ITEM 1. BUSINESS
General DataComm Industries, Inc. (the "Corporation" or "GDC") was incorporated in 1969 under the laws of the State of Delaware. Unless the context otherwise requires, the terms "Corporation" and "GDC" as used here and in the following pages mean General DataComm Industries, Inc. and its subsidiaries.
Overview GDC is a leading worldwide provider of wide area networking and telecommunications products. The Corporation designs, assembles, markets, installs and maintains products and services that enable telecommunications common carriers, corporations and governments to build, upgrade and better manage their global telecommunications networks. Products include Asynchronous Transfer Mode ("ATM") cell switches, multiplexers, internetworking equipment, digital data sets, analog modems, network management systems and comprehensive support services. The Corporation sells and leases its products through its own worldwide sales and service organizations, as well as through distributors, value-added resellers and system integrators.
GDC's customer base includes: Local Exchange Carriers including all seven Regional Bell Operating Companies, Bell Canada and GTE; Competitive Access Providers including MFS Datanet; Interexchange Carriers including AT&T, MCI and Sprint; corporate end users such as American Airlines, Citicorp, EDS, Chrysler, Amoco, Hitachi and Hong Kong & Shanghai Bank; government entities including the British Ministry of Defence, the French Ministry of State, NASA, the U.S. State Department and many state and local governments; and international communication carriers such as Impsat (Argentina and Colombia), Telefonos de Mexico, France Telecom and Deutsche Telekom, and suppliers of central office switching equipment such as Lucent Technologies, LM Ericsson and DSC Communications.
The Corporation's executive offices are located at 1579 Straits Turnpike, Middlebury, Connecticut, 06762-1299 and its telephone number is (203) 574-1118.
Strategy
The Corporation's broad product line provides integrated networking solutions used to construct global data, voice and video communications networks. The Corporation's core product line of multiplexers and internetworking equipment, digital data sets and analog modems has historically combined advanced wide area networking technology with analog and digital transmission capabilities. During the last several years the Corporation has emphasized its digital product offerings over its analog products as telephone companies upgrade their transmission facilities and offer new digital services at substantially lower rates.
In the early 1990s, the Corporation identified ATM technology as the preferred solution for addressing problems caused by the increasing limitations of conventional Local Area Network ("LAN") and Wide Area Network ("WAN") technologies. ATM provides a dramatic increase in network capacity, carrying both LAN and WAN traffic faster than conventional networking technologies. ATM also enables the transmission of voice, video and high-speed data traffic on a single communications line. After reviewing various strategic alternatives for entering the ATM market, the Corporation entered into a distribution and technology transfer agreement with Netcomm Limited ("Netcomm") in December 1992. The Corporation subsequently acquired Netcomm in 1993.
By offering ATM solutions to its customers, the Corporation believes it has enhanced its position as a leading supplier of wide area networking and telecommunications products. The Corporation's strategy of providing integrated solutions to its customers is based upon the following:
Capitalizing on ATM Technology. The Corporation believes it has a leading position in the ATM switch market. The following entities have deployed GDC's ATM cell switches in their ATM networks: Bell Canada; MCI; MFS Datanet; France Telecom and Deutsche Telekom. As of September 30, 1996, GDC, including Netcomm, had shipped approximately 1,000 ATM switches and related products to a variety of customers in approximately 30 countries. Additionally, the Corporation has shipped non-revenue products for trial and evaluation. The Corporation also believes that growing market awareness of its ATM switch technology has increased customer exposure to GDC's other products.
Providing Cost-Effective Flexible Product Solutions. The Corporation's product families are designed with architectures that scale to most network sizes and cost requirements. Customers can select the products that are most appropriate for their needs and migrate to higher capacity products over time. Standardization of a network management protocol across product families allows the end user to utilize a single network management system, which provides value-added capabilities such as extensive alarm reporting, diagnostics and advanced service restoral options for each circuit and unit of equipment in the network.
Improving Performance of Customer Networks. The Corporation's products are designed to improve network efficiency by increasing transmission speed, compressing and consolidating voice and data communication and providing dynamic bandwidth allocation.
Leveraging Global Customer Base, Distribution and Support. The Corporation has a worldwide customer base of corporate and government users and telecommunications carriers. The Corporation has global distribution capabilities and products installed in more than 60 countries around the world. GDC's ability to provide international customer service and support is crucial to customers that run mission-critical applications over their networks.
ATM Market
Background. Improvements in microprocessor technology over the past several years have significantly changed the way users design and build communications networks. Corporations are migrating away from mainframe centric computer networks and moving to client/server architectures in which increasing processing power is located on the desktop. Personal computers ("PCs") and workstations are connected together to form LANs, and large corporations today may have up to several hundred LANs within their enterprise. LANs typically use shared medium technologies like Ethernet, Token Ring and Fiber Distributed Data Interface. These LAN technologies require that all users contend for the available bandwidth and consequently, as the number of users increases, throughput decreases. In addition, users find that shared medium LANs cannot provide the bandwidth necessary to support today's powerful PCs running communication-intensive applications. As a result, switched-connection architecture is now being implemented in the LAN with several competing technologies, including ATM, vying for the business.
WANs present an additional bottleneck constraining greater deployment of enterprise-wide networks. The underlying WAN architecture of the telephone companies is optimized for low speed, constant bit-rate voice communications. It does not scale well to accommodate high-speed, burst-oriented data communications typical of a LAN. To address this problem, telecommunications carriers have deployed fiber optic transmission facilities in their networks over the past decade and are beginning to, or have announced their intention to, test and deploy ATM switches as the platform of choice for offering new, value-added services to their customers. The need for more bandwidth in both the LAN and WAN environments to support current data processing and networking applications is a key factor driving demand for ATM products. Increasing numbers of applications combining voice, video and data will demand even more bandwidth than current applications.
ATM Segments. Although currently in the "early adopter" phase of deployment, ATM is expected to become a leading transmission technology for communications networks. Within the broader ATM market, the Corporation has identified the five distinct segments described below and has chosen to pursue the enterprise, edge switch and edge concentration switch segments.
Workgroup Hub. ATM workgroup hubs are devices used to connect high-speed workstations and servers to form a high performance, local computing environment. The Corporation expects switched Ethernet and virtual LAN architectures to be the dominant approaches to creating this high-performance local computing environment and anticipates a gradual migration to ATM desktop connectivity. GDC intends to address this market segment through partnerships or potential acquisitions in order to provide a timely entrance into this market.
