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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number 0-24156
FORE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1628117
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
174 THORN HILL ROAD, WARRENDALE, PENNSYLVANIA 15086-7586
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 772-6600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None Not applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
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 [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [ ]
As of May 31, 1996, the aggregate market value of voting common stock held
by non-affiliates of the registrant, based upon the last reported sale price
for the registrant's Common Stock on the Nasdaq National Market on such date,
as reported in The Wall Street Journal, was $2,967,497,492 (calculated by
excluding shares owned beneficially by directors and executive officers as a
group from total outstanding shares solely for the purpose of this response).
The number of shares of the registrant's Common Stock outstanding as of the
close of business on May 31, 1996 was 89,148,176 (shares have been
retroactively adjusted for the two-for-one Common Stock split effected in the
form of a Common Stock dividend paid on June 3, 1996 to stockholders of record
on May 20, 1996).
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement of FORE Systems, Inc.
(the "Company") to be furnished in connection with the solicitation of proxies
by the Company's Board of Directors for use at the 1996 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference into Part
III of this Annual Report on Form 10-K to the extent provided herein. Except as
specifically incorporated by reference herein, the Proxy Statement is not to be
deemed filed as part of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
FORE Systems, Inc. (the "Company" or "FORE Systems") is a leader in the
design, development, manufacture and sale of high-performance networking
products based on Asynchronous Transfer Mode ("ATM") technology. ATM provides
dramatically greater speed and total capacity than conventional networking
technologies. ATM improves the performance of today's network applications, and
also enables new applications that integrate video, audio and data
communications. The Company believes that it currently offers the most
comprehensive ATM product line available, including ForeRunner(R) ATM switches
and adapter cards, PowerHub(R) local area network ("LAN") switches for ATM
connectivity, CellPath(TM) wide area network ("WAN") multiplexing products for
WAN access, ForeThought(TM) internetworking software and ForeView(TM) network
management software.
The Company's networking products enable customers to connect computers to
form clusters, workgroups and LANs, to build backbones for enterprise-wide
networks and to provide transparent, end-to-end LAN and WAN connectivity. The
Company's networking products are designed to be both flexible and scalable,
allowing customers to increase the capacity and extend the utility of their
existing networks or to install a new ATM-based network. As of March 31, 1996,
the Company had delivered networking solutions to approximately 2,000 customers,
including Fortune 500 companies, telecommunications service providers,
government agencies, research institutions and universities. The Company
markets its products internationally, and sales outside the United States
accounted for approximately 39%, 35% and 35% of FORE Systems' revenue for the
years ended March 31, 1996, 1995 and 1994, respectively.
NETWORKING OVERVIEW
BACKGROUND
In recent years, the power of personal computers ("PCs"), workstations and
network servers has increased dramatically, and these computers have been
linked into LANs to share applications and data. These LANs have, in turn, been
linked into WANs that enable all of the client and server machines in an
enterprise to communicate with each other in enterprise-wide networks.
In addition, the greater computational power of PCs and workstations and
their interconnection into LANs and WANs have made possible new networked
applications, which often require integrated video, audio and data content.
These new applications have changed the way people work and communicate,
blurring the distinctions between telephone, cable, Internet access and other
telecommunications services, all of which require network infrastructures that
offer higher levels of performance, capacity and scalability than can be
provided by conventional networking technologies.
CONVENTIONAL NETWORKING TECHNOLOGIES
Conventional networking technologies, such as Ethernet, Fast Ethernet,
Token Ring and Fiber Distributed Data Interface ("FDDI") are often referred to
as shared-medium networking technologies because they require computers to
contend for the total capacity or "bandwidth" of the network. As the number of
computers in the network and the volume of network traffic grow, these
conventional networking technologies are placed under ever-greater stress. The
performance of an application running over a shared-medium network is
unpredictable because it depends on the amount of competition from other
computers contending to use the network. The task of managing an enterprise
network becomes even more difficult and costly when the network includes WAN
links and transmits multiple types of network traffic.
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Conventional LAN and WAN networking technologies are faced with the
problems of insufficient bandwidth, administrative burden and incompatibility
between LANs and WANs. The Company believes that only ATM offers the
combination of superior performance, scalable bandwidth, simplicity of
management, ability to link geographically dispersed LANs into an
enterprise-wide backbone and use of a single protocol across LANs and WANs that
is necessary to address these shortcomings.
ATM NETWORKING SOLUTIONS
ATM technology transcends many of the limitations imposed by conventional
networking technologies. ATM is the first technology that spans both LANs and
WANs and has been endorsed as a standard by the computer and telecommunications
industries. ATM provides a dramatic increase in bandwidth throughout the
network, carrying both LAN and WAN traffic faster than conventional networking
technologies. ATM also provides a flexible platform for application deployment,
transparently tying branch locations into central headquarters. In addition,
because it can seamlessly integrate all types of network traffic, ATM easily
accommodates future network growth and expansion.
An ATM-based network is also significantly easier to configure and
administer than a comparable conventional network. Network capacity can be
increased simply by adding ATM switches, obviating the need for network
segmentation and extensive downtime. ATM seamlessly integrates LANs and WANs,
facilitating the transmission of data from desktop to backbone to wide area and
back to the desktop through a variety of standardized physical interfaces, all
of which support a single set of ATM protocols.
ATM is also an enabling technology, making possible new ways of doing
business using network applications that would be impractical on conventional
networks. These new applications range from desktop video conferencing and
real-time dissemination of financial market information to two-way cable
architectures based on ATM that provide transmission speeds more than a
thousand times faster than today's commonly used analog modems.
ATM ARCHITECTURE
In an ATM network, all data is divided into and transported in small,
fixed-size "cells," rather than the larger variable-size "packets" used in
conventional network technologies. Text messages, data files and digitized
images, as well as continuous streams of video and audio, are all converted
into cells for transmission and are reassembled as necessary at their
destinations by ATM adapter cards.
ATM cells are then transmitted from the adapter card in each computer to
an ATM switch, which redirects each cell either through another ATM switch or
directly to its destination. Unlike conventional networks, an ATM network has
sufficient capacity to handle traffic on all of the incoming links
simultaneously, so that the performance of an application is not affected by
unrelated "cross traffic" from other networked computers. ATM technology
permits multiple users to transmit and receive data simultaneously over
multiple "virtual connections" rather than contending for network access. This
is similar to the way a telephone call, once established, is not affected by
the number of other callers using the network at any given time. Each ATM
switch is able to maintain thousands of these virtual connections between pairs
of senders and receivers, thereby supporting the concurrent transmission of
data among numerous participants in the network.
ATM technology can be integrated easily into customers' existing network
environments. ATM switches can serve as the backbone of an enterprise-wide
network, and existing departmental LANs can be connected to the ATM backbone by
means of LAN access switches that support Ethernet, Fast Ethernet and FDDI or
other conventional technologies and convert them to ATM. ATM can form the basis
of a collaborative workgroup comprised of individual PCs, workstations and
servers equipped with ATM adapter cards. In such a workgroup, ATM can serve as
a complete, desktop-to-desktop network solution.
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As LAN data, WAN data and WAN voice networks converge, ATM is emerging as
the technology that can provide the network infrastructure to integrate voice,
video and data applications at a high level of performance, capacity and
scalability. The Company believes that the integration of LANs and WANs will
continue and that ATM will be the technology underlying the interactive
broadband architecture of future network environments.
STRATEGY
FORE Systems' goal is to enhance its leadership position in the networking
industry by implementing the following strategies(1):
FOCUS ON ATM
FORE Systems is a leader in the ATM market and believes that ATM will be
the core technology underlying switched enterprise-wide networks and the
convergence of LAN data, WAN data and WAN voice environments in broadband
networks. The Company intends to remain a leader in ATM networking by
developing new and enhanced ATM products and by participating in organizations
that set ATM standards and ensure ATM interoperability.
DELIVERING COST-EFFECTIVE SOLUTIONS
FORE Systems intends to continue to deliver LAN and WAN access products
that provide cost-effective "on-ramps" to ATM. The Company believes that by
offering products that provide a smooth and seamless migration path from
existing networking technologies to ATM, it will speed deployment of ATM and
enable customers to enjoy the benefits of ATM without sacrificing their
investment in legacy equipment. To that end, FORE Systems now offers the
PowerHub family of multilayer LAN switching products that smooth the migration
from legacy networks to ATM backbones as well as CellPath WAN multiplexing
products that allow customers to consolidate voice, video and data applications
at branch locations onto a single communications link.
ACQUISITIONS
In response to evolving market needs, the Company has made, and may
continue to make, acquisitions that add products and technologies and enhance
the Company's ability to offer customers a smooth migration path to ATM. The
Company completed four acquisitions in fiscal 1996, each of which provided the
Company with products or technology that extended the "on-ramps" to ATM. In
addition to the acquisition of ALANTEC Corporation ("ALANTEC"), which provided
the Company with the PowerHub family of multilayer LAN switches, and of
CellAccess Technology, Inc., which develops digital access products that
strengthen the Company's WAN and remote access capabilities, the Company
acquired Applied Network Technology, Inc., a developer of high-performance,
low-cost Ethernet switching solutions, and RainbowBridge Communications, Inc.,
a developer of multiprotocol routing software.
STRATEGIC ALLIANCES
To expand its market reach, the Company plans to continue to form
strategic alliances with original equipment manufacturers, third party
application developers, distributors and resellers. The Company's ForeThought
partners program now includes more than forty-five companies with whom FORE
Systems is working to accelerate the deployment of ATM across a variety of
application areas. These application areas include LAN and WAN data, WAN voice
transmission, embedded ATM applications, and residential and corporate
broadband applications. The Company believes that the ForeThought partners
program helps to spread the influence of its ATM technology across many sectors
of the networking market.
- ---------
(1) Certain statements made herein or elsewhere in this report are
forward-looking statements and should be read in conjunction with the risk
factors that begin on page 10 of this Annual Report on Form 10-K.
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MARKETING, SALES AND SUPPORT
The Company plans to increase sales in North America by expanding its
direct sales and marketing operations and by continuing to develop
relationships with third-party channel distributors. In fiscal 1996, the
Company implemented its North American Channel Partners Program, which targets
various types of resellers, including network integrators, system integrators,
telecommunications service providers, LAN value added resellers and
distributors. Internationally, the Company plans to continue to add third-party
channel distributors. The Company also intends to continue to provide
comprehensive technical support, which is an important factor in customers'
decisions to deploy ATM. The Company's technical support staff is expert in a
wide variety of hardware and software networking environments and offers
support services to customers on many different platforms.
PRODUCTS
FORE Systems' products work together to provide a complete ATM
internetworking solution. These products include ForeRunner ATM switches and
adapter cards, PowerHub LAN switches for ATM connectivity, CellPath WAN
multiplexing products for WAN access, ForeThought internetworking software and
ForeView network management software.
FORERUNNER ATM SWITCHES AND ADAPTER CARDS
The Company offers the ForeRunner family of ATM switches for use in
workgroup, LAN backbone and WAN applications. As of March 31, 1996, the
installed base of ForeRunner ATM switches consisted of approximately 65,000
ports.
ForeRunner ATM switches provide a non-blocking switch capacity that ranges
from 2.5 to 10 gigabits per second (Gbps) for up to 96 connections. In each
case, the ATM connections can be made with a variety of physical media
interfaces and speeds. The supported media include UTP-5 copper wire and
multimode and single mode fiber optic cabling. The supported speeds for
ForeRunner ATM switches used in workgroup and LAN backbone applications are 25
megabits per second (Mbps), 155 Mbps and 622 Mbps, and for those used in WAN
applications, 1.5 Mbps (2 Mbps in Europe), 34 Mbps (45 Mbps in Europe), 155
Mbps and 622 Mbps. Any of the switch ports can be connected to another ATM
switch so that a large network can be constructed from a "mesh" of ATM
switches. ForeRunner ATM switches include integral control processors that run
the Company's ForeThought switch control software. The compact size and low
power consumption enable them to be easily installed in wiring closets.
The Company's modular ATM switches are designed to accept a family of LAN
and WAN network modules that provide high-speed communications from the desktop
to the WAN. Network modules are hot-swappable and can be upgraded in the field
to accommodate different physical media and link speeds.
ForeRunner ATM adapter cards allow computers to communicate over ATM
networks. The Company offers ATM adapter card products for a wider array of
platforms than any of its competitors. The Company currently offers ForeRunner
ATM cards for all major Unix and PC platforms, including Windows 95, Windows NT
and Apple Macintosh. The Company's ForeRunner 200E-Series of high-performance
adapter cards are optimized for network servers and feature advanced cell
processing architecture. The Company's new ForeRunner LE(TM) Series adapter
cards are optimized for desktop client machines.
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POWERHUB LAN SWITCHES
The PowerHub line of LAN switches combines bandwidth capability, flexible
connectivity and high-performance bridging and routing, enabling customers to
migrate to ATM without sacrificing their investment in their existing LANs. The
PowerHub product line provides flexible, intelligent switching for Ethernet,
Fast Ethernet, FDDI and ATM networks. The Company also offers the ES-3810
Ethernet workgroup switch with an optional 155 Mbps ATM uplink.
CELLPATH WAN MULTIPLEXERS
The CellPath line of WAN multiplexers extends the reach of ATM to non-ATM
sites and applications. These products adapt and aggregate traffic from PBXs,
routers and videoconferencing equipment onto wide area transmission lines.
CellPath products are available for low and moderate traffic requirements and
for high-end application support.
FORETHOUGHT INTERNETWORKING SOFTWARE AND FOREVIEW NETWORK MANAGEMENT SOFTWARE
The Company believes that the quality of its ATM software has been, and
will continue to be, a significant factor in differentiating its products from
those of other vendors. The Company's ForeThought internetworking software
products include ATM switch control software and device driver software for the
Company's ATM adapter cards. ForeThought software supports ATM Forum standards
as well as offering additional functionality and is at the heart of the
Company's entire product line.
The Company's ForeView network management software offers a graphical
front panel interface to monitor and configure virtual channels and paths,
configure port hardware, monitor line errors, set line loopbacks, collect
network usage information and manage virtual LANs. ForeView network management
software can be integrated with HP OpenView, Cabletron Spectrum and SunNet
Manager, or can run standalone on a variety of platforms.
MARKETS AND CUSTOMERS
The Company's networking solutions address a broad market for switched
networking products. As of March 31, 1996, approximately 2,000 customers
worldwide had purchased FORE Systems' products. Representative customers
include:
<TABLE>
<CAPTION>
Commercial Telecommunications
- ---------- ------------------
<S> <C>
Advantis AT&T
Allied Signal Technical Services Corp. Bell Atlantic Corporation
Amoco Production Company Bellcore
Boeing Computer Services France Telecom
Cablevision Lightpath, Inc. Helsinki Telecom
DHL Systems, Inc. MCI Communications Corporation
Donaldson, Lufkin & Jenrette Nippon Telegraph and Telephone Corporation
Ford Motor Company Northern Telecom
General Electric Company Norwegian Telecom Research
Microsoft Corporation NYNEX Corp. Science and Technology Inc.
Minnesota Supercomputing Center, Inc. Sprint Corporation
Motorola Sprint Technology, Inc.
Rockwell International
Time Warner Cable
TRW Systems, Inc.
Westinghouse Electric Corporation
</TABLE>
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<TABLE>
<CAPTION>
Educational Governmental Agencies and Laboratories
- ----------- --------------------------------------
<S> <C>
Columbia University NASA Lewis Research Center
Cornell University National Weather Service
Carnegie Mellon University Naval Research Laboratory
Massachusetts Institute of Technology Sandia National Laboratories
Michigan State University United States Department of Defense
National University of Singapore United States Department of Energy
United States Department of Justice
</TABLE>
Revenue from United States government customers represented 7%, 7% and 10%
of the Company's revenue for the years ended March 31, 1996, 1995 and 1994,
respectively. These United States government customers include more than twenty
different agencies, each of which makes its own procurement decisions. During
the years ended March 31, 1996, 1995 and 1994, no single customer accounted for
10% or more of the Company's revenue.
CUSTOMER SERVICE AND SUPPORT
The Company is dedicated to providing comprehensive customer support. The
Company's technical support staff is expert in a wide variety of hardware and
software networking environments and offers support services to customers on
many different computing platforms. The Company's support organization, which
is available at the customer's site, as well as by telephone, facsimile, pager
and electronic mail, assists customers in resolving ATM adoption issues and in
understanding the interaction of the Company's ATM solutions with other
networking products and with a variety of computing platforms. The Company's
support services are available on an ongoing basis to customers who enter into
service agreements, typically for renewable one-year periods. Support engineers
are based at the Company's headquarters facility in suburban Pittsburgh, at its
San Jose offices and at certain of its field offices, to provide rapid response
to customers' needs.
MARKETING, SALES AND DISTRIBUTION
The Company believes that the purchasing decisions of customers in
networking markets are based largely upon technological features,
interoperability with other vendors' equipment, vendor reputation and price.
Customers' purchasing decisions are also influenced by different factors
depending upon the functions the network products are expected to perform. For
example, purchasers who buy ATM desktop connectivity products are motivated by
the ability of the products to support specific, high-performance applications,
while customers for ATM-based backbone products generally focus upon
technological features and interoperability, and customers for ATM WAN products
are influenced by certification by wide area service vendors, such as telephone
companies and long-distance carriers.
To reach customers in each of these markets, the Company devotes
significant effort to publicizing the benefits of ATM networking technology.
