<PAGE>

     As filed with the Securities and Exchange Commission on July 9, 1999
                                                     Registration No. 333-xxxxx
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                ---------------

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          THE SECURITIES ACT OF 1933

                                ---------------

                            FOUNDRY NETWORKS, INC.
            (Exact name of registrant as specified in its charter)

                                ---------------
        Delaware                    3576                     77-0431154
    (State or Other          (Primary Standard            (I.R.S. Employer
    Jurisdiction of              Industrial            Identification Number)
    Incorporation or        Classification Code
     Organization)                Number)

                                ---------------

                         680 W. Maude Avenue, Suite 3
                              Sunnyvale, CA 94086
                                (408) 530-3300
  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)

                                ---------------

         Bobby R. Johnson, Jr., President and Chief Executive Officer
                            FOUNDRY NETWORKS, INC.
                              Sunnyvale, CA 94086
                                (408) 530-3300
 (Name, Address Including Zip Code, and Telephone Number Including Area Code,
                             of Agent for Service)

                                ---------------
                                  Copies to:
            Joshua L. Green                        Jorge del Calvo
             David C. Lee                         Karen A. Dempsey
         Robert S. Schlossman                      Davina K. Kaile
           Russ K. Yoshinaka                        Karen M. Yan
           VENTURE LAW GROUP                PILLSBURY MADISON & SUTRO LLP
      A Professional Corporation                 2550 Hanover Street
          2800 Sand Hill Road                    Palo Alto, CA 94304
         Menlo Park, CA 94025

                                ---------------

  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
                                ---------------

  If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

  If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

  If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

  If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                                ---------------

                        CALCULATION OF REGISTRATION FEE

-------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
 Title Of Each Class Of Securities       Proposed Maximum Aggregate
         To Be Registered                    Offering Price (1)             Amount Of Registration Fee
------------------------------------------------------------------------------------------------------
 <S>                                 <C>                                <C>
 Common Stock, par value $.0001
  per share.......................              $86,250,000                          $23,978
</TABLE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
 registration fee pursuant to Rule 457(o) under the Securities Act.

                                ---------------

  The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

-------------------------------------------------------------------------------
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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and we are not soliciting an offer to buy      +
+these securities in any state where the offer or sale is not permitted.       +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
 Subject to Completion, Dated      , 1999

 [LOGO]

--------------------------------------------------------------------------------

     Shares

 Common Stock


--------------------------------------------------------------------------------

 This is the initial public offering of Foundry Networks, Inc. We are offering
         shares of our common stock. We anticipate the initial public offering
 price will be between $    and $    per share.

 We have applied to list our common stock on the Nasdaq National Market under
 the symbol "FDRY."

 Investing in our common stock involves risks. See "Risk Factors" beginning on
 page 5.

 Neither the Securities and Exchange Commission nor any state securities
 commission has approved or disapproved of these securities or passed upon the
 adequacy or accuracy of this prospectus. Any representation to the contrary is
 a criminal offense.

<TABLE>
   <S>                      <C>                 <C>                 <C>
                                                Underwriting
                            Price to            Discounts            Proceeds to
                            Public              and Commissions      Foundry Networks, Inc.
   Per share                $                   $                    $
   Total                    $                   $                   $
</TABLE>

 We have granted the underwriters the right to purchase up to     additional
 shares to cover any over-allotments.

 Deutsche Banc Alex. Brown

                               Merrill Lynch & Co.

                                                             J.P. Morgan & Co.

 The date of this prospectus is        , 1999
<PAGE>

                              [INSIDE FRONT COVER]

                                [COLOR ARTWORK]


<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   2
Risk Factors.............................................................   5
Forward-Looking Statements...............................................  18
Use of Proceeds..........................................................  18
Dividend Policy..........................................................  18
Capitalization...........................................................  19
Dilution.................................................................  20
Selected Financial Data..................................................  21
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  22
Business.................................................................  31
Management...............................................................  44
Principal Stockholders...................................................  54
Certain Transactions.....................................................  56
Description of Capital Stock.............................................  58
Shares Eligible for Future Sale..........................................  61
Underwriting.............................................................  63
Legal Matters............................................................  65
Experts..................................................................  65
Additional Information Available to You..................................  65
Index to Financial Statements............................................ F-1
</TABLE>

                               ----------------




  Foundry Networks, NetIron, TurboIron and our gear logo are registered
trademarks, and FastIron, BigIron and IronView are trademarks of Foundry. All
other brand names or trademarks appearing in this prospectus are the property
of their respective holders.

  Unless otherwise indicated, this prospectus assumes:

  .  that the underwriters have not exercised their option to purchase
     additional shares; and

  .  all shares of preferred stock have been converted into shares of common
     stock immediately prior to the closing of this offering.
<PAGE>

                               PROSPECTUS SUMMARY

  This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus including "Risk Factors" and the financial statements, before
making an investment decision.

                                  Our Business

  Foundry Networks designs, develops, manufactures and markets a comprehensive
suite of high performance networking products for enterprises and Internet
service providers. Our Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switches
enable our customers to build and maintain efficient, high performance
networks. Layer 2 switches provide dedicated bandwidth, while Layer 3 switches
route network traffic. Layer 4-7 switches, a new generation of networking
devices, provide the intelligence to control information delivery. Our products
provide solutions for many types of networks, including local area networks or
LANs, metropolitan area networks or MANs, and wide area networks or WANs. This
product breadth allows us to provide solutions throughout a customer's network,
from the wiring closet edge of an enterprise LAN to the LAN core, and from the
WAN edge of an Internet service provider to its network of Internet servers.

  By using customized semiconductors, known as application-specific integrated
circuits, or ASICs, we provide switching products that offer better performance
at a lower cost than traditional software-based routers. Our Layer 2 and Layer
3 switches provide the bandwidth required to support the increasing use of
bandwidth-intensive and Internet-based applications. Our high performance Layer
4-7 switching products allow enterprises and Internet service providers to
direct traffic flow more efficiently, based on application type and end user,
while also allowing Internet service providers to offer their customers
differentiated, fee-based quality of service. By providing high levels of
performance and network intelligence capabilities at leading price points we
provide a comprehensive solution to address the rapidly growing networking
market.

  The emergence of the Internet and bandwidth-intensive applications has posed
new demands on the networks of enterprises and Internet service providers. The
number of Internet users and volume of network traffic have grown
exponentially, with the majority of traffic now traversing LAN boundaries to
WANs and the Internet. In addition, the complexity of traffic has also
increased with the pervasiveness of new applications that incorporate
increasing amounts of data, voice, video and graphics. To satisfy these
demands, enterprises and Internet service providers require networking
solutions with superior performance and intelligence capabilities, resulting in
the emergence of a large market for a broad range of high performance, cost-
effective switching solutions with network intelligence capabilities.

  Collaborative Research, an independent research and consulting firm
specializing in the Layer 4-7 switching market, estimates in a February 1999
report that the Layer 4-7 switching market totaled $130 million in 1998 and is
expected to grow to $1 billion in 2002. Dell'Oro Group, an independent
networking industry research and consulting firm, estimates in a March 1999
report that the Layer 3 switching market totaled $637 million in 1998 and is
expected to increase to $3.9 billion in 2002.

                                       2
<PAGE>


  Our solution to address this market provides the following benefits:

    Breadth of Product Line. We are one of the few networking companies to
  provide a full suite of Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7
  products applicable to LANs, MANs and WANs, enabling us to provide solu-
  tions throughout a customer's network.

    Performance. Our products provide a high level of performance to allow
  enterprises and Internet service providers to build highly reliable
  networks that support unpredictable traffic flows, bandwidth-intensive
  applications and dynamic end-user needs.

    Intelligence. Our products provide the intelligence required to transport
  unpredictable traffic and bandwidth-intensive applications, which improves
  the performance, reliability and manageability of networks.

    Leading Price Points. Our products are designed to offer superior perfor-
  mance and network intelligence capabilities at leading price points.

    Flexibility of Architecture. Our products are based on a uniform hardware
  architecture that is compatible with all major existing network products.
  This allows customers to integrate our products into their networks without
  an extensive and expensive replacement of their existing network
  components.

  Since inception, our products have received the following awards:

    FastIron. Network Magazine "1998 Gigabit Ethernet Product of the Year"
  award granted in April 1998, LAN Times "Best of LAN Times" award granted in
  October 1997 and Network Computing "Editor's Choice" award granted in
  October 1997.

    FastIron II. Network Computing "Editor's Choice" award for mid-range
  Layer 3 switches granted in March 1999.

    NetIron. Network Computing "Editor's Choice" award granted in January
  1998 and Data Communications "Tester's Choice" award granted in November
  1997 for Layer 3 switches.

    BigIron. Rated by PC Week as the highest performing Gigabit chassis
  switch in February 1999; Data Communications "Tester's Choice" award
  granted in November 1998 and Business Communications "Best-in-Test" award
  granted in September 1998.

    ServerIron. Network Week "Infrastructure Product of the Year" award
  granted in June 1999 and Network Computing "Flying Colors" award granted in
  June 1998.

  We sell our products through a direct sales force, resellers and an OEM. Our
products have been deployed in enterprises spanning many industries,
educational institutions and government agencies and in Internet service
providers.

  We were incorporated in Delaware on May 22, 1996, and changed our name to
Foundry Networks, Inc. on January 22, 1997. Our principal executive offices are
located at 680 W. Maude Avenue, Suite 3, Sunnyvale, CA 94086. Our telephone
number at that location is (408) 530-3300. References in the prospectus to
"we," "our," and "us" refer to Foundry. Our web site is located at
www.foundrynetworks.com. The information contained on our web site does not
constitute part of this prospectus.

                                       3
<PAGE>

                                  The Offering

<TABLE>
<S>                                   <C>
Common stock offered by Foundry.....          shares
Common stock to be outstanding after
 this offering......................          shares
Use of proceeds.....................  For working capital and general corporate
                                      purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
 symbol.............................  "FDRY"
</TABLE>

  The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of June 30, 1999.
This number excludes as of June 30, 1999: (1) 3,508,969 shares subject to
outstanding options and 295,334 shares available for future options grants
under our 1996 Stock Plan; (2) 353,000 shares subject to non-plan options; and
(3) 30,000 shares subject to warrants to purchase Series A preferred stock
which will convert to warrants to purchase common stock upon completion of this
offering. This number also excludes 950,000 shares reserved for issuance under
our 1999 Directors' Stock Option Plan and 1999 Employee Stock Purchase Plan and
2,000,000 additional shares available for future option grants under our 1996
Stock Plan which were authorized in July 1999.

                             Summary Financial Data
                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                   Period from
                                   May 22, 1996                    Six Months
                                   (Inception)    Year Ended         Ended
                                        to       December 31,       June 30,
                                   December 31, ---------------  ---------------
                                       1996      1997    1998     1998    1999
                                   ------------ ------  -------  ------  -------
                                                                  (unaudited)
<S>                                <C>          <C>     <C>      <C>     <C>
Statement of Operations Data:
Revenue, net.....................     $  --     $3,381  $17,039  $4,203  $39,487
Gross profit.....................        --      1,546    8,606   2,121   21,146
Income (loss) from operations....     (2,140)   (9,129)  (9,765) (4,443)   3,870
Net income (loss)................     (2,013)   (9,007)  (9,352) (4,230)   2,912
Diluted net income (loss) per
 share...........................                         (1.04)            0.08
Weighted average shares used in
 computing diluted net income
 (loss) per share................                         8,992           34,880
Pro forma basic net income (loss)
 per share.......................                         (0.41)            0.11
Weighted average shares used in
 computing pro forma basic net
 income (loss) per share.........                        22,882           27,170
</TABLE>

<TABLE>
<CAPTION>
                                                          June 30, 1999
                                                           (unaudited)
                                                  ------------------------------
                                                                      Pro Forma
                                                  Actual   Pro Forma As Adjusted
                                                  -------  --------- -----------
<S>                                               <C>      <C>       <C>
Balance Sheet Data:
Cash and cash equivalents........................ $12,340   $12,340     $
Working capital..................................  21,319    21,319
Total assets.....................................  36,453    36,453
Total stockholders' equity (deficit).............  (9,351)   21,734
</TABLE>

  See Note 2 of the Notes to Financial Statements for an explanation of the
determination of the number of shares and share equivalents used in computing
pro forma per share amounts.

  The pro forma balance sheet data summarized above assumes the conversion of
all outstanding shares of preferred stock into common stock upon completion of
this offering. The pro forma as adjusted data above adjusts the pro forma
amounts to reflect the application of the net proceeds from the sale of
shares of common stock offered by Foundry at an assumed initial public offering
price of $  per share, after deducting the estimated underwriting discount and
the estimated offering expenses.

                                       4
<PAGE>

                                  RISK FACTORS

  This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. Any
of the following risks could cause the trading price of our common stock to
decline.

We have a history of losses and may not be profitable in the future.

  We have incurred net losses of $2.0 million from inception through December
31, 1996, $9.0 million in 1997 and $9.4 million in 1998. We had net income of
$2.9 million for the six months ended June 30, 1999. As of June 30, 1999, we
had an accumulated deficit of $17.5 million. We expect to incur increased costs
and expenses related to:

  .  sales and marketing, including expansion of our direct sales operation
     and distribution channels;

  .  product development;

  .  customer support;

  .  expansion of our corporate infrastructure; and

  .  facilities expansion.

  Our ability to remain profitable depends on our ability to generate and
sustain substantially higher revenue while maintaining reasonable cost and
expense levels. We may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.

We may not meet quarterly financial expectations, which could cause our stock
price to decline.

  We may experience a delay in generating or recognizing revenue for a number
of reasons. Orders at the beginning of each quarter typically do not equal
expected revenue for that quarter and are generally cancelable at any time.
Therefore, we depend on obtaining orders in a quarter for shipment in that
quarter to achieve our revenue objectives. In addition, the failure to ship
products by the end of a quarter may negatively affect our operating results.
Our reseller agreements typically provide that the reseller may delay scheduled
delivery dates without penalty. Further, our customer purchase orders and
reseller agreements sometimes provide that the customer or reseller may cancel
orders within specified time frames without significant penalty.

  We plan to significantly increase our operating expenses to expand our sales
and marketing efforts, expand our customer support capabilities, finance
increased levels of research and development, build our operational and
administrative infrastructure and obtain a larger facility. We base our
operating expenses on anticipated revenue trends and a high percentage of our
expenses are fixed in the short term. As a result, any delay in generating or
recognizing forecasted revenue could cause our quarterly operating results to
be below the expectations of public market analysts or investors, which could
cause the price of our common stock to fall.

  We believe that period-to-period comparisons of our operating results should
not be relied upon as an indicator of our future performance. The primary
factors that may affect us include the following:

  .  fluctuations in demand for our products and services, particularly in
     Europe and Asia;

                                       5
<PAGE>

  .  unexpected product returns or the cancellation or rescheduling of
     significant orders;

  .  our ability to develop, introduce, ship and support new products and
     product enhancements and manage product transitions;

  .  announcements and introductions of new products by our competitors and
     us;

  .  our ability to build infrastructure to support increased growth;

  .  our ability to achieve required cost reductions;

  .  our ability to obtain sufficient supplies of sole- or limited-sourced
     components for our products;

  .  increases in the prices of the components we purchase;

  .  our ability to attain and maintain production volumes and quality levels
     for our products;

  .  the mix of products sold and the mix of distribution channels through
     which they are sold; and

  .  costs relating to possible acquisitions and integration of technologies
     or businesses.

Intense competition in the market for network solutions could prevent us from
increasing revenue and sustaining profitability.

  The market for network solutions is intensely competitive. In particular,
Cisco maintains a dominant position in this market and several of its products
compete directly with our products. Its substantial resources and market
dominance have enabled it to reduce prices on its products within a short
period of time following the introduction of these products, which reduces the
margins and profitability of its competitors. Purchasers of networking
solutions may choose Cisco's products because of its longer operating history,
broad product line and strong reputation in the networking market. In addition,
Cisco may have developed or could in the future develop new technologies that
directly compete with our products or render our products obsolete.

  In addition to Cisco, we compete with other large public companies, such as
3Com and Nortel Networks, as well as other smaller public and private
companies. Many of our current and potential competitors have longer operating
histories and substantially greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and larger installed
customer bases than we do. Furthermore, companies that do not offer a directly
competitive product to our products could develop new products or enter into
agreements with other networking companies to provide a product that competes
with our products or provides a more complete solution than we can offer.
Additionally, we may face competition from unknown companies and emerging
technologies that may offer new LAN, MAN and LAN/WAN solutions to enterprises
and Internet service providers.

  In order to remain competitive, we must, among other things, invest
significant resources in developing new products with superior performance at
lower prices than our competitors. We must also enhance our current products
and maintain customer satisfaction. If we fail to do so, our products may not
compete favorably with those of our competitors and our revenue and
profitability could suffer.

We must develop and expand our North American direct sales operation and
reseller distribution channels and continue to provide excellent customer
support to increase revenue.

  Our North American distribution strategy focuses primarily on developing and
expanding our direct sales operation and, to a lesser extent, our indirect
distribution channels through

                                       6
<PAGE>

resellers. Our inability to effectively manage the expansion of our domestic
sales and support staff or establish our indirect distribution channels could
harm our ability to grow and increase revenue. We recently expanded our sales
force and plan to hire additional sales personnel. Our ability to increase
revenue to the level we expect depends on the additional hiring, training and
retention of a qualified sales force. However, competition for qualified sales
personnel is intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. This expansion of our direct sales operation
may not be successfully completed and the cost of this expansion may exceed the
revenue generated. Our expanded sales and support staff may not compete
successfully against the significantly larger and well-funded sales and
marketing operations of many of our current or potential competitors. In
addition, we have recently increased our sales force in advance of sales, and
if this increase does not result in an increase in sales, our business may
suffer.

  In addition, if we fail to develop relationships with significant resellers,
or if these resellers are not successful in their sales efforts, sales of our
products may decrease and our operating results would suffer. Some of our
resellers sell products that compete with our products. Our resellers may not
market our products effectively or continue to devote the resources necessary
to provide us with effective sales, marketing and technical support.

  We need to increase our customer service and support staff to support new and
existing customers and resellers. The design and installation of networking
products can be complex and our customers, particularly our Internet service
provider customers, require a high level of sophisticated support and services.
Therefore, we need highly trained customer service and support personnel.
Hiring customer service and support personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of our products.

Our future success depends on our ability to introduce new products with
superior performance in a timely manner.

  The current life cycle of our products is typically 18 to 24 months. To
remain competitive, we need to introduce new products in a timely manner that
offer substantially greater performance and support a greater number of users
per device, all at lower price points. The introduction of new products
involves substantial risks. For example, we have experienced delays in
releasing new products and product enhancements in the past which delayed
sales, increased expenses and resulted in lower quarterly revenue than
anticipated. During the development of our products, we have experienced delays
in the prototyping of our ASICs, which in turn has led to delays in product
introductions. In the future, we may experience delays in product development.
We may also introduce a product before industry standards or demand are
established. Poorly timed product introductions may affect our ability to
compete and harm our operating results. In addition, when we announce new
products or product enhancements that have the potential to replace or shorten
the life cycle of our existing products, customers may defer purchasing our
existing products. This could harm our operating results by decreasing sales,
increasing our inventory levels of older products and exposing us to greater
risk of product obsolescence.

We depend on large purchases from a few significant customers, and any loss,
cancellation or delay in purchases by these customers could harm our business.

  To date, a limited number of customers and resellers have accounted for a
significant portion of our revenue. If any of these customers stop or delay
purchases, our revenue and profitability could suffer. In 1998, Mitsui & Co.
(U.S.A.) accounted for 21% of our revenue. For

                                       7
<PAGE>

the six months ended June 30, 1999, America Online, Hewlett-Packard and Mitsui
accounted for 17%, 15% and 10% of our revenue, respectively.

  While our financial performance depends on large orders from a few
significant customers and resellers, we do not have binding commitments from
any of them. For example:

  .  our reseller agreements generally do not require minimum purchases;

  .  our customers can stop purchasing and our resellers can stop marketing
     our products at any time;

  .  our reseller agreements generally are not exclusive and are for one year
     terms, with no obligation of the resellers to renew the agreements; and

  .  our reseller agreements provide for discounts based on expected or
     actual volumes of products purchased or resold by the reseller in a
     given period.

  Because our expenses are based on our revenue forecasts, a substantial
reduction or delay in sales of our products to, or unexpected returns from
customers and resellers, or the loss of any significant customer or reseller
could harm our business. Although our largest customers may vary from period-
to-period, we anticipate that our operating results for any given period will
continue to depend to a significant extent on large orders from a small number
of customers.

Our success depends upon sales to Internet service providers, whose
unpredictable demands, requirements and business models subject us to potential
adverse revenue fluctuations.

  We have recently introduced products specifically targeted at the Internet
service provider market and currently have under development other products
that will address their requirements. As a result, our success depends on
increased sales to Internet service providers. Although we expect these sales
to increase, we believe that there are a number of risks arising from doing
business with Internet service providers which may not arise in our
relationships with our other customers, including:

  .  Internet service providers demonstrate a low level of brand loyalty and
     may switch to another supplier which provides superior performance;

  .  any failure of an Internet service provider's service to its customers,
     particularly in the case of America Online, that is correctly or
     incorrectly attributed to our products could lead to substantial
     negative publicity and undermine our efforts to increase our sales in
     both this market and other markets;

  .  we may lose Internet service provider customers if they fail due to the
     highly competitive nature of their business or if they do not survive as
     a result of mergers and acquisitions in the Internet service provider
     industry; and

  .  if the Internet does not continue to expand as a widespread
     communications medium and commercial marketplace, the growth of the
     market for Internet infrastructure equipment may not continue and the
     demand for our products could decline.

  Due to these factors, we may not successfully increase our penetration of the
Internet service provider market or maintain our current level of sales in this
market.

Hewlett-Packard is a major customer and our sole OEM, and the termination of
our relationship with Hewlett-Packard could harm our business.

  In January 1999, we entered into an OEM Purchase Agreement with Hewlett-
Packard whereby Hewlett-Packard agreed to purchase our products for resale to
its customers and for

                                       8
<PAGE>

its own internal use. For the six months ended June 30, 1999, Hewlett-Packard
accounted for 15% of our revenue, and we anticipate that it will continue to
account for a significant percentage of our revenue. In addition to providing
revenue through sales of our products to Hewlett-Packard, we believe that this
relationship is important to facilitate broad market acceptance of our products
and enhance our sales, marketing and distribution capabilities. Therefore, in
addition to directly affecting our revenue, the cancellation of this agreement
could harm our ability to market and sell our products to potential customers.
This agreement continues until May 18, 2000, unless terminated earlier for a
material breach by either party. The agreement automatically renews for two
additional one year periods, unless the agreement is terminated within 60 days
prior to the end of any period.

  This agreement provides that Hewlett-Packard may postpone, cancel, increase
or decrease any order made under the agreement without penalty. In addition,
this agreement provides manufacturing rights and access to our source code upon
the occurrence of specified conditions of default. If we were to default,
Hewlett-Packard could use our source code to develop and manufacture competing
products. This could harm our performance and ability to compete.

  This agreement creates the potential that we and Hewlett-Packard may compete
for sales to the same customer. If this situation occurs, it could harm our
relationship with Hewlett-Packard and also harm our business.

We expect the average selling prices of our products to decrease which may
reduce gross margins or revenue.

  Our industry has experienced rapid erosion of average product selling prices
due to a number of factors, particularly competitive pressures and rapid
technological change. We may experience substantial period-to-period
fluctuations in future operating results due to the erosion of our average
selling prices. We also anticipate that the average selling prices of our
products will decrease in response to competitive pressures, increased sales
discounts, new product introductions by our competitors or other factors.

If we are unable to hire additional qualified personnel as necessary or if we
lose key personnel, we may not be able to successfully manage our business or
achieve our objectives.

  We believe our future success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel. Competition for these personnel
is intense, especially in the San Francisco Bay Area, and we have had
difficulty hiring employees in the timeframe we desire, particularly engineers.
We may not succeed in identifying, attracting and retaining personnel. The loss
of the services of any of our key personnel, the inability to identify, attract
or retain qualified personnel in the future or delays in hiring required
personnel, particularly engineers and sales personnel, could make it difficult
for us to manage our business and meet key objectives, such as timely product
introductions. In addition, companies in the networking industry whose
employees accept positions with competitors frequently claim that competitors
have engaged in unfair hiring practices. We have received one claim like this
from another company and we may receive additional claims in the future. We
could incur substantial costs in defending ourselves against any such claims,
regardless of the merits of such claims.

  Our success also depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, finance
and manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success

                                       9
<PAGE>

depends on Bobby R. Johnson, Jr., President, Chief Executive Officer and
Chairman of the Board, and H. Earl Ferguson, Vice President, Hardware
Engineering. We do not have employment contracts or key person life insurance
covering any of our personnel.

Our ability to sustain and increase our international sales depends on
successfully expanding our international operations.

  Our success will depend, in part, on increasing international sales and
expanding our international operations. Our international sales primarily
depend on our resellers, including Boreal and Mitech in Europe, Mitsui in Japan
and Samsung in Korea. Although we expect international revenue to increase as a
percentage of our total revenue, the failure of our resellers to sell our
products internationally would limit our ability to sustain and grow our
revenue. In particular, our revenue from international sales depends on
Mitsui's ability to sell our products and on the strength of the Japanese
economy which has been weak in recent years.

  There are a number of risks arising from our international business,
     including:

  .  potential recessions in economies outside the United States, such as
     Japan;

  .  longer accounts receivable collection cycles;

  .  difficulties in managing operations across disparate geographic areas;

  .  difficulties associated with enforcing agreements through foreign legal
     systems;

  .  import or export licensing requirements;

  .  potential adverse tax consequences; and

  .  unexpected changes in regulatory requirements.

  Our international sales currently are denominated in U.S. dollars. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive on a price basis in
international markets. In the future, we may elect to invoice some of our
international customers in local currency, which could subject us to
fluctuations in exchange rates between the U.S. dollar and the local currency.

  In January 1999, the new "Euro" currency was introduced in European countries
that are part of the European Monetary Union ("EMU"). During 2002, all EMU
countries are expected to completely replace their national currencies with the
Euro. Because a significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace and because all of the final rules and
regulations have not yet been defined and finalized by the European Commission
regarding the Euro currency, we cannot determine the effect this will have on
our business.

Our reliance on sole or limited sources for key components may inhibit our
ability to meet customer demand.

  We currently purchase several key components used in our products from sole
or limited sources and depend on supply from these sources to meet our needs.
Our principal suppliers of key components include Celestica-Asia, Texas
Instruments, Toshiba, Hewlett-Packard, Molex and Intel. We acquire these
components through purchase orders and have no long-term commitments from these
suppliers. We may encounter shortages and delays in obtaining

                                       10
<PAGE>

components in the future which could impede our ability to meet customer
orders. Our principal sole-sourced components include:

  .  ASICs;

  .  programmable integrated circuits;

  .  selected other integrated circuits;

  .  power supplies;

  .  custom-tooled sheet metal; and

  .  long-range optics.

Our principal limited-sourced components include:

  .  dynamic and static random access memories, commonly known as DRAMs and
     SRAMs;

  .  printed circuit boards;

  .  sheet metal; and

  .  microprocessors.

  We depend on anticipated product orders to determine our material
requirements. Lead times for sole- or limited-sourced materials and components
can be as long as six months, vary significantly and depend on factors such as
the specific supplier, contract terms and demand for a component at a given
time. If orders do not match forecasts, we may have either excess or inadequate
inventory of materials and components, which could negatively affect our
operating results and financial condition. From time to time, we have
experienced shortages in allocations of components, resulting in delays in
filling orders.

Our reliance on third-party manufacturing vendors to manufacture our products
may cause a delay in our ability to fill orders.

  We currently subcontract substantially all of our manufacturing to two
companies, Celestica-Asia, located in San Jose, California, which assembles and
tests our printed circuit boards, and Hadco Corporation, located in Santa
Clara, California, which assembles and tests our backplane products. We do not
have long-term contracts with either of these manufacturers. We have
experienced delays in product shipments from our contract manufacturers, which
in turn delayed product shipments to our customers. We may in the future
experience similar delays or other problems, such as inferior quality and
insufficient quantity of product, any of which could harm our business and
operating results. We intend to regularly introduce new products and product
enhancements, which will require us to rapidly achieve volume production by
coordinating our efforts with those of our suppliers and contract
manufacturers. We attempt to increase our material purchases, contract
manufacturing capacity and internal test and quality functions to meet
anticipated demand. The inability of our contract manufacturers to provide us
with adequate supplies of high-quality products or the loss of either of our
contract manufacturers, or the ability to obtain raw materials, could cause a
delay in our ability to fulfill orders.

Due to the lengthy sales cycles of some of our products, the timing of our
revenue is difficult to predict and may cause us to miss our revenue
expectations.

  Some of our products have a relatively high sales price, and often represent
a significant and strategic decision by an enterprise or Internet service
provider. As a result, the length of our sales cycle in these situations can be
as long as 12 months and may vary substantially

                                       11
<PAGE>

from customer to customer. While our customers are evaluating our products and
before they may place an order with us, we may incur substantial sales and
marketing expenses and expend significant management effort. Consequently, if
sales forecasted from a specific customer for a particular quarter are not
realized in that quarter, we may not meet our revenue expectations.

Our success depends on the widespread market acceptance of our products.

  Our success depends on achieving widespread market acceptance of our products
and their underlying technologies. Factors that may affect the acceptance of
our products include:

  .  widespread market acceptance of Gigabit Ethernet Layer 3 switching
     technologies;

  .  market adoption of Layer 4-7 switching technologies;

  .  the performance, price and total cost of ownership of our products;

  .  the availability and price of competing products and technologies; and

  .  the success of our direct sales operation, resellers and our OEM.

  If our products do not achieve market acceptance, our operating results could
be harmed.

The adoption of standards for new technologies in our industry is important and
the timing of the adoption of industry standards may negatively impact
widespread market acceptance of our products.

  Our success depends in part on both the adoption of industry standards for
new technologies in our market and our products' compliance with industry
standards. Many technological developments occur prior to the adoption of the
related industry standard. The absence of an industry standard related to a
specific technology may prevent market acceptance of products using the
technology. For example, the adoption of an industry standard related to
Gigabit Ethernet was an important step for our products to achieve market
acceptance. An important standards setting organization in our industry is the
Institute of Electrical and Electronics Engineers, often referred to as IEEE.
The IEEE standards board officially approved the standard related to Gigabit
Ethernet, specifically the IEEE 802.3z standard, in June 1998, after
approximately two years of work. We introduced Gigabit Ethernet products in May
1997, over a year prior to the adoption of the IEEE 802.3z standard. We are in
the process of and intend to develop products using other technological
advancements, such as Gigabit Ethernet over copper and 10 Gigabit Ethernet, and
may develop these products prior to the adoption of industry standards related
to these technologies. If we introduce a product before an industry standard
has become widely accepted, we may incur significant expenses and losses due to
lack of customer demand, unusable purchased components for these products and
the diversion of our engineers from future product development efforts.
Further, because we develop some products prior to the adoption of industry
standards, we may develop products that do not comply with the eventual
industry standard. Our failure to develop products that comply with industry
standards would hurt our ability to sell these products. Finally, if the
industry evolves to new standards, we may not be able to successfully design
and manufacture new products in a timely fashion that meet these new standards.

If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lost sales and be subject to product
liability claims.

  Our products are complex and may contain undetected defects or errors,
particularly when first introduced or as new enhancements and versions are
released. Despite our testing

                                       12
<PAGE>

procedures, these defects and errors may be found after commencement of
commercial shipments. Any defects or errors in our products discovered in the
future or failures of our customers' networks, whether caused by our products
or another vendors' products could result in:

  .  negative customer reactions;

  .  product liability claims;

  .  negative publicity regarding us and our products;

  .  delays in or loss of market acceptance of our products;

  .  product returns;

  .  lost sales; and

  .  unexpected expenses to remedy errors.

Continued rapid growth will strain our operations and will require us to incur
costs to upgrade our infrastructure.

  We have experienced rapid growth which has placed, and continues to place, a
significant strain on our resources. For example, we had 131 full-time
employees as of June 30, 1999 compared to 55 full-time employees as of June 30,
1998, an increase of 138%. Our management team has limited experience managing
rapidly growing companies on a public or private basis. As a result, we may
make mistakes in operating our business, such as inaccurately forecasting our
sales, which may result in unanticipated fluctuations in our operating results.
We expect our anticipated growth and expansion to strain our management,
operational and financial resources. To accommodate this anticipated growth, we
must:

  .  improve existing and implement new operational and financial systems,
     procedures and controls;

  .  hire, train and manage additional qualified personnel, including in the
     near future, a significant number of new sales personnel; and

  .  effectively manage multiple relationships with our customers, suppliers
     and other third parties.

  We may not be able to install adequate control systems in an efficient and
timely manner, and our current or planned personnel systems, procedures and
controls may not be adequate to support our future operations. Any delay in the
implementation of or disruption in the transition to new or enhanced systems,
procedures or controls, could harm our ability to accurately forecast sales
demand, manage our supply chain and record and report financial and management
information on a timely and accurate basis.

If we fail to lease adequate additional space, our business could be harmed.

  In June 1999, we leased approximately 9,500 additional square feet in our
current facility primarily for the expansion of our manufacturing capabilities.
This lease expires at the end of February 2000. Prior to that date we leased
approximately 18,000 square feet for our corporate headquarters which includes
research and development, sales and marketing, general and administrative and
manufacturing. This lease expires in November 2001. We believe, however, that
by the end of 1999, we will need additional space to accommodate our growth.
The commercial real estate market in the San Francisco Bay area is volatile and
unpredictable in terms of available space, rental fees, occupancy rates and
preferred locations. If we fail to

                                       13
<PAGE>

lease new space on reasonable terms, our ability to expand our business may be
negatively affected or our operating results could be harmed. In addition, if
not handled appropriately, the transition to a new facility could disrupt our
operations.

Our products must comply with government regulations.

  In the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, products that we develop may be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International
Telecommunication Union. If we do not comply with existing or evolving industry
standards or if we fail to obtain timely domestic or foreign regulatory
approvals or certificates we would not be able to sell our products where these
standards or regulations apply, which may prevent us from sustaining our
revenue or maintaining profitability.

Any acquisitions we make could harm our business.

  As part of our business strategy, we may review acquisition prospects that
would complement our existing business or enhance our technological
capabilities. Future acquisitions by us could result in large and immediate
write-offs, the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
negatively affect our results of operations. Furthermore, acquisitions involve
numerous risks and uncertainties, including:

  .  difficulties in the assimilation of products, operations, personnel and
     technologies of the acquired companies;

  .  diversion of management's attention from other business concerns;

  .  risks of entering geographic and business markets in which we have no or
     limited prior experience; and

  .  potential loss of key employees of acquired organizations.

  Although we do not currently have any agreement with respect to any material
acquisitions, we may make acquisitions of complementary businesses, products or
technologies in the future. We may not be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future, and our failure to do so could harm our business.

We may need additional capital to fund our future operations.

  We believe that our existing working capital together with the proceeds from
this offering and cash available from credit facilities and future operations
will enable us to meet our working capital requirements for at least the next
12 months. However, if cash from future operations is insufficient, or if cash
is used for acquisitions or other currently unanticipated uses, we may need
additional capital. The development and marketing of new products and the
expansion of our direct sales operation and reseller channels and associated
support personnel are expected to require a significant commitment of
resources. In addition, if the market for our products were to develop more
slowly than anticipated or if we fail to establish significant market share and
achieve a meaningful level of revenue, we may incur significant operating
losses and utilize significant amounts of capital. As a result, we could be
required to raise substantial additional capital. To the extent that we raise
additional capital through the

                                       14
<PAGE>

sale of equity or convertible debt securities, the issuance of such securities
could result in dilution to our existing stockholders. If additional funds are
raised through the issuance of debt securities, these securities would have
rights, preferences and privileges senior to holders of common stock and the
terms of debt securities could impose restrictions on our operations.
Additional capital, if required, may not be available on acceptable terms, or
at all. If we are unable to obtain additional capital, we may be required to
reduce the scope of our planned product development and marketing efforts,
which could harm our business, financial condition and operating results.

Problems arising from use of our products together with other vendors' products
could disrupt our business and harm our financial condition.

  Our customers generally use our products together with products from other
vendors. As a result, when problems occur in the network, it may be difficult
to identify the source of the problem. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relation problems.

If we fail to protect our intellectual property, our business and ability to
compete could suffer.

  Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We do not own any patents nor do
we have any patent applications pending. We may not have taken actions that
adequately protect our intellectual property rights.

  We provide software to customers under license agreements included in the
packaged software. These agreements are not negotiated with or signed by the
licensee, and thus may not be enforceable in some jurisdictions. Despite our
efforts to protect our proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and
use our products or technology. These precautions may not prevent
misappropriation or infringement of our intellectual property. Monitoring
unauthorized use of our products is difficult and the steps we have taken may
not prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.

We may be subject to intellectual property infringement claims that are costly
to defend and could limit our ability to use certain technologies in the
future.

  Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the
networking markets have extensive patent portfolios with respect to networking
technology, while we do not currently own any patents or have any patent
applications pending. From time to time, third parties, including leading
companies, have asserted and may assert exclusive patent, copyright, trademark
and other intellectual property rights to technologies and related standards
that are important to us. Third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products. Any of these claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management
personnel, or require us to develop non-infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if
required, may not be available on acceptable terms, if at all. If there is a
successful claim of infringement or if we fail to develop non-infringing
technology or license the proprietary rights on a timely basis, our business
could be harmed.

                                       15
<PAGE>

Our stock price may be extremely volatile and you may not be able to resell
your shares at or above the offering price.

  Equity markets, particularly the market for technology companies, have
recently experienced significant price and volume fluctuations that are
unrelated to the operating performance of individual companies. These broad
market fluctuations may cause the market price of our common stock to decline.
In addition, the market price of our common stock is likely to be highly
volatile. In the past, securities class action litigation has often been
instituted against companies following periods of volatility in the market
price of their securities. This litigation could result in substantial costs
and a diversion of management's attention and resources.

We face a number of unknown risks associated with the year 2000 problem.

  Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond 2000. As a
result, the networks which incorporate our products and our own internal
networks could fail, leading to disruptions in operations and business
activities. As a result of the year 2000 problem, we believe that we face
potential risks which could harm our business in the following areas:

  .  disruption in our customer relationships or in our sales efforts because
     of failures of our customers' networks which are correctly or
     incorrectly attributed to the non-compliance of our products;

  .  claims from our customers based on alleged breach of warranties
     concerning the year 2000 compliance of our products;

  .  disruption of our business resulting from failure of systems we use to
     run our business;

  .  disruption of our business resulting from failure of systems used by our
     suppliers, customers and potential customers; and

  .  the potential reduced spending by companies on networking solutions as a
     result of significant information systems spending on year 2000
     remediation.

  Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000" for more detailed information.

Our executive officers and directors will control  % of our common stock and be
able to significantly influence matters requiring stockholder approval.

  Our executive officers, directors and entities affiliated with them will, in
the aggregate, will beneficially own approximately  % of our outstanding common
stock upon completion of this offering. These stockholders, if acting together,
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
or other business combination transactions. Please see "Principal Stockholders"
for more detailed information.

Some provisions of our charter documents may have anti-takeover effects that
could prevent a change in our control.

  Some provisions of our certificate of incorporation and bylaws could make it
more difficult for a third party to acquire us even if a change of control
would be beneficial to our stockholders. See "Description of Capital Stock--
Delaware Anti-Takeover Law and Charter and Bylaw Provisions."

                                       16
<PAGE>

Future sales of our common stock may depress our stock price.

  Upon completion of this offering, we will have     shares of common stock
outstanding. All the shares sold in this offering can be freely traded. The
remaining 33,757,293 shares of common stock outstanding after this offering are
subject to lock-up agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Immediately after the 180 day lock-up
period, 31,140,670 of these shares will become available for sale. The
remaining shares of our common stock will become available at various times
thereafter upon the expiration of one-year holding periods and/or the lapse of
our repurchase option. Sales of a substantial number of shares of common stock
in the public market after this offering or after the expiration of the lock-up
and holding periods could cause the market price of our common stock to
decline.

The purchasers in the offering will immediately experience substantial dilution
in net tangible book value.

  The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately after
the offering. As a result, purchasers of shares will experience immediate and
substantial dilution of approximately $    in net tangible book value per
share, or approximately  % of the offering price of $    per share. In
contrast, existing stockholders paid an average price of $    per share.

                                       17
<PAGE>

                           FORWARD-LOOKING STATEMENTS

  This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. You should not rely on these
forward-looking statements which apply only as of the date of the prospectus.
These statements refer to our future plans, objectives, expectations and
intentions. We use words such as "believe," "anticipate," "expect," "will,"
"intend," "estimate" and similar expressions to identify forward-looking
statements. This prospectus also contains forward-looking statements attributed
to third parties relating to their estimates regarding the growth of certain
markets. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those discussed in these forward-looking
statements. Factors that could contribute to these differences include those
discussed in the preceding pages and elsewhere in this prospectus.

                                USE OF PROCEEDS

  The net proceeds to us from the sale of the     shares being offered by us at
an assumed initial public offering price of $    per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, are estimated to be $   , or     if the underwriters' over-allotment
option is exercised in full. We expect to use the net proceeds of this offering
for working capital and general corporate purposes. Pending these uses, we
intend to invest the net proceeds in short-term, interest-bearing, investment
grade securities.

                                DIVIDEND POLICY

  We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of its business and do not anticipate paying any cash
dividends in the foreseeable future. Furthermore, our credit agreement
prohibits the payment of cash dividends.

                                       18
<PAGE>

                                 CAPITALIZATION

  The following table shows:

  .    our actual capitalization as of June 30, 1999;

  .    our capitalization as of that date on a pro forma basis to give effect
       to the conversion of all preferred stock outstanding at June 30, 1999
       into common stock upon the completion of this offering; and

  .    our capitalization on a pro forma as adjusted basis to reflect our
       receipt of the net proceeds from the sale of shares of common stock
       offered by us at an assumed initial public offering price of $   per
       share and after deducting estimated underwriting discounts and
       commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                         June 30, 1999
                                                 ------------------------------
                                                                     Pro Forma
                                                 Actual   Pro Forma As Adjusted
                                                 -------  --------- -----------
                                                   (in thousands, unaudited)
<S>                                              <C>      <C>       <C>
Bank line of credit............................. $ 2,000   $ 2,000    $ 2,000
Current portion of capital lease obligations....      90        90         90
                                                 -------   -------    -------
Redeemable convertible preferred stock, $0.0001
 par value per share, 15,166,954 shares
 authorized, 15,116,596 issued and outstanding,
 actual; 5,000,000 shares authorized, none
 issued or outstanding pro forma and pro forma
 as adjusted....................................  31,085        --         --
                                                 -------   -------    -------
Stockholders' equity (deficit):
 Common stock, $0.0001 par value per share,
  50,000,000 shares authorized, 18,640,697
  shares issued and outstanding, actual;
  100,000,000 shares authorized, 33,757,293
  shares issued and outstanding pro forma;
  100,000,000 shares authorized and     shares
  issued and outstanding pro forma as adjusted..       2         3
Treasury stock..................................  (6,480)   (6,480)    (6,480)
Additional paid-in capital......................  29,195    60,279
Notes receivable from stockholders..............    (859)     (859)      (859)
Deferred stock compensation..................... (13,749)  (13,749)   (13,749)
Accumulated deficit............................. (17,460)  (17,460)
                                                 -------   -------    -------
 Total stockholders' equity (deficit)...........  (9,351)   21,734
                                                 -------   -------    -------
   Total capitalization......................... $(9,351)  $21,734    $
                                                 =======   =======    =======
</TABLE>

  The number of shares of capital stock referenced above excludes as of June
30, 1999: (1) 3,508,969 shares subject to outstanding options and 295,334
shares available for future option grants under our 1996 Stock Plan; (2)
353,000 shares subject to non-plan options; and (3) 30,000 shares subject to
warrants to purchase Series A preferred stock which will convert to warrants to
purchase common stock upon completion of this offering. This number also
excludes 950,000 shares reserved for issuance under our 1999 Directors Stock
Option Plan and 1999 Employee Stock Purchase Plan and 2,000,000 additional
shares available for future option grants under our 1996 Stock Plan which were
authorized in July 1999. See "Management" and Note 5 of Notes to Financial
Statements.


                                       19
<PAGE>

                                    DILUTION

  Our pro forma net tangible book value as of June 30, 1999 was approximately $
   or $    per share of common stock. "Net tangible book value" per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities and divided by the total number of shares of common stock
after giving effect to the conversion of all outstanding shares of preferred
stock into 15,116,596 shares of common stock. After giving effect to the sale
of the    shares of common stock offered by us at an assumed initial public
offering price of $    per share, and the adjustments set forth above, our pro
forma net tangible book value as of June 30, 1999 would have been $    or $
   per share of common stock. This represents an immediate increase in net
tangible book value of $    per share to existing stockholders and an immediate
dilution of $    per share to new investors. The following table illustrates
this per share dilution:

<TABLE>
   <S>                                                                  <C> <C>
   Assumed initial public offering price per share.....................     $
     Pro forma net tangible book value per share before the offering... $
     Increase attributable to new investors............................
                                                                        ---
   Pro forma net tangible book value after the offering................
                                                                            ---
   Dilution per share to new investors.................................     $
                                                                            ===
</TABLE>

  The following table summarizes, on a pro forma basis as of June 30, 1999, the
differences between the existing stockholders and new investors with respect to
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid.

<TABLE>
<CAPTION>
                          Shares Purchased  Total Consideration
                         ------------------ ---------------------   Average Price
                           Number   Percent  Amount     Percent       Per Share
                         ---------- ------- ---------  ----------   -------------
<S>                      <C>        <C>     <C>        <C>          <C>
Existing stockholders..  33,757,293       %  $                    %      $
New investors..........
                         ----------  -----   --------   ----------
  Totals...............              100.0%  $               100.0%
                         ==========  =====   ========   ==========
</TABLE>

  The information in the table is based upon the initial public offering price
of $   per share before deducting underwriter discounts and commissions and
estimated offering expenses payable by us. The information concerning existing
stockholders is based on the number of shares of common stock outstanding on
June 30, 1999 and gives effect to the conversion of all outstanding shares of
preferred stock into common stock upon completion of this offering. The
information presented with respect to existing stockholders excludes as of June
30, 1999: (1) 3,508,969 shares subject to outstanding options and 295,334
shares available for future option grants under our 1996 Stock Plan; (2)
353,000 shares subject to non-plan options; and (3) 30,000 shares subject to
warrants to purchase Series A preferred stock which will convert to warrants to
purchase common stock upon completion of this offering. This information also
excludes 950,000 shares reserved for issuance under our 1999 Directors Stock
Option Plan and 1999 Employee Stock Purchase Plan and 2,000,000 additional
shares available for future option grants under our 1996 Stock Plan which were
authorized in July 1999. The issuance of common stock in connection with the
exercise of these options and warrants will result in further dilution to new
investors. See "Management" and Note 5 of Notes to Financial Statements.

                                       20
<PAGE>

                            SELECTED FINANCIAL DATA
                     (in thousands, except per share data)

  The selected financial data set forth below should be read together with the
financial statements and related notes, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the other information
contained in this prospectus. The selected balance sheet data at December 31,
1997 and 1998 and the selected statement of operations data for the period from
inception of Foundry, May 22, 1996, until December 31, 1996 and for the years
ended December 31, 1997 and 1998 are derived from, and qualified by reference
to, our audited financial statements and notes thereto included elsewhere in
this prospectus. The selected balance sheet data at December 31, 1996 are
derived from Foundry's audited balance sheet not included herein. The selected
balance sheet data at June 30, 1999 and the selected statement of operations
data for the six months ended June 30, 1998 and 1999 are derived from our
unaudited financial statements included elsewhere in this prospectus. Our
unaudited financial statements have been prepared on a basis consistent with
the audited financial statements appearing elsewhere in this prospectus and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of such data. The
historical results of operations are not necessarily indicative of results to
be expected for any subsequent period.

