-----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, Lz4NMrb+h5VYPZw7QiCKHUMWpRpc4QHn6X1gzdhBupzLOlP2QjSk0DCT7xPpspW/ z7mBy8C5qs+t7pONc97kcg== 0000950128-98-001151.txt : 19981118 0000950128-98-001151.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950128-98-001151 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORE SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000920000 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 251628117 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24156 FILM NUMBER: 98751044 BUSINESS ADDRESS: STREET 1: 1000 FORE DRIVE CITY: WARRENDALE STATE: PA ZIP: 15086-7502 BUSINESS PHONE: 7247424444 MAIL ADDRESS: STREET 1: 1000 FORE DRIVE CITY: WARRENDALE STATE: PA ZIP: 15086-7502 10-Q 1 FORE SYSTEMS, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 1998 OR [ ] 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 0-24156 FORE SYSTEMS, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 25-1628117 - ------------------------------- ----------------- (State or Other Jurisdiction of (I.R.S Employer Incorporation or Organization) Identification No.) 1000 FORE Drive, Warrendale, Pennsylvania 15086-7502 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (724) 742-4444 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 31, 1998 - --------------------------- ------------------------------- Common Stock, $.01 par value 110,509,138 Shares 2 FORM 10-Q FORE SYSTEMS, INC. TABLE OF CONTENTS
Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements FORE Systems, Inc. Consolidated Balance Sheet as of September 30, 1998 and March 31, 1998 3 FORE Systems, Inc. Consolidated Statement of Operations for the three months and six months ended September 30, 1998 and 1997 4 FORE Systems, Inc. Consolidated Statement of Cash Flows for the three months and six months ended September 30, 1998 and 1997 5 Notes to Unaudited Consolidated Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Change in Securities and Use of Proceeds 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 6. Exhibits and Reports on Form 8-K 20 Signature 21 Exhibit Index 22
3 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements. FORE SYSTEMS, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED) SEPTEMBER 30, MARCH 31, 1998 1998 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 163,894 $ 127,231 Short-term investments 176,612 186,999 Accounts receivable, net of allowance for doubtful accounts of $6,544 at September 30, 1998 and $7,194 at March 31, 1998 112,371 111,347 Inventories 73,469 70,388 Deferred income taxes 40,974 36,620 Prepaid expenses and other current assets 18,371 12,127 --------- --------- Total current assets 585,691 544,712 Fixed assets, net 72,910 71,495 Other non-current assets 6,787 5,000 --------- --------- Total assets $ 665,388 $ 621,207 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 36,356 $ 37,240 Accrued payroll and related costs 16,527 18,560 Income taxes payable 14,285 13,789 Deferred revenue 36,914 28,719 Other current liabilities 20,576 15,881 --------- --------- Total current liabilities 124,658 114,189 --------- --------- Commitments and contingencies Stockholders' equity: Common stock, par value $.01 per share; 300,000,000 shares authorized; shares issued: 110,631,232 at September 30, 1998 and 100,302,143 at March 31, 1998 636,077 423,782 Retained earnings (accumulated deficit) (90,866) 88,285 Treasury stock, at cost: 163,982 shares at September 30, 1998 and 137,310 shares at March 31, 1998 (3,253) (3,252) Cumulative translation adjustment (348) (101) Valuation allowance for short-term investments (880) (1,696) --------- --------- Total stockholders' equity 540,730 507,018 --------- --------- Total liabilities and stockholders' equity $ 665,388 $ 621,207 ========= =========
The accompanying notes are an integral part of these financial statements. -3- 4 FORE SYSTEMS, INC. CONSOLIDATED STATEMENT OF OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT PER-SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ -------------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenue $ 141,753 $ 109,719 $ 285,484 $ 205,078 Cost of sales 63,676 48,194 127,172 90,378 --------- --------- --------- --------- Gross profit 78,077 61,525 158,312 114,700 --------- --------- --------- --------- Operating expenses: Research and development 19,197 17,132 37,612 33,037 Sales and marketing 41,738 31,501 80,135 59,439 General and administrative 7,348 5,723 14,261 10,504 Purchased research and development 199,316 - 199,316 - Restructuring charges 5,100 - 5,100 - --------- --------- --------- --------- Total operating expenses 272,699 54,356 336,424 102,980 --------- --------- --------- --------- Income (loss) from operations (194,622) 7,169 (178,112) 11,720 Interest income, net 3,238 3,264 7,061 6,293 Other income (expense) 72 127 (258) 97 --------- --------- --------- --------- Income (loss) before provision for income taxes (191,312) 10,560 (171,309) 18,110 Provision for income taxes 2,241 3,591 7,842 6,158 --------- --------- --------- --------- Net income (loss) $(193,553) $ 6,969 $(179,151) $ 11,952 ========= ========= ========= ========= Net income (loss) per share - basic $ (1.88) $ 0.07 $ (1.76) $ 0.12 ========= ========= ========= ========= Net income (loss) per share - diluted $ (1.88) $ 0.07 $ (1.76) $ 0.12 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. -4- 5 FORE SYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ------------------------ 1998 1997 1998 1997 ---------- --------- --------- --------- Cash flows from operating activities: Net income (loss) $(193,553) $ 6,969 $(179,151) $ 11,952 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,906 6,141 17,155 11,655 Deferred income tax benefit -- (716) 1,001 (971) Purchased research and development 199,316 -- 199,316 -- Income tax benefit related to stock options 4,656 1,376 4,656 1,376 Cumulative translation adjustment (110) 115 (247) 155 Change in operating assets and liabilities: Accounts receivable (1,954) (17,068) (1,022) (16,724) Inventories 3,874 (7,058) (2,702) (10,457) Prepaid expenses and other current assets (7,764) 344 (10,280) (6,369) Accounts payable (11,967) 12,170 (12,475) 8,702 Accrued liabilities 6,999 6,864 (2,736) 5,151 Prepaid income taxes and income taxes payable (4,025) 3,360 496 5,008 Deferred revenue 9,044 3,038 8,183 3,002 --------- --------- --------- --------- Net cash provided by operating activities 13,422 15,535 22,194 12,480 --------- --------- --------- --------- Cash flows from investing activities: Purchases of short-term investments (25,967) (50,290) (75,668) (98,935) Redemption and sale of short-term investments 51,861 79,851 86,871 125,163 Investment in other non-current assets (1,787) -- (1,787) -- Capitalization of software development costs (1,379) (575) (1,642) (585) Acquisition of businesses, net of cash acquired 844 -- 844 -- Purchases of fixed assets (3,641) (10,330) (15,589) (23,147) --------- --------- --------- --------- Net cash provided by (used in) investing activities 19,931 18,656 (6,971) 2,496 --------- --------- --------- --------- Cash flows from financing activities: Principal payments on notes payable and capital lease obligations -- -- -- (21) Purchase of treasury stock (1) -- (1) -- Proceeds from issuance of Common stock 9,050 5,664 21,441 9,330 --------- --------- --------- --------- Net cash provided by financing activities 9,049 5,664 21,440 9,309 --------- --------- --------- --------- Increase in cash and cash equivalents 42,402 39,855 36,663 24,285 Cash and cash equivalents at beginning of period 121,492 113,854 127,231 129,424 --------- --------- --------- --------- Cash and cash equivalents at end of period $ 163,894 $ 153,709 $ 163,894 $ 153,709 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. -5- 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 NOTE 1. Interim Financial Statements The accompanying unaudited interim consolidated financial statements of FORE Systems, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the results for such periods. The results of operations for the three and six month periods ending September 30, 1998 are not necessarily indicative of results which may be achieved for the entire fiscal year ending March 31, 1999. The unaudited consolidated interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 as filed with the Securities and Exchange Commission. NOTE 2. Inventories (in thousands) Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method, and include raw material components, processing costs and manufacturing overhead costs. Inventories are summarized as follows:
September 30, 1998 March 31, 1998 ------------------ -------------- Raw Materials $ 19,658 $15,120 Work in Process 10,642 11,512 Finished Goods 43,169 43,756 -------- ------- Total Inventories $ 73,469 $70,388 ======== ========