The Company attends relevant industry trade shows, advertises in trade
publications, mails product information to targeted potential customers,
conducts telemarketing campaigns and deploys its sales force to market its
products directly to end-users of the Company's products. The Company also
participates in industry associations and standards-setting bodies such as the
ATM Forum. In addition, the Company conducts training and educational seminars
for customers and distributors.
The Company's products are sold to end-users via a direct sales force,
independent distributors and third-party channel distributors. As of March 31,
1996, the Company maintained a sales force of approximately 170 sales
specialists in its headquarters in suburban Pittsburgh and in its domestic and
foreign offices. These specialists call directly on current and potential
customers to evaluate their networking needs and to recommend the Company's
products. In addition, as of March 31, 1996, the Company had 92 independent
distributors in the United States and 63 countries around the world.
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For the years ended March 31, 1996, 1995 and 1994, the Company's sales
outside the United States accounted for approximately 39%, 35% and 35% of
consolidated net sales, respectively. See Note 13 of the Notes to Consolidated
Financial Statements included elsewhere in this report for a geographic
breakdown of the Company's product revenue from sales to customers outside the
United States for the years ended March 31, 1996, 1995 and 1994.
STRATEGIC RELATIONSHIPS
To enable the Company to reach broader markets and more customers, the
Company has established relationships with original equipment manufacturers,
third party application developers, distributors and resellers. The Company's
ForeThought partners program now includes more than forty-five companies to
whom FORE Systems has licensed its ForeThought internetworking software in
order to accelerate the deployment of ATM across a variety of application
areas. These application areas include LAN and WAN data, WAN voice
transmission, embedded ATM applications, and residential and corporate
broadband applications. The Company believes that the ForeThought partners
program helps to spread the influence of its ATM technology across many sectors
of the networking market.
The Company entered into a Master Purchase Agreement with Cabletron
Systems, Inc. ("Cabletron") in November 1992. Under that agreement, which was
amended in January 1994, an ATM switch module developed by the Company is being
distributed by Cabletron as a component of its MMAC Plus Hub. The Company also
entered into an agreement with Northern Telecom Limited in January 1995, under
which the Company supplies ForeThought and ForeView ATM software and ForeRunner
ATM switch components for use in Northern Telecom products.
COMPETITION
The networking industry is intensely competitive. Many networking
companies, including 3Com Corporation; Bay Networks, Inc.; Cabletron Systems,
Inc.; Cascade Communications, Corp.; Cisco Systems, Inc.; Newbridge Networks
Corporation; and Xylan Corporation, and certain computer companies, including
Digital Equipment Corporation; International Business Machines Corporation; and
Sun Microsystems, Inc., have introduced, or have announced their intention to
develop, networking products that are, or will be, competitive with the
Company's products. The Company expects that other companies will also enter
markets in which the Company competes. In addition, companies with interests in
other segments of the ATM market, such as central-office equipment vendors,
long-distance carriers and cable television operators, may seek to apply their
expertise to the ATM markets served by the Company. Many of these current and
prospective competitors have greater name recognition, a larger installed base
of networking products, more extensive engineering, manufacturing, marketing
and distribution capabilities and greater financial, technological and
personnel resources than does the Company.
The Company expects intense price competition to persist in the networking
industry. The Company has lowered prices on a regular basis and added new
products and features without increasing prices. There can be no assurance that
the Company will be able to compete successfully in such a price environment.
If such pricing pressures are not mitigated by cost reductions or charges in
product mix, the Company's business, results of operations and financial
condition could be materially adversely affected.
BACKLOG
The Company manufactures its products based upon its forecast of customers'
demand and maintains inventories of finished products in advance of receiving
firm orders from customers. Orders are generally placed by customers on an
as-needed basis and products are shipped within one to four weeks following
receipt of an order. In general, customers may cancel or reschedule orders
without penalty. Accordingly, the Company does not maintain a substantial
backlog, and backlog as of any particular date may not be indicative of sales in
any succeeding period.
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MANUFACTURING
The Company's manufacturing operations consist primarily of final
assembly, testing and quality control of subassemblies and finished units.
Materials used by the Company in its manufacturing processes include
semiconductors such as microprocessors, memory chips and other integrated
circuits, printed circuit boards, power supplies and enclosures. The Company
plans to use third-party, "turnkey" manufacturing arrangements to produce
certain products in order to benefit from the reduced unit costs available to
such manufacturers for commodity components and to improve the Company's
ability to fill an increasing volume of orders in a timely fashion.
All of the materials used in the Company's products are purchased under
contracts and purchase orders with third parties. While the Company believes
that many of the materials used in the production of its products are generally
readily available from a variety of sources, certain components are available
from one or a limited number of suppliers. Among these sole- or limited-source
components are microprocessors (obtained from Intel Corporation), memory chips
(obtained from Integrated Device Technologies, Inc., Micron Semiconductor and
Samsung Semiconductor, Inc.), ATM framing, segmentation and reassembly chips
(obtained from PMC-Sierra, Inc., LSI Logic Corporation and Integrated Device
Technologies, Inc., respectively), pre-formed enclosures (obtained from
Electronic Manufacturing Systems), optical data links (obtained from
Hewlett-Packard Components) and Application Specific Integrated Circuits
("ASICs") (obtained from Toshiba America Electronic Components, Inc., LSI Logic
Corporation and Lucent Technologies).
The lead times for delivery of certain of these components, including
ASICs, can be at least twelve weeks. If the Company fails to forecast its
requirements accurately for such long lead-time components, then it may
experience shortages which could result in product shipment delays which would
adversely affect the Company.
RESEARCH AND PRODUCT DEVELOPMENT
In the years ended March 31, 1996, 1995 and 1994, the Company incurred
costs of approximately $31,212,000, $13,054,000 and $5,207,000 (13.3%, 12.3%
and 13.2% of total revenue), respectively, for research and development
activities. At March 31, 1996, the Company had an engineering staff of 335,
located at its suburban Pittsburgh headquarters, and in its offices in the
Boston, MA; San Jose, CA and Washington, D.C. areas.
INTELLECTUAL PROPERTY
While the Company believes that its success is ultimately dependent upon
its ability to innovate and to enhance its presence in the networking market,
its capacity to compete successfully in that market depends, in part, upon its
ability to protect proprietary technology contained in its products. The
Company currently relies upon a combination of patent, trade secret, copyright
and trademark laws and contractual restrictions to establish and protect
proprietary rights in its products. The Company has also entered into
confidentiality and invention assignment agreements with its employees and
enters into non-disclosure agreements with its suppliers, distributors and
appropriate customers so as to limit access to and disclosure of its
proprietary information. There can be no assurance that these statutory and
contractual arrangements will prove sufficient to deter misappropriation of the
Company's technologies or independent third-party development of similar
technologies. The development of alternative, proprietary ATM and other
technologies by third parties could adversely affect the competitiveness of the
Company's products. Further, the laws of some countries do not provide the
same degree of protection of the Company's proprietary information as do the
laws of the United States. Finally, the Company's adherence to industry-wide
technical standards and specifications may limit the Company's opportunities to
provide proprietary product features capable of protection.
The Company, like other companies in the networking industry, is also
subject to the risk of litigation alleging infringement of third-party
intellectual property rights. There can be no assurance that third parties will
not assert infringement claims against the Company in the future with respect
to current or future products. Any such claims could require the Company to
expend significant sums in litigation, pay damages, develop non-infringing
technology or acquire licenses to the technology which is the subject of
asserted infringement.
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EMPLOYEES
At March 31, 1996, the Company employed 977 individuals on a full-time
basis. Of these, 335 were involved in engineering, 412 were employed in sales,
marketing and customer support, 111 were engaged in manufacturing and the
remaining 119 were devoted to executive management, administration, finance and
strategic planning. The Company considers its relations with its employees to
be good and has not experienced any interruption of operations as a result of
labor disagreements.
CERTAIN RISK FACTORS
The following risk factors, in addition to the risks described elsewhere
in the description of the Company's business in this report, may cause actual
results to differ materially from those in any forward-looking statements
contained under the caption "Strategy" or elsewhere in this report or made in
the future by the Company or its representatives:
SUBSTANTIAL DEPENDENCE ON ATM; EARLY STAGE OF MARKET DEVELOPMENT. ATM is an
industry standard for high-speed local-area and wide-area networking. Although
many network equipment suppliers have introduced or announced plans to
introduce ATM-based products and several public carriers have implemented or
announced plans to implement ATM services, the ATM market is still emerging and
only a limited number of users have installed ATM networks. Sales of ATM
networking products and related services are expected to continue to account
for a substantial portion of the Company's revenue for the foreseeable future.
The Company's business strategy is based on the belief that ATM will be the
technology underlying switched enterprise-wide networks as well as the
interactive broadband architecture of future network environments. Accordingly,
the Company's business opportunities and results of operations will be
dependent on continued growth and market acceptance of ATM technology and in
the ability of the Company to offer products that provide a smooth and seamless
migration path from existing networking technologies to ATM. In the event that
networking products based on ATM fail to achieve broad commercial acceptance,
the Company would be materially adversely affected.
MANAGEMENT OF GROWTH. The Company has experienced rapid growth, both in sales
and in the number of its employees, which has placed and could continue to
place a significant strain on its resources. Certain of the Company's senior
management and other key employees have not had previous experience in managing
a large company. The integration of ALANTEC, which was acquired by the Company
in February 1996, in addition to the integration of three smaller companies,
acquired during the 1996 fiscal year, has required, and will continue for the
foreseeable future to require, substantial attention from senior management and
key employees of the Company. In addition, the Company may in the future
acquire additional businesses, products or technologies. There can be no
assurance that the Company will be able to manage its expansion or integrate
the operations of any businesses, products or technologies it has acquired or
may in the future acquire; the failure to do so could materially adversely
affect the Company.
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL DEVELOPMENT. The markets
for the Company's products are characterized by evolving industry standards and
rapid technological development. The Company's success will depend, in part,
upon its ability to influence the development of industry standards, to
maintain its technological leadership, to enhance and expand its existing
product offerings and to develop in a timely manner new products which achieve
market acceptance. The Company believes that its ability to compete
successfully is also dependent upon the continued compatibility and
interoperability of its products with products and architectures offered by
various vendors and on the timely development of industry standards. There can
be no assurance that the Company will be able effectively to address the
compatibility and interoperability issues raised by technological changes or
that new industry standards will be developed in a timely manner. The Company
would be materially adversely affected if it were to incur significant delays
or be unsuccessful in developing new products or enhancements, if any such
10
<PAGE> 11
products or enhancements did not gain market acceptance, or if a delay in the
creation of industry standards resulted in customers deciding not to deploy ATM
in their networks or to delay such deployment. In addition, there can be no
assurance that products or technologies developed by others will not render the
Company's products noncompetitive or obsolete.
DEPENDENCE ON KEY PERSONNEL. The Company's success to date has been
significantly dependent on the contributions of its founders, Eric C. Cooper,
Onat Menzilcioglu, Francois J. Bitz and Robert D. Sansom, and the loss of the
services of one or more of them could have a material adverse effect on the
Company. The Company's success also depends, to a significant extent, upon a
number of other key employees. The loss of the services of one or more of these
key employees also could have a material adverse effect on the Company. The
Company believes that its future success will depend not merely on retaining
its key personnel, but also upon its ability to attract and retain additional
highly-skilled technical, managerial, manufacturing, sales and marketing
personnel. Competition for such personnel is intense. There can be no assurance
that the Company will be able to anticipate accurately, or to obtain, the
personnel that it may require in the future. The failure to obtain needed
personnel, when and as needed, could have a material adverse effect on the
Company.
DEPENDENCE ON CUSTOMERS. Revenue from United States government agencies
represented approximately 7%, 7% and 10% of the Company's revenue on a
consolidated basis for the years ended March 31, 1996, 1995 and 1994,
respectively. These United States government customers include more than twenty
different agencies, each of which makes its own procurement decisions. These
government customers may from time to time reduce their budgets and
expenditures or cancel orders. In addition, current Congressional initiatives
to balance the federal budget could curtail spending of government agencies in
a manner which may lead such customers to reduce their expenditures for the
Company's products. Reductions in sales to current customers, if not offset by
sales to new or existing customers, could have a material adverse effect on the
Company.
INTERNATIONAL SALES, REGULATORY STANDARDS AND CURRENCY EXCHANGE. International
sales accounted for approximately 39% of the Company's revenue on a
consolidated basis for the year ended March 31, 1996. The Company expects that
international sales will continue to be a significant portion of its business
as it seeks to expand its international presence. However, there can be no
assurance that the Company's revenue from international sales will continue to
increase in the future; a decline in international sales could have a material
adverse effect on the Company. While the Company's current products are
designed to meet relevant regulatory requirements of foreign markets in which
they are sold, any inability to obtain any required foreign regulatory
approvals on a timely basis could have a material adverse effect on the
Company. Additionally, the Company's international business may be affected by
changes in demand resulting from fluctuations in currency exchange rates and
local purchasing practices, including seasonal fluctuations in demand and
slower payment of invoices, as well as by risks such as increases in duty
rates, difficulties in distribution and constraints upon international trade.
EFFECT OF ECONOMIC AND MARKET CONDITIONS. Sales of networking products
fluctuate, from time to time, based on numerous factors, including customers'
capital spending levels and general economic conditions. Future declines in
networking product sales, as a result of general economic conditions or for any
other reason, could have a material adverse effect on the Company.
LIMITED OPERATING HISTORY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The
Company was founded in April 1990 and first shipped products in November 1991.
Although the Company has historically experienced increasing sales, the Company
may experience fluctuations in operating results in the future, both on an
annual and a quarterly basis, caused by various factors, including general
economic conditions, specific economic conditions in the computer networking
industry, the size and timing of customer orders, the pattern and seasonality of
customer purchasing cycles, the introduction of new products by the Company or
its competitors, the mix of products sold and the mix of product channels
through which products are sold. In addition, as a strategic response to a
changing competitive environment, the Company may elect, from time to time, to
make certain pricing, product or marketing decisions, and any such decisions
could have a material adverse effect on its periodic results of operations,
including revenue and profits from quarter to quarter.
11
<PAGE> 12
POTENTIAL VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has been and may continue to be volatile. Factors such as fluctuations in
the Company's operating results, announcements of technological innovations or
new products by the Company or its competitors, developments with respect to
patents or proprietary rights, changes in financial estimates by, or
expectations or recommendations of, securities analysts, general market
conditions and sales of substantial amounts of the Company's Common Stock in
the public market, or the prospect of such sales, may have a significant effect
on the market price of its Common Stock.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND OTHER PROVISIONS. Certain
provisions of the Company's Amended and Restated Certificate of Incorporation,
as amended, and Amended and Restated By-laws and Delaware law 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.
ITEM 2. PROPERTIES.
The Company's principal offices are located in a 60,000 square foot
facility leased by the Company in Warrendale, Pennsylvania (a suburb of
Pittsburgh) and two nearby facilities totaling an additional 136,000 square
feet. Approximately 58% of the space in these facilities is used or reserved
for manufacturing, engineering, product development and testing. The balance of
the space is used or reserved for sales, marketing and other general
administrative activities. The Company also leases facilities in various parts
of the United States and in foreign countries. Included among those facilities
are regional offices located in San Jose, CA; Boxborough, MA; Bethesda, MD; New
York, NY; Birmingham, England and Tokyo, Japan. The Company believes that its
present facilities are well maintained and in good operating condition.
During fiscal 1996, the Company entered into agreements to lease new
headquarters and operating facilities, totaling approximately 300,000 square
feet, which will be constructed on land purchased by the Company. The Company
will lease the facilities under a ten-year operating lease and has options to
renew the lease for two additional five-year terms. See Note 14 of the Notes to
Consolidated Financial Statements included elsewhere in this report for a
description of these agreements.
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS.
In April 1994, ALANTEC was notified that, on March 23, 1994, a suit had
been filed in the Santa Clara County, California Superior Court by two founders
and one former employee of ALANTEC against certain former directors, a former
officer and several stockholders of ALANTEC ("Defendants"), seeking damages for
alleged breaches of fiduciary duties by the Defendants in the course of various
transactions in which ALANTEC obtained additional financing in exchange for the
issuance of convertible preferred stock. While ALANTEC was not named as a
defendant in the suit, ALANTEC's former bylaws and indemnification agreements
between ALANTEC and certain of the Defendants require ALANTEC to fund certain
ongoing legal fees associated with defending the suit on behalf of the
Defendants. While the Company expects to continue to incur legal expenses with
respect to the litigation, the Company believes that the ultimate resolution of
the litigation will not have a material adverse effect on the Company's
financial position or results of operations. The lawsuit is in the discovery
stage and a trial has been scheduled for September 1996.
13
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Stockholders of the Company was held on
Friday, February 23, 1996.
(b) Not applicable.
(c) A description of the matter voted upon at the meeting along with
an indication of the results of the vote on such matter are set
forth below:
Approval of a proposal to issue shares of the Company's
Common Stock pursuant to an Agreement and Plan of Merger, dated as
of December 13, 1995 and amended as of December 22, 1995, by and
among the Company, Croesus Acquisition Corporation, a newly-formed
and wholly-owned subsidiary of the Company, and ALANTEC: For:
24,167,788; Against: 12,153; Abstentions: 26,689; Broker
non-votes: 0.
(d) Not applicable.
14
<PAGE> 15
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Eric C. Cooper 37 Chairman, Chief Executive Officer and a Director
Onat Menzilcioglu 37 President and a Director
Francois J. Bitz 36 Vice President of Engineering and a Director
Robert D. Sansom 36 Vice President of Engineering, Secretary and a Director
Thomas J. Gill 38 Vice President of Finance, Chief Financial Officer and Treasurer
Michael I. Green 48 Vice President of Sales and Marketing
</TABLE>
Dr. Cooper is a co-founder of the Company and has served as Chairman and
Chief Executive Officer and as a director since April 1990. Dr. Cooper served
as President from April 1990 until December 1994. Prior to co-founding the
Company, Dr. Cooper was a faculty member at Carnegie Mellon University. Dr.