<TABLE>
<CAPTION>
                                Period from
                                May 22, 1996                     Six Months
                                (Inception)    Year Ended           Ended
                                     to       December 31,        June 30,
                                December 31, ----------------  ----------------
                                    1996      1997     1998     1998     1999
                                ------------ -------  -------  -------  -------
                                                                 (unaudited)
<S>                             <C>          <C>      <C>      <C>      <C>
Statement of Operations Data:
Revenue, net..................    $    --    $ 3,381  $17,039  $ 4,203  $39,487
Cost of revenue...............         --      1,835    8,433    2,082   18,341
                                  -------    -------  -------  -------  -------
  Gross profit................         --      1,546    8,606    2,121   21,146
Operating expenses:
 Research and development.....      1,914      5,403    8,797    3,250    3,625
 Sales and marketing..........         --      3,419    7,258    2,745    6,973
 General and administrative...        226      1,853    1,589      569    1,655
 Amortization of deferred
  stock compensation..........         --         --      727       --    5,023
                                  -------    -------  -------  -------  -------
  Total operating expenses....      2,140     10,675   18,371    6,564   17,276
                                  -------    -------  -------  -------  -------
Income (loss) from opera-
 tions........................     (2,140)    (9,129)  (9,765)  (4,443)   3,870
Interest income, net..........        127        122      413      213       24
                                  -------    -------  -------  -------  -------
Income (loss) before provision
 for income taxes.............     (2,013)    (9,007)  (9,352)  (4,230)   3,894
Provision for income taxes....         --         --       --       --      982
                                  -------    -------  -------  -------  -------
Net income (loss).............    $(2,013)   $(9,007) $(9,352) $(4,230) $ 2,912
                                  =======    =======  =======  =======  =======
Basic net income (loss) per
 share........................    $ (1.49)   $ (1.99) $ (1.04) $ (0.53) $  0.24
Diluted net income (loss) per
 share........................    $ (1.49)   $ (1.99) $ (1.04) $ (0.53) $  0.08
Weighted average shares--
 basic(a).....................      1,349      4,523    8,992    8,029   12,164
Weighted average shares--
 diluted(a)...................      1,349      4,523    8,992    8,029   34,880

Pro forma basic net income
 (loss) per share.............                        $ (0.41)          $  0.11
Weighted average shares--pro
 forma basic(a)...............                         22,882            27,170
</TABLE>

<TABLE>
<CAPTION>
                                            December 31,            June 30,
                                      ---------------------------  -----------
                                       1996      1997      1998       1999
                                      -------  --------  --------  -----------
                                                                   (unaudited)
<S>                                   <C>      <C>       <C>       <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 3,823  $  3,182  $  4,567    $12,340
Working capital......................   3,505     4,076    10,663     21,319
Total assets.........................   4,557     6,988    19,238     36,453
Long term obligations, less current
 portion.............................     344       178       --         --
Total stockholders' equity (defi-
 cit)................................  (1,903)  (10,509)  (18,926)    (9,351)
</TABLE>
--------
(a) See Note 2 of the Notes to Financial Statements for an explanation of the
    determination of the number of shares and share equivalents used in
    computing per share amounts.

                                       21
<PAGE>

   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

  The following discussion and analysis of our financial condition and results
of operations should be read together with "Selected Financial Data" and our
financial statements and related notes appearing elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. The actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including but not limited to those set forth under "Risk Factors" and
elsewhere in this prospectus.

Overview

  Foundry designs, develops, manufactures and markets a comprehensive suite of
high performance networking products for enterprises and Internet service
providers. From our inception in May 1996 through April 1997, we were engaged
primarily in research and development activities and did not generate any
revenue. A substantial portion of our operating expenses during this period was
related to the design and development of our custom ASICs, software development
and testing prototype designs. We commenced commercial shipments of our
FastIron workgroup Layer 2 switch in May 1997, the initial product released in
our family of stackable products. We shipped NetIron, our first generation
Layer 3 switch, in June 1997. During the second quarter of 1998, we shipped the
first products in our Layer 4-7 ServerIron family. We shipped BigIron, our
second generation of midsize and large-scale chassis-based products, in the
third quarter of 1998. Since the first quarter of 1998, our revenue has
increased every quarter, and we were profitable for the first two quarters of
1999, although we cannot assure you that these results will be indicative of
future performance.

  We derive our revenue substantially from sales of our stackable and chassis-
based products, including fees for customer support services related to our
products. We market and sell our products primarily through a direct sales and
marketing organization and, to a lesser extent through resellers and through
our OEM relationship with Hewlett-Packard. We have sales representatives in the
United States, Canada, France, Germany, Taiwan and the United Kingdom. We have
made significant investments to expand our international operations and expect
international revenue to increase as a percentage of total revenue. Currently,
all of our international sales are denominated in U.S. dollars. We generally
recognize product revenue upon shipment to customers. Revenue from customer
support services is deferred and recognized on a straight-line basis over the
contractual period.

  We expect the average selling price of our products to decline due to a
number of factors, including competitive pricing pressures and rapid
technological changes. Our gross margins may be affected by price declines if
we are unable to reduce costs. Furthermore, our gross margins may be affected
by fluctuations in manufacturing volumes, component costs, the mix of product
configurations sold and the mix of distribution channels through which our
products are sold. We generally realize higher gross margins on direct sales to
the end user than on sales through resellers or our OEM. Any significant shift
in revenue through resellers or our OEM, or the loss of any large customer,
reseller or our OEM, could harm our gross margins, operating results and
financial condition.

  We rely on two third-party manufacturing vendors that produce different
assemblies for our products. Prior to the first quarter of 1999, we performed
final assembly, testing, quality assurance, manufacturing engineering,
documentation control and repairs of our products at our Sunnyvale facility. In
the first quarter of 1999, we began transitioning assembly and testing
functions from our Sunnyvale facility to one of our manufacturing partners. We
expect to realize lower costs and higher volume efficiencies as a result of
this transition. However, these price reductions may not occur or this
manufacturer may not adequately fulfill its

                                       22
<PAGE>

obligations. The failure to obtain cost reductions or this manufacturer's
failure to meet its obligations could harm our gross margins and operating
results.

  In connection with the grant of stock options to employees, we recorded
deferred stock compensation of $4.7 million in 1998 and $14.8 million for the
six months ended June 30, 1999, representing the difference between the
exercise price and the deemed fair market value of our common stock on the date
these stock options were granted. This amount is included as an increase in
stockholders' deficit and is being amortized to operations ratably over the
respective vesting periods. We recorded amortization of deferred stock
compensation expense of approximately $727,000 for the year ended December 31,
1998 and $5.0 million for the six months ended June 30, 1999. At June 30, 1999
we had approximately $13.7 million remaining to be amortized over the
corresponding vesting period of each respective option, generally four years.
The amortization expense relates to options granted to employees and directors.

  Since inception we have incurred significant losses and, as of June 30, 1999,
we had an accumulated deficit of $17.5 million. These losses have resulted
primarily from our activities to develop our products, establish brand
recognition and to develop our sales channels.

Results of Operations

  The following table sets forth selected items from our statement of
operations as a percentage of revenue for the periods indicated:

<TABLE>
<CAPTION>
                                                                Six Months
                                               Year Ended          Ended
                                              December 31,       June 30,
                                              --------------   --------------
                                               1997    1998     1998    1999
                                              ------   -----   ------   -----
                                                               (unaudited)
<S>                                           <C>      <C>     <C>      <C>
Revenue, net.................................  100.0%  100.0%   100.0%  100.0%
Cost of revenue..............................   54.3    49.5     49.5    46.4
                                              ------   -----   ------   -----
 Gross profit................................   45.7    50.5     50.5    53.6
                                              ------   -----   ------   -----
Operating expenses:
 Research and development....................  159.8    51.6     77.3     9.2
 Sales and marketing.........................  101.1    42.6     65.3    17.6
 General and administrative..................   54.8     9.3     13.6     4.2
 Amortization of deferred stock
  compensation...............................     --     4.3       --    12.7
                                              ------   -----   ------   -----
  Total operating expenses...................  315.7   107.8    156.2    43.7
Income (loss) from operations................ (270.0)  (57.3)  (105.7)    9.9
Interest income, net.........................    3.6     2.4      5.1     --
                                              ------   -----   ------   -----
Income (loss) before provision for income
 taxes....................................... (266.4)  (54.9)  (100.6)    9.9
Provision for income taxes...................     --      --       --     2.5
                                              ------   -----   ------   -----
Net income (loss)............................ (266.4)% (54.9)% (100.6)%   7.4%
                                              ======   =====   ======   =====
</TABLE>

Six Months Ended June 30, 1999 and 1998

  Revenue.  Revenue increased to $39.5 million for the six months ended June
30, 1999 from $4.2 million for the six months ended June 30, 1998. The increase
in revenue was primarily due to the introduction of BigIron in the third
quarter of 1998. The increase in revenue was also due to significant growth in
the enterprise LAN switching market, increased sales to Internet service
providers, broader market acceptance of our Gigabit Ethernet Layer 3 and Layer
4-7 switching products and expansion of our sales force.

  For the six months ended June 30, 1999, sales to America Online, Hewlett-
Packard and Mitsui accounted for 17%, 15% and 10% of revenue. Hewlett-Packard
is both an OEM and an end user.

                                       23
<PAGE>

  Gross profit.  Gross profit increased to $21.1 million for the six months
ended June 30, 1999 from $2.1 million for the six months ended June 30, 1998,
primarily due to a significant increase in revenue. As a percentage of revenue,
gross profit was 53.6% for the six months ended June 30, 1999 and 50.5% for the
six months ended June 30, 1998. We expect gross profit, as a percentage of
revenue, to fluctuate from period to period primarily due to the mix of
products sold.

  Research and development.  Research and development expenses consist
primarily of salaries and related personnel expenses, prototype expenses
related to the development of our ASICs, software development and testing
costs, and the depreciation of property and equipment related to research and
development activities. Research and development expenses increased to $3.6
million for the six months ended June 30, 1999 from $3.3 million for the six
months ended June 30, 1998, primarily due to the addition of engineering
personnel and related costs. Research and development costs are expensed as
incurred. As a percentage of revenue, research and development expenses
decreased from 77.3% to 9.2% because of the significant increase in revenue. We
believe continued investment in product enhancements and new product
development is critical to attaining our strategic objectives, and as a result,
we expect research and development expenses to continue to increase in absolute
dollars.

  Sales and marketing.  Sales and marketing expenses consist primarily of
salaries, commissions and related expenses for personnel engaged in marketing,
sales and customer support functions, as well as trade shows, advertising,
promotional expenses and the cost of facilities. Sales and marketing expenses
increased to $7.0 million for the six months ended June 30, 1999 from $2.7
million for the six months ended June 30, 1998, primarily due to the addition
of sales and marketing personnel, increased commission expenses resulting from
significantly higher sales and increased advertising and promotional expenses.
As a percentage of revenue, sales and marketing expenses decreased from 65.3%
to 17.6% because of the significant increase in revenue. We expect these
expenses to increase significantly in absolute dollars as we continue to build
our field sales and support organizations and expand sales and marketing
activities in the future.

  General and administrative.  General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, facilities expenses and other general corporate
expenses. General and administrative expenses increased to $1.7 million for the
six months ended June 30, 1999 from $569,000 for the six months ended June 30,
1998, primarily due to an increase in the allowance for doubtful accounts, the
addition of personnel necessary to support the increase in revenue and general
corporate expenses consistent with the increased scale of operations. We expect
these expenses to continue to increase in absolute dollars as we continue to
build the infrastructure necessary to support the growth of our business and
operate as a public company.

  Interest income.  Interest income is the net result of the interest earned on
the funds we keep on deposit in an interest bearing account less any interest
expense incurred on our revolving bank line credit and capital lease
obligations. Interest income decreased to $24,000 for the six months ended June
30, 1999 from $213,000 for the six months ended June 30, 1998, primarily due to
the offset of interest expense related to borrowing on our revolving line of
credit against interest earned from cash balances in our money market account.
During the six months ended June 30, 1998, we had no borrowings against our
line of credit and had larger cash balances in an interest bearing account
resulting from the proceeds of our financing in March 1998.

  Income taxes.  We have recorded income tax expense for the six months ended
June 30, 1999 of $982,000. This reflects an effective tax rate of 25%, based
upon the estimated

                                       24
<PAGE>

annualized tax rate. We have provided a full valuation allowance against our
deferred tax assets, consisting primarily of net operating loss carryforwards,
because of the uncertainty regarding their realization. When we are able to
conclude that our deferred tax assets are likely to be realized, our income tax
provision will reflect a one-time credit eliminating the valuation allowance.

  Net Income.  Net income increased to $2.9 million for the six months ended
June 30, 1999 from a net loss of $4.2 million for the six months ended June 30,
1998. This increase was primarily due to significantly higher revenue.

Years Ended December 31, 1998 and 1997

  Revenue. Revenue increased to $17.0 million for the year ended December 31,
1998 from $3.4 million for the year ended December 31, 1997. The significant
increase was primarily due to the introduction of new products during 1998,
including our server load balancing and transparent caching switches and our
BigIron chassis-based products. In 1997, sales to Mitsui and Incyte
Pharmaceuticals, Inc. accounted for 49% and 14% of revenue, and sales to Mitsui
accounted for 21% of revenue in 1998.

  Gross profit.  Gross profit increased to $8.6 million for the year ended
December 31, 1998 from $1.5 million for the year ended December 31, 1997,
primarily due to the significant increase in revenue. As a percentage of
revenue, gross profit increased to 50.5% for the year ended December 31, 1998
from 45.7% for the year ended December 31, 1997, primarily as a result of
spreading manufacturing costs over a greater number of units sold.

  Research and development.  Research and development expenses increased to
$8.8 million for the year ended December 31, 1998 from $5.4 million for the
year ended December 31, 1997, primarily due to the addition of engineering
personnel and increased costs associated with launching the new BigIron chassis
based products in the third quarter of 1998. As a percentage of revenue,
research and development expenses decreased due to significantly higher
revenue.

  Sales and marketing.  Sales and marketing expenses increased to $7.3 million
for the year ended December 31, 1998 from $3.4 million for the year ended
December 31, 1997, primarily due to the addition of sales and marketing
personnel, increased commission expenses resulting from higher sales and
increased advertising and promotional expenses.

  General and administrative.  General and administrative expenses decreased to
$1.6 million for the year ended December 31, 1998 from $1.9 million for the
year ended December 31, 1997, primarily due to costs incurred in 1997 relating
to the settlement of a lawsuit of approximately $750,000. Excluding the
$750,000 incurred in 1997, general and administrative expenses would have
increased by $450,000 for the year ended December 31, 1998 over the same period
in 1997. The increase was a result of the increase in allowance for doubtful
accounts and addition of personnel related to significantly higher revenue.

  Interest income.  Interest income increased to $413,000 for the year ended
December 31, 1998 from $122,000 for the year ended December 31, 1997, as a
result of greater cash balances generated from the sale of preferred stock in
March 1998.

  Net loss.  Net loss increased to $9.4 million for the year ended December 31,
1998 from $9.0 million for the year ended December 31, 1997, as a result of the
amortization of deferred stock compensation in 1998 in the amount of $727,000
which was offset by significantly increased revenue together with increased
expenses related to the addition of personnel, engineering prototype expenses
and costs related to expanding our operations.

                                       25
<PAGE>

Quarterly Results of Operations

  The following tables set forth our statement of operations data for each of
the six quarters ended June 30, 1999, including these amounts expressed as a
percentage of total revenue. This unaudited quarterly information has been
prepared on the same basis as our audited financial statements and, in the
opinion of management, reflects all adjustments, consisting only of normal
recurring entries, necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.

<TABLE>
<CAPTION>
                                          Three Months Ended
                         --------------------------------------------------------------
                         Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31,  Jun. 30,
                           1998       1998       1998       1998       1999      1999
                         --------   --------   --------   --------   --------  --------
                                       (in thousands, unaudited)
<S>                      <C>        <C>        <C>        <C>        <C>       <C>
Statement of Operations
 Data:
Revenue, net............ $ 1,842    $ 2,361    $ 4,030    $ 8,806    $15,425   $24,062
Cost of revenue.........     915      1,167      1,918      4,433      7,707    10,634
                         -------    -------    -------    -------    -------   -------
  Gross profit..........     927      1,194      2,112      4,373      7,718    13,428
Operating expenses:
 Research and
  development...........   1,383      1,867      3,705      1,842      1,746     1,879
 Sales and marketing....   1,209      1,536      1,887      2,626      2,717     4,256
 General and
  administrative........     251        318        365        655        670       985
 Amortization of
  deferred stock
  compensation..........      --         --        233        494      1,115     3,908
                         -------    -------    -------    -------    -------   -------
  Total operating
   expenses.............   2,843      3,721      6,190      5,617      6,248    11,028
                         -------    -------    -------    -------    -------   -------
Income (loss) from
 operations.............  (1,916)    (2,527)    (4,078)    (1,244)     1,470     2,400
Interest income, net....      40        173        135         65         24        --
                         -------    -------    -------    -------    -------   -------
Income (loss) before
 provision for income
 taxes..................  (1,876)    (2,354)    (3,943)    (1,179)     1,494     2,400
Provision for income
 taxes..................      --         --         --         --        377       605
                         -------    -------    -------    -------    -------   -------
Net income (loss)....... $(1,876)   $(2,354)   $(3,943)   $(1,179)   $ 1,117   $ 1,795
                         =======    =======    =======    =======    =======   =======
<CAPTION>
                                          Three Months Ended
                         --------------------------------------------------------------
                         Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31,  Jun. 30,
                           1998       1998       1998       1998       1999      1999
                         --------   --------   --------   --------   --------  --------
                                              (unaudited)
<S>                      <C>        <C>        <C>        <C>        <C>       <C>
Percentage of Revenue:
Revenue, net............   100.0%     100.0%     100.0%     100.0%     100.0%    100.0%
Cost of revenue.........    49.7       49.4       47.6       50.3       50.0      44.2
                         -------    -------    -------    -------    -------   -------
  Gross profit..........    50.3       50.6       52.4       49.7       50.0      55.8
Operating expenses:
 Research and
  development...........    75.1       79.1       91.9       20.9       11.3       7.8
 Sales and marketing....    65.6       65.1       46.8       29.8       17.6      17.7
 General and
  administrative........    13.6       13.4        9.1        7.5        4.4       4.1
 Amortization of
  deferred stock
  compensation..........      --         --        5.8        5.6        7.2      16.2
                         -------    -------    -------    -------    -------   -------
  Total operating
   expenses.............   154.3      157.6      153.6       63.8       40.5      45.8
                         -------    -------    -------    -------    -------   -------
Income (loss) from
 operations.............  (104.0)    (107.0)    (101.2)     (14.1)       9.5      10.0
Interest income, net....     2.2        7.3        3.4        0.7        0.2        --
                         -------    -------    -------    -------    -------   -------
Income (loss) before
 provision for income
 taxes..................  (101.8)     (99.7)     (97.8)     (13.4)       9.7      10.0
Provision for income
 taxes..................      --         --         --         --        2.5       2.5
                         -------    -------    -------    -------    -------   -------
Net income (loss).......  (101.8)%    (99.7)%    (97.8)%    (13.4)%      7.2%      7.5%
                         =======    =======    =======    =======    =======   =======
</TABLE>

                                       26
<PAGE>

  Our revenue increased in each quarter since the first quarter of 1998 as a
result of the introduction of new products, significant growth in our market,
increasing market acceptance of Gigabit Ethernet Layer 3 and Layer 4-7
switching and the expansion of our sales force. Gross profit has ranged from
49.7% to 55.8%, as a percentage of revenue, in the quarters presented and
fluctuates from quarter to quarter due to the mix of products sold.

  Our research and development expenses increased in absolute dollars and as a
percentage of revenue in the first three quarters of 1998 primarily due to
development costs related to bringing our BigIron chassis-based product to
market in a timely manner in the third quarter of 1998. In particular, our
third quarter of 1998 includes significant expenditures for semiconductors,
assembly and reworking associated with the prototype BigIron chassis-based
product. Our research and development expenses, in absolute dollars, in the
fourth quarter of 1998 returned to approximately the same level experienced in
the second quarter of 1998. We currently do not expect that the introduction of
new products in the near future will have as significant an impact on our
research and development expenses as did the introduction of BigIron.

  Our operating results have varied significantly in the past and revenue and
operating results may vary significantly in the future due to a number of
factors, including: fluctuations in demand for our products and services,
particularly in Europe and Asia; the cancellation or rescheduling of
significant orders; our ability to develop, introduce, ship and support new
products and product enhancements and manage product transitions; announcements
and introductions of new products by our competitors and us; our ability to
build infrastructure to support increased growth; our ability to achieve
required cost reductions; our ability to obtain sufficient supplies of sole- or
limited-sourced components for our products; increases in the prices of the
components we purchase; our ability to attain and maintain production volumes
and quality levels for our products; the mix of products sold and the mix of
distribution channels through which they are sold; and costs relating to
possible acquisitions and integration of technologies or businesses. See "Risk
Factors--We may not meet quarterly financial expectations, which could cause
our stock price to decline."

Liquidity and Capital Resources

  We have funded our operations to date primarily through the private sales of
common and preferred stock for net proceeds of approximately $33.4 million and,
to a lesser extent, from a capital equipment lease line and bank line of
credit. For the six months ended June 30, 1999, we have satisfied our liquidity
requirements primarily through cash flow generated from operations.

  Cash provided by operating activities was $3.4 million for the six months
ended June 30, 1999. Cash utilized in operating activities was $13.2 million in
1998 and $9.8 million in 1997. The cash utilized in 1998 and 1997 was due to
net losses, as well as working capital required to fund our growth in
operations, including accounts receivable and inventory.

  Cash utilized in investing activities was $145,000 for the six months ended
June 30, 1999, $414,000 in 1998 and $526,000 in 1997. These amounts primarily
represented purchases of property and equipment. From inception through June
30, 1999, we have invested a total of approximately $1.8 million in property
and equipment.

  Financing activities provided $4.6 million in cash for the six months ended
June 30, 1999, consisting primarily of principal repayments on capital lease
obligations, offset by proceeds from sale of our capital stock and the exercise
of stock options and proceeds from the bank

                                       27
<PAGE>

line of credit. In 1998, we generated $15.0 million of cash and in 1997, we
generated $9.6 million of cash, in each case primarily from an equity financing
and the exercise of stock options, offset by principal repayments on capital
lease obligations.

  Our principal source of liquidity as of June 30, 1999 consisted of $12.3
million in cash. We currently have a bank line of credit that provides for up
to $10.0 million in borrowings. We can borrow up to 80% of eligible accounts
receivable against this line, which is collateralized by substantially all of
our assets and provides for interest at the bank's prime rate. This line of
credit contains provisions requiring us to maintain certain minimum financial
ratios measured on a monthly basis, and expires in February 2000. As of June
30, 1999, there have been borrowings of $2.0 million under this line of credit.
Additionally, the bank has issued a standby letter of credit in the amount of
$1.0 million to one of our contract manufacturers against the line of credit.

  As of June 30, 1999, we did not have any material commitments for capital
expenditures. However, we expect to incur capital expenditures as we expand our
operations in the near future. From time to time, we may also consider the
acquisition of, or evaluate investments in, products and businesses
complementary to our business. Any acquisition or investment may require
additional capital. Although it is difficult for us to predict future liquidity
requirements with certainty, we believe that the net proceeds from this
offering, together with our existing cash balances and anticipated funds from
operations, will satisfy our cash requirements for at least the next 12 months.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes and may seek additional funds through public
or private equity financings or from other sources. Additional financing may
not be available to us or, if available, financing may not be available on
terms favorable to us and our stockholders.

Year 2000

  Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. As a result, the networks which incorporate our products and our own
internal networks could fail leading to disruptions in operations and business
activities.

  State of Readiness. Our business may be affected by year 2000 issues arising
from our products or related to non-compliant internal systems developed by us
or by third party vendors. Our Chief Financial Officer is responsible for
coordinating and monitoring the status of our year 2000 evaluation and
remediation efforts and reporting the status of our efforts to our board of
directors. We continue to assess the potential effect and costs of remediating
the year 2000 problem for our internal systems. To date, we have not obtained
verification or validation from any independent third parties of our processes
to assess and correct any of our year 2000 problems or the costs associated
with these activities.

  Our internal Quality Assurance Department has tested and intends to continue
to test all of our products for year 2000 problems. To date, we have not
discovered any year 2000 problems with our products. We believe that our
products and our architecture are year 2000 compliant. However, our products
are generally integrated into larger networks involving sophisticated hardware
and software products supplied by other vendors. If the software products of
these vendors have year 2000 problems, the performance of our products may be
negatively affected. For example, the software components included in some of
our products rely upon dates generated by other network components which are
supplied by other vendors.

                                       28
<PAGE>

Each network in which our products are installed involves different
combinations of third party products. We cannot evaluate whether every product
which may interact with our products is year 2000 compliant. Therefore, we may
face claims based on year 2000 problems in other companies' products or based
on year 2000 issues arising from the integration of multiple products within
the overall network. Regardless of the merits of such claims, we may be
required to incur substantial expenses and to devote substantial resources to
legal proceedings resulting from such claims. We have represented to our
customers, resellers and our OEM that our products are year 2000 compliant. If
this is not true, these parties may make claims against us for breach of our
representations. At this time, no such claims have been made by companies who
have installed our products in their networks.

  We believe that we have identified approximately 230 personal computers and
servers and 36 software applications, including our enterprise resource
planning system, used in connection with our internal operations that will need
to be evaluated to determine if they must be modified, upgraded or replaced to
minimize the possibility of a material disruption to our business. Of all of
our systems, our most important system to our continuing operations is our
enterprise resource planning software. We have installed the necessary
modifications to our enterprise resource planning software that has been
certified by the vendor to be year 2000 compliant; however, we have not
conducted any independent tests to confirm year 2000 compliance. In addition,
we are still in the process of evaluating and replacing or modifying, as
necessary, our other internal systems. We expect to complete the process of
modifying, upgrading or replacing all of our internal systems before the
occurrence of any material disruption of our business.

  In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, telephone switches, security
systems and other common devices, may be affected by the year 2000 problem. We
are currently assessing the potential effect and costs of remediating the year
2000 problem with the office and facility equipment used at our headquarters in
Sunnyvale, California. We are also currently assessing the potential effect and
costs of remediating the year 2000 problem with the office and facilities
equipment, personal computers and software applications used by our more than
ten domestic and international field sales offices and our approximately 35
sales representatives who work from home offices.

  If our suppliers, customers, resellers, contract manufacturers, service
providers or other third parties fail to correct year 2000 problems in their
products or internal systems, these failures could result in an interruption
in, or failure of, our normal business activities or operations. To date, we
believe all critical components that we obtain from third party suppliers are
year 2000 compliant based on letters from our significant suppliers
representing that they are or will be year 2000 compliant. In addition, we are
in the process of evaluating the year 2000 readiness of other parties,
including our customers, resellers, contract manufacturers and service
providers. We are checking the web sites of these parties to determine if they
are certifying that they are year 2000 compliant. However, we have not
contacted any of these parties. We expect that we will be able to resolve any
significant year 2000 problems with these parties; however, these parties may
not resolve any or all year 2000 problems before the occurrence of a material
disruption to the operation of our business.

  Costs. We have funded our year 2000 efforts from operating cash flows and
have not separately accounted for these costs in the past. To date, these costs
have not been material. We will incur additional costs related to our year 2000
efforts for administrative personnel to manage our efforts, engineering
personnel to test and remediate our products and internal systems, sales and
marketing personnel to address customer concerns and outside contractors

                                       29
<PAGE>

to assist in our efforts. Although we do not anticipate that these expenses
will be material, these expenses, if higher than anticipated, could harm our
results of operations and financial condition.

  Risks. We believe that it is not possible to determine with complete
certainty that all year 2000 problems affecting us have been identified or
corrected. In addition, no one can accurately predict how many year 2000
problem-related failures will occur or the severity, duration or financial
consequences of these perhaps inevitable failures. As a result, we believe that
the following consequences are possible:

  .  a significant number of operational inconveniences and inefficiencies
     for us, our contract manufacturers and our customers that will divert
     management's time and attention and financial and human resources from
     ordinary business activities;

  .  business disputes and claims for pricing adjustments or penalties due to
     year 2000 problems by our customers, resellers and our OEM; and

  .  a number of serious business disputes alleging that we failed to comply
     with the terms of contracts or industry standards of performance, some
     of which could result in litigation or contract termination.

  Contingency Plans. We have not yet developed a contingency plan to address
any situation that may result if we are unable to solve our year 2000 issues,
and we do not anticipate the need to do so. If we must develop a contingency
plan, the development and implementation of this plan could harm our business.

  Disclaimer. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year
2000 compliance and the level of associated incremental costs could be
adversely affected by, among other things, availability and cost of programming
and testing resources, third party suppliers' ability to modify software, and
unanticipated problems identified in the ongoing compliance review.

Recently Issued Accounting Standards

  See Note 2 of Notes to Financial Statements for recently adopted and recently
issued accounting standards.



                                       30
<PAGE>

                                    BUSINESS

  Foundry Networks designs, develops, manufactures and markets a comprehensive
suite of high performance networking products for enterprises and Internet
service providers. Our Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switches
enable our customers to build and maintain efficient, high performance
networks. Our products provide solutions for all types of networks, including
LANs, MANs and WANs. This product breadth allows us to provide solutions
throughout a customer's network, from the wiring closet edge of an enterprise
LAN to the LAN core, and from the WAN edge of an Internet service provider to
its network of Internet servers. Our Layer 2 and Layer 3 switches provide the
bandwidth required to support the increasing use of bandwidth-intensive and
Internet-based applications. Our high performance Layer 4-7 switching products
with network intelligence capabilities allow enterprises and Internet service
providers to direct traffic flow more efficiently, based on application type
and end user, while also allowing Internet service providers to offer their
customers differentiated, fee-based quality of service. We sell our products
through a direct sales force, resellers and an OEM. Our products have been
deployed in enterprises spanning many industries, educational institutions and
government agencies and in Internet service providers. By providing high levels
of performance and network intelligence capabilities at leading price points,
we provide a comprehensive solution to address the rapidly growing networking
market.

Industry Background

  The pervasiveness of computing by businesses, organizations and individuals,
and the need to interconnect computing devices to enable widespread
communication, have given rise to the multi-billion dollar computer networking
industry. The explosive growth of the Internet and corporate internal and
external communications needs are driving the recent growth in enterprise and
Internet service provider networks. The complexity of information traveling
over networks is also rapidly increasing with the adoption of bandwidth-
intensive applications that include increasing amounts of data, voice, video
and graphics. The increase in users, coupled with these new bandwidth-intensive
applications, has resulted in exponential growth in network traffic. This
growth has led to a demand by enterprises and Internet service providers for
networking solutions with superior performance and intelligence capabilities.

  Evolution of Market Needs

  Early data networks were adopted to connect a limited number of computers
within close proximity, allowing users to share simple, common services, such
as file servers and printers. In these networks, called local area networks or
LANs, traffic patterns were predictable because the majority of traffic resided
within the LAN and remained local to a specific part of the LAN. Widespread
Internet usage, the proliferation of client-server applications and the
adoption of new bandwidth-intensive applications have increased traffic loads
and created unpredictable traffic patterns. Today, the majority of traffic
traverses the boundaries of the LAN to networks outside of the LAN. Such
communication traditionally required an organization to utilize costly long
distance carrier services that often provided inadequate performance. As a
result of today's traffic flows, enterprises increasingly require low cost,
high performance networking equipment to enable effective communications across
geographically dispersed networks, known as MANs and WANs.

  Challenges to enterprise network performance are magnified when applied to
Internet service providers. As their customers have increasingly become
dependent on Internet access, Internet service providers demand networking
solutions that ensure the highest levels of performance and scalability.
Similar to enterprise needs, Internet service providers require low

                                       31
<PAGE>

cost, high performance solutions for both their internal networks and access to
the Internet. The exponential growth of Internet traffic, combined with the
business critical nature of the services that Internet service providers
provide, necessitates heightened requirements for reliability.

  Evolution of Network Solutions

  Early LANs consisted of hubs, which enabled multiple users to share network
resources, and software-based routers, which supported multiple protocols and
moved traffic around the network. Increased use of bandwidth-intensive
applications and a larger number of users strained these early network
infrastructures, making it increasingly difficult for them to handle new
applications while still performing at an acceptable speed. Network devices
known as Layer 2 switches replaced hubs to provide dedicated bandwidth to
users, while Fast Ethernet technology was introduced to provide data
transmission speeds of 100 Mbps, or ten times faster than original hubs.
Despite these improvements, the installed base of traditional routers, relying
on software to analyze network traffic, was unable to accommodate increased
data speeds and changing traffic patterns and became the new network
bottleneck.

  Two new technologies, Gigabit Ethernet, capable of data transmission speeds
of 1000 Mbps, and Layer 3 switching, evolved in parallel to handle growing and
unpredictable traffic patterns and address the performance needs of bandwidth-
intensive applications. Gigabit Ethernet is the most recent evolution of
Ethernet technology, which is the dominant LAN transmission technology with
more than 95% market share in 1998, according to the independent research firm,
Dell'Oro Group. Gigabit Ethernet-based Layer 3 switches combine Gigabit
transmission speeds with the forwarding capabilities of software-based routers.
In Layer 3 switches, the software forwarding capabilities that enabled early
routers to move traffic around the network are performed in hardware,
integrated on ASICs built into the switch. This integration enables
manufacturers to develop Layer 3 switches at lower costs while improving
network performance.

  Next Generation Needs and Solutions

  As enterprises and Internet service providers seek to accommodate network
user needs, adding bandwidth alone is not an adequate solution. Due to the
increased use of multiple traffic types for many applications, enterprises and
Internet service providers have an acute need for solutions that provide
network intelligence to distinguish among and prioritize different types of
traffic and regulate the network response to traffic. Particularly for Internet
service providers, network intelligence allows them to maintain network
reliability and offer differentiated, fee-based quality of service.

  To address these needs for network intelligence, a new class of device, Layer
4-7 switches, has emerged as a complement to the performance capabilities of
existing Layer 3 switches. These switches provide increased network
intelligence, and therefore greater network efficiency, by utilizing
information about the application and the end user. Both classes of switches
are necessary components of a comprehensive networking solution. Layer 3
switches provide the bandwidth and routing needed to support new applications
while Layer 4-7 switches give enterprises and Internet service providers the
intelligence to control information delivery. Key Layer 4-7 switching
capabilities include the ability to:

  .  enhance server performance and reliability by distributing traffic
     across multiple servers that support Internet applications;

  .  increase network security by detecting, stopping and identifying the
     source of a hacker attack;

                                       32
<PAGE>

  .  improve Internet response time by inspecting an end user's web site
     address and sending traffic to a specific server that hosts the desired
     content; and

  .  lreduce WAN operating costs and improve Internet response time by
     redirecting web traffic destined for remote Internet hosts to a group of
     local cache servers.

  The challenge to the networking company is to provide cost-effective, higher
bandwidth solutions and the increased intelligence required to meet new network
demands placed on enterprises and Internet service providers. Alternatives to
Gigabit Ethernet technology, such as asynchronous transfer mode, are complex
and expensive, and do not utilize existing networking investments or provide
network intelligence capabilities. Although existing Layer 2 and Layer 3
switches utilize Gigabit Ethernet technology, they often do not scale to span
the entire network or provide the performance required by today's network
users. Existing Layer 3 switches, although essential to the performance of the
network, do not incorporate the Layer 4-7 network intelligence capabilities
necessary to provide traffic direction.

  A large market has emerged for a broad range of high performance, cost-
effective switching solutions with network intelligence capabilities that
address the needs of enterprises and Internet service providers. Collaborative
Research, an independent research and consulting firm specializing in the Layer
4-7 switching market, estimates in a February 1999 report that the Layer 4-7
switching market totaled $130 million in 1998 and is expected to grow to $1.0
billion in 2002. Dell'Oro Group estimates in a March 1999 report that the Layer
3 switching market totaled $637 million in 1998 and is expected to increase to
$3.9 billion in 2002.

Solution

  We offer a comprehensive suite of Gigabit Ethernet Layer 2, Layer 3 and Layer
4-7 products for enterprises and Internet service providers. Our solution
provides the following benefits:

    Breadth of Product Line. We are one of the few networking companies to
  provide a full suite of Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7
  products applicable to LANs, MANs and WANs. This product breadth is
  attractive to customers who desire a single source for their high
  performance networking solutions. Our products allow us to provide
  solutions throughout a customer's network, from the wiring closet edge of
  an enterprise LAN to the LAN core, and from the WAN edge of an Internet
  service provider to its network of Internet servers.

    Performance. Our products provide a high level of performance and a non-
  blocking architecture across multiple types of networks. A non-blocking ar-
  chitecture allows all users attached to the switch to access the network
  simultaneously without any negative impact on performance. We believe that
  we currently offer the highest-performing non-blocking switches in the mar-
  ket. The performance of our products allows enterprises and Internet serv-
  ice providers to build highly reliable networks that support unpredictable
  traffic flows, bandwidth-intensive applications and dynamic end-user needs.

    Intelligence. Our products provide the intelligence required to transport
  unpredict- able traffic and bandwidth-intensive applications, improving the
  performance, reliability and manageability of networks. Our products direct
  traffic using information about the application and end user, enabling
  enterprises and Internet service providers to control information delivery
  and realize benefits such as increased revenue through application- or
  availability-based service fees.

                                       33
<PAGE>

    Leading Price Points. Our products are designed to offer superior
  performance and network intelligence capabilities at leading price points.
  According to the Tolly Group, an independent test firm, and Network World,
  an independent networking publication, our BigIron 4000 and 8000 products
  offer the best cost per Gigabit of throughput for Layer 3 Gigabit Ethernet
  switches. Unlike other low-priced switches that provide limited
  functionality, our products offer customers higher value for their
  networking equipment investment by providing a comprehensive feature set
  while maintaining low price points.

    Flexibility of Architecture. Our products are based on a uniform hardware
  architecture that is compatible with all major existing network products
  without any significant loss of performance or functionality. Our
  architecture is designed to support the emerging standards for 10 Gigabit
  Ethernet and Gigabit Ethernet over copper. Our architecture is also
  designed to support emerging technologies such as wave division
  multiplexing. As a result, our customers can integrate our products into
  their networks without an extensive and expensive replacement of their
  existing network components.

Strategy

  Our objective is to be the leading provider of next generation high
performance network solutions. We intend to achieve this objective by providing
a broad suite of the most cost-effective, highest-performing network switching
products for enterprises and Internet service providers. Key elements of our
strategy include:

    Leverage Product Breadth to Both Enterprises and Internet Service
  Providers. We intend to continue leveraging our comprehensive product
  breadth to offer solutions to the enterprise and Internet service provider
  markets. Our end-to-end network solution spans the LAN, MAN and LAN/WAN
  with high levels of performance and functionality, at leading price points.
  We intend to continue to offer value-added feature sets that provide for
  redundancy, ease of use and management of the network.

    Maintain a Market Leadership Position in Layer 4-7 Switches. We believe
  the demand for Layer 4-7 intelligent capabilities will be a very important
  growth area for Internet service providers and an area of increasing
  importance to enterprises. We intend to maintain a leadership position in
  this market by continually improving the performance and functionality of
  our Layer 4-7 products. Our products are designed to provide the
  performance and network intelligence capabilities that enable Internet
  service providers to rapidly deliver new revenue-generating applications
  and services to end-user customers, while providing a high degree of
  service reliability.

    Maintain Technology Leadership. We intend to maintain our technology
  leadership through continual enhancements of existing products and ongoing
  development of new products that provide higher levels of performance and
  intelligence. We also intend to pursue cost reduction efforts that will
  allow us to remain highly competitive while offering customers leading
  price points. We intend to ensure that our hardware and software
  architectures are flexible and extensible and are designed to support
  emerging technologies such as 10 Gigabit Ethernet, Gigabit Ethernet over
  copper and wave division multiplexing.

    Expand Global Sales Organization. We intend to expand our global sales
  presence with our direct sales organization in the United States, strategic
  channel partners outside the United States and select original equipment
  manufacturers. In addition, we intend to work with resellers in the United
  States to penetrate select vertical markets such as small Internet service
  providers. We intend to increase our worldwide sales force and establish
  additional channel partner relationships to build greater worldwide sales
  presence.

                                       34
<PAGE>

    Deliver World Class Service and Support. We intend to expand our service
  and support infrastructure to meet the needs of our growing customer base.
  Our goal is to minimize our customers' network downtime by offering a wide
  range of service and support programs to meet individual customer needs,
  including prompt onsite hardware repair and replacement, twenty-four hour,
  seven day-a-week web and telephone support, system software and network
  management software upgrades and technical documentation updates.

Products

  We provide a comprehensive line of network switches designed to meet the
price, performance, reliability and feature requirements of enterprises and
Internet service providers. Our product suite includes Gigabit Ethernet edge
switches, Gigabit Ethernet and Internet protocol over synchronous optical
network (also known as IP over SONET) core switches and Gigabit Ethernet
intelligent network service switches for server farms. Edge switches are used
to connect individuals and groups of workstations to the network. Core switches
are the most critical network component and serve as the convergence point for
the majority of network traffic. Layer 4-7 switches are used in server farms to
provide centralized collection points for server-based applications used by
enterprises and Internet service providers.

<TABLE>
<CAPTION>
  Product/First        Area of                                              List Price per Port
     Date of         Deployment/                                              (as of June 30,
     Shipment        Product Type      Configuration Options    Performance        1999)
-----------------------------------------------------------------------------------------------
  <S>             <C>                <C>                        <C>         <C>
  FastIron        LAN edge           24 10/100 Mbps ports          3 Mpps         $   149
  May 1997        Layer 2            24 10/100 Mbps ports                         $   199
                                     +1 Gigabit Ethernet port
                                     24 10/100 Mbps ports                         $   240
                                     + 2 Gigabit Ethernet ports
-----------------------------------------------------------------------------------------------

  FastIron II     LAN edge           72 10/100 Mbps ports         23 Mpps         $   195
  October 1998    Layer 2/3          + 2 Gigabit Ethernet ports

                                     72 10/100 Mbps ports                         $   243
                                     + 4 Gigabit Ethernet ports

                                     72 10/100 Mbps ports                         $   331
                                     + 8 Gigabit Ethernet ports
-----------------------------------------------------------------------------------------------
  NetIron         LAN edge and core  16 10/100 Mbps ports          3 Mpps         $   562
  June 1997       Layer 2/3          24 10/100 Mbps ports                         $   416
                                     1 Gigabit Ethernet port                      $ 1,995
                                     2 Gigabit Ethernet ports                     $ 1,847
-----------------------------------------------------------------------------------------------
  TurboIron/8     LAN edge and core  8 Gigabit Ethernet ports     12 Mpps         $ 1,249
  July 1998       Layer 2/3/4-7
-----------------------------------------------------------------------------------------------
  BigIron 4000    LAN edge and core  88 10/100 Mbps ports         48 Mpps         $   465
  August 1998     LAN/WAN edge       32 Gigabit Ethernet ports                    $ 2,280
                  Layer 2/3/4
-----------------------------------------------------------------------------------------------
  BigIron 8000    LAN edge and core, 184 10/100 Mbps ports        96 Mpps         $   450
  September 1998  LAN/WAN edge       64 Gigabit Ethernet ports                    $ 2,296
                  Layer 2/3/4

                                     2 port OC-3 IP over SONET                    $12,497

                                     4 port OC-3 IP over SONET                    $ 8,748

                                     2 port OC-12 IP over SONET                   $22,497
-----------------------------------------------------------------------------------------------
  ServerIron      LAN server farm    8 10/100 Mbps ports           3 Mpps         $   786
  April 1998      Layer 2/4-7        16 10/100 Mbps ports                         $   624
                                     24 10/100 Mbps ports                         $   791
</TABLE>


                                       35
<PAGE>

  Foundry Edge Switching Solutions

    FastIron. The FastIron workgroup switch provides Fast Ethernet and Giga-
  bit Ethernet switching. Designed to accelerate workgroup and server perfor-
  mance in enterprises, the FastIron workgroup switch offers redundancy,
  bandwidth management for delay-intensive applications and complete network
  management support.

    FastIron II. The FastIron II is a redundant, chassis-based wiring closet
  switch that offers non-blocking Fast Ethernet and Gigabit Ethernet
  performance of up to 23 million packets per second. FastIron II is offered
  in Layer 2 and Layer 3 configurations and supports all major industry
  standard routing protocols. This protocol support is necessary to ensure
  interoperability with installed enterprise applications and equipment.

  Foundry Switching Solutions for the Network Core

    NetIron and TurboIron/8. Our NetIron and TurboIron/8 switches allow small
  and medium-sized enterprises to increase performance at their network core
  with multi-protocol Layer 3 switching. NetIron provides Ethernet, Fast
  Ethernet and Gigabit Ethernet connectivity, while TurboIron/8 offers all
  Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switching. Both products
  support a full suite of industry standard routing protocols. We also offer
  multi-layer switching that enables NetIron and TurboIron/8 switches to
  transparently perform processing-intensive Internet protocol and Internet
  protocol exchange (IPX) traffic forwarding, freeing existing routers to
  handle non-IP and IPX traffic and to manage and communicate with other
  routers. This capability reduces the workload of routers and the need for
  costly upgrades, and improves the overall network performance.

    BigIron 4000 and BigIron 8000. Our BigIron 4000 and BigIron 8000 switches
  are designed for the core of large enterprises and Internet service
  providers. BigIron switches can be deployed in collapsed backbone data
  centers and server farms of local area and metropolitan area networks.
  BigIron also can be used as a high performance local and wide area network
  router. BigIron provides Ethernet, Fast Ethernet and Gigabit Ethernet Layer
  2, Layer 3 and Layer 4 switching, multi-protocol support and Packet over
  SONET on a single platform. We believe our BigIron switches provide the
  industry's highest non-blocking Gigabit Ethernet port density and
  performance with up to 64 Gigabit Ethernet ports and 96 million packets per
  second performance. In addition to supporting the full range of industry
  standard routing protocols, BigIron supports BGP4, a necessary protocol for
  Internet service providers that require high performance connectivity to
  the Internet.

  Foundry Intelligent Network Service Switching Solutions for the Server Farm

    ServerIron. Our ServerIron switch provides Internet service providers and
  enterprises with high performance Layer 4-7 switching that improves the
  availability, performance and scalability of Internet services such as
  content publishing, web hosting and e-commerce. ServerIron is compatible
  with all major server vendors and operating systems and requires no special
  server agent software. As a switch-based hardware platform, ServerIron is
  designed to provide the high performance, high port density, scalable
  capacity and multiple levels of redundancy required by users of mission
  critical Internet applications. Our TurboIron/8 switch can also be upgraded
  with Layer 4-7 capabilities.

  IronView Network Management Solutions

    IronView. Our IronView network management solution provides a
  comprehensive set of easy-to-use tools to simplify management of our
  switches. A command line interface streamlines local and remote management
  and configuration. Industry standard simple

                                       36
<PAGE>

network management protocol and configuration applications are available on
major platforms for graphical user interface management, including HP OpenView
for Sun Solaris, Windows NT and stand-alone Windows NT. Our switches also
include a user-friendly web interface. Industry standard remote monitoring
simplifies network monitoring and a mirror port is included for network tracing
and troubleshooting.

  Foundry's Product Awards

  Since inception, our products have received the following awards:

    FastIron: Network Magazine "1998 Gigabit Ethernet Product of the Year"
  award granted in April 1998, LAN Times "Best of LAN Times" award granted in
  October 1997 and Network Computing "Editor's Choice" award granted in Octo-
  ber 1997.

    FastIron II: Network Computing "Editor's Choice" award for mid-range
  Layer 3 switches granted in March 1999.

    NetIron: Network Computing "Editor's Choice" award granted in January
  1998 for Layer 3 switches and Data Communications "Tester's Choice" award
  granted in November 1997.

