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FILED UNDER RULE 424(b)(3)
REGISTRATION STATEMENT NO. 333-06137
PROSPECTUS SUPPLEMENT
TO
PROSPECTUS DATED JULY 11, 1996
OF
CASCADE COMMUNICATIONS CORP.
This Prospectus Supplement supplements the Prospectus dated July 11, 1996
(the "Prospectus") of Cascade Communications Corp. ("Cascade" or the "Company")
relating to the resale of up to 3,176,566 shares of the Company's Common Stock,
par value $.001 per share (the "Common Stock"), which Prospectus was filed as a
part of the Company's Registration Statement on Form S-3 (Registration No.
333-06137).
The date of this Prospectus Supplement is February 12, 1997
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THE COMPANY
Cascade develops, manufactures, markets and supports a family of high
performance, multi-service wide area network switches that enable public service
providers and private network managers to provide cost-effective, high-speed
data, video and voice communications services to end users. Wide area networks
("WAN") built on Cascade's switches are designed to support one or more of the
major broadband packet communications protocols and services, including Frame
Relay, Internet Protocol ("IP"), Switched Multi-Megabit Data Service ("SMDS")
and Asynchronous Transfer Mode ("ATM"). Users or other networking devices access
the Company's products over a variety of media, including twisted pair, coaxial
and fiber optic leased line facilities; analog modem and Integrated Services
Digital Network ("ISDN") dial facilities; and wireless facilities.
The rapid growth in the number of personal computers, workstations and
end-user applications has led to the extensive deployment of local area networks
("LANs") in corporate environments. As these LAN-based users needed to
communicate with users at other sites, corporations installed bridges and
multiprotocol routers to interconnect them across WANs.
Traditional WAN architectures to connect these LANs across wide area
networks were based on time division multiplexing ("TDM") technology. TDM
products were optimized for fixed path, fixed bandwidth applications, such as
voice and low volume transaction processing data. However, they were not well
suited for the dynamic, high bandwidth communications of LAN-based data coming
from PCs and workstations. Although vendors of TDM products have provided
upgrade modules to support the newer data and video traffic, these older
architectures are unable to scale to accommodate the tremendous growth in the
data traffic as well as support the dynamic nature of this communication. As
such, a new generation of wide area network technologies has been developed to
address these needs, including Frame Relay, SMDS and ATM.
Cascade pioneered the concept of utilizing a single, powerful switching
platform to simultaneously support the major broadband packet communications
services, including Frame Relay, SMDS and ATM. Cascade's multi-service,
standards-based products enable public service providers and private network
managers to select the transmission services with the cost and performance
attributes that best fit the end user's requirements, without requiring them to
build multiple separate specialized networks. In addition to addressing the
requirements of providing services for internal communications needs, Cascade's
Frame Relay and ATM product offerings are deployed in numerous Internet access
provider networks.
With the acquisition of Arris Networks, Inc. in May 1996, Cascade now
offers a wide range of options to access its broadband network switches,
including twisted pair, coaxial and fiber optic leased line facilities; analog
modem and ISDN dial facilities; and wireless facilities
The Company offers four product families of wide area network switches: the
STDX 6000, the B-STDX(TM) 8000 and 9000, the CBX 500, and the AX 800 and 1600.
The Company also offers CascadeView/DOS and CascadeView UX software for the
management and control of all of its WAN products. In addition to the integrated
management application, CascadeView, the Company began shipping in 1996 a series
of management servers which allow network service providers to continue to scale
the management of their networks just as they scale the connectivity to these
networks.
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The Company markets its products and services directly to public service
providers, including Interexchange Carriers, Local Exchange Carriers, and
Regional Bell Operating Companies ("RBOCs")and Competitive Access Providers in
the United States, Postal Telephone and Telegraph and Other Licensed Operators
internationally, and Internet Service Providers ("ISPs") and Value Added Network
providers worldwide. The Company's products and services are also sold to
private network managers on a worldwide basis either directly or via partners of
the Company, including original equipment manufacturers, system integrators and
international distributors.
The Company was incorporated in Delaware in 1990 under the name Nexgencom
Corporation and changed its name to Cascade Communications Corp. in August 1991.
The Company's principal executive offices are located at 5 Carlisle Road,
Westford, Massachusetts 01886, and its telephone number at that location is
(508) 692-2600.
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RISK FACTORS
In addition to the other information presented in this Prospectus and the
information incorporated in this Prospectus by reference, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby.