Cooper received his Ph.D. in Computer Science from the University of California
at Berkeley in 1985.
Dr. Menzilcioglu is a co-founder of the Company and has served as a
director since April 1990. Dr. Menzilcioglu served as Vice President of
Engineering from June 1990 until December 1994 and has served as President
since December 1994. Prior to co-founding the Company, Dr. Menzilcioglu was a
member of the Computer Science research faculty of Carnegie Mellon University
where he received his Ph.D. in Computer Engineering in 1988.
Mr. Bitz is a co-founder of the Company and has served as a director since
February 1994 and as Vice President of Engineering since December 1993. From
April 1990 until December 1992, Mr. Bitz was a director of the Company and held
the title of the Company's Chief Engineer; from December 1992 until December
1993 he was Vice President of Advanced Development of the Company. Prior to
co-founding the Company, Mr. Bitz was a Research Engineer at Carnegie Mellon
University's Robotics Institute and its school of Computer Science. Mr. Bitz
received his M.S. in Electrical and Computer Engineering from Carnegie Mellon
University in 1985.
Dr. Sansom is a co-founder of the Company and has served as a director
from April 1990 to December 1992 and since February 1994. Dr. Sansom served as
Executive Vice President from the Company's inception in April 1990 to December
1993, has served as Secretary since 1992 and has served as Vice President of
Engineering since December 1993. Prior to co-founding the Company, Dr. Sansom
was a member of the Computer Science research faculty at Carnegie Mellon
University where he received his Ph.D. in Computer Science in 1988.
Mr. Gill has been Vice President of Finance, Chief Financial Officer and
Treasurer of the Company since December 1993. From February 1993 to December
1993, he served as Treasurer and Controller of the Company. Prior to joining
the Company, Mr. Gill was employed in various financial capacities by Cimflex
Teknowledge Corporation (a supplier of factory automation systems and
software), most recently as Vice President of Finance and Treasurer.
15
<PAGE> 16
Mr. Green has served as Vice President of Sales of the Company since April
1993, and as Vice President of Sales and Marketing since May 1995, and was the
Company's Director of Sales from April 1992 to April 1993. From February 1989
to April 1992, Mr. Green was a Sales Manager at Ultra Network Technologies (a
provider of networking equipment). Prior to February 1989, Mr. Green was
Federal Regional Manager and Southeast Regional Manager of Network Systems
Corp. (a provider of networking equipment).
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "FORE." The following table sets forth the range of high and
low sale prices of the Common Stock as reported on the Nasdaq National Market
for the fiscal periods indicated. The information set forth in the table has
been adjusted retroactively to reflect two-for-one stock splits which occurred
on February 15, 1995 and June 3, 1996, respectively.
<TABLE>
<CAPTION>
Fiscal 1995: High Low
---- ---
<S> <C> <C>
First Quarter
(from May 24, 1994 to June 30, 1994) $ 8.063 $ 5.000
Second Quarter
(ended September 30, 1994) $11.375 $ 6.500
Third Quarter
(ended December 31, 1994) $17.875 $ 9.813
Fourth Quarter
(ended March 31, 1995) $20.875 $15.000
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996: High Low
---- ---
<S> <C> <C>
First Quarter
(ended June 30, 1995) $20.000 $12.750
Second Quarter
(ended September 30, 1995) $21.000 $14.875
Third Quarter
(ended December 31, 1995) $33.875 $15.375
Fourth Quarter
(ended March 31, 1996) $37.500 $23.375
</TABLE>
The approximate number of record holders of the Company's Common Stock as
of May 31, 1996 was 764.
The Company has not paid cash dividends on its Common Stock since its
inception. The Company currently intends to retain earnings for development of
its business and, therefore, does not anticipate paying any cash dividends in
the foreseeable future. The declaration and payment by the Company of any
future dividends and the amount thereof will depend upon the Company's results
of operations, financial condition, cash requirements, future prospects,
limitations imposed by credit agreements or senior securities and other factors
deemed relevant by the Board of Directors.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA.
Financial Highlights
<TABLE>
<CAPTION>
Year Ended March 31
(In thousands, except for share and per-share data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $235,189 $106,188 $39,340 $12,527 $ 1,975
Gross profit $136,523 $ 60,991 $24,188 $ 7,744 $ 361
Merger-related expenses $ 29,375 $ -- $ -- $ -- $ --
Income (loss) from operations $ 10,648 $ 16,061 $ 4,689 $(1,253) $(2,688)
Net income (loss) $ 9,737 $ 12,860 $ 3,678 $(1,367) $(2,719)
Net income per common share $ 0.11 $ 0.18 $ 0.06* $ -- $ --
Weighted average common and common
equivalent shares outstanding 86,432,248 73,481,490 59,298,000* -- --
Total assets $424,362 $131,482 $59,026 $14,794 $ 4,986
Redeemable preferred stock $ -- $ -- $ 5,500 $14,842 $ 6,161
</TABLE>
* Based on pro forma weighted average common and common equivalent shares
outstanding
18
<PAGE> 19
Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except for Year Ended March 31, 1996 Year Ended March 31, 1995
per-share data) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 75,271 $63,974 $52,062 $43,882 $37,655 $29,407 $21,936 $17,190
Cost of sales 31,460 26,816 21,894 18,496 16,130 12,580 9,192 7,295
--------------------------------------- --------------------------------------
Gross profit 43,811 37,158 30,168 25,386 21,525 16,827 12,744 9,895
--------------------------------------- --------------------------------------
Operating expenses:
Research and development 10,152 8,512 6,866 5,682 4,449 3,645 2,623 2,337
Sales and marketing 16,990 14,663 12,202 10,277 8,788 6,924 5,791 4,505
General and administrative 3,441 2,950 2,477 2,288 1,995 1,540 1,252 1,081
Merger-related 27,098 690 -- 1,587 -- -- -- --
--------------------------------------- --------------------------------------
Total operating expenses 57,681 26,815 21,545 19,834 15,232 12,109 9,666 7,923
--------------------------------------- --------------------------------------
Income (loss) from operations (13,870) 10,343 8,623 5,552 6,293 4,718 3,078 1,972
Interest income, net 3,447 3,120 1,808 1,531 937 757 671 428
--------------------------------------- --------------------------------------
Income (loss) before provision
for income taxes (10,423) 13,463 10,431 7,083 7,230 5,475 3,749 2,400
Provision for income taxes (848) 4,947 3,697 3,021 2,557 1,606 1,116 715
--------------------------------------- --------------------------------------
Net income (loss) $ (9,575) $ 8,516 $ 6,734 $ 4,062 $ 4,673 $ 3,869 $ 2,633 $ 1,685
======================================= ======================================
Net income (loss) per
common share $ (0.11) $ 0.09 $ 0.08 $ 0.05 $ 0.06 $ 0.05 $ 0.04 $ 0.02
======================================= ======================================
Weighted average common
and common equivalent
shares outstanding 87,506 92,724 83,484 82,015 75,965 75,163 74,532 68,266
======================================= ======================================
</TABLE>
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
GENERAL
The Company is a leader in the design, development, manufacture and sale
of high-performance networking products based on ATM technology. ATM provides
dramatically greater speed and total capacity than conventional networking
technologies. ATM improves the performance of today's network applications, and
also enables new applications, including integrated video, audio and data
communications. The Company believes that it currently offers the most
comprehensive ATM product line available, including ForeRunner ATM switches and
adapter cards, PowerHub LAN switches for ATM connectivity, CellPath WAN
multiplexing products for WAN access, ForeThought internetworking software, and
ForeView network management software.
On February 23, 1996, the Company acquired ALANTEC in a merger transaction
accounted for as a pooling of interests. ALANTEC designs, develops,
manufactures and sells intelligent switching hubs for Ethernet and FDDI LANs.
The consolidated financial data contained herein includes the accounts of
ALANTEC for all periods presented.
During the quarter ended December 31, 1995, the Company acquired
CellAccess Technology, Inc. ("CAT"), a developer of digital access products for
ATM and Frame Relay networks. During the quarter ended June 30, 1995, the
Company acquired Applied Network Technology, Inc. ("ANT"), a developer of
Ethernet switches, and RainbowBridge Communications, Inc. ("RCI"), a developer
of routing software. Each of these business combinations has been accounted for
as a pooling of interests. The aggregated historical results of operations and
financial position of CAT, ANT and RCI are not material to the Company's
consolidated financial statements and prior period amounts have, therefore, not
been restated for these acquisitions.
In view of the Company's growth, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful as an indication of future performance. In addition, the Company's
results of operations may fluctuate from period to period in the future.
Year Ended March 31, 1996 Compared with Year Ended March 31, 1995
REVENUE. Revenue increased by 121% to $235.2 million for the year ended
March 31, 1996, as compared with $106.2 million in the previous year. The
distribution of revenue from sales to domestic and foreign customers was 61%
and 39%, respectively, in the year ended March 31, 1996. This compares with 65%
and 35%, respectively, in the previous year. The increase in domestic revenue
dollars was attributable to the increased market acceptance of ATM and LAN
switch products. The increase in foreign revenue in dollars and as a percentage
of revenue resulted from the Company's expansion of its international
distribution channels and to growing acceptance of ATM and LAN switch products.
The Company measures overall unit volume for its ATM switch products based
on the number of ATM ports, or network connections, shipped. The total number
of ATM ports shipped in the year ended March 31, 1996 was 44,549, as compared
with 16,382 in the previous year. The total installed base of ATM ports as of
March 31, 1996 was 64,721, as compared with 20,172 as of March 31, 1995. The
total number of LAN switch products shipped in the year ended March 31, 1996
was 3,413, as compared with 1,518 in the previous year. The total number of
adapter cards shipped in the year ended March 31, 1996 was 18,562, as compared
with 7,470 in the previous year. The total installed base of adapter cards as
of March 31, 1996 was 27,988, as compared with 9,426 as of March 31, 1995. In
the year ended March 31, 1996, revenue mix, as a percentage of total revenue,
among ATM switch products, LAN switch products, adapter cards and other revenue
(principally service support and development contracts) was 53%, 32%, 7% and
8%, respectively. Revenue mix for the previous year was 45%, 34%, 11% and
20
<PAGE> 21
10%, respectively. Average selling price per ATM port during the year ended
March 31, 1996 was $2,798, as compared with $2,897 in the previous year.
Average selling price for adapter cards shipped during the year ended March 31,
1996 was $929, as compared with $1,579 in the previous year.
GROSS PROFIT. Gross profit increased to $136.5 million or 58.0% of revenue
in the year ended March 31, 1996, as compared with gross profit of $61.0
million or 57.4% of revenue in the previous year. The dollar increase in gross
profit was the result of increased revenue from ATM switch products, LAN switch
products and adapter cards. The increase in gross profit as a percentage of
revenue was the result of improved product price mix for ATM switch products,
reduced manufacturing costs and lower OEM product contribution, offset
partially by lower than historical margins associated with the Company's
lower-end LAN switch products. In future periods, gross margins may be
adversely affected by price competition, changes in sales channels, increases
in the costs of goods or changes in the mix of products sold.
RESEARCH AND DEVELOPMENT. Research and development expense for the year
ended March 31, 1996 was $31.2 million or 13.3% of revenue, as compared with
$13.1 million or 12.3% of revenue in the previous year. The increase in
research and development expense was largely the result of additional
engineering costs associated with the acquisitions of CAT, ANT and RCI;
increased hiring of engineering employees, including recruiting expenses and
increased purchases of research and development materials. The number of
employees of the Company engaged in research and development increased to 335
at March 31, 1996 from 149 at March 31, 1995.
SALES AND MARKETING. Sales and marketing expense for the year ended March
31, 1996 was $54.1 million or 23.0% of revenue, as compared with $26.0 million
or 24.5% of revenue in the previous year. The dollar increase in sales and
marketing expense was largely the result of hiring additional sales, marketing
and support personnel (including training and documentation) and increased
promotion and product evaluation costs. The reduction in sales and marketing
expense as a percentage of revenue was the result of increased revenue volume
absorbing a greater portion of fixed overhead associated with the sales and
marketing organization. The number of employees of the Company engaged in sales
and marketing activities increased to 412 at March 31, 1996 from 200 at March
31, 1995. The Company expects to increase sales and marketing expenses both
domestically and internationally as part of its continuing effort to expand its
markets, introduce new products, build marketing staff and programs and expand
its international presence.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the
year ended March 31, 1996 was $11.2 million or 4.7% of revenue, as compared
with $5.9 million or 5.5% of revenue in the previous year. The dollar increase
was largely due to increased hiring of administrative personnel in systems
administration, accounting and human resources. The percentage decrease
resulted from increased revenue absorbing a larger portion of the Company's
fixed overhead expenses. The number of employees of the Company engaged in
general and administrative activities increased to 119 at March 31, 1996 from
60 at March 31, 1995. The Company does not expect the overall general and
administrative cost as a percentage of revenue to decline significantly in the
next twelve months.
MERGER-RELATED. Total merger-related expenses of $29.4 million were
recorded for the year ended March 31, 1996 upon completion of the ALANTEC, CAT,
ANT and RCI acquisitions. These expenses include transaction costs (primarily
fees to financial advisors, legal and accounting fees), costs associated with
duplicate facilities and assets, payments under transition and severance
agreements and other costs. The Company had no merger-related expenses during
the corresponding period in 1995.
INTEREST INCOME. Interest income, net of interest expense, for the year
ended March 31, 1996 was $9.9 million, as compared with $2.8 million in the
year ended March 31, 1995. The increase in interest income resulted largely
from interest earned on the net proceeds of $208 million received from common
stock offerings in April 1995 and October 1995.
21
<PAGE> 22
INCOME TAXES. The provision for income taxes recorded in the year ended
March 31, 1996 was $10.8 million, or an effective tax rate of 52.6%, as
compared with $6.0 million, or an effective tax rate of 31.8%, in the previous
year. The increase in the effective tax rate resulted primarily from certain
merger-related expenses that are not deductible for tax purposes and partially
from lower net operating loss carryforward available to offset 1995 taxable
income. Excluding these merger-related expenses, the effective tax rate for the
year ended March 31, 1996 would have been 36.0%.
NET INCOME. Net income for the year ended March 31, 1996 was $9.7 million,
or $.11 per share, as compared with $12.9 million, or $.18 per share, for the
year ended March 31, 1995. Net income for the year ended March 31, 1996
included $29.4 million in merger-related expenses. Excluding these
merger-related expenses and their tax effect, but including the operating
results of CAT, ANT and RCI, the Company would have realized net income of
$32.0 million or $.36 per share.
Year Ended March 31, 1995 Compared with Year Ended March 31, 1994
REVENUE. Revenue increased by 170% to $106.2 million for the year ended
March 31, 1995, as compared with $39.3 million in the previous year. Revenue
from sales to customers outside of the United States comprised 35% of revenue
in each of the years ended March 31, 1995 and 1994. The increase in revenue
dollars attributable to customers outside of the United States resulted from
the Company's development of an international network of independent
distributors.
The Company measures overall unit volume for its ATM switch products based
on the number of ATM ports, or network connections, shipped. The total number
of ATM ports shipped in the year ended March 31, 1995 was 16,382, as compared
with 3,178 in the previous year. The total installed base of ATM ports as of
March 31, 1995 was 20,172, as compared with 3,790 as of March 31, 1994. The
total number of LAN switch products shipped in the year ended March 31, 1995
was 1,518, as compared with 581 in the previous year. The total number of
adapter cards shipped in the year ended March 31, 1995 was 7,470, as compared
with 1,631 in the previous year. The total installed base of adapter cards as
of March 31, 1995 was 9,426, as compared with 1,956 as of March 31, 1994. In
the year ended March 31, 1995, revenue mix, as a percentage of revenue, among
ATM switch products, LAN switch products, adapter cards and other revenue
(principally service support and development contracts) was 45%, 34%, 11% and
10%, respectively. Revenue mix for the previous year was 44%, 40%, 11% and 5%,
respectively. In July 1994, the price per port of the Company's ATM switch
products was reduced by up to 50%. Prices for adapter cards were reduced by up
to 60% in April 1994. The Company reduced its ATM switch and adapter card
prices by approximately 35% in May 1993 and again for adapter cards in August
1993. Average selling price per ATM port during the year ended March 31, 1995
was $2,897, as compared with $5,473 in the previous year. Average selling price
for adapter cards shipped during the year ended March 31, 1995 was $1,579, as
compared with $2,705 in the previous year.
GROSS PROFIT. Gross profit increased to $61.0 million or 57.4% of revenue
in the year ended March 31, 1995, as compared with gross profit of $24.2
million or 61.5% of revenue in the previous year. The decrease in gross profit
as a percentage of revenue was largely the result of price reductions
implemented on ATM switch and adapter card products and higher OEM product
contribution. The dollar increase in gross profit was the result of increased
revenue for ATM switch products, LAN switch products and adapter cards.
RESEARCH AND DEVELOPMENT. Research and development expense for the year
ended March 31, 1995 was $13.1 million or 12.3% of revenue, as compared with
$5.2 million or 13.2% of revenue in the previous year. The increase in research
and development expense in dollars was largely attributable to the increased
hiring of engineers, including recruiting expenses, along with increased
purchases of research and development materials. The number of employees of the
Company engaged in research and development increased to 149 at March 31, 1995
from 71 at March 31, 1994.