Enterprise Switch. Enterprise switches are used to interconnect a broad range of customer premise equipment, including LAN hubs, routers, multiplexers, PBXs and video codecs, across a campus or a more geographically dispersed area to create high-speed backbone networks linking major corporate locations. Key market requirements include a fault tolerant architecture and the ability to support a broad range of interfaces and adaptation capabilities for new, as well as legacy, technologies.
Edge Switch. The telecommunications carrier edge switch is typically located in the central office of a Local Exchange Carrier, an Interexchange Carrier, a Competitive Access Provider or a Cable Television Operator. Switches are used as platforms to provide services to a number of end user locations. Common carriers also utilize these switches in the basements of customer buildings to offer new services to multiple customers. As with the enterprise switch market, fault tolerance and the ability to support a broad range of interfaces and adaptation capabilities are key requirements because carriers need maximum flexibility. In addition, the unique packaging and environmental requirements of telecommunications carriers must be met.
Edge Concentration Switch. The Edge Concentration switch provides an intermediate level of cell switching in a network without requiring the carrier to make massive investments in large core switches. Whereas the primary function of an edge switch is adaptation, the primary functions of an Edge Concentration switch are fast, high capacity cell switching, traffic management and very high capacity up-links to the core network. This switch must be fault tolerant and must meet the unique packaging and environmental requirements of telecommunications carriers.
Central Office Switch. At many large central offices, all traffic in the network hierarchy has been converted into ATM cells and the required switches must provide up to hundreds of gigabits of throughput. GDC does not intend to address this market directly as the Corporation views the development costs of these switches to be high and believes this market is currently served by established central office switching providers. Rather, the Corporation has developed strategic partnerships with participants in this market, such as Lucent Technologies, Ericsson and DSC Communications Corporation, as a vehicle for enhancing its position in the edge, enterprise and edge concentration switch markets.
GDC's Target ATM Segments. The enterprise, edge switch and edge concentration switch markets, which the Corporation is pursuing, address the points in a network where LAN, voice, video and other data applications converge with WANs and the greatest bandwidth bottlenecks exist. The Corporation also believes that, at present, these three market segments are not adequately served by any established vendors due to a lack of sufficient proven tested products by other vendors.
Products
In fiscal 1996, sales and leases of products represented approximately 83% of revenues while service revenues represented about 17% of revenues. GDC's line of products includes:
Multiplexers/Internetworking Products. GDC's multiplexer and internetworking products family includes systems for both branch office and corporate backbone locations which integrate voice, traditional data, video and LAN traffic over narrowband (56/64 Kbps) or wideband (fractional T1 (1.5 Mbps)/E1 (2.0 Mbps) and T1/E1) digital services operating up to 2 Mbps. By consolidating multiple forms of traffic over a single transmission line, these products dramatically decrease an end user's network costs. The Corporation's products integrate both time division multiplexing and packet switching (LAN routing and frame relay switching), thereby providing a flexible networking platform.
For corporate backbone locations, the Corporation offers the TMS 3000 which supports a wide range of voice, facsimile, LAN, traditional data and video applications. In April 1993, GDC introduced the Office Communications Manager ("OCM"), a cost-effective networking solution for the branch office location, which offers the integration of voice, LAN routing, frame relay and traditional data at speeds ranging from 9.6 Kbps to T1/E1. In June, 1996, GDC introduced the Metroplex 6000, an intelligent access multiplexer designed for cost-effective access to a variety of data and voice services that can feed into the corporate backbone.
In September 1996, GDC introduced the North American version of Universal Access System 7000 ("UAS 7000"), a service provisioning multiplexer that allows service providers to deliver digital services over copper loop systems, and reduce cost and service provisioning time. UAS 7000 has previously been sold in international markets earlier in 1996.
In corporate backbone environments requiring broadband speeds and services, the Corporation's APEX ATM switches can be used. The TMS 3000 and OCM can feed into the APEX switch enabling the Corporation to offer an integrated networking solution that scales from small remote or branch locations into regional wideband backbones and ultimately into ATM-based broadband backbones.
Selling prices vary widely depending upon the size and complexity of the system being ordered.
Digital Data Sets. Digital data sets are used to convert and interpret signals from computers and communications equipment into a form that is acceptable for transmission over telecommunications facilities. The Corporation offers a broad set of narrowband digital data sets that run at various speeds up to 64 Kbps and wideband digital data sets operating at fractional T1 (FT1) and T1 speeds. In September 1996, GDC introduced the Desktop 554A, a full featured single port T1/FT1 Channel Service Unit/Data Service Unit (CSU/DSU),for applications, such as LAN bridging/routing to multiplexers, video teleconferencing, CAD/CAM and medical imaging, that demand the speed and performance offered by today's cost-effective FT1 services. GDC recently introduced broadband data sets running at T3 (45 Mbps) rates. GDC supplies its digital data sets to major North American telephone companies and various end users. GDC continues to enhance its digital transmission product line by combining higher transmission speeds with value-added capabilities including data compression, concentration, protocol adaptation/conversion and network management. This enables the Corporation to offer differentiated and, in some cases, unique transmission solutions.
The Corporation is leveraging its digital transmission expertise by pursuing international markets. In China and in developing countries in Latin America and the Pacific Rim, there is insufficient copper wire installed to support the growing demand for communications services. The Corporation is responding to these needs by offering new products utilizing transmission technologies like 2B1Q (Two Binary One Quarternary) and HDSL (High Speed Digital Subscriber Line). These products offer much higher transmission speeds while using half of the copper wire pairs normally needed to provision private line services.
Analog Modems. Analog modems convert digital computer signals to a format that can be transmitted over telephone lines. The market for private line modems has been shrinking as telephone networks move from an analog to a digital format. However, with the growth of telecommuting and Internet access, the market for dial-up modems is continuing to grow. The Corporation offers a broad range of private line and dial-up analog modems operating at all standard speeds up to 33.6 Kbps.
