTION 14.3, received by Tenant from such Transferee. "TRANSFER
PREMIUM" shall mean all rent, additional rent or other consideration payable by
such Transferee in connection with the Transfer in excess of the Rent and
Additional Rent payable by Tenant under this Lease during the term of the
Transfer on a per rentable square foot basis if less than all of the Premises is
transferred, after deducting all expenses incurred by Tenant (i) in making any
changes, alterations and improvements to the Premises in connection with the
Transfer, (ii) any free base rent provided to the Transferee, and (iii) any
brokerage commissions in connection with the Transfer. "Transfer Premium" shall
also include, but not be

                                       32


limited to, bonus money or other cash consideration paid by Transferee to Tenant
in connection with such Transfer, and any payment in excess of fair market value
for services rendered by Tenant to Transferee or for assets, fixtures,
inventory, equipment, or furniture transferred by Tenant to Transferee in
connection with such Transfer. In the calculations of the Rent (as it relates to
the Transfer Premium calculated under this SECTION 14.3), and the Transferee's
Rent, the Rent paid during each annual period for the Subject Space, and the
Transferee's Rent shall be computed after adjusting such rent to the actual
effective rent to be paid, taking into consideration any and all leasehold
concessions granted in connection therewith, including, but not limited to, any
rent credit and tenant improvement allowance. For purposes of calculating any
such effective rent all such concessions shall be amortized on a straight-line
basis over the relevant term.

     14.4  LANDLORD'S OPTION AS TO SUBJECT SPACE.

            14.4.1  ASSIGNMENTS. In the event that a proposed Transfer, if
consented to, would cause this Lease to be assigned to a party other than
Original Tenant and/or its Affiliates, then notwithstanding anything to the
contrary contained in this ARTICLE 14, Landlord shall have the option
("LANDLORD'S RECAPTURE OPTION"), by giving written notice to Tenant (the
"Landlord Recapture Notice") within thirty (30) days after receipt of any
Transfer Notice, to recapture the Subject Space. In such case, the Landlord
Recapture Notice shall cancel and terminate this Lease with respect to the
Subject Space as of the date stated in the Transfer Notice (or at Landlord's
option, shall cause the Transfer to be made to Landlord or its agent, in which
case the parties shall execute the Transfer documentation promptly thereafter).
In the event of a recapture by Landlord, if this Lease shall be canceled with
respect to less than the entire Premises, the Rent reserved herein shall be
prorated on the basis of the number of rentable square feet retained by Tenant
in proportion to the number of rentable square feet contained in the Premises,
and this Lease as so amended shall continue thereafter in full force and effect,
and upon request of either party, the parties shall execute written confirmation
of the same. If Landlord declines, or fails to elect in a timely manner to
recapture the Subject Space under this SECTION 14.4, then, provided Landlord has
consented to the proposed Transfer, Tenant shall be entitled to proceed to
transfer the Subject Space to the proposed Transferee, subject to provisions of
this ARTICLE 14. As used in this Article 14, "Original Tenant" shall mean 3Com
Corporation.

            14.4.2  SUBLEASES. In the event that a proposed Transfer, if
consented to, would cause more than two floors, or fifty-five percent (55%) or
more of the Premises to be subleased to a party other than Original Tenant
and/or its Affiliates, then notwithstanding anything to the contrary contained
in this ARTICLE 14, Landlord shall have the option ("LANDLORD'S OPTION"), by
giving written notice to Tenant (the "Landlord Option Notice") within thirty
(30) days after receipt of any Transfer Notice, to sublease the Subject Space to
Landlord, or Landlord's nominee or assignee, subject to the terms set forth in
the Transfer Notice, in which case the parties shall execute the Transfer
documentation promptly thereafter. If Landlord declines, or fails to elect in a
timely manner to sublease the Subject Space under this SECTION 14.4, then,
provided Landlord has consented to the proposed Transfer, Tenant shall be
entitled to proceed to transfer the Subject Space to the proposed Transferee,
subject to provisions of this ARTICLE 14.

     14.5  EFFECT OF TRANSFER. If Landlord consents to a Transfer, (i) the TCCs
of this Lease shall in no way be deemed to have been waived or modified, (ii)
such consent shall not be

                                       33


deemed consent to any further Transfer by either Tenant or a Transferee, (iii)
Tenant shall deliver to Landlord, promptly after execution, an original executed
copy of all documentation pertaining to the Transfer, and (iv) no Transfer
relating to this Lease or agreement entered into with respect thereto, whether
with or without Landlord's consent, shall relieve Tenant from any liability
under this Lease, including, without limitation, in connection with the Subject
Space. Landlord or its authorized representatives shall have the right at all
reasonable times and upon reasonable prior notice to audit the books, records
and papers of Tenant relating to any Transfer, and shall have the right to make
copies thereof. If the Transfer Premium respecting any Transfer shall be found
understated, Tenant shall, within thirty (30) days after demand, pay the
deficiency, and if understated by more than five percent (5%), Tenant shall pay
Landlord's costs of such audit.

     14.6  OCCURRENCE OF DEFAULT. Any Transfer hereunder shall be subordinate
and subject to the provisions of this Lease, and if this Lease shall be
terminated during the term of any Transfer, Landlord shall have the right to:
(i) treat such Transfer as cancelled and repossess the Subject Space by any
lawful means, or (ii) require that such Transferee attorn to and recognize
Landlord as its landlord under any such Transfer. If Tenant shall be in default
under this Lease, Landlord is hereby authorized to direct any Transferee to make
all payments under or in connection with the Transfer directly to Landlord
(which Landlord shall apply towards Tenant's obligations under this Lease) until
such default is cured. Such Transferee shall rely on any representation by
Landlord that Tenant is in default hereunder, without any need for confirmation
thereof by Tenant. Upon any assignment, the assignee shall assume in writing all
obligations and covenants of Tenant thereafter to be performed or observed under
this Lease. No collection or acceptance of rent by Landlord from any Transferee
shall be deemed a waiver of any provision of this ARTICLE 14 or the approval of
any Transferee or a release of Tenant from any obligation under this Lease,
whether theretofore or thereafter accruing. In no event shall Landlord's
enforcement of any provision of this Lease against any Transferee be deemed a
waiver of Landlord's right to enforce any term of this Lease against Tenant or
any other person.

     14.7  NON-TRANSFERS. Notwithstanding anything to the contrary contained in
this ARTICLE 14, an assignment or subletting of all or a portion of the Premises
to any entity which is controlled directly or indirectly by Tenant, or which
entity controls, directly or indirectly, Tenant (in each such case, an
"AFFILIATE"), or any entity which owns or is owned by an Affiliate, or any
assignment by operation of law or otherwise resulting from any merger or
consolidation of Tenant or to any entity which purchases all or substantially
all the stock or assets of Tenant, shall not be deemed a Transfer under this
ARTICLE 14, provided that at least thirty (30) days prior to such assignment or
sublease (i) Tenant notifies Landlord of any such assignment or sublease and
certified that the applicable Transfer is to an Affiliate; and (ii) such
assignment or sublease is not a subterfuge by Tenant to avoid its obligations
under this Lease. In the event an assignment or sublease to an Affiliate is made
pursuant to the TCCs of this SECTION 14.7, Tenant shall not be relieved of its
obligations under this Lease. "CONTROL," as used in this SECTION 14.7, shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or entity, whether by
ownership of voting securities, by contract or otherwise.

                                       34


                                   ARTICLE 15

                      SURRENDER OF PREMISES; OWNERSHIP AND
                            REMOVAL OF TRADE FIXTURES

     15.1  SURRENDER OF PREMISES. No act or thing done by Landlord or any agent
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in writing by Landlord or its management company. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been properly terminated. The voluntary or other surrender of this Lease by
Tenant, whether accepted by Landlord or not, or a mutual termination hereof,
shall not work a merger, and at the option of Landlord shall operate as an
assignment to Landlord of all subleases or subtenancies affecting the Premises
or terminate any or all such sublessees or subtenancies.

     15.2  REMOVAL OF TENANT PROPERTY BY TENANT. Upon the expiration of the
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this ARTICLE 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear, damage due to casualty or condemnation, or repairs which are
specifically made the responsibility of Landlord hereunder excepted. Upon such
expiration or termination, Tenant shall, without expense to Landlord, remove or
cause to be removed from the Premises all debris and rubbish, and such items of
furniture (excepting the Furniture), equipment, business and trade fixtures,
free-standing cabinet work, movable partitions and other articles of personal
property owned by Tenant or installed or placed by Tenant at its expense in the
Premises (excluding, however, Tenant's Alterations), and Tenant shall repair at
its own expense all damage to the Premises and Building to the extent resulting
from such removal.

                                   ARTICLE 16

                                  HOLDING OVER

     16.1  INTERIM PREMISES. If Tenant holds over in the Interim Premises after
the expiration of Transition Period, with or without the express or implied
consent of Landlord, such tenancy shall be such tenancy shall be from
month-to-month only, and shall not, except as set forth below, constitute a
renewal hereof or an extension for any further term, and in such case Base Rent
shall be payable at a monthly rate equal to the product of (i) the rentable
square footage contained in that portion (each "portion" being one of the
following: (i) the NOC Room and NOC Storage on level one; or (ii) the Server
Room on the second level as shown on EXHIBIT F ) of the Interim Premises which
has not been timely vacated by Tenant, and (ii) $31.50 divided by twelve (12),
prorated for the actual number of days in which Tenant holds over in such
portion of the Interim Premises. Such month-to-month tenancy shall be subject to
every other applicable TCCs contained herein. Nothing contained in this ARTICLE
16 shall be construed as consent by Landlord to any holding over by Tenant, and
Landlord expressly reserves the right to

                                       35


require Tenant to surrender possession of the Interim Premises to Landlord as
provided in this Lease upon the expiration or other termination of this Lease.
The provisions of this ARTICLE 16 shall not be deemed to limit or constitute a
waiver of any other rights or remedies of Landlord provided herein or at law. If
Tenant fails to surrender the Interim Premises upon the expiration of the
Transition Period, in addition to any other liabilities to Landlord accruing
therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless
from all loss, costs (including reasonable attorneys' fees) and liability
resulting from any claims made by any succeeding tenant founded upon such
failure to surrender.

     16.2  ADDITIONAL PREMISES. If Tenant holds over in the Additional Premises
after notice terminating the Lease with respect to the Additional Premises, as
set forth in SECTION 1.1.3, above, with or without the express or implied
consent of Landlord, such tenancy shall be such tenancy shall be from
month-to-month only, and shall not, except as set forth below, constitute a
renewal hereof or an extension for any further term, and in such case Base Rent
shall be payable at a monthly rate equal to the product of (i) the rentable
square footage contained in the Additional Premises, and (ii) $31.50 divided by
twelve (12), prorated for the actual number of days in which Tenant holds over
in such portion of the Additional Premises. Such month-to-month tenancy shall be
subject to every other applicable TCCs contained herein. Nothing contained in
this ARTICLE 16 shall be construed as consent by Landlord to any holding over by
Tenant, and Landlord expressly reserves the right to require Tenant to surrender
possession of the Additional Premises to Landlord as provided in this Lease upon
the expiration or other termination of this Lease. The provisions of this
ARTICLE 16 shall not be deemed to limit or constitute a waiver of any other
rights or remedies of Landlord provided herein or at law. If Tenant fails to
surrender the Additional Premises upon the expiration or earlier termination of
the Term, in addition to any other liabilities to Landlord accruing therefrom,
Tenant shall protect, defend, indemnify and hold Landlord harmless from all
loss, costs (including reasonable attorneys' fees) and liability resulting from
any claims made by any succeeding tenant founded upon such failure to surrender.

     16.3  PREMISES. If Tenant holds over after the expiration of the Lease Term
or earlier termination thereof, with or without the express or implied consent
of Landlord, such tenancy shall be from month-to-month only, and shall not,
except as set forth below, constitute a renewal hereof or an extension for any
further term, and in such case Rent shall be payable at a monthly rate equal to
the product of (i) the Rent applicable during the last rental period of the
Lease Term under this Lease, and (ii) one hundred fifty percent (150%). Such
month-to-month tenancy shall be subject to every other applicable TCCs contained
herein. Nothing contained in this ARTICLE 16 shall be construed as consent by
Landlord to any holding over by Tenant, and Landlord expressly reserves the
right to require Tenant to surrender possession of the Premises to Landlord as
provided in this Lease upon the expiration or other termination of this Lease.
The provisions of this ARTICLE 16 shall not be deemed to limit or constitute a
waiver of any other rights or remedies of Landlord provided herein or at law. If
Tenant fails to surrender the Premises upon the expiration or earlier
termination of the Term, in addition to any other liabilities to Landlord
accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys' fees) and
liability resulting from any claims made by any succeeding tenant founded upon
such failure to surrender.

                                       36


                                   ARTICLE 17

                              ESTOPPEL CERTIFICATES

     Within ten (10) business days following a request in writing by either
party hereto, the other party shall execute, acknowledge and deliver to the
requesting party an estoppel certificate, which, as submitted by Landlord to
Tenant, shall be substantially in the form of EXHIBIT E-1 attached hereto, and
which, as submitted by Tenant to Landlord, shall be substantially in the form of
EXHIBIT E-2 attached hereto, or such other substantially similar form containing
such other information as shall be reasonably requested by any party to whom the
estoppel certificate is to be provided, and subject to the mutual agreement of
Landlord and Tenant, indicating therein any exceptions thereto that may exist at
that time. Any such certificate may be relied upon by a third party for whose
benefit the estoppel certificate has been requested.

