-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MF3GuKs6BWSzZouNWEXKwdoLCSY8qZDpazi3Okp8V1MrQ1Lp26Cq5esbo7AQZ5LR Dxc04xIl2kSTBEb7CFYl6g== /in/edgar/work/0000950137-00-004847/0000950137-00-004847.txt : 20001115 0000950137-00-004847.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950137-00-004847 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INRANGE TECHNOLOGIES CORP CENTRAL INDEX KEY: 0001114674 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-31517 FILM NUMBER: 764821 BUSINESS ADDRESS: STREET 1: 13000 MIDLANTIC DR CITY: LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 8562347900 10-Q 1 c58573e10-q.txt QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission File Number 000-31517 INRANGE TECHNOLOGIES CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 06-0962862 (State of Incorporation) (I.R.S. Employer Identification No.) 13000 Midlantic Drive, Mount Laurel, NJ 08054 (Address of principal executive offices and zip code) (856) 234-7900 (Registrant's telephone number, including area code) 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 ____ No X 2 Common shares outstanding November 9, 2000- 84,488,333 INRANGE TECHNOLOGIES CORPORATION INDEX TO FORM 10-Q
PAGE NUMBER PART I FINANCIAL INFORMATION Item 1. Unaudited Consolidated Financial Statements 3 Unaudited Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 3 Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999 4 Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 5. Other Information 23 SIGNATURES 25
2 3 PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INRANGE TECHNOLOGIES CORPORATION UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------- ------------- ASSETS CURRENT ASSETS: Cash and equivalents................................... $ 20,104 $ 1,023 Demand note from SPX................................... 57,526 -- Accounts receivable, net............................... 72,522 51,037 Inventories............................................ 32,097 27,624 Prepaid expenses and other............................. 4,306 1,314 Deferred income taxes.................................. 4,650 4,650 --------- --------- Total current assets........................... 191,205 85,648 PROPERTY, PLANT AND EQUIPMENT, net....................... 15,673 10,117 PROPERTY HELD FOR SALE................................... 4,243 4,256 DEFERRED INCOME TAXES.................................... 501 -- GOODWILL AND OTHER INTANGIBLES, net...................... 44,292 7,710 OTHER ASSETS, net........................................ 35,435 24,619 --------- --------- Total assets................................... $ 291,349 $ 132,350 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings and current portion of long-term debt........................................ $ 7,457 $ 4,111 Accounts payable....................................... 27,133 20,458 Accrued expenses....................................... 21,188 15,363 Deferred revenue....................................... 7,736 10,401 --------- --------- Total current liabilities...................... 63,514 50,333 --------- --------- LONG-TERM DEBT........................................... 1,252 20 --------- --------- DEFERRED INCOME TAXES.................................... -- 3,499 --------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 20,000,000 shares authorized and none issued and outstanding..... -- -- Class A common stock, $0.01 par value, 150,000,000 shares authorized, 75,633,333 shares issued and outstanding....................................... 756 756 Class B common stock, $0.01 par value, 250,000,000 shares authorized, 8,855,000 shares issued and outstanding at September 30, 2000..................... 89 -- Additional paid-in capital............................. 137,339 (5,335) Retained earnings...................................... 87,777 82,426 Net equity of Consolidated units....................... -- 730 Accumulated other comprehensive income (loss).......... 622 (79) --------- --------- Total stockholders' equity..................... 226,583 78,498 --------- --------- Total liabilities and stockholders' equity..... $ 291,349 $ 132,350 ========= =========
The accompanying notes are an integral part of these statements. 3 4 INRANGE TECHNOLOGIES CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ----------- ------------ REVENUE: Product revenue............................... $ 53,925 $ 41,705 $ 135,288 $ 127,136 Service revenue............................... 10,170 8,517 27,235 25,469 ----------- ----------- ----------- ----------- Total revenue......................... 64,095 50,222 162,523 152,605 ----------- ----------- ----------- ----------- COST OF REVENUE: Cost of product revenue....................... 24,973 17,146 64,103 60,496 Cost of service revenue....................... 6,800 4,733 18,133 15,647 ----------- ----------- ----------- ----------- Total cost of revenue................ 31,773 21,879 82,236 76,143 ----------- ----------- ----------- ----------- Gross margin.................................. 32,322 28,343 80,287 76,462 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Research, development and engineering................................ 5,807 3,818 15,867 14,436 Selling, general and administrative............................. 16,147 10,606 40,681 34,836 Amortization of goodwill and other............ 747 267 1,281 801 intangibles............................... Special charges............................... -- -- (190) 9,687 Write-off of acquired in-process technology................................. 10,000 -- 10,000 -- Gain on sale of real estate................... -- (2,829) -- (2,829) ----------- ----------- ----------- ----------- Operating expenses......................... 32,701 11,862 67,639 56,931 ----------- ----------- ----------- ----------- OPERATING INCOME (LOSS)......................... (379) 16,481 12,648 19,531 INTEREST EXPENSE................................ 830 213 1,146 710 OTHER (INCOME) EXPENSE.......................... 143 (6,156) 32 (13,913) ----------- ----------- ----------- ----------- Income (loss) before income taxes.......... (1,352) 22,424 11,470 32,734 INCOME TAXES PROVISION (BENEFIT)................ (541) 9,177 4,588 13,405 ----------- ----------- ----------- ----------- NET INCOME (LOSS)............................... $ (811) $ 13,247 $ 6,882 $ 19,329 =========== =========== =========== =========== EARNINGS PER SHARE: Basic.......................................... $ (0.01) $ 0.18 $ 0.09 $ 0.26 =========== =========== =========== =========== Diluted........................................ $ (0.01) $ 0.18 $ 0.09 $ 0.26 =========== =========== =========== =========== Shares used in computing basic earnings per share........................... 76,018 75,633 75,763 75,633 =========== =========== =========== =========== Shares used in computing diluted earnings per share.......................... 76,018 75,633 75,928 75,633 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 4 5 INRANGE TECHNOLOGIES CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2000 1999 ------- --------- CASH FLOW FROM OPERATING ACTIVITIES: Net income....................................................... $ 6,882 $ 19,329 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation................................................... 4,321 4,381 Amortization of goodwill and other intangibles ................ 1,281 801 Amortization of other assets................................... 4,503 2,776 Accretion of debt on seller notes.............................. 58 -- Stock option charge............................................ 250 -- Special charges................................................ (190) 9,687 Deferred income taxes.......................................... (4,000) (1,252) Write-off of acquired in-process technology..................................................... 10,000 -- Gain on sale of real estate.................................... -- (2,829) Gain on sale of investment..................................... -- (13,914) Changes in operating assets and liabilities: Accounts receivable............................................ (15,520) (6,711) Inventories.................................................... (1,450) (3,699) Prepaid expenses and other current assets...................... (2,859) 119 Accounts payable............................................... 5,082 2,936 Accrued expenses............................................... 6,612 (2,028) Deferred revenue............................................... (2,724) (1,873) Payments of special charges and disposition related accruals................................... (832) (11,256) ------- --------- Net cash provided by (used in) operating activities...................................... 11,414 (3,533) ------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment, net................................................. (3,090) (2,001) Cash paid for business acquired, net of cash acquired............ (54,803) -- Proceeds from sale of real estate................................ -- 6,358 Net proceeds from sale of investment............................. -- 14,735 Capitalized software costs....................................... (4,748) (3,737) Increase in demonstration equipment and other assets............. (7,571) (2,289) Payment for product rights....................................... -- (3,000) Purchase of investment........................................... (3,000) -- --------- ---------- Net cash provided by (used in) investing activities......................................... (73,212) 10,066 ------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Net payments under lines of credit.............................. (2,484) (700) Net proceeds from initial public offering........................ 128,200 -- Payments on long-term debt....................................... (64) (1,551) Loan made to SPX................................................. (57,526) -- Proceeds from (payments to) SPX.................................. 12,052 (4,488) ------- ---------- Net cash provided by (used in) financing activities......................................... 80,178 (6,739) ------- ---------- EFFECT OF FOREIGN CURRENCY TRANSLATION............................. 701 258 ------- --------- NET INCREASE IN CASH AND EQUIVALENTS.............................. 19,081 52 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD............................................................. 1,023 2,461 ------- --------- CASH AND EQUIVALENTS AT END OF PERIOD.............................. $20,104 $ 2,513 ======= =========