GDC began shipments of its new modem family, known as the V.F. 28.8 family, in the first quarter of fiscal 1994. These modems, which comply with the global transmission standard V.34, offer transmission speeds twice as fast as modems conforming to any pre-V.34 standards with throughputs of up to 115 Kbps over basic analog dial-up facilities or over two-wire analog private line circuits. The V.F. 28.8 enables faster transmission speeds on a single pair of wires whereas traditional analog provisioning requires two pairs. During fiscal 1995, the Corporation added standards-based SNMP (Simple Network Management Protocol) network management capability to its V.34 modems. These modems are sold through direct and indirect sales channels throughout the world.
In fiscal 1995 and 1996, the Corporation entered into technology licensing agreements whereby licensees, including certain semiconductor manufacturers who produce V.34 modem-integrated circuit chips for the mass modem market, pay the Corporation license fees for the use or sale of specific V.34 patented technology. During fiscal 1996, the Corporation received technology licensing fees for the use of its technology and revenues from the sale of computer chips.
ATM Switches and Network Management Systems. The Corporation currently offers a family of ATM switches and access products for both public and private networks under the GDC APEX name. The APEX product line consists of the APEX-DV2, the APEX-NPX, the APEX-MAC and the APEX-MAC1. In September 1996, the Company introduced APEX-STROBOS which addresses the edge concentration switch market. This product is expected to be deliverable in 1997.
GDC introduced the APEX-MMS (Multimedia Multipoint Server), the industry's first "any band" Multipoint Control Unit in September 1996. Part of the ATM broadband family, it can operate on any band (narrow, wide and broad), and provide audio, video and data-intensive applications like videoconferencing, telemedicine and distance education. Wide area transport is provided via the shared APEX VIP(TM) family of integrated codecs within the APEX Switch.
Switch Specifications Targeted Segment
APEX-STROBOS Provides up to 25.6 Gbps of Edge concentration switch capacity and support for up for common carriers, to 32 ports of OC-12 links including telephone and within a single shelf, cable television companies. utilizing DC power supplies.
APEX-DV2 Provides up to 6.4 Gbps of Enterprise switch for corporate capacity and support for up and government users. to 64 ports within a single shelf, utilizing AC power supplies.
APEX-NPX Provides up to 6.4 Gbps of Edge switch for common carriers, capacity and support for up including telephone and cable to 64 ports within a single television companies. shelf, utilizing DC power supplies.
APEX-MAC Provides up to 2.8 Gbps of Lower capacity enterprise switch capacity and support for 14 to for corporate and government users 28 ports within a single shelf. and common carriers.
APEX-MAC1 Provides up to 1.6 Gbps of Access concentrator for corporate capacity and support for 8 to and government users and common 16 ports within a single enclosure. carriers.
GDC's APEX-NMS 3000 Network Management System supports the Corporation's APEX-ATM switches. The network management platform offers a powerful UNIX-based, object-oriented system employing a graphical user interface for ATM network management via the industry-standard Simple Network Management Protocol. The APEX-NMS 3000 enables a network manager to configure APEX switches and monitor the ATM switch network, the capacity and utilization of each ATM node and the status of each other component of the network. In September 1996, GDC introduced the APEX-ProSphere network management software for the complete line of APEX ATM Switches. APEX-ProSphere enables network managers to build and administer ATM networks using point-and-click Graphical User Interface applications.
Several major carriers have begun deploying GDC-APEX ATM switches as their platform for provisioning new data communications services. A number of corporate customers also have purchased APEX switches. The Corporation believes its family of APEX switches have the following competitive features:
- Scalability, allowing a customer to construct a multi-tiered switch network that scales in price and performance.
- Flexibility, providing the customer with comprehensive interfaces and adaptation capabilities.
- Traffic management architecture, providing networks with traffic policing, traffic prioritization and buffer management capabilities.
- Switched virtual circuits, dynamically establishing connections on an end-to-end basis.
Selling prices vary directly with the size and complexity of the systems being ordered.
Acquisition Strategy
As part of its business strategy, the Corporation actively reviews acquisition opportunities, including those which may complement its product lines, provide access to emerging technologies or enhance market penetration. In November 1993, the Corporation acquired Netcomm for $5.5 million in cash and $1.8 million in Common Stock. Future acquisitions could be for stock or cash or a combination thereof and could be substantially larger than past acquisitions. The Corporation at this time has no understandings or commitments to make any acquisitions and there can be no assurances that any acquisitions will be made.
Marketing, Sales and Customers
The Corporation's products and networks are marketed throughout the world. GDC's sales and marketing organization, which, at September 30, 1996 consisted of 457 employees, is organized on a worldwide basis to address three market segments: (1) corporate and government end users and Competitive Access Providers; (2) local and long distance telephone companies and Internet Service Provdiers; and (3) indirect sales through original equipment manufacturers, value-added resellers and distributors. In the United States, the Corporation sells, leases and services its equipment primarily through its own sales and service groups, which include separate sales and technical support organizations to address each of the market segments. No single customer accounted for 10% or more of the Corporation's revenues during any of the past three fiscal years.
Internationally, GDC maintains full subsidiary operations in Canada (sales and service), the United Kingdom (sales and service), Mexico (sales and service), France (sales and service), Germany (sales and service), Australia (sales), Singapore (sales and service) and Russia (sales), and sales and technical support offices in Japan, Hong Kong, China, Argentina, Brazil, England, Scotland and Sweden. In addition, GDC maintains a worldwide distributor network with representatives in more than 60 countries. International operations represented approximately 46% of the Corporation's revenues in fiscal 1996. GDC's foreign operations are subject to all the various risks inherent in operating outside the U.S.
Selected users of the Corporation's products include:
Telecommunications Commercial Financial Services - ------------------ ---------- ------------------ Alascom American Airlines Boatmen's Bancshares Ameritech Burlington Northern/Santa Fe Cecoban (Mexico) AT&T Chrysler Citicorp Bell Atlantic EDS Fiserv Bell Canada Harris Hong Kong & Shanghai Bank BellSouth Hitachi Key Services British Telecom Lockheed Quotron Systems Deutsche Telekom Loral Shawmut Bank France Telecom Telerate Systems Guangdong PTA (China) Government Wheat First Butcher GTE ---------- & Singer Impsat (Argentina, British Ministry of Defense Columbia) French Ministry of Defense Suppliers MCI Los Angeles, City and County --------- MFS Datanet NASA DSC Communications Netherlands PTT New York City Transit Authority LM Ericsson NYNEX U.S. State Department Lucent Technologies Pacific Bell Various state governments, including SNET California, Florida, Iowa,Kentucky Southwestern Bell Michigan, Ohio and Texas Sprint Telefonos de Mexico US West
While the majority of the Corporation's products are sold on an outright basis, the Corporation also leases its equipment through a wholly-owned consolidated subsidiary under a versatile selection of leasing programs designed to meet the specific needs and objectives of its customers. At September 30, 1996, the Corporation's leasing subsidiary had agreements in place with financial institutions whereby lease receivables can be transferred with full recourse. Each request for financing is subject to the approval of the financing institution.