                                   ARTICLE 18

                                  SUBORDINATION

     This Lease shall be subject and subordinate to all present and future
ground or underlying leases of the Building or Project and to the lien of any
mortgage, trust deed or other encumbrances now or hereafter in force against the
Building or Project or any part thereof, if any, and to all renewals,
extensions, modifications, consolidations and replacements thereof, and to all
advances made or hereafter to be made upon the security of such mortgages or
trust deeds, unless the holders of such mortgages, trust deeds or other
encumbrances (collectively, "LIENHOLDERS"), or the lessors under such ground
lease or underlying leases require in writing that this Lease be superior
thereto. Tenant covenants and agrees in the event any proceedings are brought
for the foreclosure of any such mortgage or deed in lieu thereof (or if any
ground lease is terminated), to attorn, without any deductions or set-offs
whatsoever, to the lienholder or purchaser or any successors thereto upon any
such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so
requested to do so by such purchaser or lienholder or ground lessor, and to
recognize such purchaser or lienholder or ground lessor as the lessor under this
Lease. Landlord's interest herein may be assigned as security at any time to any
lienholder. Tenant's foregoing agreements concerning subordination of this Lease
shall be subject to, in each case, Landlord's obtaining from any such lienholder
or lessor, and delivering to Tenant a Subordination, Non-Disturbance and
Attornment Agreement ("SNDA") in commercially reasonably form and substance
(provided, however, that such form shall in no way affect the Term or Rent under
this Lease or otherwise materially, adversely diminish the rights or increase
the obligations of Tenant hereunder) whereby such executing party shall agree
not to disturb the tenancy of the Tenant under, and pursuant to the terms of,
this Lease, so long as Tenant shall not be in default hereunder after any
applicable notice and opportunity to cure, and shall agree to attorn to said
lienholder or lessor and to execute, acknowledge and deliver any reasonable
instrument that has for its purpose and effect the confirmation of such
subordination, non-disturbance and attornment or superiority of this Lease to
any such mortgages, trust deeds, ground leases or underlying leases in
accordance with the TCCs of this ARTICLE 18. Tenant shall execute and deliver to
Landlord, at the time it executes this Lease, and thereafter, upon ten (10) days
advance written request, any SNDA that Landlord may reasonably require on a
commercially reasonable, recordable form as required by the applicable
lienholder or ground

                                       37


lessor, subject to any reasonable revisions requested by Tenant and acceptable
to such lienholder. Tenant waives the provisions of any current or future
statute, rule or law which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.

                                   ARTICLE 19

                               DEFAULTS: REMEDIES

     19.1  EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute a default of this Lease by Tenant:

            19.1.1  Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due unless such
failure is cured within five (5) business days after written notice with respect
to Base Rent, AP Rent, Tenant's Electricity Cost and Tenant's Share of the
Estimated Excess, or within thirty (30) days after written notice with respect
to other items of Additional Rent or other charges required under this Lease,
provided, however, Landlord shall not be required to give written notice more
than three times in any twelve month period; or

            19.1.2  Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided that if the nature of such default is
such that the same cannot reasonably be cured within a thirty (30) day period,
Tenant shall not be deemed to be in default if it diligently commences such cure
within such period and thereafter diligently proceeds to rectify and cure such
default; or

            19.1.3  (a) The making by Tenant of any general arrangement or
general assignment for the benefit of creditors; (b) Tenant becomes a "debtor"
as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Tenant, the same is dismissed within sixty
(60) days); (c), the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; (d) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within sixty (60)
days or the date of any sooner sale of any of such assets; or (e) Tenant shall
become subject to any proceeding in bankruptcy or insolvency.

     The notice periods provided herein are in lieu of, and not in addition to,
any notice periods provided by law. As used herein, "default", "event of
default" or "breach" by Tenant means a failure by Tenant referred to above in
this Section 19.1 that has not been cured within the applicable time period
(after notice if so required) provided above. An event of default, default or
breach shall be deemed to have been cured upon removal or cessation of the event
or circumstances giving rise to such event of default, default or breach.

     19.2  REMEDIES UPON DEFAULT. Upon the occurrence of any event of default by
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity

                                       38


(all of which remedies shall be distinct, separate and cumulative), the option
to pursue any one or more of the following remedies, each and all of which shall
be cumulative and nonexclusive, without any notice or demand whatsoever.

            19.2.1  Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, use any lawful means to expel or remove Tenant
and any other person who may be occupying the Premises or any part thereof,
without being liable for prosecution or any claim or damages therefor; and
Landlord may recover from Tenant the following:

                           (i)     The worth at the time of award of the unpaid
                                rent which had been earned at the time of such
                                termination; plus

                           (ii)    The worth at the time of award of the amount
                                by which the unpaid rent which would have been
                                earned after termination until the time of award
                                exceeds the amount of such rental loss that
                                Tenant proves could have been reasonably
                                avoided; plus

                           (iii)   The worth at the time of award of the amount
                                by which the unpaid rent for the balance of the
                                Lease Term after the time of award exceeds the
                                amount of such rental loss that Tenant proves
                                could have been reasonably avoided; plus

                           (iv)    At Landlord's election, such other amounts in
                                addition to or in lieu of the foregoing as may
                                be permitted from time to time by applicable
                                law.

     The term "RENT" as used in this SECTION 19.2 shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the TCCs
of this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
and (ii), above, the "worth at the time of award" shall be computed by allowing
interest at the rate set forth in ARTICLE 25 of this Lease through the date of
any judgment against Tenant, but in no case greater than the maximum amount of
such interest permitted by law. As used in Paragraph 19.2.l(iii) above, the
"worth at the time of award" shall be computed by discounting future liabilities
after the date of any judgment against Tenant at the discount rate of the
Federal Reserve Bank of New York.

            19.2.2  Maintain Tenant's right to possession in which case this
Lease shall continue in effect whether or not Tenant shall have vacated or
abandoned the Premises. In such event, Landlord shall be entitled to enforce all
of Landlord's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder. No action by Landlord shall be
deemed a termination of this Lease except written notice by Landlord delivered
to Tenant expressly declaring a termination of this Lease. If Landlord maintains
Tenant's right to possession, Landlord may thereafter elect to terminate this
Lease.

                                       39


            19.2.3  Terminate this Lease and, in addition to any recoveries
Landlord may seek under SECTION 19.2.1, bring an action to reenter and regain
possession of the Premises in the manner provided by the laws of the
Commonwealth of Massachusetts then in effect.

            19.2.4  Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the Commonwealth of
Massachusetts.

            19.2.5  Landlord shall at all times have the rights and remedies
(which shall be cumulative with each other and cumulative and in addition to
those rights and remedies available under SECTIONS 19.2.1 through 19.2.4, above,
or any law or other provision of this Lease), without prior demand or notice
except as required by applicable law, to seek any declaratory, injunctive or
other equitable relief, and specifically enforce this Lease, or restrain or
enjoin a violation or breach of any provision hereof; provided, however, that
Landlord shall use commercially reasonable efforts to mitigate damages.

     19.3  SUBLEASES OF TENANT. If Landlord elects to terminate this Lease on
account of any default by Tenant, as set forth in this ARTICLE 19, Landlord
shall have the right to terminate any and all subleases, licenses, concessions
or other consensual arrangements for possession entered into by Tenant and
affecting the Premises or may, in Landlord's sole discretion, succeed to
Tenant's interest in such subleases, licenses, concessions or arrangements. If
Landlord has terminated this Lease and elected to succeed to Tenant's interest
in any such subleases, licenses, concessions or arrangements, Tenant shall, as
of the date of notice by Landlord of such election, have no further right to or
interest in the rent or other consideration receivable thereunder.

     19.4  NO RELIEF FROM FORFEITURE AFTER DEFAULT. Tenant waives all rights of
redemption or relief from forfeiture under any present or future laws or
statutes, in the event Tenant is evicted or Landlord otherwise lawfully takes
possession of the Premises by reason of any default by Tenant under this Lease.

     19.5  EFFORTS TO RELET. No re-entry or repossession, repairs, maintenance,
changes, alterations and additions, reletting, appointment of a receiver to
protect Landlord's interests hereunder, or any other action or omission by
Landlord shall be construed as an election by Landlord to terminate this Lease
or Tenant's right to possession, or to accept a surrender of the Premises, nor
shall same operate to release Tenant in whole or in part from any of Tenant's
obligations hereunder, unless express written notice of such intention is sent
by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise
available under any law to redeem or reinstate this Lease.

     19.6  LANDLORD DEFAULT. Notwithstanding anything to the contrary set forth
in this Lease, Landlord shall be in default in the performance of any obligation
required to be performed by Landlord pursuant to this Lease if Landlord fails to
perform such obligation within thirty (30) days after the receipt of notice from
Tenant specifying in detail Landlord's failure to perform, or in the case of
emergency (as defined in Section 7.1 above), sufficiently promptly to prevent
avoidable material damage to persons and property, subject in all cases to force
majeure; provided, however, if the nature of Landlord's obligation is such that
more than thirty (30) days are required for its performance, then Landlord shall
not be in default under this Lease if it shall promptly commence such
performance within such thirty (30) day period and thereafter

                                       40


diligently pursues the same to completion, subject to force majeure. Upon any
such default by Landlord under this Lease, Tenant may, except as otherwise
specifically provided in this Lease to the contrary, take such action as may be
reasonably required to cure said default, and/or exercise any of its rights
provided at law or in equity, and Landlord shall reimburse Tenant for its
reasonable out-of-pocket costs to third parties in effecting such cure within
thirty (30) days after receipt of Tenant's invoice therefore accompanied by
copies of all invoices and statements detailing such costs and such other
information as may reasonably be requested by Landlord. Tenant shall have no
right to offset or withhold the payment or Rent as a result of Landlord's
default, and except as expressly provided in SECTIONS 6.3, 11.1 and 13.1, Tenant
shall have no right to an abatement of rent or to terminate this Lease as the
result of Landlord's default.

                                   ARTICLE 20

                           COVENANT OF QUIET ENJOYMENT

     Landlord covenants that subject to Tenant's performance of its obligations
under this Lease Tenant shall, during the Lease Term, peaceably and quietly
have, hold and enjoy the Premises subject to the terms, covenants, conditions,
provisions and agreements hereof without interference by any persons lawfully
claiming by or through Landlord. The foregoing covenant is in lieu of any other
covenant express or implied.

                                   ARTICLE 21

                              INTENTIONALLY OMITTED

                                   ARTICLE 22

                                 SATELLITE DISH

     22.1  SATELLITE DISH. Subject to the provisions and conditions of this
Article 22, Landlord hereby consents to (i) Tenant's continued operation of the
satellite dish located on the roof of Building 4 (the "BUILDING 4 DISH"), in its
current location, size and configuration; and (ii) the installation of an
additional satellite dish antenna in a portion of the roof of the Building (the
"NEW DISH"; collectively with the Building 4 Dish, the "SATELLITE DISHES"), in
such location as may be designated by Landlord, for the sole use of Tenant.
Tenant agrees and hereby covenants to Landlord as follows:

            22.1.1. The New Dish shall not be visible from ground level, and
shall not exceed thirty inches in diameter and shall not project more than five
feet above the roof surface of the Building, unless otherwise approved by
Landlord which approval shall not be unreasonably withheld;

            22.1.2. Installation, service, repair, maintenance and removal of
the Satellite Dishes shall be performed by a reputable contractor that has been
approved by Landlord in writing. Installation, service, repair and maintenance
of the Satellite Dishes shall be performed during normal office hours (8:00 a.m.
to 5:00 p.m., Monday to Friday). Tenant shall have access

                                       41


to the roof of the Building and to the roof of Building 4 for the purposes of
such maintenance; provided, however, that Tenant shall not have access to the
roof of any building in the Project unless accompanied by Landlord's agent;

            22.1.3. The installation, operation and maintenance of the Satellite
Dishes shall not interfere with the peaceful enjoyment by any other tenant of
its respective premises and/or the operation of any other antennae or satellite
dishes which may be permitted by Landlord;

            22.1.4. Tenant shall be solely liable for the installation,
maintenance, repair and removal of the Satellite Dishes, and shall remove the
Satellite Dishes and repair any damage caused by such removal prior to the
expiration or earlier termination of the Lease. The installation of the New Dish
and operation, maintenance and removal of the Satellite Dishes shall be
performed (i) in a good and workmanlike manner, so that they would not create a
hazard to life or property; (ii) in compliance with all applicable federal,
state and local laws, regulations and ordinances, (iii) with due care and regard
for safety and in a manner that will not cause injury or death to persons or
damage to property; (iv) so that no lien or other encumbrance shall be placed on
any portion of the Project, and (v) in a way that will not limit or void any
warranty on the roof nor cause nor permit leaking of the roof, nor impair the
structural integrity of any building in the Project;

            22.1.5  Tenant shall insure that its use and operation of the
Satellite Dishes does not create a nuisance;

            22.1.6  There shall be no penetrations of the roof of any building
in the Project unless specifically approved by Landlord in writing. Whether or
not Landlord approves such penetrations, in the event the roof leaks, or any
other physical damage to the roof occurs as a result of the installation and/or
maintenance of the Satellite Dishes, Landlord shall provide written notice of
such leaks and upon receipt of such notice Tenant shall meet with Landlord or
its agent within twenty-four hours to determine the extent of such damage, and
any required repairs shall be performed by a licensed roofing contractor
approved by Landlord at the sole cost and expense of Tenant. If Tenant fails to
meet with Landlord as set forth above, declines to complete such repairs and/or
to have such repairs completed within seven days (or such shorter time as may be
prudent under the circumstances), Landlord may, but shall not be obligated to,
have the roof repaired, and Tenant shall reimburse Landlord for the cost thereof
as additional rent within ten days after receipt of an invoice from Landlord;
notwithstanding the foregoing, so long as Landlord is able to undertake said
repairs and Tenant reimburses Landlord for the cost thereof as set forth above,
Tenant shall not be deemed to be in default under this Lease for failing to have
undertaken such repairs; and

            22.1.7. Tenant's subcontractors for installation, maintenance,
service and repair of the Satellite Dishes shall carry and maintain in force the
following insurance with companies reasonable satisfactory to Landlord, and
Tenant shall provide Landlord with insurance certificates specifying such
coverage within thirty (30) days after the Lease Commencement Date (or prior to
the performance of any work by such contractors, if earlier), and annually
thereafter:

                                       42


            Worker's Compensation and Employer's Liability insurance coverage
     for all employees engaged in performing services in connection with the
     Satellite Dishes, in accordance with all laws which may be applicable to
     said employees;

            Comprehensive General Liability Insurance in the amount of One
     Million Dollars ($1,000,000) for injury, death, or tangible property damage
     resulting from each occurrence with a Two Million Dollar ($2,000,000)
     aggregate limit; and

            Automobile Liability insurance coverage covering owned, non-owned,
     and rented automotive equipment providing at least Five Hundred Thousands
     Dollars ($500,000) for coverage of injury, death or tangible property
     damage resulting from each occurrence.