    BigIron: Rated by PC Week as the highest performing Gigabit chassis
  switch in February 1999; Data Communications "Tester's Choice" award
  granted in November 1998 and Business Communications "Best-in-Test" award
  granted in September 1998.

    ServerIron: Network Week "Infrastructure Product of the Year" award
  granted in June 1999 and Network Computing "Flying Colors" award granted in
  June 1998.

Hardware and Software Architecture

  IronCore

  All of our products are based on the IronCore hardware architecture. IronCore
allows us to provide customers with consistent performance, reliability and
features, as well as the ability to leverage their networking equipment
investment. The IronCore architecture also allows us to quickly bring new
products to market that meet customer needs and interoperate with existing
networking equipment.

  The IronCore architecture reflects our expertise in custom designed
programmable ASICs. These ASICs provide high performance and integrated Layer
2, Layer 3 and Layer 4 switching capabilities. This programmable design allows
us to offer customers the flexibility of field-upgradeable software features
without compromising performance. We have developed 13 custom ASICs used
throughout our product portfolio.

  The IronCore chassis architecture consists of a high-speed data highway that
incorporates a backplane and crosspoint switching fabric and supports up to
eight interface modules. The crosspoint switching fabric allows all lines of
communication to intersect with one another. Our implementation of the
crosspoint switching fabric includes custom designed, high speed ASICs that
provide throughput of up to 128 Gigabits and 96 million packets per second.
This amount of throughput allows each module connected to the switch to support
simultaneous communication among all workstations connected to the switch,
while all workstations connected to the switch can operate at maximum
performance. Therefore, IronCore allows enterprises and Internet service
providers to have dedicated access to the network at any time, using any
application at the maximum speed.

                                       37
<PAGE>

  IronWare and Internet IronWare Software

  Our IronWare and Internet IronWare software work with the IronCore hardware
architecture to provide high performance switching. IronWare, which is pre-
installed on our Layer 2 and Layer 3 products, provides network design
flexibility, multiple levels of redundancy for reliability and support for
current and future applications. Our Internet IronWare software provides
industry-leading intelligent switching capabilities, such as server load-
balancing and transparent cache switching, for our Layer 4-7 products.

Customers

  The following table is a representative list of companies that have purchased
over $100,000 of Foundry products since January 1, 1998.

<TABLE>
<CAPTION>
Enterprises               Enterprises                        Internet Service Providers
-----------               -----------                        --------------------------
<S>                       <C>                                <C>
Arlington Public Schools  Michigan State University          America Online
ATI Technologies          Mitsui & Co.                       AT&T Cerfnet
AXA Colonia               Netscape Communications            AT&T WorldNet
Brann Software            Network Appliance                  Cable & Wireless
Carnival Cruise Lines     Nextel Communications              France Telecom
Cendant Corporation       Ontario Ministry of Finance        MindSpring Enterprises
DLJdirect                 Paramount Pictures                 None Networks
Dubai Ministry of Labor   Parkedale Pharmaceuticals          Sprint
and Social Affairs
Ericsson                  Samsung Electronics                Telewest Communications
First Union               San Francisco Newspaper Agency     ThruNet
Fort James Paper          Sun Microsystems                   Uunet Technologies
Fox Liberty Network       U.S. Army (Redstone Arsenal)       Verio
Goto.com                  United States Bureau of Land
                          Management
Harris Corporation        Universal Computer Systems
Hewlett-Packard           University of Miami
ibeam Broadcasting        University of Oklahoma
Incyte Pharmaceuticals    University of Washington
LTV Steel Co.             University of Washington Medical
                          Center
McKinsey & Company        Veritas Software
                          Wright Patterson Air Force Base
                          Xoom.com
</TABLE>

Customer Case Studies

  Internet Service Provider

    America Online. America Online required a high performance switch
  solution to support its growth and enhance members' online experience. AOL
  selected us as its primary supplier of Ethernet, Fast Ethernet and Gigabit
  Ethernet Layer 2 and Layer 4 switches based upon functionality, port
  density, management, price and the responsiveness of our service and
  technical organization. Our FastIron workgroup switches, as well as our
  FastIron II switches, are deployed in fully redundant configurations to
  efficiently and reliably manage the extremely large traffic volumes that
  traverse AOL's network. Our ServerIron Layer 4-7 switches provide server
  load balancing capabilities that enable AOL to improve server performance
  and run higher capacity sites. In addition to front ending AOL.com, our
  switches support AOL Internet services such as Digital City, a popular
  local content network and community guide and ICQ, an instant
  communications and chat technology on the Internet.

  Higher Education

    The University of Oklahoma. The University of Oklahoma enrolls more than
  25,000 students and has approximately 1,830 full-time faculty members. The
  university's goal was

                                       38
<PAGE>

  to build a cost-effective, switched local area network that would support
  distance learning via web archived classes and, in the future, real-time
  video on demand. All incoming engineering students are required to purchase
  laptop computers for connectivity to the university's local area network.
  Classes are videotaped and accessible via a web archive. Video on demand
  will enable students to dial into a class in progress. After evaluating
  numerous Gigabit Ethernet vendors, they chose us based on price, features
  and support. The network includes our FastIron workgroup switches at the
  edge and BigIron 4000 switches in the core. Each FastIron workgroup switch
  is connected to video on demand servers and linked together via Gigabit
  Ethernet to provide a high performance, cost-effective solution.

  Service Industry

    Carnival Cruise Lines. Carnival Cruise Lines wanted to provide passengers
  on its Sensation Superliner ships with in-room interactive video services.
  Carnival selected us to provide the necessary network infrastructure based
  on our ability to provide a high performance, attractively priced multicast
  solution in a small physical space. Carnival installed a BigIron 4000 in
  the broadcast center and FastIron II switches throughout the ship. Our
  solution provides reliable high-speed connectivity to 1,024 passenger
  cabins and supports 1,000 simultaneous interactive sessions and up to 300
  concurrent video streams. Passengers use a web-like browser interface on
  the television set to choose from a selection of movies, video on demand,
  and music stations and make shore excursion reservations.

  Government

    The United States Army Aviation and Missile Command (Redstone
  Arsenal). The United States Army Aviation and Missile Command (Redstone
  Arsenal) develops, acquires, fields and sustains aviation and missile
  systems for the Army. The Redstone Technical Test Center tests weapons
  systems using computer simulation and modeling applications. The
  organization required a cost-effective, high-speed network to support more
  than 500 nodes. Redstone Arsenal evaluated ATM technology but selected our
  Gigabit Ethernet solution based on cost, bandwidth capabilities and ease of
  use. RedStone Arsenal installed a BigIron 4000 in the network core to
  interconnect 10 of the facility's test centers via Gigabit Ethernet. A
  TurboIron switch connects three additional test areas via Gigabit Ethernet
  and aggregates traffic into the BigIron 4000.

                                       39
<PAGE>

Sales and Marketing

  Our sales strategy includes a domestic and international field sales
organization, domestic and international resellers and a key OEM relationship.

    Domestic field sales. Our domestic field organization establishes and
  maintains direct relationships with key accounts and strategic customers.
  To a lesser extent, our field organization also works with resellers to
  assist in communicating product benefits to end user customers and
  proposing networking solutions. As of June 30, 1999, our field organization
  included over 23 sales representatives and system engineers. In addition,
  as of June 30, 1999, we maintained field offices in 20 major metropolitan
  areas in the United States.

    Domestic resellers. Our domestic resellers include regional networking
  system resellers and vertical resellers who focus on specific markets such
  as small Internet service providers. We provide sales and marketing
  assistance and training to our resellers, who in turn provide first level
  support to end-user customers. We intend to leverage our relationship with
  key resellers to penetrate select vertical markets.

    International sales. Product fulfillment and first level support are
  provided by resellers and integrators. Our international resellers include
  Mitsui in Japan, Samsung in Korea, Mitech in the United Kingdom, Boreal in
  France and Pan Dacom in Germany. We also provide field support in key
  Canadian, European and Asia Pacific locations including Toronto, London,
  Paris, Frankfurt, Munich and Taipei. We intend to expand our international
  presence through additional sales and engineering personnel and through the
  addition of key resellers and integrators.

    OEM. We established an OEM relationship with Hewlett-Packard in January
  1999. Pursuant to our agreement, Hewlett-Packard markets and sells our
  products on a private label basis through its worldwide sales force.
  Hewlett-Packard also purchases our products for use in its internal
  networks. For the six months ended June 30, 1999, sales to Hewlett-Packard
  accounted for 15% of our revenue.

    Marketing programs. We have numerous marketing programs designed to
  inform existing and potential customers, as well as resellers and OEMs,
  about the capabilities and benefits of our company and products. Our
  marketing efforts also support the sale and distribution of our products
  through our field organizations and channels. Our marketing efforts include
  advertising, public relations, participation in industry trade shows and
  conferences, participation in independent third-party product tests,
  presentations and our web site. We have begun an e-commerce initiative
  directed at existing customers and resellers.

Customer Service and Support

  Our service and support organization maintains and supports our products sold
by our field organization to end users. Our resellers and OEM are responsible
for installation, maintenance and support services to their customers. We may
offer limited assistance to our resellers and OEM in providing service and
support to their end user customers.

  TechNet, our comprehensive suite of service and support options, provides
customers with a variety of programs to meet specific support needs. TechNet
Gold gives customer network operations the highest level of priority and our
full range of services. TechNet Silver provides customers with all the tools
needed to optimize network performance and uptime. TechNet Bronze extends
warranty support with software updates and telephone and online support.

                                       40
<PAGE>

Manufacturing

  We operate under a modified "turn key" process utilizing strategic
manufacturing partners that are ISO 9000 certified and have global
manufacturing capabilities. We maintain control and procurement responsibility
for all proprietary components. All designs, documentation, selection of
approved suppliers, quality control and repairs are performed at our
facilities. In the first quarter of 1999, we began transitioning our assembly
and testing functions from our Sunnyvale facility to one of our manufacturing
partners in order to realize lower costs and higher volume efficiencies. Our
approach to manufacturing provides the flexibility of outsourcing while
maintaining quality control of delivered products to customers. We have
selected this approach to ensure our ability to respond to rapid growth and
sudden market shifts.

  We currently have two primary manufacturing partners. One partner, Celestica-
Asia, located in San Jose, California, assembles and tests our printed circuit
boards. The other partner, Hadco, located in Santa Clara, California, assembles
and tests our backplane products. Both companies are ISO certified and have
global manufacturing facilities providing full back-up capability and local
content for foreign sales if required. We perform all prototype and pre-
production procurement and component qualification with support from our
manufacturing partners. Any interruptions in the operations of either of these
manufacturing partners or delays in their shipment of products would negatively
impact our ability to meet scheduled product deliveries to our customers. We
design all ASICs, printed circuit boards and sheet metal while working closely
with semiconductor partners on future component selection and design support.
All materials used in our products are processed through a full qualification
cycle and controlled by use of an "Approved Vendor Listing" that must be
followed by our sources. We perform extensive testing of all our products
including in-circuit testing of all printed circuit board assemblies, full
functional testing, 24 hour burn-in and power cycling at maximum and minimum
configuration levels. Please see "Risk Factors--Our reliance on third- party
manufacturing vendors to manufacture our products may cause a delay in our
ability to fill orders."

Research and Development

  Our future success depends on our ability to enhance existing products and
develop new products that enable us to maintain a technology lead. We work with
customers and prospects, as well as partners and industry research
organizations, to identify and implement new solutions that meet the current
and future needs of enterprises and Internet service providers. Whenever
possible, our products are based on industry standards to ensure
interoperability. We intend to continue to support emerging industry standards
integral to our product strategy.

  We use a uniform architecture across our product line, including programmable
ASICs, and system and network management software. This enables us to quickly
bring new products and features to market. For example, we shipped the
industry's first Gigabit Ethernet Layer 2 and Layer 3 switch in June 1997. We
are currently developing new switching solutions that provide new levels of
performance, scalability and functionality for the LAN, MAN and LAN/WAN. We
also have engineering efforts focused on cost reduction.

  As of June 30, 1999, we had an engineering staff of 33 responsible for
hardware design and development, architecture and software development,
documentation and quality assurance. Our research and development expenses
totaled $8.8 million in 1998, $5.4 million in 1997 and $1.9 million in 1996.

                                       41
<PAGE>

Competition

  We believe that we compete favorably in the key competitive factors that
impact our markets, including technical expertise, price points, new product
innovation, product features, service and support, brand awareness and
distribution. We intend to remain competitive through ongoing investment in
research and development efforts to enhance existing products and introduce new
products. We will seek to expand our market presence through aggressive
marketing and sales efforts and through the continued implementation of cost
reduction efforts. However, our market is still evolving and we may not be able
to compete successfully against current and future competitors.

  The market in which we operate is highly competitive. Cisco maintains a
dominant position in this market and several of its products compete directly
with our products. Its substantial resources and market dominance have enabled
it to reduce prices on its products within a short period of time following the
introduction of these products, which reduces the margins and profitability of
its competitors. Purchasers of networking solutions may choose Cisco's products
because of its longer operating history, broad product line and strong
reputation in the networking market. In addition, Cisco may have developed or
could in the future develop new technologies that directly compete with our
products or render our products obsolete.

  In addition to Cisco, we compete with other large public companies, such as
3Com and Nortel Networks, as well as other smaller public and private
companies. Many of our current and potential competitors have longer operating
histories and substantially greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and larger installed
customer bases than we do. Furthermore, companies that do not offer a directly
competitive product to our products could develop new products or enter into
agreements with other networking companies to provide a product that competes
with our products or provides a more complete solution than we can offer.
Additionally, we may face competition from unknown companies and emerging
technologies that may offer new LAN, MAN and LAN/WAN solutions to enterprises
and Internet service providers.

Intellectual Property

  Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We rely on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. We do not own any patents nor do we
have any patent applications pending. We may not have taken actions that
adequately protect our intellectual property rights.

  We provide software to customers under license agreements included in the
packaged software. These agreements are not negotiated with or signed by the
licensee, and thus may not be enforceable in some jurisdictions. Despite our
efforts to protect our proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and
use our products or technology. These precautions may not prevent
misappropriation or infringement of our intellectual property. Monitoring
unauthorized use of our products is difficult and the steps we have taken may
not prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.

                                       42
<PAGE>

  Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the
networking markets have extensive patent portfolios with respect to networking
technology, while we do not currently own any patents or have any patent
applications pending. From time to time, third parties, including leading
companies, have asserted and may assert exclusive patent, copyright, trademark
and other intellectual property rights to technologies and related standards
that are important to us. Third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products. Any of these claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management
personnel, or require us to develop non-infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if
required, may not be available on acceptable terms, if at all. If there is a
successful claim of infringement or if we fail to develop non-infringing
technology or license the proprietary rights on a timely basis, our business
would be harmed.

Employees

  As of June 30, 1999, we had 131 employees, including 64 in sales and
marketing, 33 in engineering, 23 in manufacturing and 11 in general and
administrative functions. We are not subject to any collective bargaining
agreements and believe our employee relations are good.

Facilities

  In June 1999, we leased approximately 9,500 additional square feet in our
current facility primarily for the expansion of our manufacturing capabilities.
This lease expires at the end of February 2000. Prior to that date we leased
approximately 18,000 square feet for our corporate headquarters which includes
research and development, sales and marketing, general and administrative and
manufacturing. This lease expires in November 2001. We also lease space in
various other geographic locations for sales and service personnel.

                                       43
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

  The names and ages of our executive officers and directors as of June 30,
1999 are as follows:

<TABLE>
<CAPTION>
 Name                           Age Position
 ----                           --- --------
 <C>                            <C> <S>
 Bobby R. Johnson, Jr.........   42 President, Chief Executive Officer, and
                                    Chairman of the Board of Directors
 H. Earl Ferguson.............   61 Vice President, Hardware Engineering
 Drusilla W. Demopoulos.......   38 Vice President, Marketing
 Timothy D. Heffner...........   50 Vice President, Finance and Administration,
                                    Chief Financial Officer
 Ken K. Cheng.................   44 Vice President, Product and Program
                                    Management
 Wilburn W. McGill............   56 Vice President, Manufacturing
 Robert W. Shackleton.........   48 Vice President, North American Sales
 William S. Kallaos...........   51 Vice President, International Sales
 Seth D. Neiman(a)............   45 Director
 Andrew K. Ludwick(a).........   53 Director
</TABLE>
--------
(a) Member of Audit Committee and Compensation Committee

  Bobby R. Johnson, Jr. co-founded Foundry and has served as President, Chief
Executive Officer and Chairman of the board of directors of Foundry since its
inception in May 1996. From August 1993 to October 1995, Mr. Johnson co-founded
and served as President, Chief Executive Officer and Chairman of the board of
directors of Centillion Networks, Inc., a provider of local area network
switches. From September 1991 to February 1993, Mr. Johnson was Vice President
and General Manager of Internetworking Hardware for Network Equipment
Technologies, a wide area networking company. Mr. Johnson holds a B.S. with
honors from North Carolina State University.

  H. Earl Ferguson co-founded Foundry and has served as Vice President,
Hardware Engineering, and chief technical officer of Foundry since July 1996.
From August 1993 to February 1996, Mr. Ferguson was co-founder and Vice
President of Engineering of Centillion Networks and the Vice President of
Engineering for the Centillion Business Unit of Bay Networks. From December
1991 to February 1993, Mr. Ferguson was Director of Internetworking Hardware
for Network Equipment Technologies. Mr. Ferguson holds six patents in
internetworking technologies. Mr. Ferguson holds a B.S. from the University of
Washington and M.S. from the University of Michigan.

  Drusilla W. Demopoulos has served as Vice President of Marketing of Foundry
since November 1996. From April 1994 to October 1996, Ms. Demopoulos was
Director of Marketing for Centillion Networks, and for the Centillion Business
Unit of Bay Networks. From January 1991 to March 1994, she was Senior Manager
of Public Relations for Network Equipment Technologies. Ms. Demopoulos holds a
B.A. with honors from Georgia State University.

  Timothy D. Heffner has served as Vice President, Finance and Administration
and Chief Financial Officer of Foundry since November 1996. From September 1994
to November 1996, Mr. Heffner was Director of Finance for Centillion Networks
and for the Centillion Business Unit of Bay Networks. From January 1994 to
September 1994, Mr. Heffner was Chief Financial Officer of Digital Generation
Systems, a network services company. Mr. Heffner holds a B.S. from San Jose
State University.

                                       44
<PAGE>

  Ken K. Cheng has served as Vice President of Product and Program Management
of Foundry since July 1998. From December 1993 to July 1998, Mr. Cheng was
Senior Vice President and Chief Operating Officer of Digital Generation
Systems, a network services company. From December 1988 to December 1993, Mr.
Cheng was Director of LAN/WAN Internetworking Hardware for Network Equipment
Technologies. Mr. Cheng holds a B.S. from Queen's University and an M.B.A. from
Santa Clara University.

  Wilburn W. McGill has served as Vice President of Manufacturing of Foundry
since February 1997. From March 1996 to February 1997, Mr. McGill was the Vice
President of Operations at Ancot Corporation, a networking analyzer company.
From May 1995 to March 1996, Mr. McGill was Vice President of Engineering and
Operations for DTC Data Technology Corporation, a network interface card
company. From January 1990 to February 1994, Mr. McGill was General Manager for
the Research and Development Division of Centera Ltd., a networking solutions
company.

  Robert W. Shackleton has served as Vice President of North American Sales of
Foundry since April 1997. From March 1989 to March 1997, Mr. Shackleton was
Senior Director of United States Distribution and Sales for Network Equipment
Technologies. Mr. Shackleton holds a B.A. with honors from the University of
Colorado and attended Stanford University's Business School Executive
Management Program.

  William S. Kallaos has served as Vice President of International Sales of
Foundry since April 1997. From September 1984 to February 1997, Mr. Kallaos
worked for UB Networks in a variety of positions, most recently as Vice
President of United States Sales. Mr. Kallaos holds a B.A. with honors from the
University of Missouri.

  Seth D. Neiman has served as a member of the board of directors of Foundry
since its inception in May 1996. Since August 1994, Mr. Neiman has held various
positions at Crosspoint Venture Partners, a venture capital firm, and has been
a partner of Crosspoint since January 1996. From September 1991 to July 1994,
Mr. Neiman was Vice President of Engineering at Coactive Networks, a local area
networks company. Mr. Neiman serves on the board of Brocade Communications
Systems, Inc., where he is Chairman of the Board. Mr. Neiman holds a B.A. from
Ohio State University.

  Andrew K. Ludwick has served as a member of the board of directors of Foundry
since May 1999. From September 1995 to October 1997, Mr. Ludwick was Chief
Executive Officer of Bay Networks, a networking company. From July 1985 to
September 1995, Mr. Ludwick was founder, President and Chief Executive Officer
of SynOptics, an internetworking company. Mr. Ludwick currently serves as a
member of the boards of directors of a number of private companies. Mr. Ludwick
holds a B.A. from Harvard College and an M.B.A. from Harvard Business School.

Board Composition

  Upon completion of this offering, we will have an authorized board of three
to five directors. The number of our directors is currently set at three. Each
director is elected for a period of one year at our annual meeting of
stockholders and serves until the next annual meeting or until his successor is
duly elected and qualified. The executive officers serve at the discretion of
the board of directors. There are no family relationships among any of our
directors or executive officers.

                                       45
<PAGE>

Executive Compensation

  The following table provides summary information concerning the compensation
received for services rendered to us during 1998 by our Chief Executive Officer
and each of the other four most highly compensated executive officers, each of
whose aggregate compensation during our last fiscal year exceeded $100,000
(collectively, the "Named Executive Officers").

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                         Long-Term
                                                        Compensation
                              Annual Compensation          Awards
                         -----------------------------  ------------
                                          Other Annual   Securities   All Other
Name and Principal        Salary   Bonus  Compensation   Underlying  Compensation
Position                   ($)      ($)       ($)       Options (#)     ($)(a)
------------------       -------- ------- ------------  ------------ ------------
<S>                      <C>      <C>     <C>           <C>          <C>
Bobby R. Johnson, Jr...  $139,090 $    --   $    --            --        $470
 President, Chief
 Executive Officer,
 Chairman of the Board
 of Directors
Robert W. Shackleton...   111,590   2,500    74,112(b)      7,500         504
 Vice President,
 Domestic Sales
William S. Kallaos.....   109,090      --    35,821(b)         --         370
 Vice President,
 International Sales
Wilburn W. McGill......   125,090  11,500    12,830(c)     15,000         430
 Vice President,
 Manufacturing
Drusilla W.
 Demopoulos............   119,840   2,500        --            --         407
 Vice President,
 Marketing
</TABLE>
--------
(a) Represents premiums paid for life insurance.
(b) Represents commissions paid based on total sales.
(c) Represents partial forgiveness by Foundry of loans and interest outstanding
    under loans made to Mr. McGill in connection with the exercise of options.

Option Grants in Last Fiscal Year

  The following table provides summary information regarding stock options
granted to each of the Named Executive Officers in 1998.

<TABLE>
<CAPTION>
                                         Individual Grants
                          -----------------------------------------------
                                                                           Potential Realizable
                                      % Of Total                             Value At Assumed
                          Number Of    Options                            Annual Rates of Stock
                          Securities  Granted To                            Price Appreciation
                          Underlying Employees In Exercise Or             For Option Term ($)(d)
                           Options   Fiscal Year   Base Price  Expiration ----------------------
Name                      Granted(#)    (%)(a)    ($/Share)(b)  Date(c)       5%         10%
----                      ---------- ------------ ------------ ---------- ---------- -----------
<S>                       <C>        <C>          <C>          <C>        <C>        <C>
Bobby R. Johnson, Jr....        --        --%        $  --           --   $       -- $        --
Robert W. Shackleton....     7,500       0.3          0.50      6/10/08        2,358       5,977
William S. Kallaos......        --        --            --           --           --          --
Wilburn W. McGill.......    15,000       0.6          0.50      4/29/08        4,717      11,953
Drusilla W. Demopoulos..        --        --            --           --           --          --
</TABLE>
--------
(a) Based on the aggregate of 2,722,500 shares subject to options granted by us
    in 1998.
(b) The exercise price per share of each option was equal to the fair market
    value of our common stock on the date of grant as determined by our board
    of directors.

                                       46
<PAGE>

(c) These stock options were granted under the 1996 Stock Plan and were
    immediately exercisable. These options were exercised prior to December 31,
    1998, but we have a right to repurchase at cost any shares that remain
    unvested at the time of the officer's cessation of employment. The shares
    vest at a rate of 1/48th per month subject to earlier termination in the
    event of termination of employment and provide for partial acceleration
    upon a change of control.
(d) The potential realizable value assumes that the fair market value of our
    common stock on the date of grant appreciates at the indicated annual rate
    compounded annually for the entire 10-year term of the option and that the
    option is exercised and sold on the last day of its term for the
    appreciated stock price. The 5% and 10% assumed annual rates of compounded
    stock price appreciation are mandated by the rules of the SEC, and do not
    represent our prediction of stock performance. Actual gains, if any, on
    stock option exercises will depend on the future performance of our common
    stock. The gains shown are net of the option exercise price, but do not
    include deductions for taxes and other expenses payable upon the exercise
    of the option or for sale of underlying shares of common stock.

  On January 26, 1999 the board of directors authorized the grant of options to
the following Named Executive Officers, at an exercise price of $2.50 per
share: Drusilla W. Demopoulos, 28,000 shares; Robert W. Shackleton, 50,000
shares; and Wilburn W. McGill, 75,000 shares. These options were granted
outside of the 1996 Stock Plan, but the exercise and repurchase rights of the
options are substantially similar to those granted officers in 1998 under the
1996 Stock Plan.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

  The following table provides summary information concerning stock option
exercises during our last fiscal year and options outstanding at the end of the
last fiscal year:

<TABLE>
<CAPTION>
                                               Number of Shares
                                                  Underlying     Value of Unexercised
                                                  Unexercised    In-the Money Options
                                                  Options at              at
                                               December 31, 1998 December 31, 1998(a)
                            Shares             ----------------- --------------------
                           Acquired    Value     Exercisable /      Exercisable /
Name                      on Exercise Realized   Unexercisable      Unexercisable
----                      ----------- --------   -------------   --------------------
<S>                       <C>         <C>      <C>               <C>
Bobby R. Johnson, Jr....        --    $    --          --                $--
Robert W. Shackleton....     7,500      3,750          --                 --
William S. Kallaos......        --         --          --                 --
Wilburn W. McGill.......    15,000      7,500          --                 --
Drusilla W. Demopoulos..    32,000     22,400          --                 --
</TABLE>
--------
(a) The value was calculated by determining the difference between the fair
    market value of underlying securities and the exercise price, multiplied by
    the number of shares issued upon exercise of the option. The fair market
    value of our common stock was $1.00 per share on December 31, 1998 as
    determined by our board of directors.

Director Compensation

  Except for the grant of stock options, directors are not compensated for
their services as directors. All directors are eligible to participate in our
1996 Stock Plan. Upon completion of this offering, directors who are not our
employees will be eligible to participate in our 1999 Directors' Stock Option
Plan. See "--1996 Stock Plan" and "--1999 Directors' Stock Option Plan."

  On June 28, 1999, Andrew K. Ludwick exercised a fully vested option to
purchase 160,000 shares of our common stock at an exercise price of $8.00 per
share which was granted to him in connection with his appointment as a member
of our board of directors.

Committees of the Board of Directors

  In July 1999, the board established the audit committee, compensation
committee and stock option subcommittee. The audit committee reviews our annual
audit and meets with our independent auditors to review our internal controls
and financial management practices. The

                                       47
<PAGE>

audit committee currently consists of Seth D. Neiman and Andrew K. Ludwick. The
compensation committee recommends compensation for some of our personnel to the
board and generally administers our stock plans. The compensation committee
currently consists of Messrs. Neiman and Ludwick. The stock option subcommittee
administers our discretionary stock plans with respect to grants to optionees
who are not officers or non-employee directors of Foundry under guidelines to
be established by the board. The stock option subcommittee currently consists
of Bobby R. Johnson, Jr.

  On June 9, 1999, we sold to a family trust of which Mr. Ludwick is a trustee
125,000 shares of our Series C preferred stock at a purchase price of $8.00 per
share.

Compensation Committee Interlocks and Insider Participation

  The members of the compensation committee of our board of directors are
currently Seth D. Neiman and Andrew K. Ludwick. Neither has at any time been an
officer or employee of Foundry.

1996 Stock Plan

  Our 1996 Stock Plan was adopted by our board of directors and approved by our
stockholders in July 1996. A total of 10,270,000 shares of common stock for
stock option grants were originally reserved under this plan. Our board of
directors and our stockholders approved a 1,000,000 share increase in October
1998, and a 1,000,000 share increase in May 1999. In addition, in July 1999,
our board of directors approved a 2,000,000 share increase plus an automatic
annual increase on the first day of each of Foundry's fiscal years from 2000
through 2006 equal to the lesser of:

  .  1,500,000 shares;

  .  3% of our outstanding common stock on the last day of the immediately
     preceding fiscal year; or

  .  the number of shares determined by our board of directors.

  The July 1999 increase will be submitted to our stockholders for approval
prior to the completion of this offering, and, if approved, will bring the
total number of shares currently reserved under this plan to 14,270,000. As of
June 30, 1999, options to purchase 12,608,000 shares of common stock with a
weighted average exercise price equal to $1.07 per share have been granted
under the 1996 Stock Plan. Of these, 633,334 options have been canceled and
returned to the option pool so that, as of June 30, 1999, 295,334 shares
remained available for future grant.

  The 1996 Stock Plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and the grant
of nonstatutory stock options and stock purchase rights to employees, non-
employee directors and consultants. The plan may be administered by our board
or a committee appointed by the board. The administrator of the 1996 Stock Plan
will determine number, vesting schedule, and exercise price for options, or
conditions for stock purchase rights, granted under the 1996 Stock Plan
provided, however, an individual employee may not receive option grants and
stock purchase rights for more than 1,000,000 shares in any fiscal year. To the
extent an optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for shares having an
aggregate fair market value in excess of $100,000 as of the date the options
were granted, the excess options will be treated as nonstatutory stock options.

                                       48
<PAGE>

  Incentive stock options granted under the 1996 Stock Plan must have an
exercise price equal to at least 100% of the fair market value of the common
stock on the date of the grant, and at least 110% of the fair market value in
the case of incentive stock options granted to an employee who holds more than
10% of the total voting power of all classes of our stock or the stock of any
parent or subsidiary. Nonstatutory stock options granted under the 1996 Stock
Plan will have an exercise price as determined by the administrator of the 1996
Stock Plan; provided, however, that the exercise price of a nonstatutory stock
option granted to a Named Executive Officer must equal at least 100% of the
fair market value of the common stock on the date of grant in order for that
grant to qualify as performance-based compensation under applicable tax law.
Payment of the exercise price may be made in cash or other forms of
consideration approved by the administrator.

  The administrator determines the term of options, which may not exceed 10
years, or 5 years in the case of an incentive stock option granted to an
employee who holds more than 10% of the total voting power of all classes of
our stock or the stock of any parent or subsidiary. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised during the lifetime of the optionee
only by such optionee.

  Options granted under the 1996 Stock Plan generally may be exercised
immediately after the grant date, but to the extent the shares subject to the
options are not vested as of the date of exercise, we retain a right to
repurchase any shares that remain unvested at the time of the optionee's
termination of employment by paying an amount equal to the exercise price times
the number of unvested shares. Options granted under the 1996 Stock Plan
generally vest at the rate of 1/4th of the total number of shares subject to
the options twelve months after the date of grant and 1/48th of the total
number of shares subject to the options each month thereafter.

  In addition to stock options, the administrator may issue stock purchase
rights under the 1996 Stock Plan to employees, non-employee directors and
consultants. The administrator determines the number of shares, price, terms,
conditions and restrictions related to a grant of stock purchase rights. The
purchase price of a stock purchase right granted under the 1996 Stock Plan will
be as determined by the administrator. The period during which the stock
purchase right is held open is determined by the administrator, but in no case
shall this period exceed 30 days. Unless the administrator determines
otherwise, the recipient of a stock purchaser right must execute a restricted
stock purchase agreement granting Foundry an option to repurchase unvested
shares at cost upon termination of the recipient's relationship with us.

  In the event we sell all or substantially all of our assets or merge with
another corporation, then each option may be assumed or an equivalent option
substituted by the successor corporation. However, if the successor corporation
does not agree to this assumption or substitution, the option or stock purchase
right will terminate. Upon the closing of the transaction, outstanding
repurchase rights will terminate unless acquired by the acquiror or purchaser.
The board of directors may amend, modify or terminate the 1996 Stock Plan at
any time as long as any amendment, modification or termination does not impair
vesting rights of plan participants and provided that stockholder approval
shall be required for an amendment to the extent required by applicable law.
The 1996 Stock Plan will terminate in July 2006 unless the board of directors
terminates it earlier.

1999 Directors' Stock Option Plan

  The 1999 Directors' Stock Option Plan was adopted by the board of directors
in July 1999. We will be submitting it for approval by the stockholders prior
to completion of this offering. A

                                       49
<PAGE>

total of 450,000 shares of common stock has been reserved for issuance under
the 1999 Directors' Stock Option Plan.

  Under the 1999 Directors' Stock Option Plan, each non-employee director who
becomes a non-employee director after the effective date of the plan will
receive an automatic initial grant of an option to purchase 75,000 shares of
common stock upon appointment or election. Initial grants to non-employee
directors shall be vested and exercisable in full on the date of the grant. The
1999 Directors' Stock Option Plan also provides for annual grants, on the date
of each annual meeting of our stockholders, to each non-employee director who
has served on our board of directors for at least six months. The annual grant
to non-employee directors is an option to purchase 20,000 shares of common
stock, which will be vested and exercisable in full on the date of grant. The
exercise price of all stock options granted under the 1999 Directors' Stock
Option Plan shall be equal to the fair market value of a share of our common
stock on the date of grant of the option. Options granted under the 1999
Directors' Stock Option Plan have a term of ten years. However, options will
terminate if they are not exercised within 12 months after the director's death
or disability or within 90 days after the director ceases to serve as a
director for any other reason.

  In the event of a sale of all or substantially all of our assets or our
merger or consolidation with or into another corporation in which the ownership
of more than 50% of the total combined voting power of our outstanding
securities changes hands, all outstanding options shall be assumed or an
equivalent option substituted by the successor corporation. However, if the
successor corporation does not agree to this assumption or substitution, the
option will terminate.

  The 1999 Directors' Stock Option Plan is designed to work automatically
without administration. However, to the extent administration is necessary, it
will be performed by the board of directors other than the director or
directors that have a personal interest at stake. Although the board of
directors may amend or terminate the 1999 Directors' Stock Option Plan, it may
not take any action that may adversely affect any outstanding option without
the consent of the optionee. The 1999 Directors' Stock Option Plan will have a
term of ten years unless terminated earlier. We have not issued any options
under the 1999 Directors' Stock Option Plan to date.

1999 Employee Stock Purchase Plan

  The 1999 Employee Stock Purchase Plan was adopted by the board of directors
in July 1999. We will be submitting it for approval by the stockholders prior
to the completion of this offering. A total of 500,000 shares of common stock
has been reserved for issuance under the 1999 Employee Stock Purchase Plan,
none of which have been issued as of the date of this offering. The number of
shares reserved for issuance under the 1999 Employee Stock Purchase Plan will
be increased on the first day of each of our fiscal years from 2000 through
2009 by the lesser of:

  .  500,000 shares;

  .  2% of our outstanding common stock on the last day of the immediately
     preceding fiscal year; or

  .  the number of shares determined by the board of directors.

  The 1999 Employee Stock Purchase Plan becomes effective on the date of this
prospectus. Unless terminated earlier by the board of directors, the 1999
Employee Stock Purchase Plan shall terminate on the 10-year anniversary of the
date of this offering.


                                       50
<PAGE>

  The 1999 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the IRS Code, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods, other than
the first offering period, commencing on February 1 and August 1 of each year.
Each offering period will consist of four consecutive purchase periods of six
months' duration, and at the end of each six month period an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on July 31, 2001; the initial
purchase period is expected to begin on the date of this offering and end on
January 31, 2000. The 1999 Employee Stock Purchase Plan will be administered by
the board of directors or by a committee appointed by the board. Employees
(including officers and employee directors) of ours, or of any majority-owned
subsidiary designated by the board, are eligible to participate in the 1999
Employee Stock Purchase Plan if we or any subsidiary employs them for at least
20 hours per week and more than five months per year. Under the 1999 Employee
Stock Purchase Plan, eligible employees may purchase common stock through
payroll deductions, which in any event may not exceed 20% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the common stock at the beginning of each offering period or at the end of each
purchase period. Employees may end their participation in the 1999 Employee
Stock Purchase Plan at any time during an offering period and participation
ends automatically on termination of employment.

  Under the 1999 Employee Stock Purchase Plan no employee shall be granted an
option if immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock. In addition, no employee shall be
granted an option under the 1999 Employee Stock Purchase Plan if the option
would permit the employee to purchase stock under all of our employee stock
purchase plans in an amount that exceeds $25,000 of fair market value for each
calendar year in which the option is outstanding at any time. In addition, no
employee may purchase more than 2,500 shares of common stock under the 1999
Employee Stock Purchase Plan in any one purchase period. If the fair market
value of the common stock on a purchase date other than the final purchase date
of an offering period is less than the fair market value at the beginning of
the offering period, each participant in the 1999 Employee Stock Purchase Plan
shall automatically be withdrawn from the offering period as of the purchase
date and re-enrolled in a new 24 month offering period beginning on the first
business day following the purchase date.

  The 1999 Employee Stock Purchase Plan provides that, in the event of our
merger or consolidation with or into another corporation or a sale of all or
substantially all of our assets, each right to purchase stock under the 1999
Employee Stock Purchase Plan will be assumed or an equivalent right will be
substituted by the successor corporation. However, our board of directors will
shorten any ongoing offering period so that employees' rights to purchase stock
under the 1999 Employee Stock Purchase Plan are exercised prior to the
transaction in the event that the successor corporation refuses to assume each
purchase right or to substitute an equivalent right. The board of directors has
the power to amend or terminate the 1999 Employee Stock Purchase Plan and to
change or terminate offering periods as long as any action does not adversely
affect any outstanding rights to purchase stock under the 1999 Employee Stock
Purchase Plan. However the board may amend or terminate the 1999 Employee Stock
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid Foundry's incurring adverse accounting
charges. We have not issued any shares under the 1999 Employee Stock Purchase
Plan to date.

                                       51
<PAGE>

401(k) Retirement Plan

  Effective January 1, 1997, we adopted the Foundry Networks 401(k) plan
covering our full-time employees. The 401(k) plan is intended to qualify under
Section 401(a) of the IRS Code, and its accompanying trust is intended to be a
tax-exempt trust under Section 501(c) of the IRS Code. Contributions to the
401(k) plan by employees or by us, and the investment earnings on them, are not
taxable to employees until withdrawn from the 401(k) plan, and contributions by
us, if any, will be deductible by us when made. Under the 401(k) plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit of $10,000 in 1999 and to have the amount
of such reduction contributed to the 401(k) plan. The trustees of the 401(k)
plan, at the direction of participants, invest the assets of the 401(k) plan in
any of certain designated investment options. The 401(k) plan permits, but does
not require, additional matching contributions to the 401(k) plan by us on
behalf of all participants to the 401(k) plan. To date, we have not made any
matching contributions to the 401(k) plan.

Limitation of Liability and Indemnification Matters

  Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:

  .  any breach of their duty of loyalty to the corporation or its
     stockholders;

  .  acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law;

  .  unlawful payments of dividends or unlawful stock repurchases or
     redemptions as provided in Section 174 of the Delaware General
     Corporation Law; or

  .  any transaction from which the director derives an improper personal
     benefit.

  This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
relief such as injunctive relief or rescission.

  Upon completion of this offering, our bylaws will provide that Foundry shall
indemnify its directors and officers and may indemnify its employees and other
agents to the full extent permitted by law. We believe that indemnification
under our bylaws will cover at least negligence and gross negligence on the
part of an indemnified party. Our bylaws will also permit us to advance
expenses incurred by an indemnified party in connection with the defense of any
action or proceeding arising out of the party's status or service as a
director, officer, employee or other agent of Foundry upon an undertaking by
the indemnified party to repay these advances if it is ultimately determined
that the party is not entitled to indemnification.

  We have also entered into indemnification agreements with our officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require us to indemnify
officers and directors against liabilities that may arise by reason of their
status or service as officers and directors, but not for liabilities arising
from willful misconduct of a culpable nature, and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. We believe that our certificate of incorporation and bylaw
provisions and indemnification agreements are

                                       52
<PAGE>

necessary to attract and retain qualified persons as officers and directors. In
addition, we will obtain directors' and officers' liability insurance prior to
completion of this offering.

  At present, we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.

                                       53
<PAGE>

                             PRINCIPAL STOCKHOLDERS

  The following table sets forth information regarding the beneficial ownership
of our common stock as of June 30, 1999 and as adjusted to reflect the sale of
the common stock offered by us under this prospectus by:

  . each of our directors, Named Executive Officers, and founders who are ex-
     ecutive officers;

  . all directors and executive officers as a group; and

  . each person who is known to us to own beneficially more than 5% of our
     common stock.

<TABLE>
<CAPTION>
                                                 Percent Beneficially
                                                         Owned
                                                 ------------------------
                                        Number     Before        After
Name and Address                      of Shares   Offering      Offering
----------------                      ---------- ----------    ----------
<S>                                   <C>        <C>           <C>
Directors and Executive Officers:
Bobby R. Johnson, Jr.................  8,050,000         23.8%
H. Earl Ferguson.....................  1,595,000          4.7
Drusilla W. Demopoulos (a)...........    600,000          1.8
Wilburn W. McGill (b)................    485,000          1.4
Robert W. Shackleton (c).............    492,500          1.5
William S. Kallaos (d)...............    405,000          1.2
Seth D. Neiman (e)...................  5,419,870         16.1
Andrew K. Ludwick (f)................    282,500            *
All directors and executive officers
 as a group (10 persons) (g)......... 18,284,870         53.8
5% Stockholders:
 Entities affiliated with Crosspoint
  Venture Partners (h)...............  5,419,870         16.1
  2925 Woodside Rd.
  Woodside, CA 94062
 Entities affiliated with
  Institutional Venture Partners
  (i)................................  3,045,206          9.0
  3000 Sand Hill Road
  Building 2, Suite 290
  Menlo Park, CA 94025
 Entities affiliated with Accel
  Partners (j).......................  2,340,505          6.9
  428 University Ave.
  Palo Alto, CA 94301
 Entities affiliated with
  VantagePoint Venture Partners (k)..  2,274,914          6.7
  1001 Bayhill Drive, Ste. 140
  San Bruno, CA 94066
</TABLE>
--------
  *  Less than one percent of the outstanding shares of common stock.
 (a) Includes 572,000 shares subject to stock pledge agreements in favor of
     Foundry, 211,250 of which are subject to our right of repurchase at cost
     upon cessation of employment, and 28,000 shares issuable upon the exercise
     of an option which was exercisable as of June 30, 1999.
 (b) Includes 410,000 shares subject to stock pledge agreements in favor of
     Foundry, 179,376 of which are subject to our right of repurchase at cost
     upon cessation of employment and 5,000 of which are held jointly with
     Billie J. McGill, and 75,000 shares issuable upon the exercise of an
     option which was exercisable as of June 30, 1999.
 (c) Includes 442,500 shares subject to stock pledge agreements in favor of
     Foundry, 205,000 of which are subject to our right of repurchase at cost
     upon cessation of employment, and 50,000 shares issuable upon the exercise
     of an option which was exercisable as of June 30, 1999.
 (d) Includes 405,000 shares subject to a stock pledge agreement in favor of
     Foundry, 185,625 of which are subject to our right of repurchase at cost
     upon cessation of employment.
 (e) Includes 3,873,478 shares held by Crosspoint Venture Partners (1996), and
     1,546,392 shares held by Crosspoint Venture Partners LS 1997. Seth D.
     Neiman is a general partner of the general partner of the Crosspoint
     entities and is a director of Foundry. He disclaims beneficial ownership
     of the shares held by the Crosspoint entities except to the extent of his
     pecuniary interest in these shares.

                                       54
<PAGE>

 (f) Includes 125,000 shares sold to a family trust of which Mr. Ludwick is a
     trustee and 5,000 shares transferred to his minor children and held in
     custodial accounts on their behalf.
 (g) Includes 5,419,870 shares held by entities affiliated with Mr. Neiman as
     described in Note (a), 3,539,689 shares subject to our right of repurchase
     upon cessation of employment by officers and 218,000 shares issuable upon
     the exercise of options which were exercisable as of June 30, 1999.
 (h) Includes 3,873,478 shares held by Crosspoint Venture Partners (1996) and
     1,546,392 shares held by Crosspoint Venture Partners LS 1997.
 (i) Includes 50,814 shares held by Institutional Venture Management VII, L.P.,
     106,584 shares held by IVP Founders Fund I, L.P. and 2,887,808 shares held
     by Institutional Venture Partners VII, L.P.
 (j) Includes 243,413 shares held by Accel Internet/Strategic Technology Fund
     L.P., 112,344 shares held by Accel Investors 97 L.P., 95,960 shares held
     by Accel Keiretsu V L.P., 1,837,297 shares held by Accel V L.P. and 51,491
     shares held by Elmore C. Patterson Partners.
 (k) Includes 34,364 shares held by VantagePoint Advisors, LLC and 2,240,550
     shares held by VantagePoint Venture Partners 1996.

  Except as otherwise noted, the address of each person listed in the table is
c/o Foundry Networks, Inc., 680 W. Maude Avenue, Suite 3, Sunnyvale, CA 94086.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned.

  The table includes all shares of common stock issuable within 60 days of June
30, 1999 upon the exercise of options and other rights beneficially owned by
the indicated stockholders on that date.

  The applicable percentage of ownership for each stockholder is based on
33,757,293 shares of common stock outstanding as of June 30, 1999, together
with applicable options for that stockholder. Shares of common stock issuable
upon exercise of options and other rights beneficially owned are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options and other rights, but are not deemed outstanding for
computing the percentage ownership of any other person.


                                       55
<PAGE>

                              CERTAIN TRANSACTIONS

  Since our inception, we have issued shares of preferred stock in private
placement transactions as follows: 5,750,000 shares of Series A preferred stock
at $1.00 per share in June 1996; 4,086,954 shares of Series B preferred stock
at $2.30 per share in June, August and December 1997; 5,154,642 shares of
Series C preferred stock at $2.91 per share in March 1998; and 125,000 shares
of Series C preferred stock at $8.00 per share in June 1999 to a family trust
of which Andrew K. Ludwick, a director of Foundry, is a trustee. Each share of
preferred stock converts automatically upon completion of the offering into one
share of common stock. In October 1996, we also issued in a private placement
transaction warrants for 30,000 shares of Series A preferred stock at a
purchase price of $1.00 per share, which will convert to warrants to purchase
common stock upon completion of this offering. See "Description of Capital
Stock--Warrants."

  The following table summarizes the shares of preferred stock purchased by
directors and 5% stockholders of Foundry and persons and entities associated
with them in private placement transactions.