The accompanying notes are an integral part of these statements. 5 6 INRANGE TECHNOLOGIES CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION: Inrange Technologies Corporation (the "Company" or "Inrange") designs, manufactures, markets and services networking and switching solutions for storage, data and telecommunications networks. The solutions are targeted for use in large-scale systems that are critical to a business' operations to provide fast and reliable connections among networks of computers and related devices for large scale enterprise applications. The consolidated financial statements include the assets, liabilities, revenue and expenses of Inrange which is a majority-owned subsidiary of SPX Corporation ("SPX"), and the assets, liabilities, revenue and expenses of certain other units comprising the storage networking, data communications and telecommunications networking business of SPX, and exclude two of the subsidiaries of Inrange not involved in the business (Consolidated, the Company). The net assets of the other Consolidated units were transferred to the Company in June 1999 (Tautron) and June 2000 (division of General Signal Limited). The net assets of the two excluded subsidiaries were transferred out of the Company in June 1999 and May 2000, as such, the accompanying financial statements are now presented on a consolidated basis. The Consolidated financial statements have been prepared on the historical cost basis and present the Company's financial position, results of operations and cash flows as derived from SPX's historical financial statements. SPX provides certain services to the Company including general management and administrative services for employee benefit programs, insurance, legal, treasury and tax compliance. Such amounts are charged to the statement of operations. The financial information included herein does not necessarily reflect what the financial position and results of operations of the Company would have been had it operated as a stand-alone entity during the periods covered, and may not be indicative of future operations or financial position. In September 2000, the Company completed an initial public offering of 8,855,000 shares of Class B Common stock at $16.00 per share and received net proceeds of $128,200. The proceeds were used to repay borrowings from SPX to fund certain acquisitions in the second and third quarters of 2000. The remaining proceeds will be used for general corporate purposes. However, pending use of the proceeds, the Company has invested $15,000 in a money market account and the remaining net proceeds have been loaned to SPX under a demand note (Note 4). In the opinion of management, the accompanying balance sheets and related interim statements of operations and cash flows include adjustments (consisting only of normal and recurring items) necessary for the fair presentation in conformity with generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from these estimates. Interim results are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the Consolidated financial statements and notes thereto included in the Company's Form S-1 Registration Statement as filed with the SEC. 2. SIGNIFICANT ACCOUNTING POLICIES: Cash and Equivalents SPX uses a centralized cash management system for all of its domestic operations, including those of the Company. The net amount of daily cash transactions is transferred to SPX and was credited to additional paid-in capital (Note 8) through the date the Company closed on its initial public offering. Subsequent to the initial public offering, such amounts are included as part of the demand note due from SPX (Note 4). The Company considers highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Cash 6 7 equivalents consist principally of cash deposited in money market accounts. Revenue Recognition The Company recognizes revenue upon shipment of products with standard configurations. Revenue from products with other than standard configurations is recognized upon customer acceptance or when all of the terms of the sales agreement have been fulfilled. The Company accrues for warranty costs, sales returns, and other allowances at the time of shipment based on its experience. Revenue from service obligations is derived primarily from maintenance contracts and is deferred and recognized on a straight-line basis over the terms of the contracts. Other service revenue is recognized when the service is provided. The Company sells its products and services to a large number of customers in various industries and geographical areas. The Company's trade accounts receivable are exposed to credit risk, however, the risk is limited due to the general diversity of the customer base. The Company performs ongoing credit evaluations of its customers' financial condition and maintains reserves for potential bad debt losses. No single customer in the three or nine month periods represented greater than 10% of total revenue. 3. ACQUISITIONS: On June 30, 2000, the Company acquired two distributor businesses (TCS and STI) for an aggregate purchase price of approximately $6,400. The Company paid $4,100 at closing and an additional $1,600 and $700, respectively, are payable after the first and second years from the closing of the acquisitions based upon the achievement of certain sales targets. Upon the achievement of such targets, the payments will be made and additional goodwill will be recorded. In August 2000, the Company completed the acquisitions of Varcom Corporation ("Varcom") and Computerm Corporation ("Computerm"). Varcom is located in Fairfax, Virginia and provides network management hardware, software, and services. Computerm is located in Pittsburgh, Pennsylvania and offers high performance channel extension products and services that allow storage networking applications to operate over wide area networks. The purchase price of Varcom was $25,000, which includes a non-interest bearing seller note of $1,500 due August 2002. The purchase price of Computerm was $30,000, which includes a non-interest bearing seller note of $3,000 due August 2001. The Computerm acquisition agreement contains a net asset target of $10,661 as of the closing date of the acquisition. A liability of $2,990 has been recorded in purchase accounting for the preliminary estimate of the excess of the net assets received versus the target. This estimated liability will be revised and settled in the fourth quarter of 2000 based on an audit of the net assets. All acquisitions were recorded using the purchase method of accounting. The notes due to the sellers have been discounted at an imputed interest rate of 10%. A summary of the preliminary allocation of purchase price to the net assets acquired is as follows: COMPUTERM VARCOM TCS/ STI ---------- ---------- ---------- Purchase price-- Cash paid for acquisition......... $ 27,184 $ 23,559 $ 4,100 Due to seller (at discounted value) 5,706 1,229 133 ---------- ---------- ---------- $ 32,890 $ 24,788 $ 4,233 ========== ========== ========== Purchase price allocation-- Net assets acquired............... $ 13,651 $ 120 $ 281 Purchased in process technology... -- 10,000 -- Goodwill and other intangibles.... 19,239 14,668 3,952 ---------- ---------- ---------- $ 32,890 $ 24,788 $ 4,233 ========== ========== ========== The allocation of the purchase price to identifiable intangible assets, acquired in-process technology and goodwill has been determined by management based on an analysis of factors such as historical operating results, discounts of cash flow projections and specific evaluations of products, customers and other information. 7 8 As of the acquisition date, Varcom had in-process technology projects that had not reached technological feasibility and did not have any alternative future uses. A value of $10,000 has been assigned to these in-process technology projects. In accordance with SFAS No. 2, "Accounting for Research and Development Costs," as clarified by FASB Interpretation No. 4, amounts assigned to acquired in-process technology meeting the above criteria have been charged to expense as part of the allocation of the purchase price of the business combination. This value excludes the efforts to be expended on the development projects, and solely reflects progress made as of the acquisition date. The in-process technology projects are for the development of two new products. Based on an assessment of factors including time spent on the project compared to total expected project time and expenses incurred to date compared to total project expenses, management estimates that the projects were 77% and 48% complete, respectively. The total cost incurred for these projects was approximately $4,000 as of the acquisition date. Total expected costs to complete these projects are approximately $1,500. The other identified intangibles recorded in purchase accounting are being amortized using lives of five to 12 years and goodwill is being amortized using lives of 10 to 20 years. 4. TRANSACTIONS WITH SPX: There are no material intercompany purchase or sale transactions between SPX and the Company. SPX incurs costs for various matters for Inrange and other subsidiaries including administration of common employee benefit programs, insurance, legal, accounting and other items that are attributable to the subsidiaries' operations. These costs are allocated based on estimated time incurred to provide the services to each subsidiary. The Consolidated financial statements reflect allocated charges from SPX for these services of $75 and $64 for the nine months ended September 30, 2000 and 1999, respectively. Management of SPX and the Company believe that the allocated costs are reasonable and reflect the effort involved in providing the services and also represent what the costs would have been on a stand-alone basis. In addition, direct costs incurred by SPX on behalf of the Company are charged to the Company. The direct costs were $1,749 and $1,505 for the three months and $4,692 and $4,474 for the nine months ended September 30, 2000 and 1999, respectively. Advances and other intercompany accounts between the Company and SPX through the date the Company completed its initial public offering have been recorded as a component of additional paid in capital in the accompanying balance sheet with the exception of the notes issued in connection with certain acquisitions (Note 3). These notes and accrued interest thereon were repaid upon completion of the initial public offering. Advances and other intercompany charges after such date are recorded as a component of the demand note due from SPX. As of September 30, 2000, the demand note from SPX was $57,526. The demand note bears interest at the average rate of the SPX credit facilities and is recorded on a monthly basis as interest income. The accompanying statements of operations for the three and nine months ended September 30, 2000 contain interest expense of $777 relating to the acquisition borrowings from SPX and interest income of $55 relating to interest income from the demand note from SPX. 5. INVENTORIES: SEPTEMBER 30, DECEMBER 31, ------------- ------------ 2000 1999 ------------- ------------ Raw materials............... $14,305 $14,175 Work-in-process............. 3,712 4,646 Finished goods.............. 14,080 8,803 ------- ------- Net inventories........... $32,097 $27,624 ======= ======= 8 9 6. OTHER ASSETS: SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ Capitalized software............. $15,283 $11,466 Demonstration equipment.......... 16,830 10,665 Product rights................... 9,216 9,249 Investment....................... 3,250 250 Other............................ 699 556 ------- ------- Total other assets..... 45,278 32,186 Accumulated amortization-- Capitalized software............. (4,188) (3,021) Demonstration equipment.......... (5,023) (3,442) Product rights................... (632) (1,104) ------- ------- Net other assets............... $35,435 $24,619 ======= ======= The Company capitalized $4,748 and $3,737 in the nine months ended September 30, 2000 and 1999, respectively, of software development costs. Amortization expense was $2,096 and $1,551 in the nine months ended September 30, 2000 and 1999, respectively. The Company capitalized $1,773 and $885 in the three months ended September 30, 2000 and 1999, respectively, of software development costs. Amortization expense was $757 and $451 in the three months ended September 30, 2000 and 1999, respectively. Demonstration equipment represents equipment at customer locations for demonstration purposes and is amortized on a straight-line basis over a period not to exceed three years. Product rights represent technology licenses and pre-paid royalties for three product lines. Amortization of the technology licenses commences upon general availability of the products and continues through the term of the license, not to exceed five years. In March 2000, the Company purchased $3,000 of preferred stock of one of its suppliers. The investment has been accounted for at cost in the accompanying consolidated balance sheet. 