     22.2  INDEMNIFICATION. Tenant shall indemnify, defend and hold Landlord,
and its partners, members, employees, contractors, agents and representatives
from and against all claims, actions, damages, liability, or other expense,
including, without limitation, reasonable attorneys' fees, which arise or are
alleged to arise as a result of (i) the negligence, misfeasance or willful
misconduct of Tenant, its employees, officers, agents, representatives, invitees
or contractors resulting in any accident or injury to any person or damage to
property (including without limitation, damages to the roof of the Building or
the structural integrity thereof, and leaking and damages related to or caused
by leaking related to the installation, operation or maintenance of the
Satellite Dish), (ii) any breach of the agreements, representations and
warranties set forth in this Article 22.

                                   ARTICLE 23

                                      SIGNS

     Tenant shall have the right, with Landlord's prior written consent as to
content, size and form, which consent shall not be unreasonably withheld or
delayed, to place a monument sign near the entrance of the Building, and to
place prominent signage on the exterior of the Building. Under no circumstances
shall Tenant place a sign on any roof of the Building. Tenant currently has a
monument sign at the entrance to the Project (the "Existing Monument"). Provided
that Landlord is permitted by the City of Marlborough and any other governmental
authority having jurisdiction, to place a monument sign at the entrance to the
Project (in addition to the Existing Monument), then Tenant may retain the
Existing Monument at the entrance to the Project, provided that Landlord, at
Landlord's election, may relocate the Existing Monument to another position at
the entrance to the Project designated by Landlord, and provided further that
the wording on the Existing Monument shall be changed by Tenant at Tenant's sole
cost and expense so that only Tenant's corporate name and/or logo is included on
the Existing Monument (and any reference to the Project's former name, 3Com
Campus, or similar, is removed from the Existing Monument) within ten (10)
business days after Landlord's request. If the City of Marlborough only permits
one monument sign at or near the entrance to the Project or if the size or
configuration of Landlord's sign would be affected by the existence of the
Existing Monument, then (i) within ten days after Landlord's notice that such
Existing Monument must be removed, Tenant may remove the existing monument; and
(ii) if Tenant does not remove the Existing Monument within said time period,
Tenant will be deemed to have conveyed the Existing Monument to the Landlord and
Landlord may remove, destroy, dispose of, alter and/or

                                       43


re-use the Existing Monument, at Landlord's sole cost and expense; and (iii)
Landlord shall include Tenant's name on Landlord's monument signage in a
prominent manner (as used herein, "prominent" shall mean in a manner which is
consistent with the standards applicable to major tenants in Comparable
Buildings, being first in any list of tenants, and having letters at least as
big as provided for all other major tenants in the Property, subject to the
provisions of the next sentence. All of Tenant's signs (and Landlord's monument
at the entrance to the Project), shall comply with the requirements of the
covenants, conditions and restrictions of record and the requirements of the
City of Marlborough, Massachusetts, and Tenant shall maintain all of Tenant's
signs in good condition, in accordance with Comparable Buildings. All sign(s)
(excluding Landlord's monument signs) shall be removed by Tenant and the
Premises, Building and/or Project (as the case may be) restored, at the sole
cost and expense of Tenant, upon the expiration or sooner termination of the
Lease.

                                   ARTICLE 24

                               COMPLIANCE WITH LAW

     Tenant shall not do anything or suffer anything to be done in or about the
Premises or the Project which will in any way conflict with any law, statute,
ordinance, decrees, codes (including without limitation building, zoning and
accessibility codes), common law, judgments, orders, rulings, awards or other
governmental or quasi-governmental rule, regulation or requirement now in force
or which may hereafter be enacted or promulgated including any "Environmental
Laws" as that term is defined in SECTION 29.31 of this Lease ("APPLICABLE
LAWS"). Tenant shall promptly provide to Landlord a copy of any written notice
received by Tenant of violation of any federal, state, county or municipal laws,
regulations, ordinances, orders or directives relating to the use or condition
of the Premises. At its sole cost and expense, Tenant shall promptly comply with
all such governmental measures to the extent that such governmental measures
relate to Tenant's particular use of the Premises or any Alterations located in
the Premises. Should any standard or regulation now or hereafter be imposed on
Landlord or Tenant by a commonwealth, state, federal or local governmental body
charged with the establishment, regulation and enforcement of occupational,
health or safety standards for employers, employees, landlords or tenants, then
Tenant agrees, at its sole cost and expense, to comply promptly with such
standards or regulations to the extent such standards or regulations relate to
Tenant's particular use of the Premises or any Alterations located in the
Premises; provided that Landlord shall comply with any standards or regulations
which relate to the Base Building or the Building Systems, unless such
compliance obligations are triggered by the Alterations in the Premises, in
which event such compliance obligations shall be at Tenant's sole cost and
expense; provided further, and notwithstanding the foregoing, that Tenant shall
not be required to make any repair to, modification of, or addition to the Base
Building or the Building Systems except and to the extent required because of
Tenant's particular use of the Premises. The judgment of any court of competent
jurisdiction or the admission by either party hereto in any judicial action,
regardless of whether this other party is a party thereto, that such party has
violated any of said governmental measures, shall be conclusive of that fact as
between Landlord and Tenant. Landlord shall comply in all material respects with
all Applicable Laws relating to the Project, Base Building and Building Systems,
provided that compliance with such Applicable Laws is not the responsibility of
Tenant under this Lease, and provided further that Landlord's failure to comply
therewith would prohibit Tenant from obtaining or maintaining a certificate of
occupancy for the

                                       44


Premises, or would unreasonably and materially affect the safety of Tenant's
Parties or create a significant health hazard for Tenant's Parties or otherwise
materially interfere with or materially affect Tenant's Permitted Use and
enjoyment of the Premises. Landlord shall be permitted to include in Operating
Expenses any costs or expenses incurred by Landlord under this ARTICLE 24 to the
extent consistent with, and amortized to the extent required by, the TCCs of
SECTION 4.2.4 of this Lease. Landlord shall be permitted to include in Operating
Expenses any costs or expenses incurred by Landlord under this ARTICLE 24 to the
extent consistent with, and amortized to the extent required by, the TCCs of
SECTION 4.2.4 of this Lease, subject to the limitations set forth in Section
4.2.4 (J).

                                   ARTICLE 25

                                  LATE CHARGES

     If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) business days
following written notice that Base Rent, AP Rent, Tenant's Electricity Cost
and/or monthly payments of Tenant's Share of any Estimated Excess was not paid
when due (provided, however, that Landlord shall not be required to give Tenant
written notice more than three times in any twelve month period), or within
thirty days following written notice that such amount was not paid when due for
any other item of Additional Rent and other sums which may become due under this
Lease, then Tenant shall pay to Landlord a late charge equal to three percent
(3%) of the overdue amount. The late charge shall be deemed Additional Rent and
the right to require it shall be in addition to all of Landlord's other rights
and remedies hereunder or at law and shall not be construed as liquidated
damages or as limiting Landlord's remedies in any manner. In addition to the
late charge described above, any Rent or other amounts owing hereunder which are
not paid within five (5) business days following the due date for Base Rent, AP
Rent, Tenant's Electricity Cost and/or monthly payments of Tenant's Share of any
Estimated Excess, or within thirty (30) business days following written notice
that such amount was not paid when due for any other item of Additional Rent and
other sums which may become due under this Lease shall bear interest from the
date when due until paid at an annual interest rate equal to the Prime Rate (as
stated under the column "Money Rates" in THE WALL STREET JOURNAL) plus four
percent (4%); provided, however, in no event shall such annual interest rate
exceed the highest annual interest rate permitted by Applicable Law.

                                   ARTICLE 26

              LANDLORD'S RIGHT TO CURE DEFAULT: PAYMENTS BY TENANT

     26.1  LANDLORD'S CURE. All covenants and agreements to be kept or performed
by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any reduction of Rent, except to the extent, if any,
otherwise expressly provided herein. If Tenant shall fail to perform any
obligation under this Lease, and such failure shall continue in excess of the
time allowed under SECTION 19.1.2, above, unless a specific time period is
otherwise stated in this Lease, Landlord may, but shall not be obligated to,
make any such payment or perform any such act on Tenant's part without waiving
its rights based upon any default of Tenant and without releasing Tenant from
any obligations hereunder.

                                       45


     26.2  TENANT'S REIMBURSEMENT. Except as may be specifically provided to the
contrary in this Lease, Tenant shall pay to Landlord, within ten (10) days
following delivery by Landlord to Tenant of receipts therefor: (i) sums equal to
expenditures reasonably made and obligations incurred by Landlord in connection
with the remedying by Landlord of Tenant's defaults pursuant to the provisions
of SECTION 26.1; and (ii) sums equal to all losses, costs, liabilities, damages
and expenses referred to in ARTICLE 10 of this Lease. All of such sums shall be
deemed Additional Rent and the right to require it shall be in addition to all
of Landlord's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner. Tenant's obligations under this SECTION 26.2 shall survive the
expiration or sooner termination of the Lease.

                                   ARTICLE 27

                                ENTRY BY LANDLORD

     Landlord reserves the right during normal business hours, upon no less than
24 hours prior notice to Tenant (except in the case of an emergency), and in
compliance with Tenant's reasonable security measures, to enter the Premises to
(i) inspect them; (ii) show the Premises to prospective purchasers, current or
prospective mortgagees, ground or underlying lessors or insurers or, during the
last six (6) months of the Lease Term, tenants, or prospective tenants; (iii)
post notices of nonresponsibility; or (iv) improve or repair the Premises or the
Building, or for structural alterations, repairs or improvements to the Building
or the Building's systems and equipment. Notwithstanding anything to the
contrary contained in this ARTICLE 27, Landlord may enter the Premises at any
time to (A) perform services required of Landlord, including janitorial service;
(B) take possession due to a breach of this Lease as provided in ARTICLE 19; and
(C) during normal business hours, upon forty-eight (48) hours prior notice,
perform any covenants of Tenant which Tenant fails to perform. Landlord may make
any such entries without the abatement of Rent and may take such reasonable
steps as required to accomplish the stated purposes. In connection with any
entry into the Premises, Landlord agrees to make reasonable efforts to minimize
interference with Tenant's operations in the Premises caused by such entry and
to minimize the duration of any such interference. Tenant hereby waives any
claims for damages or for any injuries or inconvenience to or interference with
Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby, except with respect to damage
to Tenant's personal property or the amount of any physical injury, but only to
the extent such damage is caused by the negligent acts or omissions or willful
misconduct of Landlord, its agents, employees and contractors, and in such
event, only the extent not covered by Tenant's insurance required to be carried
hereunder. For each of the above purposes, Landlord shall at all times have a
key or card key with which to unlock all the doors in the Premises, excluding
Tenant's vaults, safes and special security areas designated in advance by
Tenant (the "SECURITY AREAS"). Notwithstanding anything set forth in this
ARTICLE 27 to the contrary, Landlord shall have no access or inspection rights
as to the Security Areas, except in the event of an emergency where such entry
is reasonably required. In an emergency, Landlord and its agents, employees and
contractors shall have the right to use any means that Landlord may deem proper
to open the doors in and to the Premises, provided Landlord has reasonably
attempted, but to no avail, to obtain Tenant's immediate cooperation in
connection therewith. Any entry into the Premises by Landlord in the manner
hereinbefore described shall not be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an actual

                                       46


or constructive eviction of Tenant from any portion of the Premises. No
provision of this Lease shall be construed as obligating Landlord to perform any
repairs, alterations or decorations except as otherwise expressly agreed to be
performed by Landlord herein. Notwithstanding anything to the contrary contained
in this ARTICLE 27, until such systems have been relocated in accordance with
the provisions of SECTIONS 1.5 AND 5.5, above, Landlord may enter the Premises
at any time, upon oral notice to Tenant, to access the Project security system,
fire alarm (if any), and energy management systems located in Building 2.