DIFFICULTY OF INTEGRATING ACQUIRED BUSINESSES. In addition to the Company's
acquisition of Sahara, the Company consummated an acquisition in May 1996. There
can be no assurance that products, technologies, distribution channels, key
personnel and businesses of acquired companies will be successfully integrated
into the Company's business or product offerings, or that such integration will
not adversely affect the Company's business, financial condition or results of
operations. There can be no assurance that any acquired products, technologies
or businesses will contribute significantly to the Company's sales or earnings,
that the sales and earnings from acquired businesses will not be adversely
affected by the integration process or other factors. If the Company is not
successful in the integration of such acquired businesses, there could be an
adverse impact on the financial results of the Company. The historical growth of
the computer networking industry, coupled with critical time-to-market factors,
has caused increased competition and consolidation. As a result, there has been
a significant increase in the acquisition value of computer networking
companies. Therefore, acquisitions are more likely to result in values that are
material to the Company's operations. There can be no assurance that the Company
will continue to be able to identify and consummate suitable acquisition
transactions in the future.
FLUCTUATIONS IN REVENUE AND OPERATING RESULTS. The growth rates recently
experienced by the Company are not necessarily indicative of the operating
results for any future periods. The Company's operating results may fluctuate as
a result of a number of factors, including the timing of orders from, and
shipments to, customers; the timing of new product introductions and the market
acceptance of those products; increased competition; changes in manufacturing
costs; changes in the mix of product sales; the rate of end user adoption and
carrier and private network development of WAN data communications services;
factors associated with international operations; and changes in world economic
conditions.
EVOLVING MARKET. The Company's success will depend in part on the growth in
the broadband packet equipment market. The market for these services continues
to evolve, and there are a number of competing technologies providing these
services. Regulatory policies affecting the telecommunications industry in the
United States and internationally are likely to continue to have a significant
impact on pricing and demand for both voice and data communications products and
services. There can be no assurance whether, and at what rate, end user demand
will develop for these services or that public carriers or private networks will
continue to adopt the Company's products and technology to implement these
services.
MANAGEMENT OF GROWTH. The Company is currently experiencing a period of
rapid growth which has placed, and could continue to place, a significant strain
on the resources. In order to support the growth of its business, the Company
plans to significantly expand its level of operations during 1997. If the
Company's management is unable to manage growth effectively, the Company's
operating results could be adversely affected.
DEPENDENCE ON KEY EMPLOYEES. The Company's success depends to a significant
degree upon the continuing contributions of its key management, sales,
marketing, research and development and manufacturing personnel, many of whom
would be difficult to replace. The Company does not have employment contracts
with its key personnel. The Company believes that its future success will depend
in large part upon its ability to attract and retain highly-skilled hardware and
software engineers, and
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management, sales and marketing personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. Failure to attract and retain key
personnel could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION. The market for wide area network and remote access
communications products is intensely competitive and is subject to rapid
technological change. The Company expects competition to increase significantly
in the future from existing competitors and a number of companies which may
enter the Company's existing or future markets. In addition to competition from
other switch and remote access providers, the Company expects to face
competition from other vendors in the networking market such as network router
vendors, who may incorporate switching functionality into their products or
provide alternative network solutions. Increased competition could adversely
affect the Company's revenue and profitability through price reductions and loss
of market share. The principal competitive factors in the market for switching
products are breadth of network services supported, conformance to industry
standards, price per port, performance, product features, network management
capabilities, reliability and customer support. Many of the Company's current
and potential competitors have longer operating histories and substantially
greater financial, technical, sales and marketing resources than the Company.
There can be no assurance that the Company will be able to continue to compete
successfully with its existing competitors or will be able to compete
successfully with new competitors.
THIRD PARTY MANUFACTURING. The Company relies on a variety of independent
third party assembly companies to perform printed circuit board assembly, in
circuit test and product repair. There can be no assurance that in the future
the Company's independent contractors will be able to meet the Company's demand
for manufacturing capacity in a cost-effective manner. In the event that the
Company's subcontractors were to experience financial, operational, production
or quality assurance difficulties that resulted in a reduction or interruption
in supply to the Company, the Company's operating results would be adversely
affected until the Company established sufficient manufacturing supply from
alternative sources.
DEPENDENCE ON SOLE SOURCE SUPPLIERS. Some key components of the Company's
products are currently available only from single sources. There can be no
assurance that in the future the Company's suppliers will be able to meet the
Company's demand for components in a timely and cost-effective manner. The
Company generally purchases these single or limited source components pursuant
to purchase orders and has no guaranteed supply arrangements with the suppliers.