22
<PAGE> 23
SALES AND MARKETING. Sales and marketing expense for the year ended March
31, 1995 was $26.0 million or 24.5% of revenue, as compared with $11.8 million
or 29.9% of revenue in the previous year. The increase in sales and marketing
expense in dollars was largely the result of hiring additional sales, marketing
and support personnel (including customer training and product documentation
staff) and increased promotion costs. The number of employees of the Company
engaged in sales and marketing activities increased to 200 at March 31, 1995
from 100 at March 31, 1994.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the
year ended March 31, 1995 was $5.9 million or 5.5% of revenue, as compared with
$2.5 million or 6.4% of revenue in the previous year. The dollar increase was
largely due to increased hiring of administrative personnel in human resources,
accounting and systems administration. The percentage decrease resulted from
increased revenue absorbing a larger portion of the Company's fixed overhead
expenses. The number of employees of the Company engaged in general and
administrative activities increased to 60 at March 31, 1995 from 29 at March
31, 1994.
INTEREST INCOME. Interest income, net of interest expense, for the year
ended March 31, 1995 was $2.8 million, as compared with $266,000 in the year
ended March 31, 1994. The increase in interest income resulted primarily from
interest earned on the net proceeds received from the Company's public
offerings.
INCOME TAXES. The provision for income taxes recorded in the year ended
March 31, 1995 was $6.0 million, or an effective tax rate of 31.8%, as compared
with $1.3 million, or an effective tax rate of 25.8% in the previous year. The
increase in the effective tax rate was primarily attributable to lower net
operating loss carryforward available to offset 1995 taxable income and a
decrease in the proportion of the Company's research and development
expenditures that qualified for tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its working capital and capital expenditure
requirements to date primarily through cash received from public offerings,
cash generated from operations, private placements of preferred stock,
development contracts and grants and borrowings consisting of capital leases
and bank borrowings.
The cash provided from operations was $29.1 million in 1996. Net cash
provided by operations was the result of net income and increased current
liabilities offset by increased accounts receivable, inventories and deferred
income tax benefit. The increase in accounts receivable was due to increased
revenue. The increase in inventories was the result of increased revenue and
the introduction of new products. Cash provided by operations was $5.4 million
in 1995, which resulted from net income and increased current liabilities,
offset by increased accounts receivable and inventories. The increase in
accounts receivable and inventories was due to increased revenue. The Company's
investing activities to date have been for the purchase of fixed assets to
support the Company's growth.
In April and October of 1995, public stock offerings were completed, with
aggregate net proceeds to the Company of approximately $208 million.
At March 31, 1996, the Company had cash and cash equivalents of
approximately $204.0 million, short-term investments of $92.1 million and an
unused line of credit of $20 million.
In addition, during fiscal 1996, the Company entered into arrangements to
lease headquarters and operating facilities to be constructed on land purchased
by the Company. These arrangements include an operating lease pursuant to which
the Company has committed to make annual minimum rental payments of
approximately $3.5 million commencing in fiscal 1997, and a guarantee by the
Company of the repayment of approximately $37 million of the lessor's
construction financing for the facilities.
23
<PAGE> 24
As part of the lease transaction, the Company, at March 31, 1996, pledged
$4.3 million of marketable securities as collateral for specified obligations
of the lessor. The Company is also required to comply with certain financial
covenants including the maintenance of a minimum taxable net worth and
limitations on the incurrence of debt and the payment of dividends.
The Company believes that the proceeds from its public offerings, together
with its existing sources of liquidity and internally generated cash, will
satisfy the Company's projected cash needs through at least the next twelve
months. The Company may require additional sources of liquidity to fund future
growth, including additional equity offerings or debt financing.
To date, inflation has not had a material impact on the Company's
financial results.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). The Company intends to adopt SFAS 123 through
disclosure only effective April 1, 1996.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
FORE Systems, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 43 present fairly, in all material
respects, the financial position of FORE Systems, Inc., and its subsidiaries at
March 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Pittsburgh, Pennsylvania
April 25, 1996
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
(IN THOUSANDS, EXCEPT SHARE
AND PER-SHARE DATA) 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $235,189 $106,188 $39,340
Cost of sales 98,666 45,197 15,152
--------------------------------------
Gross profit 136,523 60,991 24,188
--------------------------------------
Operating expenses:
Research and development 31,212 13,054 5,207
Sales and marketing 54,132 26,008 11,776
General and administrative 11,156 5,868 2,516
Merger-related 29,375 -- --
--------------------------------------
Total operating expenses 125,875 44,930 19,499
--------------------------------------
Income from operations 10,648 16,061 4,689
Interest income, net 9,906 2,793 266
--------------------------------------
Income before provision for income taxes 20,554 18,854 4,955
Provision for income taxes 10,817 5,994 1,277
--------------------------------------
Net income $ 9,737 $ 12,860 $ 3,678
======================================
Net income per common share $ 0.11 $ 0.18 $ 0.06
======================================
Weighted average common and common
equivalent shares outstanding 86,432,248 73,481,490 59,298,000
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 27
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31 (IN THOUSANDS,
EXCEPT SHARE AND PER-SHARE DATA) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $204,013 $ 38,983
Short-term investments 92,142 29,482
Accounts receivable, net of allowance for
doubtful accounts of $1,087 at March 31, 1996
and $574 at March 31, 1995 49,990 25,582
Inventories 27,495 18,902
Deferred income taxes 19,574 6,213
Prepaid expenses and other current assets 6,382 4,417
---------------------
Total current assets 399,596 123,579
Fixed assets, net 24,766 7,903
---------------------
Total assets $424,362 $131,482
=====================
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 32,430 $ 13,254
Accrued payroll and related costs 10,723 4,997
Income taxes payable 4,542 5,308
Other current liabilities 8,578 3,737
Accrued merger costs 20,045 --
Deferred revenue 12,054 6,460
---------------------
Total current liabilities 88,372 33,756
---------------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share; 300,000,000
shares authorized; shares issued and outstanding:
87,982,594 at March 31, 1996 and 68,705,496
at March 31, 1995 323,134 93,316
Retained earnings 13,384 4,674
Valuation allowance for short-term investments (528) (264)
---------------------
Total stockholders' equity 335,990 97,726
---------------------
Total liabilities and stockholders' equity $424,362 $131,482
=====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK AND OTHER STOCKHOLDERS'
EQUITY
<TABLE>
<CAPTION>
VALUATION
COMMON STOCK ALLOWANCE FOR RETAINED
------------------------ SHORT-TERM EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT INVESTMENTS (DEFICIT) TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1993 25,886,226 $ 7,804 $ -- $(11,464) $ (3,660)
Issuance of common stock under
stock option plan 969,678 68 -- -- 68
Issuance of common stock in public
offering 5,032,000 29,469 -- -- 29,469
Exercise of warrants 95,374 49 -- -- 49
Compensation related to options
granted -- 48 -- -- 48
Conversion of ALANTEC Series A
redeemable convertible preferred
stock 8,614,814 9,742 -- -- 9,742
Accretion of Series A redeemable
convertible preferred stock
redemption value -- -- -- (400) (400)
Net income -- -- -- 3,678 3,678
------------------------------------------------------------------
Balance, March 31, 1994 40,598,092 47,180 -- (8,186) 38,994
Issuance of common stock under
stock option and employee
purchase plans 2,178,384 1,796 -- -- 1,796
Issuance of common stock in public
offering 9,800,000 35,450 -- -- 35,450
Conversion of FORE Series A
redeemable convertible preferred
stock 16,129,020 5,500 -- -- 5,500
Income tax benefit from stock option
plan activity -- 3,390 -- -- 3,390
Change in valuation allowance for
short-term investments -- -- (264) -- (264)
Net income -- -- -- 12,860 12,860
------------------------------------------------------------------
Balance, March 31, 1995 68,705,496 93,316 (264) 4,674 97,726
Issuance of common stock under
stock option and employee
purchasse plans 2,905,522 13,045 -- -- 13,045
Acquisitions (see Note 2) 3,341,786 3,028 -- (1,027) 2,001
Issuance of common stock in public
offerings 13,029,790 208,491 -- -- 208,491
Income tax benefit from stock
option plan activity -- 5,254 -- -- 5,254
Change in valuation allowance for
short-term investments -- -- (264) -- (264)
Net income -- -- -- 9,737 9,737
------------------------------------------------------------------
Balance, March 31, 1996 87,982,594 $323,134 $(528) $ 13,384 $335,990
==================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 (IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,737 $ 12,860 $ 3,678
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,817 2,857 869
Amortization of capitalized software development costs 1,673 601 47
Deferred income tax benefit (13,011) (5,745) (390)
Change in operating assets and liabilities:
Accounts receivable (24,250) (13,889) (8,268)
Inventories (8,567) (11,922) (4,912)
Prepaid expenses and other current assets (2,217) (2,214) (1,403)
Accounts payable 18,977 5,832 5,680
Accrued liabilities 10,066 5,057 2,185
Income taxes payable 4,488 7,284 1,155
Accrued merger costs 20,045 -- --
Deferred revenue 5,375 4,707 1,666
--------------------------------------------
Net cash provided by operating activities 29,133 5,428 307
--------------------------------------------
Cash flows from investing activities:
Purchases of short-term investments (159,174) (44,942) (1,000)
Redemption and sale of short-term investments 96,250 16,197 --
Capitalization of software development costs (1,364) (924) (313)
Cash from merger-related activity 1,273 -- --
Purchases of fixed assets (23,507) (8,204) (2,472)
--------------------------------------------
Net cash used in investing activities (86,522) (37,873) (3,785)
--------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable -- -- 391
Principal payments on notes payable and capital lease obligations (280) (267) (181)
Proceeds from issuance of common stock 222,699 37,246 29,658
--------------------------------------------
Net cash provided by financing activities 222,419 36,979 29,868
--------------------------------------------
Increase in cash and cash equivalents 165,030 4,534 26,390
--------------------------------------------
Cash and cash equivalents at beginning of year 38,983 34,449 8,059
--------------------------------------------
Cash and cash equivalents at end of year $ 204,013 $ 38,983 $34,449
============================================
Cash paid during the year for:
Interest $ 18 $ 63 $ 63
Income taxes $ 19,833 $ 4,875 $ 560
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
FORE Systems, Inc. ("FORE" or the "Company") designs, develops,
manufactures and sells high-performance networking products based on
Asynchronous Transfer Mode ("ATM") technology. ATM is the international
standard that was developed by the telecommunications industry to support
broadband multimedia applications transmitted over high-speed networks.
Principles of Consolidation and Basis of Presentation
The financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany transactions have been eliminated.
The consolidated financial data contained herein include the accounts of
ALANTEC Corporation ("ALANTEC") for all periods presented (see Note 2). The
Company's fiscal year ends March 31. Any reference to years stated hereafter
represents the fiscal year unless otherwise indicated.
On May 6, 1996, the Company's Board of Directors declared a two-for-one
common stock split effected in the form of a common stock dividend paid on June
3, 1996 to stockholders of record on May 20, 1996. All share and per-share data
for all periods presented have been retroactively adjusted to give effect to the
stock split.
Revenue Recognition
Revenue is recognized when the product is shipped provided that all
significant obligations are fulfilled. Revenue from support contracts is
recognized ratably over the term of the related agreements. Revenue from
initial license fees, including limited warranty services, is recognized upon
the delivery of the software and the costs associated with providing such
services, which are immaterial, are accrued.
Development contract and grant revenue arises from agreements entered
into with various governmental agencies and commercial entities for the
research and development of ATM technology and its application to networks.
Revenue on these contracts is recognized on a percentage of completion basis or
as hours and costs are incurred and billed at stipulated rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
Cash and Cash Equivalents and Short-term Investments
The Company's policy is to invest its excess cash in U.S. Government
securities, interest-bearing deposits with major banks, municipal notes and
bonds and commercial paper of companies with strong credit ratings that are
subject to minimal credit and market risk. Cash equivalents consist of money
market funds, commercial paper and municipal notes and bonds which have
original maturities of 90 days or less. Short-term investments include
securities purchased with an original maturity of greater than 90 days.
In 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), on a prospective basis. The Company has classified
all of its short-term investments at March 31, 1996 and 1995 as available for
sale. In accordance with
30
<PAGE> 31
SFAS 115, securities available for sale are recorded at fair market value and
any unrealized gains or losses are recorded as part of stockholders' equity.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method.
Capitalized Software Development Costs
Software development costs for new software and enhancements to
existing software are expensed as incurred until the establishment of
technological feasibility. Subsequent to establishment of technological
feasibility, the Company capitalizes software development costs incurred until
the product is available for general release to customers. Capitalized software
development costs are amortized to cost of sales on a product-by-product basis
over the estimated lives of the related products. Unamortized capitalized
software development costs of $280 and $589 are included in prepaid expenses
and other current assets at March 31, 1996 and 1995, respectively.
Fixed Assets
Equipment and furniture are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets which range
up to 5 years. Leasehold improvements are recorded at cost and amortized over
the shorter of the estimated lives of the related assets or the term of the
lease.
Warranty Reserve
The Company provides a warranty generally for up to fifteen months on
its products. Estimated warranty costs are accrued at the time revenue is
recognized and are charged to cost of sales.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires an asset and liability approach in accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
established to reflect the future tax consequences, utilizing enacted tax
rates, of temporary differences between the tax bases and financial bases of
assets and liabilities.
Foreign Currency
The functional currency for the Company's foreign operations is the
U.S. dollar. Monetary assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at exchange rates in effect as of
the balance sheet date, and nonmonetary assets and liabilities are translated
at historical exchange rates. Results of operations are translated at the
average exchange rates for the period. Foreign exchange gains and losses, which
are immaterial, are included in the results of operations.
Financial Instruments
The Company uses forward currency exchange contracts on a limited
basis to manage foreign currency exchange rate risk and does not use them for
trading purposes. The exposure to credit risk for these contracts is minimal
since they are with major financial institutions. These contracts' terms range
from one month to two years and are entered to hedge certain firm purchase
commitments denominated in those currencies. At March 31, 1996
31
<PAGE> 32
and 1995, the Company had outstanding forward currency exchange contracts to
buy $171 and $171, respectively, and to sell $0 and $72, respectively.
At March 31, 1996, the Company had an outstanding forward treasury
agreement. The Company entered into this agreement to reduce the impact of
changes in interest rates on future lease expense for the new facilities (see
Note 14). The interest rate fluctuations will result in a receipt or
disbursement of funds by the Company upon termination of the agreement on July
31, 1997. The amount exchanged will be amortized over the term of the lease.
Net Income per Common Share
Net income per common share is calculated based on the weighted
average number of common shares and common equivalent shares outstanding during
the year. For 1994, a pro forma calculation has been used pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, in which
certain common and common equivalent shares issued by the Company subsequent to
March 31, 1993 have been included in the calculation of weighted average
shares, using the treasury stock method and the initial public offering price,
as if these shares were outstanding for all of 1994. Additionally, outstanding
shares of Series A redeemable convertible preferred stock which were issued
prior to March 31, 1993 and which converted into common stock upon consummation
of the offerings, are treated as if converted into common stock as of March 31,
1993. Historical net income per share, without giving effect to the
above-described treatment of common and common equivalent shares issued by the
Company subsequent to March 1, 1993 and the conversion of the preferred stock,
was $.08 in 1994.
Advertising
Advertising costs are charged to operations when incurred. The Company
did not incur any costs associated with direct response advertising in 1996 and
1995, and there were no capitalized advertising costs at March 31, 1996 and
1995. Advertising expense for 1996, 1995 and 1994 was $5,314, $2,693 and
$1,273, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
2. BUSINESS COMBINATIONS
ALANTEC Corporation
On February 23, 1996, the Company consummated the acquisition of
ALANTEC. ALANTEC designs, develops, manufactures and sells intelligent
switching hubs for the Ethernet and Fiber Distributed Data Interface local area
networks ("LANs"). The transaction was accounted for as a pooling of interests.
The Company issued 11,213,802 shares of its common stock in exchange for all of
the outstanding shares of ALANTEC common stock. Effective upon the consummation
of the acquisition, all outstanding stock options to purchase shares of ALANTEC
common stock were assumed by the Company and deemed to constitute options to
purchase, on the same terms and conditions (including per-share exercise
price), an equivalent number of shares of the Company's common stock.
Accordingly, the Company reserved 1,800,070 shares of common stock for issuance
to holders of options formerly exercisable for shares of ALANTEC common stock.
Merger-related expenses of approximately $27 million were expensed
upon the consummation of the acquisition in the quarter ended March 31, 1996.
Merger-related expenses included $10 million of transaction costs, $9 million
related to duplicate facilities and assets, $4 million for transition and
severance agreements for duplicate employees and $4 million of other costs.
Transaction costs incurred by the Company include fees to financial
32
<PAGE> 33
advisors, legal and accounting fees and other related expenses. The following
information shows revenue and net income of the separate companies during the
periods preceding the acquisition:
<TABLE>
<CAPTION>
Year Ended March 31, 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Revenue
FORE $ 75,498 $23,506
ALANTEC 30,690 15,834
----------------------------
$106,188 $39,340
============================
Net income
FORE $ 7,360 $ 2,078
ALANTEC 5,500 1,600
----------------------------
$ 12,860 $ 3,678
============================
</TABLE>
Other
During the quarter ended December 31, 1995, the Company acquired
CellAccess Technology, Inc. ("CAT"), a developer of digital access products for
ATM and Frame Relay networks. The Company issued 1,408,948 shares of common
stock (resulting in an increase to common stock of $2,248,000) in exchange for
all of the outstanding shares of CAT. This business combination has been
accounted for as a pooling of interests. In connection with this business
combination, the Company incurred merger-related expenses of approximately
$690,000 which consist primarily of fees to financial advisors, legal and
accounting fees, facility consolidation costs and other related expenses.