                                   ARTICLE 28

                                 TENANT PARKING

     Tenant and the Tenant's parties (including Tenant's visitors) shall be
entitled to utilize, without charge, and on a non-exclusive basis, commencing on
the Lease Commencement Date, the amount of unreserved and unassigned parking
spaces set forth in SECTION 9 of the Summary; provided, however, that Landlord
shall permit ten (10) of the spaces to which Tenant is entitled under SECTION 9
of the Summary to be reserved as near as possible to the entrance of the
Building for the exclusive use of Tenant's visitors, and Landlord shall install
and maintain signage restricting parking for such exclusive spaces and Tenant
shall reimburse Landlord for the cost of installing, repairing and maintaining
said signs as Additional Rent. Landlord shall have no obligation to police or
enforce the restrictions on the use of said reserved parking spaces. Tenant
shall cooperate with Landlord to ensure that Tenant's agents, servants,
employees, and contractors (collectively, "TENANT PARTIES") comply with the
Rules and Regulations which are prescribed from time to time by Landlord for the
orderly operation and use of the parking areas where the parking spaces are
located, including Tenant's cooperation in seeing that Tenant's employees and
visitors also comply with such Rules and Regulations and Tenant not being in
default under this Lease beyond any applicable notice and cure period. Landlord
specifically reserves the right to make reasonable changes to the size,
configuration, design, layout and all other aspects of the Project parking areas
and improvements at any time upon thirty (30) days' prior written notice to
Tenant and Tenant acknowledges and agrees that Landlord may, without incurring
any liability to Tenant and without any abatement of Rent under this Lease, from
time to time, temporarily close-off or restrict access to portions of the
Project parking areas only for purposes of permitting or facilitating any such
construction, alteration or improvements, not to exceed, without Tenant's
approval, ten (10) business days in any twelve (12) month period; provided,
however, that Landlord will undertake reasonable efforts to minimize the number
of parking spaces affected by and the duration of any such temporary
restrictions on use of the parking areas. In no event shall Tenant's Share of
parking on the Project be permanently reduced below any minimum parking ratio
required under Applicable Laws or in any manner which would materially,
adversely interfere with Tenant's use and occupancy of the Premises. Landlord
may delegate its responsibilities hereunder to a parking operator in which case
such parking operator shall have all the rights of control attributed hereby to
the Landlord. The parking spaces available to Tenant pursuant to this ARTICLE 28
are provided to Tenant solely for use by the Tenant Parties and such spaces may
not be transferred, assigned, subleased or otherwise alienated by Tenant, except
on a pro-rata basis in connection with an assignment or subletting of the
Premises permitted or approved in accordance with the TCCs of ARTICLE 14. Tenant
shall not utilize any of the Project parking areas for the long term (e.g., over
two weeks) storage of vehicles owned by Tenant, its employees, contractors and
consultants.

                                       47


                                   ARTICLE 29

                            MISCELLANEOUS PROVISIONS

     29.1  TERMS; CAPTIONS. The words "Landlord" and "Tenant" as used herein
shall include the plural as well as the singular. The necessary grammatical
changes required to make the provisions hereof apply either to corporations or
partnerships or individuals, men or women, as the case may require, shall in all
cases be assumed as though in each case fully expressed. The captions of
Articles and Sections are for convenience only and shall not be deemed to limit,
construe, affect or alter the meaning of such Articles and Sections.

     29.2  BINDING EFFECT. Subject to all other provisions of this Lease, each
of the covenants, conditions and provisions of this Lease shall extend to and
shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective heirs, personal
representatives, successors or assigns, provided this clause shall not permit
any assignment by Tenant contrary to the provisions of ARTICLE 14 of this Lease.

     29.3  NO AIR RIGHTS. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are temporarily
darkened or the light or view therefrom is obstructed by reason of any repairs,
improvements, maintenance or cleaning in or about the Project, the same shall be
without liability to Landlord and without any reduction or diminution of
Tenant's obligations under this Lease.

     29.4  TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Project or
Building and in this Lease, and Tenant agrees that in the event of any such
transfer, Landlord shall automatically be released from all liability under this
Lease not accrued on or prior to the date of the transfer, and Tenant agrees to
look solely to such transferee for the performance of Landlord's obligations
hereunder for events occurring after the date of transfer and to attorn to such
transferee. Tenant further acknowledges that Landlord may assign its interest in
this Lease to a mortgage lender as additional security. Landlord acknowledges
that to the extent any Landlord obligation or liability under this Lease is
accrued prior to the date of such transfer or assignment which is not assumed by
the transferee or assignee, the same shall remain an obligation of Landlord.

     29.5  NOTICE OF LEASE. Prior to the Lease Commencement Date, both parties
shall execute and acknowledge a notice of lease in the form attached hereto as
EXHIBIT G (the "Notice of Lease"), to be recorded on the Lease Commencement Date
at Tenant's sole cost and expense.

     29.6  LANDLORD'S TITLE. Landlord's title is and always shall be paramount
to the title of Tenant. Nothing herein contained shall empower Tenant to do any
act which can, shall or may encumber the title of Landlord.

     29.7  RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant.

                                       48


     29.8  APPLICATION OF PAYMENTS. Landlord shall have the right to apply
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.

     29.9  TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.

     29.10 PARTIAL INVALIDITY. If any term, provision or condition contained in
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to persons
or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.

     29.11 NO WARRANTY. In executing and delivering this Lease, Tenant has not
relied on any representations (except as specifically set forth in this Lease),
including, but not limited to, any representation as to the amount of any item
comprising Additional Rent or the amount of the Additional Rent in the aggregate
or that Landlord is furnishing the same services to other tenants, at all, on
the same level or on the same basis, or any warranty or any statement of
Landlord which is not set forth herein or in one or more of the exhibits
attached hereto.

     29.12 LANDLORD EXCULPATION. The liability of Landlord or the Landlord
Parties to Tenant for any default by Landlord under this Lease or arising in
connection herewith or with Landlord's operation, management, leasing, repair,
renovation, alteration or any other matter relating to the Project or the
Premises shall be limited solely and exclusively to an amount which is equal to
the interest of Landlord in the Project. Neither Landlord, nor any of the
Landlord Parties shall have any personal liability therefor, and Tenant hereby
expressly waives and releases such personal liability on behalf of itself and
all persons claiming by, through or under Tenant. The limitations of liability
contained in this SECTION 29.12 shall inure to the benefit of Landlord's and the
Landlord Parties' present and future partners, beneficiaries, officers,
directors, trustees, shareholders, agents and employees, and their respective
partners, heirs, successors and assigns. Under no circumstances shall any
present or future partner of Landlord (if Landlord is a partnership), or trustee
or beneficiary (if Landlord or any partner of Landlord is a trust), or member
(if Landlord is a limited liability company) have any liability for the
performance of Landlord's obligations under this Lease. Notwithstanding any
contrary provision herein, neither Landlord nor the Landlord Parties shall be
liable under any circumstances for injury or damage to, or interference with,
Tenant's business, including but not limited to, loss of profits, loss of rents
or other revenues, loss of business opportunity, loss of goodwill or loss of
use, in each case, however occurring.

     29.13 ENTIRE AGREEMENT. It is understood and acknowledged that there are no
oral agreements between the parties hereto affecting this Lease and this Lease
constitutes the parties' entire agreement with respect to the leasing of the
Premises and supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Landlord to Tenant with respect to the subject
matter

                                       49


thereof, and none thereof shall be used to interpret or construe this Lease.
None of the TCCs of this Lease can be modified, deleted or added to except in
writing signed by the parties hereto.

     29.14 RIGHT TO LEASE. Landlord reserves the absolute right to effect such
other tenancies in the Project as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Building or
Project. Tenant does not rely on the fact, nor does Landlord represent, that any
specific tenant or type or number of tenants shall, during the Lease Term,
occupy any space in the Building or Project.

     29.15 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God (including inclement weather), inability
to obtain utilities (subject to the provisions of SECTION 6.3), labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, a "FORCE MAJEURE"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure; provided,
however, such extension shall not exceed sixty (60) consecutive days.

     29.16 NOTICES. All notices, demands, statements, designations, approvals or
other communications (collectively, "NOTICES") given or required to be given by
either party to the other hereunder or by law shall be in writing, shall be (A)
sent by United States certified or registered mail, postage prepaid, return
receipt requested ("MAIL"), (B) transmitted by telecopy, if such telecopy is
promptly followed by a Notice sent by Mail, (C) delivered by a nationally
recognized overnight courier, or (D) delivered personally. Any Notice shall be
sent, transmitted, or delivered, as the case may be, to Tenant at the
appropriate address set forth in SECTION 10 of the Summary, or to such other
place as Tenant may from time to time designate in a Notice to Landlord, or to
Landlord at the addresses set forth below, or to such other places as Landlord
may from time to time designate in a Notice to Tenant. Any Notice will be deemed
given (i) three (3) days after the date it is posted if sent by Mail, (ii) the
date the telecopy is transmitted, (iii) the date the overnight courier delivery
is made, or (iv) the date personal delivery is made or attempted to be made. If
Tenant is required under any separate written agreement between Tenant and a
mortgagee or ground lessor to notify such party of any default by Landlord under
this Lease, then Tenant shall give to such mortgagee or ground or underlying
lessor written notice of any default by Landlord under the TCCs of this Lease by
registered or certified mail, and such mortgagee or ground or underlying lessor
shall be given a reasonable opportunity to cure such default prior to Tenant's
exercising any remedy available to Tenant. As of the date of this Lease, any
Notices to Landlord and Tenant must be sent, transmitted, or delivered, as the
case may be, to the following addresses:

                                       50


                    LANDLORD:

                    Marlborough Campus Limited Partnership
                    770 Township Line Road, Suite 150
                    Yardley, PA 19067
                    Attn: John L. Brogan

                    with copies to:

                    c/o Berwind Property Group, Ltd.
                    1500 Market Street
                    3000 Centre Square West
                    Philadelphia, PA 19102
                    Attention:  Loretta M. Kelly
                    General Counsel

                    TENANT:

                    3Com Corporation
                    5400 Bayfront Plaza, Mail Stop 1220
                    Santa Clara, CA 95052
                    Attention:  Real Estate Department

                    with copies to:

                    3Com Corporation
                    5400 Bayfront Plaza, Mail Stop 1220
                    Santa Clara, CA 95052
                    Attention:  Legal Department

     29.17 JOINT AND SEVERAL. If there is more than one Tenant, the obligations
imposed upon Tenant under this Lease shall be joint and several.

     29.18 AUTHORITY. Each individual executing this Lease hereby represents and
warrants that Landlord or Tenant, as applicable, is a duly formed and existing
entity qualified to do business in the Commonwealth of Massachusetts and has
full right and authority to execute and deliver this Lease and that each person
signing on behalf of Landlord or Tenant is authorized to do so.

     29.19 ATTORNEYS' FEES. In the event that either Landlord or Tenant should
bring suit for the possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provision of this Lease or for
any other relief against the other, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.

                                       51


     29.20 GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts. Except as
otherwise provided herein, all disputes arising hereunder, and all legal actions
and proceedings related thereto, shall be solely and exclusively initiated and
maintained in the court with the appropriate jurisdiction located in the City of
Marlborough, County of Middlesex, Commonwealth of Massachusetts. IN ANY ACTION
OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE
JURISDICTION OF ANY COMPETENT COURT WITHIN THE COMMONWEALTH OF MASSACHUSETTS,
AND (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY MASSACHUSETTS LAW. IN THE
EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF
BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY
NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH
PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

     29.21 SUBMISSION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of, option for or option
to lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.

     29.22 BROKERS. Landlord and Tenant hereby warrant to each other that they
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in SECTION 12 of the Summary (the "BROKERS"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, costs and expenses (including without
limitation reasonable attorneys' fees) with respect to any leasing commission or
equivalent compensation alleged to be owing on account of any dealings with any
real estate broker or agent, other than the Brokers, occurring by, through, or
under the indemnifying party.

     29.23 INDEPENDENT COVENANTS. This Lease shall be construed as though the
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense except as expressly provided in SECTIONS 7.1 AND 19.6, or
to any setoff of the Rent or other amounts owing hereunder against Landlord, and
Tenant shall have no right to any abatement of Rent except as expressly provided
in SECTIONS 6.3, 11.1 and 13.1.

     29.24 PROJECT OR BUILDING NAME AND SIGNAGE. Landlord shall have the right
at any time to change the name of the Project or Building and to install, affix
and maintain any and all signs on the exterior and on the interior of the
Project or Building as Landlord may, in Landlord's sole discretion, desire.
Tenant shall not use the name of the Project or Building or use pictures or
illustrations of the Project or Building in advertising or other publicity or
for any purpose other than as the address of the business to be conducted by
Tenant in the Premises, without the prior written consent of Landlord.

                                       52


     29.25 COUNTERPARTS. This Lease may be executed in counterparts with the
same effect as if both parties hereto had executed the same document. Both
counterparts shall be construed together and shall constitute a single lease.

     29.26 CONFIDENTIALITY. Tenant hereby acknowledges that the contents of this
Lease and any related documents are confidential information. Tenant shall keep
such confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's partners,
administrators, consultants, financial, legal, and space planning consultants, a
prospective Transferee, and except as required by Applicable Law or in
connection with a dispute or litigation hereunder or as required by subpoena.

     29.27 TRANSPORTATION MANAGEMENT. Tenant shall comply with all present or
future programs required by Applicable Law (provided Landlord provides Tenant
with sufficient prior notice of such program's requirements) which are intended
to manage parking, transportation or traffic in and around the Project, and in
connection therewith, Tenant shall take responsible action for the
transportation planning and management of all employees located at the Premises
by working directly with Landlord, any governmental transportation management
organization or any other transportation-related committees or entities.

     29.28 BUILDING RENOVATIONS. Except as expressly set forth in SECTION 1.1,
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, Building, or any part thereof and
Tenant acknowledges that, except as expressly set forth in SECTION 5.4, no
representations or warranties respecting the condition of the Premises or the
Building have been made by Landlord to Tenant. However, Tenant hereby
acknowledges that Landlord may during the Lease Term renovate, improve, alter,
or modify (collectively, the "RENOVATIONS") the Project, the Building and/or the
Premises including without limitation the parking structure, Common Areas,
systems and equipment, roof, and structural portions of the same. Tenant hereby
agrees that such Renovations and Landlord's actions in connection with such
Renovations shall in no way constitute a constructive eviction of Tenant nor
entitle Tenant to any abatement of Rent except as expressly provided in SECTION
6.3. Landlord shall have no responsibility or for any reason be liable to Tenant
for any direct or indirect injury to or interference with Tenant's business
arising from the Renovations, nor shall Tenant be entitled to any compensation
or damages from Landlord for loss of the use of the whole or any part of the
Premises or of Tenant's personal property or improvements resulting from the
Renovations or Landlord's actions in connection with such Renovations, or for
any inconvenience or annoyance occasioned by such Renovations or Landlord's
actions provided the performance of such Renovations does not materially
adversely interfere with Tenant's use or occupancy of the Premises, the Project
or the Common Areas for the Permitted Use.