<TABLE>
<CAPTION>
                                                 Series A  Series B  Series C
                                                 Preferred Preferred Preferred
Stockholders                                       Stock     Stock     Stock
------------                                     --------- --------- ---------
<S>                                              <C>       <C>       <C>
Entities affiliated with Crosspoint Venture
 Partners(a).................................... 3,330,000   543,478 1,546,392
Andrew K. Ludwick(b)............................                       125,000
Bobby R. Johnson, Jr.(c)........................   600,000
Entities affiliated with Institutional Venture
 Partners(d).................................... 1,420,000 1,195,652   429,554
Entities affiliated with Accel Partners(e)......           1,739,130   601,375
Entities affiliated with VantagePoint Venture
 Partners(f)....................................                     2,274,914
</TABLE>
--------
(a) Includes shares held by Crosspoint Venture Partners (1996) and Crosspoint
    Venture Partners LS 1997. Seth D. Neiman is a general partner of the
    general partner of the Crosspoint entities and is a director of Foundry. He
    disclaims beneficial ownership of the shares held by the entities except to
    the extent of his pecuniary interest in these shares.
(b) Includes 125,000 shares sold to a family trust of which Mr. Ludwick is a
    trustee and 2,500 shares transferred to one of his children.
(c) In June 1999, we repurchased 400,000 shares of our common stock from Mr.
    Johnson at his original purchase price of $0.01 per share.
(d) Includes shares held by Institutional Venture Management VII, L.P., IVP
    Founders Fund I, L.P. Fund I, L.P. and Institutional Venture Partners VII,
    L.P.
(e) Includes shares held by Accel Internet/Strategic Technology Fund L.P.,
    Accel Investors '97 L.P., Accel Keiretsu V L.P., Accel V L.P. and Elmore C.
    Patterson Partners.
(f) Includes shares held by VantagePoint Advisors, LLC and VantagePoint Venture
    Partners 1996.

  On June 6, 1996, we sold Bobby R. Johnson, Jr. 7,850,000 shares of our common
stock at a purchase price of $0.01 per share, paid for by Mr. Johnson through
(a) the assignment of proprietary information, discussed below, and (b) the
cancellation of debt owed to Mr. Johnson. Under the agreement, we held the
right to repurchase any shares that remained unvested upon either a voluntary
termination of employment by Mr. Johnson or a termination by us for cause. 25%
of the stock vested as of May 22, 1996, and the remaining shares vested monthly
over each of the next 48 months. Also on June 6, 1996, and in connection with
the stock sale discussed above, Mr. Johnson executed an assignment agreement,
in which he assigned to us certain business concepts and proprietary
information relating to the development of next generation high performance
campus LAN infrastructure products. In June 1999, we repurchased 400,000 shares
of our common stock from Mr. Johnson at his original purchase price of $0.01
per share.

                                       56
<PAGE>

  On December 4, 1996, we granted Drusilla W. Demopoulos an option to purchase
540,000 shares of our common stock at an exercise price of $0.10 per share
under our 1996 Stock Plan. This option was immediately exercisable subject to
our right to repurchase at cost any shares that remain unvested upon cessation
of employment. In connection with the exercise of this option on June 25, 1997,
we provided a loan to Ms. Demopoulos, pursuant to a note secured by a stock
pledge agreement, in the principal amount of $54,000 with an interest rate of
6.68%, due upon the earlier of June 25, 2002 or twelve months after the closing
of Foundry's initial public offering. On December 17, 1997, we granted Ms.
Demopoulos an option to purchase 32,000 shares of our common stock at an
exercise price of $0.30 per share under our 1996 Stock Plan. This option was
immediately exercisable subject to our right to repurchase at cost any shares
that remain unvested upon cessation of employment. In connection with the
exercise of this option on April 29, 1998, we provided a second loan to
Ms. Demopoulos, pursuant to a note secured by a stock pledge agreement, in the
principal amount of $9,600 with an interest rate of 5.58%, due upon the earlier
of April 28, 2003 or twelve months after the closing of Foundry's initial
public offering.

  On August 11, 1998, we granted Ken K. Cheng an option to purchase 415,000
shares of our common stock at an exercise price of $0.50 per share under our
1996 Stock Plan. This option was immediately exercisable subject to our right
to repurchase at cost any shares that remain unvested upon cessation of
employment. In connection with the exercise of this option on October 6, 1998,
we provided a loan to Mr. Cheng, pursuant to a note secured by a stock pledge
agreement, in the principal amount of $207,458 with an interest rate of 5.03%,
due upon the earlier of October 5, 2003 or twelve months after the closing of
Foundry's initial public offering.

  On June 28, 1999, Andrew K. Ludwick exercised a fully vested option to
purchase 160,000 shares of our common stock at an exercise price of $8.00 per
share granted him in connection with his appointment as a member of our board
of directors. On June 9, 1999, we sold to a family trust of which Mr. Ludwick
is a trustee, 125,000 shares of our Series C preferred stock at a purchase
price of $8.00 per share.

Indemnification Agreements

  We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. See "Management--Limitation of Liability
and Indemnification Matters."

                                       57
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

General Matters

  Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.0001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.0001 par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.

  The following description of our capital stock is not complete and is
qualified in its entirety by our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.

Common Stock

  As of June 30, 1999, and after giving effect to the conversion of our
preferred stock into common stock at a one-to-one ratio, there were 33,757,293
shares of common stock outstanding that were held of record by approximately
121 stockholders. Also outstanding as of that date were options to purchase
3,861,969 shares of common stock and warrants to purchase 30,000 shares of
Series A preferred stock, which will convert to warrants to purchase common
stock upon completion of this offering. Assuming no exercise of the
underwriters' overallotment option, exercise of outstanding options under our
1996 Stock Plan or exercise of the warrant, and after giving effect to the sale
of shares offered here, there will be     shares of common stock outstanding
upon completion of this offering.

  The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. In the event of liquidation, dissolution or winding up of Foundry, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior distribution rights of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. The outstanding shares of common stock
are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.

Preferred Stock

  Upon completion of this offering, all outstanding shares of preferred stock
will be converted into 15,116,596 shares of common stock. Thereafter, our board
of directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock, $0.0001 par
value, in one or more series. The board of directors will also have the
authority to designate the rights, preferences, privileges and restrictions of
each series, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series.

  The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Foundry without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
certain circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. We currently have no plans to
issue any shares of preferred stock.


                                       58
<PAGE>

Warrants

  As of June 30, 1999, there were warrants outstanding to purchase 30,000
shares of Series A preferred stock which will convert to warrants to purchase
common stock upon completion of this offering. The warrants contain provisions
for the adjustment of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications,
consolidations and certain dilutive issuances of securities at prices below the
then existing warrant exercise price.

Registration Rights

  Assuming the conversion of all outstanding preferred stock into common stock
upon completion of this offering, the holders of 15,089,096 shares of common
stock and warrants to purchase 30,000 shares of Series A preferred stock, which
will convert to warrants to purchase common stock upon completion of this
offering, or their transferees are entitled to registration rights with respect
to these shares under the Securities Act. These rights are provided under the
terms of an agreement between Foundry and the holders of these securities.
Subject to limitations in the agreement, these registration rights include the
following:

  .  The holders of at least 30% of these securities then outstanding may
     require, on one occasion beginning one year after the date of this
     prospectus, that we use our best efforts to register these securities
     for public resale, provided that the anticipated aggregate offering
     price, net of underwriting discounts and commissions, of such public
     resale would exceed $10,000,000.

  .  If we register any of our common stock either for our own account or for
     the account of other security holders, the holders of these securities
     are entitled to include their shares of common stock in that
     registration, subject to the ability of the underwriters to limit the
     number of shares included in the offering.

  .  The holders of these securities may also require us, not more than once
     in any 12 month period and no more than three times total, to register
     all or a portion of these securities on Form S-3 when use of that form
     becomes available to us, provided, among other limitations, that the
     proposed aggregate selling price, net of any underwriters' discounts or
     commissions, is at least $1,000,000.

  We will be responsible for paying all registration expenses other than
underwriting discounts and commissions, and the holders selling their shares
will be responsible for paying all selling expenses.

Delaware Anti-Takeover Law and Charter and Bylaw Provisions

  Provisions of Delaware law and our certificate of incorporation and bylaws
could make the acquisition of Foundry and the removal of incumbent officers and
directors more difficult. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Foundry to negotiate with it
first. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure Foundry outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.

                                       59
<PAGE>

  We are subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of Foundry
without further action by the stockholders.

  Upon completion of this offering, our bylaws will provide that stockholder
action can only be taken at an annual or special meeting. The bylaws provide
that special meetings of stockholders can be called only by the board of
directors, the Chairman of the Board, if any, and the President. The bylaws set
forth an advance notice procedure with regard to the nomination, other than by
or at the direction of the board of directors, of candidates for election as
directors and with regard to business to be brought before a meeting of
stockholders.

Transfer Agent and Registrar

  The Transfer Agent and Registrar for the common stock is            . The
Transfer Agent's address and telephone number is                    , (   )
        .

                                       60
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

  Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market after this
offering could cause the market price of our common stock to decline.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of contractual and legal restrictions on
resale, sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.

  Upon completion of this offering, we will have outstanding  shares of common
stock. Of these shares, the   shares sold in the offering (and any shares
issued upon exercise of the underwriters' overallotment option) will be freely
tradable without restriction under the Securities Act, unless purchased by
"affiliates" of ours as that term is defined in Rule 144 under the Securities
Act. Affiliates generally include officers, directors or 10% stockholders.
Shares eligible to be sold by affiliates pursuant to Rule 144 are subject to
volume restrictions as described below.

  The remaining 33,757,293 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 under the Securities
Act, which are summarized below. Sales of these shares in the public market, or
the availability of such shares for sale, could cause the market price of our
common stock to decline.

  Our stockholders have entered into lock-up agreements generally providing
that they will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the effective date of the registration statement filed pursuant to this
offering. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, shares subject to lock-up agreements will not be salable until such
agreements expire or are waived. Taking into account the lock-up agreements,
the following shares will be eligible for sale in the public market at the
following times:

  .  Beginning on the effective date of this prospectus, only the shares sold
     in the offering will be immediately available for sale in the public
     market;

  .  Beginning 180 days after the effective date, approximately 31,140,670
     shares will be eligible for sale pursuant to Rules 701, 144 and 144(k),
     of which all but 14,365,251 shares are held by affiliates;

  .  An additional 2,491,623 shares will be eligible for sale pursuant to
     Rule 701 at various times beginning 180 days after the effective date
     when these shares are released from our repurchase option with respect
     to these shares, of which all but 1,320,172 shares are held by
     affiliates; and

  .  An additional 125,000 shares will be eligible for sale pursuant to Rule
     144 on June 10, 2000.

Rule 144

  Under Rule 144, beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for
at least one year, which includes

                                       61
<PAGE>

the holding period of any prior owner other than an affiliate, would generally
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:

  .  1% of the outstanding shares of our common stock then outstanding, which
     will equal approximately     shares immediately after this offering; or

  .  the average weekly trading volume of our common stock on the Nasdaq
     National Market during the four calendar weeks preceding the filing of a
     notice on Form 144 with respect to the sale.

  Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
Foundry.

Rule 144(k)

  Under Rule 144(k), a person who was not an affiliate of Foundry at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, which includes the holding period
of any prior owner except an affiliate, is entitled to sell these shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

Rule 701

  In general, under Rule 701, any of our employees, consultants or advisors,
other than affiliates, who purchases or receives shares from us in connection
with a compensatory stock purchase plan or option plan or other written
agreement will be eligible to resell these shares beginning 90 days after the
effective date of the registration statement of which this prospectus is a
part, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144 without compliance with its holding period
requirements.

Registration Rights

  Upon completion of this offering, the holders of 15,089,096 shares of common
stock and warrants to purchase 30,000 shares of Series A preferred stock which
will convert to warrants to purchase common stock upon completion of this
offering will be entitled to registration rights with respect to these shares
under the Securities Act. When these shares are registered under the Securities
Act, they will be freely tradable unless held by affiliates.

Stock Options

  In addition, we intend to file registration statements under the Securities
Act as promptly as possible upon the completion of this offering to register
7,107,303 shares of common stock to be issued pursuant to our employee benefit
plans or upon exercise of non-plan options. As a result, any options or rights
exercised under the 1996 Stock Plan, the 1999 Employee Stock Purchase Plan or
the 1999 Directors' Stock Option Plan after the effectiveness of the
registration statements will be available for sale in the public market 180
days after the effective date of this offering upon the expiration of lock-up
agreements. However, such shares held by affiliates will still be subject to
the volume limitation, manner of sale, notice and public information
requirements of Rule 144 unless otherwise resalable under Rule 701.

                                       62
<PAGE>

                                  UNDERWRITING

  Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P.
Morgan Securities Inc. have severally agreed to purchase from Foundry the
number of shares of common stock set forth beside their names below at a public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus:

<TABLE>
<CAPTION>
                                                                        Number
Underwriter                                                            of Shares
-----------                                                            ---------
<S>                                                                    <C>
Deutsche Bank Securities Inc. ........................................
Merrill Lynch, Pierce, Fenner & Smith
         Incorporated ................................................
J.P. Morgan Securities Inc. ..........................................
                                                                          ---
  Total...............................................................
                                                                          ===
</TABLE>

  The underwriting agreement provides that the obligations of the underwriters
to purchase the common stock is subject to the terms and conditions set forth
in the underwriting agreement. The underwriting agreement requires the
underwriters to purchase all of the shares of the common stock offered by this
prospectus, if any are purchased. The shares of common stock offered by the
underwriters pursuant to this prospectus are subject to prior sale, when, as
and if delivered to and accepted by the underwriters, and subject to the
underwriters' right to reject any order in whole or in part.

  We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price of $     this prospectus and to certain dealers at a price that
represents a concession not in excess of $    per share. Any shares sold by the
underwriters to securities dealers may be sold at a discount of up to $    per
share from the initial public offering price. Any such securities dealers may
resell any shares purchased from the underwriters to certain other brokers or
dealers at a discount of up to $     per share from the public offering price.
The underwriters may change the public offering price after the common stock is
released for sale to the public.

  The underwriters may sell more shares than the total number set forth in the
table above. To cover these sales, we have granted the underwriters an option
to purchase up to an aggregate of     additional shares of common stock at the
initial public offering price, less the underwriting discounts and commissions.
The underwriters may exercise this option at any time within 30 days after the
date of this prospectus only to cover these sales. To the extent the
underwriters exercise this option, each of the underwriters will purchase
shares in approximately the same proportion as the number of shares of common
stock to be purchased by it shown in the above table bears to    , and we will
be obligated, pursuant to the option, to sell those shares to the underwriters.
If purchased, the underwriters will offer the additional shares on the same
terms as those on which the     shares are being offered. If the underwriters
exercise their over-allotment option in full, the total public offering price
will be $   , the total underwriting discount will be $   , and the total
proceeds to Foundry will be $   .

  We have agreed to indemnify the underwriters with respect to certain
liabilities, including liabilities under the Securities Act.

                                       63
<PAGE>

  To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price
of the common stock. Specifically, the underwriters may over-allot shares of
our common stock in connection with this offering, thereby creating a short
position in the underwriters' account. A short position results when an
underwriter sells more shares of common stock than such underwriter is
committed to purchase. Additionally, to cover over-allotments or to stabilize
the market price of the common stock, the underwriters may bid for, and
purchase, shares of our common stock at a level above that which might
otherwise prevail in the open market. The underwriters are not required to
engage in these activities, and, if they do, they may discontinue doing so at
any time. The underwriters also may reclaim selling concessions allowed to an
underwriter or dealer, if the underwriters repurchase shares distributed by
such underwriter or dealer.

  Foundry and its officers and directors and substantially all of our
stockholders have agreed not to offer, sell or make any other disposition of
any shares of our common stock or other securities convertible into or
exchangeable or exercisable for shares of our common stock or derivatives of
our common stock for a period of 180 days after the date of this prospectus,
directly or indirectly, without the prior written consent of Deutsche Bank
Securities Inc.

  The representatives of the underwriters have advised us that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.

  We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $   .

Pricing of this Offering

  Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock will be
determined by negotiation among Foundry and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:

  .  prevailing market conditions;

  .  Foundry's results of operations in recent periods;

  .  the present stage of our development;

  .  the market capitalizations and stages of development of other companies
     which Foundry and the representatives of the underwriters believe to be
     comparable to us; and

  .  estimates of Foundry's business potential.

  The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.


                                       64
<PAGE>

                                 LEGAL MATTERS


  The validity of the common stock offered hereby will be passed upon for
Foundry by Venture Law Group, A Professional Corporation, Menlo Park,
California. Joshua L. Green, a director of Venture Law Group, is the Secretary
of Foundry. Pillsbury Madison & Sutro LLP, Palo Alto and San Francisco,
California, is acting as counsel for the underwriters in connection with
selected legal matters relating to the shares of common stock offered by this
prospectus. As of the date of this prospectus, a family trust of which a
director of Venture Law Group is trustee and two investment partnerships
affiliated with Venture Law Group own a total of 25,000 shares of Foundry's
Series A preferred stock and 10,868 shares of Series B preferred stock, which
shares will convert into 35,868 shares of our common stock upon the completion
of this offering.

                                    EXPERTS

  The audited financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

                    ADDITIONAL INFORMATION AVAILABLE TO YOU

  We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock in this offering. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Foundry and the common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference room in Washington, DC. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from the SEC's web site at
www.sec.gov.

  Upon completion of this offering, Foundry will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the web site of the SEC referred to above.

                                       65
<PAGE>

                             FOUNDRY NETWORKS, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Report of Independent Public Accountants ................................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
 Equity (Deficit)........................................................ F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
of Foundry Networks, Inc.:

We have audited the accompanying balance sheets of Foundry Networks, Inc. (a
Delaware corporation) as of December 31, 1997 and 1998, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for the period from inception,
May 22, 1996, to December 31, 1996 and for the years ended December 31, 1997
and 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Foundry Networks, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception, May 22, 1996, to December 31, 1996 and for
the years ended December 31, 1997 and 1998 in conformity with generally
accepted accounting principles.

San Jose, California
June 17, 1999

                                          ARTHUR ANDERSEN LLP

                                      F-2
<PAGE>

                             FOUNDRY NETWORKS, INC.

                                 BALANCE SHEETS
                       (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                  June 30, 1999
                                     December 31,                   Pro Forma
                                   ------------------  June 30,   Stockholders'
                                     1997      1998      1999    Equity (Note 5)
                                   --------  --------  --------  ---------------
<S>                                <C>       <C>       <C>       <C>
             ASSETS                                           (unaudited)
Current assets:
 Cash and cash equivalents.......  $  3,182  $  4,567  $ 12,340
 Accounts receivable, net of
  allowance for doubtful
  accounts of $10, $399, and
  $1,074, respectively...........     1,234     6,607    13,381
 Inventories.....................     1,497     7,201     9,735
 Prepaid expenses and other
  current assets.................       363       367       582
                                   --------  --------  --------
     Total current assets........     6,276    18,742    36,038
                                   --------  --------  --------
Property and equipment:
 Computers and related
  equipment......................     1,207     1,603     1,748
 Furniture and fixtures..........        62        80        80
                                   --------  --------  --------
                                      1,269     1,683     1,828
 Less: Accumulated
  depreciation...................      (557)   (1,187)   (1,413)
                                   --------  --------  --------
     Net property and equipment..       712       496       415
                                   --------  --------  --------
                                   $  6,988  $ 19,238  $ 36,453
                                   ========  ========  ========
  LIABILITIES AND STOCKHOLDERS'
         EQUITY (DEFICIT)
Current liabilities:
 Bank line of credit.............  $    --   $    --   $  2,000
 Current portion of capital
  lease obligations..............       166       178        90
 Accounts payable................     1,405     6,059     7,170
 Accrued payroll and related
  expenses.......................       493       937     1,297
 Other accrued expenses..........       113       534     2,282
 Income taxes payable............       --        --        982
 Deferred revenue................        23       371       898
                                   --------  --------  --------
     Total current liabilities...     2,200     8,079    14,719
                                   --------  --------  --------
Capital lease obligations, net of
 current portion.................       178       --        --
                                   --------  --------  --------
Commitments and contingencies
 (Note 3)
Redeemable convertible preferred
 stock, $0.0001 par value,
 aggregate liquidation preference
 of $30,150 at December 31, 1998
 and $30,514 at June 30, 1999:
   Authorized -- 15,166,954
    shares at June 30, 1999 and
    5,000,000 shares pro forma
   Issued and outstanding--
   9,836,954 shares at December
   31, 1997, 14,991,596 shares
   at December 31, 1998,
   15,116,596 shares at June 30,
   1999 and none pro forma.......    15,119    30,085    31,085
                                   --------  --------  --------
Stockholders' equity (deficit):
 Common stock, $0.0001 par
  value:
   Authorized -- 50,000,000
    shares at June 30, 1999 and
    100,000,000 shares pro forma
   Issued and outstanding--
    17,514,375 shares at
    December 31, 1997, 18,610,656
    shares at December 31, 1998,
    18,640,697 shares at June 30,
    1999 and 33,757,293 shares
    pro forma....................         2         2         2     $      3
 Treasury stock..................       --        --     (6,480)      (6,480)
 Additional paid-in capital......       769     6,117    29,195       60,279
 Notes receivable from
  stockholders...................      (260)     (713)     (859)        (859)
 Deferred stock compensation.....       --     (3,960)  (13,749)     (13,749)
 Accumulated deficit.............   (11,020)  (20,372)  (17,460)     (17,460)
                                   --------  --------  --------     --------
     Total stockholders' equity
      (deficit)..................   (10,509)  (18,926)   (9,351)    $ 21,734
                                   --------  --------  --------     ========
                                   $  6,988  $ 19,238  $ 36,453
                                   ========  ========  ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>

                             FOUNDRY NETWORKS, INC.

                            STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                Period from
                                 Inception
                                 (May 22,     Year Ended      Six Months Ended
                                 1996) to    December 31,         June 30,
                                December 31 ----------------  ------------------
                                   1996      1997     1998      1998      1999
                                ----------- -------  -------  --------  --------
                                                                 (unaudited)
<S>                             <C>         <C>      <C>      <C>       <C>
Revenue, net..................    $   --    $ 3,381  $17,039  $  4,203  $ 39,487
Cost of revenue...............        --      1,835    8,433     2,082    18,341
                                  -------   -------  -------  --------  --------
  Gross profit................        --      1,546    8,606     2,121    21,146
                                  -------   -------  -------  --------  --------
Operating expenses:
  Research and development....      1,914     5,403    8,797     3,250     3,625
  Sales and marketing.........        --      3,419    7,258     2,745     6,973
  General and administrative..        226     1,853    1,589       569     1,655
  Amortization of deferred
   stock compensation.........        --        --       727       --      5,023
                                  -------   -------  -------  --------  --------
    Total operating expenses..      2,140    10,675   18,371     6,564    17,276
                                  -------   -------  -------  --------  --------
Income (loss) from
 operations...................     (2,140)   (9,129)  (9,765)   (4,443)    3,870
Interest income, net..........        127       122      413       213        24
                                  -------   -------  -------  --------  --------
Income (loss) before provision
 for income taxes.............     (2,013)   (9,007)  (9,352)   (4,230)    3,894
Provision for income taxes....        --        --       --        --        982
                                  -------   -------  -------  --------  --------
Net income (loss).............    $(2,013)  $(9,007) $(9,352) $ (4,230) $  2,912
                                  =======   =======  =======  ========  ========
Basic net income (loss) per
 share........................    $ (1.49)  $ (1.99) $ (1.04) $  (0.53) $   0.24
                                  =======   =======  =======  ========  ========
Weighted average shares used
 in computing basic net income
 (loss) per share.............      1,349     4,523    8,992     8,029    12,164
                                  =======   =======  =======  ========  ========
Diluted net income (loss) per
 share........................    $ (1.49)  $ (1.99) $ (1.04) $  (0.53) $   0.08
                                  =======   =======  =======  ========  ========
Weighted average shares used
 in computing diluted net
 income (loss) per share......      1,349     4,523    8,992     8,029    34,880
                                  =======   =======  =======  ========  ========
Pro forma basic net income
 (loss) per share
 (unaudited)..................                       $ (0.41)           $   0.11
                                                     =======            ========
Weighted average shares used
 in computing pro forma basic
 net income (loss) per share
 (unaudited)..................                        22,882              27,170
                                                     =======            ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>

                            FOUNDRY NETWORKS, INC.

 STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
                                   (DEFICIT)
                                (in thousands)

<TABLE>
<CAPTION>
                                                       Redeemable
                                                       Convertible                                                Notes
                                                    Preferred Stock  Common Stock   Treasury Stock  Additional  Receivable
                                                    ---------------- -------------- --------------   Paid-in       From
                                                    Shares   Amount  Shares  Amount Shares Amount    Capital   Stockholders
                                                    ------- -------- ------  ------ ------ -------  ---------- ------------
<S>                                                 <C>     <C>      <C>     <C>    <C>    <C>      <C>        <C>
BALANCES AT INCEPTION.......................             --  $    --      --   $--     --    $   --    $   --       $ --
 Issuance of common stock to founders for
 cash and technology rights.................             --       --   10,980     1    --        --       109         --
 Issuance of common stock for notes
 receivable.................................             --       --      475    --    --        --        47        (47)
 Issuance of Series A redeemable convertible
 preferred stock, net of issuance costs
 of $31.....................................          5,750    5,719      --     --    --        --        --         --
 Net loss...................................             --       --      --     --    --        --                   --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT DECEMBER 31, 1996...............          5,750    5,719  11,455      1    --        --       156        (47)
 Issuance of common stock for cash..........             --            4,159      1    --        --       415         --
 Issuance of common stock for notes
 receivable.................................             --            2,050     --    --        --       213       (213)
 Issuance of Series B redeemable convertible
 preferred stock............................          4,087    9,400      --     --    --        --        --         --
 Repurchase of common stock.................             --       --    (150)    --    --        --       (15)        --
 Net loss...................................             --       --      --     --    --        --        --         --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT DECEMBER 31, 1997...............          9,837   15,119  17,514      2    --        --       769       (260)
 Issuance of common stock for cash..........             --       --     367     --    --        --       212         --
 Issuance of common stock for notes
 receivable.................................             --       --     985     --    --        --       474       (474)
 Issuance of Series C redeemable convertible
 preferred stock, net of issuance costs
 of $34.....................................          5,155   14,966      --     --    --        --        --         --
 Deferred stock compensation................             --       --      --     --    --        --     4,687         --
 Amortization of deferred stock
 compensation...............................             --       --      --     --    --        --        --         --
 Repurchase of common stock.................             --       --    (255)    --    --        --       (25)        --
 Cancellation of notes receivable from
 stockholders...............................             --       --      --     --    --        --        --         21
 Net loss...................................             --       --      --     --    --        --        --         --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT DECEMBER 31, 1998...............         14,992    30,085 18,611      2    --        --     6,117       (713)
 Issuance of common stock for cash
 (unaudited)................................             --       --     348     --    --        --     1,644         --
 Issuance of common stock for notes
 receivable (unaudited).....................             --       --      82     --    --        --       146       (146)
 Issuance of Series C redeemable convertible
 preferred stock (unaudited)................            125    1,000      --     --    --        --        --         --
 Deferred stock compensation (unaudited)....             --       --      --     --    --        --    14,812         --
 Amortization of deferred stock compensation
 (unaudited)................................             --       --      --     --    --        --        --         --
 Repurchase of common stock from a founder
 (unaudited)................................             --       --    (400)    --   400    (6,480)    6,476         --
 Net income (unaudited).....................             --       --      --     --    --        --        --         --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT JUNE 30, 1999 (unaudited).......         15,117 $ 31,085  18,641   $  2   400   $(6,480)  $29,195      $(859)
                                                    ======= ========  ======   ====   ===   =======   =======      =====


                                                                                 Total
                                                      Deferred               Stockholders'
                                                       Stock     Accumulated    Equity
                                                    Compensation   Deficit     (Deficit)
                                                    ------------ ----------- -------------
<S>                                                 <C>          <C>         <C>
BALANCES AT INCEPTION.......................             $    --     $    --       $    --
 Issuance of common stock to
 founders for cash and technology
 rights.....................................                  --          --           110
 Issuance of common stock for notes
 receivable.................................                  --          --            --
 Issuance of Series A redeemable
 convertible preferred stock, net of
 issuance costs of $31......................                  --          --            --
 Net loss...................................                  --      (2,013)       (2,013)
                                                    ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1996...............                  --      (2,013)       (1,903)
 Issuance of common stock for cash..........                  --          --           416
 Issuance of common stock for notes
 receivable.................................                  --          --            --
 Issuance of Series B redeemable convertible
 preferred stock............................                  --          --            --
 Repurchase of common stock.................                  --          --           (15)
 Net loss...................................                  --      (9,007)       (9,007)
                                                    ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1997...............                  --     (11,020)      (10,509)
 Issuance of common stock for cash..........                  --          --           212
 Issuance of common stock for notes
 receivable.................................                  --          --            --
 Issuance of Series C redeemable convertible
 preferred stock, net of issuance costs
 of $34.....................................                  --          --            --
 Deferred stock compensation................              (4,687)         --            --
 Amortization of deferred stock
 compensation...............................                 727          --           727
 Repurchase of common stock.................                  --          --           (25)
 Cancellation of notes receivable from
 stockholders...............................                  --          --            21
 Net loss...................................                  --      (9,352)       (9,352)
                                                    ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1998...............              (3,960)    (20,372)      (18,926)
 Issuance of common stock for cash
 (unaudited)................................                  --          --         1,644
 Issuance of common stock for notes
 receivable (unaudited).....................                  --          --            --
 Issuance of Series C redeemable
 convertible preferred stock (unaudited)....                  --          --            --
 Deferred stock compensation (unaudited)....             (14,812)         --            --
 Amortization of deferred stock compensation
 (unaudited)................................               5,023          --         5,023
 Repurchase of common stock from a founder
 (unaudited)................................                  --          --           (4)
 Net income (unaudited).....................                  --       2,912        2,912
                                                    ------------ ----------- -------------
BALANCES AT JUNE 30, 1999 (unaudited).......            $(13,749)   $(17,460)     $(9,351)
                                                    ============ =========== =============
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>

                             FOUNDRY NETWORKS, INC.

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                               Period
                                from
                             Inception
                              (May 22,      Year Ended      Six Months Ended
                              1996) to     December 31,          June 30,
                            December 31, -----------------  ------------------
                                1996      1997      1998      1998      1999
                            ------------ -------  --------  --------  --------
                                                               (unaudited)
<S>                         <C>          <C>      <C>       <C>       <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Net income (loss)........    $(2,013)   $(9,007) $ (9,352) $ (4,230) $  2,912
 Adjustments to reconcile
  net income (loss) to net
  cash provided by (used
  in) operating
  activities:
   Depreciation...........         88        469       630       326       226
   Amortization of
    deferred stock
    compensation..........        --         --        727       --      5,023
   Cancellation of notes
    receivable from
    stockholders..........        --         --         21       --        --
   Provision for allowance
    for doubtful
    accounts..............        --          10       389        89       675
   Provision for excess
    and obsolete
    inventories...........        --         106     1,012        34     1,113
   Issuance of common
    stock for certain
    technology rights.....         94        --        --        --        --
   Change in operating
    assets and
    liabilities:
     Accounts receivable..        --      (1,244)   (5,762)       18    (7,449)
     Inventories..........        --      (1,603)   (6,716)     (862)   (3,647)
     Prepaid expenses and
      other current
      assets..............        (78)      (285)       (4)       41      (215)
     Accounts payable.....        117      1,288     4,654      (122)    1,111
     Accrued liabilities..        123        483       865        25     2,108
     Income taxes
      payable.............        --         --        --        --        982
     Deferred revenue.....        --          23       348        67       527
                              -------    -------  --------  --------  --------
      Net cash provided by
       (used in) operating
       activities.........     (1,669)    (9,760)  (13,188)   (4,614)    3,366
                              -------    -------  --------  --------  --------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Purchases of property and
  equipment...............       (243)      (526)     (414)     (218)     (145)
                              -------    -------  --------  --------  --------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
  Proceeds from bank line
   of credit..............        --         --        --        --      2,000
  Principal payments on
   capital lease
   obligations............        --        (156)     (166)      (82)      (88)
  Proceeds from issuance
   of common stock........         16        416       212        32     1,644
  Repurchase of common
   stock..................        --         (15)      (25)      --         (4)
  Net proceeds from
   issuance of redeemable
   convertible preferred
   stock..................      5,719      9,400    14,966    14,966     1,000
                              -------    -------  --------  --------  --------
      Net cash provided by
       financing
       activities.........      5,735      9,645    14,987    14,916     4,552
                              -------    -------  --------  --------  --------
INCREASE (DECREASE) IN
 CASH AND CASH
 EQUIVALENTS..............      3,823       (641)    1,385    10,084     7,773
CASH AND CASH EQUIVALENTS,
 BEGINNING OF PERIOD......        --       3,823     3,182     3,182     4,567
                              -------    -------  --------  --------  --------
CASH AND CASH EQUIVALENTS,
 END OF PERIOD............    $ 3,823    $ 3,182  $  4,567  $ 13,266  $ 12,340
                              =======    =======  ========  ========  ========
SUPPLEMENTAL SCHEDULE OF
 NONCASH INVESTING AND
 FINANCING ACTIVITIES:
 Purchase of property and
  equipment through
  capital lease
  obligations.............    $   500    $   --   $    --   $    --   $    --
 Issuance of common stock
  for notes receivable....         47        213       474        85       146
 Increase in treasury
  stock on repurchase of
  common stock............        --         --        --        --      6,480
 Cash paid for interest...        --          28        18         9        48
 Cash paid for income
  taxes...................        --           2         1         1         3
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

                             FOUNDRY NETWORKS, INC.

                         NOTES TO FINANCIAL STATEMENTS
 (All information as of and for the six months ended June 30, 1998 and 1999 is
                                   unaudited)

1. ORGANIZATION OF THE COMPANY:

  Foundry Networks, Inc. (the Company or Foundry) was incorporated in Delaware
on May 22, 1996 under the name Perennium Networks, Inc., and changed its name
to StarRidge Networks, Inc. on June 5, 1996 and to Foundry Networks, Inc. on
January 22, 1997. Foundry designs, develops, manufactures and markets a
comprehensive suite of high performance networking products for enterprises and
Internet service providers.

  During 1997, Foundry commenced commercial shipment of its products and
emerged from the development stage. Although no longer in the development
stage, Foundry continues to be subject to the risks and challenges similar to
other companies in a comparable stage of development. These risks include, but
are not limited to, dependence on key individuals, dependence on key suppliers
of integral components, successful development and marketing of products, the
ability to obtain adequate financing to support growth and competition from
substitute products and larger companies with greater financial, technical,
management and marketing resources.

2. SIGNIFICANT ACCOUNTING POLICIES:

Unaudited Interim Financial Data

  The unaudited interim financial statements for the six months ended June 30,
1998 and 1999 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all normal recurring
adjustments necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. Results
for the six months ended June 30, 1999 are not necessarily indicative of
results in future periods.

Use of Estimates in Preparation of Financial Statements

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and Cash Equivalents

  Cash and cash equivalents consist of cash deposited in checking and money
market accounts with original maturities of less than three months.

Inventories

  Inventories are stated on a first-in, first-out basis at the lower of cost or
market, and include purchased parts, labor and manufacturing overhead.
Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                     December 31,
                                                     -------------
                                                      1997   1998  June 30, 1999
                                                     ------ ------ -------------
                                                                    (unaudited)
   <S>                                               <C>    <C>    <C>
   Purchased parts.................................. $  577 $5,302    $6,643
   Work-in-process..................................    667  1,281     1,393
   Finished goods...................................    253    618     1,699
                                                     ------ ------    ------
                                                     $1,497 $7,201    $9,735
                                                     ====== ======    ======
</TABLE>


                                      F-7
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  Provision for excess and obsolete inventory in the amounts of $106,000,
$1,012,000 and $1,113,000 were recorded for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1999, respectively. Approximately
$779,000 of work-in-process inventory was consigned at contract manufacturers'
sites as of December 31, 1998.

Concentrations

  Financial instruments that potentially subject Foundry to a concentration of
credit risk principally consist of accounts receivable. Foundry performs
ongoing credit evaluations of its customers and generally does not require
collateral. To date, credit losses have been immaterial and within management's
expectations. During the year ended December 31, 1998, Foundry provided
approximately $389,000 to its allowance for doubtful accounts. Total write-offs
of uncollectible amounts were immaterial during fiscal 1997 and 1998. Ten
customers accounted for 78% and 58% of trade receivables as of December 31,
1997 and 1998, respectively.

  Foundry purchases several key components used in the manufacture of products
from single or limited sources and depends on supply from these sources to meet
its needs. In addition, Foundry depends on contract manufacturers for major
portions of the manufacturing requirements. The inability of the suppliers or
manufacturers to fulfill the production requirements of Foundry could
negatively impact future results.

Property and Equipment

  Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives as follows:

<TABLE>
   <S>                                                                   <C>
   Computers and related equipment...................................... 2 years
   Furniture and fixtures............................................... 3 years
</TABLE>

Revenue Recognition

  Foundry generally recognizes product revenue upon shipment to customers.
Revenue from customer support services is deferred and recognized on a
straight-line basis over the contractual period. At shipment date, Foundry
establishes reserves for estimated warranty expenses associated with sales.
From inception to December 31, 1998, Foundry did not record a reserve for sales
returns because product returns were immaterial. For the six months ended June
30, 1999, Foundry recorded a reserve for sales returns equal to $250,000,
consistent with increasing revenue, which has been netted with revenue in the
statements of operations.

  During 1997 and 1998 and the six months ended June 30, 1999, approximately
100%, 99% and 99%, respectively, of Foundry's total revenue were derived from
product sales. The percentages of revenue to significant customers were as
follows:
<TABLE>
<CAPTION>
                                                    Year Ended       Six Months
                                                   December 31,         Ended
                                                   ---------------    June 30,
                                                    1997     1998       1999
                                                   ------   ------   -----------
                                                                     (unaudited)
   <S>                                             <C>      <C>      <C>
   Customer A.....................................     49%      21%       10%
   Customer B.....................................     14%      --        --
   Customer C.....................................     --       --        17%
   Customer D.....................................     --       --        15%
</TABLE>

                                      F-8
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


  Sales in significant markets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                        Year Ended   Six Months
                                                       December 31,     Ended
                                                      --------------  June 30,
                                                       1997   1998      1999
                                                      ------ ------- -----------
                                                                     (unaudited)
   <S>                                                <C>    <C>     <C>
   United States..................................... $1,649 $11,816   $30,972
   Japan.............................................  1,647   3,657     4,055
</TABLE>

  Foundry sells to various countries in North America, Europe, Asia, South
America and Australia. Sales to individual countries other than disclosed above
within these continents represent less than 10% of total revenue.

Software Development Costs

  Foundry accounts for internally generated software development costs in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Capitalization of eligible product development costs begins upon the
establishment of technological feasibility, which Foundry has defined as
completion of a working model. Internally generated costs which were eligible
for capitalization, after consideration of factors such as realizable value,
were not material for the period from inception to December 31, 1996, the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1999 and,
accordingly, all software development costs have been charged to research and
development expense in the accompanying statements of operations.

Computation of Per Share Amounts

  Basic net income (loss) per common share and diluted net income (loss) per
common share are presented in conformity with Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" for all periods presented.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
98, common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net income
(loss) per common share as if such stock had been outstanding for all periods
presented. To date, Foundry has not had any issuances or grants for nominal
consideration.

  In accordance with SFAS No. 128, basic net income (loss) per common share has
been calculated using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. For the
period from inception to December 31, 1996, the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 Foundry has excluded all
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted net loss per common share because
all such securities are anti-dilutive for those periods. The total number of
shares excluded from the calculations of diluted net loss per common share were
9,249,000, 11,075,829, 17,334,190, and 16,618,430 for the period from inception
to December 31, 1996, the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1998, respectively. For the six months ended June 30,
1999, diluted net income per common share has been calculated assuming the
conversion of all dilutive potential common stock. Pro forma basic net income
(loss) per common share has been calculated

                                      F-9
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

assuming the conversion of the redeemable convertible preferred stock using the
if-converted method into an equivalent number of common shares as if the shares
had been converted on the dates of issuance.

<TABLE>
<CAPTION>
                              Period from
                             Inception (May    Year Ended        Six Months
                              22, 1996) to    December 31,      Ended June 30,
                              December 31,  -----------------  ----------------
                                  1996        1997     1998     1998     1999
                             -------------- --------  -------  -------  -------
                                  (in thousands, except per share data)
                                                                 (unaudited)
<S>                          <C>            <C>       <C>      <C>      <C>
Net income (loss)..........     $(2,013)    $ (9,007) $(9,352) $(4,230) $ 2,912
                                -------     --------  -------  -------  -------
Basic:
  Weighted average shares
   of common stock
   outstanding.............       6,719       14,993   17,799   17,567   18,695
  Less: Weighted average
   shares subject to
   repurchase..............      (5,370)     (10,470)  (8,807)  (9,538)  (6,531)
                                -------     --------  -------  -------  -------
  Weighted average shares
   used in computing basic
   net income (loss) per
   common share............       1,349        4,523    8,992    8,029   12,164
                                =======     ========  =======  =======  =======
Basic net income (loss) per
 common share..............     $ (1.49)    $  (1.99) $ (1.04) $ (0.53) $  0.24
                                =======     ========  =======  =======  =======
Diluted:
  Weighted average shares
   of common stock
   outstanding.............                                              18,695
  Add: Weighted average
   dilutive potential
   common stock............                                              16,185
                                                                        -------
  Weighted average shares
   used in computing
   diluted net income
   (loss) per common
   share...................       1,349        4,523    8,992    8,029   34,880
                                =======     ========  =======  =======  =======
Diluted net income (loss)
 per common share..........     $ (1.49)    $  (1.99) $ (1.04) $ (0.53) $  0.08
                                =======     ========  =======  =======  =======
Pro forma basic:
  Shares used above........                             8,992            12,164
  Pro forma adjustment to
   reflect weighted effect
   of assumed conversion of
   redeemable convertible
   preferred stock
   (unaudited).............                            13,890            15,006
                                                      -------           -------
  Weighted average shares
   used in computing pro
   forma basic net income
   (loss) per common share
   (unaudited).............                            22,882            27,170
                                                      =======           =======
Pro forma basic net income
 (loss) per common share
 (unaudited)...............                           $ (0.41)          $  0.11
                                                      =======           =======
</TABLE>

                                      F-10
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


Stock-Based Compensation

  In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation (SFAS No. 123), in October 1995.
This accounting standard permits the use of either a fair value based method or
the method defined in Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees" (APB Opinion 25) to account for stock-based
compensation arrangements. Companies that elect to employ the valuation method
provided in APB Opinion 25 are required to disclose the pro forma net income
(loss) that would have resulted from the use of the fair value based method.
Foundry has elected to determine the value of stock-based compensation
arrangements under the provisions of APB Opinion 25, and accordingly, the pro
forma disclosures required under SFAS No. 123 have been included in Note 5.

Recent Accounting Pronouncements

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) which establishes standards
for reporting and presentation of comprehensive income. SFAS No. 130 was
adopted by Foundry in 1998. This standard defines comprehensive income as the
changes in equity of an enterprise except those resulting from stockholder
transactions. Comprehensive income (loss) for the period from inception to
December 31, 1996, the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1999 equaled net income (loss).

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 was adopted by Foundry in 1997. SFAS No. 131 establishes
standards for disclosures about operating segments, products and services,
geographic areas and major customers. Foundry is organized and operates as one
operating segment, the design, development, manufacturing and marketing of high
performance Gigabit Ethernet switches, switching routers, server load balancing
and transparent caching switches.

  In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," (SOP No. 98-1). SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 was adopted by
Foundry in 1998. The adoption of SOP No. 98-1 did not have a material impact on
Foundry's financial position or results of operations.

  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning
after June 15, 2000. Management believes the adoption of SFAS No. 133 will not
have a material effect on Foundry's financial position or results of
operations.

  In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No. 97-
2, Software Revenue Recognition, With Respect to Certain Transactions," (SOP
No. 98-9). SOP No. 98-9 amends SOP No. 97-2 and SOP No. 98-4 by extending the
deferral of the application of certain provisions of SOP No. 97-2 amended by
SOP No. 98-4 through fiscal years beginning on or before March 15, 1999. All
other provisions of SOP No. 98-9 are effective for

                                      F-11
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

transactions entered into in fiscal years beginning after March 15, 1999.
Foundry has not had significant software sales to date and management does not
expect the adoption of SOP No. 98-9 to have a significant effect on the
financial position or results of operations.

3. COMMITMENTS AND CONTINGENCIES:

  Foundry leases its office facilities under a noncancellable operating lease
expiring in October 2001. Rent expense was approximately $66,000, $245,000 and
$263,000, respectively, for the period from inception to December 31, 1996 and
the years ended December 31, 1997 and 1998.

  Foundry leases equipment under a long-term lease agreement that is classified
as a capital lease. The lease expires in December 1999. Future payments on the
lease together with the present value of the payments, as of December 31, 1998
were as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Capital Operating
                                                                Lease    Lease
                                                               ------- ---------
   <S>                                                         <C>     <C>
   1999.......................................................  $ 184    $248
   2000.......................................................     --     258
   2001.......................................................     --     235
                                                                -----    ----
     Total minimum lease payments.............................    184    $741
                                                                         ====
   Less: Amount representing interest (6.6%)..................     (6)
                                                                -----
   Present value of minimum lease payments....................    178
   Less: Current portion of capital lease obligations.........   (178)
                                                                -----
   Long-term portion of capital lease obligations.............  $  --
                                                                =====
</TABLE>

  Included in property and equipment are assets acquired under capital lease
obligations with a cost and related accumulated depreciation of approximately
$500,000 and $312,000, respectively, at December 31, 1997 and $500,000 and
$500,000, respectively, at December 31, 1998.

  Foundry is subject to various claims which arise in the normal course of
business. Although the amount of any liability with respect to such litigation
cannot be determined, in the opinion of management, the ultimate disposition of
these claims will not have a material adverse effect on Foundry's financial
position or results of operations. During 1997, Foundry incurred costs and
expenses in the amount of $750,000 related to the settlement of a lawsuit,
which is reflected in the 1997 statements of operations under general and
administrative expenses.

                                      F-12
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


4. INCOME TAXES:

  Foundry accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". A valuation
allowance has been recorded for the total net deferred tax assets as a result
of uncertainties regarding realization of the assets based upon the limited
operating history of Foundry, the lack of profitability to date and the
uncertainty of future profitability. As of December 31, 1997 and 1998,
components of the net deferred income tax assets were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                 --------------
                                                                  1997    1998
                                                                 ------  ------
      <S>                                                        <C>     <C>
      Net operating loss carryforwards.......................... $3,348  $6,126
      Capitalized start-up costs................................    699     552
      Capitalized organization costs............................     12       9
      Tax credits...............................................    514   1,348
      Reserve and other cumulative temporary differences........    345   1,150
                                                                 ------  ------
                                                                  4,918   9,185
      Less: Valuation allowance................................. (4,918) (9,185)
                                                                 ------  ------
        Net deferred tax assets................................. $   --  $   --
                                                                 ======  ======
</TABLE>

  As of December 31, 1998, Foundry had cumulative net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $15.3 million, which expire in various periods from 2003 to 2015.
Under current tax law, net operating loss carryforwards available in any given
year may be limited upon the occurrence of certain events, including
significant changes in ownership interests.

  As of December 31, 1997 and 1998, Foundry had no significant deferred tax
liabilities.

5. STOCKHOLDERS' EQUITY (DEFICIT):

Redeemable Convertible Preferred Stock

  In June 1996, Foundry issued 5,750,000 shares of Series A redeemable
convertible preferred stock (Series A) at $1.00 per share. In June to December
1997, Foundry issued 4,086,954 shares of Series B redeemable convertible
preferred stock (Series B) at $2.30 per share. In March 1998 Foundry issued
5,154,642 shares of Series C redeemable convertible preferred stock (Series C)
at $2.91 per share. The rights with respect to Series A, B and C are as
follows:

  Dividends

  Holders of Series A, B and C are entitled to receive non-cumulative dividends
at an annual rate of $0.07, $0.16 and $0.23 per share, respectively, when and
if declared by the board of directors. No distributions may be made to holders
of common stock until all dividends declared on Series A, B and C have been
paid. No dividends have been declared or paid through December 31, 1998.

                                      F-13
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


  Liquidation

  In the event of liquidation, Series A, B and C stockholders have a preference
of $1.00, $2.30 and $2.91 per share (with the Series C having a preference over
Series A and B, and Series B having a preference over Series A), respectively,
plus all declared and unpaid dividends over holders of the common stock.
Thereafter, all remaining assets will be distributed among holders of common
stock as if the Series A, B and C shares were converted into common stock.