During the quarter ended June 30, 1995, the Company acquired Applied
Network Technology, Inc. ("ANT"), a developer of Ethernet switches, and
RainbowBridge Communications, Inc. ("RCI"), a developer of routing software.
The Company issued an aggregate of 1,932,838 shares of its common stock
(resulting in an increase to common stock of $780,000) in exchange for all of
the outstanding shares of ANT and RCI. The Company also reserved 728,404
additional shares of common stock for issuance to holders of options formerly
exercisable for shares of ANT common stock. Each of these business combinations
has been accounted for as a pooling of interests. In connection with these
business combinations, the Company incurred merger-related expenses of
approximately $1.6 million which consist of fees to financial advisors, legal
and accounting fees and other related expenses.
The aggregated historical results of operations and financial position
of CAT, ANT and RCI are not material to the Company's consolidated financial
statements and prior period amounts have, therefore, not been restated.
Accordingly, retained earnings have been adjusted as of the beginning of fiscal
1996, to reflect the aggregate accumulated deficit of ANT and RCI of $574,000,
and as of the beginning of fiscal 1996, to reflect the accumulated deficit of
CAT of $453,000. The aggregate revenue and earnings of CAT, ANT and RCI for
fiscal years 1995 and 1994 are immaterial in comparison to the revenue and
earnings reported by the Company for those periods.
33
<PAGE> 34
3. SHORT-TERM INVESTMENTS
Short-term investments, classified as available for sale, consist of the
following:
<TABLE>
<CAPTION>
Amortized Unrealized Market
March 31, 1996 Cost Gain (Loss) Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal notes and bonds $54,337 $(568) $53,769
Commercial paper and other 24,416 (38) 24,378
U.S. Government securities 13,917 78 13,995
---------------------------------------
$92,670 $(528) $92,142
=======================================
</TABLE>
<TABLE>
<CAPTION>
Amortized Unrealized Market
March 31, 1995 Cost Gain (Loss) Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal notes and bonds $16,498 $(301) $16,197
Commercial paper and other 11,266 23 11,289
U.S. Government securities 1,982 14 1,996
---------------------------------------
$29,746 $(264) $29,482
=======================================
</TABLE>
The contractual maturity of available-for-sale securities at March 31,
1996 was $263,908 within one year and $12,555 over one year and less than three
years. Gross realized gains and losses on sales of securities in 1996 and 1995
were immaterial. At March 31, 1996 and 1995, cash and cash equivalents include
$184,321 and $31,952, respectively, of securities which are classified as held
to maturity and for which cost approximates fair value.
4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 9,408 $ 8,314
Work in process 10,939 6,510
Finished goods 7,148 4,078
-----------------------
Total inventories $27,495 $18,902
=======================
</TABLE>
5. FIXED ASSETS
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
March 31 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $ 1,627 $ 521
Land 2,151 --
Equipment and furniture 32,353 11,831
-----------------------
Total fixed assets 36,131 12,352
Less: accumulated depreciation and amortization 11,365 4,449
-----------------------
Fixed assets, net $24,766 $ 7,903
=======================
</TABLE>
34
<PAGE> 35
6. LINE OF CREDIT
The Company has a line of credit available from a bank under which it
can borrow up to $20 million. The agreement bears interest at either the prime
rate or the LIBOR rate plus 1%, at the option of the Company. Borrowings under
this arrangement are secured by the Company's fixed assets, inventories and
accounts receivable. There were no borrowings under this line at March 31,
1996. The bank agreement contains certain covenants, the most restrictive of
which require the maintenance of a certain level of net worth, and expires on
September 30, 1996.
7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
At March 31, 1996 and 1995, the Company had notes payable and capital
lease obligations aggregating $717 and $383, respectively, which are included
in other current liabilities. Interest expense for the years ended March 31,
1996, 1995 and 1994 was $29, $64 and $54, respectively.
8. INCOME TAXES
The components of the provision for income taxes for the years
ended March 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended March 31 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense:
Federal $ 19,503 $ 9,620 $1,285
State 4,677 1,869 342
Foreign 141 22 11
----------------------------------------
Total current income tax expense 24,321 11,511 1,638
----------------------------------------
Deferred income tax benefit:
Federal (10,725) (5,028) (291)
State (2,779) (489) (70)
----------------------------------------
Total deferred income tax benefit (13,504) (5,517) (361)
----------------------------------------
Total income taxes $ 10,817 $ 5,994 $1,277
========================================
</TABLE>
Deferred income taxes result from differences in the timing of recognition of
income and expense items for tax and financial reporting purposes. The
principal sources of such differences and the tax effect of each are as follows
for the years ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
March 31 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Reserves not currently deductible $ 9,896 $2,365
Deferred revenue 1,481 927
Depreciation and amortization 357 295
Other 1,038 505
Capitalized software development costs (114) (257)
Research and development credits 131 456
Net operating loss carryforwards 1,033 1,665
Merger-related expenses 5,638 --
-----------------------
Net deferred tax assets $19,460 $5,956
=======================
</TABLE>
35
<PAGE> 36
The deferred tax liabilities of $114 and $257 at March 31, 1996 and 1995,
respectively, are included in other current liabilities.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pre-tax income as a result of the following differences:
<TABLE>
<CAPTION>
Year Ended March 31 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to income
before taxes 35.00% 34.00% 34.00%
State income taxes, net of
federal benefit 5.70 4.27 3.37
Foreign Sales Corporation (8.77) -- --
Research and development credits (0.80) (1.76) (2.02)
Foreign income taxed at different rates 0.39 -- --
Realization of net operating loss
carryforwards -- (6.58) (7.06)
Merger-related expenses 20.83 -- --
Other, net 0.27 1.86 (2.51)
-------------------------------------
Total income taxes 52.62% 31.79% 25.78%
=====================================
</TABLE>
9. STOCKHOLDERS' EQUITY
Authorized Capital
On May 6, 1996, the Company's stockholders approved an increase in the
authorized shares of the Company's common stock, par value $.01 per share, to
300,000,000 shares. The Company has 5,000,000 authorized shares of preferred
stock. Preferred stock may be issued at the discretion of the Board of
Directors of the Company (without stockholder approval), with such
designations, rights and preferences as the Board of Directors may determine
from time to time.
Public Offerings
On February 4, 1994, ALANTEC completed its initial public offering of
5,750,000 shares of common stock, of which 5,032,000 shares were sold by
ALANTEC and 718,000 shares were sold by selling stockholders. Net proceeds to
ALANTEC as a result of the offering were approximately $29.5 million. Upon
consummation of the ALANTEC initial public offering, all outstanding shares of
ALANTEC Series A redeemable convertible preferred stock were converted into
8,614,814 shares of common stock.
On May 23, 1994, FORE completed its initial public offering of
13,800,000 shares of common stock, of which 9,800,000 shares were sold by the
Company and 4,000,000 shares were sold by selling stockholders. Net proceeds to
the Company as a result of the offering were approximately $35.5 million. Upon
consummation of the FORE initial public offering, all outstanding shares of
FORE Series A redeemable convertible preferred stock were converted into
16,129,020 shares of common stock.
On April 20, 1995, ALANTEC completed a public offering of 5,058,390
shares of common stock, of which 4,659,790 shares were sold by ALANTEC and
398,600 shares were sold by selling stockholders. Net proceeds to ALANTEC as a
result of the offering were approximately $79.5 million.
36
<PAGE> 37
On October 18, 1995, the Company completed a public offering of
9,200,000 shares of common stock, of which 8,370,000 shares were sold by the
Company and 830,000 shares were sold by selling stockholders. Net proceeds to
the Company as a result of the offering were approximately $129.0 million.
10. STOCK OPTION PLANS
The Company's stock option plans provide for the issuance of an
aggregate of 25,984,062 shares of common stock, of which 7,970,520 shares are
available for future grants at March 31, 1996. Options exercisable were
1,858,180 and 1,488,906 at March 31, 1996 and 1995, respectively.
The Compensation Committee of the Board of Directors determines the
term of each option, option exercise price within limits set forth in the
plans, number of shares for which each option is granted and the rate at which
each option is exercisable. However, under certain plans, the exercise price of
any stock option may not be less than the fair market value of the shares on
the date granted (or less than 110% of the fair market value in the case of an
optionee holding more than 10% of the voting stock of the Company), and the
term cannot exceed ten years (five years for stock options granted to holders
of more than 10% of the Company's voting stock); under certain other plans, the
exercise price for stock options, which do not qualify as an incentive stock
option under the Internal Revenue Code, are determined by the Compensation
Committee of the Board of Directors in its discretion and the term of such
options cannot exceed ten years. Transactions under the stock option plans for
the year ended March 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Exercise Price
Under Options Per Share
------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at March 31, 1995 10,480,002 $.02-$23.00
Options Granted 5,196,872 $.17-$35.94
Options Exercised (2,670,058) $.02-$19.44
Options Canceled (1,460,478) $.13-$22.06
---------------------------
Outstanding at March 31, 1996 11,546,338 $.02-$35.94
===========================
</TABLE>
The employee stock purchase plans (the "Stock Purchase Plans") allow eligible
employees the opportunity to purchase up to an aggregate of 2,109,530 shares of
common stock through payroll deductions at a purchase price per share not less
than 85% of the fair market value on the first or last day of the quarterly
offering periods (as defined in the Stock Purchase Plans), whichever is lower.
The shares issued under the Stock Purchase Plans were 203,794 and 98,178 as of
March 31, 1996 and 1995, respectively.
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). The Company intends to adopt SFAS 123 through
disclosure only effective April 1, 1996.
11. DEFINED CONTRIBUTION PLAN
In November 1993, the Company adopted a 401(k) plan (the "Plan") that
covers substantially all employees who meet minimum age and service
requirements. Company contributions are determined at the discretion of the
Board of Directors. The Plan also permits tax-deferred salary deductions for
eligible employees in accordance with the Internal Revenue Code.
The expenses of this plan for the years ended March 31, 1996, 1995 and
1994 were $1,014, $421 and $70, respectively.
37
<PAGE> 38
12. SEGMENT, MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK INFORMATION
The Company operates in a single industry segment encompassing the
development, manufacture, marketing, selling and technical support of
networking products and services.
Revenue from government agencies, as a percentage of total revenue, for
the years ended March 31, 1996, 1995 and 1994 were 7%, 7% and 10%, respectively.
There were no customers with revenue in excess of 10% of the Company's
total revenue for the years ended March 31, 1996, 1995 and 1994.
Financial instruments which potentially expose the Company to
concentrations of credit risk include accounts receivable. The Company performs
an initial credit review and ongoing evaluations of customers' financial
conditions and, generally, does not require collateral. In addition, the Company
maintains reserves for potential credit losses which, in the aggregate, have not
exceeded management expectations.
Accounts receivable were concentrated as follows:
<TABLE>
<CAPTION>
March 31 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C>
Domestic 66% 68%
Foreign 31 31
U.S. Government 3 1
-------------------
100% 100%
===================
</TABLE>
13. INTERNATIONAL REVENUE
Revenue from sales to customers outside the United States for the
years ended March 31, 1996, 1995 and 1994 was distributed as follows:
<TABLE>
<CAPTION>
Year Ended March 31 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $46,797 $16,522 $ 4,381
Pacific Rim 31,821 18,893 8,851
Other 13,711 1,972 615
---------------------------------------
Total $92,329 $37,387 $13,847
=======================================
</TABLE>
14. LEASE COMMITMENTS
In December 1995, the Company entered into agreements to lease
headquarters and operating facilities to be constructed on land which was
purchased by the Company. The lessor and an additional lender have committed to
fund up to a maximum of $41 million for the construction of the buildings. The
Company will lease the facilities under a ten-year operating lease and has
options to renew the lease for two additional five-year terms. Future annual
minimum rental payments under the lease are approximately $3.5 million and are
expected to commence in fiscal 1997. During the construction period, the
Company has guaranteed the repayment of up to approximately $37 million of the
lessor's construction financing for the facilities.
Accordingly, as part of the above lease transaction, the Company
pledged $4.3 million, at March 31, 1996, of securities it holds as collateral
for specified obligations of the lessor. In addition, under the terms of the
lease, the Company is required to comply with certain financial covenants
including the maintenance of a minimum tangible net worth. Other restrictive
covenants limit indebtedness and the payment of dividends.
38
<PAGE> 39
The Company may, at its option, purchase the facilities during or at
the expiration of the term of the lease at an amount equal to the remaining
balance of any debt of the lessor related to the construction of the facilities
plus any applicable prepayment penalties. If the Company does not exercise the
purchase option at the end of the lease, the Company will guarantee the
residual value of the facilities of approximately $24 million, an amount which
was determined at the lease inception date.
The Company has purchased additional option property by issuing a note
that is secured by a mortgage that encumbers the option property. The note of
$614 is included in other current liabilities. The Company also has operating
lease agreements relating to certain other facilities and equipment which
expire at various dates. Rent expense on operating leases for the years ended
March 31, 1996, 1995 and 1994 was $5,167, $2,671 and $969, respectively. Future
minimum payments under all non-cancelable operating leases as of March 31, 1996
are summarized as follows:
<TABLE>
<CAPTION>
Operating
Leases
-----------------------------------------------------------------
<S> <C>
1997 $ 7,728
1998 7,630
1999 7,342
2000 5,376
2001 4,338
Thereafter 51,659
-------
Total $84,073
=======
</TABLE>
15. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except Year Ended March 31, 1996
for per-share data) Q4 Q3 Q2 Q1
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 75,271 $63,974 $52,062 $43,882
Gross profit $ 43,811 $37,158 $30,168 $25,386
Merger-related expenses $ 27,098 $ 690 $ -- $ 1,587
Income (loss) from operations $(13,870) $10,343 $ 8,623 $ 5,552
Net income (loss) $ (9,575) $ 8,516 $ 6,734 $ 4,062
Net income (loss) per common
share $ (.11) $ .09 $ .08 $ .05
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except Year Ended March 31, 1995
for per-share data) Q4 Q3 Q2 Q1
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $37,655 $29,407 $21,936 $17,190
Gross profit $21,525 $16,827 $12,744 $ 9,895
Income from operations $ 6,293 $ 4,718 $ 3,078 $ 1,972
Net income $ 4,673 $ 3,869 $ 2,633 $ 1,685
Net income per
common share $ .06 $ .05 $ .04 $ .02
</TABLE>
16. CONTINGENCIES
In April 1994, ALANTEC was notified that in March 1994 two founders
and one former employee of ALANTEC filed a lawsuit against certain former
directors, a former officer and several stockholders of ALANTEC ("Defendants"),
seeking damages for alleged breaches of fiduciary duties by the Defendants in
the course of various
39
<PAGE> 40
transactions in which ALANTEC obtained additional financing in exchange for the
issuance of convertible preferred stock. While ALANTEC was not named as a
defendant in the suit, ALANTEC's bylaws and indemnification agreements between
ALANTEC and certain of the Defendants require the Company to fund certain
ongoing legal fees associated with defending the suit on behalf of the
Defendants. For the year ended March 31, 1996, the Company incurred $360 for
litigation expenses related to these matters. While the Company expects to
continue to incur legal expenses with respect to the litigation, the Company
believes that the ultimate resolution of the litigation will not have a
material adverse effect on the Company's financial position or results of
operations. The lawsuit is in the discovery stage and a trial has been
scheduled for September 1996.
40
<PAGE> 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
41
<PAGE> 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "Executive Officers of the
Registrant" in Part I of this Annual Report on Form 10-K and the information
set forth under the captions "Election of Directors" and "Other Matters" in the
Proxy Statement is incorporated herein by reference in response to this Item
10.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation" in
the Proxy Statement is incorporated herein by reference in response to this
Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the subcaption "Compensation Committee
Interlocks and Insider Participation" under the caption "Executive
Compensation" in the Proxy Statement is incorporated herein by reference to
this Item 13.
42
<PAGE> 43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company are filed as part of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Price Waterhouse LLP ............................................ 25
Consolidated Statement of Income for the
years ended March 31, 1996, 1995 and 1994 ............................... 26
Consolidated Balance Sheet as of March 31,
1996 and 1995 ........................................................... 27
Consolidated Statement of Changes in Common
Stock and Other Stockholders' Equity for the years
ended March 31, 1996, 1995 and 1994 ..................................... 28
Consolidated Statement of Cash Flows for the
years ended March 31, 1996, 1995 and 1994 ............................... 29
Notes to Consolidated Financial Statements ................................ 30
Financial Statement Schedule:
Schedule II - Valuation and Qualifying
Accounts and Reserves ................................................. 48
</TABLE>
Financial statement schedules not listed above have been omitted because
they are inapplicable, are not required under applicable provisions of
Regulation S-X, or the information that would otherwise be included in such
schedules is contained in the registrant's consolidated financial statements or
accompanying notes.
43
<PAGE> 44
2. EXHIBITS. The Exhibits listed below are filed or incorporated
by reference as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 13, 1995, and
amended as of December 22, 1995, by and among FORE Systems, Inc.,
Croesus Acquisition Corporation and ALANTEC Corporation. (Incorporated
by reference to Exhibit 2.1 to the registrant's Form 8-K/A (Amendment
No. 1) filed with the Commission on February 9, 1996.)
3.1 Amended and Restated Certificate of Incorporation of FORE Systems,
Inc., (as amended by Certificate of Amendment dated May 6, 1996).