NOTE 3. Lease Commitments In December 1995, the Company entered into an agreement to lease headquarters and operating facilities constructed on land that was purchased by the Company. The Company is now occupying the facilities. In October 1997, the lessor finalized permanent financing arrangements for the facilities with a group of lenders. The total amount financed was $41 million. The Company is leasing the facilities under a ten-year operating lease and has options, subject to the lenders' and lessor's consent, to renew the lease for two additional five-year terms. Annual minimum rental payments under the lease are approximately $3.3 million and commenced in calendar 1998. The Company has guaranteed repayment of up to approximately $32 million of the lenders' financing of the facilities, which includes a pledged amount of approximately $29.1 million, as of September 30, 1998, of securities it holds as collateral for specified obligations of the lessor. In addition, under the terms of the lease, the Company is required to comply with certain financial covenants including the maintenance of a minimum tangible net worth. Other restrictive covenants limit indebtedness and the payment of dividends. The Company may, at its option, purchase the facilities during or at the expiration of the term of the lease at an amount equal to the remaining balance of any debt of the lessor related to the construction of the facilities plus any applicable prepayment penalties. If the Company does not exercise the purchase option at the end of the lease, the Company will guarantee the residual value of the facilities of approximately $24 million, an amount that was determined at the lease inception date. -6- 7 NOTE 4. Legal Proceedings In July and August 1997, the Company was notified that it was a party to seven nearly identical class action lawsuits, filed in the United States District Court for the Western District of Pennsylvania, alleging certain violations of federal securities laws by the Company and certain of its officers, who were named as defendants in the suits, arising from alleged misstatements or omissions by the Company. Plaintiffs seek compensatory damages for injuries allegedly incurred by purchasers of the Company's stock during the period from October 17, 1996 through April 1, 1997, inclusive. Pursuant to court order, the lawsuits were consolidated and a consolidated amended complaint was filed by the lead plaintiffs. The Company and the individual defendants subsequently filed their answer to the consolidated amended complaint. The Company believes the allegations in the consolidated amended complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. The Company was served, in October 1998, with a complaint filed by Bell Communications Research, Inc. in the United States District Court for the District of Delaware. The complaint alleges that the Company infringes four patents owned by the plaintiff and seeks compensatory and injunctive relief. The Company believes the allegations in the complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. From time to time, the Company receives notifications alleging that it is or may be infringing the intellectual property rights of third parties. At the present time, the Company is in separate discussions with several such third parties regarding the alleged infringement by the Company of certain patents owned by such third parties. Management believes that the ultimate outcome of these matters is not likely to have a material adverse effect on the results of operations or financial position of the Company. NOTE 5. Business Combination On September 11, 1998, the Company acquired Berkeley Networks, Inc., a California corporation ("Berkeley"), by means of a merger (the "Merger") of a wholly-owned subsidiary of the Company, Fastwire Acquisition Corporation, a Delaware corporation ("Fastwire"), with and into Berkeley. Berkeley, which designs and develops multi-gigabit routing switch platforms based on Windows NT and advanced stateful inspection switching ASICs, was a development stage enterprise that had generated no significant revenues and has not shipped a completed product. The Company issued a total of approximately 8.6 million shares of Common stock and granted to former holders of options to purchase Berkeley Common stock a total of approximately 0.6 million substitute stock options to purchase the Company's Common stock. Pursuant to the terms of the Merger, additional consideration of up to a total of $30,000,000 in cash (the Earn-Out Payments") was to be paid by the Company based on Berkeley achieving certain technological advances and/or attaining certain revenue goals in the period commencing on September 11, 1998 and ending on the second anniversary thereof. During October 1998, the Company made Earn-Out Payments of approximately $8.0 million, based on the payment schedule established by the terms of the Merger, to the former equity holders of Berkeley. The transaction was accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded based upon their fair values at the date of the acquisition. The Company has obtained an independent third-party appraisal of the value of intangible assets and -7- 8 purchased research and development acquired. The results of operations of Berkeley are included in the financial statements of the Company from the date of the acquisition. As of September 30, 1998, the total purchase price aggregates to approximately $200 million and the Company may be required to record up to an additional $20 million based on Berkeley achieving certain technological advances and/or attaining certain revenue goals over the next 2 years. Depending on the amount and nature of any additional consideration paid, the amount of intangible assets and corresponding periodic amortization would be increased. The table below summarizes the preliminary purchase price allocation excluding any of the additional $20 million that may be recorded based on Berkeley achieving certain technological advances and/or attaining certain revenue goals over the next 2 years:
Value -------- Current assets $ 1,311 Property, plant and equipment 2,168 Assembled work force 1,700 Purchased research and development 199,316 Liabilities (4,671) --------- Total purchase price $199,824 ---------
It has been determined that technological feasibility of the in-process technology has not been established and the technology has no alternative future use. Therefore, in accordance with generally accepted accounting principles, the Company has expensed the amount of purchase price allocated to purchased research and development of approximately $199 million. If these projects are not successfully developed, future revenue and profitability of the Company may be adversely affected. Additionally, the value of other intangible assets acquired may become impaired. The value assigned to purchased research and development was determined by identifying research projects in areas for which technological feasibility has not been established. The value was determined by estimating the costs to develop the purchased research and development into commercially viable products; estimating the resulting net cash flows from such projects; and discounting the net cash flows back to their present value. The nature of the efforts to develop the purchased research and development into commercially viable products principally relate to the completion of all planning, designing, prototyping, high-volume manufacturing, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications including functions, features and technical performance requirements. The resulting net cash flows from such projects are based on the Company management's estimates of revenues, cost of sales, research and development costs, selling, general and administrative costs, and income taxes from such projects. Estimated revenues for the purchased in-process products commence in fiscal year 1999 and increase through fiscal year 2002, at which time they are assumed to decrease through fiscal year 2004, as newer products are released. The discount rate used in discounting the net cash flows from purchased research and development averaged 30%. To date, Berkeley has generated no significant revenue and has not shipped a completed product. The products currently under development by Berkeley will need to be further developed by the Company prior to shipment to customers. Accordingly, no value has been assigned to existing technology. Intangible assets of $1.7 million represent the value of Berkeley's assembled work force and have an estimated useful life of 3 years. The Company may be required to record up to an additional $20 million -8- 9 based on Berkeley achieving certain technological advances and/or attaining certain revenue goals over the next 2 years. Depending on the amount and nature of any additional consideration paid, the amount of intangible assets and corresponding periodic amortization would be increased. In connection with this acquisition, the Company allocated the fair values of the net assets acquired, including purchased research and development, based upon an independent appraisal. Recently the method for determining fair values has been under considerable discussion within the accounting profession and with the U.S. Securities and Exchange Commission ("Commission"). Specifically, the Commission has identified circumstances where many of the facts associated with certain acquisitions appear to be at odds with the fair value assigned to purchased research and development as part of the purchase price allocation. The Company believes it has appropriately assigned fair values in connection with its acquisition of Berkeley, including purchased research and development, in accordance with generally accepted accounting principles. However, should the Commission take exception to the valuation methodology used or the values assigned, the Company could be required to restate its reported results. Such restatement could materially adversely affect the Company's results of operations in future periods. In connection with the acquisition of Berkeley, the Company recorded restructuring charges of $5.1 million related primarily to the closing of duplicate facilities and certain employee termination costs. The following unaudited pro forma information has been prepared assuming that the acquisition of Berkeley had taken place at the beginning of the respective periods presented. The amount of the aggregate purchase price allocated to purchased research and development and the restructuring charges has been excluded from the pro forma information as they are non-recurring items. The pro forma financial information is not necessarily indicative of the combined results that would have occurred had the acquisition taken place at the beginning of the period, nor is it necessarily indicative of the results that may occur in the future.