The Corporation's order backlog, while one of several useful financial statistics, is, however, a limited indicator of the Corporation's future revenues. Because of normally short delivery requirements, the Corporation's sales in each quarter primarily depend upon orders received and shipped in that same quarter. In addition, since product shipments are historically heavier in the last month of each quarter, quarterly revenues can be adversely or beneficially impacted by several events, including: unforeseen delays in product shipments; large sales that close at the end of the quarter; sales order changes or cancellations; changes in product mix; new product announcements by the Corporation or its competitors; and the capital spending trends of customers.
Industry and geographic area information is included in Note 10 of "Notes to Consolidated Financial Statements." See "Index to Financial Statements and Schedules" on page in this report.
Customer Service and Support
GDC provides comprehensive technical support crucial for its telecommunications carrier, corporate and government customers that run mission-critical applications over their networks. Each of the Corporation's sales subsidiaries directly provides its own support capabilities, augmented by third party service providers when necessary. Authorized distributors provide their own support services and participate in service certification programs administered by the Corporation's global services division.
The Corporation's service and support programs include product repair, logistics support, installation, maintenance, educational services, on-line network management, and other professional services. Services are supported by field service engineers, technical support staff and Technical Operations and Assistance Centers ("TOAC") located in the U.S., Canada, Mexico, England and Singapore. TOACs in the U.S. and United Kingdom are staffed 24 hours a day, 365 days a year. The Corporation offers various value added services, including First ResponseTM, an outsourcing service by which TOAC Technicians monitor and manage customer networks on a remote basis. Customers of GDC's service and support programs include Bell South, New York City Transit Authority, the State of Michigan and Volvo. At September 30, 1996, GDC had 311 people engaged in services and support activities.
Research, Engineering and Product Development
In order to develop and implement new technology in the data, voice and video communications industry and to broaden the applications for its products, the Corporation has significant ongoing engineering programs for product improvement and new product development. At September 30, 1996, 414 employees were engaged in research and development activities. To expand its pool of available talent, the Corporation conducts research and development activities in four locations. In addition, the Corporation utilizes contractors and outside developers for product development. Development for all transmission products, multiplexer and internetworking products, enhancements to the APEX-ATM switch products and continuation engineering activities occur in the Technology Research Center in Middlebury, Connecticut. The Multimedia Research Center in Montreal, Quebec, focuses on ATM-based video and multimedia applications and solutions. The Boston Research Center in Marlboro, Massachusetts, focuses on LAN-to-ATM and IP (Internet Protocol) switching applications using APEX-ATM products, and the Advanced Research Centre in Basildon, England, focuses on next-generation ATM hardware and software.
The combination of research, development and capitalized software spending amounted to 19.4%, 18.3% and 15.7% of revenues in fiscal 1996, 1995 and 1994, respectively. In order to support its commitment to new products and technologies, the Corporation expects to continue a high level of spending on research and product and software development.
Manufacturing
GDC's principal assembly plant is a Corporation-owned, 360,000 square foot facility located in Naugatuck, Connecticut, of which approximately 60% is currently being utilized for manufacturing (25% is used for other GDC operations and 15% is vacant). The Corporation also outsources the manufacturing and assembly of certain subassemblies, generally high volume circuit boards and power and packaging items. Outsourced products represented approximately 29% of the manufacturing assembly during the 1996 fiscal year.
GDC's Connecticut facilities are ISO 9001 certified. ISO 9001 is a comprehensive model for quality assurance in design/development, production, installation and servicing. It was developed by a technical committee comprised of representatives from over 90 countries under the direction of the Geneva-based International Organization for Standardization. GDC's United Kingdom facilities are BS 5750 certified. Awarded by the British Standards Institute, BS 5750 also is a comprehensive quality assurance model. The Corporation's Montreal, Canada sales and service facility received ISO 9002 certification in October 1995. ISO 9002 covers quality assurance in production, installation and servicing; it does not cover design and development.
Competition
Each segment of the telecommunications and networking industries is intensely competitive. Many of the Corporation's current and prospective competitors have greater name recognition, a larger installed base of networking products, more extensive engineering, manufacturing, marketing, distribution and support capabilities and greater financial, technological and personnel resources.
Many of the participants in the networking industry, including, among others, ADC Telecommunications, Bay Networks, Cascade Communications, Cisco, ECI Telecom, FORE Systems and Newbridge Networks and certain participants in the computer industry, including among others, DEC and IBM, have introduced, or announced their intention to develop, ATM networking products. Other companies are expected to follow. In addition, traditional suppliers of central office switching equipment such as Alcatel, Lucent Technologies, DSC Communications Corporation, Fujitsu, Hitachi, LM Ericsson, Northern Telecom and Siemens, are expected to offer ATM-based switches for central offices. Companies may also develop alternative network solutions to ATM. Even though certain of these ATM competitors currently offer or plan to offer ATM products in markets in which the Corporation does not plan to compete, it is possible that such competitors will develop ATM technology that does compete with the Corporation's products. This competition could result in the same intense price competition that is present in the broader networking market.
Patents and Related Rights
The Corporation presently owns approximately 63 domestic patents and has approximately 11 additional applications pending. In addition, all of these patents and applications have been filed in Canada; most also have been filed in other various foreign countries. Most of those filed outside the United States have been allowed while the remainder are pending. The Corporation believes that certain features relating to its equipment for which it has obtained patents or for which patent applications have been filed are important to its business, but does not believe that its success is dependent upon its ability to obtain and defend such patents. Because of the extensive patent coverage in the data communications industry and the rapid issuance of new patents, certain equipment of the Corporation may involve infringement of existing patents not known to the Corporation.