3.2 Amended and Restated Bylaws of FORE Systems, Inc. (Incorporated by
reference to Exhibit 4.1 of the registrant's Registration Statement on
Form S-8, File No. 333-1728.)
10.1 FORE Systems, Inc. Incentive Stock Option Plan and Nonqualified Stock
Option Plan. (Incorporated by reference to Exhibit 10.01 to the
registrant's Registration Statement on Form S-1, File No. 33- 76176.)
(1)
10.2 FORE Systems, Inc. 1994 Stock Option Plan. (Incorporated by reference
to Exhibit 10.02 to the registrant's Registration Statement on Form
S-1, File No. 33-76176.) (1)
10.3 FORE Systems, Inc. 1994 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 10.05 to the registrant's Registration Statement
on Form S-1, File No. 33-76176.) (1)
10.4 FORE Systems, Inc. 1995 Stock Incentive Plan. (Incorporated by
reference to Exhibit 10.4 to the registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1995.) (1)
10.5 ALANTEC Corporation Second Amended and Restated 1991 Stock Option
Plan. (Incorporated by reference to Exhibit 4.2 to the registrant's
Post-Effective Amendment No. 1 to Form S-4 Registration Statement on
Form S-8, File No. 333-00468.) (1)
10.6 ALANTEC Corporation 1994 Stock Option Plan (Incorporated by reference
to Exhibit 10.15 to ALANTEC Corporation's Form 10-Q for the quarterly
period ended June 30, 1995). (1)
10.7 ALANTEC Corporation 1995 Directors' Option Plan. (Incorporated by
reference to Exhibit 4.4 to the registrant's Post-Effective Amendment
No. 1 to Form S-4 Registration Statement on Form S-8, File No. 333-
00468.) (1)
10.8 ALANTEC Corporation 1994 Employee Stock Purchase Plan. (Incorporated
by reference to Exhibit 4.3 to the registrant's Registration Statement
on Form S-8, File No. 333-1728). (1)
10.9 FORE Systems, Inc. Change in Control Separation Plan. (1)
10.10 Summary of Fiscal Year 1996 Senior Management Bonus Plan. (1)
10.11(a) Lease between Regional Industrial Development Corporation of
Southwestern Pennsylvania and FORE Systems, Inc., dated as of July 22,
1993. (Incorporated by reference to Exhibit 10.03.01 to the
registrant's Registration Statement on Form S-1, File No. 33-76176.)
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.11(b) Amendment of Lease between Regional Industrial Development Corporation
of Southwestern Pennsylvania and FORE Systems, Inc., dated as of
January 10, 1994. (Incorporated by reference to Exhibit 10.03.02 to
the registrant's Registration Statement on Form S-1, File No.
33-76176.)
10.11(c) Second Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc., dated
as of March 31, 1994.
10.11(d) Third Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc., dated
as of May 1, 1994.
10.11(e) Fourth Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc., dated
as of June 10, 1995.
10.11(f) Fifth Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc., dated
as of May 7, 1996.
10.12(a) Lease between Dominic and Maria Gigliotti and FORE Systems, Inc.,
dated as of October 12, 1994. (Incorporated by reference to Exhibit
10.6(a) to the registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995.)
10.12(b) Lease Amendment between Dominic and Maria Gigliotti and FORE Systems,
Inc., dated as of February 22, 1995. (Incorporated by reference to
Exhibit 10.6(b) to the registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995.)
10.12(c) Lease Amendment between Dominic and Maria Gigliotti and FORE Systems,
Inc., dated as of May 12, 1995. (Incorporated by reference to Exhibit
10.6(c) to the registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995.)
10.13 Pittsburgh Office and Research Park Building II Lease Agreement by and
between Zell Two Inc. and FORE Systems, Inc., dated as of July 24,
1995. (Incorporated by reference to Exhibit 10.9 to the registrant's
Form 10-Q for the quarterly period ended December 31, 1995.)
10.14 Lease between ALANTEC Corporation and Orchard Investment Company
Number 901, dated as of March 21, 1995. (Incorporated by reference to
Exhibit 10.23 to ALANTEC Corporation's Registration Statement on Form
S-3, File No. 33-90442.)
10.15 Participation Agreement, dated as of December 13, 1995, by and among
FORE Systems, Inc., Wilmington Trust Company, Mellon Financial
Services Corporation #4 and Mellon Bank, N.A. (Incorporated by
reference to Exhibit 10.1 to the registrant's Form 10-Q for the
quarterly period ended December 31, 1995.)
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.16 Lease and Open End Mortgage, dated as of December 13, 1995, by and
between FORE Systems, Inc. and Wilmington Trust Company. (Incorporated
by reference to Exhibit 10.2 to the registrant's Form 10-Q for the
quarterly period ended December 31, 1995.)
10.17 Guaranty, dated as of December 13, 1995, by and among FORE Systems,
Inc., Mellon Bank, N.A. and Mellon Financial Services Corporation #4.
(Incorporated by reference to Exhibit 10.3 to the registrant's Form
10-Q for the quarterly period ended December 31, 1995.)
10.18 Guaranty Agreement, dated as of December 13, 1995, by and among FORE
Systems Holding Corporation, Mellon Bank, N.A. and Mellon Financial
Services Corporation #4. (Incorporated by reference to Exhibit 10.4 to
the registrant's Form 10-Q for the quarterly period ended December 31,
1995.)
10.19 Pledge and Security Agreement, dated as of December 13, 1995, by and
among FORE Systems Holding Corporation, Mellon Bank, N.A., Mellon
Financial Services Corporation #4 and Mellon Bank, N.A., as custodian.
(Incorporated by reference to Exhibit 10.5 to the registrant's Form
10-Q for the quarterly period ended December 31, 1995.)
10.20 Guaranty and Suretyship Agreement, dated as of December 13, 1995, by
and between FORE Systems, Inc. and The Redevelopment Authority of
Allegheny County. (Incorporated by reference to Exhibit 10.6 to the
registrant's Form 10-Q for the quarterly period ended December 31,
1995.)
10.21 Loan and Security Agreement, dated as of December 13, 1995, by and
between The Gustine Company and FORE Systems, Inc. (Incorporated by
reference to Exhibit 10.7 to the registrant's Form 10-Q for the
quarterly period ended December 31, 1995.)
10.22 Development Agreement, dated as of October 20, 1995, by and between
The Gustine Company and FORE Systems, Inc. (Incorporated by reference
to Exhibit 10.8 to the registrant's Form 10-Q for the quarterly period
ended December 31, 1995.)
10.23 Form of Non-Competition Agreement, each dated December 21, 1992,
between FORE Systems, Inc. and Dr. Eric C. Cooper, Dr. Robert D.
Sansom, Dr. Onat Menzilcioglu and Mr. Francois J. Bitz. (Incorporated
by reference to Exhibit 10.04 to the registrant's Registration
Statement on Form S-1, File No. 33-76176.) (1)
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of the registrant.
22.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
</TABLE>
- ------------------
(1) Management contract or compensatory plan or arrangement.
46
<PAGE> 47
(b) REPORTS ON FORM 8-K:
The Company filed the following Reports on Form 8-K during the quarter
ended March 31, 1996.
On January 24, 1996, the Company filed a Report under Item 5 of Form 8-K
dated January 23, 1996 regarding the financial results for its third fiscal
quarter ended December 31, 1995.
On January 26, 1996, the Company filed a Report under Item 5 of Form 8-K
dated January 25, 1996 regarding revised affiliate agreements relating to the
Agreement and Plan of Merger, dated as of December 13, 1995, and amended as of
December 22, 1995, by and among FORE Systems, Inc., Croesus Acquisition
Corporation and ALANTEC Corporation.
On February 9, 1996, the Company filed Amendment No. 1 on Form 8-K/A to a
Report under Item 5 of Form 8-K dated December 13, 1995 regarding an amendment
dated December 22, 1995 to the Agreement and Plan of Merger, dated as of
December 13, 1995, by and among FORE Systems, Inc., Croesus Acquisition
Corporation and ALANTEC Corporation.
On March 11, 1996, the Company filed a report under Items 2 and 5 of Form
8-K dated February 23, 1996 regarding (i) the acquisition by the Company of
ALANTEC and (ii) certain risk factors relating to future results of operation
of the Company.
On March 15, 1996, the Company filed Amendment No. 1 on Form 8-K/A to a
Report under Items 2 and 5 of Form 8-K dated February 23, 1996 regarding (i)
the acquisition by the Company of ALANTEC and (ii) certain risk factors
relating to future results of operation of the Company.
47
<PAGE> 48
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED MARCH 31, 1996
(IN THOUSANDS)
SCHEDULE II
<TABLE>
<CAPTION>
Balance at Balance at
Description March 31, 1995 Additions Deductions March 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $574 $ 587 $ (74) $ 1,087
Merger related costs $ -- $29,375 $(9,330) $20,045
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
Description March 31, 1994 Additions Deductions March 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $208 $409 $(43) $574
Merger related costs $ -- $ -- $ -- $ --
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
Description March 31, 1993 Additions Deductions March 31, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $57 $157 $(6) $208
Merger related costs $-- $ -- $-- $ --
=======================================================
</TABLE>
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FORE SYSTEMS, INC.
June 28, 1996 By: /s/ ERIC C. COOPER
------------------------------------
Eric C. Cooper
Chairman 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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ ERIC C. COOPER Chairman and Chief Executive June 28, 1996
- ---------------------- Officer (Principal Executive
Eric C. Cooper Officer) and a Director
/s/ THOMAS J. GILL Vice President, Finance, Chief June 28, 1996
- ---------------------- Financial Officer and Treasurer
Thomas J. Gill (Principal Financial and
Accounting Officer)
/s/ ONAT MENZILCIOGLU President and a Director June 28, 1996
- ----------------------
Onat Menzilcioglu
/s/ FRANCOIS J. BITZ Vice President, Engineering and June 28, 1996
- ---------------------- a Director
Francois J. Bitz
/s/ ROBERT D. SANSOM Vice President, Engineering and June 28, 1996
- ---------------------- a Director
Robert D. Sansom
/s/ GEORGE ARCHULETA President of LAN Switching June 28, 1996
- ---------------------- Division and a Director
George Archuleta
/s/ JOHN C. BAKER Director June 28, 1996
- ----------------------
John C. Baker
/s/ THOMAS J. CROTTY Director June 28, 1996
- ----------------------
Thomas J. Crotty
</TABLE>
49
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of FORE Systems,
Inc. (as amended by Certificate of Amendment dated May 6, 1996).
10.9 FORE Systems, Inc. Change in Control Separation Plan.
10.10 Summary of Fiscal Year 1996 Senior Management Bonus Plan.
10.11(c) Second Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc.,
dated as of March 31, 1994.
10.11(d) Third Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc.,
dated as of May 1, 1994.
10.11(e) Fourth Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc.,
dated as of June 10, 1995.
10.11(f) Fifth Amendment of Lease between Regional Industrial Development
Corporation of Southwestern Pennsylvania and FORE Systems, Inc.,
dated as of May 7, 1996.
11.1 Statement re Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
22.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
</TABLE>
50
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FORE SYSTEMS, INC.
(AS AMENDED BY CERTIFICATE OF AMENDMENT DATED MAY 6, 1996)
* * * * *
1. The name of the corporation is FORE Systems, Inc. The name
under which the corporation was originally incorporated is FSRC, Inc. The
corporation's original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on November 24, 1992.
2. This Amended and Restated Certificate of Incorporation
restates and integrates and also further amends in certain respects the
corporation's Amended and Restated Certificate of Incorporation.
2. This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the applicable provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware.
* * * * *
FIRST: The name of the corporation is
FORE Systems, Inc.
SECOND: The address of the registered office of the
corporation in the State of Delaware is 1209 Orange Street, Wilmington, New
Castle County, Delaware. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted
or promoted is:
To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is Three Hundred Five Million
(305,000,000) shares, which shall be divided into classes as follows:
A. Three Hundred Million (300,000,000) shares of
Common Stock, the par value of each of which shares is One Cent ($.01),
amounting in the aggregate to Three Million Dollars ($3,000,000); and
B. Five Million (5,000,000) shares of Preferred
Stock, the par value of each of which shares is One Cent ($.01),
<PAGE> 2
amounting in the aggregate to Fifty Thousand Dollars ($50,000.00). The
corporation's board of directors is hereby expressly authorized to
provide by resolution or resolutions from time to time for the issue of
the Preferred Stock in one or more series, the shares of each of which
series may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be permitted under the General
Corporation Law of the State of Delaware and as shall be stated in the
resolution or resolutions providing for the issue of such stock adopted
by the board of directors pursuant to the authority expressly vested in
the board of directors hereby.
FIFTH: The corporation is to have perpetual existence.
SIXTH:
A. The business and affairs of the corporation shall
be managed by or under the direction of a board of directors
consisting of such number of directors as is determined from time to
time by resolution adopted by affirmative vote of a majority of the
entire board of directors; provided, however, that in no event shall
the number of directors be less than three (3). The directors shall be
divided into three (3) classes, designated Class I, Class II and Class
III. Each class shall consist, as nearly
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as may be possible, of one-third (1/3) of the total number of
directors constituting the entire board of directors. Effective upon
the filing of this Amended and Restated Certificate of Incorporation,
Class I directors shall serve for a term ending upon the annual
meeting of stockholders held in the corporation's fiscal 1995 year,
Class II directors shall serve for a term ending upon the annual
meeting of stockholders held in the corporation's fiscal 1996 year and
Class III directors shall serve for a term ending upon the annual
meeting of stockholders held in the corporation's fiscal 1997 year. At
each succeeding annual meeting of stockholders beginning with the
annual meeting of stockholders held in the corporation's fiscal 1995
year, successors to the class of directors whose term expires at such
annual meeting shall be elected for a three-year term. If the number
of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any
class elected to fill a vacancy resulting from an increase in such
class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A
director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death,
resignation, incapacitation or removal from office, and except as
otherwise required by law. In the event such election is not held at
an annual meeting of stockholders, it shall be held at any adjournment
thereof or a special meeting.
B. Except as otherwise required by law, any vacancy
on the board of directors that results from an increase in the number
of directors shall be filled only by a majority of the board of
directors then in office, provided that a quorum is present, and any
other vacancy occurring in the board of directors shall be filled by a
majority of the directors then in office, even if less than a quorum,
or by a sole remaining director. Any director elected to fill a
vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his or her predecessor.
A director may be removed only for cause by the stockholders.
C. Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of stock issued by the
corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of
this Amended and Restated Certificate of Incorporation applicable
thereto and such
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directors so elected shall not be divided into classes pursuant to
this Article SIXTH, in each case unless expressly provided by such
terms.
SEVENTH: In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to make,
alter or repeal the by-laws of the corporation.
EIGHTH: The personal liability of the directors of the
corporation is hereby eliminated to the fullest extent permitted by Section
102(b)(7) of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented.
NINTH: Subject to the rights of the holders of any class or
series of capital stock having a preference over the Common Stock as to
dividends or upon liquidation, the stockholders of the corporation shall have
no authority to call a special meeting of the stockholders.
TENTH: Effective immediately upon the corporation becoming
subject to the periodic reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, with respect to any class of its capital
stock:
A. no action required to be taken or which may be
taken at any annual or special meeting of stockholders of the
corporation may be taken without a meeting; and
B. the power of the stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
ELEVENTH: Elections of directors need not be by written
ballot unless the by-laws shall so provide.
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EXHIBIT 10.9
FORE SYSTEMS, INC.
CHANGE IN CONTROL SEPARATION PLAN
Introduction
The Board of Directors of FORE Systems, Inc. recognizes that the
Corporation, as a publicly held company, may experience a change in control,
and that the possibility of a change in control may create uncertainty
resulting in the loss or distraction of certain key employees of the
Corporation to the detriment of the Corporation and its stockholders.
The Board considers the avoidance of such loss and distraction to be
essential to protecting and enhancing the best interests of the Corporation and
its stockholders. The Board also believes that when a change in control is
perceived as imminent, or is occurring, the Board should be able to receive and
rely on disinterested service from its key employees regarding the best
interests of the Corporation and its stockholders without concern that such
employees might be distracted or concerned by the personal uncertainties and
risks created by the perception that a change in control might be imminent.
Accordingly, the Board has determined that appropriate steps should be
taken to assure the Corporation of the continued employment and dedication to
duty of certain key employees and to ensure the availability of their continued
service, notwithstanding the possibility, threat or occurrence of a change in
control.
Therefore, in order to fulfill the above purposes, the FORE Systems,
Inc. Change In Control Separation Plan is hereby adopted by the Board.
ARTICLE I.
ESTABLISHMENT OF PLAN
As of the Effective Date, the Corporation has established a
compensation plan known as the FORE Systems, Inc. Change In Control Separation
Plan as set forth in this document.
<PAGE> 2
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the
following respective meanings unless the context clearly indicates otherwise:
(a) AVERAGE BONUS. The average annual bonus received by a Participant
for the three most recent fiscal years of the Corporation (or such lesser
number of fiscal years during which the Participant was employed by the
Corporation) completed prior to (i) the occurrence of a Change in Control or
(ii) the Participant's termination of employment, whichever produces the higher
average. For this purpose, if a Participant was employed by the Corporation
for only a portion of an applicable fiscal year, the Participant's bonus for
such fiscal year, if any, shall be annualized.
(b) BASE SALARY. The highest rate of annual base salary in effect for
a Participant from the Corporation or its Subsidiaries during the three most
recent fiscal years of the Corporation completed prior to (i) the occurrence of
a Change in Control or (ii) the Participant's termination of employment,
whichever produces the higher amount. Base Salary shall not include bonuses,
overtime pay, and incentive compensation.