7. DEBT: Short-term borrowings and long-term debt consist of the following: SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ Seller notes with interest imputed at 10%, payable in August 2001 and 2002... $ 4,003 $ -- Seller note for working capital adjustment............................. 2,990 -- Short-term borrowings..................... 1,583 4,067 Other..................................... 133 64 --------- --------- 8,709 4,131 Less-- Current portion of long-term debt................................... (7,457) (4,111) ---------- ---------- Long term debt............................ $ 1,252 $ 20 ========== ========== In connection with the acquisitions of Computerm and Varcom, the Company entered into notes with the former owners of the acquired businesses. The notes do not bear interest and mature in 2001 and 2002, respectively. The notes have been discounted using an imputed interest rate of 10%. In connection with the Computerm acquisition, the former owner is due a payment related to the working capital delivered in the closing balance sheet. Based on the preliminary closing working capital, the amount owed to the former owner is $2,990. The resolution of the amount due to the seller is expected to be resolved in the fourth quarter of 2000, at which time such payment will be made. 9 10 Foreign subsidiaries have separate lines of credit with European banks in their local currency with a U.S. value of approximately $5,200, of which $1,583 and $4,067 was outstanding at September 30, 2000 and December 31, 1999, respectively. The revolving credit loans are classified in the accompanying consolidated balance sheet as short-term borrowings. The weighted average interest rate on borrowings under the foreign lines of credit was 4.93% and 5.57% for the three months and 5.63% and 6.07% for the nine months ended September 30, 2000 and 1999, respectively. The lines of credit are guaranteed by SPX. 8. CAPITAL STOCK: On June 29, 2000, a recapitalization was completed whereby the Company authorized 20,000,000 shares of $0.01 par value preferred stock, 150,000,000 shares of $0.01 par value Class A common stock and 250,000,000 shares of $0.01 par value Class B common stock. The 1,000 outstanding shares of $0.01 par value common stock held by SPX were converted into an aggregate of 75,633,333 shares of Class A common stock. All references to shares outstanding have been retroactively adjusted for this conversion. The terms of the preferred stock are to be established by the Board of Directors, and any or all series of preferred stock could have preferences over the common stock with respect to voting and conversion rights, dividends and other distributions and upon liquidation. The Class A common stock and Class B common stock are identical except that the holders of Class A common stock are entitled to five votes for each share held while the holders of the Class B common stock are entitled to one vote for each share held. The Class A common stock is convertible into Class B common stock upon certain events. On September 27, 2000, the Company completed an initial public offering of 8,855,000 shares of Class B common stock at $16.00 per share. The Company received net proceeds of $128,200. 9. STOCK OPTIONS: In June 2000, the Company established the 2000 Stock Compensation Plan (the "Plan"). The Plan provides for the issuance of up to 11,530,000 shares of Class B common stock for incentive stock options, nonqualified stock options, stock appreciation rights, performance units and restricted stock to employees, non-employee directors or consultants of the Company, SPX or any direct or indirect subsidiary of the Company. The Plan was administered by the Board of Directors of SPX prior to the initial public offering and, after the initial public offering, is administered by a committee established by the Board of Directors of the Company. Subject to the specific provisions of the Plan, the committee determines award eligibility, timing and the type, amount and terms of the awards. On June 29, 2000, the Company granted options to purchase 1,331,000 shares of Class B common stock to directors and employees of SPX. The options were granted at $13.00 per share and are fully vested. On September 21, 2000, the Company granted options to purchase 7,170,500 shares of Class B common stock to its employees at $16.00 per share. The options have a ten-year term and vest over a six-year period. 10. EARNINGS PER SHARE: The Company has presented earnings per common share under SFAS No. 128, "Earnings Per Share" and SAB No. 98. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution from the exercise of stock options into common stock. 10 11 The following is a reconciliation of the basic and diluted earnings per share calculations: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ----------------- 2000 1999 2000 1999 -------- ------- ------- ------- Net income (loss) $ (811) $13,247 $ 6,882 $19,329 ======== ======= ======= ======= Weighted average shares 76,018 75,633 75,763 75,633 outstanding Dilutive effect of stock options -- -- 165 -- -------- ------- ------- ------- Diluted shares outstanding 76,018 75,633 75,928 75,633 ======= ======= ======= ======= Basic earnings per share $ (0.01) $ 0.18 $ 0.09 $ 0.26 ======= ======= ======= ======= Diluted earnings per share $ (0.01) $ 0.18 $ 0.09 $ 0.26 ======= ======= ======= ======= At September 30, 2000, there were 8,501,500 options outstanding to purchase Class B common stock at prices ranging from $13.00 to $16.00 per share. These stock options were not included in the earnings per share calculation for the three months ended September 30, 2000, as the impact would be antidilutive. 11. COMPREHENSIVE INCOME: The components of comprehensive income (loss), net of tax are as follows: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------- 2000 1999 2000 1999 ------ -------- ------ -------- Net income (loss) $(811) $13,247 $6,882 $19,329 Foreign currency adjustments 318 337 701 258 ----- ------- ------ ------- Comprehensive income (loss) $(493) $13,584 $7,583 $19,587 ===== ======= ====== ======= 12. GAIN ON INVESTMENT: In connection with the purchase of product rights, the Company obtained warrants to purchase 750,000 shares of common stock of a publicly traded company. The Company accounted for the investment in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The warrants were exercised in the second and third quarter of 1999 and the common stock received upon exercise was sold resulting in a gain of $13,914. These gains are included in other income (expense) in the accompanying statement of operations for the three and nine-month periods ended September 30, 1999. 13. SPECIAL CHARGES: The Company recorded special charges of $10,587 in 1999 for restructuring initiatives. The components of the charges have been computed based on actual cash payouts, management's estimate of the realizable value of the affected tangible assets and estimated exit costs including severance and other employee benefits based on existing severance policies. The purpose of these restructuring initiatives was to improve profitability, streamline operations, reduce costs and improve efficiency. In the first quarter of 1999, the Company announced certain restructuring initiatives. These actions included consolidation of all general and administrative functions into one location and reductions in sales, marketing and engineering headcount in selected non-strategic product areas. The Company recorded charges of $5,800 for cash severance payments to approximately 215 hourly and salaried employees, $1,765 for field sales and service office closures (including cash holding costs of $765 and non-cash property 11 12 write-downs of $1,000) and $2,122 for non-cash product line discontinuance. Also, in the fourth quarter of 1999, the Company entered into a lease agreement for a new facility into which operations will be further consolidated. In connection therewith, the Company recorded a charge of $900, which covers the remaining payments for the existing leases from the abandonment date through the expiration of the lease. In June 2000, the Company reduced the restructuring charges and disposition related accruals by $190 to reflect a revision to the expected remaining costs to be incurred. 14. GEOGRAPHIC INFORMATION: SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," establishes additional standards for segment reporting in the financial statements. Management has determined that all of the operations have similar economic characteristics and may be aggregated into a single segment for disclosure under SFAS 131. Information concerning geographic information of the Company as prescribed by SFAS 131 is provided below. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenue: Domestic....... $ 36,355 $ 32,119 $ 96,618 $ 92,815 Foreign........ 20,053 10,824 41,916 32,957 Export......... 7,687 7,279 23,989 26,833 --------- --------- --------- --------- $ 64,095 $ 50,222 $ 162,523 $ 152,605 ========= ========= ========= ========= SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ Long-lived Assets: Domestic...... $ 94,632 $ 44,798 Foreign....... 5,512 1,904 -------- -------- $100,144 $ 46,702 ======== ======== 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the Company's unaudited Consolidated financial statements and related notes. OVERVIEW Inrange Technologies Corporation, manufactures, markets and services switching and networking solutions for storage, data and telecommunications networks. Our products provide fast and reliable connections among networks of computers and related devices and are used in large-scale systems that are critical to the operations of Fortune 1000 businesses and other large enterprises. Following the merger of SPX and General Signal Corporation and beginning in the fourth quarter of 1998, we implemented several initiatives to rationalize revenue, streamline operations and improve profitability. As part of this process, we discontinued sales of non-strategic, low volume product lines and products that were at the end of their life cycles. We also closed two manufacturing facilities and consolidated all of our operations into one manufacturing location, consolidated duplicative selling and administration functions into one location, and reduced headcount in non-strategic areas. These actions were substantially completed by July 1999. In connection with these initiatives, we recorded special charges of $7.0 million in 1998 and $10.6 million in 1999. On June 30, 2000, the Company acquired two related distributor businesses (TCS and STI) for an aggregate purchase price of approximately $6.4 million. The Company paid $4.1 million at closing and an additional $1.6 million and $0.7 million, respectively, are payable after the first and second years from the closing of the acquisitions based upon the achievement of certain sales targets. Upon the achievement of such targets, the payments will be made and additional goodwill will be recorded. In August 2000, the Company completed the acquisitions of Varcom Corporation ("Varcom") and Computerm Corporation ("Computerm"). Varcom is located in Fairfax, Virginia and provides network management hardware, software, and services. Computerm is located in Pittsburgh, Pennsylvania and offers high performance channel extension products and services that allow storage networking applications to operate over wide area networks. The purchase price of Varcom was $25.0 million, which includes a non-interest bearing seller note of $1.5 million due August 2002. As a result of the Varcom acquisition, we recorded a $10.0 million write-off of in-process technology. The purchase price of Computerm was $30.0 million, which includes a non-interest bearing seller note of $3.0 million due August 2001. The Computerm acquisition contains a net asset target of $10.7 million as of the closing date of the acquisition. A liability of $3.0 million has been recorded in purchase accounting for the preliminary estimate of the excess of the net assets received versus the target. This estimated liability will be revised and settled in the fourth quarter of 2000 based on an audit of the net assets. We have accounted for all of our acquisitions using the purchase method of accounting. 