  Conversion

  Each share of outstanding preferred stock is convertible, at the option of
the holder, into one share of common stock. The conversion rate is subject to
adjustment based on a formula to prevent dilution. Each share of convertible
preferred stock will automatically convert into common stock upon the closing
of a public offering resulting in proceeds of not less than $20,000,000.

  Redemption

  Each share of outstanding preferred stock must be redeemed in four annual
installments beginning on March 19, 2004, and continuing thereafter on each
March 19 until and including March 19, 2007. The preferred stock is redeemable
for cash equal to $1.00, $2.30 and $2.91 per share of Series A, B and C,
respectively (as adjusted for any stock dividends, combinations or splits).

  Voting Rights

  The holders of Series A, B and C are entitled to the number of votes equal to
the number of shares of common stock into which such preferred stock is
convertible.

Common Stock

  Foundry had 17,514,375 and 18,610,656 shares of common stock issued and
outstanding at December 31, 1997 and 1998, respectively. Included in such
outstanding shares are 10,980,000 shares issued to Foundry's founders in 1996
(the Founders Shares). The Founders Shares were issued subject to a repurchase
option by Foundry. The Founders Shares vest out of the repurchase option 25
percent upon issuance, with the balance vesting ratably each month for the 48
months after issuance. At December 31, 1998, approximately 2,917,000 of the
Founders Shares are unvested and no Founders Shares have been repurchased. As
further defined in the respective stock purchase agreements, (i) any unvested
Founders Shares immediately vest prior to the sale or merger of Foundry to
certain non-controlled parties and (ii) Foundry has certain rights of first
refusal to repurchase the Founders Shares until such time that Foundry's common
shares trade on a public market.

                                      F-14
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


  The following shares of common stock have been reserved for future issuance
as of December 31, 1998:

<TABLE>
      <S>                                                          <C>
      Conversion of Series A convertible redeemable preferred
       stock outstanding..........................................  5,750,000
      Conversion of Series B convertible redeemable preferred
       stock outstanding..........................................  4,086,954
      Conversion of Series C convertible redeemable preferred
       stock outstanding..........................................  5,154,642
      1996 Stock Plan.............................................  3,234,344
      Conversion of preferred stock warrants outstanding..........     30,000
                                                                   ----------
                                                                   18,255,940
                                                                   ==========
</TABLE>

Notes Receivable from Stockholders

  Foundry's stock option plan allows for the exercise of stock options in
exchange for stockholders' notes receivable. The following table summarizes the
non-recourse notes receivable outstanding as of December 31, 1998 (in
thousands, except interest rate):

<TABLE>
<CAPTION>
   Maturity
     Date                               Principal Number of Shares Interest Rate
   --------                             --------- ---------------- -------------
   <S>                                  <C>       <C>              <C>
   2001................................   $ 36           475        6.16%
   2002................................   $203         1,830        5.97%--6.68%
   2003................................   $474           985        5.03%--5.58%
</TABLE>

Preferred Stock Warrants

  During October 1996, in connection with a sales and leaseback arrangement,
Foundry issued warrants, to the lessor to purchase 30,000 shares of Series A at
$1.00 per share, which will convert to warrants to purchase common stock upon
completion of an initial public offering. At the date of issuance, the value of
the warrants were deemed immaterial and, accordingly, no expense was recorded.
These warrants expire in September 2003.

Pro Forma Stockholders' Equity

  The board of directors has authorized the filing of a registration statement
with the Securities and Exchange Commission to register shares of its common
stock in connection with a proposed initial public offering (IPO). If the IPO
is consummated under the terms presently anticipated, (i) all of the
outstanding redeemable convertible preferred stock at June 30, 1999 will be
converted into 15,116,596 shares of common stock upon the closing of the IPO.
The effect of the conversion has been reflected as unaudited pro forma
stockholders' equity in the accompanying balance sheet as of June 30, 1999.

Stock Options

  Under Foundry's 1996 Stock Plan (the Plan), the board of directors authorized
the issuance of 11,270,000 shares to employees and consultants as of December
31, 1998. Nonstatutory options granted under the Plan must be issued at a price
equal to at least 85% of the fair

                                      F-15
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

market value of Foundry's common stock at the date of grant if granted to
others. Incentive stock options granted under the Plan must be issued at a
price at least equal to the fair market value of Foundry's common stock at the
date of grant. All options may be exercised at any time within ten years of the
date of grant or within one month of termination of employment, or such shorter
time as may be provided in the stock option agreement, and vest over a vesting
schedule determined by the board of directors, generally four years.

  The following option activity in the Plan occurred during the period from
inception (May 22, 1996) to June 30, 1999:
<TABLE>
<CAPTION>
                                                                     Weighted
                                                       Options       Average
                                                     Outstanding  Exercise Price
                                                     -----------  --------------
      <S>                                            <C>          <C>
        Granted.....................................  3,944,000       $0.10
        Exercised...................................   (475,000)       0.10
                                                     ----------
      Balances, December 31, 1996...................  3,469,000        0.10
        Granted.....................................  4,250,500        0.13
        Exercised................................... (6,209,375)       0.10
        Cancelled...................................   (301,250)       0.10
                                                     ----------
      Balances, December 31, 1997...................  1,208,875        0.19
        Granted.....................................  2,722,500        0.62
        Exercised................................... (1,351,281)       0.51
        Cancelled...................................   (267,500)       0.25
                                                     ----------
      Balances, December 31, 1998...................  2,312,594        0.51
        Granted (unaudited).........................  1,691,000        6.43
        Exercised (unaudited).......................   (430,041)       4.16
        Cancelled (unaudited).......................    (64,584)       0.30
                                                     ----------
      Balances, June 30, 1999 (unaudited)...........  3,508,969        2.92
                                                     ==========
</TABLE>

  As of December 31, 1998, Foundry had issued an aggregate of 8,035,656 shares
of common stock to employees of Foundry of which 4,316,268 shares are subject
to repurchase rights at the option of Foundry at $0.10 - $1.00 per share. In
1997 and 1998, Foundry repurchased 150,000 and 255,000 shares, respectively, of
unvested common stock from employees at $0.10 per share. As of June 30, 1999,
an aggregate of 295,334 shares were available for future option grants under
the Plan.

                                      F-16
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


  The following table summarizes information about stock options outstanding
and vested at December 31, 1998:
<TABLE>
<CAPTION>
                                    Options Outstanding         Options Vested
                             --------------------------------- -----------------
                                          Weighted-
                                           Average   Weighted-         Weighted-
   Range of                               Remaining   Average           Average
   Exercise                    Number    Contractual Exercise  Number  Exercise
     Prices                  Outstanding    Life       Price   Vested    Price
   --------                  ----------- ----------- --------- ------- ---------
   <S>                       <C>         <C>         <C>       <C>     <C>
   $0.10....................    524,844     8.06       $0.10   190,746   $0.10
   $0.30....................    326,000     8.63       $0.30    81,500   $0.30
   $0.50....................    877,750     9.54       $0.50    26,479   $0.50
   $1.00....................    584,000     9.84       $1.00     1,677   $1.00
                              ---------                -----   -------
   $0.10-$1.00..............  2,312,594                $0.51   300,402
                              =========                =====   =======
</TABLE>

<TABLE>
<CAPTION>
                                                                     Weighted
                                                        Number of    Average
                                                         Options  Exercise Price
                                                        --------- --------------
       <S>                                              <C>       <C>
       Vested at December 31, 1997.....................  200,104      $0.10
       Vested at December 31, 1998.....................  300,402      $0.19
       Vested at June 30, 1999 (unaudited).............  378,862      $0.35
</TABLE>

  Foundry accounts for stock options issued to employees under APB Opinion No.
25 whereby the difference between the exercise price and the fair value at the
date of grant is recognized as compensation expense. Had compensation expense
been determined consistent with SFAS No. 123, net income would have decreased
and losses would have increased to the following pro forma amounts (in
thousands except per share data):

<TABLE>
<CAPTION>
                                  Period
                              from Inception     Year Ended
                             (May 22, 1996) to   December 31,      Six Months
                               December 31,    ----------------  Ended June 30,
                                   1996         1997     1998         1999
                             ----------------- -------  -------  --------------
                                                                  (unaudited)
<S>                          <C>               <C>      <C>      <C>
Net income (loss) as
 reported..................       $(2,013)     $(9,007) $(9,352)     $2,912
Pro forma net income
 (loss)....................        (2,035)      (9,060)  (9,483)      2,570
Basic net income (loss) per
 share as reported.........         (1.49)       (1.99)   (1.04)       0.24
Pro forma net income (loss)
 per share.................         (1.51)       (2.00)   (1.05)       0.21
Diluted net income (loss)
 per share as reported.....         (1.49)       (1.99)   (1.04)       0.08
Pro forma diluted net
 income (loss) per share...         (1.51)       (2.00)   (1.05)       0.07
</TABLE>

  The weighted average fair value of options granted during 1996, 1997 and 1998
was $0.02, $0.03 and $0.12, respectively. Pursuant to the provisions of SFAS
No. 123, the compensation cost associated with options granted in 1996, 1997
and 1998 was estimated on the grant date using the Black-Scholes model and the
following assumptions:

<TABLE>
      <S>                                                          <C>
      Risk free interest rate..................................... 5.13 to 6.83%
      Average expected life of option.............................      4 years
      Dividend yield..............................................            0%
      Volatility of common stock..................................         0.01%
</TABLE>

                                      F-17
<PAGE>

                             FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


  In connection with the issuance of certain stock options to employees in 1998
and for the six months ended June 30, 1999, Foundry has recorded deferred stock
compensation in the aggregate amount of approximately $4,687,000 and
$14,812,000, respectively, representing the difference between the deemed fair
value of Foundry's common stock for accounting purposes and the exercise price
of stock options at the date of grant. Foundry is amortizing the deferred stock
compensation expense over the vesting period, generally four years. For the
year ended December 31,1998 and the six months ended June 30, 1999,
amortization expense was approximately $727,000 and $5,023,000, respectively.
At June 30, 1999, the remaining deferred stock compensation of approximately
$13.7 million will be amortized as follows: $4.1 million in the last two
quarters of fiscal 1999, $5.3 million during fiscal 2000, $2.9 million during
fiscal 2001, $1.2 million during fiscal 2002 and $200,000 during fiscal 2003.
The amortization expense relates to options granted to employees in all
operating expense categories. The amortization of deferred stock compensation
has not been separately allocated to these categories. The amount of deferred
stock compensation expense to be recorded in future periods could decrease if
options for which accrued but unvested compensation has been recorded are
forfeited.

6. SUBSEQUENT EVENTS:

  In January 1999, Foundry granted 353,000 nonstatutory stock options to
certain key employees outside of the 1996 Plan at an exercise price of $2.50
per share. The options vest over a four-year period and expire in January 2009.
The weighted average remaining contractual life of the options was 9.6 years as
of June 30, 1999.

  In January 1999, the Company entered into a lease agreement for additional
office facilities. The following summarizes future payments (in thousands):

<TABLE>
             <S>                                  <C>
             1999................................ $126
             2000................................   18
                                                  ----
                                                  $144
                                                  ====
</TABLE>

  In February 1999, Foundry entered into a revolving line of credit agreement
(the Agreement) with a bank which expires on February 18, 2000. The Agreement
provides for borrowings up to $10,000,000 of eligible accounts receivable at
the bank's prime rate. Borrowings are collaterized by substantially all of
Foundry's assets. The Agreement contains restrictive covenants which, among
other things, require Foundry to maintain certain financial ratios and limits
the payment of dividends. Borrowings outstanding under the line of credit as of
June 30, 1999 were $2,000,000.

  In March 1999, Foundry issued a letter of credit in the amount of $1,000,000
to a supplier which expires on December 31, 1999.

  In May 1999, the board of directors approved an amendment to Foundry's 1996
Stock Option Plan to increase the number of shares of common stock reserved
under the Plan from 11,270,000 to 12,270,000 shares.

  In June 1999, Foundry issued 125,000 shares of Series C redeemable
convertible preferred stock at $8.00 per share to a family trust, of which a
director of Foundry is a trustee, for gross proceeds of $1,000,000.

  In June 1999, the Company repurchased 400,000 unvested shares from a founder
at $0.01 per share. The repurchase was recorded as treasury stock on the
accompanying balance sheet as of June 30, 1999. Foundry recorded the repurchase
at the deemed fair value of the common stock on the transaction date.

                                      F-18
<PAGE>

No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in the
prospectus is current only as of its date.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   2
Risk Factors.............................................................   5
Forward-Looking Statements...............................................  18
Use of Proceeds..........................................................  18
Dividend Policy..........................................................  18
Capitalization...........................................................  19
Dilution.................................................................  20
Selected Financial Data..................................................  21
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  22
Business.................................................................  31
Management...............................................................  44
Principal Stockholders...................................................  54
Certain Transactions.....................................................  56
Description of Capital Stock.............................................  58
Shares Eligible for Future Sale..........................................  61
Underwriting.............................................................  63
Legal Matters............................................................  65
Experts..................................................................  65
Additional Information Available
 to You..................................................................  65
Index to Financial Statements............................................ F-1
</TABLE>

Until    , 1999 (25 days after the date of this prospectus), all dealers that
buy, sell or trade in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. Dealers are also obligated
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
-------------------------------------------------------------------------------

 [CORPORATION LOGO]

                            Foundry Networks, Inc.

      Shares

 Common Stock


 Deutsche Banc Alex. Brown

 Merrill Lynch & Co.

 J.P. Morgan & Co.

 Prospectus

         ,
<PAGE>

                                    PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

  The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.

<TABLE>
<CAPTION>
                                                                        Amount
                                                                        -------
   <S>                                                                  <C>
   SEC registration fee................................................ $23,978
   NASD filing fee.....................................................   9,125
   Nasdaq National Market listing fee..................................    *
   Printing and engraving expenses.....................................    *
   Legal fees and expenses.............................................    *
   Accounting fees and expenses........................................    *
   Blue Sky qualification fees and expenses............................  5,000
   Transfer Agent and Registrar fees...................................    *
   Miscellaneous fees and expenses.....................................    *
                                                                        -------
     Total.............................................................    *
                                                                        =======
</TABLE>
--------
* to be filed by amendment

Item 14. Indemnification of Directors and Officers

  Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Upon
completion of this offering, Article XIII of our certificate of incorporation
(Exhibit 3.2) and Article VI of our bylaws (Exhibit 3.4) will provide for
indemnification of our directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
we have entered into indemnification agreements with our officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-
indemnification among Foundry and the Underwriters with respect to certain
matters, including matters arising under the Securities Act.

Item 15. Recent Sales of Unregistered Securities

  Since inception in May 1996, we have sold and issued the following
unregistered securities:

1. In June 1996, we issued and sold 10,980,000 shares of common stock to a
   total of 4 investors for an aggregate purchase price of $109,800.

2. In June 1996, we issued 5,750,000 shares of Series A preferred stock to a
   total of 17 investors for an aggregate cash consideration of $5,750,000.

3. In October 1996, we issued warrants to purchase 30,000 shares of Series A
   preferred stock, which will convert to warrants to purchase common stock
   upon completion of this offering, to an entity in connection with an
   equipment lease agreement.

4. In June, August and December 1997, we issued a total of 4,086,954 shares of
   Series B preferred stock to a total of 14 investors for an aggregate cash
   consideration of $9,399,994.20.

                                     II-1
<PAGE>

5. In March 1998, we issued 5,154,642 shares of Series C preferred stock to a
   total of 15 investors for an aggregate cash consideration of $15,000,008.

6. In June 1999, we issued 125,000 shares of Series C preferred stock to one
   investor, a family trust of which Andrew K. Ludwick, a director of Foundry,
   is a trustee, for an aggregate cash consideration of $1,000,000.

  The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 2 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.

Item 16. Exhibits and Financial Statement Schedules

  (a) Exhibits

  See exhibits listed on the Exhibit Index following the signature page of
this Form S-1, which is incorporated herein by reference.

  (b) Financial Statement Schedules

    Schedule II--Valuation and Qualifying Accounts

  Other schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.

Item 17. Undertakings

  The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

  Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

  The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
    1933, the information omitted from the form of prospectus filed as part of
    this registration statement in reliance upon Rule 430A and contained in a
    form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
    (4) or 497(h) under the Securities Act shall be deemed to be part of this
    registration statement as of the time it was declared effective.

                                     II-2
<PAGE>

(2) For the purpose of determining any liability under the Securities Act of
    1933, each post-effective amendment that contains a form of prospectus
    shall be deemed to be a new registration statement relating to the
    securities offered therein, and the offering of such securities at that
    time shall be deemed to be the initial bona fide offering thereof.

                                      II-3
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Sunnyvale, State of
California on July 9, 1999.

                                          FOUNDRY NETWORKS, INC.

                                               /s/ Bobby R. Johnson, Jr.
                                          By: _________________________________
                                                   Bobby R. Johnson, Jr.
                                                 President, Chief Executive
                                              Officer andChairman of the Board
                                                        of Directors

                               POWER OF ATTORNEY

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Bobby R.
Johnson, Jr. and Timothy D. Heffner, and each of them, as his attorney-in-
fact, with full power of substitution, for him in any and all capacities, to
sign any and all amendments to this Registration Statement (including post-
effective amendments), and any and all Registration Statements filed pursuant
to Rule 462 under the Securities Act of 1933, as amended, in connection with
or related to the offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorney to any and all amendments to said Registration
Statement.

  Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:


<TABLE>
<CAPTION>
              Signature                          Title                   Date

<S>                                    <C>                        <C>
    /s/ Bobby R. Johnson, Jr.          President, Chief Executive    July 9, 1999
______________________________________  Officer and Chairman of
       (Bobby R. Johnson, Jr.)          the Board of Directors
                                        (Principal Executive
                                        Officer)

      /s/ Timothy D. Heffner           Vice President, Finance &     July 9, 1999
______________________________________  Administration, Chief
         (Timothy D. Heffner)           Financial Officer
                                        (Principal Financial and
                                        Accounting Officer)

        /s/ Seth D. Neiman             Director                      July 9, 1999
______________________________________
           (Seth D. Neiman)

      /s/ Andrew K. Ludwick            Director                      July 9, 1999
______________________________________
         (Andrew K. Ludwick)
</TABLE>

                                     II-4
<PAGE>

             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Board of Directors and Stockholders
of Foundry Networks, Inc.

  We have audited, in accordance with generally accepted auditing standards,
the financial statements of Foundry Networks, Inc. included in this
Registration Statement and have issued our report thereon dated June 17, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

                                          ARTHUR ANDERSEN LLP

San Jose, California
June 17, 1999
<PAGE>

                             FOUNDRY NETWORKS, INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
               Column A                Column B   Column C   Column D  Column E
-------------------------------------- --------- ---------- ---------- --------
                                        Balance                        Balance
                                          at     Charged to             at End
                                       Beginning Costs and                of
             Description               of Period  Expenses  Deductions  Period
-------------------------------------- --------- ---------- ---------- --------
<S>                                    <C>       <C>        <C>        <C>
Period ended December 31, 1996:
Allowance for doubtful accounts.......  $    --   $     --     $--     $     --
Allowance for sales returns...........  $    --   $     --     $--     $     --
Year ended December 31, 1997:
Allowance for doubtful accounts.......  $    --   $ 10,000     $--     $ 10,000
Allowance for sales returns...........  $    --   $     --     $--     $     --
Year ended December 31, 1998:
Allowance for doubtful accounts.......  $10,000   $389,000     $--     $399,000
Allowance for sales returns...........  $    --   $     --     $--     $     --
</TABLE>
<PAGE>

                     Foundry Networks, Inc. Exhibits Index

<TABLE>
<CAPTION>
 Number Description
 ------ -----------
 <C>    <S>
  1.1   Form of Underwriting Agreement.*
  3.1   Amended and Restated Certificate of Incorporation of Foundry Networks,
        Inc.
  3.2   Amended and Restated Certificate of Incorporation of Foundry Networks,
        Inc. (proposed).
  3.3   Amended and Restated Bylaws of Foundry Networks, Inc.
  3.4   Amended and Restated Bylaws of Foundry Networks, Inc. (proposed).
  4.1   Specimen Stock Certificate.
  4.2   Preferred Stock Purchase Warrant dated October 9, 1996.
  5.1   Opinion of Venture Law Group regarding the legality of the common stock
        being registered.*
 10.1   1996 Stock Plan (amended July 8, 1999).
 10.2   1999 Employee Stock Purchase Plan dated July 8, 1999.
 10.3   1999 Directors' Stock Option Plan dated July 8, 1999.
 10.4   Form of Indemnification Agreement between Foundry Networks, Inc. and
        each of its Officers and Directors.
 10.5   OEM Purchase Agreement dated January 6, 1999 between Foundry Networks,
        Inc. and Hewlett-Packard Company, Workgroup Networks Division.**
 10.6   Reseller Agreement dated July 1, 1997 between Foundry Networks, Inc.
        and Mitsui & Co., Ltd.**
 10.7   Common Stock Purchase Agreement and Assignment Agreement between
        StarRidge Networks, Inc. and Bobby R. Johnson, Jr. dated June 6, 1996.
 10.8   Promissory Note, Pledge and Security Agreement and Assignment Separate
        from Certificate dated June 25, 1997, executed by Drusilla Demopoulos
        in connection with a loan from Foundry Networks, Inc. in connection
        with the exercise of options to purchase common stock.
 10.9   Promissory Note, Pledge and Security Agreement and Assignment Separate
        from Certificate dated April 29, 1998, executed by Drusilla Demopoulos
        in connection with a loan from Foundry Networks, Inc. in connection
        with the exercise of options to purchase common stock.
 10.10  Promissory Note, Pledge and Security Agreement and Assignment Separate
        from Certificate dated October 6, 1998, executed by Ken Cheng in
        connection with a loan from Foundry Networks, Inc. in connection with
        the exercise of options to purchase common stock.
 10.11  Lease agreement dated October 16, 1996, between StarRidge Networks,
        Inc. and PaineWebber Qualified Plan Property Fund Four, L.P. for
        offices at 680 W. Maude Ave., Sunnyvale, CA 94086.
 10.12  Sublease agreement dated March 15, 1999 between Foundry Networks, Inc.
        and Prolifix Medical, Inc. for offices at 680 W. Maude Ave., Sunnyvale,
        CA 94086.
 23.1   Consent of Arthur Andersen, LLP, Independent Auditors
 23.2   Consent of Counsel (included in Exhibit 5.1).*
 24.1   Power of Attorney (included on Page II-4)
 27.1   Financial Data Schedule (EDGAR-filed version only)
</TABLE>
--------
* To be filed by amendment.
** Confidential treatment requested as to certain portions of this exhibit.
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{"company-data": {"conformed-name": "FOUNDRY NETWORKS INC", "cik": "0001090071", "assigned-sic": ""}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-82577", "film-number": "99661988"}, "business-address": {"street1": "680 W MAUDE AVENUE", "street2": "SUITE 3", "city": "SUNNYVALE", "state": "CA", "zip": "94086"}}
As filed with the Securities and Exchange Commission on July 9, 1999
                                                     Registration No. 333-xxxxx
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                ---------------

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          THE SECURITIES ACT OF 1933

                                ---------------

                            FOUNDRY NETWORKS, INC.
            (Exact name of registrant as specified in its charter)

                                ---------------
        Delaware                    3576                     77-0431154
    (State or Other          (Primary Standard            (I.R.S. Employer
    Jurisdiction of              Industrial            Identification Number)
    Incorporation or        Classification Code
     Organization)                Number)

                                ---------------

                         680 W. Maude Avenue, Suite 3
                              Sunnyvale, CA 94086
                                (408) 530-3300
  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)

                                ---------------

         Bobby R. Johnson, Jr., President and Chief Executive Officer
                            FOUNDRY NETWORKS, INC.
                              Sunnyvale, CA 94086
                                (408) 530-3300
 (Name, Address Including Zip Code, and Telephone Number Including Area Code,
                             of Agent for Service)

                                ---------------
                                  Copies to:
            Joshua L. Green                        Jorge del Calvo
             David C. Lee                         Karen A. Dempsey
         Robert S. Schlossman                      Davina K. Kaile
           Russ K. Yoshinaka                        Karen M. Yan
           VENTURE LAW GROUP                PILLSBURY MADISON & SUTRO LLP
      A Professional Corporation                 2550 Hanover Street
          2800 Sand Hill Road                    Palo Alto, CA 94304
         Menlo Park, CA 94025

                                ---------------

  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
                                ---------------

  If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

  If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

  If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

  If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                                ---------------

                        CALCULATION OF REGISTRATION FEE

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Title Of Each Class Of Securities       Proposed Maximum Aggregate
         To Be Registered                    Offering Price (1)             Amount Of Registration Fee
------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001
  per share.......................              $86,250,000                          $23,978
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
 registration fee pursuant to Rule 457(o) under the Securities Act.

                                ---------------

  The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and we are not soliciting an offer to buy      +
+these securities in any state where the offer or sale is not permitted.       +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
 Subject to Completion, Dated      , 1999

 [LOGO]

--------------------------------------------------------------------------------

     Shares

 Common Stock

--------------------------------------------------------------------------------

 This is the initial public offering of Foundry Networks, Inc. We are offering
         shares of our common stock. We anticipate the initial public offering
 price will be between $    and $    per share.

 We have applied to list our common stock on the Nasdaq National Market under
 the symbol "FDRY."

 Investing in our common stock involves risks. See "Risk Factors" beginning on
 page 5.

 Neither the Securities and Exchange Commission nor any state securities
 commission has approved or disapproved of these securities or passed upon the
 adequacy or accuracy of this prospectus. Any representation to the contrary is
 a criminal offense.
Underwriting
                            Price to            Discounts            Proceeds to
                            Public              and Commissions      Foundry Networks, Inc.
   Per share                $                   $                    $
   Total                    $                   $                   $
We have granted the underwriters the right to purchase up to     additional
 shares to cover any over-allotments.

 Deutsche Banc Alex. Brown

                               Merrill Lynch & Co.

                                                             J.P. Morgan & Co.

 The date of this prospectus is        , 1999
[INSIDE FRONT COVER]

                                [COLOR ARTWORK]
TABLE OF CONTENTS
Page
                                                                          ----
Prospectus Summary.......................................................   2
Risk Factors.............................................................   5
Forward-Looking Statements...............................................  18
Use of Proceeds..........................................................  18
Dividend Policy..........................................................  18
Capitalization...........................................................  19
Dilution.................................................................  20
Selected Financial Data..................................................  21
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  22
Business.................................................................  31
Management...............................................................  44
Principal Stockholders...................................................  54
Certain Transactions.....................................................  56
Description of Capital Stock.............................................  58
Shares Eligible for Future Sale..........................................  61
Underwriting.............................................................  63
Legal Matters............................................................  65
Experts..................................................................  65
Additional Information Available to You..................................  65
Index to Financial Statements............................................ F-1
----------------

  Foundry Networks, NetIron, TurboIron and our gear logo are registered
trademarks, and FastIron, BigIron and IronView are trademarks of Foundry. All
other brand names or trademarks appearing in this prospectus are the property
of their respective holders.

  Unless otherwise indicated, this prospectus assumes:

  .  that the underwriters have not exercised their option to purchase
     additional shares; and

  .  all shares of preferred stock have been converted into shares of common
     stock immediately prior to the closing of this offering.
PROSPECTUS SUMMARY

  This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus including "Risk Factors" and the financial statements, before
making an investment decision.

                                  Our Business

  Foundry Networks designs, develops, manufactures and markets a comprehensive
suite of high performance networking products for enterprises and Internet
service providers. Our Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switches
enable our customers to build and maintain efficient, high performance
networks. Layer 2 switches provide dedicated bandwidth, while Layer 3 switches
route network traffic. Layer 4-7 switches, a new generation of networking
devices, provide the intelligence to control information delivery. Our products
provide solutions for many types of networks, including local area networks or
LANs, metropolitan area networks or MANs, and wide area networks or WANs. This
product breadth allows us to provide solutions throughout a customer's network,
from the wiring closet edge of an enterprise LAN to the LAN core, and from the
WAN edge of an Internet service provider to its network of Internet servers.

  By using customized semiconductors, known as application-specific integrated
circuits, or ASICs, we provide switching products that offer better performance
at a lower cost than traditional software-based routers. Our Layer 2 and Layer
3 switches provide the bandwidth required to support the increasing use of
bandwidth-intensive and Internet-based applications. Our high performance Layer
4-7 switching products allow enterprises and Internet service providers to
direct traffic flow more efficiently, based on application type and end user,
while also allowing Internet service providers to offer their customers
differentiated, fee-based quality of service. By providing high levels of
performance and network intelligence capabilities at leading price points we
provide a comprehensive solution to address the rapidly growing networking
market.

  The emergence of the Internet and bandwidth-intensive applications has posed
new demands on the networks of enterprises and Internet service providers. The
number of Internet users and volume of network traffic have grown
exponentially, with the majority of traffic now traversing LAN boundaries to
WANs and the Internet. In addition, the complexity of traffic has also
increased with the pervasiveness of new applications that incorporate
increasing amounts of data, voice, video and graphics. To satisfy these
demands, enterprises and Internet service providers require networking
solutions with superior performance and intelligence capabilities, resulting in
the emergence of a large market for a broad range of high performance, cost-
effective switching solutions with network intelligence capabilities.

  Collaborative Research, an independent research and consulting firm
specializing in the Layer 4-7 switching market, estimates in a February 1999
report that the Layer 4-7 switching market totaled $130 million in 1998 and is
expected to grow to $1 billion in 2002. Dell'Oro Group, an independent
networking industry research and consulting firm, estimates in a March 1999
report that the Layer 3 switching market totaled $637 million in 1998 and is
expected to increase to $3.9 billion in 2002.

                                       2
Our solution to address this market provides the following benefits:

    Breadth of Product Line. We are one of the few networking companies to
  provide a full suite of Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7
  products applicable to LANs, MANs and WANs, enabling us to provide solu-
  tions throughout a customer's network.

    Performance. Our products provide a high level of performance to allow
  enterprises and Internet service providers to build highly reliable
  networks that support unpredictable traffic flows, bandwidth-intensive
  applications and dynamic end-user needs.

    Intelligence. Our products provide the intelligence required to transport
  unpredictable traffic and bandwidth-intensive applications, which improves
  the performance, reliability and manageability of networks.

    Leading Price Points. Our products are designed to offer superior perfor-
  mance and network intelligence capabilities at leading price points.

    Flexibility of Architecture. Our products are based on a uniform hardware
  architecture that is compatible with all major existing network products.
  This allows customers to integrate our products into their networks without
  an extensive and expensive replacement of their existing network
  components.

  Since inception, our products have received the following awards:

    FastIron. Network Magazine "1998 Gigabit Ethernet Product of the Year"
  award granted in April 1998, LAN Times "Best of LAN Times" award granted in
  October 1997 and Network Computing "Editor's Choice" award granted in
  October 1997.

    FastIron II. Network Computing "Editor's Choice" award for mid-range
  Layer 3 switches granted in March 1999.

    NetIron. Network Computing "Editor's Choice" award granted in January
  1998 and Data Communications "Tester's Choice" award granted in November
  1997 for Layer 3 switches.

    BigIron. Rated by PC Week as the highest performing Gigabit chassis
  switch in February 1999; Data Communications "Tester's Choice" award
  granted in November 1998 and Business Communications "Best-in-Test" award
  granted in September 1998.

    ServerIron. Network Week "Infrastructure Product of the Year" award
  granted in June 1999 and Network Computing "Flying Colors" award granted in
  June 1998.

  We sell our products through a direct sales force, resellers and an OEM. Our
products have been deployed in enterprises spanning many industries,
educational institutions and government agencies and in Internet service
providers.

  We were incorporated in Delaware on May 22, 1996, and changed our name to
Foundry Networks, Inc. on January 22, 1997. Our principal executive offices are
located at 680 W. Maude Avenue, Suite 3, Sunnyvale, CA 94086. Our telephone
number at that location is (408) 530-3300. References in the prospectus to
"we," "our," and "us" refer to Foundry. Our web site is located at
www.foundrynetworks.com. The information contained on our web site does not
constitute part of this prospectus.

                                       3
The Offering
Common stock offered by Foundry.....          shares
Common stock to be outstanding after
 this offering......................          shares
Use of proceeds.....................  For working capital and general corporate
                                      purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
 symbol.............................  "FDRY"
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of June 30, 1999.
This number excludes as of June 30, 1999: (1) 3,508,969 shares subject to
outstanding options and 295,334 shares available for future options grants
under our 1996 Stock Plan; (2) 353,000 shares subject to non-plan options; and
(3) 30,000 shares subject to warrants to purchase Series A preferred stock
which will convert to warrants to purchase common stock upon completion of this
offering. This number also excludes 950,000 shares reserved for issuance under
our 1999 Directors' Stock Option Plan and 1999 Employee Stock Purchase Plan and
2,000,000 additional shares available for future option grants under our 1996
Stock Plan which were authorized in July 1999.

                             Summary Financial Data
                     (in thousands, except per share data)
Period from
                                   May 22, 1996                    Six Months
                                   (Inception)    Year Ended         Ended
                                        to       December 31,       June 30,
                                   December 31, ---------------  ---------------
                                       1996      1997    1998     1998    1999
                                   ------------ ------  -------  ------  -------
                                                                  (unaudited)
Statement of Operations Data:
Revenue, net.....................     $  --     $3,381  $17,039  $4,203  $39,487
Gross profit.....................        --      1,546    8,606   2,121   21,146
Income (loss) from operations....     (2,140)   (9,129)  (9,765) (4,443)   3,870
Net income (loss)................     (2,013)   (9,007)  (9,352) (4,230)   2,912
Diluted net income (loss) per
 share...........................                         (1.04)            0.08
Weighted average shares used in
 computing diluted net income
 (loss) per share................                         8,992           34,880
Pro forma basic net income (loss)
 per share.......................                         (0.41)            0.11
Weighted average shares used in
 computing pro forma basic net
 income (loss) per share.........                        22,882           27,170
June 30, 1999
                                                           (unaudited)
                                                  ------------------------------
                                                                      Pro Forma
                                                  Actual   Pro Forma As Adjusted
                                                  -------  --------- -----------
Balance Sheet Data:
Cash and cash equivalents........................ $12,340   $12,340     $
Working capital..................................  21,319    21,319
Total assets.....................................  36,453    36,453
Total stockholders' equity (deficit).............  (9,351)   21,734
See Note 2 of the Notes to Financial Statements for an explanation of the
determination of the number of shares and share equivalents used in computing
pro forma per share amounts.

  The pro forma balance sheet data summarized above assumes the conversion of
all outstanding shares of preferred stock into common stock upon completion of
this offering. The pro forma as adjusted data above adjusts the pro forma
amounts to reflect the application of the net proceeds from the sale of
shares of common stock offered by Foundry at an assumed initial public offering
price of $  per share, after deducting the estimated underwriting discount and
the estimated offering expenses.

                                       4
RISK FACTORS

  This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. Any
of the following risks could cause the trading price of our common stock to
decline.

We have a history of losses and may not be profitable in the future.

  We have incurred net losses of $2.0 million from inception through December
31, 1996, $9.0 million in 1997 and $9.4 million in 1998. We had net income of
$2.9 million for the six months ended June 30, 1999. As of June 30, 1999, we
had an accumulated deficit of $17.5 million. We expect to incur increased costs
and expenses related to:

  .  sales and marketing, including expansion of our direct sales operation
     and distribution channels;

  .  product development;

  .  customer support;

  .  expansion of our corporate infrastructure; and

  .  facilities expansion.

  Our ability to remain profitable depends on our ability to generate and
sustain substantially higher revenue while maintaining reasonable cost and
expense levels. We may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.

We may not meet quarterly financial expectations, which could cause our stock
price to decline.

  We may experience a delay in generating or recognizing revenue for a number
of reasons. Orders at the beginning of each quarter typically do not equal
expected revenue for that quarter and are generally cancelable at any time.
Therefore, we depend on obtaining orders in a quarter for shipment in that
quarter to achieve our revenue objectives. In addition, the failure to ship
products by the end of a quarter may negatively affect our operating results.
Our reseller agreements typically provide that the reseller may delay scheduled
delivery dates without penalty. Further, our customer purchase orders and
reseller agreements sometimes provide that the customer or reseller may cancel
orders within specified time frames without significant penalty.

  We plan to significantly increase our operating expenses to expand our sales
and marketing efforts, expand our customer support capabilities, finance
increased levels of research and development, build our operational and
administrative infrastructure and obtain a larger facility. We base our
operating expenses on anticipated revenue trends and a high percentage of our
expenses are fixed in the short term. As a result, any delay in generating or
recognizing forecasted revenue could cause our quarterly operating results to
be below the expectations of public market analysts or investors, which could
cause the price of our common stock to fall.

  We believe that period-to-period comparisons of our operating results should
not be relied upon as an indicator of our future performance. The primary
factors that may affect us include the following:

  .  fluctuations in demand for our products and services, particularly in
     Europe and Asia;

                                       5
.  unexpected product returns or the cancellation or rescheduling of
     significant orders;

  .  our ability to develop, introduce, ship and support new products and
     product enhancements and manage product transitions;

  .  announcements and introductions of new products by our competitors and
     us;

  .  our ability to build infrastructure to support increased growth;

  .  our ability to achieve required cost reductions;

  .  our ability to obtain sufficient supplies of sole- or limited-sourced
     components for our products;

  .  increases in the prices of the components we purchase;

  .  our ability to attain and maintain production volumes and quality levels
     for our products;

  .  the mix of products sold and the mix of distribution channels through
     which they are sold; and

  .  costs relating to possible acquisitions and integration of technologies
     or businesses.

Intense competition in the market for network solutions could prevent us from
increasing revenue and sustaining profitability.

  The market for network solutions is intensely competitive. In particular,
Cisco maintains a dominant position in this market and several of its products
compete directly with our products. Its substantial resources and market
dominance have enabled it to reduce prices on its products within a short
period of time following the introduction of these products, which reduces the
margins and profitability of its competitors. Purchasers of networking
solutions may choose Cisco's products because of its longer operating history,
broad product line and strong reputation in the networking market. In addition,
Cisco may have developed or could in the future develop new technologies that
directly compete with our products or render our products obsolete.

  In addition to Cisco, we compete with other large public companies, such as
3Com and Nortel Networks, as well as other smaller public and private
companies. Many of our current and potential competitors have longer operating
histories and substantially greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and larger installed
customer bases than we do. Furthermore, companies that do not offer a directly
competitive product to our products could develop new products or enter into
agreements with other networking companies to provide a product that competes
with our products or provides a more complete solution than we can offer.
Additionally, we may face competition from unknown companies and emerging
technologies that may offer new LAN, MAN and LAN/WAN solutions to enterprises
and Internet service providers.

  In order to remain competitive, we must, among other things, invest
significant resources in developing new products with superior performance at
lower prices than our competitors. We must also enhance our current products
and maintain customer satisfaction. If we fail to do so, our products may not
compete favorably with those of our competitors and our revenue and
profitability could suffer.

We must develop and expand our North American direct sales operation and
reseller distribution channels and continue to provide excellent customer
support to increase revenue.

  Our North American distribution strategy focuses primarily on developing and
expanding our direct sales operation and, to a lesser extent, our indirect
distribution channels through

                                       6
resellers. Our inability to effectively manage the expansion of our domestic
sales and support staff or establish our indirect distribution channels could
harm our ability to grow and increase revenue. We recently expanded our sales
force and plan to hire additional sales personnel. Our ability to increase
revenue to the level we expect depends on the additional hiring, training and
retention of a qualified sales force. However, competition for qualified sales
personnel is intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. This expansion of our direct sales operation
may not be successfully completed and the cost of this expansion may exceed the
revenue generated. Our expanded sales and support staff may not compete
successfully against the significantly larger and well-funded sales and
marketing operations of many of our current or potential competitors. In
addition, we have recently increased our sales force in advance of sales, and
if this increase does not result in an increase in sales, our business may
suffer.

  In addition, if we fail to develop relationships with significant resellers,
or if these resellers are not successful in their sales efforts, sales of our
products may decrease and our operating results would suffer. Some of our
resellers sell products that compete with our products. Our resellers may not
market our products effectively or continue to devote the resources necessary
to provide us with effective sales, marketing and technical support.

  We need to increase our customer service and support staff to support new and
existing customers and resellers. The design and installation of networking
products can be complex and our customers, particularly our Internet service
provider customers, require a high level of sophisticated support and services.
Therefore, we need highly trained customer service and support personnel.
Hiring customer service and support personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of our products.

Our future success depends on our ability to introduce new products with
superior performance in a timely manner.

  The current life cycle of our products is typically 18 to 24 months. To
remain competitive, we need to introduce new products in a timely manner that
offer substantially greater performance and support a greater number of users
per device, all at lower price points. The introduction of new products
involves substantial risks. For example, we have experienced delays in
releasing new products and product enhancements in the past which delayed
sales, increased expenses and resulted in lower quarterly revenue than
anticipated. During the development of our products, we have experienced delays
in the prototyping of our ASICs, which in turn has led to delays in product
introductions. In the future, we may experience delays in product development.
We may also introduce a product before industry standards or demand are
established. Poorly timed product introductions may affect our ability to
compete and harm our operating results. In addition, when we announce new
products or product enhancements that have the potential to replace or shorten
the life cycle of our existing products, customers may defer purchasing our
existing products. This could harm our operating results by decreasing sales,
increasing our inventory levels of older products and exposing us to greater
risk of product obsolescence.

We depend on large purchases from a few significant customers, and any loss,
cancellation or delay in purchases by these customers could harm our business.

  To date, a limited number of customers and resellers have accounted for a
significant portion of our revenue. If any of these customers stop or delay
purchases, our revenue and profitability could suffer. In 1998, Mitsui & Co.
(U.S.A.) accounted for 21% of our revenue. For

                                       7
the six months ended June 30, 1999, America Online, Hewlett-Packard and Mitsui
accounted for 17%, 15% and 10% of our revenue, respectively.

  While our financial performance depends on large orders from a few
significant customers and resellers, we do not have binding commitments from
any of them. For example:

  .  our reseller agreements generally do not require minimum purchases;

  .  our customers can stop purchasing and our resellers can stop marketing
     our products at any time;

  .  our reseller agreements generally are not exclusive and are for one year
     terms, with no obligation of the resellers to renew the agreements; and

  .  our reseller agreements provide for discounts based on expected or
     actual volumes of products purchased or resold by the reseller in a
     given period.

  Because our expenses are based on our revenue forecasts, a substantial
reduction or delay in sales of our products to, or unexpected returns from
customers and resellers, or the loss of any significant customer or reseller
could harm our business. Although our largest customers may vary from period-
to-period, we anticipate that our operating results for any given period will
continue to depend to a significant extent on large orders from a small number
of customers.

Our success depends upon sales to Internet service providers, whose
unpredictable demands, requirements and business models subject us to potential
adverse revenue fluctuations.

  We have recently introduced products specifically targeted at the Internet
service provider market and currently have under development other products
that will address their requirements. As a result, our success depends on
increased sales to Internet service providers. Although we expect these sales
to increase, we believe that there are a number of risks arising from doing
business with Internet service providers which may not arise in our
relationships with our other customers, including:

  .  Internet service providers demonstrate a low level of brand loyalty and
     may switch to another supplier which provides superior performance;

  .  any failure of an Internet service provider's service to its customers,
     particularly in the case of America Online, that is correctly or
     incorrectly attributed to our products could lead to substantial
     negative publicity and undermine our efforts to increase our sales in
     both this market and other markets;

  .  we may lose Internet service provider customers if they fail due to the
     highly competitive nature of their business or if they do not survive as
     a result of mergers and acquisitions in the Internet service provider
     industry; and

  .  if the Internet does not continue to expand as a widespread
     communications medium and commercial marketplace, the growth of the
     market for Internet infrastructure equipment may not continue and the
     demand for our products could decline.

  Due to these factors, we may not successfully increase our penetration of the
Internet service provider market or maintain our current level of sales in this
market.

Hewlett-Packard is a major customer and our sole OEM, and the termination of
our relationship with Hewlett-Packard could harm our business.

  In January 1999, we entered into an OEM Purchase Agreement with Hewlett-
Packard whereby Hewlett-Packard agreed to purchase our products for resale to
its customers and for

                                       8
its own internal use. For the six months ended June 30, 1999, Hewlett-Packard
accounted for 15% of our revenue, and we anticipate that it will continue to
account for a significant percentage of our revenue. In addition to providing
revenue through sales of our products to Hewlett-Packard, we believe that this
relationship is important to facilitate broad market acceptance of our products
and enhance our sales, marketing and distribution capabilities. Therefore, in
addition to directly affecting our revenue, the cancellation of this agreement
could harm our ability to market and sell our products to potential customers.
This agreement continues until May 18, 2000, unless terminated earlier for a
material breach by either party. The agreement automatically renews for two
additional one year periods, unless the agreement is terminated within 60 days
prior to the end of any period.

  This agreement provides that Hewlett-Packard may postpone, cancel, increase
or decrease any order made under the agreement without penalty. In addition,
this agreement provides manufacturing rights and access to our source code upon
the occurrence of specified conditions of default. If we were to default,
Hewlett-Packard could use our source code to develop and manufacture competing
products. This could harm our performance and ability to compete.

  This agreement creates the potential that we and Hewlett-Packard may compete
for sales to the same customer. If this situation occurs, it could harm our
relationship with Hewlett-Packard and also harm our business.

We expect the average selling prices of our products to decrease which may
reduce gross margins or revenue.

  Our industry has experienced rapid erosion of average product selling prices
due to a number of factors, particularly competitive pressures and rapid
technological change. We may experience substantial period-to-period
fluctuations in future operating results due to the erosion of our average
selling prices. We also anticipate that the average selling prices of our
products will decrease in response to competitive pressures, increased sales
discounts, new product introductions by our competitors or other factors.

If we are unable to hire additional qualified personnel as necessary or if we
lose key personnel, we may not be able to successfully manage our business or
achieve our objectives.

  We believe our future success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel. Competition for these personnel
is intense, especially in the San Francisco Bay Area, and we have had
difficulty hiring employees in the timeframe we desire, particularly engineers.
We may not succeed in identifying, attracting and retaining personnel. The loss
of the services of any of our key personnel, the inability to identify, attract
or retain qualified personnel in the future or delays in hiring required
personnel, particularly engineers and sales personnel, could make it difficult
for us to manage our business and meet key objectives, such as timely product
introductions. In addition, companies in the networking industry whose
employees accept positions with competitors frequently claim that competitors
have engaged in unfair hiring practices. We have received one claim like this
from another company and we may receive additional claims in the future. We
could incur substantial costs in defending ourselves against any such claims,
regardless of the merits of such claims.

  Our success also depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, finance
and manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success

                                       9
depends on Bobby R. Johnson, Jr., President, Chief Executive Officer and
Chairman of the Board, and H. Earl Ferguson, Vice President, Hardware
Engineering. We do not have employment contracts or key person life insurance
covering any of our personnel.

Our ability to sustain and increase our international sales depends on
successfully expanding our international operations.

  Our success will depend, in part, on increasing international sales and
expanding our international operations. Our international sales primarily
depend on our resellers, including Boreal and Mitech in Europe, Mitsui in Japan
and Samsung in Korea. Although we expect international revenue to increase as a
percentage of our total revenue, the failure of our resellers to sell our
products internationally would limit our ability to sustain and grow our
revenue. In particular, our revenue from international sales depends on
Mitsui's ability to sell our products and on the strength of the Japanese
economy which has been weak in recent years.

  There are a number of risks arising from our international business,
     including:

  .  potential recessions in economies outside the United States, such as
     Japan;

  .  longer accounts receivable collection cycles;

  .  difficulties in managing operations across disparate geographic areas;

  .  difficulties associated with enforcing agreements through foreign legal
     systems;

  .  import or export licensing requirements;

  .  potential adverse tax consequences; and

  .  unexpected changes in regulatory requirements.