(c) BOARD. The Board of Directors of the Corporation.
(d) CAUSE. "Cause" shall be determined by the Board in the exercise of
good faith and reasonable judgment, and shall mean the occurrence of any one or
more of the following:
(i) The Participant's conviction for committing an act of
fraud, embezzlement, theft, or other act constituting a felony; or
(ii) The willful engaging by the Participant in gross
misconduct materially and demonstrably injurious to the Corporation or
its Subsidiaries; provided, however, that no act or failure to act, on
the Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and without
reasonable belief that his action or omission was in the best interest
of the Corporation or its Subsidiaries.
(e) CHANGE IN CONTROL. "Change in Control" shall mean:
(i) The acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") (other than the Corporation, a
Subsidiary or any of their
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benefit plans) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 30% or more of either (i)
the then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the
"Corporation Voting Securities"); or
(ii) Individuals who, as of the Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual
becoming a director subsequent to the Effective Date whose election or
nomination for election by the Corporation's stockholders was approved
by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election
of the Directors of the Corporation (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act); or
(iii) Consummation by the Corporation of a reorganization,
merger or consolidation (a "Business Combination"), in each case, with
respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of the Outstanding
Corporation Common Stock and Corporation Voting Securities immediately
prior to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination in
substantially the same proportion as their ownership immediately prior
to such Business Combination of the Outstanding Corporation Common
Stock and Corporation Voting Securities, as the case may be; or
(iv)(A) Consummation of a complete liquidation or dissolution
of the Corporation or (B) sale or other disposition of all or
substantially all of the assets of the Corporation other than to a
corporation with respect to which, following such sale or disposition,
more than 50% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors is
then owned beneficially, directly or
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indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Corporation Common Stock and Corporation Voting Securities
immediately prior to such sale or disposition in substantially the
same proportion as their ownership of the Outstanding Corporation
Common Stock and Corporation Voting Securities, as the case may be,
immediately prior to such sale or disposition.
(f) CODE. The Internal Revenue Code of 1986, as amended from time to
time.
(g) COMMITTEE. The Compensation Committee of the Board.
(h) CORPORATION. FORE Systems, Inc., a Delaware corporation, and any
Successor.
(i) DATE OF TERMINATION. The effective date of a Participant's
termination of employment with the Corporation and its Subsidiaries.
(j) EFFECTIVE DATE. April 18, 1996, or such other date as the Board
shall designate in its resolution approving the Plan.
(k) GOOD REASON. Without the Participant's express written consent,
the occurrence of any one or more of the following:
(i) The Participant's position, management responsibilities
or working conditions are substantially diminished from those in
effect immediately prior to the Change in Control, as compared to
those of other senior executives of the Corporation, or the
Participant is assigned duties inconsistent with his or her position;
(ii) The Corporation's requiring the Participant to be based
at a location in excess of thirty-five (35) miles from the location of
the Participant's principal job location or office immediately prior
to the Change in Control, except for required travel on the
Corporation's business to an extent substantially consistent with the
Participant's business travel obligations immediately prior to the
Change in Control;
(iii) A material reduction by the Corporation of the
Participant's compensation or benefits from those in effect
immediately prior to the Change in Control;
(iv) The failure of the Corporation to obtain a satisfactory
agreement from any Successor to assume and agree to perform the
Corporation's obligations to the Participant under this Plan, as
contemplated in Article V herein.
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The Participant's right to terminate employment for Good Reason shall
not be affected by the Participant's (A) incapacity due to physical or mental
illness or (B) continued employment for less than ninety (90) days following
the occurrence of (or, if later, the Participant's gaining knowledge of) any
event constituting Good Reason herein.
(l) PARTICIPANT. A key employee who has been designated by the Board
as a participant in the Plan. The Participants as of the Effective Date are
listed on Schedule 1 attached to the Plan.
(m) PLAN. FORE Systems, Inc. Change in Control Separation Plan, as the
same may be amended from time to time.
(n) SEPARATION BENEFITS. The benefits payable in accordance with
Section 4.2 of the Plan.
(o) SUBSIDIARY. Any corporation in which the Corporation, directly or
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.
(p) SUCCESSOR. Another corporation or unincorporated entity or group
of corporations or unincorporated entities which acquires ownership, directly
or indirectly, of all or substantially all of the assets of the Corporation.
ARTICLE III
ELIGIBILITY
Schedule 1 to this Plan is a list of the key employees of the
Corporation who shall be Participants as of the Effective Date. The Board may
from time to time designate other key employees as Participants. All
Participants shall be management or highly compensated employees of the
Corporation. A Participant shall cease to be a Participant in the Plan when he
ceases to be an employee of the Corporation or a Subsidiary, unless such
Participant is then entitled to payment of a Separation Benefit as provided in
the Plan. A Participant entitled to payment of a Separation Benefit shall
remain a Participant in the Plan until the full amount of all Separation
Benefits has been paid to him.
ARTICLE IV
SEPARATION BENEFITS
IV.1 RIGHT TO SEPARATION BENEFIT. A Participant shall be entitled to
receive from the Corporation Separation Benefits in the amount provided in
Section 4.2 if a Change in Control occurs and if, within two years thereafter,
the Participant's employment
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<PAGE> 6
with the Corporation and its Subsidiaries shall terminate either (a) by action
of the Corporation without Cause or (b) by reason of the Participant's
resignation from such employment for Good Reason.
IV.2 SEPARATION BENEFITS. If a Participant's employment terminates in
circumstances entitling him to Separation Benefits as provided in Section 4.1,
subject to Section 4.4, the Participant shall be entitled to the following:
(a) The Corporation shall pay such Participant, within ten (10) days
of the Date of Termination, a Separation Benefit equal to one (1.0) times the
sum of (x) such Participant's Base Salary and (y) such Participant's Average
Bonus.
(b) The Participant shall receive from the Corporation an amount, paid
within ten (10) days of the Date of Termination, equal to (i) the greater of
(A) the Participant's Average Bonus and (B) the Participant's target bonus for
the year in which the Date of Termination occurs, multiplied by (ii) a
fraction, the numerator of which is the number of days from the April 1
preceding the date of termination to the Date of Termination, both inclusive,
and the denominator of which is 365.
(c) All welfare benefits, including medical, life and disability
benefits, pursuant to plans under which the Participant and/or the
Participant's family is eligible to receive benefits and/or coverage shall be
continued for a period of three years after the Date of Termination. Such
benefits shall be provided to the Participant at no less than the same coverage
level as in effect as of the Date of Termination. The Corporation shall pay the
full cost of such continued benefits, except that the Participant shall bear
any portion of such cost as was required to be borne by key employees of the
Corporation generally at the Date of Termination. Notwithstanding the
foregoing:
(i) These welfare benefits may be discontinued prior to the
end of the period provided in this Section to the extent, but only to
the extent, that the Participant receives substantially similar
benefits from a subsequent employer.
(ii) If the Corporation determines that giving the continued
welfare benefit coverage described in this Section would adversely
affect the tax qualification of a benefit plan, the Corporation may
pay the Participant a lump sum cash amount equal to the after-tax
present value to the Participant of such continued coverage, in lieu
of giving such continued coverage. The present value shall be
determined as described in Section 4.4(a).
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(d) Any and all stock options and stock-based rights held by the
Participant on the Date of Termination that would otherwise have vested within
eighteen (18) months after the Date of Termination shall be immediately and
fully vested and exercisable as of the Date of Termination. Subject to the
foregoing, all stock options and stock-based rights held by the Participant on
the Date of Termination shall be administered in accordance with the terms of
the applicable plans and agreements.
IV.3 OTHER BENEFITS PAYABLE. The Separation Benefits described in
Section 4.2 above shall be payable in addition to, and not in lieu of, all
other accrued or vested or earned but deferred compensation, rights, options or
other benefits which may be owed to a Participant following termination,
including but not limited to accrued vacation or sick pay amounts or benefits
payable under any bonus or other compensation plans, stock option plan, stock
ownership plan, stock purchase plan, life insurance plan, health plan,
disability plan or similar or successor plan.
IV.4 CERTAIN REDUCTION OF PAYMENTS BY THE CORPORATION.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Corporation or its Subsidiaries to or for the benefit of a Participant (whether
paid or payable or distributed or distributable pursuant to the terms of this
Plan or otherwise) (a "Payment") would be nondeductible by the Corporation for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Participant pursuant to this Plan (such payments or
distributions pursuant to this Plan are hereinafter referred to as "Plan
Payments") shall be reduced to the Reduced Amount. The "Reduced Amount" shall
be an amount expressed in present value which maximizes the aggregate present
value of Plan Payments without causing any Payment to be nondeductible by the
Corporation because of Section 280G of the Code. For purposes of this Section
4.4, present value shall be determined in accordance with Section 280G(d)(4) of
the Code.
(b) All determinations required to be made under this Section 4.4
shall be made by the accounting firm that was the Corporation's primary outside
public accounting firm before the Change in Control (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Corporation
and the Participant within fifteen (15) business days of the Date of
Termination or such earlier time as is requested by the Corporation. Any such
determination by the Accounting Firm shall be binding upon the Corporation and
the Participant. Within five (5) business days of the determination by the
Accounting Firm as to the Reduced Amount, the Corporation shall pay to or
distribute to or for the benefit of the Participant such amounts as are then
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due to the Participant under this Plan. If Plan Payments are to be reduced, the
Participant shall determine which Plan Payments shall be reduced to comply with
this Section.
(c) Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, the limitation set forth in this Section 4.4 shall
not apply in the event that the Accounting Firm determines that the benefits to
the Participant under the Plan on an after-tax basis (i.e., after federal,
state and local income and excise taxes) if such limitation is not applied
would exceed the after-tax benefits to the Participant if such limitation is
applied.
IV.5 PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change in Control, subject
to Section 4.4, the Corporation's obligations to pay the Separation Benefits
described in Section 4.2 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Corporation or any
of its Subsidiaries may have against any Participant. In no event shall a
Participant be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to a Participant under any of the
provisions of this Plan and, except as otherwise provided in Section 4.2(c)(i),
in no event shall the amount of any payment hereunder be reduced by any
compensation earned by a Participant as a result of employment by another
employer.
ARTICLE V
SUCCESSOR TO CORPORATION
The Plan shall bind any Successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise), in the same manner and to the
same extent that the Corporation would be obligated under the Plan if no
succession had taken place. In the case of any transaction in which a Successor
would not by the foregoing provision or by operation of law be bound by the
Plan, the Corporation shall require such Successor expressly and
unconditionally to assume and agree to perform the Corporation's obligations
under the Plan, in the same manner and to the same extent that the Corporation
would be required to perform if no such succession had taken place.
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ARTICLE VI
DURATION, AMENDMENT AND TERMINATION
VI.1 DURATION. If a Change in Control has not occurred, the Plan shall
expire five (5) years from the Effective Date, unless sooner terminated as
provided in Section 6.2, or unless extended as described below. Following the
end of the five (5) year term, on each anniversary of the Effective Date before
a Change in Control, the term of the Plan shall be automatically extended to
continue for an additional one (1) year period, unless the Board determines
before the anniversary date that the term will not be extended. If a Change in
Control occurs during the term of this Plan, the Plan shall continue in full
force and effect and shall not terminate or expire until all Participants who
become entitled to Separation Benefits hereunder shall have received such
payments in full.
VI.2 AMENDMENT AND TERMINATION. The Plan may be terminated or amended
in any respect by resolution adopted by a majority of the Incumbent Board,
unless a Change in Control has previously occurred. If a Change in Control
occurs, the Plan shall no longer be subject to amendment, change, substitution,
deletion, revocation or termination in any respect whatsoever.
VI.3 FORM OF AMENDMENT. The form of any amendment or termination of
the Plan shall be a written instrument signed by a duly authorized officer or
officers of the Corporation, certifying that the amendment or termination has
been approved by the Incumbent Board. An amendment of the Plan shall
automatically effect a corresponding amendment to all Participants' rights
hereunder. A termination of the Plan shall automatically effect a termination
of all Participants' rights and benefits hereunder.
ARTICLE VII
MISCELLANEOUS
VII.1 WITHHOLDING TAXES. The Corporation may directly or indirectly
withhold from any payments made under this Plan all Federal, state, city or
other taxes as shall be required pursuant to any law or governmental regulation
or ruling.
VII.2 INDEMNIFICATION. If a Participant institutes any legal action in
seeking to obtain or enforce, or is required to defend any legal action the
validity or enforceability of, any right or benefit provided by the Plan, the
Corporation will, if the Participant substantially prevails in such action, pay
for all reasonable legal fees and expenses incurred by such Participant.
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VII.3 EMPLOYMENT STATUS. The Plan does not constitute a contract of
employment or impose on the Participant or the Corporation or any of its
Subsidiaries any obligation to retain the Participant as an employee, to change
the status of the Participant's employment, or to change the Corporation's
policies or those of its Subsidiaries' regarding termination of employment.
VII.4 NO ATTACHMENT. Except as required by law, no right to receive
payments under this Plan shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy, or similar process or assignment by operation
of law, and any attempt, voluntary or involuntary, to effect any such action
shall be null, void and of no effect.
7.5 SOURCE OF PAYMENT. All payments provided for under this Plan shall
be paid in cash from the general funds of the Corporation. The Corporation
shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the Corporation shall
make any investments to aid it in meeting its obligations hereunder, the
Participants shall have no right, title or interest whatever in or to any such
investments except as may otherwise be expressly provided in a separate written
instrument relating to such investments. Nothing contained in this Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship, between the Corporation and a
Participant or any other person. To the extent that any person acquires a right
to receive payments from the Corporation hereunder, such right shall be no
greater than the right of an unsecured general creditor of the Corporation.
7.6 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of
any provision of the Plan shall not affect the validity or enforceability of
any other provision of the Plan, which shall remain in full force and effect,
and any prohibition or enforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
7.7 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of the
State of Delaware, other than the conflict of law provisions of such laws.
7.8 NAMED FIDUCIARY AND ADMINISTRATOR. For the purposes of the
Employee Retirement Income Security Act of 1974, the Corporation shall be the
"named fiduciary" and the "administrator" of the Plan. The Plan Administrator
shall operate, interpret and implement the Plan.
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The Plan Administrator shall operate, interpret and implement the Plan. The
Plan Administrator shall have all such powers as are necessary to discharge his
duties, including, but not limited to, the interpretation and construction of
all provisions of the Plan, the determination of all questions of eligibility,
participation, benefits and all other related or incidental matters, and such
duties and powers of Plan administration which are not assumed from time to
time by any other appropriate entity, individual, or institution. The Plan
Administrator shall decide all such questions and his decisions and
determinations that are not arbitrary and capricious shall be binding and
conclusive on the Corporation, the Participant, the Participant's designee, the
Participant's spouse or other dependent or beneficiary, employees, and all
other interested parties.
The Plan Administrator may require each Participant to submit, in such
form as he shall deem reasonable and acceptable, proof of any information which
the Plan Administrator finds necessary or desirable for the proper
administration of the Plan.
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SCHEDULE 1
Plan Participants
Eric C. Cooper
Onat Menzilcioglu
Francois J. Bitz
Robert D. Sansom
Michael I. Green
Thomas J. Gill
Kim Niederman
Steve Young
<PAGE> 1
EXHIBIT 10.10
SUMMARY OF
FISCAL YEAR 1996
SENIOR MANAGEMENT BONUS PLAN
April 21, 1995
This plan covers the CEO, President, CFO, Vice-President of Sales, Vice-
Presidents of Engineering, and Director of Manufacturing of FORE Systems.
Bonuses will be based on two kinds of objectives:
o Company revenue and earnings will determine 70% of an individual's
bonus.
o Achievement of individual objectives will determine the remaining 30%.
The Company must achieve certain levels of revenue and earnings per share
in each quarter. If these goals are not met, no bonuses are required to be paid
under this plan.
At baseline, a bonus of 30% of yearly base salary shall be available. For each
additional $5 million in revenue, an additional 5% of yearly base salary shall
be available, up to a maximum of 100%.
70% of the available amount will be awarded unconditionally. The remaining 30%
will be awarded based on achievement of individual objectives, as determined by
the Compensation Committee of the Board of Directors after receiving
recommendations from the CEO.
<PAGE> 1
RMK/FORE 2LSEAMEND EXHIBIT 10.11 (c)
MJH/3/28/94
SECOND AMENDMENT
OF
LEASE
THIS AGREEMENT is made as of this 31st day of March, 1994, between
REGIONAL INDUSTRIAL DEVELOPMENT CORPORATION OF SOUTHWESTERN PENNSYLVANIA, a
Pennsylvania nonprofit corporation having its principal office in the City of
Pittsburgh, Allegheny County, Pennsylvania (hereinafter called the "Lessor"),
and FORE SYSTEMS, INCORPORATED, a Delaware corporation (hereinafter called
the "Lessee").
WHEREAS, the parties hereto previously entered into a lease dated July
22, 1993, and an amendment of lease dated January 10, 1994 (hereinafter
collectively called the "Lease"), covering Suite "A" and portions of Suite "B"
(hereinafter collectively called the "Premises") as shown on Exhibit "A"
attached hereto in the office building known as Thorn Hill Place (hereinafter
called the "Building") located at 174A Thorn Hill Road in Marshall Township,
Allegheny County, Pennsylvania; and
WHEREAS, the term of the Lease will expire on March 31, 1997 unless
otherwise extended as provided in the Lease; and
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. The foregoing preamble clauses are incorporated herein by
reference thereto.