13 14 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected operating data as a percentage of revenue:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- -------------------- 2000 1999 2000 1999 --------- -------- --------- -------- Revenue..................................... 100.0% 100.0% 100.0% 100.0% Gross margin................................ 50.4% 56.4% 49.4% 50.1% Research, development and engineering....... 9.1% 7.6% 9.8% 9.5% Selling, general and administrative......... 25.2% 21.1% 25.0% 22.8% Operating income (loss)..................... (0.6%) 32.8% 7.8% 12.8% Net income (loss)........................... (1.3%) 26.4% 4.2% 12.7%
Comparison of three months ended September 30, 2000 and 1999 Revenue. Revenue for the three months ended September 30, 2000 was $64.1 million, an increase of $13.9 million, or 27.6%, from $50.2 million for the three months ended September 30, 1999. Excluding the negative impact of foreign currency translations in Europe, revenue increased to approximately $66.6 million, an increase of $16.4 million or 32.6%. Sales of our open storage networking products were $14.1 million, an increase of $8.4 million, or 147.4%, from $5.7 million in the three-month period ended September 30, 1999. Our open storage networking products consist of fibre channel directors and optical networking equipment. The increase was primarily driven by sales of the FC/9000 Director, which was released for general availability during the quarter. Sales from other storage networking products increased by $5.1 million and was mainly attributable to increased channel extension sales as a result of the Computerm acquisition. Cost of Revenue. Our cost of revenue for the three months ended September 30, 2000 was $31.8 million, an increase of $9.9 million, or 45.2%, from $21.9 million for the three months ended September 30, 1999. As a percentage of revenue, cost of revenue increased to 49.6% for the three months ended September 30, 2000 from 43.6% for the three months ended September 30, 1999. The increase in cost of revenue was related to increased sales, higher services costs, a change in mix of products and increased reserve requirements for excess and obsolete inventory. The increase in service cost of $2.1 million was a result of increased service headcount to support the introduction of the FC/9000 and from the acquisitions. Research, Development and Engineering. Research, development and engineering expenses for the three months ended September 30, 2000 were $5.8 million, an increase of $2.0 million from $3.8 million for the three months ended September 30, 1999. As a percentage of revenue, research, development and engineering expenses were 9.1% for the three months ended September 30, 2000 as compared to 7.6% for the three months ended September 30, 1999. The increase was a result of additional headcount primarily to support Fibre Channel initiatives, and other storage networking products, as well as new datacom and telecom programs. The additional headcount for the data networking and telecom networking programs was principally from the acquisitions. Including capitalized software, research development and engineering spending was $7.6 million for the three months ended September 30, 2000, or 11.8% of revenue, compared to $4.7 million, or 9.4% of revenue, for the three months ended September 30, 1999. We expect that total research, development and 14 15 engineering expenses will continue to increase in the future as we develop and enhance new and existing products. Selling, General and Administrative. Selling, general and administrative expenses for the three months ended September 30, 2000 were $16.1 million, an increase of $5.5 million from $10.6 million for the three months ended September 30, 1999. As a percentage of revenue, selling, general and administrative expenses were 25.2% for the three months ended September 30, 2000, compared to 21.1% for the three months ended September 30, 1999. Selling and administrative personnel and related costs of $2.0 million from the acquired businesses are included in the September 2000 amounts. The remainder of the increase was primarily due to increased personnel to support the expected sales levels for the FC/9000, spending related to additional marketing and e-commerce initiatives and hiring additional key management. Amortization of Goodwill and Other Intangibles. Amortization of goodwill and other intangibles for the three-month periods ended September 30, 2000 and 1999 was $0.7 million and $0.3 million, respectively. The increase was a result of goodwill and other intangibles associated with the three acquisitions recently completed. Write-off of Acquired in-Process Technology. In conjunction with the acquisition of Varcom, we recorded a charge of $10.0 million for the write-off of acquired in-process technology. Gain on Sale of Real Estate. In the three-month period ended September 30, 1999, we sold one of our facilities for $6.4 million and recognized a gain on sale of real estate of $2.8 million. We did not sell any real estate in 2000. Interest Expense. Interest expense for the three months ended September 30, 2000 was $0.8 million, compared to $0.2 million for the three months ended September 30, 1999. The interest expense for the three months ended September 30, 2000 was principally for money loaned to us by SPX for the acquisitions of Varcom, Computerm and TCS / STI. The loan for these acquisitions has been repaid from the IPO proceeds. Other Income (Expense). Other expense for the three months ended September 30, 2000 was $0.1 million, compared to $6.2 million of income for the three months ended September 30, 1999. This decrease resulted primarily from a gain on the sale of an investment in the three month period ended September 30, 1999. Income Taxes. Our effective tax rate for the three months ended September 30, 2000 was 40%, compared to 40.9% for the same period in 1999. Comparison of nine months ended September 30, 2000 and 1999 Revenue. Revenue for the nine months ended September 30, 2000 was $162.5 million, an increase of $9.9 million, or 6.5%, from $152.6 million for the nine months ended September 30, 1999. Excluding the negative impact of foreign currency translations in Europe, revenue increased to $167.0 million, an increase of $14.4 million or 9.4%. Sales of our open storage networking products were $30.6 million, an increase of $18.1 million, or 144.8%, from $12.5 million for the nine months ended September 30, 1999. The increase was primarily the result of 15 16 sales of the FC/9000 director. The increase was offset by lower sales of our data networking products, which decreased $7.1 million and our telecommunications monitoring products, which decreased $3.7 million. The reduction in sales of the telecommunications monitoring products resulted from reduced sales to a single customer. The Company believes that the decrease in sales of data networking product line is a result of a maturing market. To expand the applications and market for this product, the Company is repositioning its core technology into the area of physical network management with its newly announced Universal Touchpoint Architecture that began shipping in the first quarter of 2000. Cost of Revenue. Cost of revenue for the nine months ended September 30, 2000 was $82.2 million, an increase of $6.1 million, or 8.0%, from $76.1 million for the same period in 1999. As a percentage of revenue, cost of revenue increased to 50.6% for the nine months ended September 30, 2000 from 49.9% for the nine months ended September 30, 1999. The increase in cost was primarily attributable to higher sales, increased service costs to support the FC/9000 introduction and a change in the mix of products sold. Research, Development and Engineering. Research, development and engineering expenses for the nine months ended September 30, 2000 were $15.9 million, an increase of $1.4 million, or 9.9%, from $14.4 million for the nine months ended September 30, 1999. As a percentage of revenue, research, development and engineering expenses were 9.8% for the nine months ended September 30, 2000 as compared to 9.5% for the nine months ended September 30, 1999. The increase was a result of additional personnel to support new initiatives and from headcount arising from the acquisitions. Including capitalized software, research development and engineering spending was $20.6 million for the nine months ended September 30, 2000, or 12.7% of revenue, compared to $18.2 million, or 11.9% of revenue, for the nine months ended September 30, 1999. Selling, General and Administrative. Selling, general and administrative expenses for the nine months ended September 30, 2000 were $40.7 million, an increase of $5.8 million from $34.8 million for the nine months ended September 30, 1999. As a percentage of revenue, selling, general and administrative expenses were 25.0% for the nine months ended September 30, 2000, compared to 22.8% for the nine months ended September 30, 1999. The increase resulted from acquisitions, the hiring of additional personnel to support the expected sales levels for the FC/9000, spending related to our e-commerce initiatives and hiring additional key management personnel. Amortization of Goodwill and Other Intangibles. Amortization of goodwill and other intangibles for the nine-month periods ended September 30, 2000 and 1999 was $1.3 million and $0.8 million, respectively. The increase was a result of goodwill associated with the three recent acquisitions. Write-off of Acquired in-Process Technology. In conjunction with the acquisition of Varcom, we recorded a charge of $10.0 million for the write-off of acquired in-process technology. Special Charges. Special charges for the nine months ended September 30, 2000 were ($0.2) million, compared to $9.7 million for the nine months ended September 30, 1999. The 1999 restructuring initiatives included the consolidation of all general and administrative functions into one location and reductions in sales, marketing and engineering headcount in selected non-strategic product areas. The Company recorded charges of 16 17 $5.8 million for severance payments, $1.8 million for field sales and service office closures and $2.1 million for product line discontinuance. The Company has revised the estimates of the remaining costs expected to be incurred in our restructuring, resulting in special charges of ($0.2) million in the nine months ended September 30, 2000. As of September 30, 2000, we maintained $1.2 million of restructuring charges and disposition related accruals. These accruals include $0.3 million for facility holding costs, which are expected to used by May 2002, and $0.9 million for the remaining lease obligations on our existing manufacturing facility, which will be used through February 2002. Interest Expense. Interest expense for the nine months ended September 30, 2000 was $1.1 million, compared to $0.7 million for the nine months ended September 30, 1999. The increase was due to interest on a loan from SPX to fund the recently completed acquisitions, offset by a decrease in interest paid on foreign borrowings. Other Income (Expense). Other income decreased in 2000 primarily due to a gain on the sale of an investment in 1999. Income Taxes. Our effective tax rate for the nine months ended September 30, 2000 was 40%, compared to 40.9% for the nine months ended September 30, 1999. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operating activities was $11.4 million for the nine months ended September 30, 2000. During this period, cash flow from operations was principally generated from net income and increases in accounts payable and accrued expenses, offset by increases in accounts receivable, inventories and prepaid expenses. Cash flow used for investing activities was $73.2 million for the nine months ended September 30, 2000. Of that amount, $54.8 million related to the cash payments for acquired businesses, $3.0 million represented an equity investment in a private company and the remainder was used for additions of property and equipment, capitalized software and other assets. In September 2000, we completed an initial public offering of 8,855,000 shares of Class B Common stock at $16.00 per share and received net proceeds of $128.2 million. The proceeds were used to repay certain borrowings from SPX to fund certain acquisitions made in the second and third quarters of 2000. The remaining proceeds will be used for general corporate purposes. Pending use, the Company invested $15 million in a money market account and the remaining net proceeds have been loaned to SPX under a demand note. From time to time, the Company has supplemented its operating cash flows with capital contributions from SPX, borrowings under foreign lines of credit and capital leases. For the nine months ended September 30, 2000, net cash generated by financing activities was $80.2 million, primarily consisting of net cash inflows from the initial public offering and borrowings from SPX partially offset by the repayment of debt and the payment of the note due to SPX for the acquisitions. We have borrowed 17 18 funds for the working capital and business expansion needs of our foreign operations from local financial institutions. At September 30, 2000, our credit facilities consisted of $5.2 million in lines of credit in the United Kingdom, Germany and Italy that were guaranteed by SPX. At September 30, 2000, approximately $1.6 million was outstanding under these facilities. The weighted average interest rate on borrowings under the foreign lines of credit was 5.63% for the nine months ended September 30, 2000. These borrowings are reflected on the balance sheets as short-term borrowings. As part of our cash management system, we lend, on a daily basis, our cash and cash equivalents in excess of $15 million to SPX. We lend these amounts to SPX under a loan agreement that allows us to demand repayment of outstanding amounts at any time. However, even after SPX repays us the amount due under the loan agreement, as part of our cash management system we will continue to be obligated to lend, on a daily basis, all of our cash and cash equivalents in excess of $15 million to SPX until the termination of the loan agreement. The loan agreement will terminate when SPX owns less than 50% of our outstanding shares of Class A common stock and Class B common stock or if there is an event of default under SPX's credit agreement. Amounts loaned under the loan agreement are unsecured. Loans made prior to October 1, 2000, accrued interest quarterly at a rate of 8 1/2% and, for loans made on or after October 1, 2000, interest accrues quarterly at the weighted average rate of interest paid by SPX for revolving loans under its credit agreement for the prior quarter. SPX's ability to repay these borrowings is subject to SPX's financial condition and liquidity, including its ability to borrow under its credit agreement or otherwise. We believe that the net proceeds from the initial public offering, together with current cash balances, foreign credit facilities and cash provided by future operations, will be sufficient to meet the working capital, capital expenditure and research and development requirements for the foreseeable future. However, if additional funds are required to support our working capital requirements or for other purposes, the Company may seek to raise such additional funds through borrowings from SPX, public or private equity financings or from other sources. The Company's ability to issue equity may be limited by SPX's desire to preserve its ability in the future to effect a tax-free spin-off and by limitations under SPX's credit agreement. In addition, the Company's ability to borrow money may be limited by restrictions under SPX's credit agreement. Additional financing may not be available, or, if it is available, it may be dilutive or may not be obtainable on terms acceptable to us. RECENT ACCOUNTING PRONOUNCEMENTS In 1999, the Securities and Exchange Commission's staff issued SAB No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on revenue recognition and management is evaluating the impact of the statement on the financial position and results of operations. Management is currently analyzing the impact of this statement, but does not anticipate that the effect on results of operations and financial position will be material. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which will become effective January 2001, establishes accounting and reporting standards for derivative instruments and hedging contracts. It also requires that all derivatives are recognized as either assets or liabilities in the balance sheet at fair value and changes in fair value are recognized in operating results. Management is currently analyzing the impact of this statement, but does not anticipate that the effect on results of operations and financial position will be material. 18 19 -------------------- The foregoing discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward looking statements, within the meaning of Section 21E of the Securities exchange Act of 1934, as amended, that are subject to the safe harbor created thereby. This forward looking statements, which reflect management's current views with respect to future events and financial performance, are subject to certain risks and uncertainties, including but not limited to those matters discussed above. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. Reference is made to the Company's Form S-1 Registration Statement for additional cautionary statements and discussion of certain important factors as they relate to forward looking statements. In addition, management's estimates of future operating results are based on the current business, which is constantly subject to change as management implements its strategy. 19 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company does not use derivative financial instruments in its investment portfolio. The Company places its cash and cash equivalents with high credit quality issuers. The Company mitigates default risk by investing in only the safest and highest credit quality securities and by positioning its portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer, guarantor or depository. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. In addition the Company utilizes a cash management program administered by SPX and has a demand note receivable from SPX. Interest accrues quarterly on this loan to SPX at 8 1/2% through October 1, 2000. After October 1, 2000, interest on the loan will be adjusted quarterly and will accrue at the weighted average rate of interest paid by SPX for revolving loans under its credit agreement for the prior quarter. The loan to SPX is unsecured and SPX's ability to repay the amount due will be subject to SPX's financial condition and liquidity, including its ability to borrow under its credit agreement or otherwise. The Company is exposed to foreign currency fluctuation relating to its foreign subsidiaries. The Company does not maintain any derivative financial instruments or hedges to mitigate such fluctuation. 20 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of its business. We are not a party to any pending legal proceedings that we believe will materially impact the Company's financial condition, liquidity or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 21, 2000, the Company, in its initial public offering, sold 7,700,000 shares of its Class B common stock at a price of $16.00 per share. The shares were sold pursuant to a Form S-1 Registration Statement (Registration No. 333-38592) that was declared effective by the Securities and Exchange Commission on September 21, 2000. Salomon Smith Barney, Bear, Stearns & Co., Inc. and Chase H & Q were the managing underwriters of the offering. The underwriters subsequently exercised their option to purchase 1,155,000 additional shares of the Company's Class B common stock at $16.00 per share and closed on the purchase of all 8,855,000 shares on September 27, 2000. The gross proceeds from the offering were $ 141.7 million and the aggregate net proceeds to the Company from the offering were approximately $131.8 million after deducting approximately $9.9 million in underwriting discounts and commissions paid to the underwriters. In addition to underwriting discounts and commissions, we have estimated that we will pay approximately $2.1 million in expenses associated with the offering, including registration fees, costs of printing and engraving, and legal and accounting costs. Since completing the initial public offering on September 27, 2000, the Company used $55.7 million of the net proceeds to repay the principal and interest due on each of three loans made to the Company by its parent, SPX, in funding the Company's acquisitions of TCS and STI, two European systems integration businesses, Varcom, a provider of advanced network monitoring and management tools, and Computerm, a provider of storage area network channel extension products. The Company, in connection with these acquisitions, had borrowed $54.9 million from SPX at the prime rate plus one-half percent. The remaining $74.0 million of the proceeds will be used for general corporate purposes. Pending this use, the Company invested $15.0 million of the proceeds in investment grade securities and loaned the remaining $59.0 million to SPX, under a demand note, for use in the daily cash management program administered by SPX. At September 30, 2000, the balance due from SPX under the demand note was $57.5 million. Interest accrues quarterly on this note at 8 1/2% through October 1, 2000. After October 1, 2000, interest on the loan will be adjusted quarterly and will accrue at the weighted average rate of interest paid by SPX for revolving loans under its credit agreement for the prior quarter. The loan to SPX is unsecured and SPX's ability to repay the amount due will be subject to SPX's financial condition and liquidity, including its ability to borrow under its credit agreement or otherwise. The loan agreement will terminate when SPX owns less than 50% of our outstanding shares of Class A common stock and Class B common stock or if there is an event of default under SPX's credit agreement. 21 22 Except as described herein, none of the net proceeds of the offering or the offering expenses paid by the Company were paid, directly or indirectly, to any director or officer of the Company or their associates, to persons owning ten percent or more of any class of the Company's securities or to any affiliates of the Company. 22 23 ITEM 5. OTHER INFORMATION