  Our international sales currently are denominated in U.S. dollars. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive on a price basis in
international markets. In the future, we may elect to invoice some of our
international customers in local currency, which could subject us to
fluctuations in exchange rates between the U.S. dollar and the local currency.

  In January 1999, the new "Euro" currency was introduced in European countries
that are part of the European Monetary Union ("EMU"). During 2002, all EMU
countries are expected to completely replace their national currencies with the
Euro. Because a significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace and because all of the final rules and
regulations have not yet been defined and finalized by the European Commission
regarding the Euro currency, we cannot determine the effect this will have on
our business.

Our reliance on sole or limited sources for key components may inhibit our
ability to meet customer demand.

  We currently purchase several key components used in our products from sole
or limited sources and depend on supply from these sources to meet our needs.
Our principal suppliers of key components include Celestica-Asia, Texas
Instruments, Toshiba, Hewlett-Packard, Molex and Intel. We acquire these
components through purchase orders and have no long-term commitments from these
suppliers. We may encounter shortages and delays in obtaining

                                       10
components in the future which could impede our ability to meet customer
orders. Our principal sole-sourced components include:

  .  ASICs;

  .  programmable integrated circuits;

  .  selected other integrated circuits;

  .  power supplies;

  .  custom-tooled sheet metal; and

  .  long-range optics.

Our principal limited-sourced components include:

  .  dynamic and static random access memories, commonly known as DRAMs and
     SRAMs;

  .  printed circuit boards;

  .  sheet metal; and

  .  microprocessors.

  We depend on anticipated product orders to determine our material
requirements. Lead times for sole- or limited-sourced materials and components
can be as long as six months, vary significantly and depend on factors such as
the specific supplier, contract terms and demand for a component at a given
time. If orders do not match forecasts, we may have either excess or inadequate
inventory of materials and components, which could negatively affect our
operating results and financial condition. From time to time, we have
experienced shortages in allocations of components, resulting in delays in
filling orders.

Our reliance on third-party manufacturing vendors to manufacture our products
may cause a delay in our ability to fill orders.

  We currently subcontract substantially all of our manufacturing to two
companies, Celestica-Asia, located in San Jose, California, which assembles and
tests our printed circuit boards, and Hadco Corporation, located in Santa
Clara, California, which assembles and tests our backplane products. We do not
have long-term contracts with either of these manufacturers. We have
experienced delays in product shipments from our contract manufacturers, which
in turn delayed product shipments to our customers. We may in the future
experience similar delays or other problems, such as inferior quality and
insufficient quantity of product, any of which could harm our business and
operating results. We intend to regularly introduce new products and product
enhancements, which will require us to rapidly achieve volume production by
coordinating our efforts with those of our suppliers and contract
manufacturers. We attempt to increase our material purchases, contract
manufacturing capacity and internal test and quality functions to meet
anticipated demand. The inability of our contract manufacturers to provide us
with adequate supplies of high-quality products or the loss of either of our
contract manufacturers, or the ability to obtain raw materials, could cause a
delay in our ability to fulfill orders.

Due to the lengthy sales cycles of some of our products, the timing of our
revenue is difficult to predict and may cause us to miss our revenue
expectations.

  Some of our products have a relatively high sales price, and often represent
a significant and strategic decision by an enterprise or Internet service
provider. As a result, the length of our sales cycle in these situations can be
as long as 12 months and may vary substantially

                                       11
from customer to customer. While our customers are evaluating our products and
before they may place an order with us, we may incur substantial sales and
marketing expenses and expend significant management effort. Consequently, if
sales forecasted from a specific customer for a particular quarter are not
realized in that quarter, we may not meet our revenue expectations.

Our success depends on the widespread market acceptance of our products.

  Our success depends on achieving widespread market acceptance of our products
and their underlying technologies. Factors that may affect the acceptance of
our products include:

  .  widespread market acceptance of Gigabit Ethernet Layer 3 switching
     technologies;

  .  market adoption of Layer 4-7 switching technologies;

  .  the performance, price and total cost of ownership of our products;

  .  the availability and price of competing products and technologies; and

  .  the success of our direct sales operation, resellers and our OEM.

  If our products do not achieve market acceptance, our operating results could
be harmed.

The adoption of standards for new technologies in our industry is important and
the timing of the adoption of industry standards may negatively impact
widespread market acceptance of our products.

  Our success depends in part on both the adoption of industry standards for
new technologies in our market and our products' compliance with industry
standards. Many technological developments occur prior to the adoption of the
related industry standard. The absence of an industry standard related to a
specific technology may prevent market acceptance of products using the
technology. For example, the adoption of an industry standard related to
Gigabit Ethernet was an important step for our products to achieve market
acceptance. An important standards setting organization in our industry is the
Institute of Electrical and Electronics Engineers, often referred to as IEEE.
The IEEE standards board officially approved the standard related to Gigabit
Ethernet, specifically the IEEE 802.3z standard, in June 1998, after
approximately two years of work. We introduced Gigabit Ethernet products in May
1997, over a year prior to the adoption of the IEEE 802.3z standard. We are in
the process of and intend to develop products using other technological
advancements, such as Gigabit Ethernet over copper and 10 Gigabit Ethernet, and
may develop these products prior to the adoption of industry standards related
to these technologies. If we introduce a product before an industry standard
has become widely accepted, we may incur significant expenses and losses due to
lack of customer demand, unusable purchased components for these products and
the diversion of our engineers from future product development efforts.
Further, because we develop some products prior to the adoption of industry
standards, we may develop products that do not comply with the eventual
industry standard. Our failure to develop products that comply with industry
standards would hurt our ability to sell these products. Finally, if the
industry evolves to new standards, we may not be able to successfully design
and manufacture new products in a timely fashion that meet these new standards.

If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lost sales and be subject to product
liability claims.

  Our products are complex and may contain undetected defects or errors,
particularly when first introduced or as new enhancements and versions are
released. Despite our testing

                                       12
procedures, these defects and errors may be found after commencement of
commercial shipments. Any defects or errors in our products discovered in the
future or failures of our customers' networks, whether caused by our products
or another vendors' products could result in:

  .  negative customer reactions;

  .  product liability claims;

  .  negative publicity regarding us and our products;

  .  delays in or loss of market acceptance of our products;

  .  product returns;

  .  lost sales; and

  .  unexpected expenses to remedy errors.

Continued rapid growth will strain our operations and will require us to incur
costs to upgrade our infrastructure.

  We have experienced rapid growth which has placed, and continues to place, a
significant strain on our resources. For example, we had 131 full-time
employees as of June 30, 1999 compared to 55 full-time employees as of June 30,
1998, an increase of 138%. Our management team has limited experience managing
rapidly growing companies on a public or private basis. As a result, we may
make mistakes in operating our business, such as inaccurately forecasting our
sales, which may result in unanticipated fluctuations in our operating results.
We expect our anticipated growth and expansion to strain our management,
operational and financial resources. To accommodate this anticipated growth, we
must:

  .  improve existing and implement new operational and financial systems,
     procedures and controls;

  .  hire, train and manage additional qualified personnel, including in the
     near future, a significant number of new sales personnel; and

  .  effectively manage multiple relationships with our customers, suppliers
     and other third parties.

  We may not be able to install adequate control systems in an efficient and
timely manner, and our current or planned personnel systems, procedures and
controls may not be adequate to support our future operations. Any delay in the
implementation of or disruption in the transition to new or enhanced systems,
procedures or controls, could harm our ability to accurately forecast sales
demand, manage our supply chain and record and report financial and management
information on a timely and accurate basis.

If we fail to lease adequate additional space, our business could be harmed.

  In June 1999, we leased approximately 9,500 additional square feet in our
current facility primarily for the expansion of our manufacturing capabilities.
This lease expires at the end of February 2000. Prior to that date we leased
approximately 18,000 square feet for our corporate headquarters which includes
research and development, sales and marketing, general and administrative and
manufacturing. This lease expires in November 2001. We believe, however, that
by the end of 1999, we will need additional space to accommodate our growth.
The commercial real estate market in the San Francisco Bay area is volatile and
unpredictable in terms of available space, rental fees, occupancy rates and
preferred locations. If we fail to

                                       13
lease new space on reasonable terms, our ability to expand our business may be
negatively affected or our operating results could be harmed. In addition, if
not handled appropriately, the transition to a new facility could disrupt our
operations.

Our products must comply with government regulations.

  In the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, products that we develop may be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International
Telecommunication Union. If we do not comply with existing or evolving industry
standards or if we fail to obtain timely domestic or foreign regulatory
approvals or certificates we would not be able to sell our products where these
standards or regulations apply, which may prevent us from sustaining our
revenue or maintaining profitability.

Any acquisitions we make could harm our business.

  As part of our business strategy, we may review acquisition prospects that
would complement our existing business or enhance our technological
capabilities. Future acquisitions by us could result in large and immediate
write-offs, the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
negatively affect our results of operations. Furthermore, acquisitions involve
numerous risks and uncertainties, including:

  .  difficulties in the assimilation of products, operations, personnel and
     technologies of the acquired companies;

  .  diversion of management's attention from other business concerns;

  .  risks of entering geographic and business markets in which we have no or
     limited prior experience; and

  .  potential loss of key employees of acquired organizations.

  Although we do not currently have any agreement with respect to any material
acquisitions, we may make acquisitions of complementary businesses, products or
technologies in the future. We may not be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future, and our failure to do so could harm our business.

We may need additional capital to fund our future operations.

  We believe that our existing working capital together with the proceeds from
this offering and cash available from credit facilities and future operations
will enable us to meet our working capital requirements for at least the next
12 months. However, if cash from future operations is insufficient, or if cash
is used for acquisitions or other currently unanticipated uses, we may need
additional capital. The development and marketing of new products and the
expansion of our direct sales operation and reseller channels and associated
support personnel are expected to require a significant commitment of
resources. In addition, if the market for our products were to develop more
slowly than anticipated or if we fail to establish significant market share and
achieve a meaningful level of revenue, we may incur significant operating
losses and utilize significant amounts of capital. As a result, we could be
required to raise substantial additional capital. To the extent that we raise
additional capital through the

                                       14
sale of equity or convertible debt securities, the issuance of such securities
could result in dilution to our existing stockholders. If additional funds are
raised through the issuance of debt securities, these securities would have
rights, preferences and privileges senior to holders of common stock and the
terms of debt securities could impose restrictions on our operations.
Additional capital, if required, may not be available on acceptable terms, or
at all. If we are unable to obtain additional capital, we may be required to
reduce the scope of our planned product development and marketing efforts,
which could harm our business, financial condition and operating results.

Problems arising from use of our products together with other vendors' products
could disrupt our business and harm our financial condition.

  Our customers generally use our products together with products from other
vendors. As a result, when problems occur in the network, it may be difficult
to identify the source of the problem. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relation problems.

If we fail to protect our intellectual property, our business and ability to
compete could suffer.

  Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We do not own any patents nor do
we have any patent applications pending. We may not have taken actions that
adequately protect our intellectual property rights.

  We provide software to customers under license agreements included in the
packaged software. These agreements are not negotiated with or signed by the
licensee, and thus may not be enforceable in some jurisdictions. Despite our
efforts to protect our proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and
use our products or technology. These precautions may not prevent
misappropriation or infringement of our intellectual property. Monitoring
unauthorized use of our products is difficult and the steps we have taken may
not prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.

We may be subject to intellectual property infringement claims that are costly
to defend and could limit our ability to use certain technologies in the
future.

  Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the
networking markets have extensive patent portfolios with respect to networking
technology, while we do not currently own any patents or have any patent
applications pending. From time to time, third parties, including leading
companies, have asserted and may assert exclusive patent, copyright, trademark
and other intellectual property rights to technologies and related standards
that are important to us. Third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products. Any of these claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management
personnel, or require us to develop non-infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if
required, may not be available on acceptable terms, if at all. If there is a
successful claim of infringement or if we fail to develop non-infringing
technology or license the proprietary rights on a timely basis, our business
could be harmed.

                                       15
Our stock price may be extremely volatile and you may not be able to resell
your shares at or above the offering price.

  Equity markets, particularly the market for technology companies, have
recently experienced significant price and volume fluctuations that are
unrelated to the operating performance of individual companies. These broad
market fluctuations may cause the market price of our common stock to decline.
In addition, the market price of our common stock is likely to be highly
volatile. In the past, securities class action litigation has often been
instituted against companies following periods of volatility in the market
price of their securities. This litigation could result in substantial costs
and a diversion of management's attention and resources.

We face a number of unknown risks associated with the year 2000 problem.

  Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond 2000. As a
result, the networks which incorporate our products and our own internal
networks could fail, leading to disruptions in operations and business
activities. As a result of the year 2000 problem, we believe that we face
potential risks which could harm our business in the following areas:

  .  disruption in our customer relationships or in our sales efforts because
     of failures of our customers' networks which are correctly or
     incorrectly attributed to the non-compliance of our products;

  .  claims from our customers based on alleged breach of warranties
     concerning the year 2000 compliance of our products;

  .  disruption of our business resulting from failure of systems we use to
     run our business;

  .  disruption of our business resulting from failure of systems used by our
     suppliers, customers and potential customers; and

  .  the potential reduced spending by companies on networking solutions as a
     result of significant information systems spending on year 2000
     remediation.

  Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000" for more detailed information.

Our executive officers and directors will control  % of our common stock and be
able to significantly influence matters requiring stockholder approval.

  Our executive officers, directors and entities affiliated with them will, in
the aggregate, will beneficially own approximately  % of our outstanding common
stock upon completion of this offering. These stockholders, if acting together,
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
or other business combination transactions. Please see "Principal Stockholders"
for more detailed information.

Some provisions of our charter documents may have anti-takeover effects that
could prevent a change in our control.

  Some provisions of our certificate of incorporation and bylaws could make it
more difficult for a third party to acquire us even if a change of control
would be beneficial to our stockholders. See "Description of Capital Stock--
Delaware Anti-Takeover Law and Charter and Bylaw Provisions."

                                       16
Future sales of our common stock may depress our stock price.

  Upon completion of this offering, we will have     shares of common stock
outstanding. All the shares sold in this offering can be freely traded. The
remaining 33,757,293 shares of common stock outstanding after this offering are
subject to lock-up agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Immediately after the 180 day lock-up
period, 31,140,670 of these shares will become available for sale. The
remaining shares of our common stock will become available at various times
thereafter upon the expiration of one-year holding periods and/or the lapse of
our repurchase option. Sales of a substantial number of shares of common stock
in the public market after this offering or after the expiration of the lock-up
and holding periods could cause the market price of our common stock to
decline.

The purchasers in the offering will immediately experience substantial dilution
in net tangible book value.

  The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately after
the offering. As a result, purchasers of shares will experience immediate and
substantial dilution of approximately $    in net tangible book value per
share, or approximately  % of the offering price of $    per share. In
contrast, existing stockholders paid an average price of $    per share.

                                       17
FORWARD-LOOKING STATEMENTS

  This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. You should not rely on these
forward-looking statements which apply only as of the date of the prospectus.
These statements refer to our future plans, objectives, expectations and
intentions. We use words such as "believe," "anticipate," "expect," "will,"
"intend," "estimate" and similar expressions to identify forward-looking
statements. This prospectus also contains forward-looking statements attributed
to third parties relating to their estimates regarding the growth of certain
markets. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those discussed in these forward-looking
statements. Factors that could contribute to these differences include those
discussed in the preceding pages and elsewhere in this prospectus.

                                USE OF PROCEEDS

  The net proceeds to us from the sale of the     shares being offered by us at
an assumed initial public offering price of $    per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, are estimated to be $   , or     if the underwriters' over-allotment
option is exercised in full. We expect to use the net proceeds of this offering
for working capital and general corporate purposes. Pending these uses, we
intend to invest the net proceeds in short-term, interest-bearing, investment
grade securities.

                                DIVIDEND POLICY

  We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of its business and do not anticipate paying any cash
dividends in the foreseeable future. Furthermore, our credit agreement
prohibits the payment of cash dividends.

                                       18
CAPITALIZATION

  The following table shows:

  .    our actual capitalization as of June 30, 1999;

  .    our capitalization as of that date on a pro forma basis to give effect
       to the conversion of all preferred stock outstanding at June 30, 1999
       into common stock upon the completion of this offering; and

  .    our capitalization on a pro forma as adjusted basis to reflect our
       receipt of the net proceeds from the sale of shares of common stock
       offered by us at an assumed initial public offering price of $   per
       share and after deducting estimated underwriting discounts and
       commissions and estimated offering expenses.
June 30, 1999
                                                 ------------------------------
                                                                     Pro Forma
                                                 Actual   Pro Forma As Adjusted
                                                 -------  --------- -----------
                                                   (in thousands, unaudited)
Bank line of credit............................. $ 2,000   $ 2,000    $ 2,000
Current portion of capital lease obligations....      90        90         90
                                                 -------   -------    -------
Redeemable convertible preferred stock, $0.0001
 par value per share, 15,166,954 shares
 authorized, 15,116,596 issued and outstanding,
 actual; 5,000,000 shares authorized, none
 issued or outstanding pro forma and pro forma
 as adjusted....................................  31,085        --         --
                                                 -------   -------    -------
Stockholders' equity (deficit):
 Common stock, $0.0001 par value per share,
  50,000,000 shares authorized, 18,640,697
  shares issued and outstanding, actual;
  100,000,000 shares authorized, 33,757,293
  shares issued and outstanding pro forma;
  100,000,000 shares authorized and     shares
  issued and outstanding pro forma as adjusted..       2         3
Treasury stock..................................  (6,480)   (6,480)    (6,480)
Additional paid-in capital......................  29,195    60,279
Notes receivable from stockholders..............    (859)     (859)      (859)
Deferred stock compensation..................... (13,749)  (13,749)   (13,749)
Accumulated deficit............................. (17,460)  (17,460)
                                                 -------   -------    -------
 Total stockholders' equity (deficit)...........  (9,351)   21,734
                                                 -------   -------    -------
   Total capitalization......................... $(9,351)  $21,734    $
                                                 =======   =======    =======
The number of shares of capital stock referenced above excludes as of June
30, 1999: (1) 3,508,969 shares subject to outstanding options and 295,334
shares available for future option grants under our 1996 Stock Plan; (2)
353,000 shares subject to non-plan options; and (3) 30,000 shares subject to
warrants to purchase Series A preferred stock which will convert to warrants to
purchase common stock upon completion of this offering. This number also
excludes 950,000 shares reserved for issuance under our 1999 Directors Stock
Option Plan and 1999 Employee Stock Purchase Plan and 2,000,000 additional
shares available for future option grants under our 1996 Stock Plan which were
authorized in July 1999. See "Management" and Note 5 of Notes to Financial
Statements.

                                       19
DILUTION

  Our pro forma net tangible book value as of June 30, 1999 was approximately $
   or $    per share of common stock. "Net tangible book value" per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities and divided by the total number of shares of common stock
after giving effect to the conversion of all outstanding shares of preferred
stock into 15,116,596 shares of common stock. After giving effect to the sale
of the    shares of common stock offered by us at an assumed initial public
offering price of $    per share, and the adjustments set forth above, our pro
forma net tangible book value as of June 30, 1999 would have been $    or $
   per share of common stock. This represents an immediate increase in net
tangible book value of $    per share to existing stockholders and an immediate
dilution of $    per share to new investors. The following table illustrates
this per share dilution:
Assumed initial public offering price per share.....................     $
     Pro forma net tangible book value per share before the offering... $
     Increase attributable to new investors............................
                                                                        ---
   Pro forma net tangible book value after the offering................
                                                                            ---
   Dilution per share to new investors.................................     $
                                                                            ===
The following table summarizes, on a pro forma basis as of June 30, 1999, the
differences between the existing stockholders and new investors with respect to
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid.
Shares Purchased  Total Consideration
                         ------------------ ---------------------   Average Price
                           Number   Percent  Amount     Percent       Per Share
                         ---------- ------- ---------  ----------   -------------
Existing stockholders..  33,757,293       %  $                    %      $
New investors..........
                         ----------  -----   --------   ----------
  Totals...............              100.0%  $               100.0%
                         ==========  =====   ========   ==========
The information in the table is based upon the initial public offering price
of $   per share before deducting underwriter discounts and commissions and
estimated offering expenses payable by us. The information concerning existing
stockholders is based on the number of shares of common stock outstanding on
June 30, 1999 and gives effect to the conversion of all outstanding shares of
preferred stock into common stock upon completion of this offering. The
information presented with respect to existing stockholders excludes as of June
30, 1999: (1) 3,508,969 shares subject to outstanding options and 295,334
shares available for future option grants under our 1996 Stock Plan; (2)
353,000 shares subject to non-plan options; and (3) 30,000 shares subject to
warrants to purchase Series A preferred stock which will convert to warrants to
purchase common stock upon completion of this offering. This information also
excludes 950,000 shares reserved for issuance under our 1999 Directors Stock
Option Plan and 1999 Employee Stock Purchase Plan and 2,000,000 additional
shares available for future option grants under our 1996 Stock Plan which were
authorized in July 1999. The issuance of common stock in connection with the
exercise of these options and warrants will result in further dilution to new
investors. See "Management" and Note 5 of Notes to Financial Statements.

                                       20
SELECTED FINANCIAL DATA
                     (in thousands, except per share data)

  The selected financial data set forth below should be read together with the
financial statements and related notes, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the other information
contained in this prospectus. The selected balance sheet data at December 31,
1997 and 1998 and the selected statement of operations data for the period from
inception of Foundry, May 22, 1996, until December 31, 1996 and for the years
ended December 31, 1997 and 1998 are derived from, and qualified by reference
to, our audited financial statements and notes thereto included elsewhere in
this prospectus. The selected balance sheet data at December 31, 1996 are
derived from Foundry's audited balance sheet not included herein. The selected
balance sheet data at June 30, 1999 and the selected statement of operations
data for the six months ended June 30, 1998 and 1999 are derived from our
unaudited financial statements included elsewhere in this prospectus. Our
unaudited financial statements have been prepared on a basis consistent with
the audited financial statements appearing elsewhere in this prospectus and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of such data. The
historical results of operations are not necessarily indicative of results to
be expected for any subsequent period.
Period from
                                May 22, 1996                     Six Months
                                (Inception)    Year Ended           Ended
                                     to       December 31,        June 30,
                                December 31, ----------------  ----------------
                                    1996      1997     1998     1998     1999
                                ------------ -------  -------  -------  -------
                                                                 (unaudited)
Statement of Operations Data:
Revenue, net..................    $    --    $ 3,381  $17,039  $ 4,203  $39,487
Cost of revenue...............         --      1,835    8,433    2,082   18,341
                                  -------    -------  -------  -------  -------
  Gross profit................         --      1,546    8,606    2,121   21,146
Operating expenses:
 Research and development.....      1,914      5,403    8,797    3,250    3,625
 Sales and marketing..........         --      3,419    7,258    2,745    6,973
 General and administrative...        226      1,853    1,589      569    1,655
 Amortization of deferred
  stock compensation..........         --         --      727       --    5,023
                                  -------    -------  -------  -------  -------
  Total operating expenses....      2,140     10,675   18,371    6,564   17,276
                                  -------    -------  -------  -------  -------
Income (loss) from opera-
 tions........................     (2,140)    (9,129)  (9,765)  (4,443)   3,870
Interest income, net..........        127        122      413      213       24
                                  -------    -------  -------  -------  -------
Income (loss) before provision
 for income taxes.............     (2,013)    (9,007)  (9,352)  (4,230)   3,894
Provision for income taxes....         --         --       --       --      982
                                  -------    -------  -------  -------  -------
Net income (loss).............    $(2,013)   $(9,007) $(9,352) $(4,230) $ 2,912
                                  =======    =======  =======  =======  =======
Basic net income (loss) per
 share........................    $ (1.49)   $ (1.99) $ (1.04) $ (0.53) $  0.24
Diluted net income (loss) per
 share........................    $ (1.49)   $ (1.99) $ (1.04) $ (0.53) $  0.08
Weighted average shares--
 basic(a).....................      1,349      4,523    8,992    8,029   12,164
Weighted average shares--
 diluted(a)...................      1,349      4,523    8,992    8,029   34,880

Pro forma basic net income
 (loss) per share.............                        $ (0.41)          $  0.11
Weighted average shares--pro
 forma basic(a)...............                         22,882            27,170
December 31,            June 30,
                                      ---------------------------  -----------
                                       1996      1997      1998       1999
                                      -------  --------  --------  -----------
                                                                   (unaudited)
Balance Sheet Data:
Cash and cash equivalents............ $ 3,823  $  3,182  $  4,567    $12,340
Working capital......................   3,505     4,076    10,663     21,319
Total assets.........................   4,557     6,988    19,238     36,453
Long term obligations, less current
 portion.............................     344       178       --         --
Total stockholders' equity (defi-
 cit)................................  (1,903)  (10,509)  (18,926)    (9,351)
--------
(a) See Note 2 of the Notes to Financial Statements for an explanation of the
    determination of the number of shares and share equivalents used in
    computing per share amounts.

                                       21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

  The following discussion and analysis of our financial condition and results
of operations should be read together with "Selected Financial Data" and our
financial statements and related notes appearing elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. The actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including but not limited to those set forth under "Risk Factors" and
elsewhere in this prospectus.

Overview

  Foundry designs, develops, manufactures and markets a comprehensive suite of
high performance networking products for enterprises and Internet service
providers. From our inception in May 1996 through April 1997, we were engaged
primarily in research and development activities and did not generate any
revenue. A substantial portion of our operating expenses during this period was
related to the design and development of our custom ASICs, software development
and testing prototype designs. We commenced commercial shipments of our
FastIron workgroup Layer 2 switch in May 1997, the initial product released in
our family of stackable products. We shipped NetIron, our first generation
Layer 3 switch, in June 1997. During the second quarter of 1998, we shipped the
first products in our Layer 4-7 ServerIron family. We shipped BigIron, our
second generation of midsize and large-scale chassis-based products, in the
third quarter of 1998. Since the first quarter of 1998, our revenue has
increased every quarter, and we were profitable for the first two quarters of
1999, although we cannot assure you that these results will be indicative of
future performance.

  We derive our revenue substantially from sales of our stackable and chassis-
based products, including fees for customer support services related to our
products. We market and sell our products primarily through a direct sales and
marketing organization and, to a lesser extent through resellers and through
our OEM relationship with Hewlett-Packard. We have sales representatives in the
United States, Canada, France, Germany, Taiwan and the United Kingdom. We have
made significant investments to expand our international operations and expect
international revenue to increase as a percentage of total revenue. Currently,
all of our international sales are denominated in U.S. dollars. We generally
recognize product revenue upon shipment to customers. Revenue from customer
support services is deferred and recognized on a straight-line basis over the
contractual period.

  We expect the average selling price of our products to decline due to a
number of factors, including competitive pricing pressures and rapid
technological changes. Our gross margins may be affected by price declines if
we are unable to reduce costs. Furthermore, our gross margins may be affected
by fluctuations in manufacturing volumes, component costs, the mix of product
configurations sold and the mix of distribution channels through which our
products are sold. We generally realize higher gross margins on direct sales to
the end user than on sales through resellers or our OEM. Any significant shift
in revenue through resellers or our OEM, or the loss of any large customer,
reseller or our OEM, could harm our gross margins, operating results and
financial condition.

  We rely on two third-party manufacturing vendors that produce different
assemblies for our products. Prior to the first quarter of 1999, we performed
final assembly, testing, quality assurance, manufacturing engineering,
documentation control and repairs of our products at our Sunnyvale facility. In
the first quarter of 1999, we began transitioning assembly and testing
functions from our Sunnyvale facility to one of our manufacturing partners. We
expect to realize lower costs and higher volume efficiencies as a result of
this transition. However, these price reductions may not occur or this
manufacturer may not adequately fulfill its

                                       22
obligations. The failure to obtain cost reductions or this manufacturer's
failure to meet its obligations could harm our gross margins and operating
results.

  In connection with the grant of stock options to employees, we recorded
deferred stock compensation of $4.7 million in 1998 and $14.8 million for the
six months ended June 30, 1999, representing the difference between the
exercise price and the deemed fair market value of our common stock on the date
these stock options were granted. This amount is included as an increase in
stockholders' deficit and is being amortized to operations ratably over the
respective vesting periods. We recorded amortization of deferred stock
compensation expense of approximately $727,000 for the year ended December 31,
1998 and $5.0 million for the six months ended June 30, 1999. At June 30, 1999
we had approximately $13.7 million remaining to be amortized over the
corresponding vesting period of each respective option, generally four years.
The amortization expense relates to options granted to employees and directors.

  Since inception we have incurred significant losses and, as of June 30, 1999,
we had an accumulated deficit of $17.5 million. These losses have resulted
primarily from our activities to develop our products, establish brand
recognition and to develop our sales channels.

Results of Operations

  The following table sets forth selected items from our statement of
operations as a percentage of revenue for the periods indicated:
Six Months
                                               Year Ended          Ended
                                              December 31,       June 30,
                                              --------------   --------------
                                               1997    1998     1998    1999
                                              ------   -----   ------   -----
                                                               (unaudited)
Revenue, net.................................  100.0%  100.0%   100.0%  100.0%
Cost of revenue..............................   54.3    49.5     49.5    46.4
                                              ------   -----   ------   -----
 Gross profit................................   45.7    50.5     50.5    53.6
                                              ------   -----   ------   -----
Operating expenses:
 Research and development....................  159.8    51.6     77.3     9.2
 Sales and marketing.........................  101.1    42.6     65.3    17.6
 General and administrative..................   54.8     9.3     13.6     4.2
 Amortization of deferred stock
  compensation...............................     --     4.3       --    12.7
                                              ------   -----   ------   -----
  Total operating expenses...................  315.7   107.8    156.2    43.7
Income (loss) from operations................ (270.0)  (57.3)  (105.7)    9.9
Interest income, net.........................    3.6     2.4      5.1     --
                                              ------   -----   ------   -----
Income (loss) before provision for income
 taxes....................................... (266.4)  (54.9)  (100.6)    9.9
Provision for income taxes...................     --      --       --     2.5
                                              ------   -----   ------   -----
Net income (loss)............................ (266.4)% (54.9)% (100.6)%   7.4%
                                              ======   =====   ======   =====
Six Months Ended June 30, 1999 and 1998

  Revenue.  Revenue increased to $39.5 million for the six months ended June
30, 1999 from $4.2 million for the six months ended June 30, 1998. The increase
in revenue was primarily due to the introduction of BigIron in the third
quarter of 1998. The increase in revenue was also due to significant growth in
the enterprise LAN switching market, increased sales to Internet service
providers, broader market acceptance of our Gigabit Ethernet Layer 3 and Layer
4-7 switching products and expansion of our sales force.

  For the six months ended June 30, 1999, sales to America Online, Hewlett-
Packard and Mitsui accounted for 17%, 15% and 10% of revenue. Hewlett-Packard
is both an OEM and an end user.

                                       23
Gross profit.  Gross profit increased to $21.1 million for the six months
ended June 30, 1999 from $2.1 million for the six months ended June 30, 1998,
primarily due to a significant increase in revenue. As a percentage of revenue,
gross profit was 53.6% for the six months ended June 30, 1999 and 50.5% for the
six months ended June 30, 1998. We expect gross profit, as a percentage of
revenue, to fluctuate from period to period primarily due to the mix of
products sold.

  Research and development.  Research and development expenses consist
primarily of salaries and related personnel expenses, prototype expenses
related to the development of our ASICs, software development and testing
costs, and the depreciation of property and equipment related to research and
development activities. Research and development expenses increased to $3.6
million for the six months ended June 30, 1999 from $3.3 million for the six
months ended June 30, 1998, primarily due to the addition of engineering
personnel and related costs. Research and development costs are expensed as
incurred. As a percentage of revenue, research and development expenses
decreased from 77.3% to 9.2% because of the significant increase in revenue. We
believe continued investment in product enhancements and new product
development is critical to attaining our strategic objectives, and as a result,
we expect research and development expenses to continue to increase in absolute
dollars.

  Sales and marketing.  Sales and marketing expenses consist primarily of
salaries, commissions and related expenses for personnel engaged in marketing,
sales and customer support functions, as well as trade shows, advertising,
promotional expenses and the cost of facilities. Sales and marketing expenses
increased to $7.0 million for the six months ended June 30, 1999 from $2.7
million for the six months ended June 30, 1998, primarily due to the addition
of sales and marketing personnel, increased commission expenses resulting from
significantly higher sales and increased advertising and promotional expenses.
As a percentage of revenue, sales and marketing expenses decreased from 65.3%
to 17.6% because of the significant increase in revenue. We expect these
expenses to increase significantly in absolute dollars as we continue to build
our field sales and support organizations and expand sales and marketing
activities in the future.

  General and administrative.  General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, facilities expenses and other general corporate
expenses. General and administrative expenses increased to $1.7 million for the
six months ended June 30, 1999 from $569,000 for the six months ended June 30,
1998, primarily due to an increase in the allowance for doubtful accounts, the
addition of personnel necessary to support the increase in revenue and general
corporate expenses consistent with the increased scale of operations. We expect
these expenses to continue to increase in absolute dollars as we continue to
build the infrastructure necessary to support the growth of our business and
operate as a public company.

  Interest income.  Interest income is the net result of the interest earned on
the funds we keep on deposit in an interest bearing account less any interest
expense incurred on our revolving bank line credit and capital lease
obligations. Interest income decreased to $24,000 for the six months ended June
30, 1999 from $213,000 for the six months ended June 30, 1998, primarily due to
the offset of interest expense related to borrowing on our revolving line of
credit against interest earned from cash balances in our money market account.
During the six months ended June 30, 1998, we had no borrowings against our
line of credit and had larger cash balances in an interest bearing account
resulting from the proceeds of our financing in March 1998.

  Income taxes.  We have recorded income tax expense for the six months ended
June 30, 1999 of $982,000. This reflects an effective tax rate of 25%, based
upon the estimated

                                       24
annualized tax rate. We have provided a full valuation allowance against our
deferred tax assets, consisting primarily of net operating loss carryforwards,
because of the uncertainty regarding their realization. When we are able to
conclude that our deferred tax assets are likely to be realized, our income tax
provision will reflect a one-time credit eliminating the valuation allowance.

  Net Income.  Net income increased to $2.9 million for the six months ended
June 30, 1999 from a net loss of $4.2 million for the six months ended June 30,
1998. This increase was primarily due to significantly higher revenue.

Years Ended December 31, 1998 and 1997

  Revenue. Revenue increased to $17.0 million for the year ended December 31,
1998 from $3.4 million for the year ended December 31, 1997. The significant
increase was primarily due to the introduction of new products during 1998,
including our server load balancing and transparent caching switches and our
BigIron chassis-based products. In 1997, sales to Mitsui and Incyte
Pharmaceuticals, Inc. accounted for 49% and 14% of revenue, and sales to Mitsui
accounted for 21% of revenue in 1998.

  Gross profit.  Gross profit increased to $8.6 million for the year ended
December 31, 1998 from $1.5 million for the year ended December 31, 1997,
primarily due to the significant increase in revenue. As a percentage of
revenue, gross profit increased to 50.5% for the year ended December 31, 1998
from 45.7% for the year ended December 31, 1997, primarily as a result of
spreading manufacturing costs over a greater number of units sold.

  Research and development.  Research and development expenses increased to
$8.8 million for the year ended December 31, 1998 from $5.4 million for the
year ended December 31, 1997, primarily due to the addition of engineering
personnel and increased costs associated with launching the new BigIron chassis
based products in the third quarter of 1998. As a percentage of revenue,
research and development expenses decreased due to significantly higher
revenue.

  Sales and marketing.  Sales and marketing expenses increased to $7.3 million
for the year ended December 31, 1998 from $3.4 million for the year ended
December 31, 1997, primarily due to the addition of sales and marketing
personnel, increased commission expenses resulting from higher sales and
increased advertising and promotional expenses.

  General and administrative.  General and administrative expenses decreased to
$1.6 million for the year ended December 31, 1998 from $1.9 million for the
year ended December 31, 1997, primarily due to costs incurred in 1997 relating
to the settlement of a lawsuit of approximately $750,000. Excluding the
$750,000 incurred in 1997, general and administrative expenses would have
increased by $450,000 for the year ended December 31, 1998 over the same period
in 1997. The increase was a result of the increase in allowance for doubtful
accounts and addition of personnel related to significantly higher revenue.

  Interest income.  Interest income increased to $413,000 for the year ended
December 31, 1998 from $122,000 for the year ended December 31, 1997, as a
result of greater cash balances generated from the sale of preferred stock in
March 1998.

  Net loss.  Net loss increased to $9.4 million for the year ended December 31,
1998 from $9.0 million for the year ended December 31, 1997, as a result of the
amortization of deferred stock compensation in 1998 in the amount of $727,000
which was offset by significantly increased revenue together with increased
expenses related to the addition of personnel, engineering prototype expenses
and costs related to expanding our operations.

                                       25
Quarterly Results of Operations

  The following tables set forth our statement of operations data for each of
the six quarters ended June 30, 1999, including these amounts expressed as a
percentage of total revenue. This unaudited quarterly information has been
prepared on the same basis as our audited financial statements and, in the
opinion of management, reflects all adjustments, consisting only of normal
recurring entries, necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
Three Months Ended
                         --------------------------------------------------------------
                         Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31,  Jun. 30,
                           1998       1998       1998       1998       1999      1999
                         --------   --------   --------   --------   --------  --------
                                       (in thousands, unaudited)
Statement of Operations
 Data:
Revenue, net............ $ 1,842    $ 2,361    $ 4,030    $ 8,806    $15,425   $24,062
Cost of revenue.........     915      1,167      1,918      4,433      7,707    10,634
                         -------    -------    -------    -------    -------   -------
  Gross profit..........     927      1,194      2,112      4,373      7,718    13,428
Operating expenses:
 Research and
  development...........   1,383      1,867      3,705      1,842      1,746     1,879
 Sales and marketing....   1,209      1,536      1,887      2,626      2,717     4,256
 General and
  administrative........     251        318        365        655        670       985
 Amortization of
  deferred stock
  compensation..........      --         --        233        494      1,115     3,908
                         -------    -------    -------    -------    -------   -------
  Total operating
   expenses.............   2,843      3,721      6,190      5,617      6,248    11,028
                         -------    -------    -------    -------    -------   -------
Income (loss) from
 operations.............  (1,916)    (2,527)    (4,078)    (1,244)     1,470     2,400
Interest income, net....      40        173        135         65         24        --
                         -------    -------    -------    -------    -------   -------
Income (loss) before
 provision for income
 taxes..................  (1,876)    (2,354)    (3,943)    (1,179)     1,494     2,400
Provision for income
 taxes..................      --         --         --         --        377       605
                         -------    -------    -------    -------    -------   -------
Net income (loss)....... $(1,876)   $(2,354)   $(3,943)   $(1,179)   $ 1,117   $ 1,795
                         =======    =======    =======    =======    =======   =======
Three Months Ended
                         --------------------------------------------------------------
                         Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31,  Jun. 30,
                           1998       1998       1998       1998       1999      1999
                         --------   --------   --------   --------   --------  --------
                                              (unaudited)
Percentage of Revenue:
Revenue, net............   100.0%     100.0%     100.0%     100.0%     100.0%    100.0%
Cost of revenue.........    49.7       49.4       47.6       50.3       50.0      44.2
                         -------    -------    -------    -------    -------   -------
  Gross profit..........    50.3       50.6       52.4       49.7       50.0      55.8
Operating expenses:
 Research and
  development...........    75.1       79.1       91.9       20.9       11.3       7.8
 Sales and marketing....    65.6       65.1       46.8       29.8       17.6      17.7
 General and
  administrative........    13.6       13.4        9.1        7.5        4.4       4.1
 Amortization of
  deferred stock
  compensation..........      --         --        5.8        5.6        7.2      16.2
                         -------    -------    -------    -------    -------   -------
  Total operating
   expenses.............   154.3      157.6      153.6       63.8       40.5      45.8
                         -------    -------    -------    -------    -------   -------
Income (loss) from
 operations.............  (104.0)    (107.0)    (101.2)     (14.1)       9.5      10.0
Interest income, net....     2.2        7.3        3.4        0.7        0.2        --
                         -------    -------    -------    -------    -------   -------
Income (loss) before
 provision for income
 taxes..................  (101.8)     (99.7)     (97.8)     (13.4)       9.7      10.0
Provision for income
 taxes..................      --         --         --         --        2.5       2.5
                         -------    -------    -------    -------    -------   -------
Net income (loss).......  (101.8)%    (99.7)%    (97.8)%    (13.4)%      7.2%      7.5%
                         =======    =======    =======    =======    =======   =======
26
Our revenue increased in each quarter since the first quarter of 1998 as a
result of the introduction of new products, significant growth in our market,
increasing market acceptance of Gigabit Ethernet Layer 3 and Layer 4-7
switching and the expansion of our sales force. Gross profit has ranged from
49.7% to 55.8%, as a percentage of revenue, in the quarters presented and
fluctuates from quarter to quarter due to the mix of products sold.

  Our research and development expenses increased in absolute dollars and as a
percentage of revenue in the first three quarters of 1998 primarily due to
development costs related to bringing our BigIron chassis-based product to
market in a timely manner in the third quarter of 1998. In particular, our
third quarter of 1998 includes significant expenditures for semiconductors,
assembly and reworking associated with the prototype BigIron chassis-based
product. Our research and development expenses, in absolute dollars, in the
fourth quarter of 1998 returned to approximately the same level experienced in
the second quarter of 1998. We currently do not expect that the introduction of
new products in the near future will have as significant an impact on our
research and development expenses as did the introduction of BigIron.

  Our operating results have varied significantly in the past and revenue and
operating results may vary significantly in the future due to a number of
factors, including: fluctuations in demand for our products and services,
particularly in Europe and Asia; the cancellation or rescheduling of
significant orders; our ability to develop, introduce, ship and support new
products and product enhancements and manage product transitions; announcements
and introductions of new products by our competitors and us; our ability to
build infrastructure to support increased growth; our ability to achieve
required cost reductions; our ability to obtain sufficient supplies of sole- or
limited-sourced components for our products; increases in the prices of the
components we purchase; our ability to attain and maintain production volumes
and quality levels for our products; the mix of products sold and the mix of
distribution channels through which they are sold; and costs relating to
possible acquisitions and integration of technologies or businesses. See "Risk
Factors--We may not meet quarterly financial expectations, which could cause
our stock price to decline."

Liquidity and Capital Resources

  We have funded our operations to date primarily through the private sales of
common and preferred stock for net proceeds of approximately $33.4 million and,
to a lesser extent, from a capital equipment lease line and bank line of
credit. For the six months ended June 30, 1999, we have satisfied our liquidity
requirements primarily through cash flow generated from operations.

  Cash provided by operating activities was $3.4 million for the six months
ended June 30, 1999. Cash utilized in operating activities was $13.2 million in
1998 and $9.8 million in 1997. The cash utilized in 1998 and 1997 was due to
net losses, as well as working capital required to fund our growth in
operations, including accounts receivable and inventory.

  Cash utilized in investing activities was $145,000 for the six months ended
June 30, 1999, $414,000 in 1998 and $526,000 in 1997. These amounts primarily
represented purchases of property and equipment. From inception through June
30, 1999, we have invested a total of approximately $1.8 million in property
and equipment.

  Financing activities provided $4.6 million in cash for the six months ended
June 30, 1999, consisting primarily of principal repayments on capital lease
obligations, offset by proceeds from sale of our capital stock and the exercise
of stock options and proceeds from the bank

                                       27
line of credit. In 1998, we generated $15.0 million of cash and in 1997, we
generated $9.6 million of cash, in each case primarily from an equity financing
and the exercise of stock options, offset by principal repayments on capital
lease obligations.

  Our principal source of liquidity as of June 30, 1999 consisted of $12.3
million in cash. We currently have a bank line of credit that provides for up
to $10.0 million in borrowings. We can borrow up to 80% of eligible accounts
receivable against this line, which is collateralized by substantially all of
our assets and provides for interest at the bank's prime rate. This line of
credit contains provisions requiring us to maintain certain minimum financial
ratios measured on a monthly basis, and expires in February 2000. As of June
30, 1999, there have been borrowings of $2.0 million under this line of credit.
Additionally, the bank has issued a standby letter of credit in the amount of
$1.0 million to one of our contract manufacturers against the line of credit.

  As of June 30, 1999, we did not have any material commitments for capital
expenditures. However, we expect to incur capital expenditures as we expand our
operations in the near future. From time to time, we may also consider the
acquisition of, or evaluate investments in, products and businesses
complementary to our business. Any acquisition or investment may require
additional capital. Although it is difficult for us to predict future liquidity
requirements with certainty, we believe that the net proceeds from this
offering, together with our existing cash balances and anticipated funds from
operations, will satisfy our cash requirements for at least the next 12 months.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes and may seek additional funds through public
or private equity financings or from other sources. Additional financing may
not be available to us or, if available, financing may not be available on
terms favorable to us and our stockholders.

Year 2000

  Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. As a result, the networks which incorporate our products and our own
internal networks could fail leading to disruptions in operations and business
activities.

  State of Readiness. Our business may be affected by year 2000 issues arising
from our products or related to non-compliant internal systems developed by us
or by third party vendors. Our Chief Financial Officer is responsible for
coordinating and monitoring the status of our year 2000 evaluation and
remediation efforts and reporting the status of our efforts to our board of
directors. We continue to assess the potential effect and costs of remediating
the year 2000 problem for our internal systems. To date, we have not obtained
verification or validation from any independent third parties of our processes
to assess and correct any of our year 2000 problems or the costs associated
with these activities.

  Our internal Quality Assurance Department has tested and intends to continue
to test all of our products for year 2000 problems. To date, we have not
discovered any year 2000 problems with our products. We believe that our
products and our architecture are year 2000 compliant. However, our products
are generally integrated into larger networks involving sophisticated hardware
and software products supplied by other vendors. If the software products of
these vendors have year 2000 problems, the performance of our products may be
negatively affected. For example, the software components included in some of
our products rely upon dates generated by other network components which are
supplied by other vendors.

                                       28
Each network in which our products are installed involves different
combinations of third party products. We cannot evaluate whether every product
which may interact with our products is year 2000 compliant. Therefore, we may
face claims based on year 2000 problems in other companies' products or based
on year 2000 issues arising from the integration of multiple products within
the overall network. Regardless of the merits of such claims, we may be
required to incur substantial expenses and to devote substantial resources to
legal proceedings resulting from such claims. We have represented to our
customers, resellers and our OEM that our products are year 2000 compliant. If
this is not true, these parties may make claims against us for breach of our
representations. At this time, no such claims have been made by companies who
have installed our products in their networks.

  We believe that we have identified approximately 230 personal computers and
servers and 36 software applications, including our enterprise resource
planning system, used in connection with our internal operations that will need
to be evaluated to determine if they must be modified, upgraded or replaced to
minimize the possibility of a material disruption to our business. Of all of
our systems, our most important system to our continuing operations is our
enterprise resource planning software. We have installed the necessary
modifications to our enterprise resource planning software that has been
certified by the vendor to be year 2000 compliant; however, we have not
conducted any independent tests to confirm year 2000 compliance. In addition,
we are still in the process of evaluating and replacing or modifying, as
necessary, our other internal systems. We expect to complete the process of
modifying, upgrading or replacing all of our internal systems before the
occurrence of any material disruption of our business.

  In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, telephone switches, security
systems and other common devices, may be affected by the year 2000 problem. We
are currently assessing the potential effect and costs of remediating the year
2000 problem with the office and facility equipment used at our headquarters in
Sunnyvale, California. We are also currently assessing the potential effect and
costs of remediating the year 2000 problem with the office and facilities
equipment, personal computers and software applications used by our more than
ten domestic and international field sales offices and our approximately 35
sales representatives who work from home offices.