Pro Forma for the Six Months Ended September 30, 1998 1997 Revenue $285,589 $205,078 Income (loss) from operations 18,311 8,911 Net income (loss) 15,901 9,207 Earnings (loss) per share basic $ .15 $ .09 Earnings (loss) per share - diluted $ .14 $ .09
NOTE 6. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative and Similar Financial Instruments and for Hedging Activities" ("SFAS 133"). This new standard requires recognition of all derivatives as either assets or liabilities at fair value. Based upon the hedging strategies currently used and the level of activity related to derivative instruments, the Company does not anticipate the effect of adoption to have a material impact on either financial position or results of operations. The Company will implement SFAS 133 in fiscal year 2000, as required. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The Company does not believe SFAS 131 is applicable to the Company's business. During the first quarter of fiscal year 1999, the company adopted SFAS 130. This statement establishes standards -9- 10 for reporting and the display of comprehensive income and its components in a primary financial statement. At September 30, 1998 and September 30, 1997, the components of comprehensive income were as follows:
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997 Net Income (Loss) $(193,553) $ 6,969 Change in currency translation adjustment $ (110) $ 115 Change in unrealized gain (loss) on available-for-sale investments $ 765 $ 437 --------- ------- Comprehensive income (loss) $(192,898) $ 7,521 ========= ======= SIX MONTHS ENDED SEPTEMBER 30, 1998 1997 Net Income (Loss) $(179,151) $11,952 Change in currency translation adjustment $ (247) $ 155 Change in unrealized gain (loss) on available-for-sale investments $ 816 $ 250 --------- ------- Comprehensive income (loss) $(178,582) $12,357 ========= =======
NOTE 7. Earnings Per Share (in thousands except per-share data) In February 1997, Statement of Financial Accounting Standards No. 128 "Earnings per share"("SFAS 128") was issued by the FASB. Under SFAS 128, "basic earnings per share" is calculated based upon the weighted average number of common shares actually outstanding and "diluted earnings per share" is calculated based upon the weighted average number of common shares outstanding and other potential common shares if they are dilutive. Since the Company had a net loss for the three and six month period ended September 30, 1998, the dilutive effect of other potential common shares has been excluded from the calculation. Common share equivalents consisting of common shares issuable on exercise of outstanding options are computed using the treasury method.
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997 Net income (loss) available to common stockholders $(193,553) $ 6,969 --------- -------- Shares used for basic per share computation weighted average shares outstanding 103,207 99,112 Effect of dilutive securities: Stock options 0 3,408 --------- -------- Shares used for diluted per share computation 103,207 102,520 ========= ========
-10- 11 Net income (loss) per share: Basic $ (1.88) $ .07 ======== ======= Diluted $ (1.88) $ .07 ======== ======= SIX MONTHS ENDED SEPTEMBER 30, 1998 1997 Net income (loss) available to common stockholders $(179,151) $11,952 --------- ------- Shares used for basic per share computation weighted average shares outstanding 101,963 98,718 Effect of dilutive securities: Stock options 0 2,791 --------- ------- Shares used for diluted per share computation 101,963 101,509 ========= ======== Net income (loss) per share: Basic $ (1.76) $ .12 ======== ======= Diluted $ (1.76) $ .12 ======== =======
-11- 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS GENERAL Certain statements made herein, including, without limitation, statements regarding increased market acceptance of ATM and LAN switching products, statements regarding the Company's pricing strategies and resulting effects on revenue and gross margins and statements regarding the Company's sales and marketing strategies, may be deemed to be forward-looking statements that involve risks and uncertainties. In addition, statements containing the words "believes", "estimates", "expects" and words of similar import may be deemed to be forward-looking statements. Such forward-looking statements should be read in conjunction with certain cautionary statements set forth herein and the list of risk factors set forth in the Company's Annual Report on Form 10-K for the year ended March 31, 1998 (the "Form 10-K") and the Company's Current Report on Form 8-K dated September 11, 1998 in connection with the acquisition of Berkeley Networks, Inc. ("Berkeley"). Such factors could cause actual results to differ materially from those expressed in any forward-looking statements contained herein. On September 11, 1998, the Company acquired Berkeley by means of a merger (the "Merger") of Fastwire Acquisition Corporation, a wholly-owned subsidiary of the Company ("Fastwire"), with and into Berkeley pursuant to an Agreement and Plan of Reorganization, dated as of August 25, 1998, by and among the Company, Berkeley and Fastwire (the "Reorganization Agreement"). Based in Milipitas, California, Berkeley designs and develops multi-gigabit routing switch platforms based on Windows NT and advanced stateful inspection switching ASICs. The Company issued a total of approximately 8.6 million shares of Common stock and granted to former holders of options to purchase Berkeley Common stock a total of approximately 0.6 million substitute stock options to purchase the Company's Common stock. Pursuant to the Reorganization Agreement, additional consideration of up to a total of $30,000,000 in cash (the "Earn-Out Payments") was to be paid by the Company based on Berkeley achieving certain technological advances and/or attaining certain revenue goals in the period commencing on September 11, 1998 and ending on the second anniversary thereof. During October 1998, the Company made Earn-Out Payments of approximately $8.0 million, based on the payment schedule established by the Reorganization Agreement, to the former equity holders of Berkeley. The Company accounted for the acquisition under the purchase method of accounting. QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1997 REVENUE. Revenue increased by 29% to $141.8 million in the quarter ended September 30, 1998, from $109.7 million in the quarter ended September 30, 1997. The distribution of revenue from sales to domestic and foreign customers was 72% and 28%, respectively, in the quarter ended September 30, 1998. This compares with 71% and 29%, respectively, in the corresponding quarter in 1997. In the quarter ended September 30, 1998, the distribution of revenue from sales to foreign customers by geographic region was 20%, 6% and 2% for Europe (which includes Middle East and Africa), Pacific Rim and other, respectively. Geographic mix for the corresponding quarter in 1997 was 17%, 7% and 5%, respectively. Revenue increased by 39% to $285.5 million for the six month period ended September 30, 1998, as compared to $205.1 million in the corresponding six month period in 1997. The distribution of revenue from sales to domestic and foreign customers was 71% and 29%, respectively, in the six month period ended September 30, 1998. This compares with 71% and 29%, respectively, in the corresponding period in 1997. The distribution of revenue from sales to foreign customers by geographic region for the six month period ended September 30, 1998 was 20%, 5% and 4% for Europe (which -12- 13 includes Middle East and Africa), Pacific Rim and other, respectively. Geographic mix for the corresponding six month period in 1997 was 16%, 6% and 7%, respectively. The increase in revenue dollars was attributable to the increased market acceptance of ATM and, to a lesser extent, LAN switching products. The Company measures overall unit volume for its switching products based on the number of ATM ports or network connections shipped. The total number of ATM ports shipped in the quarter ended September 30, 1998 was 60,500, as compared with 33,000 in the previous year's corresponding period. The total installed base of ATM ports as of September 30, 1998 was 411,000, as compared with 218,000 at September 30, 1997. The total number of LAN switching ports shipped in the quarter ended September 30, 1998 was 150,000, as compared with 106,000 in the previous year's corresponding period. The total number of adapter cards shipped in the quarter ended September 30, 1998 was 23,000, as compared with 11,400 in the previous year's corresponding period. The total installed base of adapter cards as of September 30, 1998 was 147,000 as compared with 80,000 at September 30, 1997. In the quarter ended September 30, 1998, revenue mix, as a percentage of revenue, among ATM switching products, LAN switching products, adapter cards and other revenue (principally service support and development contracts) was 61%, 24%, 5% and 10%, respectively. Revenue mix for the corresponding quarter in 1997 was 57%, 30%, 5% and 8%, respectively. Average selling price per ATM port during the quarter ended September 30, 1998 was $1,400, as compared to $1,900 in the corresponding quarter in 1997. Average selling price per LAN switching port was $225 in the quarter ended September 30, 1998 as compared to $300 in the corresponding quarter in 1997. Average selling price for adapter cards shipped during the quarter ended September 30, 1998 was $325, as compared to $500 in the previous year's quarter ended September 30, 1997. In January of 1998, the Company reduced the price of certain of its ATM workgroup products by up to 40%. GROSS PROFIT. Gross profit increased to $78.1 million or 55.1% as a percentage of revenue in the quarter ended September 30, 1998, as compared to gross profit of $61.5 million or 56.1% as a percentage of revenue in the corresponding quarter in 1997. Gross profit of $158.3 million or 55.5% as a percentage of revenue for the six month period ended September 30, 1998, compares to gross profit of $114.7 million or 55.9% as a percentage of revenue during the same period in the previous year. The dollar increase in gross profit was largely attributable to the increase in revenue. The gross margin percentage