(a) EXHIBITS: *3.2 - Amended and Restated By-Laws of Inrange Technologies Corporation (Exhibit 3.2 to the Form S-1 Registration Statement (No. 333-38592)). *3.3 - Amended and Restated Certificate of Incorporation of Inrange Technologies Corporation (Exhibit 3.2 to the Form S-1 Registration Statement (No. 333-38592)). *4.1 - Form of Inrange Technologies Corporation Class B common stock certificate (Exhibit 3.2 to the Form S-1 Registration Statement (No. 333-38592)). *10.1 - Tax Sharing Agreement, between Inrange Technologies Corporation and SPX Corporation (Exhibit 10.1 to the Form S-1 Registration Statement (No. 333-38592)). *10.2 - Management Services Agreement, between Inrange Technologies Corporation and SPX Corporation (Exhibit 10.2 to the Form S-1 Registration Statement (No. 333-38592)). *10.3 - Registration Rights Agreement, between Inrange Technologies Corporation and SPX Corporation (Exhibit 10.3 to the Form S-1 Registration Statement (No. 333-38592)). *10.4 - Trademark License Agreement between Inrange Technologies Corporation and SPX Corporation (Exhibit 10.4 to the Form S-1 Registration Statement (No. 333-38592)). *10.5 - Reseller Agreement, dated October 29, 1999 between Inrange Technologies Corporation and Ancor Communications, Inc. (Exhibit 10.5 to the Form S-1 Registration Statement (No. 333-38592)). ++ *10.6 - Technology License Agreement dated September 24, 1998 between Inrange Technologies Corporation and Ancor Communications Inc. (Exhibit 10.6 to the Form S-1 Registration Statement (No. 333-38592)). ++
23 24 *10.7 - Letter Agreement dated November 23, 1999 between Inrange Technologies Corporation and Ancor Communications Inc. (Exhibit 10.7 to the Form S-1 Registration Statement (No. 333-38592)). ++ *10.8 - Loan Agreement, between Inrange Technologies Corporation and SPX Corporation (Exhibit 10.9 to the Form S-1 Registration Statement (No. 333-38592)). *10.9 - Employee Matters Agreement, between Inrange Technologies Corporation and SPX Corporation (Exhibit 10.10 to the Form S-1 Registration Statement (No. 333-38592)). *10.10 - Inrange Technologies Corporation 2000 Stock Compensation Plan (Exhibit 10.8 to the Form S-1 Registration Statement (No. 333-38592)). *10.11 - Inrange Technologies Corporation Employee Stock Purchase Plan (previously filed as Exhibit 4.3 to the Company's Registration Statement (No. 333-46402) on Form S-8). 10.12 - Inrange Technologies Corporation Executive EVA Incentive Compensation Plan. 27 - Financial Data Schedule
* Incorporated by reference, as indicated. ++ Portions of these exhibits have been omitted pursuant to the Commission's grant of a request for confidential treatment (b) REPORTS ON FORM 8-K Not applicable. 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INRANGE TECHNOLOGIES CORPORATION Date: November 9, 2000 By: /s/ JAY ZAGER ---------------------------------- Jay Zager Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 25 EX-10.12 2 c58573ex10-12.txt EXECUTIVE ECONOMIC VALUE ADDED PLAN 1 INRANGE TECHNOLOGIES EXECUTIVE EVA INCENTIVE COMPENSATION PLAN SEPTEMBER, 2000 2 I. PURPOSE The objectives of the Inrange Technologies EVA Executive Incentive Compensation Plan are to link incentive awards for plan participants to the creation of investor wealth and to promote a culture of performance and ownership. Accordingly, the program rewards sustained improvements in investor value. II. ELIGIBILITY Officers and key managers in both line and staff positions who have significant impact on the achievement of the Company's strategic objectives are eligible to participate in the Executive EVA Incentive Compensation Plan. Participation for a given plan year is based on the recommendation of the supervising officer or unit President and approval by the Chief Executive Officer and/or the Compensation Committee of the Board of Directors. Upon approval by the Chief Executive Officer and/or the Compensation Committee, participation shall be offered to prospective participants in consideration for the prospective participant's agreement to sign a non-competition and confidentiality agreement. The terms of the non-competition and confidentiality agreement shall be on terms acceptable to the Company. III. DEFINITIONS AND EVA INCENTIVE PLAN PARAMETERS A. Economic Value Added (EVA): Improvement in EVA provides the best operating measure of increases in shareholder wealth. EVA is an estimate of the company's economic profit after subtracting the cost of all capital (debt and equity) employed in the business. EVA is the difference between our organization's net operating profits after-tax (NOPAT) and the charge for capital employed, as follows: EVA = NET OPERATING PROFIT AFTER TAXES (NOPAT) - CAPITAL CHARGE where, CAPITAL CHARGE = COST OF CAPITAL X CAPITAL EMPLOYED IN THE BUSINESS NOPAT is the profit after subtracting cost of sales, operating expenses, taxes and other adjustments from revenues. Cost of Capital is the required, or minimum, rate of return necessary to compensate all investors for the capital they have invested in the business. Capital represents the investment made by shareholders and lenders in the business (total assets minus current liabilities). Page 1 3 B. Expected Improvement (EI): Expected Improvement (EI) represents the annual EVA improvement, or growth, required to provide our investors with a competitive, or cost of capital, return on the market value of their investment. The plan pays a Target Bonus for achieving Expected Improvement, i.e., employees receive their target cash compensation when investors receive their target investment return. The Expected EVA Improvement amounts for Inrange Technologies for 2000 are shown in Appendix A. C. Target Bonus: Target Bonus is the bonus earned for achieving EI. A participant's Target Bonus is calculated by multiplying his or her year end salary (as of December 31) by his or her Bonus Class Percent. For example, if year end salary is $75,000 and Bonus Class Percent is 10%, the Target Bonus is $7,500: Year End Salary x Bonus Class Percent = Target Bonus 75,000 x 10% = $7,500 D. EVA Interval: The EVA Interval is the amount of EVA improvement, in excess of EI, needed to earn each additional multiple of the target bonus. For example, EVA improvement of one Interval in excess of EI earns a bonus multiple of 2.0, or 1.0 more than target, while EVA improvement of two Intervals in excess of EI earns a bonus multiple of 3.0, or 2.0 more than target. The EVA Interval is also the shortfall in EVA improvement, below EI, that results in a zero bonus. The EVA Interval amounts for all INRANGE business units appear in Appendix A. E. Bonus Multiple: The Bonus Multiple is determined by (1) the difference between actual and expected EVA improvement and (2) the EVA Interval: BONUS MULTIPLE = (1+[((DELTA)EVA - EI)/EVA INTERVAL]) When the EVA improvement equals EI, the Bonus Multiple is 1.0. When the EVA improvement exceeds EI, the Bonus Multiple is greater than 1.0 and when the EVA improvement falls short of EI, the Bonus multiple is less than 1.0. Page 2 4 F. Declared Bonus: The Declared Bonus, which is determined at the end of the Bonus Plan year, is the amount of bonus earned by a participant as a result of EVA performance during the year. There is no limit to how large or small bonuses can be. The Declared Bonus can even be a negative amount as a result of a negative change in Economic Value. The annual Declared Bonus a participant achieves may be stated as: DECLARED BONUS = TARGET BONUS * BONUS MULTIPLE DECLARED BONUS = TARGET BONUS* (1+ [(DELTA)EVA - EI)/EVA INTERVAL]) An easy and practical way for a plan participant to determine his or her Declared Bonus is to multiply Target Bonus times the Bonus Multiple. The Declared Bonus can also be expressed as: DECLARED BONUS = TARGET BONUS + A SHARE OF ((DELTA)EVA - EXPECTED IMPROVEMENT) DECLARED BONUS = TARGET BONUS + [(TARGET BONUS/EVA INTERVAL) * ((DELTA)EVA - EI)] The ratio [Target Bonus/EVA Interval] is your share of EVA improvement in excess of EI. G. Bonus Bank: The Bonus Bank is an essential component in protecting and building investor value. All Declared Bonus amounts flow through the Bonus Bank, to promote a long term horizon and ensure that only sustainable improvements are rewarded. Thus, the Bonus Bank maintains a cumulative relationship between bonuses paid and EVA improvement over time. Each participant has his or her own individual Bonus Bank account. If, after the Declared Bonus is determined, the prior year balance plus the Declared Bonus is less than Target Bonus, the entire balance is paid. When the balance exceeds Target Bonus, the bonus available for payment is equal to Target Bonus plus one-third of any remaining balance. The other two-thirds is deferred and ultimately paid out only if the performance is sustained. If EVA falls by enough, a negative amount is banked. When a negative balance exists, it must be paid off through future EVA improvements before any bonus is paid, maintaining the sharing relationship between cumulative EVA achievement and cumulative bonuses. The Bonus Award flow through the Bonus Bank is depicted below. ---------------- ------------ ----------------- | | | | | | | Declared Bonus |--------->| Bonus Bank |--------------->| Available Bonus | | | | | | | ---------------- ------------ ----------------- Target Bonus Beginning Balance Up to Target Bonus plus one + a % of EVA + third of remaining balance above or below EI Declared Bonus (Depending on Personal Performance)
Page 3 5 IV. PERSONAL PERFORMANCE A. Determining Personal Performance Award Amounts The EVA Incentive Plan award for Personal Performance can be earned only after improving EVA. Thus the Personal Performance Award is based on a "carve out" portion of the Available Bonus. The Personal Performance carve-out for plan participants is 20% of the total annual bonus available to be paid. Thus, of the award payment amount available in any year, 80% is paid BASED ON BUSINESS PERFORMANCE and 20% is paid based on Personal Performance, depicted for a Division President as follows: -------------- | Declared |------------ | Bonus | 20% | ---------- ------- ----------- -------------- -------- | Consolidated | | | Declared | | Bonus | | Available | | 80% Business | | Bonus | -------------- |--->| Bonus |---->| Bank |---->| Bonus |--->| 20% Personal |--->| Award | | | | | | | | | | | Earned | -------------- | ---------- ------- ----------- -------------- -------- | Declared | | | Bonus | 80% | | Division |------------ --------------