     29.29 NO VIOLATION. Landlord and Tenant hereby warrant and represent that
neither its execution of nor performance under this Lease shall cause either
party to be in violation of any agreement, instrument, contract, law, rule or
regulation by which it is bound, and each party shall protect, defend, indemnify
and hold the other harmless against any claims, demands, losses, damages,
liabilities, costs and expenses, including, without limitation, reasonable
attorneys' fees and costs, arising from Tenant's breach of this warranty and
representation.

                                       53


     29.30 COMMUNICATIONS AND COMPUTER LINES. Tenant shall have the use of, and
right of access upon reasonable advance written notice to Landlord to maintain,
any existing communications or computer wires and cables (collectively, the
"LINES") located in the Building and connecting the Building to the Building 4
Dish and the Conference Facilities, and, subject to the provisions of ARTICLE 8
(including, without limitation, Landlord's conditioning its approval upon the
restoration of any portion of the Project disturbed by such installation) shall
have the right at its sole cost and expense to install and maintain its own
additional wires, cables, conduits, auxiliary equipment and other related
equipment and facilities from the public street into the Project, the Building
and the Premises, and between the Building and the Conference Facilities.

     29.31 HAZARDOUS SUBSTANCES.

            29.31.1      DEFINITIONS. For purposes of this Lease, the following
definitions shall apply: "HAZARDOUS MATERIAL(S)" shall mean any substance or
material that is described as a toxic or hazardous substance, waste, material,
pollutant, contaminant or infectious waste, or any matter that in certain
specified quantities would be injurious to the public health or welfare, or
words of similar import, in any of the "Environmental Laws," as that term is
defined below in this SECTION 29.31.1, or any other words which are intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive
toxicity and includes, without limitation, asbestos, petroleum (including crude
oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural
gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum
products, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive
matter, medical waste, and chemicals which may cause cancer or reproductive
toxicity. "ENVIRONMENTAL LAWS" shall mean all federal, state, commonwealth,
local and quasi-governmental laws (whether under common law, statute or
otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations and
guidance documents now or hereafter be enacted or promulgated as amended from
time to time, in any way relating to or regulating Hazardous Materials.

            29.31.2      COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant covenants
that during the Lease Term, Tenant shall comply with all Environmental Laws
pertaining to its use of the Premises and the Project. Tenant shall not use,
store, handle or dispose of any Hazardous Materials, other than standard office
products in quantities and of types consistent with tenants of Comparable
Buildings, all of which shall be used, stored, handled and disposed of in
accordance with applicable Environmental Laws.

            29.31.3      INDEMNIFICATION. Tenant agrees to indemnify, defend,
protect and hold harmless the Landlord Parties from any and all Claims arising
from any Hazardous Materials to the extent placed in, on, under or about the
Premises or the Project by Tenant or Tenant Parties during or after the Lease
Term. Landlord agrees to indemnify, defend, protect and hold harmless the Tenant
Parties from any and all Claims arising from any Hazardous Materials released,
stored, used or discharged by Landlord, its employees, agents and contractors,
prior to the Lease Commencement Date or during the Lease Term.

                                       54


     29.32 DEVELOPMENT OF THE PROJECT.

            29.32.1   SUBDIVISION. Subject to the requirements of ARTICLE 28,
Landlord reserves the right to further subdivide all or a portion of the Project
and to add to, remove, or otherwise change the parking areas and Common Areas.
In the event of any such change, an equitable adjustment to the Tenant's Share,
if appropriate, shall be made.

            29.32.2   OTHER IMPROVEMENTS. If portions of the Project or
property adjacent to the Project (collectively, the "OTHER IMPROVEMENTS") are
owned by an entity other than Landlord, Landlord, at its option, may enter into
an agreement with the owner or owners of any or all of the Other Improvements to
provide (i) for reciprocal rights of access and/or use of the Project and the
Other Improvements, (ii) for the common management, operation, maintenance,
improvement and/or repair of all or any portion of the Project and the Other
Improvements, (iii) for the allocation of a portion of the Direct Expenses to
the Other Improvements and the operating expenses and taxes for the Other
Improvements to the Project, and (iv) for the use or improvement of the Other
Improvements and/or the Project in connection with the improvement,
construction, and/or excavation of the Other Improvements and/or the Project.
Nothing contained herein shall be deemed or construed to limit or otherwise
affect Landlord's right to convey all or any portion of the Project or any other
of Landlord's rights described in this Lease.

            29.32.3   CONSTRUCTION OF PROJECT AND OTHER IMPROVEMENTS. Tenant
acknowledges that portions of the Project and/or the Other improvements may be
under construction following Tenant's occupancy of the Premises, and that such
construction may result in levels of noise, dust, obstruction of access, etc.
which are in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction, provided such construction by
Landlord does not interfere with Tenant's use or occupancy of the Premises, the
Project or the Common Areas for the Permitted Use.

     29.33 NO CONSEQUENTIAL DAMAGES. Notwithstanding any provision of this Lease
to the contrary, except as specifically set forth in ARTICLE 16 of this lease,
under no circumstances shall either party hereto be liable to the other party
for any consequential, incidental or special damages.

     29.34 WAIVER OF LANDLORD'S LIEN. Landlord understands that Tenant may lease
and/or purchase with purchase money financing certain of the Alterations,
fixtures and equipment which may be installed in or used in connection with the
Premises from time to time during the Lease Term. Landlord hereby agrees, upon
written request of Tenant, to release, waive or subordinate any landlord's lien
to any such equipment leases, retained title contracts, security interest or
other forms of purchase money financing and within ten (10) business days after
Tenant's written request, to execute documents, in form and substance reasonably
satisfactory to Landlord, that permit the equipment lessors, title and lien
holders, as applicable, the right to enter the Premises during the Lease Term
for the sole purpose of exercising their rights to such Alterations, fixtures
and equipment subject to such leases, retained title contracts, security
interest or other forms of purchase money financing and to foreclose upon and
remove such collateral from the Premises, provided that any damage to the
Premises caused by such removal is promptly repaired and restored.

                                       55


     29.35 COMPLIANCE WITH TIF AGREEMENT. Landlord and Tenant acknowledge that
there is a Tax Increment Financing Agreement by and between the City of
Marlborough and BNP Leasing Corporation dated January 31, 1997, as amended by an
Agreement by and between the City of Marlborough and 3Com Corporation dated
February 25, 2002, concerning the Property (the "TIF Agreement"). Tenant agrees
to comply with the provisions of the TIF Agreement that pertain to 3COM
Corporation and to provide such information as may reasonably be requested by
Landlord to facilitate Landlord's compliance with any requirements of the TIF
Agreement. Landlord agrees to take reasonably commercial steps, at no cost or
expense to Landlord, to maintain the benefits of the TIF Agreement.

     IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.

                                     "LANDLORD":

                                     MARLBOROUGH CAMPUS LIMITED
                                     PARTNERSHIP, a Massachusetts limited
                                     partnership


                                     By:  /s/ Signature Illegible
                                          ------------------------------
                                     Its: Vice President
                                          -----------------------

                                     "TENANT":

                                     3COM CORPORATION,
                                     a Delaware corporation

Attest:

                                     By:  /s/ Mark D. Michael
                                          --------------------------

By: /s/ Roger van Overbeek                Name: Mark D. Michael
    ----------------------------
    Name: Roger van Overbeek              Title: SVP, General Counsel, Secretary

    Title: Sr. Mgr. Real Estate and  (Corporate Seal)
            Site Services

                                       56


                        (ACKNOWLEDGMENT FOR CORPORATION)

STATE OF CALIFORNIA
                              SS.:

COUNTY OF SANTA CLARA

     BE IT REMEMBERED, that on this 20th day of Novmeber, 2002, before me, the
subscriber, a Notary Public of the State of California personally appeared Mark
D. Michael, who, being by me duly sworn on his oath, does depose and make proof
to my satisfaction that he is the Secretary of 3Com Corporation, the Tenant
named in the foregoing Lease; that the execution of the foregoing Lease was duly
authorized; and the seal affixed to said instrument is the corporate seal and
was thereto affixed and said instrument signed and delivered by said Secreary,
as and for his voluntary act and deed and as for the voluntary act and deed of
said corporation, in presence of deponent, who thereupon subscribed his name
thereto as witness.

Subscribed and sworn to
before me on the date aforesaid.


/s/ Lolanda Hanson
- ------------------
Notary Public


(Notarial Seal)

                                       57


                                    EXHIBIT A

                               OUTLINE OF PREMISES



                                   EXHIBIT A-1

                                LOADING DOCK AREA



                                    EXHIBIT B

                                PROJECT SITE PLAN



                                    EXHIBIT C

                                 INVENTORY LIST



                                   EXHIBIT C-1

                           EXCLUDED PERSONAL PROPERTY



                                    EXHIBIT D

                              RULES AND REGULATIONS

                         BUILDING RULES AND REGULATIONS

The following rules and regulations (collectively, the "Rules") shall apply,
where applicable, to the Premises, the Building, the parking lot, the Project
and the appurtenances thereto:

A.  GENERAL

1.  Sidewalks, doorways, vestibules, halls, stairways and other similar areas
    shall not be obstructed by Tenant or used by Tenant for any purpose other
    than ingress and egress to and from the Premises. No rubbish, litter, trash,
    or material of any nature shall be placed, emptied, or thrown in those
    areas. At no time shall Tenant permit Tenant's employees, contractors or
    other representatives to loiter in common areas or elsewhere in or about the
    Building or Project.

2.  Any Tenant or vendor sponsored activity or event in Common Area must be
    approved and scheduled through Landlord's representative.

3.  Plumbing fixtures and appliances shall be used only for the purposes for
    which designed, and no sweepings, rubbish, rags or other unsuitable material
    shall be thrown or placed therein. Tenant shall pay for damage resulting to
    any such fixtures or appliances from misuse by Tenant or its agents,
    employees or invitees, and Landlord shall not in any case be responsible
    therefor.

4.  Alcoholic beverages (without Landlord's prior written consent), illegal
    drugs or other illegal controlled substances are not permitted in the
    Building nor will any person under the influence of the same be permitted in
    the Building.

5.  No firearms or other weapons are permitted in the Building.

6.  No fighting or "horseplay" will be tolerated at any time in the Building.

7.  Fire protection and prevention practices implemented by Landlord from time
    to time, including participation in fire drills, must be observed by Tenant
    at all times.

8.  Tenant shall not operate or disturb any Building equipment, machinery,
    valves or electrical controls.

9.  Tenant shall not cause any unnecessary janitorial labor or services by
    reason of Tenant's carelessness or indifference in the preservation of good
    order and cleanliness.



10. No signs, advertisements or notices shall be painted or affixed on or to any
    windows, doors or other parts of the Building unless approved in writing by
    Landlord.

11. Landlord shall have the power to prescribe the weight and position of safes
    and other heavy equipment or items, which in all cases shall not in the
    opinion of Landlord exceed acceptable floor loading and weight distribution
    requirements. All damage done to the Building by the installation,
    maintenance, operation, existence or removal of any property of Tenant shall
    be repaired at the expense of Tenant.

12. No animals, except seeing-eye dogs, shall be brought into or kept in, on or
    about the Premises.

13. Tenant shall not take any action which would violate Landlord's labor
    contracts affecting the Building or which would cause any work stoppage,
    picketing, labor disruption or dispute, or any interference with the
    business of Landlord or any other tenant or occupant of the Building or with
    the rights and privileges of any person lawfully in the Building. Tenant
    shall take any actions necessary to resolve any such work stoppage,
    picketing, labor disruption, dispute or interference and shall have pickets
    removed and, at the request of Landlord, immediately terminate at any time
    any construction work being performed in the Premises giving rise to such
    labor problems, until such time as Landlord shall have given its written
    consent for such work to resume, which consent shall not be unreasonably
    withheld, conditioned or delayed. Tenant shall have no claim for damages of
    any nature against Landlord in connection therewith.

14. Landlord shall have the right to prohibit the use of the name of the
    Building or any other publicity by Tenant that in Landlord's opinion may
    tend to impair the reputation of the Building or its desirability for
    Landlord or other tenants. Upon written notice from Landlord, Tenant will
    refrain from and/or discontinue such publicity immediately.

15. Smoking and discarding of smoking materials are permitted in designated
    exterior locations only. No smoking is permitted outside the building
    entrances. Tenant will instruct and notify its visitors and employees of
    such policy.

16. No awnings or other projections shall be attached to the outside walls
    (building perimeter) of the Building. No curtains, blinds, shades, or
    screens shall be attached to or hung in, or used in connection with, any
    window or door of the Premises, without the prior written consent of
    Landlord, in Landlord's sole discretion. Window coverings must be Building
    Standard.

17. Tenant shall cooperate with the Landlord to conserve energy. Before closing
    and leaving the Premises at any time, Tenant shall exercise reasonable
    efforts to minimize energy use by turning off lights and equipment not in
    use.

18. There shall not be used in any space, or in the public halls of the
    Building, either by any Tenant or by delivery personnel or others, in the
    delivery or receipt of merchandise, any hand trucks, except those equipped
    with rubber tires and sole guards.

                                        2


19. Tenant shall not use the Premises for housing, lodging or sleeping purposes
    or permit preparation or warming of food in the Premises (except in Landlord
    provided or approved equipment such as microwave ovens and toaster ovens).
    Tenant shall not occupy or use the Premises or permit the Premises to be
    occupied or used for any purpose or act that is in violation of any
    governmental legal requirement or may be dangerous to persons or property.

20. Tenant shall not make or permit any noise, vibration or odor to emanate from
    the Premises, or do anything that will create or maintain a nuisance, or do
    any act injuring the reputation of the Building.