Employee Relations
At September 30, 1996, the Corporation employed 1,849 persons, of whom 414 were research and development personnel, 503 were manufacturing personnel, 457 were employed in various selling and marketing activities, 311 were in customer support services and 164 were in general and administrative activities.
No Corporation employees are covered by collective bargaining agreements. The Corporation has never experienced a work stoppage and considers its relations with its employees to be good.
Reliance on Key Components
The Corporation's products use certain components, such as microprocessors, memory chips and pre-formed enclosures that are acquired or available from one or a limited number of sources. The Corporation has generally been able to procure adequate supplies of these components in a timely manner from existing sources. While most components are standard items, certain application-specific integrated circuit chips, used in many of the Corporation's products, are customized to the Corporation's specifications. The suppliers of components do not operate under contract. The Corporation's inability to obtain a sufficient quantity of components as required, or to develop alternative sources at acceptable prices and within a reasonable time, could result in delays or reductions in product shipments which could materially affect the Corporation's operating results in any given period.
ITEM 2.

ITEM 2. PROPERTIES
The principal facilities of the Corporation are as follows:
Middlebury, Connecticut -- executive offices of the Corporation and Data- Comm Leasing Corporation located in a 120,000 square foot facility owned by the Corporation
Naugatuck, Connecticut -- principal assembly, test and systems integration operations and global services division located in a 360,000 square foot facility owned by the Corporation
Middlebury, Connecticut -- engineering organization located in a 275,000 square foot facility leased through 2003 by the Corporation; approximately 72,000 square feet are sub-leased to a third party through December 1999
Wokingham, England -- sales, service, systems integration and administrative offices (including a parking garage) located in a 36,000 square foot facility owned by General DataComm Limited
Toronto, Canada -- sales and administrative offices located in a 12,000 square foot facility leased through November 2004 by General DataComm Ltd.
Montreal, Canada -- a 20,000 square foot research, sales and service facility leased through February 2000 by General DataComm Ltd.
Paris, France -- sales and administrative offices located in an 11,000 square foot facility leased through April 1997 by General DataComm France SARL
Mexico City, Mexico -- sales, service and administrative offices located in a 4,500 square foot facility leased through August 14, 1997 by General DataComm de Mexico S.A. de C.V.
ITEM 2. PROPERTIES (cont'd)
Basildon, England -- engineering organization located in an 8,500 square foot facility owned by General DataComm Advanced Research Centre Limited
In addition, the Corporation leases sales, service and engineering offices throughout the United States and in international locations.
Approximately sixty (60) percent of the 360,000 square-foot Naugatuck, Connecticut, facility is being utilized by the Corporation's manufacturing (assembly, test and systems integration) operations. The plant is currently operating at 37% utilization by running partial first and second shifts. With two full shifts, the aggregate productive capacity would be approximately 565,000 printed circuit boards per year. The Corporation has the capability of adding a third shift should product demand require it.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from the section entitled "Common Stock Prices" on page 19 of the Corporation's 1996 Annual Report to Stockholders. (1)
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from the section entitled "Five-Year Selected Financial Data" on page 1 of the Corporation's 1996 Annual Report to Stockholders. (1)
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information required by this item is incorporated by reference from the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 15 through 19 of the Corporation's 1996 Annual Report to Stockholders. (1)
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from pages 20 through 33 of the Corporation's 1996 Annual Report to Stockholders or is included elsewhere in this annual report on Form 10-K.(1)
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
_____________ (1) Such information is also included in Exhibit 13 of this Form 10-K report as filed with the Securities and Exchange Commission.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors is incorporated by reference from the section entitled "ELECTION OF DIRECTORS" in the Corporation's Proxy Statement for the 1997 Annual Meeting of Stockholders, which Proxy Statement will be filed within 120 days after the end of the Corporation's fiscal year ended September 30, 1996.
Name Position Age
Charles P. Johnson Chairman of the Board of Directors 69 and Chief Executive Officer
Ross A. Belson President and Chief Operating Officer 60
Frederick R. Cronin Vice President, Corporate Technology and a Director 65
Robert S. Smith Vice President, Business Development 63
William S. Lawrence Senior Vice President, Finance and Chief Financial Officer 53
James R. Arcara Vice President, Corporate Operations 61
Dennis J. Nesler Vice President and Treasurer 53
William G. Henry Vice President and Corporate Controller 47
August J. Hof Vice President, Manufacturing Operations 46
V. Jay Damiano Senior Vice President, U.S. Sales 51
Robert H. Dorion, Jr. Vice President, Human Resources 42
Lloyd Atkinson Vice President, Marketing 52
Howard S. Modlin Secretary and a Director 64 - ----------------------- Mr. Charles P. Johnson, Chairman of the Board and Chief Executive Officer, founded the Corporation in 1969.
Mr. Ross A. Belson, President and Chief Operating Officer, has served in his present capacity since joining the Corporation in August of 1987.
Mr. Frederick R. Cronin, Vice President, Corporate Technology, has served in executive capacities since the founding of the Corporation.
Mr. Robert S. Smith, Vice President, Business Development, has held positions of major responsibility within the Corporation since its formation and has served in executive capacities since February 1973.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (cont'd)
Mr. William S. Lawrence, Senior Vice President, Finance and Chief Financial Officer, served as Vice President, Finance and Chief Financial Officer since joining the Company in April 1977, until February 1996 when he was appointed Senior Vice President, Finance and Chief Financial Officer.
Mr. James R. Arcara, Vice President, Corporate Operations, has held positions of major responsibility within the Corporation since its formation and has served in executive capacities since September 1978.
Mr. Dennis J. Nesler, Vice President and Treasurer since May 1987 and Treasurer since July 1981, joined the Corporation in 1979 as Vice President of the Corporation's wholly owned leasing subsidiary, a capacity in which he still serves.
Mr. William G. Henry, Vice President and Corporate Controller, joined the Corporation as Corporate Controller in January 1984, was appointed an officer of the Corporation in June 1989 and was appointed Vice President and Corporate Controller in February 1996.
Mr. August J. Hof, Vice President, Manufacturing Operations since June 1989, joined the Corporation in 1985 as Printed Circuit Board Plant Manager.
Mr. V. Jay Damiano, Senior Vice President, U.S. Sales, was elected an officer of the Corporation in August 1993. He joined the Corporation in the sales organization in 1984 and has held positions of increasing responsibility since that time.