decline primarily resulted from a decline in sales of the DC-powered version of the ASX-1000, compared to prior periods, and continued pricing pressure. The Company intends to price its products competitively. There can be no assurance that the gross profit percentage can be maintained at the current level. RESEARCH AND DEVELOPMENT. Research and development expense was $19.2 million or 13.6% of revenue in the quarter ended September 30, 1998, as compared to $17.1 million or 15.6% of revenue in the corresponding quarter in 1997. Research and development expense for the six month period ended September 30, 1998 was $37.6 million or 13.2% of revenue, as compared to $33.0 million or 16.1% of revenue in the year ago six month period. The increase in research and development expense in dollars was largely attributable to increased purchases of research and development materials, increased hiring of engineering employees and increases in depreciation. The decrease in research and development expense as a percentage of revenue was primarily attributable to increased revenue absorbing a greater portion of the Company's expenses. The number of employees of the Company engaged in research and development increased to 446 at September 30, 1998, from 408 at September 30, 1997. SALES AND MARKETING. Sales and marketing expense was $41.7 million or 29.4% of revenue for the quarter ended September 30, 1998, as compared to $31.5 million or 28.7% of revenue in the corresponding quarter in 1997. Sales and marketing expense for the six month period ended September -13- 14 30, 1998 was $80.1 million or 28.1% of revenue, as compared to $59.4 million or 29.0% of revenue in the year ago six month period. Comparing the quarter ended September 30, 1998 versus the corresponding quarter in 1997, the increase in sales and marketing expense in dollars and as a percentage of revenue for the quarter ended September 30, 1998 was largely the result of hiring additional sales, marketing and support personnel (including training and documentation), increased marketing promotion costs and increases in depreciation. The decrease in sales and marketing expense as a percentage of revenue for the six month period was primarily attributable to increased revenue absorbing a greater portion of the Company's expenses. The number of employees of the Company engaged in sales and marketing activities increased to 899 at September 30, 1998, from 622 at September 30, 1997. The Company expects to continue to increase sales and marketing expenses in dollars, but not as a percentage of revenue, both domestically and internationally as a part of its continuing effort to expand its markets, introduce new products, build marketing staff and programs and expand its international presence. GENERAL AND ADMINISTRATIVE. General and administrative expense was $7.3 million or 5.2% of revenue in the quarter ended September 30, 1998, as compared to $5.7 million or 5.2% of revenue in the corresponding quarter in 1997. General and administrative expense for the six month period ended September 30, 1998 was $14.3 million or 5.0% of revenue, as compared to $10.5 million or 5.1% of revenue in the year ago six month period. The increase in general and administrative expense was largely due to increased salary costs, increased hiring of administrative staff, including those engaged in systems administration, accounting and human resources and increased costs for professional services and depreciation. The number of employees of the Company engaged in general and administrative activities increased to 188 at September 30, 1998, from 153 at September 30, 1997. The Company plans to make appropriate expenditures in the general and administrative organization as necessary, but does not expect the overall expenditures to increase materially as a percentage of revenue. PURCHASED RESEARCH AND DEVELOPMENT. In connection with the acquisition of Berkeley, the Company allocated $199.3 million of the purchase price to purchased research and development that has not yet reached technological feasibility. The Company expensed such amount as a non-recurring charge in the fiscal quarter ended September 30, 1998. RESTRUCTURING CHARGES. In connection with the acquisition of Berkeley, the Company recorded restructuring charges of $5.1 million related primarily to the closing of duplicate facilities and certain employee termination costs. INTEREST INCOME. Interest income, net of interest expense, was $3.2 million and $7.1 million, respectively, in the quarter and six months ended September 30, 1998, as compared to $3.3 million and $6.3 million in the corresponding quarter and six month period in 1997. INCOME TAXES. In the quarter ended September 30, 1998, the provision for income taxes was $2.2 million, or an effective rate of 28%, exclusive of the effect of one-time non-deductible purchased research and development expense, as compared to $3.6 million, or an effective rate 34%, in the previous year's quarter ended September 30, 1997. The provision for income taxes recorded in the six month period ended September 30, 1998 was $7.8 million, or an effective rate of 28%, exclusive of the effect of one-time non-deductible purchased research and development expense, as compared to $6.2 million, or an effective rate of 34%, in the corresponding six month period in 1997. The decrease in the effective tax rate is primarily the result of certain tax advantages associated with the operation of the Dublin, Ireland manufacturing facility. NET INCOME (LOSS). Net loss for the three and six month periods ended September 30, 1998 was $193.5 million or $1.88 per diluted share and $179.1 million or $1.76 per diluted share, respectively, compared to net income of $7.0 million or $0.07 per diluted share and $12.0 million or $0.12 per diluted share, respectively, for the corresponding periods in the previous fiscal year. Net loss for the three and six month periods ended September 30, 1998 included purchased research and development expenses of $199.3 million and restructuring charges of $5.1 million. Excluding these charges and any tax effect, the net income for the three and six months periods ended September 30, 1998 was $9.4 million or $.09 per diluted share and $23.8 million or $.22 per diluted share, respectively. -14- 15 YEAR 2000 The Company believes that all of its current products are Year 2000 compliant, in that they will be able to distinguish accurately between 20th century and 21st century dates. However, certain products previously sold by the Company are not Year 2000 compliant, and the Company is in the process of preparing an upgrade program for such non-compliant products. The Company plans to have the program in place during the fiscal quarter ending December 31, 1998. The Company believes that the costs associated with such program will not have a material adverse effect on its financial position or results of operations. The Company believes that most of its internal information technology systems are Year 2000 compliant. However, the Company continues to evaluate its internal information technology systems and is in the process of implementing upgrades to certain systems. In addition, the Company is also assessing other non-information technology equipment and systems and related business processes used in its operations. The Company plans to have a full assessment of such equipment, systems and processes completed early in calendar year 1999 and test and deploy solutions during the first and second quarters of calendar year 1999. The Company expects that such non-information technology equipment, systems and processes will be Year 2000 compliant early in the third quarter of calendar year 1999. The Company believes that the costs of converting or replacing non-information technology equipment and systems and related business processes that are not Year 2000 compliant will not have a material adverse effect on the Company's financial position or results of operations. The Company is also assessing the possible effect on its operations of the Year 2000 readiness of its suppliers of products and services, as well as its customers. There can be no assurance that the information systems and other business processes of the Company's suppliers and customers will be Year 2000 compliant, and it is possible that various business functions which require the interaction of the Company's systems with those of suppliers or customers will fail or malfunction in the Year 2000. In addition, it is possible that the Company's revenue may be adversely affected if current and prospective customers divert their spending resources away from networking equipment over the next two years in order to correct or replace information systems which are not Year 2000 compliant. The Company expects to finalize a preliminary estimate of Year 2000 project costs related to the Company's products, internal information and non-information technology equipment and systems during the fiscal quarter ending March 31, 1999. Year 2000 related project costs incurred to date are immaterial to the Company's financial position and results of operation. Although the Company expects its products and systems to be Year 2000 compliant on or before December 31, 1999, it cannot predict with complete accuracy the outcome of its Year 2000 program. If its Year 2000 program is not successful or if the systems of suppliers and customers material to the Company fail or malfunction in the Year 2000, the Company's business, financial condition or results of operations may be materially adversely affected. The Company is currently preparing a contingency plan to address possible risks to its internal systems and expects such plan will be complete during calendar year 1999. The Company has not yet estimated the costs of implementing the contingency plan, and it is possible that such costs may have a material adverse effect on the Company's financial position or results of operations. FUTURE GROWTH SUBJECT TO RISKS The Company's quarterly and annual operating results are affected by a wide variety of risks and uncertainties as discussed in the Company's 1998 Annual Report on Form 10-K and the Company's Current Report on Form 8-K dated September 11, 1998. This Quarterly Report on Form 10-Q should be read in