2. In addition to the Premises, Lessee agrees to lease additional
portions of Suite "B" and portions of Suite "I" in the
1
<PAGE> 2
Building for a term commencing with the date first above written and expiring
March 31, 1997 on the same terms and conditions as contained in the Lease
except as modified hereinafter. The additional portion of Suite "B" and
portions of Suite "I" are more particularly described on Exhibit "A".
3. As rental, ("Base Rent"), for the additional portion of Suite "B"
and portions of Suite "I", Lessee shall pay to Lessor beginning April 1, 1994
and continuing on the first business day of each successive calendar month, in
advance and without demand, deduction, or set-off, together with any
escalations of rent provided in the Lease, the following sums:
For the period beginning April 1, 1994 and ending March 31, 1996, ELEVEN
THOUSAND TWO HUNDRED FIFTY-FOUR AND 00/100 DOLLARS ($11,254.00); and
For the period beginning April 1, 1996 and ending March 31, 1997, TWELVE
THOUSAND ONE HUNDRED FIFTY-FIVE AND 00/100 DOLLARS ($12,155.00).
4. Lessee shall take possession of the additional portions of Suite
"B" and portion of Suite "I" on an "as is" basis. Any and all leasehold
improvements performed within such additional space shall be made at Lessee's
expense and subject to the provisions contained within the Lease.
5. Except as amended hereby, all other terms and conditions of the
Lease shall remain unchanged and in full force and effect.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment of Lease to be duly executed the day and year first above written.
REGIONAL INDUSTRIAL DEVELOPMENT
CORPORATION OF SOUTHWESTERN
PENNSYLVANIA
Attest:
/s/ COLLEEN B. POREMSKI By: /s/ FRANK BROOKS ROBINSON
- ------------------------------- -----------------------------
Secretary President
(Corporate Seal)
Attest: FORE SYSTEMS INCORPORATED
/s/ ROBERT D. SANSOM By: /s/ THOMAS J. GILL
- ------------------------------- -------------------------------
Title: VP & Secretary Title: Chief Financial Officer
(Corporate Seal)
3
<PAGE> 4
EXHIBIT A
DIAGRAM OF RIDC THORNHILL PLACE
<PAGE> 1
RMK/FORE 3LSEAMEND EXHIBIT 10.11 (d)
MJH/3/22/94
THIRD AMENDMENT
OF
LEASE
THIS AGREEMENT is made as of this 1st day of May, 1994, between
REGIONAL INDUSTRIAL DEVELOPMENT CORPORATION OF SOUTHWESTERN PENNSYLVANIA, a
Pennsylvania nonprofit corporation having its principal office in the City of
Pittsburgh, Allegheny County, Pennsylvania (hereinafter called the "Lessor"),
and FORE SYSTEMS, INCORPORATED, a Delaware corporation (hereinafter called
the "Lessee").
WHEREAS, the parties hereto previously entered into a lease dated July
22, 1993, and amendments of lease dated January 10, 1994 and March 31, 1994
(hereinafter collectively called the "Lease"), covering Suite "A", "B" and
portions of Suite "I" (hereinafter collectively called the "Premises") as
shown on Exhibit "A" attached hereto in the office building known as Thorn
Hill Place (hereinafter called the "Building") located at 174A Thorn Hill Road
in Marshall Township, Allegheny County, Pennsylvania; and
WHEREAS, the term of the Lease will expire on March 31, 1997 unless
otherwise extended as provided in the Lease; and
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. The foregoing preamble clauses are incorporated herein by
reference thereto.
2. In addition to the Premises, Lessee agrees to lease
1
<PAGE> 2
additional portions of Suite "I" in the Building for a term commencing with the
date first above written and expiring March 31, 1997 on the same terms and
conditions as contained in the Lease except as modified hereinafter. The
additional portion of Suite "I" is more particularly described on Exhibit "A".
3. As rental, ("Base Rent"), for the additional portion of Suite "I",
Lessee shall pay to Lessor, beginning May 1, 1994 and continuing on the first
business day of each successive calendar month, in advance and without demand,
deduction, or set-off, together with any escalations of rent provided in the
Lease, the following sums:
For the period beginning May 1, 1994 and ending March 31, 1996, THREE
THOUSAND FOUR HUNDRED FORTY-SIX AND 00/100 DOLLARS ($3,446.00); and
For the period beginning April 1, 1996 and ending March 31, 1997, THREE
THOUSAND SEVEN HUNDRED TWENTY-TWO AND 00/100 DOLLARS ($3,722.00).
4. Lessee shall take possession of the additional portions of Suite
"I" on an "as is" basis. Any and all leasehold improvements performed within
such additional space shall be made at Lessee's expense and subject to the
provisions contained within the Lease.
5. Except as amended hereby, all other terms and conditions of the
Lease shall remain unchanged and in full force and effect.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment of Lease to be duly executed the day and year first above written.
REGIONAL INDUSTRIAL DEVELOPMENT
CORPORATION OF SOUTHWESTERN
PENNSYLVANIA
Attest:
/s/ COLLEEN B. POREMSKI By: /s/ FRANK BROOKS ROBINSON
- --------------------------------- -----------------------------
Secretary President
(Corporate Seal)
Attest: FORE SYSTEMS INCORPORATED
/s/ ROBERT D. SANSOM By: /s/ THOMAS J. GILL
- --------------------------------- -------------------------------
Title: VP Engineering & Secretary Title: Chief Financial Officer
(Corporate Seal)
3
<PAGE> 4
EXHIBIT A
DIAGRAM OF RIDC THORNHILL PLACE
<PAGE> 1
RMK/FORE 4LSEAMEND EXHIBIT 10.11 (e)
MJH/6/8/95
FOURTH AMENDMENT
OF
LEASE
THIS AGREEMENT is made as of this 10th day of June, 1995, between
REGIONAL INDUSTRIAL DEVELOPMENT CORPORATION OF SOUTHWESTERN PENNSYLVANIA, a
Pennsylvania nonprofit corporation having its principal office in the City of
Pittsburgh, Allegheny County, Pennsylvania (hereinafter called the "Lessor"),
and FORE SYSTEMS, INCORPORATED, a Delaware corporation (hereinafter called
the "Lessee").
WHEREAS, the parties hereto previously entered into a lease dated July
22, 1993, and amendments of lease dated January 10, 1994, March 31, 1994, and
May 1, 1994 (hereinafter collectively called the "Lease"), covering Suites "A",
"B" and Suite "I" (hereinafter collectively called the "Premises") as shown on
Exhibit "A" attached hereto in the office building known as Thorn Hill Place
(hereinafter called the "Building") located at 174A Thorn Hill Road in
Marshall Township, Allegheny County, Pennsylvania; and
WHEREAS, the term of the Lease will expire on March 31, 1997 unless
otherwise extended as provided in the Lease; and
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. The foregoing preamble clauses are incorporated herein by
reference thereto.
2. In addition to the Premises, Lessee agrees to lease
1
<PAGE> 2
Suite "F" in the Building for a term commencing June 10, 1995 and expiring
March 31, 1997 on the same terms and conditions as contained in the Lease
except as modified hereinafter. The Suite "F" is more particularly described
on Exhibit "A".
3. As rental, ("Base Rent"), for Suite "F", Lessee shall pay to
Lessor, beginning June 10, 1995 and continuing on the first business day of
each successive calendar month, in advance and without demand, deduction, or
set-off, together with any escalations of rent provided in the Lease, the
following sums:
a) For the period beginning June 10, 1995 and ending June 30, 1995, NINE
THOUSAND THREE HUNDRED EIGHT AND 00/100 DOLLARS ($9,308.00);
b) For the period beginning July 1, 1995 and ending March 31, 1996,
THIRTEEN THOUSAND NINE HUNDRED FIFTY-FOUR AND 00/100 DOLLARS
($13,954.00); and
c) For the period beginning April 1, 1996 and ending March 31, 1997,
FIFTEEN THOUSAND EIGHTEEN AND 00/000 DOLLARS ($15,018.00).
4. Lessee shall take possession of Suite "F" on an "as is" basis.
Any and all leasehold improvements performed within such additional space
shall be made at Lessee's expense and subject to the provisions contained
within the Lease.
5. Except as amended hereby, all other terms and conditions of the
Lease shall remain unchanged and in full force and effect.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment of Lease to be duly executed the day and year first above written.
REGIONAL INDUSTRIAL DEVELOPMENT
CORPORATION OF SOUTHWESTERN
PENNSYLVANIA
Attest:
/s/ COLLEEN B. POREMSKI By: /s/ FRANK BROOKS ROBINSON
- ------------------------------- -----------------------------
Secretary President
(Corporate Seal)
Attest: FORE SYSTEMS INCORPORATED
/s/ WALTER M. HALASOWSKI By: /s/ THOMAS J. GILL
- ------------------------------- -------------------------------
Title: Director, Contracts Title: VP/CFO & Treasurer
(Corporate Seal)
3
<PAGE> 4
EXHIBIT A
DIAGRAM OF RIDC THORNHILL PLACE
<PAGE> 1
EXHIBIT 10.11 (f)
FIFTH AMENDMENT
OF
LEASE
THIS AGREEMENT is made as of this 7th day of May, 1996, between
REGIONAL INDUSTRIAL DEVELOPMENT CORPORATION OF SOUTHWESTERN PENNSYLVANIA, a
Pennsylvania nonprofit corporation having its principal office in the City of
Pittsburgh, Allegheny County, Pennsylvania (hereinafter called the "Lessor"),
and FORE SYSTEMS, INCORPORATED, a Delaware corporation (hereinafter called
the "Lessee").
WHEREAS, the parties hereto previously entered into a lease dated July
22, 1993, and amendments of lease dated January 10, 1994, March 31, 1994,
May 1, 1994 and June 10, 1995 (hereinafter collectively called the "Lease"),
covering Suites "A", "B", "I", and "F" (hereinafter collectively called the
"Premises") as shown on Exhibit "A" attached hereto in the office building
known as Thorn Hill Place (hereinafter called the "Building") located at 174
Thorn Hill Road in Marshall Township, Allegheny County, Pennsylvania; and
WHEREAS, the term of the Lease will expire on March 31, 1997 unless
otherwise extended as provided in the Lease; and
WHEREAS, the Lessee desires to lease additional portions of the
Building beginning March 1, 1996; and
WHEREAS, both parties to this agreement desire to change their
respective responsibilities in regard to the removal of refuse from the
Building; and
WHEREAS, both parties to this agreement desire to set forth an
understanding by which certain costs for reconstruction of a
1
<PAGE> 2
hallway are realized prior to the expiration of the Lease; and
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. The foregoing preamble clauses are incorporated herein by
reference thereto.
2. In addition to the Premises, Lessee agrees to lease Suite "G" in
the Building for a term commencing March 1, 1996 and expiring March 31, 1997
on the same terms and conditions as contained in the Lease except as modified
hereinafter. The Suite "G" is more particularly described on Exhibit "A".
3. Lessor and Lessee agree that Lessee shall be responsible for
contracting for and payment of all costs related to the removal of all solid
waste from the Building by a refuse removal firm. Such removal firm shall be a
company that abides by all applicable federal, state and local laws as regards
the disposal of solid waste. Lessor's janitorial contractor, who is responsible
for janitorial services within the building, shall be permitted to dispose of
the solid waste material, which it collects pursuant to its contractual
responsibility, into containers supplied by Lessee's refuse removal firm at no
additional cost to Lessor or its janitorial contractor. Lessee's responsibility
for contracting with a solid waste refuse removal firm shall commence February
1, 1996. Effective February 1, 1996, Lessor agrees to reduce Lessee's monthly
rental payment to Lessor by the sum of $225.00 for the remainder of the initial
term of the Lease in recognition of Lessee's contracting for the removal of
solid waste from the Building. In the event that the responsibility for
contracting for the removal of solid refuse
2
<PAGE> 3
shall revert to Lessor, then Lessee's monthly rental payment shall be increased
by the sum of $225.00 in recognition of the change in responsibility for said
service.
4. As rental, ("Base Rent"), for Suite "G", Lessee shall pay to
Lessor beginning March 1, 1996 and continuing on the first business day of
each successive calendar month, in advance and without demand, deduction, or
set-off, together with any escalations of rent provided in the Lease, the
following sums:
a) For the period beginning March 1, 1996 and ending March 31, 1996,
the sum of SIX THOUSAND SEVEN HUNDRED FORTY-FIVE AND 00/100 DOLLARS
($6,745.00); and
b) For the period beginning April 1, 1996 and ending March 31, 1997,
SEVEN THOUSAND THREE HUNDRED TWO AND 00/100 DOLLARS ($7,302.00).
5. Lessee shall take possession of Suite "G" on an "as is" basis.
Any and all leasehold improvements performed within such additional space
shall be made at Lessee's expense and subject to the provisions contained
within the Lease.
6. Lessor and Lessee agree to enter into an amendment to the Lease for
the purpose of setting forth the manner in which Lessee shall reimburse Lessor
for the cost of reconstruction of a certain hallway and related improvements
thereto such as but not limited to the following: lights and related switches,
heating and air conditioning ducts, walls and related finish treatment, floor
covering, ceiling, and emergency exit lights and signage. Lessee, may at its
discretion, elect to reimburse Lessor in one total payment or through monthly
payments over the remaining months of the initial term of the Lease. Lessee
agrees to
3
<PAGE> 4
utilize the services of WILCA Corporation in determining the total reasonable
cost to reconstruct said hallway. The location of the hallway to be
reconstructed is shown as Exhibit "B".
7. Except as amended hereby, all other terms and conditions of the
Lease shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment of Lease to be duly executed the day and year first above written.
REGIONAL INDUSTRIAL DEVELOPMENT
CORPORATION OF SOUTHWESTERN
PENNSYLVANIA
Attest:
/s/ COLLEEN B. POREMSKI By: /s/ FRANK BROOKS ROBINSON
- ------------------------------- -----------------------------
Secretary President
(Corporate Seal)
Attest: FORE SYSTEMS INCORPORATED
/s/ LISA DORSCH By: /s/ THOMAS J. GILL
- ------------------------------- -------------------------------
Title: Administrative Assistant Title: Thomas J. Gill
V.P. Finance,
CFO & Treasurer
(Corporate Seal)
4
<PAGE> 5
EXHIBIT A
DIAGRAM OF RIDC THORNHILL PLACE
<PAGE> 6
EXHIBIT B
DIAGRAM OF RIDC THORNHILL PLACE
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (1)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Weighted Average Common and
Common Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period (2) 80,269,624 65,653,022
Weighted Average Common
Equivalent Shares 6,166,624 7,407,784
Dilutive Effect of Common and Common
Equivalent Shares Issued Subsequent
to April 7, 1994 (3) -- 420,684
-------------------------------
86,432,248 73,481,490
===============================
Net income $ 9,737,000 $12,860,000
===============================
Net income per common share $ 0.11 $ 0.18
===============================
</TABLE>
- ----------
(1) Fully diluted net income per share has not been separately presented, as
the amounts would not be materially different from primary net income per
share.
(2) Outstanding shares of FORE Series A redeemable convertible preferred stock
which were issued in 1992 and which converted into common stock upon
consummation of the offering in May 1994, are treated as if converted into
common stock upon consummation of the offering, are treated as if converted
into common stock as of March 31, 1993.
(3) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, certain common and common equivalent shares issued by the Company
during the twelve months immediately preceding the initial filing of the
registration statement relating to the Company's initial public offering
have been included in the calculation of weighted average shares, using the
treasury stock method and the initial public offering price, as if these
shares were outstanding for all periods prior to the initial public
offering.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
FORE Systems, Inc. owns all of the outstanding equity interests in each of the
following companies which do business under their respective corporate names:
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION OF INCORPORATION
- ---------- -----------------------------
<S> <C>
FORE Systems Holding Corporation Delaware
FORE Systems Federal, Inc. Delaware
FORE Systems Worldwide, Inc. Delaware
ALANTEC Corporation Delaware
Applied Network Technology, Inc. Massachusetts
CellAccess Technology, Inc. California
FORE Systems Japan, Inc. Japan
FORE Systems Limited United Kingdom
FORE Systems International Inc. Barbados
FORE Systems GmbH Federal Republic of Germany
</TABLE>
<PAGE> 1
EXHIBIT 22.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-81796, 33-99350, 333-00788, 333-01728 and
333-04052), the Post Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 (No. 333-00468) and the Registration Statements on Form
S-3 (Nos. 33-94850, 33-96780, and 33-80683) of FORE Systems, Inc., of our report
dated April 25, 1996, appearing on page 43 of the Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Pittsburgh, Pennsylvania
June 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENT OF INCOME FOR YEAR ENDED MARCH 31, 1996 AND THE CONSOLIDATED BALANCE
SHEET AT MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000920000
<NAME> FORE SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 204,013
<SECURITIES> 92,142
<RECEIVABLES> 51,077
<ALLOWANCES> 1,087
<INVENTORY> 27,495
<CURRENT-ASSETS> 399,596
<PP&E> 36,131
<DEPRECIATION> 11,365
<TOTAL-ASSETS> 424,362
<CURRENT-LIABILITIES> 88,372
<BONDS> 0
<COMMON> 323,134
0
0
<OTHER-SE> 12,856
<TOTAL-LIABILITY-AND-EQUITY> 424,362
<SALES> 235,189
<TOTAL-REVENUES> 235,189
<CGS> 98,666
<TOTAL-COSTS> 98,666
<OTHER-EXPENSES> 125,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,554
<INCOME-TAX> 10,817
<INCOME-CONTINUING> 9,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,737
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