21. Tenant shall not disturb any other Building occupants.

22. Tenant shall not install or operate any musical or sound producing
    instrument or device, radio receiver or transmitter, TV receiver or
    transmitter, or similar device in the Premises, nor install or operate any
    antenna, aerial, wires or other equipment inside or outside the Premises,
    nor operate any electrical device from which may emanate electrical waves
    which may interfere with or impair radio or television broadcasting or
    reception from or in the Premises or elsewhere, without in each instance,
    the prior written approval of Landlord. The use thereof, if permitted, shall
    be subject to control by Landlord to the end that others shall not be
    disturbed.

23. Tenant shall provide Landlord in writing the names and contact information
    of two (2) representatives authorized by the Tenant to request Landlord
    services, either billable or non billable and to act as a liaison for
    matters related to the Premises.

B.  BUILDING ACCESS & SECURITY

1.  No additional locks shall be placed upon any doors, windows or transoms in
    or to the Premises, nor shall Tenant change existing locks or the mechanism
    thereof, without Landlord's permission, which permission shall not be
    unreasonably withheld, conditioned or delayed.

2.  Tenant shall not use or occupy the Premises in any manner or for any purpose
    which would injure the reputation or impair the present or future value of
    the Premises or the Building.

3.  Bicycles and other vehicles are not permitted inside or on the walkways
    outside the Building, except in those areas specifically designated by
    Landlord for such purposes.

4.  Landlord may from time to time adopt appropriate systems and procedures for
    the security or safety of the Building, its occupants, entry and use, or its
    contents, and shall provide Tenant with notice thereof. Tenant, Tenant's
    agents, employees, contractors, guests and invitees shall comply with
    Landlord's reasonable requirements relative thereto.

5.  Canvassing, soliciting, and peddling in or about the Building is prohibited.
    Tenant, its employees, agents and contractors shall cooperate with said
    policy, and Tenant shall use its best efforts to prevent the same by
    Tenant's invitees.

                                        3


6.  Tenant and its employees, agents, contractors, invitees and licensees are
    limited to the Premises and the Common Areas. Tenant and its employees,
    agents, contractors, invitees and licensees may not enter other areas of the
    Building or Project (other than the conference rooms) except when
    accompanied by an escort from Landlord and shall sign in/out at building
    reception.

7.  Tenant acknowledges that Building security problems may occur which may
    require the employment of extreme security measures in the day-to-day
    operation of the Building. Accordingly, Tenant agrees to cooperate and cause
    its employees, contractors and other representatives to cooperate fully with
    Landlord in the implementation of any reasonable security procedures.

8.  Tenant shall comply with all federal, state and local, criminal, civil,
    safety, health and environmental codes, laws, and ordinances relating to its
    use of leased space.

C.  MAINTENANCE & CUSTODIAL

1.  All contractors, contractor's representatives, and installation technicians
    performing work in the Building shall be subject to Landlord's written prior
    approval and shall be required to comply with Landlord's standard rules,
    regulations, policies, and procedures, as the same may be revised from time
    to time. Tenant shall be solely responsible for complying with all
    applicable laws, codes and ordinances pursuant to which said work shall be
    performed.

2.  Tenant shall not install, operate or maintain in the Premises or in any
    other area of the Building, any electrical equipment which does not bear the
    U/L (Underwriters Laboratories) seal of approval, or which would overload
    the electrical system or any part thereof beyond its capacity for proper,
    efficient and safe operation as determined by Landlord, taking into
    consideration the overall electrical system and the present and future
    requirements therefor in the Building. Tenant shall not operate personal
    electronic devices for individual use such as coffeepots, toasters,
    refrigerators, space heaters, etc. without Landlord's prior written
    approval, which approval shall not be unreasonably withheld, conditioned or
    delayed.

D.  SHIPPING/RECEIVING/LOADING DOCKS

1.  Movement in or out of the Building of furniture or office equipment, or
    dispatch or receipt by Tenant of any merchandise or materials which require
    the use of elevators, stairways, lobby areas, or loading dock areas, shall
    be restricted to the hours between 6 a.m. and 9 p.m., Monday through Friday,
    excluding Holidays. Tenant is to assume all risk for damage to articles
    moved and injury to any persons resulting from such activity. If any
    equipment, property, and/or personnel of Landlord or of any other tenant of
    the Building is damaged or injured as a result of or in connection with such
    activity, Tenant shall be solely liable for any and all damage or loss to
    the extent directly resulting therefrom.

2.  All deliveries to or from the Premises shall be made only at such times, in
    the areas and through the entrances and exits designated for such purposes
    by Landlord. Tenant shall not permit the process of receiving deliveries to
    or from the Premises outside of said areas or in a

                                        4


    manner that may interfere with the use by any other tenant of its premises
    or of any Common Areas, any pedestrian use of such area, or any use that is
    inconsistent with good business practice.

3.  All Tenant mail and small packages will be scheduled for pick-up and
    delivery by carrier or supplier to and from the Premises.

4.  Landlord personnel will not load/unload cargo deliveries for Tenant from the
    dock.

5.  Tenant arranged shipping/receiving location outside the Premises to be
    approved by Landlord, which approval shall not be unreasonably withheld,
    conditioned or delayed. Dock areas shall not be used for storage or staging
    by Tenant.

6.  The following rules and regulations apply to all loading docks which are
    available for the use of more than one tenant (and shall not apply to
    loading docks intended for the exclusive use of any tenant): No tenant shall
    park or permit any truck or trailer to be parked in any loading dock area
    except during the time actually need to load or unload materials. In no case
    shall any truck or trailer be permitted to remain in a loading dock area
    overnight. If any tenant has been utilizing the loading dock are for a time
    period in excess of one hour and another tenant requires access to the
    loading dock area, the first tenant shall vacate the loading dock area and
    make it available to the second tenant. No tenant may utilize more than one
    loading dock at a time if another tenant requires access to the loading dock
    and a loading dock is not available for the second tenant's use.

E.  FOOD SERVICE

1.  No open flame cooking or competing food service or vending machines will be
    permitted in the Premises.

2.  Tenant shall not remove food service property from the cafe including trays,
    dishes, glasses, cups, utensils. Disposal utensils are provided.

F.  RULES FOR USE OF ACCESS CARDS

Each of Tenant's employees and on-site contractors shall be issued an access
card. The access card serves as a "key" that allows access to card reader
controlled doors.

The access card will ONLY act as a key on doors leading to the Premises and
Common Areas. Care should be used to prevent excessive bending or abuse that may
cause damage to the card.

1.  Do not allow others to use your card.

2.  Report a lost, stolen, or damaged card immediately.

3.  If a door is equipped with a card reader - use the reader to access. Do not
    "prop" doors open to bypass the system.

4.  A "Tailgater" is an individual without an access card who follows an
    employee in or out of a

                                        5


    door after that employee has used their card to access a door. Tailgating is
    not allowed.

5.  If Landlord provides Tenant with any access cards or badges, a fee of $20.00
    will be charged for each badge or access card issued.

6.  In all cases, Tenant agrees to promptly notify Landlord when access badges
    are to be deactivated in cases such as termination, non-use, lost badge,
    etc.

                                        6


                                   EXHIBIT E-1

                           TENANT ESTOPPEL CERTIFICATE

Date [Name and Address of Landlord and Third Party or Parties]

It is our understanding that you are purchasing from
_______________________________ ("Landlord"), [and/or are providing financing
in connection with the acquisition or refinancing of the] property located at
_________________, ____________________________, Massachusetts (the "Property")
and in connection therewith have required this certification by the undersigned.

Reference is made to a Lease dated ________________, between Landlord and the
undersigned as Tenant (the "Lease") for certain premises (the "Premises")
located at the Property. The undersigned, as Tenant, hereby certifies that:

1.  The term of the Lease commenced on __________, 2002 (the "Commencement
    Date") and ends on __________, 20__ (the "Expiration Date"). Tenant has no
    right to renew or extend the term of the Lease, except as follows: _______

2.  The undersigned has accepted and presently occupies the premises described
    in the Lease as Tenant.

3.  The Base Rent under the Lease is currently $__________________ per month,
    and has been paid through __________________, 20__. Tenant currently pays
    $______ per month as its estimated Share of Operating Expenses in excess of
    Operating Expenses for ____ (which is the Base Year), and $_______ per month
    as its estimated Share of Tax Expenses in excess of Tax Expenses for fiscal
    year July, 200__ to June, 20__.

4.  The Lease is in full force and effect and has not been assigned, modified,
    supplemented or amended in any way and, to the knowledge of the undersigned,
    neither party is in default thereunder, and no event has occurred which,
    with the giving of notice or passage of time, or both, could result in a
    default except as follows: _________

5.  The Lease represents the entire agreement between Landlord and the
    undersigned.

6.  On this date, there are no existing defenses or offsets which the
    undersigned has against the enforcement of the Lease by Landlord.

7.  The undersigned Tenant is [is not] in occupancy of all or a portion of the
    premises described in the Lease and is [is not] actually conducting its
    business therein, which business is the use permitted under the Lease.
    Tenant has not sublet nor assigned its interest in the Lease except as
    follows: _______

8.  No rent has been paid more than one month in advance of its due date under
    the Lease.



9.  Landlord does not hold any security deposit under the Lease.

10. Tenant has no option or right of first refusal to purchase all or any
    portion of the Property, no option(s) to expand, nor any option to terminate
    the Lease prior to the Expiration Date except as follows: ____________

11. All construction, alterations or improvements required to be performed by
    Landlord have been completed and any payments, credits or abatements
    required to be given by Landlord to Tenant have been given.

12. To Tenant's knowledge, subject to the provisions of Section 4.4 of the
    Lease, no refunds or other credits are due to Tenant for Direct Expenses (as
    defined in the Lease) paid to Landlord as additional rent for any calendar
    years ending on or before December 31, 200__.

13. No actions have been filed by or are pending against Tenant under the
    bankruptcy laws of the United States or any state thereof.

15. The signatory below is authorized to execute this Estoppel Certificate on
    behalf of Tenant.


    Executed as an instrument under seal on __________, 20__.


                                        Very truly yours,

                                        ---------------------------------
                                        Tenant

                                        2


                                   EXHIBIT E-2

                          LANDLORD ESTOPPEL CERTIFICATE

Date [Name and Address of Tenant and Third Party or Parties]

Reference is made to a Lease dated ________________, between
____________________ as Landlord and 3 Com Corporation as Tenant (the "Lease")
for certain premises (the "Premises") located at _______________________ (the
"Property"). The undersigned, as Landlord, hereby certifies that:

1.  The term of the Lease commenced on __________, 20__ and ends on __________,
    20__ (the "Expiration Date"). Tenant has no right to renew or extend the
    term of the Lease, except as follows: _______

2.  The Base Rent under the Lease is currently $__________________ per month,
    and has been paid through __________________, 20__. Tenant currently pays
    $______ per month as its estimated Share of Operating Expenses in excess of
    Operating Expenses for ____ (which is the Base Year), and $_______ per month
    as its estimated Share of Tax Expenses in excess of Tax Expenses for the
    Base Year.

3.  The Lease is in full force and effect and has not been assigned, modified,
    supplemented or amended in any way and, to the knowledge of the undersigned,
    neither party is in default thereunder, and no event has occurred which,
    with the giving of notice or passage of time, or both, could result in a
    default except as follows: _________

4.  The Lease represents the entire agreement between Landlord and Tenant.

5.  Landlord does not hold any security deposit under the Lease

6.  The signatory below is authorized to execute this Estoppel Certificate on
    behalf of Landlord.

    Executed as an instrument under seal on __________, 20__.


                                        Very truly yours,


                                        -------------------------------
                                        Landlord



                                    EXHIBIT F

                          PLAN OF THE INTERIM PREMISES



                                    EXHIBIT G

RECORDING REQUESTED BY:


WHEN RECORDED, RETURN TO:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA  94301-1825
Attention.: Daniel K. Seubert, Esq.


                                 NOTICE OF LEASE

    THIS NOTICE OF LEASE is made as of the __ day of _______, 2002, by and
between ____________________________, a ______________________ ("Landlord"),
having offices at GSB Building, Suite 401, One Belmont Avenue, Bala Cynwyd, PA
19004, and 3Com Corporation, a Delaware corporation, having an office and place
of business at 5400 Bayfront Plaza, Santa Clara, CA 95052 ("Tenant").

                                   WITNESSETH:

    1. This is a Notice of Lease concerning a Lease entered into as of_______,
2002 between Landlord and Tenant (the "Lease"), pursuant to which, and subject
to the terms of which, Tenant has the right to occupy a portion of the
improvements (the "Premises") located on the real property situated in the Town
of Marlborough, Middlesex County, Massachusetts, as more particularly described
on Exhibit "A" attached hereto and made a part hereof, for a Term of
approximately four (4) years commencing on the date hereof.

    2. Tenant has ___ options to extend the Term of the Lease for a period of _
years each.

    3. The Term of the Lease shall expire at 11:59 p.m. (local time in
Massachusetts) on __________________, 2006, unless Tenant timely exercises the
option(s) to extend.

    4. The purpose of this Notice of Lease is to provide constructive notice of
the Lease and interested parties must refer to the Lease for a full statement of
the respective rights and obligations of the parties. This Notice of Lease shall
not be deemed to change, modify or otherwise affect any of the provisions of the
Lease.

    5. This Notice of Lease shall bind and or inure to the benefit not only of
Landlord and of Tenant, but also of their respective heirs, personal
representatives, successors or assigns,



provided this clause shall not permit any assignment by Tenant contrary to the
provisions of ARTICLE 14 of the Lease.

    IN WITNESS WHEREOF, Landlord has caused this instrument to be signed by its
duly authorized officer and Tenant has caused this instrument to be executed by
its duly authorized officer as of the day and year first above written.