  If our suppliers, customers, resellers, contract manufacturers, service
providers or other third parties fail to correct year 2000 problems in their
products or internal systems, these failures could result in an interruption
in, or failure of, our normal business activities or operations. To date, we
believe all critical components that we obtain from third party suppliers are
year 2000 compliant based on letters from our significant suppliers
representing that they are or will be year 2000 compliant. In addition, we are
in the process of evaluating the year 2000 readiness of other parties,
including our customers, resellers, contract manufacturers and service
providers. We are checking the web sites of these parties to determine if they
are certifying that they are year 2000 compliant. However, we have not
contacted any of these parties. We expect that we will be able to resolve any
significant year 2000 problems with these parties; however, these parties may
not resolve any or all year 2000 problems before the occurrence of a material
disruption to the operation of our business.

  Costs. We have funded our year 2000 efforts from operating cash flows and
have not separately accounted for these costs in the past. To date, these costs
have not been material. We will incur additional costs related to our year 2000
efforts for administrative personnel to manage our efforts, engineering
personnel to test and remediate our products and internal systems, sales and
marketing personnel to address customer concerns and outside contractors

                                       29
to assist in our efforts. Although we do not anticipate that these expenses
will be material, these expenses, if higher than anticipated, could harm our
results of operations and financial condition.

  Risks. We believe that it is not possible to determine with complete
certainty that all year 2000 problems affecting us have been identified or
corrected. In addition, no one can accurately predict how many year 2000
problem-related failures will occur or the severity, duration or financial
consequences of these perhaps inevitable failures. As a result, we believe that
the following consequences are possible:

  .  a significant number of operational inconveniences and inefficiencies
     for us, our contract manufacturers and our customers that will divert
     management's time and attention and financial and human resources from
     ordinary business activities;

  .  business disputes and claims for pricing adjustments or penalties due to
     year 2000 problems by our customers, resellers and our OEM; and

  .  a number of serious business disputes alleging that we failed to comply
     with the terms of contracts or industry standards of performance, some
     of which could result in litigation or contract termination.

  Contingency Plans. We have not yet developed a contingency plan to address
any situation that may result if we are unable to solve our year 2000 issues,
and we do not anticipate the need to do so. If we must develop a contingency
plan, the development and implementation of this plan could harm our business.

  Disclaimer. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year
2000 compliance and the level of associated incremental costs could be
adversely affected by, among other things, availability and cost of programming
and testing resources, third party suppliers' ability to modify software, and
unanticipated problems identified in the ongoing compliance review.

Recently Issued Accounting Standards

  See Note 2 of Notes to Financial Statements for recently adopted and recently
issued accounting standards.

                                       30
BUSINESS

  Foundry Networks designs, develops, manufactures and markets a comprehensive
suite of high performance networking products for enterprises and Internet
service providers. Our Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switches
enable our customers to build and maintain efficient, high performance
networks. Our products provide solutions for all types of networks, including
LANs, MANs and WANs. This product breadth allows us to provide solutions
throughout a customer's network, from the wiring closet edge of an enterprise
LAN to the LAN core, and from the WAN edge of an Internet service provider to
its network of Internet servers. Our Layer 2 and Layer 3 switches provide the
bandwidth required to support the increasing use of bandwidth-intensive and
Internet-based applications. Our high performance Layer 4-7 switching products
with network intelligence capabilities allow enterprises and Internet service
providers to direct traffic flow more efficiently, based on application type
and end user, while also allowing Internet service providers to offer their
customers differentiated, fee-based quality of service. We sell our products
through a direct sales force, resellers and an OEM. Our products have been
deployed in enterprises spanning many industries, educational institutions and
government agencies and in Internet service providers. By providing high levels
of performance and network intelligence capabilities at leading price points,
we provide a comprehensive solution to address the rapidly growing networking
market.

Industry Background

  The pervasiveness of computing by businesses, organizations and individuals,
and the need to interconnect computing devices to enable widespread
communication, have given rise to the multi-billion dollar computer networking
industry. The explosive growth of the Internet and corporate internal and
external communications needs are driving the recent growth in enterprise and
Internet service provider networks. The complexity of information traveling
over networks is also rapidly increasing with the adoption of bandwidth-
intensive applications that include increasing amounts of data, voice, video
and graphics. The increase in users, coupled with these new bandwidth-intensive
applications, has resulted in exponential growth in network traffic. This
growth has led to a demand by enterprises and Internet service providers for
networking solutions with superior performance and intelligence capabilities.

  Evolution of Market Needs

  Early data networks were adopted to connect a limited number of computers
within close proximity, allowing users to share simple, common services, such
as file servers and printers. In these networks, called local area networks or
LANs, traffic patterns were predictable because the majority of traffic resided
within the LAN and remained local to a specific part of the LAN. Widespread
Internet usage, the proliferation of client-server applications and the
adoption of new bandwidth-intensive applications have increased traffic loads
and created unpredictable traffic patterns. Today, the majority of traffic
traverses the boundaries of the LAN to networks outside of the LAN. Such
communication traditionally required an organization to utilize costly long
distance carrier services that often provided inadequate performance. As a
result of today's traffic flows, enterprises increasingly require low cost,
high performance networking equipment to enable effective communications across
geographically dispersed networks, known as MANs and WANs.

  Challenges to enterprise network performance are magnified when applied to
Internet service providers. As their customers have increasingly become
dependent on Internet access, Internet service providers demand networking
solutions that ensure the highest levels of performance and scalability.
Similar to enterprise needs, Internet service providers require low

                                       31
cost, high performance solutions for both their internal networks and access to
the Internet. The exponential growth of Internet traffic, combined with the
business critical nature of the services that Internet service providers
provide, necessitates heightened requirements for reliability.

  Evolution of Network Solutions

  Early LANs consisted of hubs, which enabled multiple users to share network
resources, and software-based routers, which supported multiple protocols and
moved traffic around the network. Increased use of bandwidth-intensive
applications and a larger number of users strained these early network
infrastructures, making it increasingly difficult for them to handle new
applications while still performing at an acceptable speed. Network devices
known as Layer 2 switches replaced hubs to provide dedicated bandwidth to
users, while Fast Ethernet technology was introduced to provide data
transmission speeds of 100 Mbps, or ten times faster than original hubs.
Despite these improvements, the installed base of traditional routers, relying
on software to analyze network traffic, was unable to accommodate increased
data speeds and changing traffic patterns and became the new network
bottleneck.

  Two new technologies, Gigabit Ethernet, capable of data transmission speeds
of 1000 Mbps, and Layer 3 switching, evolved in parallel to handle growing and
unpredictable traffic patterns and address the performance needs of bandwidth-
intensive applications. Gigabit Ethernet is the most recent evolution of
Ethernet technology, which is the dominant LAN transmission technology with
more than 95% market share in 1998, according to the independent research firm,
Dell'Oro Group. Gigabit Ethernet-based Layer 3 switches combine Gigabit
transmission speeds with the forwarding capabilities of software-based routers.
In Layer 3 switches, the software forwarding capabilities that enabled early
routers to move traffic around the network are performed in hardware,
integrated on ASICs built into the switch. This integration enables
manufacturers to develop Layer 3 switches at lower costs while improving
network performance.

  Next Generation Needs and Solutions

  As enterprises and Internet service providers seek to accommodate network
user needs, adding bandwidth alone is not an adequate solution. Due to the
increased use of multiple traffic types for many applications, enterprises and
Internet service providers have an acute need for solutions that provide
network intelligence to distinguish among and prioritize different types of
traffic and regulate the network response to traffic. Particularly for Internet
service providers, network intelligence allows them to maintain network
reliability and offer differentiated, fee-based quality of service.

  To address these needs for network intelligence, a new class of device, Layer
4-7 switches, has emerged as a complement to the performance capabilities of
existing Layer 3 switches. These switches provide increased network
intelligence, and therefore greater network efficiency, by utilizing
information about the application and the end user. Both classes of switches
are necessary components of a comprehensive networking solution. Layer 3
switches provide the bandwidth and routing needed to support new applications
while Layer 4-7 switches give enterprises and Internet service providers the
intelligence to control information delivery. Key Layer 4-7 switching
capabilities include the ability to:

  .  enhance server performance and reliability by distributing traffic
     across multiple servers that support Internet applications;

  .  increase network security by detecting, stopping and identifying the
     source of a hacker attack;

                                       32
.  improve Internet response time by inspecting an end user's web site
     address and sending traffic to a specific server that hosts the desired
     content; and

  .  lreduce WAN operating costs and improve Internet response time by
     redirecting web traffic destined for remote Internet hosts to a group of
     local cache servers.

  The challenge to the networking company is to provide cost-effective, higher
bandwidth solutions and the increased intelligence required to meet new network
demands placed on enterprises and Internet service providers. Alternatives to
Gigabit Ethernet technology, such as asynchronous transfer mode, are complex
and expensive, and do not utilize existing networking investments or provide
network intelligence capabilities. Although existing Layer 2 and Layer 3
switches utilize Gigabit Ethernet technology, they often do not scale to span
the entire network or provide the performance required by today's network
users. Existing Layer 3 switches, although essential to the performance of the
network, do not incorporate the Layer 4-7 network intelligence capabilities
necessary to provide traffic direction.

  A large market has emerged for a broad range of high performance, cost-
effective switching solutions with network intelligence capabilities that
address the needs of enterprises and Internet service providers. Collaborative
Research, an independent research and consulting firm specializing in the Layer
4-7 switching market, estimates in a February 1999 report that the Layer 4-7
switching market totaled $130 million in 1998 and is expected to grow to $1.0
billion in 2002. Dell'Oro Group estimates in a March 1999 report that the Layer
3 switching market totaled $637 million in 1998 and is expected to increase to
$3.9 billion in 2002.

Solution

  We offer a comprehensive suite of Gigabit Ethernet Layer 2, Layer 3 and Layer
4-7 products for enterprises and Internet service providers. Our solution
provides the following benefits:

    Breadth of Product Line. We are one of the few networking companies to
  provide a full suite of Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7
  products applicable to LANs, MANs and WANs. This product breadth is
  attractive to customers who desire a single source for their high
  performance networking solutions. Our products allow us to provide
  solutions throughout a customer's network, from the wiring closet edge of
  an enterprise LAN to the LAN core, and from the WAN edge of an Internet
  service provider to its network of Internet servers.

    Performance. Our products provide a high level of performance and a non-
  blocking architecture across multiple types of networks. A non-blocking ar-
  chitecture allows all users attached to the switch to access the network
  simultaneously without any negative impact on performance. We believe that
  we currently offer the highest-performing non-blocking switches in the mar-
  ket. The performance of our products allows enterprises and Internet serv-
  ice providers to build highly reliable networks that support unpredictable
  traffic flows, bandwidth-intensive applications and dynamic end-user needs.

    Intelligence. Our products provide the intelligence required to transport
  unpredict- able traffic and bandwidth-intensive applications, improving the
  performance, reliability and manageability of networks. Our products direct
  traffic using information about the application and end user, enabling
  enterprises and Internet service providers to control information delivery
  and realize benefits such as increased revenue through application- or
  availability-based service fees.

                                       33
Leading Price Points. Our products are designed to offer superior
  performance and network intelligence capabilities at leading price points.
  According to the Tolly Group, an independent test firm, and Network World,
  an independent networking publication, our BigIron 4000 and 8000 products
  offer the best cost per Gigabit of throughput for Layer 3 Gigabit Ethernet
  switches. Unlike other low-priced switches that provide limited
  functionality, our products offer customers higher value for their
  networking equipment investment by providing a comprehensive feature set
  while maintaining low price points.

    Flexibility of Architecture. Our products are based on a uniform hardware
  architecture that is compatible with all major existing network products
  without any significant loss of performance or functionality. Our
  architecture is designed to support the emerging standards for 10 Gigabit
  Ethernet and Gigabit Ethernet over copper. Our architecture is also
  designed to support emerging technologies such as wave division
  multiplexing. As a result, our customers can integrate our products into
  their networks without an extensive and expensive replacement of their
  existing network components.

Strategy

  Our objective is to be the leading provider of next generation high
performance network solutions. We intend to achieve this objective by providing
a broad suite of the most cost-effective, highest-performing network switching
products for enterprises and Internet service providers. Key elements of our
strategy include:

    Leverage Product Breadth to Both Enterprises and Internet Service
  Providers. We intend to continue leveraging our comprehensive product
  breadth to offer solutions to the enterprise and Internet service provider
  markets. Our end-to-end network solution spans the LAN, MAN and LAN/WAN
  with high levels of performance and functionality, at leading price points.
  We intend to continue to offer value-added feature sets that provide for
  redundancy, ease of use and management of the network.

    Maintain a Market Leadership Position in Layer 4-7 Switches. We believe
  the demand for Layer 4-7 intelligent capabilities will be a very important
  growth area for Internet service providers and an area of increasing
  importance to enterprises. We intend to maintain a leadership position in
  this market by continually improving the performance and functionality of
  our Layer 4-7 products. Our products are designed to provide the
  performance and network intelligence capabilities that enable Internet
  service providers to rapidly deliver new revenue-generating applications
  and services to end-user customers, while providing a high degree of
  service reliability.

    Maintain Technology Leadership. We intend to maintain our technology
  leadership through continual enhancements of existing products and ongoing
  development of new products that provide higher levels of performance and
  intelligence. We also intend to pursue cost reduction efforts that will
  allow us to remain highly competitive while offering customers leading
  price points. We intend to ensure that our hardware and software
  architectures are flexible and extensible and are designed to support
  emerging technologies such as 10 Gigabit Ethernet, Gigabit Ethernet over
  copper and wave division multiplexing.

    Expand Global Sales Organization. We intend to expand our global sales
  presence with our direct sales organization in the United States, strategic
  channel partners outside the United States and select original equipment
  manufacturers. In addition, we intend to work with resellers in the United
  States to penetrate select vertical markets such as small Internet service
  providers. We intend to increase our worldwide sales force and establish
  additional channel partner relationships to build greater worldwide sales
  presence.

                                       34
Deliver World Class Service and Support. We intend to expand our service
  and support infrastructure to meet the needs of our growing customer base.
  Our goal is to minimize our customers' network downtime by offering a wide
  range of service and support programs to meet individual customer needs,
  including prompt onsite hardware repair and replacement, twenty-four hour,
  seven day-a-week web and telephone support, system software and network
  management software upgrades and technical documentation updates.

Products

  We provide a comprehensive line of network switches designed to meet the
price, performance, reliability and feature requirements of enterprises and
Internet service providers. Our product suite includes Gigabit Ethernet edge
switches, Gigabit Ethernet and Internet protocol over synchronous optical
network (also known as IP over SONET) core switches and Gigabit Ethernet
intelligent network service switches for server farms. Edge switches are used
to connect individuals and groups of workstations to the network. Core switches
are the most critical network component and serve as the convergence point for
the majority of network traffic. Layer 4-7 switches are used in server farms to
provide centralized collection points for server-based applications used by
enterprises and Internet service providers.
Product/First        Area of                                              List Price per Port
     Date of         Deployment/                                              (as of June 30,
     Shipment        Product Type      Configuration Options    Performance        1999)
-----------------------------------------------------------------------------------------------
FastIron        LAN edge           24 10/100 Mbps ports          3 Mpps         $   149
  May 1997        Layer 2            24 10/100 Mbps ports                         $   199
                                     +1 Gigabit Ethernet port
                                     24 10/100 Mbps ports                         $   240
                                     + 2 Gigabit Ethernet ports
-----------------------------------------------------------------------------------------------

  FastIron II     LAN edge           72 10/100 Mbps ports         23 Mpps         $   195
  October 1998    Layer 2/3          + 2 Gigabit Ethernet ports

                                     72 10/100 Mbps ports                         $   243
                                     + 4 Gigabit Ethernet ports

                                     72 10/100 Mbps ports                         $   331
                                     + 8 Gigabit Ethernet ports
-----------------------------------------------------------------------------------------------
  NetIron         LAN edge and core  16 10/100 Mbps ports          3 Mpps         $   562
  June 1997       Layer 2/3          24 10/100 Mbps ports                         $   416
                                     1 Gigabit Ethernet port                      $ 1,995
                                     2 Gigabit Ethernet ports                     $ 1,847
-----------------------------------------------------------------------------------------------
  TurboIron/8     LAN edge and core  8 Gigabit Ethernet ports     12 Mpps         $ 1,249
  July 1998       Layer 2/3/4-7
-----------------------------------------------------------------------------------------------
  BigIron 4000    LAN edge and core  88 10/100 Mbps ports         48 Mpps         $   465
  August 1998     LAN/WAN edge       32 Gigabit Ethernet ports                    $ 2,280
                  Layer 2/3/4
-----------------------------------------------------------------------------------------------
  BigIron 8000    LAN edge and core, 184 10/100 Mbps ports        96 Mpps         $   450
  September 1998  LAN/WAN edge       64 Gigabit Ethernet ports                    $ 2,296
                  Layer 2/3/4

                                     2 port OC-3 IP over SONET                    $12,497

                                     4 port OC-3 IP over SONET                    $ 8,748

                                     2 port OC-12 IP over SONET                   $22,497
-----------------------------------------------------------------------------------------------
  ServerIron      LAN server farm    8 10/100 Mbps ports           3 Mpps         $   786
  April 1998      Layer 2/4-7        16 10/100 Mbps ports                         $   624
                                     24 10/100 Mbps ports                         $   791
35
Foundry Edge Switching Solutions

    FastIron. The FastIron workgroup switch provides Fast Ethernet and Giga-
  bit Ethernet switching. Designed to accelerate workgroup and server perfor-
  mance in enterprises, the FastIron workgroup switch offers redundancy,
  bandwidth management for delay-intensive applications and complete network
  management support.

    FastIron II. The FastIron II is a redundant, chassis-based wiring closet
  switch that offers non-blocking Fast Ethernet and Gigabit Ethernet
  performance of up to 23 million packets per second. FastIron II is offered
  in Layer 2 and Layer 3 configurations and supports all major industry
  standard routing protocols. This protocol support is necessary to ensure
  interoperability with installed enterprise applications and equipment.

  Foundry Switching Solutions for the Network Core

    NetIron and TurboIron/8. Our NetIron and TurboIron/8 switches allow small
  and medium-sized enterprises to increase performance at their network core
  with multi-protocol Layer 3 switching. NetIron provides Ethernet, Fast
  Ethernet and Gigabit Ethernet connectivity, while TurboIron/8 offers all
  Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switching. Both products
  support a full suite of industry standard routing protocols. We also offer
  multi-layer switching that enables NetIron and TurboIron/8 switches to
  transparently perform processing-intensive Internet protocol and Internet
  protocol exchange (IPX) traffic forwarding, freeing existing routers to
  handle non-IP and IPX traffic and to manage and communicate with other
  routers. This capability reduces the workload of routers and the need for
  costly upgrades, and improves the overall network performance.

    BigIron 4000 and BigIron 8000. Our BigIron 4000 and BigIron 8000 switches
  are designed for the core of large enterprises and Internet service
  providers. BigIron switches can be deployed in collapsed backbone data
  centers and server farms of local area and metropolitan area networks.
  BigIron also can be used as a high performance local and wide area network
  router. BigIron provides Ethernet, Fast Ethernet and Gigabit Ethernet Layer
  2, Layer 3 and Layer 4 switching, multi-protocol support and Packet over
  SONET on a single platform. We believe our BigIron switches provide the
  industry's highest non-blocking Gigabit Ethernet port density and
  performance with up to 64 Gigabit Ethernet ports and 96 million packets per
  second performance. In addition to supporting the full range of industry
  standard routing protocols, BigIron supports BGP4, a necessary protocol for
  Internet service providers that require high performance connectivity to
  the Internet.

  Foundry Intelligent Network Service Switching Solutions for the Server Farm

    ServerIron. Our ServerIron switch provides Internet service providers and
  enterprises with high performance Layer 4-7 switching that improves the
  availability, performance and scalability of Internet services such as
  content publishing, web hosting and e-commerce. ServerIron is compatible
  with all major server vendors and operating systems and requires no special
  server agent software. As a switch-based hardware platform, ServerIron is
  designed to provide the high performance, high port density, scalable
  capacity and multiple levels of redundancy required by users of mission
  critical Internet applications. Our TurboIron/8 switch can also be upgraded
  with Layer 4-7 capabilities.

  IronView Network Management Solutions

    IronView. Our IronView network management solution provides a
  comprehensive set of easy-to-use tools to simplify management of our
  switches. A command line interface streamlines local and remote management
  and configuration. Industry standard simple

                                       36
network management protocol and configuration applications are available on
major platforms for graphical user interface management, including HP OpenView
for Sun Solaris, Windows NT and stand-alone Windows NT. Our switches also
include a user-friendly web interface. Industry standard remote monitoring
simplifies network monitoring and a mirror port is included for network tracing
and troubleshooting.

  Foundry's Product Awards

  Since inception, our products have received the following awards:

    FastIron: Network Magazine "1998 Gigabit Ethernet Product of the Year"
  award granted in April 1998, LAN Times "Best of LAN Times" award granted in
  October 1997 and Network Computing "Editor's Choice" award granted in Octo-
  ber 1997.

    FastIron II: Network Computing "Editor's Choice" award for mid-range
  Layer 3 switches granted in March 1999.

    NetIron: Network Computing "Editor's Choice" award granted in January
  1998 for Layer 3 switches and Data Communications "Tester's Choice" award
  granted in November 1997.

    BigIron: Rated by PC Week as the highest performing Gigabit chassis
  switch in February 1999; Data Communications "Tester's Choice" award
  granted in November 1998 and Business Communications "Best-in-Test" award
  granted in September 1998.

    ServerIron: Network Week "Infrastructure Product of the Year" award
  granted in June 1999 and Network Computing "Flying Colors" award granted in
  June 1998.

Hardware and Software Architecture

  IronCore

  All of our products are based on the IronCore hardware architecture. IronCore
allows us to provide customers with consistent performance, reliability and
features, as well as the ability to leverage their networking equipment
investment. The IronCore architecture also allows us to quickly bring new
products to market that meet customer needs and interoperate with existing
networking equipment.

  The IronCore architecture reflects our expertise in custom designed
programmable ASICs. These ASICs provide high performance and integrated Layer
2, Layer 3 and Layer 4 switching capabilities. This programmable design allows
us to offer customers the flexibility of field-upgradeable software features
without compromising performance. We have developed 13 custom ASICs used
throughout our product portfolio.

  The IronCore chassis architecture consists of a high-speed data highway that
incorporates a backplane and crosspoint switching fabric and supports up to
eight interface modules. The crosspoint switching fabric allows all lines of
communication to intersect with one another. Our implementation of the
crosspoint switching fabric includes custom designed, high speed ASICs that
provide throughput of up to 128 Gigabits and 96 million packets per second.
This amount of throughput allows each module connected to the switch to support
simultaneous communication among all workstations connected to the switch,
while all workstations connected to the switch can operate at maximum
performance. Therefore, IronCore allows enterprises and Internet service
providers to have dedicated access to the network at any time, using any
application at the maximum speed.

                                       37
IronWare and Internet IronWare Software

  Our IronWare and Internet IronWare software work with the IronCore hardware
architecture to provide high performance switching. IronWare, which is pre-
installed on our Layer 2 and Layer 3 products, provides network design
flexibility, multiple levels of redundancy for reliability and support for
current and future applications. Our Internet IronWare software provides
industry-leading intelligent switching capabilities, such as server load-
balancing and transparent cache switching, for our Layer 4-7 products.

Customers

  The following table is a representative list of companies that have purchased
over $100,000 of Foundry products since January 1, 1998.
Enterprises               Enterprises                        Internet Service Providers
-----------               -----------                        --------------------------
Arlington Public Schools  Michigan State University          America Online
ATI Technologies          Mitsui & Co.                       AT&T Cerfnet
AXA Colonia               Netscape Communications            AT&T WorldNet
Brann Software            Network Appliance                  Cable & Wireless
Carnival Cruise Lines     Nextel Communications              France Telecom
Cendant Corporation       Ontario Ministry of Finance        MindSpring Enterprises
DLJdirect                 Paramount Pictures                 None Networks
Dubai Ministry of Labor   Parkedale Pharmaceuticals          Sprint
and Social Affairs
Ericsson                  Samsung Electronics                Telewest Communications
First Union               San Francisco Newspaper Agency     ThruNet
Fort James Paper          Sun Microsystems                   Uunet Technologies
Fox Liberty Network       U.S. Army (Redstone Arsenal)       Verio
Goto.com                  United States Bureau of Land
                          Management
Harris Corporation        Universal Computer Systems
Hewlett-Packard           University of Miami
ibeam Broadcasting        University of Oklahoma
Incyte Pharmaceuticals    University of Washington
LTV Steel Co.             University of Washington Medical
                          Center
McKinsey & Company        Veritas Software
                          Wright Patterson Air Force Base
                          Xoom.com
Customer Case Studies

  Internet Service Provider

    America Online. America Online required a high performance switch
  solution to support its growth and enhance members' online experience. AOL
  selected us as its primary supplier of Ethernet, Fast Ethernet and Gigabit
  Ethernet Layer 2 and Layer 4 switches based upon functionality, port
  density, management, price and the responsiveness of our service and
  technical organization. Our FastIron workgroup switches, as well as our
  FastIron II switches, are deployed in fully redundant configurations to
  efficiently and reliably manage the extremely large traffic volumes that
  traverse AOL's network. Our ServerIron Layer 4-7 switches provide server
  load balancing capabilities that enable AOL to improve server performance
  and run higher capacity sites. In addition to front ending AOL.com, our
  switches support AOL Internet services such as Digital City, a popular
  local content network and community guide and ICQ, an instant
  communications and chat technology on the Internet.

  Higher Education

    The University of Oklahoma. The University of Oklahoma enrolls more than
  25,000 students and has approximately 1,830 full-time faculty members. The
  university's goal was

                                       38
to build a cost-effective, switched local area network that would support
  distance learning via web archived classes and, in the future, real-time
  video on demand. All incoming engineering students are required to purchase
  laptop computers for connectivity to the university's local area network.
  Classes are videotaped and accessible via a web archive. Video on demand
  will enable students to dial into a class in progress. After evaluating
  numerous Gigabit Ethernet vendors, they chose us based on price, features
  and support. The network includes our FastIron workgroup switches at the
  edge and BigIron 4000 switches in the core. Each FastIron workgroup switch
  is connected to video on demand servers and linked together via Gigabit
  Ethernet to provide a high performance, cost-effective solution.

  Service Industry

    Carnival Cruise Lines. Carnival Cruise Lines wanted to provide passengers
  on its Sensation Superliner ships with in-room interactive video services.
  Carnival selected us to provide the necessary network infrastructure based
  on our ability to provide a high performance, attractively priced multicast
  solution in a small physical space. Carnival installed a BigIron 4000 in
  the broadcast center and FastIron II switches throughout the ship. Our
  solution provides reliable high-speed connectivity to 1,024 passenger
  cabins and supports 1,000 simultaneous interactive sessions and up to 300
  concurrent video streams. Passengers use a web-like browser interface on
  the television set to choose from a selection of movies, video on demand,
  and music stations and make shore excursion reservations.

  Government

    The United States Army Aviation and Missile Command (Redstone
  Arsenal). The United States Army Aviation and Missile Command (Redstone
  Arsenal) develops, acquires, fields and sustains aviation and missile
  systems for the Army. The Redstone Technical Test Center tests weapons
  systems using computer simulation and modeling applications. The
  organization required a cost-effective, high-speed network to support more
  than 500 nodes. Redstone Arsenal evaluated ATM technology but selected our
  Gigabit Ethernet solution based on cost, bandwidth capabilities and ease of
  use. RedStone Arsenal installed a BigIron 4000 in the network core to
  interconnect 10 of the facility's test centers via Gigabit Ethernet. A
  TurboIron switch connects three additional test areas via Gigabit Ethernet
  and aggregates traffic into the BigIron 4000.

                                       39
Sales and Marketing

  Our sales strategy includes a domestic and international field sales
organization, domestic and international resellers and a key OEM relationship.

    Domestic field sales. Our domestic field organization establishes and
  maintains direct relationships with key accounts and strategic customers.
  To a lesser extent, our field organization also works with resellers to
  assist in communicating product benefits to end user customers and
  proposing networking solutions. As of June 30, 1999, our field organization
  included over 23 sales representatives and system engineers. In addition,
  as of June 30, 1999, we maintained field offices in 20 major metropolitan
  areas in the United States.

    Domestic resellers. Our domestic resellers include regional networking
  system resellers and vertical resellers who focus on specific markets such
  as small Internet service providers. We provide sales and marketing
  assistance and training to our resellers, who in turn provide first level
  support to end-user customers. We intend to leverage our relationship with
  key resellers to penetrate select vertical markets.

    International sales. Product fulfillment and first level support are
  provided by resellers and integrators. Our international resellers include
  Mitsui in Japan, Samsung in Korea, Mitech in the United Kingdom, Boreal in
  France and Pan Dacom in Germany. We also provide field support in key
  Canadian, European and Asia Pacific locations including Toronto, London,
  Paris, Frankfurt, Munich and Taipei. We intend to expand our international
  presence through additional sales and engineering personnel and through the
  addition of key resellers and integrators.

    OEM. We established an OEM relationship with Hewlett-Packard in January
  1999. Pursuant to our agreement, Hewlett-Packard markets and sells our
  products on a private label basis through its worldwide sales force.
  Hewlett-Packard also purchases our products for use in its internal
  networks. For the six months ended June 30, 1999, sales to Hewlett-Packard
  accounted for 15% of our revenue.

    Marketing programs. We have numerous marketing programs designed to
  inform existing and potential customers, as well as resellers and OEMs,
  about the capabilities and benefits of our company and products. Our
  marketing efforts also support the sale and distribution of our products
  through our field organizations and channels. Our marketing efforts include
  advertising, public relations, participation in industry trade shows and
  conferences, participation in independent third-party product tests,
  presentations and our web site. We have begun an e-commerce initiative
  directed at existing customers and resellers.

Customer Service and Support

  Our service and support organization maintains and supports our products sold
by our field organization to end users. Our resellers and OEM are responsible
for installation, maintenance and support services to their customers. We may
offer limited assistance to our resellers and OEM in providing service and
support to their end user customers.

  TechNet, our comprehensive suite of service and support options, provides
customers with a variety of programs to meet specific support needs. TechNet
Gold gives customer network operations the highest level of priority and our
full range of services. TechNet Silver provides customers with all the tools
needed to optimize network performance and uptime. TechNet Bronze extends
warranty support with software updates and telephone and online support.

                                       40
Manufacturing

  We operate under a modified "turn key" process utilizing strategic
manufacturing partners that are ISO 9000 certified and have global
manufacturing capabilities. We maintain control and procurement responsibility
for all proprietary components. All designs, documentation, selection of
approved suppliers, quality control and repairs are performed at our
facilities. In the first quarter of 1999, we began transitioning our assembly
and testing functions from our Sunnyvale facility to one of our manufacturing
partners in order to realize lower costs and higher volume efficiencies. Our
approach to manufacturing provides the flexibility of outsourcing while
maintaining quality control of delivered products to customers. We have
selected this approach to ensure our ability to respond to rapid growth and
sudden market shifts.

  We currently have two primary manufacturing partners. One partner, Celestica-
Asia, located in San Jose, California, assembles and tests our printed circuit
boards. The other partner, Hadco, located in Santa Clara, California, assembles
and tests our backplane products. Both companies are ISO certified and have
global manufacturing facilities providing full back-up capability and local
content for foreign sales if required. We perform all prototype and pre-
production procurement and component qualification with support from our
manufacturing partners. Any interruptions in the operations of either of these
manufacturing partners or delays in their shipment of products would negatively
impact our ability to meet scheduled product deliveries to our customers. We
design all ASICs, printed circuit boards and sheet metal while working closely
with semiconductor partners on future component selection and design support.
All materials used in our products are processed through a full qualification
cycle and controlled by use of an "Approved Vendor Listing" that must be
followed by our sources. We perform extensive testing of all our products
including in-circuit testing of all printed circuit board assemblies, full
functional testing, 24 hour burn-in and power cycling at maximum and minimum
configuration levels. Please see "Risk Factors--Our reliance on third- party
manufacturing vendors to manufacture our products may cause a delay in our
ability to fill orders."

Research and Development

  Our future success depends on our ability to enhance existing products and
develop new products that enable us to maintain a technology lead. We work with
customers and prospects, as well as partners and industry research
organizations, to identify and implement new solutions that meet the current
and future needs of enterprises and Internet service providers. Whenever
possible, our products are based on industry standards to ensure
interoperability. We intend to continue to support emerging industry standards
integral to our product strategy.

  We use a uniform architecture across our product line, including programmable
ASICs, and system and network management software. This enables us to quickly
bring new products and features to market. For example, we shipped the
industry's first Gigabit Ethernet Layer 2 and Layer 3 switch in June 1997. We
are currently developing new switching solutions that provide new levels of
performance, scalability and functionality for the LAN, MAN and LAN/WAN. We
also have engineering efforts focused on cost reduction.

  As of June 30, 1999, we had an engineering staff of 33 responsible for
hardware design and development, architecture and software development,
documentation and quality assurance. Our research and development expenses
totaled $8.8 million in 1998, $5.4 million in 1997 and $1.9 million in 1996.

                                       41
Competition

  We believe that we compete favorably in the key competitive factors that
impact our markets, including technical expertise, price points, new product
innovation, product features, service and support, brand awareness and
distribution. We intend to remain competitive through ongoing investment in
research and development efforts to enhance existing products and introduce new
products. We will seek to expand our market presence through aggressive
marketing and sales efforts and through the continued implementation of cost
reduction efforts. However, our market is still evolving and we may not be able
to compete successfully against current and future competitors.

  The market in which we operate is highly competitive. Cisco maintains a
dominant position in this market and several of its products compete directly
with our products. Its substantial resources and market dominance have enabled
it to reduce prices on its products within a short period of time following the
introduction of these products, which reduces the margins and profitability of
its competitors. Purchasers of networking solutions may choose Cisco's products
because of its longer operating history, broad product line and strong
reputation in the networking market. In addition, Cisco may have developed or
could in the future develop new technologies that directly compete with our
products or render our products obsolete.

  In addition to Cisco, we compete with other large public companies, such as
3Com and Nortel Networks, as well as other smaller public and private
companies. Many of our current and potential competitors have longer operating
histories and substantially greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and larger installed
customer bases than we do. Furthermore, companies that do not offer a directly
competitive product to our products could develop new products or enter into
agreements with other networking companies to provide a product that competes
with our products or provides a more complete solution than we can offer.
Additionally, we may face competition from unknown companies and emerging
technologies that may offer new LAN, MAN and LAN/WAN solutions to enterprises
and Internet service providers.

Intellectual Property

  Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We rely on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. We do not own any patents nor do we
have any patent applications pending. We may not have taken actions that
adequately protect our intellectual property rights.

  We provide software to customers under license agreements included in the
packaged software. These agreements are not negotiated with or signed by the
licensee, and thus may not be enforceable in some jurisdictions. Despite our
efforts to protect our proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and
use our products or technology. These precautions may not prevent
misappropriation or infringement of our intellectual property. Monitoring
unauthorized use of our products is difficult and the steps we have taken may
not prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.

                                       42
Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the
networking markets have extensive patent portfolios with respect to networking
technology, while we do not currently own any patents or have any patent
applications pending. From time to time, third parties, including leading
companies, have asserted and may assert exclusive patent, copyright, trademark
and other intellectual property rights to technologies and related standards
that are important to us. Third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products. Any of these claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management
personnel, or require us to develop non-infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if
required, may not be available on acceptable terms, if at all. If there is a
successful claim of infringement or if we fail to develop non-infringing
technology or license the proprietary rights on a timely basis, our business
would be harmed.

Employees

  As of June 30, 1999, we had 131 employees, including 64 in sales and
marketing, 33 in engineering, 23 in manufacturing and 11 in general and
administrative functions. We are not subject to any collective bargaining
agreements and believe our employee relations are good.

Facilities

  In June 1999, we leased approximately 9,500 additional square feet in our
current facility primarily for the expansion of our manufacturing capabilities.
This lease expires at the end of February 2000. Prior to that date we leased
approximately 18,000 square feet for our corporate headquarters which includes
research and development, sales and marketing, general and administrative and
manufacturing. This lease expires in November 2001. We also lease space in
various other geographic locations for sales and service personnel.

                                       43
MANAGEMENT

Executive Officers and Directors

  The names and ages of our executive officers and directors as of June 30,
1999 are as follows:
Name                           Age Position
 ----                           --- --------
Bobby R. Johnson, Jr.........   42 President, Chief Executive Officer, and
                                    Chairman of the Board of Directors
 H. Earl Ferguson.............   61 Vice President, Hardware Engineering
 Drusilla W. Demopoulos.......   38 Vice President, Marketing
 Timothy D. Heffner...........   50 Vice President, Finance and Administration,
                                    Chief Financial Officer
 Ken K. Cheng.................   44 Vice President, Product and Program
                                    Management
 Wilburn W. McGill............   56 Vice President, Manufacturing
 Robert W. Shackleton.........   48 Vice President, North American Sales
 William S. Kallaos...........   51 Vice President, International Sales
 Seth D. Neiman(a)............   45 Director
 Andrew K. Ludwick(a).........   53 Director
--------
(a) Member of Audit Committee and Compensation Committee

  Bobby R. Johnson, Jr. co-founded Foundry and has served as President, Chief
Executive Officer and Chairman of the board of directors of Foundry since its
inception in May 1996. From August 1993 to October 1995, Mr. Johnson co-founded
and served as President, Chief Executive Officer and Chairman of the board of
directors of Centillion Networks, Inc., a provider of local area network
switches. From September 1991 to February 1993, Mr. Johnson was Vice President
and General Manager of Internetworking Hardware for Network Equipment
Technologies, a wide area networking company. Mr. Johnson holds a B.S. with
honors from North Carolina State University.

  H. Earl Ferguson co-founded Foundry and has served as Vice President,
Hardware Engineering, and chief technical officer of Foundry since July 1996.
From August 1993 to February 1996, Mr. Ferguson was co-founder and Vice
President of Engineering of Centillion Networks and the Vice President of
Engineering for the Centillion Business Unit of Bay Networks. From December
1991 to February 1993, Mr. Ferguson was Director of Internetworking Hardware
for Network Equipment Technologies. Mr. Ferguson holds six patents in
internetworking technologies. Mr. Ferguson holds a B.S. from the University of
Washington and M.S. from the University of Michigan.

  Drusilla W. Demopoulos has served as Vice President of Marketing of Foundry
since November 1996. From April 1994 to October 1996, Ms. Demopoulos was
Director of Marketing for Centillion Networks, and for the Centillion Business
Unit of Bay Networks. From January 1991 to March 1994, she was Senior Manager
of Public Relations for Network Equipment Technologies. Ms. Demopoulos holds a
B.A. with honors from Georgia State University.

  Timothy D. Heffner has served as Vice President, Finance and Administration
and Chief Financial Officer of Foundry since November 1996. From September 1994
to November 1996, Mr. Heffner was Director of Finance for Centillion Networks
and for the Centillion Business Unit of Bay Networks. From January 1994 to
September 1994, Mr. Heffner was Chief Financial Officer of Digital Generation
Systems, a network services company. Mr. Heffner holds a B.S. from San Jose
State University.

                                       44
Ken K. Cheng has served as Vice President of Product and Program Management
of Foundry since July 1998. From December 1993 to July 1998, Mr. Cheng was
Senior Vice President and Chief Operating Officer of Digital Generation
Systems, a network services company. From December 1988 to December 1993, Mr.
Cheng was Director of LAN/WAN Internetworking Hardware for Network Equipment
Technologies. Mr. Cheng holds a B.S. from Queen's University and an M.B.A. from
Santa Clara University.

  Wilburn W. McGill has served as Vice President of Manufacturing of Foundry
since February 1997. From March 1996 to February 1997, Mr. McGill was the Vice
President of Operations at Ancot Corporation, a networking analyzer company.
From May 1995 to March 1996, Mr. McGill was Vice President of Engineering and
Operations for DTC Data Technology Corporation, a network interface card
company. From January 1990 to February 1994, Mr. McGill was General Manager for
the Research and Development Division of Centera Ltd., a networking solutions
company.

  Robert W. Shackleton has served as Vice President of North American Sales of
Foundry since April 1997. From March 1989 to March 1997, Mr. Shackleton was
Senior Director of United States Distribution and Sales for Network Equipment
Technologies. Mr. Shackleton holds a B.A. with honors from the University of
Colorado and attended Stanford University's Business School Executive
Management Program.

  William S. Kallaos has served as Vice President of International Sales of
Foundry since April 1997. From September 1984 to February 1997, Mr. Kallaos
worked for UB Networks in a variety of positions, most recently as Vice
President of United States Sales. Mr. Kallaos holds a B.A. with honors from the
University of Missouri.

  Seth D. Neiman has served as a member of the board of directors of Foundry
since its inception in May 1996. Since August 1994, Mr. Neiman has held various
positions at Crosspoint Venture Partners, a venture capital firm, and has been
a partner of Crosspoint since January 1996. From September 1991 to July 1994,
Mr. Neiman was Vice President of Engineering at Coactive Networks, a local area
networks company. Mr. Neiman serves on the board of Brocade Communications
Systems, Inc., where he is Chairman of the Board. Mr. Neiman holds a B.A. from
Ohio State University.

  Andrew K. Ludwick has served as a member of the board of directors of Foundry
since May 1999. From September 1995 to October 1997, Mr. Ludwick was Chief
Executive Officer of Bay Networks, a networking company. From July 1985 to
September 1995, Mr. Ludwick was founder, President and Chief Executive Officer
of SynOptics, an internetworking company. Mr. Ludwick currently serves as a
member of the boards of directors of a number of private companies. Mr. Ludwick
holds a B.A. from Harvard College and an M.B.A. from Harvard Business School.

Board Composition

  Upon completion of this offering, we will have an authorized board of three
to five directors. The number of our directors is currently set at three. Each
director is elected for a period of one year at our annual meeting of
stockholders and serves until the next annual meeting or until his successor is
duly elected and qualified. The executive officers serve at the discretion of
the board of directors. There are no family relationships among any of our
directors or executive officers.

                                       45
Executive Compensation

  The following table provides summary information concerning the compensation
received for services rendered to us during 1998 by our Chief Executive Officer
and each of the other four most highly compensated executive officers, each of
whose aggregate compensation during our last fiscal year exceeded $100,000
(collectively, the "Named Executive Officers").

                           Summary Compensation Table
Long-Term
                                                        Compensation
                              Annual Compensation          Awards
                         -----------------------------  ------------
                                          Other Annual   Securities   All Other
Name and Principal        Salary   Bonus  Compensation   Underlying  Compensation
Position                   ($)      ($)       ($)       Options (#)     ($)(a)
------------------       -------- ------- ------------  ------------ ------------
Bobby R. Johnson, Jr...  $139,090 $    --   $    --            --        $470
 President, Chief
 Executive Officer,
 Chairman of the Board
 of Directors
Robert W. Shackleton...   111,590   2,500    74,112(b)      7,500         504
 Vice President,
 Domestic Sales
William S. Kallaos.....   109,090      --    35,821(b)         --         370
 Vice President,
 International Sales
Wilburn W. McGill......   125,090  11,500    12,830(c)     15,000         430
 Vice President,
 Manufacturing
Drusilla W.
 Demopoulos............   119,840   2,500        --            --         407
 Vice President,
 Marketing
--------
(a) Represents premiums paid for life insurance.
(b) Represents commissions paid based on total sales.
(c) Represents partial forgiveness by Foundry of loans and interest outstanding
    under loans made to Mr. McGill in connection with the exercise of options.

Option Grants in Last Fiscal Year

  The following table provides summary information regarding stock options
granted to each of the Named Executive Officers in 1998.
Individual Grants
                          -----------------------------------------------
                                                                           Potential Realizable
                                      % Of Total                             Value At Assumed
                          Number Of    Options                            Annual Rates of Stock
                          Securities  Granted To                            Price Appreciation
                          Underlying Employees In Exercise Or             For Option Term ($)(d)
                           Options   Fiscal Year   Base Price  Expiration ----------------------
Name                      Granted(#)    (%)(a)    ($/Share)(b)  Date(c)       5%         10%
----                      ---------- ------------ ------------ ---------- ---------- -----------
Bobby R. Johnson, Jr....        --        --%        $  --           --   $       -- $        --
Robert W. Shackleton....     7,500       0.3          0.50      6/10/08        2,358       5,977
William S. Kallaos......        --        --            --           --           --          --
Wilburn W. McGill.......    15,000       0.6          0.50      4/29/08        4,717      11,953
Drusilla W. Demopoulos..        --        --            --           --           --          --
--------
(a) Based on the aggregate of 2,722,500 shares subject to options granted by us
    in 1998.
(b) The exercise price per share of each option was equal to the fair market
    value of our common stock on the date of grant as determined by our board
    of directors.

                                       46
(c) These stock options were granted under the 1996 Stock Plan and were
    immediately exercisable. These options were exercised prior to December 31,
    1998, but we have a right to repurchase at cost any shares that remain
    unvested at the time of the officer's cessation of employment. The shares
    vest at a rate of 1/48th per month subject to earlier termination in the
    event of termination of employment and provide for partial acceleration
    upon a change of control.
(d) The potential realizable value assumes that the fair market value of our
    common stock on the date of grant appreciates at the indicated annual rate
    compounded annually for the entire 10-year term of the option and that the
    option is exercised and sold on the last day of its term for the
    appreciated stock price. The 5% and 10% assumed annual rates of compounded
    stock price appreciation are mandated by the rules of the SEC, and do not
    represent our prediction of stock performance. Actual gains, if any, on
    stock option exercises will depend on the future performance of our common
    stock. The gains shown are net of the option exercise price, but do not
    include deductions for taxes and other expenses payable upon the exercise
    of the option or for sale of underlying shares of common stock.

  On January 26, 1999 the board of directors authorized the grant of options to
the following Named Executive Officers, at an exercise price of $2.50 per
share: Drusilla W. Demopoulos, 28,000 shares; Robert W. Shackleton, 50,000
shares; and Wilburn W. McGill, 75,000 shares. These options were granted
outside of the 1996 Stock Plan, but the exercise and repurchase rights of the
options are substantially similar to those granted officers in 1998 under the
1996 Stock Plan.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

  The following table provides summary information concerning stock option
exercises during our last fiscal year and options outstanding at the end of the
last fiscal year:
Number of Shares
                                                  Underlying     Value of Unexercised
                                                  Unexercised    In-the Money Options
                                                  Options at              at
                                               December 31, 1998 December 31, 1998(a)
                            Shares             ----------------- --------------------
                           Acquired    Value     Exercisable /      Exercisable /
Name                      on Exercise Realized   Unexercisable      Unexercisable
----                      ----------- --------   -------------   --------------------
Bobby R. Johnson, Jr....        --    $    --          --                $--
Robert W. Shackleton....     7,500      3,750          --                 --
William S. Kallaos......        --         --          --                 --
Wilburn W. McGill.......    15,000      7,500          --                 --
Drusilla W. Demopoulos..    32,000     22,400          --                 --
--------
(a) The value was calculated by determining the difference between the fair
    market value of underlying securities and the exercise price, multiplied by
    the number of shares issued upon exercise of the option. The fair market
    value of our common stock was $1.00 per share on December 31, 1998 as
    determined by our board of directors.

Director Compensation

  Except for the grant of stock options, directors are not compensated for
their services as directors. All directors are eligible to participate in our
1996 Stock Plan. Upon completion of this offering, directors who are not our
employees will be eligible to participate in our 1999 Directors' Stock Option
Plan. See "--1996 Stock Plan" and "--1999 Directors' Stock Option Plan."

  On June 28, 1999, Andrew K. Ludwick exercised a fully vested option to
purchase 160,000 shares of our common stock at an exercise price of $8.00 per
share which was granted to him in connection with his appointment as a member
of our board of directors.