Any funds remaining from Personal Performance Awards that are not distributed are forfeited. Page 4 6 B. Measuring Personal Performance At year end, the immediate supervisor shall evaluate each participant's performance TO DETERMINE WHAT HIS OR HER DISCRETIONARY BONUS PERCENTAGE SHALL BE. The evaluation shall be based on the participant's leadership skills focusing on the INRANGE Leadership Principles, the performance of the individual in carrying out his/her primary functional assignment, and the overall impact, contribution and achievement of the participant. Personal Performance Amount of Available 20% Achievement Rating Earned -------------------- ----------------------- - Requires significant improvement. up to 5% - Inconsistent; occasional good performance, sometimes falls short. up to 10% - Good commitment and good, consistent results. On par performance. up to 15% - High achiever; recognized by others as having high impact and strong leadership skills. up to 20% C. Bonus Award and Bank Example The chart below depicts an example participant's EVA Bonus Award and Bank through 3 years. For simplification, Target Bonus is set at $10,000 in all three years. ----------------------------------------------------------------------------- Inrange Technologies Bonus Award and Bank Example 1999 2000 2001 ------ ------- ------- A. Target Bonus 10,000 10,000 10,000 B. Bonus Multiple 2.50 1.80 1.30 ------ ------- ------- C. Declared Bonus A x B 25,000 18,000 13,000 D. Beg. Bank Balance 0 10,000 12,000 ------ ------- ------- E. Beg Bank Balance + C + D 25,000 28,000 25,000 Declared Bonus F. Pay Target Bonus (or A 10,000 10,000 10,000 available if less) G. 1/3 of Bank Balance (E - F)/3 5,000 6,000 5,000 ------ ------- ------- H. Available Bonus for F + G 15,000 16,000 15,000 performance I. Company Performance Award 80% 12,000 12,800 12,000 J. Personal Performance Award 15% 2,250 2,400 2,250 ------ ------- ------- K. Award I + J 14,250 15,200 14,250 L. Ending Bank Balance E - H 10,000 12,000 10,000 ----------------------------------------------------------------------------- Page 5 7 V. ADMINISTRATIVE MATTERS The following guidelines have been established to define how the issues addressed below shall be dealt with under the plan. It is the responsibility of the CEO and the Compensation Committee of the Board of Directors to: 1. Interpret the guidelines in their application. 2. Establish additional guidelines not specifically addressed below. 3. Change, amend, or alter any of the guidelines as necessary to achieve the objectives of the plan. Any decision rendered by the CEO and/or the Compensation Committee regarding any aspect of the plan is final. Except where specifically authorized by the Compensation Committee or the CEO, no one is authorized to act in any manner that is contrary to the plan itself or to these guidelines. 1. TRANSFERS: A Participant who transfers from one business unit to another shall have his or her Bonus Bank transferred to the new unit. If a participant works part of the year in Division A and part of the year in Division B, the participant's Declared Bonus shall be the sum of a pro-rated bonus based on Division A performance and a pro-rated bonus based on Division B performance: Declared Bonus = Target Bonus * Div A Bonus Multiple * (Div A Months/12) + Target Bonus * Div B Bonus Multiple * (Div B Months/12)] The pro-rated bonuses shall be based on the Divisions' full year Bonus Multiples, participant's Target Bonus for the year, and the time spent in each Division. 2. DEATH: If a participant dies during the year, the participant's Declared Bonus shall be a pro-rated bonus based on the number of months worked during the year: Target Bonus * Unit Bonus Multiple * (Months Worked/12)] The Bonus Award Earned shall be calculated based on the Declared Bonus, the Beginning Bonus Bank balance and the participant's Personal Performance Achievement Rating as provided in Section V. The Bonus Award Earned and the Ending Bonus Bank Balance, if positive, shall be paid to the participant's designated company life insurance beneficiaries at the normal bonus payment date after the end of the fiscal year. Page 6 8 3. RETIREMENT AND DISABILITY: When a participant retires (the participant must be eligible to retire under the applicable pension plan and must have at least 3 years of service with Inrange since the IPO date of September 22, 2000) or when a participant becomes temporarily or permanently disabled (as determined by the Company), participant's Declared Bonus shall be a pro-rated bonus based on the number of months worked during the year: Target Bonus * Unit Bonus Multiple * (Months Worked/12) Nothing herein shall be interpreted, however, as amending or otherwise changing the vesting requirement in any other company pension or benefit plans. The Bonus Award Earned shall be calculated based on the Declared Bonus, the Beginning Bonus Bank Balance and the participant's Personal Performance Achievement Rating as provided in Section V. The Bonus Award Earned, if positive, shall be paid to the participant at the normal bonus payment date after the end of the fiscal year. When a participant's temporary disability carries over into a subsequent fiscal year, the participant's Declared Bonus for that year shall also be calculated using the formula above. If a participant terminates before eligibility for retirement benefits under the applicable pension plan, or retires with eligibility for retirement benefits but before achieving at least 3 years of service with Inrange since the IPO date of September 22, 2000, such termination shall result in forfeiture of both the Bonus Bank and the bonus payment for the year in which the termination occurs. For participants who retire or become permanently disabled, the Ending Bonus Bank Balance, if positive, shall be paid to the participant, up to a maximum of 6 times the participant's final annual Target Bonus, at the normal bonus payment date after the end of the fiscal year. For participants who are temporarily disabled, the Ending Bonus Bank Balance remains fully at risk and is not paid out. For participants who retire or become permanently disabled, the Ending Bonus Bank Balance in excess of 6 times the participant's annual Target Bonus (the "Excess Bonus Bank Balance") shall be at risk and adjusted at the end of the first and second post-retirement (or post-permanent disability) fiscal years by the addition of a Declared Bonus. The Declared Bonus for the first and second post-retirement (or post-disability) fiscal years shall be equal to: Target Bonus * [Unit Bonus Multiple - 1] 50% of the Excess Bonus Bank Balance, if positive, shall be paid to the participant at the normal bonus payment time after the end of first post-retirement (or post-permanent disability) fiscal year, and the remainder of the Excess Bonus Bank Balance shall be paid at the normal bonus payment time after the end of the second post-retirement (or post-disability) fiscal year. Page 7 9 The example below is based on the following data: --------------------------------------------------------------- Target Bonus $20,000 Beginning Bonus Bank $400,000 Retirement Date July 31 Unit Bonus Multiple - Retirement Year 1.45 Unit Bonus Multiple - 1st Post Retirement Year 2.00 Unit Bonus Multiple - 2nd Post Retirement Year .7 --------------------------------------------------------------- The participant's Declared Bonus for his/her retirement year is: Target Bonus * Unit Bonus Multiple * (Months Worked/12)] $20,000 * 1.45 * (7/12) = $16,917 The Declared Bonus increases the Bonus Bank Balance to $416,917, and makes the Available Bonus $152,306. After deducting the Available Bonus, the Ending Bank Balance is $264,611 = $416,917 - $152,306. The Ending Bonus Bank Balance is 13.2 times the participant's target bonus and exceeds 6x target bonus by $144,611. At the normal bonus payment date after the end of the fiscal year, the participant receives his/her Bonus Award Earned ($152,306, assuming the highest Personal Performance Achievement Rating) and the Ending Bonus Bank Balance, up to a maximum of six times target bonus, or $120,000. The total payment is $272,306, and leaves an Excess Bonus Bank Balance of $144,611. The Declared Bonus for the first post-retirement year is: Target Bonus * [Unit Bonus Multiple - 1] $20,000 * [2.00 - 1] = $20,000 This Declared Bonus is added to the Excess Bonus Bank Balance, giving a new Bank Balance of $164,611 (= $144,611 + $20,000). 50% of this Bank Balance, or $82,306, is paid out at the normal bonus payment date following the end of the first post-retirement year, leaving an Excess Bonus Bank Balance of $82,306. The Declared Bonus for the second post-retirement year is: Target Bonus * [Unit Bonus Multiple - 1] $20,000 * [0.7 - 1] = -$6,000 This Declared Bonus is added to the Excess Bonus Bank Balance, giving a new Bank Balance of $76,306 (= $82,306 - $6,000). This Bank Balance is paid out in full at the normal bonus payment date following the end of the first post-retirement year. Page 8 10 4. ORGANIZATION RESTRUCTURING: When a participant's position is eliminated and the participant is terminated as a part of a business reorganization or organizational restructuring (as determined by the CEO or the Compensation Committee), participant's Declared Bonus shall be a pro-rated bonus based on the number of months worked during the year: Target Bonus * Unit Bonus Multiple * (Months Worked/12) The Bonus Award Earned shall be calculated based on the Declared Bonus, the Beginning Bonus Bank balance and the participant's Personal Performance Achievement Rating as provided in Section V. The Bonus Award Earned and the Ending Bonus Bank Balance, if positive, shall be paid to the participant at the normal bonus payment date after the end of the fiscal year. 5. CHANGE FROM UNCAPPED TO CAPPED PLAN: When a participant is moved from the uncapped EVA Executive Incentive Compensation Plan to a capped EVA bonus plan, he/she shall retain his/her bonus bank and receive a Bonus Award Earned each year from the uncapped plan until his/her bonus bank is exhausted, provided he/she remains employed by the Company. For the year in which the participant is moved, participant's Declared Bonus shall be a pro-rated bonus based on the number of months in the uncapped plan: Target Bonus * Unit Bonus Multiple * (Uncapped Plan Months/12) The Bonus Award Earned shall be calculated based on the Declared Bonus, the Beginning Bonus Bank balance, the participant's last annual Target Bonus in the uncapped plan and the participant's Personal Performance Achievement Rating as provided in Section V. In subsequent years, the Bonus Award Earned shall be calculated based on a Declared Bonus of $0, the Beginning Bonus Bank Balance, the participant's last Target Bonus in the uncapped plan and the participant's Personal Performance Achievement Rating as provided in Section V. The following example is for a participant who has a $60,000 bonus bank when he/she leaves the uncapped plan and whose last Target Bonus was $15,000. Year 1 is the participant's first full year in the capped plan. ================================================================ Year 1 Year 2 Year 3 ---------------------------------------------------------------- Beginning Bonus Bank $60,000 $30,000 $10,000 Declared Bonus $0 $0 $0 Target Bonus $15,000 $15,000 $15,000 Available Bonus $30,000 $20,000 $10,000 Personal Performance Rating Good Good Good Bonus Award Earned $28,500 $19,000 $9,500 Ending Bonus Bank $30,000 $10,000 $0 ================================================================ Page 9 11 The Available Bonus in each year is equal to the Beginning Bonus Bank, up to the amount of the participant's last Target Bonus in the uncapped plan, plus 1/3 of the Bonus Bank Balance in excess of the Target Bonus. In Year 1 (i.e., the first year in the capped plan), the Available Bonus is $15,000 + 1/3 * ($60,000 - $15,000) = $15,000 + $15,000 = $30,000. The Bonus Award Earned is 95% of the Available Bonus each year based on a Personal Performance Achievement Rating of "good". 