Mr. Robert H. Dorion, Jr., Vice President, Human Resources, joined the Corporation in May 1995 and was elected an officer of the Corporation in June 1995. Before that time, Mr. Dorion held human resource management roles with Wang Laboratories and Morton International.
Mr. Lloyd Atkinson, Vice President, Marketing, has been with the Corporation since October 1995, and was elected to his current position effective June 1996. Before joining the Corporation, Mr. Atkinson held positions with Digital Equipment Corporation (18 years) and Timeplex.
Mr. Howard S. Modlin, Secretary, an attorney and member of the firm of Weisman, Celler Spett & Modlin, P.C., has been Secretary and counsel to the Corporation since its formation.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the section entitled "Executive Compensation and Other Transactions with Management" in the Corporations's Proxy Statement dated December 10, 1996.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requried by Item 12 is incorporated by reference from the section entitled "Security Ownership of Directors and Officers" in the Corporations's Proxy Statement dated December 10, 1996.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requried by Item 13 is incorporated by reference from the section entitled "Executive Compensation and Other Transactions with Management" in the Corporations's Proxy Statement dated December 10, 1996.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial statements - see "Index to Financial Statements and Schedules" on page of this report.
(2) Financial Statement Schedule - See "Index to Financial Statements and Schedules" on page of this report.
(3) Exhibits - See Exhibit Index on page 19 of this report.
(b) Reports on Form 8-K.
On October 8, 1996, the Corporation filed a Report on Form 8-K reporting the sale of 800,000 shares of new 9% Cumulative Convertible Exchangeable Preferred Stock at $25.00 a share to a group of qualified institutional buyers (780,000 shares) and its Chairman, Mr. Charles P. Johnson (20,000 shares).
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (cont'd)
EXHIBIT INDEX -------------
Exhibit No. Description - ----------- ----------- 3.1 Restated Certificate of Incorporation of the Corporation.1 3.2 Amended and Restated By-Laws of the Corporation.2 10.1 Transfer of Receivables Agreement between DataComm Leasing Corporation and Sanwa Business Credit Corporation.3 10.2 1979 Employee Stock Purchase Plan.4 10.3 1983 Stock Option Plan.5 10.4 1984 Incentive Stock Option Plan.6 10.5 1985 Stock Option Plan.7 10.6 Amendment to the 1984 Incentive Stock Option Plan.8 10.7 Amendments to the 1984 Incentive Stock Option Plan.9 10.8 Retirement Savings and Deferred Profit Sharing Plan.10 10.9 1991 Stock Option Plan.11 10.10 Credit Agreement between General DataComm Industries, Inc. and The Chase Manhattan Bank.12 10.11 Third Amended and Restated Revolving Credit and Security Agreement between General DataComm Industries, Inc. et al. and The Bank of New York Commercial Corporation et al.13 10.12 Amendment No. 1 to Third Amended and Restated Revolving Credit and Security Agreement between General DataComm Industries, Inc. et al. and The Bank of New York Commercial Corporation et al.14 10.13 Amendment No. 2 to Third Amended and Restated Revolving Credit and Security Agreement between General DataComm Industries, Inc. et al. and The Bank of New York Commercial Corporation et al.15 10.14 Amendment No. 3 to Third Amended and Restated Revolving Credit and Security Agreement between General DataComm Industries, Inc. et al. and The Bank of New York Commercial Corporation et al. 10.15 Amendment No. 4 to Third Amended and Restated Revolving Credit and Security Agreement between General DataComm Industries, Inc. et al.and The Bank of New York Commercial Corporation et al. 11. Calculation of (Loss) Per Share for the fiscal years ended September 30, 1994 through 1996, inclusive. 12. Calculation of Current Ratio. 13. Annual Report to Stockholders for the year ended September 30, 1996. Portions of the Annual Report to Stockholders for the year ended September 30, 1996 which have been incorporated by reference are deemed to be "filed" (and are included as Exhibit 13 in our electronic filing with the Commission). All remaining portions of the Annual Report to Stockholders will be furnished for the information of the Commission and are not deemed "filed." 21. Subsidiaries of the Registrant. 23. Consent of Independent Accountants.
- ------------------------ 1 Incorporated by reference from Exhibit 3.1 to Form 10-Q for quarter ended June 30, 1988. Amendments thereto are filed as Exhibit 3.1 to Form 10-Q for quarter ended March 31, 1990. 2 Incorporated by reference from Exhibit 3.2 to Form 10-K for year ended September 30, 1987. 3 Incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter ended June 30, 1989.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (cont'd)
EXHIBIT INDEX (cont'd) -------------
4 1979 Employee Stock Purchase Plan is incorporated by reference from Part II of prospectus dated September 30, 1991, contained in Form S-8, Registration Statement No. 33-43050. 5 Incorporated by reference from Exhibit 1(c) to Form S-8, Registration Statement No. 2-92929. Amendments thereto are filed as Exhibit 10.3 to Form 10-Q for quarter ended December 31, 1987 and as Exhibit 10.3.1 to Form 10-Q for quarter ended June 30, 1991. 6 Incorporated by reference from Exhibit 1(a), Form S-8, Registration Statement No.2-92929. Amendment thereto is filed as Exhibit 10.2 to Form 10-Q for quarter ended June 30, 1991. 7 Incorporated by reference from Exhibit 10a, Form S-8, Registration Statement No. 33-21027. Amendments thereto are incorporated by reference from Part II of prospectus dated August 21, 1990, contained in Form S-8, Registration Statement No. 33-36351 and as Exhibit 10.3.2 to Form 10-Q for quarter ended June 30, 1991. 8 Incorporated by reference from Exhibit 10.19 to Form 10-K for year ended September 30, 1987. 9 Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter ended December 31, 1987. 10 Incorporated by reference from Form S-8, Registration Statement No. 33-37266. 11 Incorporated by reference from Form S-8, Registration Statement No. 33-53150, from Form S-8, Registration Statement No. 33-62716, from Form S-8, Registration Statement No. 33-53201 and from Form S-8, Registration Statement No. 33-59573. 12 Incorporated by reference from Exhibit 10.21 to Form 10-K for the year ended September 30, 1993. 13 Incorporated by reference from Exhibit 10.14 to Form 10-K for year ended September 30, 1995. 14 Incorporated by reference from Exhibit 10.15 to Form 10-Q for quarter ended June 30, 1996 15 Incorporated by reference from Exhibit 10.16 to Form 10-Q for quarter ended June 30, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENERAL DATACOMM INDUSTRIES, INC.