                                        LANDLORD:

                                        ----------------------------
(CORPORATE SEAL)                            By:
Attest/Witness:                                    --------------------------

                                            By:
- ------------------------------                  -----------------------------
                                                   Name:
                                                   Title:

                                        TENANT:
                                        3Com Corporation

(CORPORATE SEAL)
Attest/Witness:
                                        By:
- ------------------------------              ------------------------------------
Name:                                       Name:
                                            Title:

                                        2


STATE OF __________________
                              SS.:
COUNTY OF _________________

    BE IT REMEMBERED, that on this _____ day of ______, 2002, before me, the
subscriber, a Notary Public of the State of ____________________personally
appeared _____________________________, who, being by me duly sworn on his oath,
does depose and make proof to my satisfaction that he is the ______________
Secretary of 3Com Corporation, the Tenant named in the foregoing Notice of
Lease; that _______________________ is ____President of said corporation; that
the execution of the foregoing Notice of Lease was duly authorized; and the seal
affixed to said instrument is the corporate seal and was thereto affixed and
said instrument signed and delivered by said __________________ President, as
and for his voluntary act and deed and as for the voluntary act and deed of said
corporation, in presence of deponent, who thereupon subscribed his name thereto
as witness.

Subscribed and sworn to
before me at ___________,
on the date aforesaid.


                                            --------------------------
                                            Secretary


- ---------------------------
Notary Public


(Notarial Seal)

                                        3


COMMONWEALTH OF ______________
                                        SS.:
COUNTY OF _________________

    BE IT REMEMBERED, that on this _____ day of ______, 2002, before me, the
subscriber, a Notary Public of the State of ____________________personally
appeared _____________________________, who, being by me duly sworn on his oath,
does depose and make proof to my satisfaction that he is the ______________ of
_____________________, the Landlord named in the foregoing Notice of Lease; that
_______________________ is ____of said limited liability company; that the
execution of the foregoing Notice of Lease was duly authorized; and the seal
affixed to said instrument is the corporate seal and was thereto affixed and
said instrument signed and delivered by said __________________ President, as
and for his voluntary act and deed and as for the voluntary act and deed of said
limited liability company, in presence of deponent, who thereupon subscribed his
name thereto as witness.

Subscribed and sworn to
before me at ___________,
on the date aforesaid.


                                            --------------------------
                                            Secretary


- ---------------------------
Notary Public


(Notarial Seal)

                                        4


                                    EXHIBIT H

                           PLAN OF ADDITIONAL PREMISES

EX-10.23

                                                                  Exhibit 10.23


                                3COM CORPORATION

                           DEFERRED COMPENSATION PLAN

              (AMENDED AND RESTATED EFFECTIVE AS OF JULY 15, 2003)

         THIS 3COM CORPORATION DEFERRED COMPENSATION PLAN (the "Plan") is
amended and restated effective as of July 15, 2003, by 3Com Corporation, a
California corporation ("3Com"), for the purpose of providing supplemental
retirement benefits to Company Executives and their beneficiaries in
consideration of services rendered to the Company and as an inducement for their
continued services in the future.

                                    ARTICLE I

                                   DEFINITIONS

         Whenever used herein, the masculine pronoun shall be deemed to include
the feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following definitions shall govern the Plan:

         1.1 "BENEFICIARY" means one, some, or all (as the context shall
require) of those persons, trusts or other entities entitled to receive benefits
which may be payable hereunder upon Executive's death as determined under
Article VI.

         1.2 "BENEFITS" means the amount(s) credited to Executive's Deferral
Account.

         1.3 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
3Com Corporation.

         1.4 "CODE" means the Internal Revenue Code of 1986, as amended.

         1.5 "COMMITTEE" means an independent Committee appointed by the
Compensation Committee of the Board to administer this Plan and to take such
other actions as may be specified herein.

         1.6 "COMPANY" means 3Com and any present or future parent corporation
or subsidiary corporation of 3Com which the Board determines should be included
in the Plan. For purposes of the Plan, a parent corporation and a subsidiary
corporation shall be as defined in sections 424(e) and 424(f) of the Code.

         1.7 "COMPANY CONTRIBUTION" 1.12 means a contribution made on behalf of
an Executive by the Company as specified in Section 3.5 hereof.

         1.8 "CREDITED INVESTMENT RETURN (LOSS)" means the hypothetical
investment return which shall be credited to the Executive's Deferral Account
pursuant to Article IV.





         1.9 "DEFERRAL ACCOUNT" means the book entry account established under
the Plan for each Executive to which shall be credited (debited) the Executive's
Salary Deferrals and the Company Contributions, if any, made pursuant to Article
III and the Executive's Credited Investment Return (Loss) determined under
Article IV and which shall be reduced by any distributions made to Executive and
any charges which may be imposed on such Deferral Account pursuant to the terms
of the Plan.

         1.10 "DISTRIBUTION DATE" means the date on which distribution of an
Executive's Benefits is made or commenced pursuant to Section 5.

         1.11 "EARLY BENEFIT DISTRIBUTION DATE" means the date elected by an
Executive for the early distribution of Benefits, as provided in Section 5.1(b).

         1.12 "EFFECTIVE DATE" means August 1, 1995.

         1.13 "ELECTION" means the form of Salary Deferral Election as may be
prescribed by the Committee and as may be modified from time to time.

         1.14 "EMPLOYMENT" means, in the case of an Executive who is an Outside
Director, such individual serving as a member of the Board, and for all other
Executives, employment.

         1.15 "ENTRY DATE" shall mean January 1 of each year.

         1.16 "EXECUTIVE" means a highly compensated or key management employee
of the Company, including Outside Directors, who has been designated by the
Committee as eligible to participate in this Plan and who has elected to
participate in the Plan by executing a Salary Deferral Election or who receives
a Company Contribution pursuant to Section 3.5 hereof.

         1.17 "INITIAL ENTRY DATE" shall mean the first day of the month
following the date an Executive is first designated as eligible to participate
in the Plan, or, if later, the Effective Date. Notwithstanding the foregoing, if
an Executive is an Outside Director, such Executive's Initial Entry Date may not
be prior to January 1, 2003.

         1.18 "OUTSIDE DIRECTOR" shall mean a director who is not otherwise
employed by the Company.

         1.19 "PLAN" shall mean this 3Com Corporation Deferred Compensation
Plan, as it may be amended from time to time.

         1.20 "PLAN YEAR" means the calendar year.

         1.21 "SALARY DEFERRAL AMOUNT" means the Salary Deferral Amount which
Executive elects to contribute pursuant to Article III.

         1.22 "TERMINATION EVENT" means the termination of the Executive's
Employment with the Company for any reason, the Executive's death or Total
Disability. Notwithstanding the foregoing,


                                                                            -2-



the change of status of an Outside Director to that of an employee of the
Company shall not be considered a Termination Event.

         1.23 "3COM" means 3Com Corporation, a California corporation.

         1.24 "TOTAL DISABILITY" means the inability of the Executive to engage
substantially in his or her normal duties for the Company on account of physical
or mental impairment for a period of at least one (1) year. A Total Disability
shall not occur for purposes of this Plan until the end of the one (1) year
period of disability.

         1.25 "TRUST" means the legal entity created by the Trust Agreement.

         1.26 "TRUST AGREEMENT" means that trust agreement entered into between
3Com and Charles Schwab Trust Company, a copy of which is attached hereto as
EXHIBIT A, as it may be amended from time to time.

         1.27 "TRUSTEE" means the original Trustee(s) named in the Trust
Agreement and any duly appointed successor to successors thereto.

                                   ARTICLE II

                                   ELIGIBILITY

         2.1 ELIGIBILITY. Eligibility for participation in the Plan shall be
limited to key management or highly compensated employees of the Company,
including Outside Directors, who are selected by the Committee, in its sole
discretion, to participate in the Plan. Individuals who are in this select group
shall be notified as to their eligibility to participate in the Plan.

         2.2 COMMENCEMENT OF PARTICIPATION. An Executive may begin participation
in the Plan upon Executive's Initial Entry Date or any Entry Date thereafter,
subject to the submission of a Salary Deferral Election pursuant to Article III.
The Salary Deferral Election must be returned to the Company in advance of the
Executive's Initial Entry Date or Entry Date in accordance with such rules and
procedures as may be established by the Committee. An Executive may also begin
participation in the Plan without submitting a Deferral Election upon the date
on which a Company Contribution is made pursuant to Section 3.5 hereof.

         2.3 CESSATION OF PARTICIPATION. Active participation in the Plan shall
end when an Executive's Employment terminates for any reason. No contributions
to the plan shall be made with respect to compensation paid after such
termination date. Upon termination of Employment or discontinuance of all Salary
Deferrals, an Executive shall remain an inactive participant in the Plan until
all of the Benefits to which he or she is entitled thereunder have been paid in
full.


                                                                            -3-



                                   ARTICLE III

         SALARY AND BONUS DEFERRAL CONTRIBUTIONS; COMPANY CONTRIBUTIONS

         3.1 SALARY DEFERRALS.

             (a) As of the Executive's Entry Date through and until the time
that Executive elects otherwise in accordance with the provisions of Sections
3.1(b) and 3.1(c), the Executive agrees to irrevocably reduce his or her salary
by the amount (or percentage) set forth in a Salary Deferral Election duly
executed and filed with the Company (the "Salary Deferral Amount"), subject,
however, to the provisions of Section 3.4 below. The Salary Deferral Amount
shall not be paid to the Executive, but shall be withheld from the Executive's
salary and an amount equal to the Salary Deferral Amount shall be credited to
the Executive's Deferral Account.

             (b) The Executive may, at any time, amend his or her Salary
Deferral Election to cease salary deferrals pursuant to the Plan, upon written
notice to the Committee. Any such amendment shall be in such form as the
Committee may specify and shall be effective on the first day of the next month
following the date such amendment is made, provided the amendment is filed prior
to such effective date in accordance with such rules as the Committee may
establish.

             (c) The Executive may amend his or her Salary Deferral Election to
increase or decrease (other than a complete cessation) his or her Salary
Deferral Amount. Any such amendment shall be in writing or on such form as the
Committee may specify and shall be effective on the first day of the next Plan
Year following the date such amendment is made, provided the amendment is filed
prior to such date in accordance with such rules as the Committee may establish.

             (d) Except as otherwise provided in Sections 3.1(b) and 3.1(c)
above and subject to the provisions of Sections 5.3 and 5.4, below, the
Executive's Election to reduce his or her salary shall continue in effect until
the occurrence of a Termination Event.

             (e) Any such Salary Deferral Election or amended Salary Deferral
Election shall apply only to salary earned after the effective date of such
Salary Deferral Election.

         3.2 SALARY DEFINED. For the purpose of determining an Executive's
Salary Deferral Amount, "salary" shall mean, in the case of an Outside Director,
such Executive's annual retainer and meeting fees, and in the case of all other
Executives, such Executive's base salary, commissions and the annual bonus, if
any, paid to the Executive.

         3.3 LIMITATIONS ON DEFERRALS. A Participant's Salary Deferral Amount
shall be limited as follows:

             (a) The Salary Deferral Amount elected by the Executive shall be
reduced by the amount(s), if any, which may be necessary

                 (i) To satisfy all applicable income and employment tax
withholding and FICA contributions;


                                                                            -4-



                 (ii) To pay all contributions elected by the Executive pursuant
to 3Com's employee stock purchase plan, and other fringe benefit programs; and

                 (iii) To satisfy all garnishments or other amounts required to
be withheld by applicable law or court order.

             (b) Any withholding or salary deferral elections made under 3Com's
401(k) Plan shall be determined based on the Executive's compensation after
reduction for the Salary Deferrals made pursuant to the Plan.

         3.4 NO WITHDRAWAL. Except as provided in Sections 5.3 and 5.4 below,
the Deferral Amounts may not be withdrawn by Executive and shall be paid only in
accordance with the provisions of this Plan.

         3.5 COMPANY CONTRIBUTIONS. The Company may, in its sole discretion,
make a Company Contribution to a Deferral Account on behalf of an Executive,
subject to such vesting and distribution conditions and limitations as the
Company, in its sole discretion, shall impose. To the extent such Company
Contributions do not vest, corresponding debits will be made to a Participant's
account, including any earnings on such forfeited amounts. To the extent such
Company Contributions do vest, or otherwise become subject to employment taxes,
a debit equal to the amount of any related employee-side employment taxes
remitted by the Company shall be made to a Participant's account.

                                   ARTICLE IV

             CREDITED INVESTMENT RETURN (LOSS) ON DEFERRAL ACCOUNTS

         4.1 DEFERRAL ACCOUNT.

             (a) A Deferral Account shall be established and maintained for each
Executive which shall be credited (debited) with such Executive's Salary
Deferral Amounts, Company Contributions (if any) and the Credited Investment
Return (Loss) as determined under this Article IV. The Executive's Deferral
Account shall be charged with distributions therefrom and any charges which may
be imposed on the Deferral Account pursuant to the terms of the Plan.

         4.2 CREDITED INVESTMENT RETURN (LOSS).

             (a) Each Executive's Deferral Account shall be credited monthly, or
more frequently as the Committee may specify, with the Credited Investment
Return (Loss) attributable to his or her Deferral Account. The Credited
Investment Return (Loss) is the amount which the Executive's Deferral Account
would have earned if the amounts credited to the Deferral Account had, in fact,
been invested in the Deemed Investment Options, in accordance with the
Executive's Deemed Investment Elections.

             (b) The Committee shall designate Deemed Investment Options. The
Committee shall specify the particular funds which shall constitute Deemed
Investment Options, and may, in its


                                                                            -5-



sole discretion, change or add to the Deemed Investment Options; provided,
however, that the Committee shall notify Executives of any such change prior to
the effective date thereof.

         4.3 DEFERRED INVESTMENT OPTIONS. Each Executive may select among the
Deemed Investment Options and specify the manner in which his or her Deferral
Account shall be deemed to be invested for purposes of determining Executive's
Credited Investment Return (Loss) (the "Deemed Investment Election"). The
Committee shall establish and communicate the rules, procedures and deadlines
for making and changing Deemed Investment Elections.