6. RESIGNATIONS AND TERMINATION: Voluntary termination of employment with INRANGE and termination for any reason other than 1) loss of position due to business reorganization or organizational restructuring, 2) death or 3) a qualified retirement under INRANGE benefit plans shall result in forfeiture of both the Bonus Bank and the bonus payment for the year in which the termination or resignation occurred. Participants who are employed on the last day of the fiscal year, but terminate voluntarily (or for any reason other than those just enumerated) prior to the normal bonus payment date, shall receive any Bonus Award Earned for the fiscal year, but shall forfeit their Ending Bonus Bank. 7. Sale of an INRANGE Business Unit: When one of the business units of the Corporation is sold, participant's Declared Bonus shall be a partial year bonus unless the sale agreement includes an "earn-out" provision. The partial year Declared Bonus (in the absence of an "earn-out" provision) shall be based on a pro-rated Target Bonus, the EVA improvement for the partial year ending on the closing date of the sale, and a pro-rated Expected Improvement: Target Bonus * (Days thru Closing/365) + [Target Bonus/EVA Interval] * [(DELTA)EVA - (EI * (Days thru Closing/365))] Thru Closing The EVA improvement for the partial year ending on the closing date of the sale shall be equal to the EVA for the partial year ending on the closing date minus prior year EVA for the partial year ending at the month end closest to the closing date. The Bonus Award Earned shall be calculated based on the Declared Bonus, the Beginning Bonus Bank balance and the participant's Personal Performance Achievement Rating as provided in Section V. The Bonus Award Earned and the Ending Bonus Bank Balance, if positive, shall be paid to the participant at the normal bonus payment date after the end of the fiscal year. If the participant is not actively employed with INRANGE through the closing date of the sale, the participant shall not be entitled to any Bonus Award or Bonus Bank payment. If the sale agreement includes an "earn-out" provision, the Company shall have no obligation to pay bonuses based on partial year performance and shall have the right to negotiate with the buyer the payment of bonuses based on full year performance. If the sale agreement includes an "earn-out" provision and bonuses are paid based on full year performance, a participant shall not be entitled to any Bonus Award or Bonus Bank Page 10 12 payment unless the participant is actively employed by the buyer at the end of the fiscal year. 8. NON-COMPETITION AND NON-DISCLOSURE: For purposes of this Bonus Plan, if a plan participant leaves the company with rights to future payments from the plan, then until those payments are distributed to the participant, he or she shall not directly or indirectly own, manage, operate, join, control, become employed by or participate in the management, operation or control of, any business which is a competitor, customer, or supplier of Inrange Technologies, or any subsidiary or division thereof without the specific consent of the Corporation; except as a shareholder of a publicly-held competitor, customer or supplier corporation where such ownership does not exceed one percent (1%) of the total shares outstanding. Additionally, the participant shall not disclose any confidential information pertaining to the business of the Corporation, including the location and identity of its customers and suppliers, its costs of operation, the pricing of its products and services, its operating practices and its product details without the express written approval of the Corporation. The failure of a participant or former participant to comply with the provisions of this Section VI. 6 shall result in forfeiture of any payments that might otherwise be due because of his or her prior participation in the plan. 9. CHANGE-OF-CONTROL: In the event of a change-of-control of Inrange Technologies (defined in Appendix B) the full Bonus Bank shall be paid as of the date the change-of-control occurs. Additionally, the change-of-control date shall be treated as if it were the end of that bonus plan year, EVA performance shall be measured, and the participant shall be paid the higher of that full year's target bonus or the actual earned bonus. 10. NEGATIVE BALANCES: At year-end when the Business Unit's annual EVA Improvement is calculated, each participant's Declared Bonus is then determined. The Declared Bonus, whether a positive or negative amount, flows through each participant's Bonus Bank. A negative Declared Bonus has the effect of reducing the amount of the Beginning Bank Balance. If the Year-ending Bank Balance (the Beginning Bank Balance adjusted by that year's Declared Bonus) is positive, up to Target Bonus plus one third of the balance above Target Bonus is available to be paid out. Residual amounts, including negative Bank Balances, are carried forward to be credited or debited against future Declared Bonus amounts. Negative Bank Balances shall not be held as claims against participants who leave the payroll for any reason. 11. ADMINISTRATION: The Plan shall be administered by the Compensation Committee of the Board of Directors. 12. PLAN CONTINUATION: The Board may at any time amend, suspend, discontinue or terminate the Plan, provided, however, that no amendment shall, without the consent of a participant, alter or impair any award which has been previously declared or granted to a participant. Page 11 13 13. NO RIGHT OF ASSIGNMENT: Except as expressly provided herein, no right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such right or benefit. 14. NO GUARANTEE: Nothing in the Plan shall be construed to give any employee of the Company any right to be granted any award other than at the Compensation Committee's sole discretion, to limit the right of the Company to terminate the employment of any participant at any time, or to be evident of any agreement or understanding, express or implied, of a participant's right to continued employment. Page 12 14 APPENDIX B CHANGE OF CONTROL OF INRANGE TECHNOLOGIES A "Change of Control" shall be deemed to have occurred if: (a) Any "Person" (as defined below), excluding for this purpose Inrange Technologies (the Company) or any subsidiary of the Company, any employee benefit plan of the Company or of any subsidiary of the Company, or any entity organized, appointed or established for or pursuant to the terms of any such plan which acquires beneficial ownership of common shares of the Company, is or becomes the "Beneficial Owner" (as defined below) of twenty percent (50%) or more of the common shares of the Company then outstanding; provided, however, that no Change of Control shall be deemed to have occurred as the result of an acquisition of common shares of the Company by the Company which, by reducing the number of shares outstanding, increases the proportionate beneficial ownership interest of any Person to twenty percent (50%) or more of the common shares of the Company then outstanding, but any subsequent increase in the beneficial ownership interest of such a Person in common shares of the Company shall be deemed a Change of Control; and provided further that if the Board of Directors of the Company determines in good faith that a Person who has become the Beneficial Owner of common shares of the Company representing twenty percent (50%) or more of the common shares of the Company then outstanding has inadvertently reached that level of ownership interest, and if such Person divests as promptly as practicable a sufficient number of shares of the Company so that the Person no longer has a beneficial ownership interest in twenty percent (50%) or more of the common shares of the Company then outstanding, then no Change of Control shall be deemed to have occurred. For purposes of this paragraph (a), the following terms shall have the meanings set forth below: (i) "Person" shall mean any individual, firm, limited liability company, corporation or other entity, and shall include any successor (by merger or otherwise) of any such entity. (ii) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 15 (iii) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: (A) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly (determined as provided in Rule 13d-3 under the Exchange Act); (B) which such Person or any of such Person's Affiliates or Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than rights under the Company's Rights Agreement dated June 25, 1996 with The Bank of New York, as amended), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (2) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (a) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (b) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (C) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to subparagraph (a)(iii)(B)(2), above) or disposing of any securities of the Company. 16 Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding," when used with reference to a Person's beneficial ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder. (b) During any period of two (2) consecutive years, individuals who at the beginning of such two-year period constitute the Board of Directors of the Company and any new director or directors (except for any director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), above, or paragraph (c), below) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; or (c) Approval by the shareholders of (or if such approval is not required, the consummation of) (i) a plan of complete liquidation of the Company, (ii) an agreement for the sale or disposition of the Company or all or substantially all of the Company's assets, (iii) a plan of merger or consolidation of the Company with any other corporation, or (iv) a similar transaction or series of transactions involving the Company (any transaction described in parts (i) through (iv) of this paragraph (c) being referred to as a "Business Combination"), in each case unless after such a Business Combination the shareholders of the Company immediately prior to the Business Combination continue to own at least eighty percent (80%) of the voting securities of the new (or continued) entity immediately after such Business Combination, in substantially the same proportion as their ownership of the Company immediately prior to such Business Combination. A "Change of Control" shall not include any transaction described in paragraph (a) or (c), above, where, in connection with such transaction, a participant and/or any party acting in concert with that participant shall substantially increase their, his or its, as the case may be, ownership interest in the Company or a successor to the Company (other than through conversion of prior ownership interests in the Company and/or through equity awards received entirely as compensation for past or future personal services). EX-27 3 c58573ex27.txt FINANCIAL DATA SCHEDULE
5 0001114674 N/A 1,000 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1,000 20,104 0 72,522 1,980 32,097 191,205 48,020 32,347 291,349 63,514 8,709 0 0 845 225,738 291,349 135,288 162,523 64,103 82,236 67,639 908 1,146 11,470 4,588 6,882 0 0 0 6,882 .09 .09
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