By: /s/ William S. Lawrence WILLIAM S. LAWRENCE Senior Vice President, Finance and Principal Financial Officer
Dated: December 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Charles P. Johnson Chairman of the Board December 20, 1996 CHARLES P. JOHNSON and Chief Executive Officer
/s/ William S. Lawrence Senior Vice President, December 20, 1996 WILLIAM S. LAWRENCE Finance and Principal Financial Officer
/s/ William G. Henry Vice President and December 20, 1996 WILLIAM G. HENRY Corporate Controller
/s/ Howard S. Modlin Director and Secretary December 20, 1996 HOWARD S. MODLIN
/s/ Lee M. Paschall Director December 20, 1996 LEE M. PASCHALL
/s/ Frederick R. Cronin Director and December 20, 1996 FREDERICK R. CRONIN Vice President, Corporate Technology
/s/ John L. Segall Director December 20, 1996 JOHN L. SEGALL
General DataComm Industries, Inc. and Subsidiaries
Index to Financial Statements and Schedules
Financial Statements Incorporated by Reference - ---------------------------------------------- The consolidated financial statements of General DataComm Industries, Inc. and subsisidaries and the Report of Independent Accountants related thereto are incorporated herein by reference from pages 20 through 33 of the Corporation's Annual Report to Stockholders for the year ended September 30, 1996. Such information is also included in Exhibit 13 of this Form 10-K report (as filed with the Securities and Exchange Commission). The Corporation's 1996 Annual Report to Stockholders is not deemed to be "filed" as part of this Form 10-K report except for those portions thereof specifically incorporated by reference.
Financial Statements and Schedule Included Page - ------------------------------------------ ----
Report of Independent Accountants
Consolidated Financial Statement Schedules:
II. Valuation and qualifying accounts for the years ended September 30, 1996, 1995 and 1994.
Financial Statements and Schedules Omitted - ------------------------------------------
Financial statements and schedules other than those incorporated by reference above or included herein are omitted because they are not required or because the required information is presented elsewhere in the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of General DataComm Industries, Inc.
Our report on the consolidated financial statements of General DataComm Industries, Inc. and Subsidiaries has been incorporated by reference in this Form 10-K from page 33 of the Annual Report to Shareholders of General DataComm Industries, Inc. and Subsididaries for the year ended September 30, 1996 (Exhibit 13). In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the Index on Page of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND, L.L.P.
Stamford, Connecticut October 21, 1996
General DataComm Industries, Inc. and Subsidiaries Schedule II - Valuation and Qualifying Accounts For the Years Ended September 30, 1996, 1995 and 1994 (In Thousands)
Additions Balance at Charged to Balance Beginning Costs and at End of Period Expenses Deductions of Period --------- ---------- ---------- ---------- (b) Allowance for doubtful receivables (a) $1,704 $121 $57 $1,768 ====== ==== === ======
Allowance for doubtful receivables (a) $1,618 $252 $166 $1,704 ====== ==== ==== ======
Allowance for doubtful receivables (a) $1,575 $339 $296 $1,618 ====== ==== ==== ======
- --------------------------------- (a) Deducted from asset accounts. (b) Uncollectible accounts written off, net of recoveries.


ITEM 1. BUSINESS.
DESCRIPTION OF BUSINESS
First United Bancshares, Inc. (First United) is a multi-bank holding company incorporated in 1980 for the purpose of holding all of the outstanding stock of The First National Bank of El Dorado (FNBE). Between 1981 and 1996, First United acquired ten other banks in different cities within Arkansas and Texas. The banks acquired were the First National Bank of Magnolia (FNBM), Merchants and Planters Bank, N.A., of Camden (MPBC), City National Bank of Fort Smith (CNBFS), Commercial Bank at Alma (CBA), The Bank of North Arkansas (BNA), First Stuttgart Bank and Trust Company n\k\a First United Bank (FUB), FirstBank, Texarkana, Texas (FBTX), Citizens Bank & Trust of Carlisle (CBT), Hazen First State Bank of Hazen (HFSB) and First Bank of Arkansas of Brinkley (FBA). First United formed First United Trust Company, N.A. (FUTC) in 1996. Each of the banks and the trust company are wholly-owned by First United.
The banks offer customary services of banks of similar size and similar markets, including interest-bearing and non-interest bearing deposit accounts, commercial, real estate and personal loans, correspondent banking services and safe deposit box activities. The trust company provides trust services and fiduciary functions of First United's affiliated banks except FBTX. For further discussion of First United operations, see pages 4 through 19 of the Annual Report, which is incorporated by reference to Item 7 in the Form 10-K.
COMPETITION
The banking business is highly competitive. The banking and trust subsidiaries of First United compete actively with national and state banks, savings and loan associations, trust companies, securities dealers, mortgage bankers, finance companies and insurance companies.
REGULATION
First United is a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the "Act"), and as such, is subject to regulation and examination by the Federal Reserve Board and is required to file with the Federal Reserve Board annual reports and other information regarding the business operations of itself and its subsidiaries. The Act provides that a bank holding company may be required to obtain Federal Reserve Board approval for the acquisition of more than 5% of the voting securities or substantially all of the assets of any bank or bank holding company, unless it already owns a majority of the voting securities of such bank. The Act prohibits First United from engaging in any business other than banking or bank-related activities specifically allowed by the Federal Reserve Board. The Act also prohibits First United and its subsidiaries from engaging in certain tie-in arrangements in connection with the extension of credit, the lease or sale of property or the provision of any services. Under Title VI of the Financial Institutions, Reform, Recovery and Enforcement Act of 1989, the Act has been amended to authorize bank holding companies to acquire savings and thrift institutions without tandem operations restrictions.