conjunction with the 1998 Form 10-K, particularly the section entitled "Certain Risk Factors," and such Current Report on Form 8-K. The networking industry is highly competitive and is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions which could render the Company's products noncompetitive or obsolete. Because the Company's business strategy is based upon the belief that ATM will be the technology of choice for the information technology infrastructure, the Company's business, financial position and results of operations would be materially adversely affected if ATM fails -15- 16 to gain broad commercial acceptance or if other networking technologies gain competitive advantages over ATM. Even if ATM achieves broad commercial acceptance, there can be no assurance that the Company can continue to successfully develop and introduce new products and enhancements given the fact that many of the Company's competitors have significantly greater financial, technological and personnel resources than does the Company. The networking industry has experienced consolidation as industry participants have sought to expand into new technologies and markets. The Company has in the past and may in the future make acquisitions of companies and technologies in order to compete more effectively. The Company completed the acquisition of Berkeley in September 1998 and in connection therewith, recorded $199.3 million as purchased research and development expense. Acquisitions are subject to numerous risks, including the risk that research and development and other expenses will materially increase without necessarily leading to the successful introduction of new products or enhancements. The introduction of a new line of products based on multi-service WAN adaptation and concentration technology for the service provider market, previously announced by the Company in connection with an acquisition, has been delayed, and there can be no assurance that this product will be introduced or, if it is introduced, that it will be successful in the marketplace. There can be no assurance that the Company can successfully introduce and market new products resulting from the acquisition of Berkeley or identify other acquisition opportunities or that any acquisitions that are completed will be successfully integrated with the Company's operations. Although the Company has historically experienced increasing sales on an annual basis, the rate of revenue growth has slowed in the last two fiscal years. The Company's rate of revenue growth may continue to decline, and there can be no assurance that the Company will experience revenue growth in the future at historic rates or at all. The Company has experienced fluctuating operating results on a quarterly and annual basis and may continue to do so. These fluctuations are caused by many factors, including a disproportionate share of sales occurring late in a given quarter, the introduction of new products and technologies by competitors, the pattern and seasonality of customer purchasing cycles, variations in the mix of products sold and sales channels, price competition, manufacturing lead times and changes in economic conditions. These factors make it difficult to predict operating results for any given period, and have led to, and are likely to continue to lead to, volatility in the market price of the Company's Common stock. The Company competes in international markets and is, accordingly, subject to numerous risks. Sales to foreign customers in fiscal 1998 decreased in dollars and as a percentage of revenue in comparison with fiscal 1997, and there can be no assurance that such sales will not continue to decline. In addition, the Company's international business may be adversely affected by foreign regulatory requirements, changes in demand resulting from fluctuations in currency exchange rates and local purchasing practices, difficulties in distribution, slower payment of invoices, increases in duty rates, foreign political and economic conditions and constraints upon international trade. The Company's gross margins have been adversely affected and may continue to be adversely affected by competitive pricing pressures and a change in the mix of products sold toward lower-margin workgroup and desktop products for both ATM and Ethernet. In addition, the Company's operating margins may be adversely affected by the need to hire additional sales, marketing and other personnel. The Company plans its operating expense levels based primarily on forecasted revenue, and a shortfall in revenue would be likely to lead to operating results being lower than expected. Any such failure to meet expectations could result in a decrease in the market price of the Company's Common stock. -16- 17 LIQUIDITY AND CAPITAL RESOURCES The Company has financed most of its working capital and capital expenditure requirements to date primarily through cash proceeds from public offerings and cash generated from operations. Net cash provided by operations was $22.2 million for the six month period ended September 30, 1998. Net cash provided by operations was the result of net income (net of purchased research and development expenses) and an increase to deferred revenue offset somewhat by decreases in accounts payable and accrued liabilities and an increase to prepaid expenses and other current assets. Net cash provided by operations was $12.5 million for the six month period ended September 30, 1997. Net cash provided by operations was the result of net income and increases to accounts payable and accrued liabilities offset by increases to accounts receivable, inventories and prepaid expenses and other current assets. The increase in accounts receivable and inventories was due to increased revenue. The Company's investing activities to date have been primarily for the purchase of fixed assets to support the Company's growth. At September 30, 1998, the Company had cash and cash equivalents of approximately $163.9 million, short-term investments of $176.6 million and an unused line of credit of $20 million. In December 1995, the Company entered into an agreement to lease headquarters and operating facilities constructed on land that was purchased by the Company. The Company is now occupying the facilities. In October 1997, the lessor finalized permanent financing arrangements for the facilities with a group of lenders. The total amount financed was $41 million. The Company is leasing the facilities under a ten-year operating lease and has options, subject to the lenders' and lessor's consent, to renew the lease for two additional five-year terms. Annual minimum rental payments under the lease are approximately $3.3 million and commenced in calendar year 1998. The Company has guaranteed repayment of up to approximately $32 million of the lenders' financing of the facilities, which includes pledged amounts of approximately $29.1 million, as of September 30, 1998, of securities it holds as collateral for specified obligations of the lessor. In addition, under the terms of the lease, the Company is required to comply with certain financial covenants including the maintenance of a minimum tangible net worth. Other restrictive covenants limit indebtedness and the payment of dividends. The Company may be required to pay up to $30 million based on Berkeley achieving certain technological advances and/or attaining certain revenue goals over the next 2 years. The Company believes that the proceeds from its public offerings, together with its existing sources of liquidity and internally generated cash, will satisfy the Company's projected cash needs through at least the next twelve months. The Company may require additional sources of liquidity to fund future growth, including additional equity offerings or debt financing. In July and August 1997, the Company was notified that it was a party to seven nearly identical class action lawsuits, filed in the United States District Court for the Western District of Pennsylvania, alleging certain violations of federal securities laws by the Company and certain of its officers, who were named as defendants in the suits, arising from alleged misstatements or omissions by the Company. Plaintiffs seek compensatory damages for injuries allegedly incurred by purchasers of the Company's stock during the period from October 17, 1996 through April 1, 1997, inclusive. Pursuant to court order, the lawsuits were consolidated and a consolidated amended complaint was filed by the lead plaintiffs. The Company and the individual defendants subsequently filed their answer to the consolidated amended complaint. The Company believes the allegations in the consolidated amended complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. To date, inflation has not had a material impact on the Company's financial results. -17- 18 NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative and Similar Financial Instruments and for Hedging Activities" ("SFAS 133"). This new standard requires recognition of all derivatives as either assets or liabilities at fair value. Based upon the hedging strategies currently used and the level of activity related to derivative instruments, the Company does not anticipate the effect of adoption to have a material impact on either financial position or results of operations. The Company will implement SFAS 133 in fiscal year 2000, as required. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The Company does not believe SFAS 131 is applicable to the Company's business. During the first quarter of fiscal year 1999, the company adopted SFAS 130. This statement establishes standards for reporting and the display of comprehensive income and its components in a primary financial statement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. -18- 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings. In July and August 1997, the Company was notified that it was a party to seven nearly identical class action lawsuits, filed in the United States District Court for the Western District of Pennsylvania, alleging certain violations of federal securities laws by the Company and certain of its officers, who were named as defendants in the suits, arising from alleged misstatements or omissions by the Company. Plaintiffs seek compensatory damages for injuries allegedly incurred by purchasers of the Company's stock during the period from October 17, 1996 through April 1, 1997, inclusive. Pursuant to court order, the lawsuits were consolidated and a consolidated amended complaint was filed by the lead plaintiffs. The Company and the individual defendants subsequently filed their answer to the consolidated amended complaint. The Company believes the allegations in the consolidated amended complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. The Company was served, in October 1998, with a complaint filed by Bell Communications Research, Inc. in the United States District Court for the District of Delaware. The complaint alleges that the Company infringes four patents owned by the plaintiff and seeks compensatory and injunctive relief. The Company believes the allegations in the complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. Although management believes that the ultimate outcome of pending legal proceedings will not have a material adverse effect on the Company's financial position or results of operations, litigation is subject to inherent uncertainties, and an unfavorable ruling may have a material adverse effect on the results of operations in the period in which it occurs. Item 2. Changes in Securities and Use of Proceeds. On September 11, 1998, the Company issued approximately 8.6 million shares of Common stock to the former shareholders of Berkeley. The issuance of such shares was intended to be exempt from registration pursuant to the exemption provided by Rule 506 under the Securities Act of 1933, as amended, based, on among other things, the limited number and nature of the purchasers, the fact that each such purchaser represented and warranted to the Company, among other things, that such person was acquiring the shares for investment only and not with a view to the resale or distribution thereof, and the fact that certificates representing the shares were issued with legend to the effect that such shares had not been registered under the Securities Act or any state securities laws and could not be sold or transferred in the absence of such registration or an exemption therefrom. The shares issued to the former shareholders of Berkeley were registered on a shelf registration statement on Form S-3 filed with the Securities and Exchange Commission on September 18, 1998. Item 4. Submission of Matters to a Vote of Security Holders. (a) The 1998 Annual Meeting of Stockholders of the Company was held on Thursday, July 30, 1998. (b) Not applicable, pursuant to Instruction 3 to Item 4 of this Form 10-Q. (c) A description of the matters voted upon at the meeting along with an indication of the results of the votes on such matters are set forth below: 1. The election of two class II directors to serve for a term of three years and until their respective successors are duly elected and qualified: -19- 20 Votes Authority For Withheld --- -------- Daniel W. McGlaughlin 89,347,097 3,221,565 Robert D. Sansom 91,665,832 902,830 2. The approval of the FORE Systems, Inc. 1998 Stock Option Plan: For: 64,123,306; Against: 27,820,660; Abstentions: 198,887; Broker Non-Votes: 425,809. 3. The ratification of the selection of Price Waterhouse LLP, independent accountants, to audit the books and accounts of the Company for the year ending March 31, 1999: For: 92,388,910; Against: 84,697; Abstentions: 95,055. (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits. The exhibits listed below are filed or incorporated by reference as part of this quarterly report on Form 10-Q: 2.1 Agreement and Plan of Reorganization, dated as of August 25, 1998, by and among FORE Systems, Inc., Fastwire Acquisition Corporation and Berkeley Networks, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 11, 1998. 3.1 Amended and Restated Certificate of Incorporation of FORE Systems, Inc. (as amended by Certificate of Amendment dated May 6, 1996) (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996). 3.2 Second Amended and Restated Bylaws of FORE Systems, Inc. (as amended through March 5, 1997) (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). 10.1 FORE Systems, Inc. Change in Control Separation Plan (as amended and restated effective September 4, 1998). 27.1. Financial Data Schedule. b) Reports on Form 8-K. On September 18, 1998 the Company filed a Current Report including Items 2 and 7 of Form 8-K, dated September 11, 1998, in connection with the Company's acquisition of Berkeley Networks, Inc., which included both historical financial statements of Berkeley and combined pro forma financial information. The Company amended the September 11, 1998 Current Report on Form 8-K on September 23, 1998. -20- 21 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FORE SYSTEMS, INC. (Registrant) Date: November 16, 1998 /s/ Bruce E. Haney ------------------ Bruce E. Haney Senior Vice President and Chief Financial Officer (Authorized Officer and Principal Financial Officer) -21- 22 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1 FORE Systems, Inc. Change in Control Separation Plan (as amended and restated effective September 4, 1998). 27.1 Financial Data Schedule -22- EX-10.1 2 FORE SYSTEMS, INC. 1 EXHIBIT 10.1 FORE SYSTEMS, INC. CHANGE IN CONTROL SEPARATION PLAN (as amended and restated effective September 4, 1998) Introduction The Board of Directors of FORE Systems, Inc. recognizes that the Corporation, as a publicly held company, may experience a change in control, and that the possibility of a change in control may create uncertainty resulting in the loss or distraction of certain key employees of the Corporation to the detriment of the Corporation and its stockholders. The Board considers the avoidance of such loss and distraction to be essential to protecting and enhancing the best interests of the Corporation and its stockholders. The Board also believes that when a change in control is perceived as imminent, or is occurring, the Board should be able to receive and rely on disinterested service from its key employees regarding the best interests of the Corporation and its stockholders without concern that such employees might be distracted or concerned by the personal uncertainties and risks created by the perception that a change in control might be imminent. Accordingly, the Board has determined that appropriate steps should be taken to assure the Corporation of the continued employment and dedication to duty of certain key employees and to ensure the availability of their continued service, notwithstanding the possibility, threat or occurrence of a change in control. Therefore, in order to fulfill the above purposes, the FORE Systems, Inc. Change In Control Separation Plan is hereby adopted by the Board. ARTICLE I ESTABLISHMENT OF PLAN As of the Effective Date, the Corporation has established a compensation plan known as the FORE Systems, Inc. Change In Control Separation Plan as set forth in this document. The Plan has been amended and restated effective September 4, 1998. 2 ARTICLE II DEFINITIONS As used herein the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise: (a) Average Bonus. The average annual bonus received by a Participant for the three most recent fiscal years of the Corporation (or such lesser number of fiscal years during which the Participant was employed by the Corporation) completed prior to (i) the occurrence of a Change in Control or (ii) the Participant's termination of employment, whichever produces the higher average. For this purpose, if a Participant was employed by the Corporation for only a portion of an applicable fiscal year, the Participant's bonus for such fiscal year, if any, shall be annualized. (b) Base Salary. The highest rate of annual base salary in effect for a Participant from the Corporation or its Subsidiaries during the three most recent fiscal years of the Corporation completed prior to (i) the occurrence of a Change in Control or (ii) the Participant's termination of employment, whichever produces the higher amount. Base Salary shall not include bonuses, overtime pay, and incentive compensation. (c) Board. The Board of Directors of the Corporation. (d) Cause. "Cause" shall be determined by the Board in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (i) The Participant's conviction for committing an act of fraud, embezzlement, theft, or other act constituting a felony; or (ii) The willful engaging by the Participant in gross misconduct materially and demonstrably injurious to the Corporation or its Subsidiaries; provided, however, that no act or failure to act, on the Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation or its Subsidiaries. (e) Change in Control. "Change in Control" shall mean: -2- 3 (i) The acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") (other than the Corporation, a Subsidiary or any of their benefit plans) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Corporation Voting Securities"); or (ii) Individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the Effective Date whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Consummation of a reorganization, merger or consolidation or similar form of corporate transaction, involving the Corporation or any of its Subsidiaries (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Corporation Common Stock and Corporation Voting Securities immediately prior to such Business Combination do not, immediately following such Business Combination, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Corporation Voting Securities, as the case may be; or -3- 4 (iv)(A) Consummation of a complete liquidation or dissolution of the Corporation or (B) sale or other disposition of all or substantially all of the assets of the Corporation other than to a corporation with respect to which, following such sale or disposition, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Corporation Common Stock and Corporation Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Corporation Common Stock and Corporation Voting Securities, as the case may be, immediately prior to such sale or disposition. (f) Code. The Internal Revenue Code of 1986, as amended from time to time. (g) Committee. The Compensation Committee of the Board. (h) Corporation. FORE Systems, Inc., a Delaware corporation, and