                                    ARTICLE V

                                    BENEFITS

         5.1 (a) TIMING OF DISTRIBUTION. The amounts credited to Executive's
Deferral Account shall be paid (or payment shall commence) within a reasonable
time after the earlier to occur of (i) the Early Benefit Distribution Date, if
the Executive elected an Early Benefit Distribution, or (ii) a Termination
Event.

             (b) EARLY BENEFIT DISTRIBUTION.

                 (i) Executive may elect an Early Benefit Distribution. Such
Early Benefit Distribution Election shall be made on Executive's initial Salary
Deferral Election or in such other manner as the Committee shall specify. Such
Early Benefit Distribution Election shall specify an Early Benefit Distribution
Date which shall be no less than one year from the date such Early Benefit
Distribution Election is made. Except as otherwise provided in this Article V,
the Early Benefit Distribution shall be irrevocable and shall apply to all
Salary Deferrals made by Executive under the Plan.

                 (ii) An Executive may amend or revoke an Early Benefit
Distribution Election by filing a written amendment or revocation at least
twelve months prior to the earlier of (A) the Early Benefit Distribution Date
previously elected; and, in the case of an amendment, (B) the date distribution
of Executive's Benefit under the Plan are to be made or commenced after giving
effect to such Early Benefit Distribution Election amendment. Only one such
amendment or revocation may be made by an Executive.

             (c) TERMINATION EVENT. The Executive's Benefits shall be
distributed, or distribution shall commence, upon Executive's termination of
Employment with the Company, death or Total Disability, if the Executive does
not have an Early Benefit Distribution Election in effect, or if such
Termination Event occurs prior to the Executive's Early Benefit Distribution
Date.

         5.2 (a) METHOD OF DISTRIBUTION. An Executive's Deferral Accounts shall
be paid in one of the following methods specified in his or her most recent
Election filed with the Committee at least six (6) months prior to the
Distribution Date: (i) a single lump sum payment; or (ii) substantially equal
annual installments over a period not to exceed five (5) years.

             (b) DISTRIBUTION ELECTION. The Executive may designate the method
of distribution ("Distribution Election") on any Salary Deferral Election filed
pursuant to the Plan and may amend


                                                                            -6-



any such Distribution Election by filing a new Distribution Election in writing
or on such form as the Committee may prescribe at least six (6) months prior to
the distribution (or commencement of distribution) of Benefits. However, any
amendment which is filed within six (6) months of the Distribution Date shall be
null and void.

             (c) DEATH BENEFITS. In the event the Executive dies before his or
her Benefits have been fully distributed, the Executive's benefits shall be paid
to his or Beneficiary in accordance with Executive's Distribution Election.

             (d) NON-ELECTION. If no Distribution Election has been properly
made prior to the Distribution Date, the Executive's Benefits will be
distributed in a single lump sum.

         5.3 FINANCIAL HARDSHIP. Notwithstanding the foregoing, with the consent
of the Committee, an Executive may withdraw up to one hundred percent (100%) of
the amount credited to his or her Deferral Account as may be required to meet
unforeseeable emergency of the Executive, provided that the entire amount
requested by the Executive is not reasonably available from other resources of
the Executive.

             (a) The withdrawal must be necessary to satisfy the unforeseeable
emergency and no more may be withdrawn from the Executive's Deferral Account
than is required to relieve the financial need after taking into account other
resources that are reasonably available to the Executive for this purpose.

             (b) The Executive must certify that the financial need cannot be
relieved: (i) through reimbursement or compensation by insurance or otherwise;
(ii) by reasonable liquidation of the Executive's assets, to the extent such
liquidation would not itself cause an immediate and heavy financial need; (iii)
by discontinuing the Executive's Salary Deferrals; or (iv) by borrowing from
commercial sources on reasonable commercial terms.

             (c) An Executive shall be prohibited from making any further Salary
Deferrals pursuant to the Plan for the remainder of the Plan Year in which a
withdrawal occurs pursuant to this Section 5.3.

         5.4 EARLY WITHDRAWAL. Notwithstanding any other provision of the Plan,
the Executive may withdraw up to ninety percent (90%) of the amount credited to
the Executive's Deferral Account and the amount so withdrawn shall be paid in a
single lump sum. Upon such withdrawal, the remaining ten percent (10%) of the
Executive's Deferral Account shall be forfeited and the Executive shall have no
further right thereto. An Executive shall be prohibited from making any further
Salary Deferrals pursuant to the Plan for the remainder of the Plan Year in
which a withdrawal occurs pursuant to this Section 5.4.

         5.5 TAX WITHHOLDING. All payments under this Article V shall be subject
to all applicable withholding for state and federal income tax and to any other
federal, state or local tax which may be applicable thereto.


                                                                            -7-



                                   ARTICLE VI

                                  BENEFICIARIES

         6.1 DESIGNATION OF BENEFICIARY. The Executive shall have the right to
designate on such form as may be prescribed by the Committee, a Beneficiary to
receive any Benefits due under Article V which may remain unpaid at the
Executive's death and shall have the right at any time to revoke such
designation and to substitute another such Beneficiary.

         6.2 NO DESIGNATED BENEFICIARY. If, upon the death of the Executive,
there is no valid designation of Beneficiary, the Beneficiary shall be the
Executive's estate.

                                   ARTICLE VII

                        TRUST OBLIGATION TO PAY BENEFITS

         7.1 DEFERRALS HELD IN TRUST. An amount equal to Salary Deferral Amounts
of the Executive shall be transferred to the Trustee within thirty (30) days
after the applicable pay period to be held pursuant to the terms of the Trust
Agreement.

         7.2 BENEFITS PAID FROM TRUST. All benefits payable to Executive
hereunder shall be paid by the Trustee to the extent of the assets held in the
Trust by the Trustee, and by the Company to the extent the assets in the Trust
are insufficient to pay an Executive's Benefits as provided under this Plan.

         7.3 TRUSTEE INVESTMENT DISCRETION. The Deemed Investment Options shall
be for the sole purpose of determining the Credited Investment Return (Loss) and
neither the Trustee nor the Company shall have any obligation to invest the
Executives' Salary or Bonus Deferrals in the Deemed Investment Options or in any
other investment.

         7.4 NO SECURED INTEREST. Except as otherwise provided by the Trust
Agreement, the assets of the Trust, shall be subject to the claims of creditors
of the Company and neither any Executive nor any Beneficiary shall have any
legal or equitable interest in such assets or policies, or any other asset of
the Company. The Executive is a general unsecured creditor of the Company with
respect to the promises of the Company made herein, except as otherwise
expressly provided by the Trust Agreement.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         8.1 The right of any Executive, any Beneficiary, or any other person to
the payment of any benefits under this Plan shall not be assigned, transferred,
pledged or encumbered.

         8.2 This Plan shall be binding upon and inure to the benefit of the
Company, its successors and assigns and the Executive and his or her heirs,
executors, administrators and legal representatives.


                                                                            -8-



         8.3 Nothing contained herein shall be construed as conferring upon any
Executive the right to continue in the employ of the Company as an employee.

         8.4 If the Company, the Executive, any Beneficiary, or a successor in
interest to any of the foregoing, brings legal action to enforce any of the
provisions of this Plan, the prevailing party in such legal action shall be
reimbursed by the other party, the prevailing party's costs of such legal action
including, without limitation, reasonable fees of attorneys, accountants and
similar advisors and expert witnesses.

         8.5 Any dispute or claim relating to or arising out of this Plan shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Santa Clara County, California.

         8.6 This Plan shall be construed in accordance with and governed by the
laws of the State of California.

         8.7 This Plan constitutes the entire understanding and agreement with
respect to the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations or warranties among any Executive
and the Company other than those as set forth or provided for herein.

         8.8 (a) This Plan may be amended by 3Com at any time in its sole
discretion by resolution by its Board; provided, however, that no amendment may
be made which would alter the irrevocable nature of an Election or which would
reduce the amount credited to an Executive's Deferral Account on the date of
such amendment; and provided further that no amendment which would affect the
Trustee's obligation may be made without the Trustee's consent.

             (b) Notwithstanding the foregoing paragraph or any other provision
in this Plan to the contrary, 3Com reserves the right to terminate the Plan in
its entirety at any time upon fifteen (15) days notice to the Executives. If the
Plan is terminated, all benefits shall be paid pursuant to the provisions of
Section 5.2(a) as if such Executive had voluntarily terminated Employment on the
date of Plan termination. Any amounts remaining in the Trust after all benefits
have been paid shall revert to the Company.

         IN WITNESS WHEREOF, 3Com has caused this Plan to be amended and
restated by a duly authorized officer effective as of July 15, 2003. This Plan
was originally effective as of the Effective Date.

                                        3COM CORPORATION



                                        By:
                                           ------------------------------------



                                                                            -9-

EX-21.1

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Exhibit 21.1

3COM CORPORATION SUBSIDIARIES

3Com (Austria) GesmbH (Austria)
3Com (Schweiz) A.G. (Switzerland)
3Com (Thailand) Co. Ltd. (Thailand)
3Com (U.K.) Limited (United Kingdom)
3Com Asia Limited (Hong Kong)
3Com Asia Networking Investment Ltd. (Cayman Islands)
3Com Asia Pacific Rim PTE Limited (Singapore)
3Com Australia Pty. Ltd. (Australia)
3Com Benelux B.V. (The Netherlands)
3Com Bilgisayer Ticaret A.S. (Turkey)
3Com Bulgaria EOOD (Bulgaria)
3Com Canada Inc. (Toronto)
3Com Capital Corporation (California, U.S.A.)
3Com China Holdings Ltd. (Cayman Islands)
3Com China WOFE Holdings Ltd. (Cayman Islands)
3Com Costa Rica S.A. (Costa Rica)
3Com de Chile S.A. (Chile)
3Com de Mexico, S.A. de C.V. (Mexico)
3Com Denmark AS (Denmark)
3Com do Brasil Servicos Ltda. (Brazil)
3Com Europe Limited (United Kingdom)
3Com GmbH (Germany)
3Com Holdings Limited (Cayman Islands)
3Com Holdings SAS (France)
3Com Hungary Kft (Hungary)
3Com Iberia S.A. (Spain)
3Com IFSC (Ireland)
3Com India Pte. Ltd. (India)
3Com International (New Zealand) Limited (New Zealand).
3Com International, Inc. (Delaware, U.S.A.)
3Com Ireland Ltd. (Ireland)
3Com Ireland Technologies Limited (Cayman Islands)
3Com Israel Limited (Israel)
3Com Italia S.p.A. (Italy)
3Com Japan K.K. (Japan)
3Com Korea Limited (Korea)
3Com Nordic AB (Sweden)
3Com Pension Scheme (1996) Trustees Limited (United Kingdom)
3Com Philippines Inc. (Philippines)
3Com Polska sp. z.o.o. (Poland)
3Com S.A.S. (France)
3Com Slovakia spol. s.r.o. (Slovakia)
3Com South Asia PTE. Ltd. (Singapore)
3Com Technologies (Cayman Islands)
3Com U.K. Holdings Limited (United Kingdom)
3Com Ventures, Inc. (Delaware, U.S.A.)
Chipcom International, Inc. (Delaware, U.S.A.)
Chipcom KK Ltd. (Japan)
CommWorks Carrier Systems Corporation (Delaware, U.S.A.)
Computer Telephone Integration Systems, Inc. (Delaware, U.S.A.)
Lansource Technologies Company (Canada)
Lanworks Holdings, Inc. (Delaware, U.S.A)
Lanworks Technologies Inc.(Canada)
OOO 3Kom (Russia)
Sacramento Closing Corporation (California, U.S.A)
Three C Morocco SARL (Morocco)
U.S. Robotics Holdings Europe B.V. (Netherlands)

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3COM CORPORATION SUBSIDIARIES

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 33-92053, 33-2171, 33-17848 (Post-Effective Amendment No. 1), 33-33803, 33-33807, 33-39323, 33-36911, 33-45176, 33-45231, 33-45233, 33-56952, 33-58708, 33-72158, 033-55265 (Post-Effective Amendment No. 1), 033-60379, 033-63547, 333-11639, 333-15923, 333-29099, 333-70459, 333-74371, 333-34726, 333-44508, 333-50992, 333-59504, 333-64988, 333-76764 and 333-109983 of 3Com Corporation on Form S-8 of our report dated July 19, 2004 (which expresses an unqualified opinion and includes an explanatory paragraph related to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"), appearing in this Annual Report on Form 10-K of 3Com Corporation for the year ended May 28, 2004.

DELOITTE & TOUCHE LLP

Boston, Massachusetts
August 5, 2004

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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Exhibit 31.1

Certification of Principal Executive Officer

I, Bruce L. Claflin, certify that:

1.

I have reviewed this annual report on Form 10-K 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(s) 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)) 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)

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

(c)

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(s) 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:	August 5, 2004
		/s/  BRUCE L. CLAFLIN Bruce L. Claflin President and Chief Executive Officer

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Certification of Principal Executive Officer

EX-31.2

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Exhibit 31.2

Certification of Principal Financial Officer

I, Mark Slaven, certify that:

1.

I have reviewed this annual report on Form 10-K 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(s) 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)) 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)

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

(c)

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(s) 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:	August 5, 2004
		/s/  MARK SLAVEN Mark Slaven Executive Vice President, Finance and Chief Financial Officer

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Certification of Principal Financial Officer

EX-32.1

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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, Bruce L. Claflin, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of 3Com Corporation on Form 10-K for the fiscal year ended May 28, 2004 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 Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of 3Com Corporation.

Date:	August 5, 2004	By:	/s/  BRUCE L. CLAFLIN
			Name:	Bruce L. Claflin
			Title:	President and Chief Executive Officer

I, Mark Slaven, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of 3Com Corporation on Form 10-K for the fiscal year ended May 28, 2004 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 Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of 3Com Corporation.

Date:	August 5, 2004	By:	/s/  MARK SLAVEN
			Name:	Mark Slaven
			Title:	Executive Vice President, Finance and Chief Financial Officer

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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