First United's eleven banking subsidiaries ("the Banks") are subject to a variety of regulations concerning the maintenance of reserves against deposits, limitations on the rates that can be charged on loans or paid on deposits, branching, restrictions on the nature and amounts of loans and investments that can be made and limits on daylight overdrafts. All of the Banks are regulated by the Federal Deposit Insurance Corporation. In addition, as national banking associations, FNBE, FNBM, MPBC, and CNBFS are subject to the regulation and supervision of the Comptroller of the Currency, while CBA, BNA, FUB, CBT, HFSB, and FBA are subject to the regulation of the Arkansas State Bank Department and FBTX is subject to the regulation of the Texas Department of Banking. FABE, MPBC, CNBFS, FNBM and FUTC are members of the Federal Reserve System and subject to regulation by the Federal Reserve Board. FUTC is also subject to regulation by the Comptroller of Currency.
The Banks are limited in the amount of dividends they may declare. Prior approval must be obtained from the appropriate regulatory authorities before dividends can be paid by the Banks to First United if the amount of adjusted capital, surplus and retained earnings is below defined regulatory limits. See Note 12 of Notes to the Consolidated Financial Statements, which is incorporated by reference into Item 8 of this Annual Report on Form 10-K. The Banks are also restricted from extending credit or making loans
to or investments in First United and certain other affiliates as defined in the Federal Reserve Act. Furthermore, loans and extensions of credit are subject to certain other collateral requirements.
EMPLOYEES
At December 31, 1996, First United and its subsidiaries had approximately 639 full-time equivalent employees and considers its relationship with its employees to be good.
ITEM 2.

ITEM 2. PROPERTIES.
PROPERTIES
The eleven banking subsidiaries of First United hold in fee and primarily occupy their main office buildings. In addition, the subsidiaries occupy and operate branches located in twenty-eight (28) communities throughout Arkansas and Texas. The majority of the branch locations are held in fee. The locations not held in fee are leased for various terms. First United does not own or lease any real property. Minimal office space is required for First United's officers and employees and such space is provided without charge by FNBE. First United's data processing operations and FUTC are also located in facilities owned by FNBE.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
LEGAL PROCEEDINGS
First United and its subsidiaries have been named as defendants in various legal actions arising from normal business activities in which damages of various amounts are claimed. The amount, if any, of ultimate liability with respect to such matters cannot be determined. However, after consulting with legal counsel, management believes any such liability will not have a material effect on First United's consolidated financial condition or results of operations.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
The information required in response to this Item is incorporated by reference from the disclosure contained under the caption "Common Stock and Dividends" on page 14 of the Annual Report to Stockholders, which is included as Exhibit 13 hereto.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The information required in response to this Item is incorporated by reference from the disclosure contained under the caption "Selected Financial Data" on page 20 of the Annual Report to Stockholders, which is included as Exhibit 13 hereto.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required in response to this Item is incorporated by reference from the disclosure contained under the caption "Financial Analysis" on pages 4-19 of the Annual Report to Stockholders, which is included as Exhibit 13 hereto.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required in response to this Item is incorporated by reference from the disclosure contained under the caption "Financial Statements and Notes" on pages 23-40 of the Annual Report to Stockholders, which is included as Exhibit 13 hereto.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Pursuant to general instruction G(3) of the instructions to Form 10-K, information concerning First United's executive officers and other significant employees is included under the separate captions "Executive Officers of the Registrant" and "Significant Other Employees" at the end of Part I of this report. The remaining information required in response to this Item is incorporated by reference from the disclosure contained under the caption "Executive Officers and Directors" on pages 41-43 of the Annual Report to Stockholders, which is included as Exhibit 13 hereto, and is incorporated by reference from the Definitive Proxy Statement which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the 1996 fiscal year covered by this Annual Report on 10-K.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this Item is incorporated by reference from the Definitive Proxy Statement which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the 1996 fiscal year covered by this Annual Report on 10-K.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required in response to this Item is incorporated by reference from the Definitive Proxy Statement which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the 1996 fiscal year covered by this Annual Report on 10-K.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this Item is incorporated by reference from the Definitive Proxy Statement which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the 1996 fiscal year covered by this Annual Report on 10-K.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORT ON FORM 8-K.
ITEM 14(A)(1) FINANCIAL STATEMENTS.
The following consolidated financial statements and the report of independent auditors of First United Bancshares, Inc. and subsidiaries for the year ended December 31, 1996 as required by Item 8, are:
ITEM 14(a)(2) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
ITEM 14(a)(3) FINANCIAL STATEMENT SCHEDULES.
The Exhibits required by Item 601 of Regulation S-K which are required to be filed in response to this Item 14(a)(3) are submitted as a separate section of this Annual Report on Form 10-K under the caption "Exhibit Index".
ITEM 14(b) REPORTS ON FORM 8-K.
On September 9, 1996, First United filed a Current Report on Form 8-K under Items 2 and 7 regarding the Company's August 30, 1996 acquisition of all of the issued and outstanding shares of common stock in Carlisle Bancshares, Inc., Little Rock, Arkansas ("Carlisle") pursuant to a Restated Agreement and Plan of Reorganization, dated April 1, 1996, whereby the Company acquired all of the issued and outstanding shares of common stock of Carlisle in exchange for the issuance of 506,717 shares of Company common stock and satisfied unexercised stock options of Carlisle common stock by issuing an additional 1,383 shares of Company common stock.
First United filed a current report on Form 8-K dated October 3, 1996, disclosing under Item 5 that the merger by and between First United and Carlisle was accounted for using the pooling of interest method and providing summary financial data of the combined operations of Carlisle and First United for the period ended September 30, 1996.
ITEM 14(c) EXHIBITS.
The exhibits required by Item 601 of Regulation S-K which are required to be filed in response to this Item 14(c) are submitted as a separate section of this Annual Report on Form 10-K under the caption "Exhibit Index".
ITEM 14(d) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the17th day of March, 1997.
FIRST UNITED BANCSHARES, INC.
By:/s/ JOHN E. BURNS -------------------------------------- John E. Burns, Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes James V. Kelley and/or John E. Burns, to file one or more amendments to this Annual Report on Form 10-K, which amendments may make such changes to the Annual Report on Form 10-K as he deems appropriate, and each such person hereby appoints James V. Kelley and/or John E. Burns as his lawful attorney-in-fact to execute in the name and on behalf of each such person individually, and in each capacity stated below, any such amendments to the Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
FIRST UNITED BANCSHARES, INC. ANNUAL REPORT ON FORM 10-K December 31, 1996
EXHIBIT INDEX