any Successor. (i) Date of Termination. The effective date of a Participant's termination of employment with the Corporation and its Subsidiaries. (j) Effective Date. April 18, 1996, or such other date as the Board shall designate in its resolution approving the Plan. (k) Good Reason. Without the Participant's express written consent, the occurrence of any one or more of the following: (i) The Participant's position, management responsibilities or working conditions are substantially diminished from those in effect immediately prior to the Change in Control, or the Participant is assigned duties inconsistent with his or her position; (ii) The Corporation's requiring the Participant to be based at a location in excess of thirty-five (35) miles from the location of the Participant's principal job location or office immediately prior to the Change in -4- 5 Control, except for required travel on the Corporation's business to an extent substantially consistent with the Participant's business travel obligations immediately prior to the Change in Control; (iii) A material reduction by the Corporation of the Participant's compensation or benefits from those in effect immediately prior to the Change in Control; (iv) The failure of the Corporation to obtain a satisfactory agreement from any Successor to assume and agree to perform the Corporation's obligations to the Participant under this Plan, as contemplated in Article V herein. The Participant's right to terminate employment for Good Reason shall not be affected by the Participant's (A) incapacity due to physical or mental illness or (B) continued employment for less than ninety (90) days following the occurrence of (or, if later, the Participant's gaining knowledge of) any event constituting Good Reason herein. (l) Participants. All Schedule A Participants and Schedule B Participants. (m) Plan. FORE Systems, Inc. Change in Control Separation Plan, as the same may be amended from time to time. (n) Schedule A Participant. A key employee who has been designated by the Board as a participant in the Plan and whose name is set forth on Schedule A, attached to the Plan. (o) Schedule B Participant. A key employee who has been designated by the Board as a participant in the Plan and whose name is set forth on Schedule B, attached to the Plan. (p) Separation Benefits. The benefits payable in accordance with Section 4.2 of the Plan. (q) Subsidiary. Any corporation in which the Corporation, directly or indirectly, holds a majority of the voting power of such corporation's outstanding shares of capital stock. (r) Successor. Another corporation or unincorporated entity or group of corporations or unincorporated entities which acquires ownership, directly or indirectly, of all or substantially all of the assets of the Corporation. -5- 6 ARTICLE III ELIGIBILITY Schedules A and B to this Plan provide lists of the key employees of the Corporation who shall be Participants as of the Effective Date. The Board may from time to time designate other key employees as Schedule A Participants, and the Board or an officer designated by the Board may from time to time designate other key employees as Schedule B Participants. All Participants shall be management or highly compensated employees of the Corporation. A Participant shall cease to be a Participant in the Plan when he ceases to be an employee of the Corporation or a Subsidiary, unless such Participant is then entitled to payment of a Separation Benefit as provided in the Plan. A Participant entitled to payment of a Separation Benefit shall remain a Participant in the Plan until the full amount of all Separation Benefits has been paid to him. ARTICLE IV SEPARATION BENEFITS 4.1 Right to Separation Benefit. A Participant shall be entitled to receive from the Corporation Separation Benefits in the amount provided in Section 4.2 if a Change in Control occurs and if, within two (2) years thereafter, the Participant's employment with the Corporation and its Subsidiaries shall terminate either (a) by action of the Corporation without Cause or (b) by reason of the Participant's resignation from such employment for Good Reason. 4.2 Separation Benefits. If a Participant's employment terminates in circumstances entitling him to Separation Benefits as provided in Section 4.1, the Participant shall be entitled to the following: (a) The Corporation shall pay each Schedule A Participant, within ten (10) days of the Date of Termination, a Separation Benefit equal to three (3) times the sum of (x) such Schedule A Participant's Base Salary and (y) such Schedule A Participant's Average Bonus. (b) The Corporation shall pay each Schedule B Participant, within ten (10) days of the Date of Termination, a Separation Benefit equal to one and one-half (1-1/2) times the sum of (x) such Schedule B Participant's Base Salary and (y) such Schedule B Participant's Average Bonus. -6- 7 (c) Each Participant shall receive from the Corporation an amount, paid within ten (10) days of the Date of Termination, equal to (i) the greater of (A) the Participant's Average Bonus and (B) the Participant's target bonus for the year in which the Date of Termination occurs, multiplied by (ii) a fraction, the numerator of which is the number of days from the April 1 preceding the date of termination to the Date of Termination, both inclusive, and the denominator of which is 365. (d) All welfare benefits, including medical, life and disability benefits, pursuant to plans under which the Participant, and/or the Participant's family is eligible to receive benefits and/or coverage shall be continued for a period of three years after the Date of Termination. Such benefits shall be provided to the Participant at no less than the same coverage level as in effect as of the Date of Termination. The Corporation shall pay the full cost of such continued benefits, except that the Participant shall bear any portion of such cost as was required to be borne by key employees of the Corporation generally at the Date of Termination. Notwithstanding the foregoing: (i) These welfare benefits may be discontinued prior to the end of the period provided in this Section to the extent, but only to the extent, that the Participant receives substantially similar benefits from a subsequent employer. (ii) If the Corporation determines that giving the continued welfare benefit coverage described in this Section would adversely affect the tax qualification of a benefit plan, the Corporation may pay the Participant a lump sum cash amount equal to the after-tax present value to the Participant of such continued coverage, in lieu of giving such continued coverage. For purposes of the preceding sentence, present value shall be determined as of the Date of Termination and shall be calculated based upon a discount rate equal to the Applicable Federal Rate as provided in Section 1274(b)(2) of the Code. (e) Any and all stock options and stock-based rights held by the Participant on the Date of Termination shall be immediately and fully vested and exercisable as of the Date of Termination. Subject to the foregoing, all stock options and stock-based rights held by the Participant on the Date of Termination shall be administered in accordance with the terms of the applicable plans and agreements. -7- 8 4.3 Other Benefits Payable. The Separation Benefits described in Section 4.2 above shall be payable in addition to, and not in lieu of, all other accrued or vested or earned but deferred compensation, rights, options or other benefits which may be owed to a Participant following termination, including but not limited to accrued vacation or sick pay amounts or benefits payable under any bonus or other compensation plans, stock option plan, stock ownership plan, stock purchase plan, life insurance plan, health plan, disability plan or similar or successor plan. 4.4 Certain Additional Payments By the Corporation. (a) Anything in this Plan to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Corporation (or any of its Subsidiaries) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of any Schedule A Participant (whether pursuant to the terms of this Plan or otherwise, but determined without regard to any additional payments required under this Section 4.4) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by any Schedule A Participant with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Corporation shall pay to such Schedule A Participant an additional payment (a "Gross-Up Payment") in an amount such that after payment by such Schedule A Participant of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, the Schedule A Participant retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in such Schedule A Participant's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, such Schedule A Participant shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross-Up Payment in the Schedule A Participant's adjusted -8- 9 gross income. Notwithstanding the foregoing provisions of this Section 4.4(a), if it shall be determined that a Schedule A Participant or Schedule B Participant is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 5% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to such Schedule A Participant under this Plan shall be reduced (but not below zero) to the maximum amount that could be paid to such Schedule A Participant without giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to such Schedule A Participant. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 4.2(a) or Section 4.2(b), as the case may be, unless an alternative method of reduction is elected by such Schedule A Participant. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Plan (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Plan shall be reduced pursuant to this provision. (b) Anything in this Plan to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Corporation (or any of its Subsidiaries) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of any Schedule B Participant (whether pursuant to the terms of this Plan or otherwise) (the "Schedule B Payments") would be subject to the Excise Tax, then the amounts payable to a Schedule B Participant under this Plan shall be reduced to the Safe Harbor Cap if the result of subtracting the Excise Tax from the Schedule B Payment is less than the Safe Harbor Cap. If reductions are to be made pursuant to the preceding sentence, such reduction shall be made first from the payments under Section 4.2(b) unless an alternative method of reduction is elected by the Schedule B Participant. For purposes of reducing the Schedule B Payments to the Safe Harbor Cap, only amounts payable under this Plan (and no other Schedule B Payments) shall be reduced, unless consented to by the Schedule B Participant. (c) Subject to the provisions of Section 4.4(a) or Section 4.4(b), all determinations required to be made under this Section 4.4, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Corporation -9- 10 as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and any Participant within fifteen (15) business days of the receipt of notice from the Corporation or the Participant that there has been a Payment or Schedule B Payment, or such earlier time as is requested by the Corporation (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, any Participant may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation and the Corporation shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 4.4 with respect to any Payments made to Schedule A Participants shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by a Participant, it shall furnish such Participant with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Participant's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments or Schedule B Payments shall be reduced to the Safe Harbor Cap, it shall furnish a Participant with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Corporation and any Participant. (d) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment") or Gross-Up Payments are made by the Corporation which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that any Schedule A Participant thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Corporation to or for the benefit of such Schedule A Participant. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Schedule A Participant for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the -10- 11 Code) shall be promptly paid by such Schedule A Participant (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Corporation. A Schedule A Participant shall cooperate, to the extent their expenses are reimbursed by the Corporation, with any reasonable requests by the Corporation in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. (e) If Payments or Schedule B Payments are reduced to the Safe Harbor Cap as provided in Section 4.4(a) or Section 4.4(b) and if it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments or Schedule B Payments have been made to, or provided for the benefit of, Participants by the Corporation, which are in excess of the limitations provided in Section 4.4(a) or Section 4.4(b) (hereinafter referred to as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to be a loan to the Participant made on the date such Participant received the Excess Payment and the Participant shall repay the Excess Payment to the Corporation on demand, together with interest on the Excess Payment at the applicable federal rate from the date of the Participant's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments or Schedule B Payments which will not have been made by the Corporation should have been made (a "Safe Harbor Underpayment"), consistent with the calculations required to be made under this Section 4.4. In the event that it is determined (i) by the Accounting Firm, the Corporation (which shall include the position taken by the Corporation, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that a Safe Harbor Underpayment has occurred, the Corporation shall pay an amount equal to such Safe Harbor Underpayment to the Participant within fifteen (15) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to the Participant until the date of payment. 4.5 Payment Obligations Absolute. Upon a Change in Control, the Corporation's obligations to pay the Separation Benefits described in Section 4.2 and the additional payments described in Section 4.4 shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation or any of its Subsidiaries may have against any Participant. In no event shall a Participant be -11- 12 obligated to seek other employment or take any other action by way of mitigation of the amounts payable to a Participant under any of the provisions of this Plan and, except as otherwise provided in Section 4.2(c)(i), in no event shall the amount of any payment hereunder be reduced by any compensation earned by a Participant as a result of employment by another employer. ARTICLE V SUCCESSOR TO CORPORATION The Plan shall bind any Successor (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Corporation would be obligated under the Plan if no succession had taken place. In the case of any transaction in which a Successor would not by the foregoing provision or by operation of law be bound by the Plan, the Corporation shall require such Successor expressly and unconditionally to assume and agree to perform the Corporation's obligations under the Plan, in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. ARTICLE VI DURATION, AMENDMENT AND TERMINATION 6.1 Duration. If a Change in Control has not occurred, the Plan shall expire five (5) years from the Effective Date, unless sooner terminated as provided in Section 6.2, or unless extended as described below. Following the end of the five (5) year term, on each anniversary of the Effective Date before a Change in Control, the term of the Plan shall be automatically extended to continue for an additional one (1) year period, unless the Board determines before the anniversary date that the term will not be extended. If a Change in Control occurs during the term of this Plan, the Plan shall continue in full force and effect and shall not terminate or expire until all Participants who become entitled to Separation Benefits hereunder shall have received such payments in full. 6.2 Amendment and Termination. The Plan may be terminated or amended in any respect by resolution adopted by a majority of the Incumbent Board, unless a Change in Control has previously occurred. If a Change in Control occurs, the Plan shall no longer be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever. -12- 13 6.3 Form of Amendment. The form of any amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Corporation, certifying that the amendment or termination has been approved by the Incumbent Board. An amendment of the Plan shall automatically effect a corresponding amendment to all Participants' rights hereunder. A termination of the Plan shall automatically effect a termination of all Participants' rights and benefits hereunder. ARTICLE VII MISCELLANEOUS 7.1 Withholding Taxes. The Corporation may directly or indirectly withhold from any payments made under this Plan all Federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 7.2 Indemnification. If a Participant institutes any legal action in seeking to obtain or enforce, or is required to defend any legal action the validity or enforceability of, any right or benefit provided by the Plan, the Corporation will, if the Participant substantially prevails in such action, pay for all reasonable legal fees and expenses incurred by such Participant. 7.3 Employment Status. The Plan does not constitute a contract of employment or impose on the Participant or the Corporation or any of its Subsidiaries any obligation to retain the Participant as an employee, to change the status of the Participant's employment, or to change the Corporation's policies or those of its Subsidiaries' regarding termination of employment. 7.4 No Attachment. Except as required by law, no right to receive payments under this Plan shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 7.5 Source of Payment. All payments provided for under this Plan shall be paid in cash from the general funds of the Corporation. The Corporation shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Corporation shall make any investments to aid it in meeting its obligations hereunder, the Participants shall have no right, title or -13- 14 interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Corporation and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Corporation hereunder, such right shall be no greater than the right of an unsecured general creditor of the Corporation. 7.6 Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or enforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7.7 Governing Law. The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of the State of Delaware, other than the conflict of law provisions of such laws. 7.8 Named Fiduciary and Administrator. For the purposes of the Employee Retirement Income Security Act of 1974, the Corporation shall be the "named fiduciary" and the "administrator" of the Plan. The Plan Administrator shall operate, interpret and implement the Plan. The Plan Administrator shall have all such powers as are necessary to discharge his duties, including, but not limited to, the interpretation and construction of all provisions of the Plan, the determination of all questions of eligibility, participation, benefits and all other related or incidental matters, and such duties and powers of Plan administration which are not assumed from time to time by any other appropriate entity, individual, or institution. The Plan Administrator shall decide all such questions and his decisions and determinations that are not arbitrary and capricious shall be binding and conclusive on the Corporation, the Participant, the Participant's designee, the Participant's spouse or other dependent or beneficiary, employees, and all other interested parties. The Plan Administrator may require each Participant to submit, in such form as he shall deem reasonable and acceptable, proof of any information which the Plan Administrator finds necessary or desirable for the proper administration of the Plan. -14- EX-27.1 3 FORE SYSTEMS, INC.
5 1,000 6-MOS MAR-31-1999 APR-01-1998 SEP-30-1998 163,894 176,612 118,915 6,544 73,469 585,691 143,439 70,529 665,388 124,658 0 0 0 636,077 (95,374) 665,388 285,484 285,484 127,172 127,172 336,424 0 0 (171,309) 7,842 (179,151) 0 0 0 (179,151) (1.76) (1.76)
-----END PRIVACY-ENHANCED MESSAGE-----