In addition, the availability of many of these components to the Company is
dependent in part on the ability of the Company or its subcontractors to provide
the suppliers with accurate forecasts of future requirements. The Company has
generally been able to obtain adequate supplies of parts and components in a
timely manner from existing sources. The Company's operating results and
customer relationships could be adversely affected by either an increase in
prices for, or an interruption or reduction in supply of, any key components.
TECHNOLOGICAL CHANGE. The market for the Company's products is
characterized by rapidly changing technology, evolving industry standards,
emerging network architectures, and frequent new product introductions. Current
competitors or new market entrants may develop new products with features that
could adversely affect the competitive position of the Company's products. There
can be no assurance that the Company will be successful in selecting,
developing, manufacturing and marketing new products or enhancing its existing
products or that the Company will be able to respond effectively to
technological changes, new standards or product announcements by competitors.
The timely availability of new products and enhancements, and their acceptance
by customers are important to the
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future success of the Company. Delays in such availability or a lack of market
acceptance could have an adverse affect on the Company.
CUSTOMER CONCENTRATION. The Company's customer base is highly concentrated
among a limited number of large customers, many of whom generally require
product vendors to comply with rigorous industry standards. Any failure to
comply with such standards may result in a significant loss or reduction of
sales. The Company has diversified its customer base over time; however, in
recent periods, certain customers have accounted for over 10% of the Company's
revenue. In 1995, sales to the Company's two largest customers in that year
accounted for approximately 17% and 12% of revenue. In 1994, sales to the
Company's two largest customers in that year accounted for approximately 12% and
11% of revenue. No other customer accounted for 10% or more of revenue in any
such year. There can be no assurance that these customers will place additional
orders, or that the Company will obtain orders of similar magnitude from other
customers. A decline in demand from public network carriers would have an
adverse effect on the Company's operating results.
INTERNATIONAL OPERATIONS. International sales (sales to customers outside
the United States, both direct and indirect) accounted for approximately 16% and
20% of the Company's revenue in 1995 and 1994, respectively, and approximately
21% of the Company's revenue in the first nine months of 1996. The Company
anticipates that international sales will continue to account for a significant
portion of revenue. The Company's international sales are subject to risks
inherent in foreign operations including unexpected changes in regulatory
requirements, tariffs or other barriers and potentially negative tax
consequences. In addition, sales of the Company's products in international
markets are heavily dependent on third-party distribution channels. To date, the
Company's international sales have been denominated in U.S. currency; however,
if this were to change, the Company would be subject to exchange rate
fluctuations.
UNCERTAINTIES REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.
The Company's success will depend, to a large extent, on its ability to protect
its proprietary technology. The Company has a number of patent applications that
are currently pending for certain of its existing products and currently relies
on a combination of contractual rights, trade secrets and copyrights to protect
its proprietary rights. Although the Company intends to apply for additional
patents in the future, there can be no assurance that the Company's intellectual
property protection will be sufficient to prevent competitors from developing
similar technology. Moreover, in the absence of patent protection, the Company's
business may be adversely affected by competitors that independently develop
functionally equivalent technology. The Company currently licenses certain
hardware and software technology from third parties and plans to continue to do
so in the future. The Company attempts to ensure that its products and processes
do not infringe patents and other proprietary rights, but there can be no
assurance that such infringement may not be alleged by third parties in the
future. If infringement is alleged, there can be no assurance that the necessary
licenses would be available on acceptable terms, if at all, or that the Company
would prevail in any such challenge.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's
Common Stock has increased significantly since the Company's initial public
offering in July 1994, and has experienced fluctuations during this period. The
market price of the Company's Common Stock has been, and may continue to be,
extremely volatile. The trading price of the Company's Common Stock could be
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, changes in earnings estimates by analysts, announcements of
technological innovations or new products by the Company or its competitors,
challenges associated with integration of businesses and other events or
factors. In addition, the stock market has from time to time experienced extreme
price and volume fluctuations
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which have particularly affected the market price for many high technology
companies and which often have been unrelated to the operating performance of
these companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock.
EFFECT OF ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation, as amended, and Amended and
Restated By-laws could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock. Certain of such provisions allow the Company to issue Preferred
Stock with rights senior to those of the Common Stock and impose various
procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions. The Company's Board of
Directors is divided into three classes, each of which serves for a staggered
three-year term. Such staggered Board may make it more difficult for a third
party to gain control of the Company's Board of Directors.
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