Committees of the Board of Directors

  In July 1999, the board established the audit committee, compensation
committee and stock option subcommittee. The audit committee reviews our annual
audit and meets with our independent auditors to review our internal controls
and financial management practices. The

                                       47
audit committee currently consists of Seth D. Neiman and Andrew K. Ludwick. The
compensation committee recommends compensation for some of our personnel to the
board and generally administers our stock plans. The compensation committee
currently consists of Messrs. Neiman and Ludwick. The stock option subcommittee
administers our discretionary stock plans with respect to grants to optionees
who are not officers or non-employee directors of Foundry under guidelines to
be established by the board. The stock option subcommittee currently consists
of Bobby R. Johnson, Jr.

  On June 9, 1999, we sold to a family trust of which Mr. Ludwick is a trustee
125,000 shares of our Series C preferred stock at a purchase price of $8.00 per
share.

Compensation Committee Interlocks and Insider Participation

  The members of the compensation committee of our board of directors are
currently Seth D. Neiman and Andrew K. Ludwick. Neither has at any time been an
officer or employee of Foundry.

1996 Stock Plan

  Our 1996 Stock Plan was adopted by our board of directors and approved by our
stockholders in July 1996. A total of 10,270,000 shares of common stock for
stock option grants were originally reserved under this plan. Our board of
directors and our stockholders approved a 1,000,000 share increase in October
1998, and a 1,000,000 share increase in May 1999. In addition, in July 1999,
our board of directors approved a 2,000,000 share increase plus an automatic
annual increase on the first day of each of Foundry's fiscal years from 2000
through 2006 equal to the lesser of:

  .  1,500,000 shares;

  .  3% of our outstanding common stock on the last day of the immediately
     preceding fiscal year; or

  .  the number of shares determined by our board of directors.

  The July 1999 increase will be submitted to our stockholders for approval
prior to the completion of this offering, and, if approved, will bring the
total number of shares currently reserved under this plan to 14,270,000. As of
June 30, 1999, options to purchase 12,608,000 shares of common stock with a
weighted average exercise price equal to $1.07 per share have been granted
under the 1996 Stock Plan. Of these, 633,334 options have been canceled and
returned to the option pool so that, as of June 30, 1999, 295,334 shares
remained available for future grant.

  The 1996 Stock Plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and the grant
of nonstatutory stock options and stock purchase rights to employees, non-
employee directors and consultants. The plan may be administered by our board
or a committee appointed by the board. The administrator of the 1996 Stock Plan
will determine number, vesting schedule, and exercise price for options, or
conditions for stock purchase rights, granted under the 1996 Stock Plan
provided, however, an individual employee may not receive option grants and
stock purchase rights for more than 1,000,000 shares in any fiscal year. To the
extent an optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for shares having an
aggregate fair market value in excess of $100,000 as of the date the options
were granted, the excess options will be treated as nonstatutory stock options.

                                       48
Incentive stock options granted under the 1996 Stock Plan must have an
exercise price equal to at least 100% of the fair market value of the common
stock on the date of the grant, and at least 110% of the fair market value in
the case of incentive stock options granted to an employee who holds more than
10% of the total voting power of all classes of our stock or the stock of any
parent or subsidiary. Nonstatutory stock options granted under the 1996 Stock
Plan will have an exercise price as determined by the administrator of the 1996
Stock Plan; provided, however, that the exercise price of a nonstatutory stock
option granted to a Named Executive Officer must equal at least 100% of the
fair market value of the common stock on the date of grant in order for that
grant to qualify as performance-based compensation under applicable tax law.
Payment of the exercise price may be made in cash or other forms of
consideration approved by the administrator.

  The administrator determines the term of options, which may not exceed 10
years, or 5 years in the case of an incentive stock option granted to an
employee who holds more than 10% of the total voting power of all classes of
our stock or the stock of any parent or subsidiary. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised during the lifetime of the optionee
only by such optionee.

  Options granted under the 1996 Stock Plan generally may be exercised
immediately after the grant date, but to the extent the shares subject to the
options are not vested as of the date of exercise, we retain a right to
repurchase any shares that remain unvested at the time of the optionee's
termination of employment by paying an amount equal to the exercise price times
the number of unvested shares. Options granted under the 1996 Stock Plan
generally vest at the rate of 1/4th of the total number of shares subject to
the options twelve months after the date of grant and 1/48th of the total
number of shares subject to the options each month thereafter.

  In addition to stock options, the administrator may issue stock purchase
rights under the 1996 Stock Plan to employees, non-employee directors and
consultants. The administrator determines the number of shares, price, terms,
conditions and restrictions related to a grant of stock purchase rights. The
purchase price of a stock purchase right granted under the 1996 Stock Plan will
be as determined by the administrator. The period during which the stock
purchase right is held open is determined by the administrator, but in no case
shall this period exceed 30 days. Unless the administrator determines
otherwise, the recipient of a stock purchaser right must execute a restricted
stock purchase agreement granting Foundry an option to repurchase unvested
shares at cost upon termination of the recipient's relationship with us.

  In the event we sell all or substantially all of our assets or merge with
another corporation, then each option may be assumed or an equivalent option
substituted by the successor corporation. However, if the successor corporation
does not agree to this assumption or substitution, the option or stock purchase
right will terminate. Upon the closing of the transaction, outstanding
repurchase rights will terminate unless acquired by the acquiror or purchaser.
The board of directors may amend, modify or terminate the 1996 Stock Plan at
any time as long as any amendment, modification or termination does not impair
vesting rights of plan participants and provided that stockholder approval
shall be required for an amendment to the extent required by applicable law.
The 1996 Stock Plan will terminate in July 2006 unless the board of directors
terminates it earlier.

1999 Directors' Stock Option Plan

  The 1999 Directors' Stock Option Plan was adopted by the board of directors
in July 1999. We will be submitting it for approval by the stockholders prior
to completion of this offering. A

                                       49
total of 450,000 shares of common stock has been reserved for issuance under
the 1999 Directors' Stock Option Plan.

  Under the 1999 Directors' Stock Option Plan, each non-employee director who
becomes a non-employee director after the effective date of the plan will
receive an automatic initial grant of an option to purchase 75,000 shares of
common stock upon appointment or election. Initial grants to non-employee
directors shall be vested and exercisable in full on the date of the grant. The
1999 Directors' Stock Option Plan also provides for annual grants, on the date
of each annual meeting of our stockholders, to each non-employee director who
has served on our board of directors for at least six months. The annual grant
to non-employee directors is an option to purchase 20,000 shares of common
stock, which will be vested and exercisable in full on the date of grant. The
exercise price of all stock options granted under the 1999 Directors' Stock
Option Plan shall be equal to the fair market value of a share of our common
stock on the date of grant of the option. Options granted under the 1999
Directors' Stock Option Plan have a term of ten years. However, options will
terminate if they are not exercised within 12 months after the director's death
or disability or within 90 days after the director ceases to serve as a
director for any other reason.

  In the event of a sale of all or substantially all of our assets or our
merger or consolidation with or into another corporation in which the ownership
of more than 50% of the total combined voting power of our outstanding
securities changes hands, all outstanding options shall be assumed or an
equivalent option substituted by the successor corporation. However, if the
successor corporation does not agree to this assumption or substitution, the
option will terminate.

  The 1999 Directors' Stock Option Plan is designed to work automatically
without administration. However, to the extent administration is necessary, it
will be performed by the board of directors other than the director or
directors that have a personal interest at stake. Although the board of
directors may amend or terminate the 1999 Directors' Stock Option Plan, it may
not take any action that may adversely affect any outstanding option without
the consent of the optionee. The 1999 Directors' Stock Option Plan will have a
term of ten years unless terminated earlier. We have not issued any options
under the 1999 Directors' Stock Option Plan to date.

1999 Employee Stock Purchase Plan

  The 1999 Employee Stock Purchase Plan was adopted by the board of directors
in July 1999. We will be submitting it for approval by the stockholders prior
to the completion of this offering. A total of 500,000 shares of common stock
has been reserved for issuance under the 1999 Employee Stock Purchase Plan,
none of which have been issued as of the date of this offering. The number of
shares reserved for issuance under the 1999 Employee Stock Purchase Plan will
be increased on the first day of each of our fiscal years from 2000 through
2009 by the lesser of:

  .  500,000 shares;

  .  2% of our outstanding common stock on the last day of the immediately
     preceding fiscal year; or

  .  the number of shares determined by the board of directors.

  The 1999 Employee Stock Purchase Plan becomes effective on the date of this
prospectus. Unless terminated earlier by the board of directors, the 1999
Employee Stock Purchase Plan shall terminate on the 10-year anniversary of the
date of this offering.

                                       50
The 1999 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the IRS Code, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods, other than
the first offering period, commencing on February 1 and August 1 of each year.
Each offering period will consist of four consecutive purchase periods of six
months' duration, and at the end of each six month period an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on July 31, 2001; the initial
purchase period is expected to begin on the date of this offering and end on
January 31, 2000. The 1999 Employee Stock Purchase Plan will be administered by
the board of directors or by a committee appointed by the board. Employees
(including officers and employee directors) of ours, or of any majority-owned
subsidiary designated by the board, are eligible to participate in the 1999
Employee Stock Purchase Plan if we or any subsidiary employs them for at least
20 hours per week and more than five months per year. Under the 1999 Employee
Stock Purchase Plan, eligible employees may purchase common stock through
payroll deductions, which in any event may not exceed 20% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the common stock at the beginning of each offering period or at the end of each
purchase period. Employees may end their participation in the 1999 Employee
Stock Purchase Plan at any time during an offering period and participation
ends automatically on termination of employment.

  Under the 1999 Employee Stock Purchase Plan no employee shall be granted an
option if immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock. In addition, no employee shall be
granted an option under the 1999 Employee Stock Purchase Plan if the option
would permit the employee to purchase stock under all of our employee stock
purchase plans in an amount that exceeds $25,000 of fair market value for each
calendar year in which the option is outstanding at any time. In addition, no
employee may purchase more than 2,500 shares of common stock under the 1999
Employee Stock Purchase Plan in any one purchase period. If the fair market
value of the common stock on a purchase date other than the final purchase date
of an offering period is less than the fair market value at the beginning of
the offering period, each participant in the 1999 Employee Stock Purchase Plan
shall automatically be withdrawn from the offering period as of the purchase
date and re-enrolled in a new 24 month offering period beginning on the first
business day following the purchase date.

  The 1999 Employee Stock Purchase Plan provides that, in the event of our
merger or consolidation with or into another corporation or a sale of all or
substantially all of our assets, each right to purchase stock under the 1999
Employee Stock Purchase Plan will be assumed or an equivalent right will be
substituted by the successor corporation. However, our board of directors will
shorten any ongoing offering period so that employees' rights to purchase stock
under the 1999 Employee Stock Purchase Plan are exercised prior to the
transaction in the event that the successor corporation refuses to assume each
purchase right or to substitute an equivalent right. The board of directors has
the power to amend or terminate the 1999 Employee Stock Purchase Plan and to
change or terminate offering periods as long as any action does not adversely
affect any outstanding rights to purchase stock under the 1999 Employee Stock
Purchase Plan. However the board may amend or terminate the 1999 Employee Stock
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid Foundry's incurring adverse accounting
charges. We have not issued any shares under the 1999 Employee Stock Purchase
Plan to date.

                                       51
401(k) Retirement Plan

  Effective January 1, 1997, we adopted the Foundry Networks 401(k) plan
covering our full-time employees. The 401(k) plan is intended to qualify under
Section 401(a) of the IRS Code, and its accompanying trust is intended to be a
tax-exempt trust under Section 501(c) of the IRS Code. Contributions to the
401(k) plan by employees or by us, and the investment earnings on them, are not
taxable to employees until withdrawn from the 401(k) plan, and contributions by
us, if any, will be deductible by us when made. Under the 401(k) plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit of $10,000 in 1999 and to have the amount
of such reduction contributed to the 401(k) plan. The trustees of the 401(k)
plan, at the direction of participants, invest the assets of the 401(k) plan in
any of certain designated investment options. The 401(k) plan permits, but does
not require, additional matching contributions to the 401(k) plan by us on
behalf of all participants to the 401(k) plan. To date, we have not made any
matching contributions to the 401(k) plan.

Limitation of Liability and Indemnification Matters

  Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:

  .  any breach of their duty of loyalty to the corporation or its
     stockholders;

  .  acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law;

  .  unlawful payments of dividends or unlawful stock repurchases or
     redemptions as provided in Section 174 of the Delaware General
     Corporation Law; or

  .  any transaction from which the director derives an improper personal
     benefit.

  This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
relief such as injunctive relief or rescission.

  Upon completion of this offering, our bylaws will provide that Foundry shall
indemnify its directors and officers and may indemnify its employees and other
agents to the full extent permitted by law. We believe that indemnification
under our bylaws will cover at least negligence and gross negligence on the
part of an indemnified party. Our bylaws will also permit us to advance
expenses incurred by an indemnified party in connection with the defense of any
action or proceeding arising out of the party's status or service as a
director, officer, employee or other agent of Foundry upon an undertaking by
the indemnified party to repay these advances if it is ultimately determined
that the party is not entitled to indemnification.

  We have also entered into indemnification agreements with our officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require us to indemnify
officers and directors against liabilities that may arise by reason of their
status or service as officers and directors, but not for liabilities arising
from willful misconduct of a culpable nature, and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. We believe that our certificate of incorporation and bylaw
provisions and indemnification agreements are

                                       52
necessary to attract and retain qualified persons as officers and directors. In
addition, we will obtain directors' and officers' liability insurance prior to
completion of this offering.

  At present, we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.

                                       53
PRINCIPAL STOCKHOLDERS

  The following table sets forth information regarding the beneficial ownership
of our common stock as of June 30, 1999 and as adjusted to reflect the sale of
the common stock offered by us under this prospectus by:

  . each of our directors, Named Executive Officers, and founders who are ex-
     ecutive officers;

  . all directors and executive officers as a group; and

  . each person who is known to us to own beneficially more than 5% of our
     common stock.
Percent Beneficially
                                                         Owned
                                                 ------------------------
                                        Number     Before        After
Name and Address                      of Shares   Offering      Offering
----------------                      ---------- ----------    ----------
Directors and Executive Officers:
Bobby R. Johnson, Jr.................  8,050,000         23.8%
H. Earl Ferguson.....................  1,595,000          4.7
Drusilla W. Demopoulos (a)...........    600,000          1.8
Wilburn W. McGill (b)................    485,000          1.4
Robert W. Shackleton (c).............    492,500          1.5
William S. Kallaos (d)...............    405,000          1.2
Seth D. Neiman (e)...................  5,419,870         16.1
Andrew K. Ludwick (f)................    282,500            *
All directors and executive officers
 as a group (10 persons) (g)......... 18,284,870         53.8
5% Stockholders:
 Entities affiliated with Crosspoint
  Venture Partners (h)...............  5,419,870         16.1
  2925 Woodside Rd.
  Woodside, CA 94062
 Entities affiliated with
  Institutional Venture Partners
  (i)................................  3,045,206          9.0
  3000 Sand Hill Road
  Building 2, Suite 290
  Menlo Park, CA 94025
 Entities affiliated with Accel
  Partners (j).......................  2,340,505          6.9
  428 University Ave.
  Palo Alto, CA 94301
 Entities affiliated with
  VantagePoint Venture Partners (k)..  2,274,914          6.7
  1001 Bayhill Drive, Ste. 140
  San Bruno, CA 94066
--------
  *  Less than one percent of the outstanding shares of common stock.
 (a) Includes 572,000 shares subject to stock pledge agreements in favor of
     Foundry, 211,250 of which are subject to our right of repurchase at cost
     upon cessation of employment, and 28,000 shares issuable upon the exercise
     of an option which was exercisable as of June 30, 1999.
 (b) Includes 410,000 shares subject to stock pledge agreements in favor of
     Foundry, 179,376 of which are subject to our right of repurchase at cost
     upon cessation of employment and 5,000 of which are held jointly with
     Billie J. McGill, and 75,000 shares issuable upon the exercise of an
     option which was exercisable as of June 30, 1999.
 (c) Includes 442,500 shares subject to stock pledge agreements in favor of
     Foundry, 205,000 of which are subject to our right of repurchase at cost
     upon cessation of employment, and 50,000 shares issuable upon the exercise
     of an option which was exercisable as of June 30, 1999.
 (d) Includes 405,000 shares subject to a stock pledge agreement in favor of
     Foundry, 185,625 of which are subject to our right of repurchase at cost
     upon cessation of employment.
 (e) Includes 3,873,478 shares held by Crosspoint Venture Partners (1996), and
     1,546,392 shares held by Crosspoint Venture Partners LS 1997. Seth D.
     Neiman is a general partner of the general partner of the Crosspoint
     entities and is a director of Foundry. He disclaims beneficial ownership
     of the shares held by the Crosspoint entities except to the extent of his
     pecuniary interest in these shares.

                                       54
(f) Includes 125,000 shares sold to a family trust of which Mr. Ludwick is a
     trustee and 5,000 shares transferred to his minor children and held in
     custodial accounts on their behalf.
 (g) Includes 5,419,870 shares held by entities affiliated with Mr. Neiman as
     described in Note (a), 3,539,689 shares subject to our right of repurchase
     upon cessation of employment by officers and 218,000 shares issuable upon
     the exercise of options which were exercisable as of June 30, 1999.
 (h) Includes 3,873,478 shares held by Crosspoint Venture Partners (1996) and
     1,546,392 shares held by Crosspoint Venture Partners LS 1997.
 (i) Includes 50,814 shares held by Institutional Venture Management VII, L.P.,
     106,584 shares held by IVP Founders Fund I, L.P. and 2,887,808 shares held
     by Institutional Venture Partners VII, L.P.
 (j) Includes 243,413 shares held by Accel Internet/Strategic Technology Fund
     L.P., 112,344 shares held by Accel Investors 97 L.P., 95,960 shares held
     by Accel Keiretsu V L.P., 1,837,297 shares held by Accel V L.P. and 51,491
     shares held by Elmore C. Patterson Partners.
 (k) Includes 34,364 shares held by VantagePoint Advisors, LLC and 2,240,550
     shares held by VantagePoint Venture Partners 1996.

  Except as otherwise noted, the address of each person listed in the table is
c/o Foundry Networks, Inc., 680 W. Maude Avenue, Suite 3, Sunnyvale, CA 94086.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned.

  The table includes all shares of common stock issuable within 60 days of June
30, 1999 upon the exercise of options and other rights beneficially owned by
the indicated stockholders on that date.

  The applicable percentage of ownership for each stockholder is based on
33,757,293 shares of common stock outstanding as of June 30, 1999, together
with applicable options for that stockholder. Shares of common stock issuable
upon exercise of options and other rights beneficially owned are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options and other rights, but are not deemed outstanding for
computing the percentage ownership of any other person.

                                       55
CERTAIN TRANSACTIONS

  Since our inception, we have issued shares of preferred stock in private
placement transactions as follows: 5,750,000 shares of Series A preferred stock
at $1.00 per share in June 1996; 4,086,954 shares of Series B preferred stock
at $2.30 per share in June, August and December 1997; 5,154,642 shares of
Series C preferred stock at $2.91 per share in March 1998; and 125,000 shares
of Series C preferred stock at $8.00 per share in June 1999 to a family trust
of which Andrew K. Ludwick, a director of Foundry, is a trustee. Each share of
preferred stock converts automatically upon completion of the offering into one
share of common stock. In October 1996, we also issued in a private placement
transaction warrants for 30,000 shares of Series A preferred stock at a
purchase price of $1.00 per share, which will convert to warrants to purchase
common stock upon completion of this offering. See "Description of Capital
Stock--Warrants."

  The following table summarizes the shares of preferred stock purchased by
directors and 5% stockholders of Foundry and persons and entities associated
with them in private placement transactions.
Series A  Series B  Series C
                                                 Preferred Preferred Preferred
Stockholders                                       Stock     Stock     Stock
------------                                     --------- --------- ---------
Entities affiliated with Crosspoint Venture
 Partners(a).................................... 3,330,000   543,478 1,546,392
Andrew K. Ludwick(b)............................                       125,000
Bobby R. Johnson, Jr.(c)........................   600,000
Entities affiliated with Institutional Venture
 Partners(d).................................... 1,420,000 1,195,652   429,554
Entities affiliated with Accel Partners(e)......           1,739,130   601,375
Entities affiliated with VantagePoint Venture
 Partners(f)....................................                     2,274,914
--------
(a) Includes shares held by Crosspoint Venture Partners (1996) and Crosspoint
    Venture Partners LS 1997. Seth D. Neiman is a general partner of the
    general partner of the Crosspoint entities and is a director of Foundry. He
    disclaims beneficial ownership of the shares held by the entities except to
    the extent of his pecuniary interest in these shares.
(b) Includes 125,000 shares sold to a family trust of which Mr. Ludwick is a
    trustee and 2,500 shares transferred to one of his children.
(c) In June 1999, we repurchased 400,000 shares of our common stock from Mr.
    Johnson at his original purchase price of $0.01 per share.
(d) Includes shares held by Institutional Venture Management VII, L.P., IVP
    Founders Fund I, L.P. Fund I, L.P. and Institutional Venture Partners VII,
    L.P.
(e) Includes shares held by Accel Internet/Strategic Technology Fund L.P.,
    Accel Investors '97 L.P., Accel Keiretsu V L.P., Accel V L.P. and Elmore C.
    Patterson Partners.
(f) Includes shares held by VantagePoint Advisors, LLC and VantagePoint Venture
    Partners 1996.

  On June 6, 1996, we sold Bobby R. Johnson, Jr. 7,850,000 shares of our common
stock at a purchase price of $0.01 per share, paid for by Mr. Johnson through
(a) the assignment of proprietary information, discussed below, and (b) the
cancellation of debt owed to Mr. Johnson. Under the agreement, we held the
right to repurchase any shares that remained unvested upon either a voluntary
termination of employment by Mr. Johnson or a termination by us for cause. 25%
of the stock vested as of May 22, 1996, and the remaining shares vested monthly
over each of the next 48 months. Also on June 6, 1996, and in connection with
the stock sale discussed above, Mr. Johnson executed an assignment agreement,
in which he assigned to us certain business concepts and proprietary
information relating to the development of next generation high performance
campus LAN infrastructure products. In June 1999, we repurchased 400,000 shares
of our common stock from Mr. Johnson at his original purchase price of $0.01
per share.

                                       56
On December 4, 1996, we granted Drusilla W. Demopoulos an option to purchase
540,000 shares of our common stock at an exercise price of $0.10 per share
under our 1996 Stock Plan. This option was immediately exercisable subject to
our right to repurchase at cost any shares that remain unvested upon cessation
of employment. In connection with the exercise of this option on June 25, 1997,
we provided a loan to Ms. Demopoulos, pursuant to a note secured by a stock
pledge agreement, in the principal amount of $54,000 with an interest rate of
6.68%, due upon the earlier of June 25, 2002 or twelve months after the closing
of Foundry's initial public offering. On December 17, 1997, we granted Ms.
Demopoulos an option to purchase 32,000 shares of our common stock at an
exercise price of $0.30 per share under our 1996 Stock Plan. This option was
immediately exercisable subject to our right to repurchase at cost any shares
that remain unvested upon cessation of employment. In connection with the
exercise of this option on April 29, 1998, we provided a second loan to
Ms. Demopoulos, pursuant to a note secured by a stock pledge agreement, in the
principal amount of $9,600 with an interest rate of 5.58%, due upon the earlier
of April 28, 2003 or twelve months after the closing of Foundry's initial
public offering.

  On August 11, 1998, we granted Ken K. Cheng an option to purchase 415,000
shares of our common stock at an exercise price of $0.50 per share under our
1996 Stock Plan. This option was immediately exercisable subject to our right
to repurchase at cost any shares that remain unvested upon cessation of
employment. In connection with the exercise of this option on October 6, 1998,
we provided a loan to Mr. Cheng, pursuant to a note secured by a stock pledge
agreement, in the principal amount of $207,458 with an interest rate of 5.03%,
due upon the earlier of October 5, 2003 or twelve months after the closing of
Foundry's initial public offering.

  On June 28, 1999, Andrew K. Ludwick exercised a fully vested option to
purchase 160,000 shares of our common stock at an exercise price of $8.00 per
share granted him in connection with his appointment as a member of our board
of directors. On June 9, 1999, we sold to a family trust of which Mr. Ludwick
is a trustee, 125,000 shares of our Series C preferred stock at a purchase
price of $8.00 per share.

Indemnification Agreements

  We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. See "Management--Limitation of Liability
and Indemnification Matters."

                                       57
DESCRIPTION OF CAPITAL STOCK

General Matters

  Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.0001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.0001 par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.

  The following description of our capital stock is not complete and is
qualified in its entirety by our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.

Common Stock

  As of June 30, 1999, and after giving effect to the conversion of our
preferred stock into common stock at a one-to-one ratio, there were 33,757,293
shares of common stock outstanding that were held of record by approximately
121 stockholders. Also outstanding as of that date were options to purchase
3,861,969 shares of common stock and warrants to purchase 30,000 shares of
Series A preferred stock, which will convert to warrants to purchase common
stock upon completion of this offering. Assuming no exercise of the
underwriters' overallotment option, exercise of outstanding options under our
1996 Stock Plan or exercise of the warrant, and after giving effect to the sale
of shares offered here, there will be     shares of common stock outstanding
upon completion of this offering.

  The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. In the event of liquidation, dissolution or winding up of Foundry, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior distribution rights of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. The outstanding shares of common stock
are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.

Preferred Stock

  Upon completion of this offering, all outstanding shares of preferred stock
will be converted into 15,116,596 shares of common stock. Thereafter, our board
of directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock, $0.0001 par
value, in one or more series. The board of directors will also have the
authority to designate the rights, preferences, privileges and restrictions of
each series, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series.

  The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Foundry without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
certain circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. We currently have no plans to
issue any shares of preferred stock.

                                       58
Warrants

  As of June 30, 1999, there were warrants outstanding to purchase 30,000
shares of Series A preferred stock which will convert to warrants to purchase
common stock upon completion of this offering. The warrants contain provisions
for the adjustment of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications,
consolidations and certain dilutive issuances of securities at prices below the
then existing warrant exercise price.

Registration Rights

  Assuming the conversion of all outstanding preferred stock into common stock
upon completion of this offering, the holders of 15,089,096 shares of common
stock and warrants to purchase 30,000 shares of Series A preferred stock, which
will convert to warrants to purchase common stock upon completion of this
offering, or their transferees are entitled to registration rights with respect
to these shares under the Securities Act. These rights are provided under the
terms of an agreement between Foundry and the holders of these securities.
Subject to limitations in the agreement, these registration rights include the
following:

  .  The holders of at least 30% of these securities then outstanding may
     require, on one occasion beginning one year after the date of this
     prospectus, that we use our best efforts to register these securities
     for public resale, provided that the anticipated aggregate offering
     price, net of underwriting discounts and commissions, of such public
     resale would exceed $10,000,000.

  .  If we register any of our common stock either for our own account or for
     the account of other security holders, the holders of these securities
     are entitled to include their shares of common stock in that
     registration, subject to the ability of the underwriters to limit the
     number of shares included in the offering.

  .  The holders of these securities may also require us, not more than once
     in any 12 month period and no more than three times total, to register
     all or a portion of these securities on Form S-3 when use of that form
     becomes available to us, provided, among other limitations, that the
     proposed aggregate selling price, net of any underwriters' discounts or
     commissions, is at least $1,000,000.

  We will be responsible for paying all registration expenses other than
underwriting discounts and commissions, and the holders selling their shares
will be responsible for paying all selling expenses.

Delaware Anti-Takeover Law and Charter and Bylaw Provisions

  Provisions of Delaware law and our certificate of incorporation and bylaws
could make the acquisition of Foundry and the removal of incumbent officers and
directors more difficult. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Foundry to negotiate with it
first. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure Foundry outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.

                                       59
We are subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of Foundry
without further action by the stockholders.

  Upon completion of this offering, our bylaws will provide that stockholder
action can only be taken at an annual or special meeting. The bylaws provide
that special meetings of stockholders can be called only by the board of
directors, the Chairman of the Board, if any, and the President. The bylaws set
forth an advance notice procedure with regard to the nomination, other than by
or at the direction of the board of directors, of candidates for election as
directors and with regard to business to be brought before a meeting of
stockholders.

Transfer Agent and Registrar

  The Transfer Agent and Registrar for the common stock is            . The
Transfer Agent's address and telephone number is                    , (   )
        .

                                       60
SHARES ELIGIBLE FOR FUTURE SALE

  Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market after this
offering could cause the market price of our common stock to decline.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of contractual and legal restrictions on
resale, sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.

  Upon completion of this offering, we will have outstanding  shares of common
stock. Of these shares, the   shares sold in the offering (and any shares
issued upon exercise of the underwriters' overallotment option) will be freely
tradable without restriction under the Securities Act, unless purchased by
"affiliates" of ours as that term is defined in Rule 144 under the Securities
Act. Affiliates generally include officers, directors or 10% stockholders.
Shares eligible to be sold by affiliates pursuant to Rule 144 are subject to
volume restrictions as described below.

  The remaining 33,757,293 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 under the Securities
Act, which are summarized below. Sales of these shares in the public market, or
the availability of such shares for sale, could cause the market price of our
common stock to decline.

  Our stockholders have entered into lock-up agreements generally providing
that they will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the effective date of the registration statement filed pursuant to this
offering. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, shares subject to lock-up agreements will not be salable until such
agreements expire or are waived. Taking into account the lock-up agreements,
the following shares will be eligible for sale in the public market at the
following times:

  .  Beginning on the effective date of this prospectus, only the shares sold
     in the offering will be immediately available for sale in the public
     market;

  .  Beginning 180 days after the effective date, approximately 31,140,670
     shares will be eligible for sale pursuant to Rules 701, 144 and 144(k),
     of which all but 14,365,251 shares are held by affiliates;

  .  An additional 2,491,623 shares will be eligible for sale pursuant to
     Rule 701 at various times beginning 180 days after the effective date
     when these shares are released from our repurchase option with respect
     to these shares, of which all but 1,320,172 shares are held by
     affiliates; and

  .  An additional 125,000 shares will be eligible for sale pursuant to Rule
     144 on June 10, 2000.

Rule 144

  Under Rule 144, beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for
at least one year, which includes

                                       61
the holding period of any prior owner other than an affiliate, would generally
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:

  .  1% of the outstanding shares of our common stock then outstanding, which
     will equal approximately     shares immediately after this offering; or

  .  the average weekly trading volume of our common stock on the Nasdaq
     National Market during the four calendar weeks preceding the filing of a
     notice on Form 144 with respect to the sale.

  Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
Foundry.

Rule 144(k)

  Under Rule 144(k), a person who was not an affiliate of Foundry at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, which includes the holding period
of any prior owner except an affiliate, is entitled to sell these shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

Rule 701

  In general, under Rule 701, any of our employees, consultants or advisors,
other than affiliates, who purchases or receives shares from us in connection
with a compensatory stock purchase plan or option plan or other written
agreement will be eligible to resell these shares beginning 90 days after the
effective date of the registration statement of which this prospectus is a
part, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144 without compliance with its holding period
requirements.

Registration Rights

  Upon completion of this offering, the holders of 15,089,096 shares of common
stock and warrants to purchase 30,000 shares of Series A preferred stock which
will convert to warrants to purchase common stock upon completion of this
offering will be entitled to registration rights with respect to these shares
under the Securities Act. When these shares are registered under the Securities
Act, they will be freely tradable unless held by affiliates.

Stock Options

  In addition, we intend to file registration statements under the Securities
Act as promptly as possible upon the completion of this offering to register
7,107,303 shares of common stock to be issued pursuant to our employee benefit
plans or upon exercise of non-plan options. As a result, any options or rights
exercised under the 1996 Stock Plan, the 1999 Employee Stock Purchase Plan or
the 1999 Directors' Stock Option Plan after the effectiveness of the
registration statements will be available for sale in the public market 180
days after the effective date of this offering upon the expiration of lock-up
agreements. However, such shares held by affiliates will still be subject to
the volume limitation, manner of sale, notice and public information
requirements of Rule 144 unless otherwise resalable under Rule 701.

                                       62
UNDERWRITING

  Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P.
Morgan Securities Inc. have severally agreed to purchase from Foundry the
number of shares of common stock set forth beside their names below at a public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus:
Number
Underwriter                                                            of Shares
-----------                                                            ---------
Deutsche Bank Securities Inc. ........................................
Merrill Lynch, Pierce, Fenner & Smith
         Incorporated ................................................
J.P. Morgan Securities Inc. ..........................................
                                                                          ---
  Total...............................................................
                                                                          ===
The underwriting agreement provides that the obligations of the underwriters
to purchase the common stock is subject to the terms and conditions set forth
in the underwriting agreement. The underwriting agreement requires the
underwriters to purchase all of the shares of the common stock offered by this
prospectus, if any are purchased. The shares of common stock offered by the
underwriters pursuant to this prospectus are subject to prior sale, when, as
and if delivered to and accepted by the underwriters, and subject to the
underwriters' right to reject any order in whole or in part.

  We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price of $     this prospectus and to certain dealers at a price that
represents a concession not in excess of $    per share. Any shares sold by the
underwriters to securities dealers may be sold at a discount of up to $    per
share from the initial public offering price. Any such securities dealers may
resell any shares purchased from the underwriters to certain other brokers or
dealers at a discount of up to $     per share from the public offering price.
The underwriters may change the public offering price after the common stock is
released for sale to the public.

  The underwriters may sell more shares than the total number set forth in the
table above. To cover these sales, we have granted the underwriters an option
to purchase up to an aggregate of     additional shares of common stock at the
initial public offering price, less the underwriting discounts and commissions.
The underwriters may exercise this option at any time within 30 days after the
date of this prospectus only to cover these sales. To the extent the
underwriters exercise this option, each of the underwriters will purchase
shares in approximately the same proportion as the number of shares of common
stock to be purchased by it shown in the above table bears to    , and we will
be obligated, pursuant to the option, to sell those shares to the underwriters.
If purchased, the underwriters will offer the additional shares on the same
terms as those on which the     shares are being offered. If the underwriters
exercise their over-allotment option in full, the total public offering price
will be $   , the total underwriting discount will be $   , and the total
proceeds to Foundry will be $   .

  We have agreed to indemnify the underwriters with respect to certain
liabilities, including liabilities under the Securities Act.

                                       63
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price
of the common stock. Specifically, the underwriters may over-allot shares of
our common stock in connection with this offering, thereby creating a short
position in the underwriters' account. A short position results when an
underwriter sells more shares of common stock than such underwriter is
committed to purchase. Additionally, to cover over-allotments or to stabilize
the market price of the common stock, the underwriters may bid for, and
purchase, shares of our common stock at a level above that which might
otherwise prevail in the open market. The underwriters are not required to
engage in these activities, and, if they do, they may discontinue doing so at
any time. The underwriters also may reclaim selling concessions allowed to an
underwriter or dealer, if the underwriters repurchase shares distributed by
such underwriter or dealer.

  Foundry and its officers and directors and substantially all of our
stockholders have agreed not to offer, sell or make any other disposition of
any shares of our common stock or other securities convertible into or
exchangeable or exercisable for shares of our common stock or derivatives of
our common stock for a period of 180 days after the date of this prospectus,
directly or indirectly, without the prior written consent of Deutsche Bank
Securities Inc.

  The representatives of the underwriters have advised us that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.

  We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $   .

Pricing of this Offering

  Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock will be
determined by negotiation among Foundry and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:

  .  prevailing market conditions;

  .  Foundry's results of operations in recent periods;

  .  the present stage of our development;

  .  the market capitalizations and stages of development of other companies
     which Foundry and the representatives of the underwriters believe to be
     comparable to us; and

  .  estimates of Foundry's business potential.

  The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.

                                       64
LEGAL MATTERS

  The validity of the common stock offered hereby will be passed upon for
Foundry by Venture Law Group, A Professional Corporation, Menlo Park,
California. Joshua L. Green, a director of Venture Law Group, is the Secretary
of Foundry. Pillsbury Madison & Sutro LLP, Palo Alto and San Francisco,
California, is acting as counsel for the underwriters in connection with
selected legal matters relating to the shares of common stock offered by this
prospectus. As of the date of this prospectus, a family trust of which a
director of Venture Law Group is trustee and two investment partnerships
affiliated with Venture Law Group own a total of 25,000 shares of Foundry's
Series A preferred stock and 10,868 shares of Series B preferred stock, which
shares will convert into 35,868 shares of our common stock upon the completion
of this offering.

                                    EXPERTS

  The audited financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

                    ADDITIONAL INFORMATION AVAILABLE TO YOU

  We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock in this offering. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Foundry and the common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference room in Washington, DC. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from the SEC's web site at
www.sec.gov.

  Upon completion of this offering, Foundry will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the web site of the SEC referred to above.

                                       65
FOUNDRY NETWORKS, INC.

                         INDEX TO FINANCIAL STATEMENTS
Page
                                                                          ----
Report of Independent Public Accountants ................................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
 Equity (Deficit)........................................................ F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
of Foundry Networks, Inc.:

We have audited the accompanying balance sheets of Foundry Networks, Inc. (a
Delaware corporation) as of December 31, 1997 and 1998, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for the period from inception,
May 22, 1996, to December 31, 1996 and for the years ended December 31, 1997
and 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Foundry Networks, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception, May 22, 1996, to December 31, 1996 and for
the years ended December 31, 1997 and 1998 in conformity with generally
accepted accounting principles.

San Jose, California
June 17, 1999

                                          ARTHUR ANDERSEN LLP

                                      F-2
FOUNDRY NETWORKS, INC.

                                 BALANCE SHEETS
                       (in thousands, except share data)
June 30, 1999
                                     December 31,                   Pro Forma
                                   ------------------  June 30,   Stockholders'
                                     1997      1998      1999    Equity (Note 5)
                                   --------  --------  --------  ---------------
ASSETS                                           (unaudited)
Current assets:
 Cash and cash equivalents.......  $  3,182  $  4,567  $ 12,340
 Accounts receivable, net of
  allowance for doubtful
  accounts of $10, $399, and
  $1,074, respectively...........     1,234     6,607    13,381
 Inventories.....................     1,497     7,201     9,735
 Prepaid expenses and other
  current assets.................       363       367       582
                                   --------  --------  --------
     Total current assets........     6,276    18,742    36,038
                                   --------  --------  --------
Property and equipment:
 Computers and related
  equipment......................     1,207     1,603     1,748
 Furniture and fixtures..........        62        80        80
                                   --------  --------  --------
                                      1,269     1,683     1,828
 Less: Accumulated
  depreciation...................      (557)   (1,187)   (1,413)
                                   --------  --------  --------
     Net property and equipment..       712       496       415
                                   --------  --------  --------
                                   $  6,988  $ 19,238  $ 36,453
                                   ========  ========  ========
  LIABILITIES AND STOCKHOLDERS'
         EQUITY (DEFICIT)
Current liabilities:
 Bank line of credit.............  $    --   $    --   $  2,000
 Current portion of capital
  lease obligations..............       166       178        90
 Accounts payable................     1,405     6,059     7,170
 Accrued payroll and related
  expenses.......................       493       937     1,297
 Other accrued expenses..........       113       534     2,282
 Income taxes payable............       --        --        982
 Deferred revenue................        23       371       898
                                   --------  --------  --------
     Total current liabilities...     2,200     8,079    14,719
                                   --------  --------  --------
Capital lease obligations, net of
 current portion.................       178       --        --
                                   --------  --------  --------
Commitments and contingencies
 (Note 3)
Redeemable convertible preferred
 stock, $0.0001 par value,
 aggregate liquidation preference
 of $30,150 at December 31, 1998
 and $30,514 at June 30, 1999:
   Authorized -- 15,166,954
    shares at June 30, 1999 and
    5,000,000 shares pro forma
   Issued and outstanding--
   9,836,954 shares at December
   31, 1997, 14,991,596 shares
   at December 31, 1998,
   15,116,596 shares at June 30,
   1999 and none pro forma.......    15,119    30,085    31,085
                                   --------  --------  --------
Stockholders' equity (deficit):
 Common stock, $0.0001 par
  value:
   Authorized -- 50,000,000
    shares at June 30, 1999 and
    100,000,000 shares pro forma
   Issued and outstanding--
    17,514,375 shares at
    December 31, 1997, 18,610,656
    shares at December 31, 1998,
    18,640,697 shares at June 30,
    1999 and 33,757,293 shares
    pro forma....................         2         2         2     $      3
 Treasury stock..................       --        --     (6,480)      (6,480)
 Additional paid-in capital......       769     6,117    29,195       60,279
 Notes receivable from
  stockholders...................      (260)     (713)     (859)        (859)
 Deferred stock compensation.....       --     (3,960)  (13,749)     (13,749)
 Accumulated deficit.............   (11,020)  (20,372)  (17,460)     (17,460)
                                   --------  --------  --------     --------
     Total stockholders' equity
      (deficit)..................   (10,509)  (18,926)   (9,351)    $ 21,734
                                   --------  --------  --------     ========
                                   $  6,988  $ 19,238  $ 36,453
                                   ========  ========  ========
The accompanying notes are an integral part of these financial statements.

                                      F-3
FOUNDRY NETWORKS, INC.

                            STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
Period from
                                 Inception
                                 (May 22,     Year Ended      Six Months Ended
                                 1996) to    December 31,         June 30,
                                December 31 ----------------  ------------------
                                   1996      1997     1998      1998      1999
                                ----------- -------  -------  --------  --------
                                                                 (unaudited)
Revenue, net..................    $   --    $ 3,381  $17,039  $  4,203  $ 39,487
Cost of revenue...............        --      1,835    8,433     2,082    18,341
                                  -------   -------  -------  --------  --------
  Gross profit................        --      1,546    8,606     2,121    21,146
                                  -------   -------  -------  --------  --------
Operating expenses:
  Research and development....      1,914     5,403    8,797     3,250     3,625
  Sales and marketing.........        --      3,419    7,258     2,745     6,973
  General and administrative..        226     1,853    1,589       569     1,655
  Amortization of deferred
   stock compensation.........        --        --       727       --      5,023
                                  -------   -------  -------  --------  --------
    Total operating expenses..      2,140    10,675   18,371     6,564    17,276
                                  -------   -------  -------  --------  --------
Income (loss) from
 operations...................     (2,140)   (9,129)  (9,765)   (4,443)    3,870
Interest income, net..........        127       122      413       213        24
                                  -------   -------  -------  --------  --------
Income (loss) before provision
 for income taxes.............     (2,013)   (9,007)  (9,352)   (4,230)    3,894
Provision for income taxes....        --        --       --        --        982
                                  -------   -------  -------  --------  --------
Net income (loss).............    $(2,013)  $(9,007) $(9,352) $ (4,230) $  2,912
                                  =======   =======  =======  ========  ========
Basic net income (loss) per
 share........................    $ (1.49)  $ (1.99) $ (1.04) $  (0.53) $   0.24
                                  =======   =======  =======  ========  ========
Weighted average shares used
 in computing basic net income
 (loss) per share.............      1,349     4,523    8,992     8,029    12,164
                                  =======   =======  =======  ========  ========
Diluted net income (loss) per
 share........................    $ (1.49)  $ (1.99) $ (1.04) $  (0.53) $   0.08
                                  =======   =======  =======  ========  ========
Weighted average shares used
 in computing diluted net
 income (loss) per share......      1,349     4,523    8,992     8,029    34,880
                                  =======   =======  =======  ========  ========
Pro forma basic net income
 (loss) per share
 (unaudited)..................                       $ (0.41)           $   0.11
                                                     =======            ========
Weighted average shares used
 in computing pro forma basic
 net income (loss) per share
 (unaudited)..................                        22,882              27,170
                                                     =======            ========
The accompanying notes are an integral part of these financial statements.

                                      F-4
FOUNDRY NETWORKS, INC.

 STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
                                   (DEFICIT)
                                (in thousands)
Redeemable
                                                       Convertible                                                Notes
                                                    Preferred Stock  Common Stock   Treasury Stock  Additional  Receivable
                                                    ---------------- -------------- --------------   Paid-in       From
                                                    Shares   Amount  Shares  Amount Shares Amount    Capital   Stockholders
                                                    ------- -------- ------  ------ ------ -------  ---------- ------------
BALANCES AT INCEPTION.......................             --  $    --      --   $--     --    $   --    $   --       $ --
 Issuance of common stock to founders for
 cash and technology rights.................             --       --   10,980     1    --        --       109         --
 Issuance of common stock for notes
 receivable.................................             --       --      475    --    --        --        47        (47)
 Issuance of Series A redeemable convertible
 preferred stock, net of issuance costs
 of $31.....................................          5,750    5,719      --     --    --        --        --         --
 Net loss...................................             --       --      --     --    --        --                   --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT DECEMBER 31, 1996...............          5,750    5,719  11,455      1    --        --       156        (47)
 Issuance of common stock for cash..........             --            4,159      1    --        --       415         --
 Issuance of common stock for notes
 receivable.................................             --            2,050     --    --        --       213       (213)
 Issuance of Series B redeemable convertible
 preferred stock............................          4,087    9,400      --     --    --        --        --         --
 Repurchase of common stock.................             --       --    (150)    --    --        --       (15)        --
 Net loss...................................             --       --      --     --    --        --        --         --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT DECEMBER 31, 1997...............          9,837   15,119  17,514      2    --        --       769       (260)
 Issuance of common stock for cash..........             --       --     367     --    --        --       212         --
 Issuance of common stock for notes
 receivable.................................             --       --     985     --    --        --       474       (474)
 Issuance of Series C redeemable convertible
 preferred stock, net of issuance costs
 of $34.....................................          5,155   14,966      --     --    --        --        --         --
 Deferred stock compensation................             --       --      --     --    --        --     4,687         --
 Amortization of deferred stock
 compensation...............................             --       --      --     --    --        --        --         --
 Repurchase of common stock.................             --       --    (255)    --    --        --       (25)        --
 Cancellation of notes receivable from
 stockholders...............................             --       --      --     --    --        --        --         21
 Net loss...................................             --       --      --     --    --        --        --         --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT DECEMBER 31, 1998...............         14,992    30,085 18,611      2    --        --     6,117       (713)
 Issuance of common stock for cash
 (unaudited)................................             --       --     348     --    --        --     1,644         --
 Issuance of common stock for notes
 receivable (unaudited).....................             --       --      82     --    --        --       146       (146)
 Issuance of Series C redeemable convertible
 preferred stock (unaudited)................            125    1,000      --     --    --        --        --         --
 Deferred stock compensation (unaudited)....             --       --      --     --    --        --    14,812         --
 Amortization of deferred stock compensation
 (unaudited)................................             --       --      --     --    --        --        --         --
 Repurchase of common stock from a founder
 (unaudited)................................             --       --    (400)    --   400    (6,480)    6,476         --
 Net income (unaudited).....................             --       --      --     --    --        --        --         --
                                                    ------- --------  ------   ----   ---   -------   -------      -----
BALANCES AT JUNE 30, 1999 (unaudited).......         15,117 $ 31,085  18,641   $  2   400   $(6,480)  $29,195      $(859)
                                                    ======= ========  ======   ====   ===   =======   =======      =====

                                                                                 Total
                                                      Deferred               Stockholders'
                                                       Stock     Accumulated    Equity
                                                    Compensation   Deficit     (Deficit)
                                                    ------------ ----------- -------------
BALANCES AT INCEPTION.......................             $    --     $    --       $    --
 Issuance of common stock to
 founders for cash and technology
 rights.....................................                  --          --           110
 Issuance of common stock for notes
 receivable.................................                  --          --            --
 Issuance of Series A redeemable
 convertible preferred stock, net of
 issuance costs of $31......................                  --          --            --
 Net loss...................................                  --      (2,013)       (2,013)
                                                    ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1996...............                  --      (2,013)       (1,903)
 Issuance of common stock for cash..........                  --          --           416
 Issuance of common stock for notes
 receivable.................................                  --          --            --
 Issuance of Series B redeemable convertible
 preferred stock............................                  --          --            --
 Repurchase of common stock.................                  --          --           (15)
 Net loss...................................                  --      (9,007)       (9,007)
                                                    ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1997...............                  --     (11,020)      (10,509)
 Issuance of common stock for cash..........                  --          --           212
 Issuance of common stock for notes
 receivable.................................                  --          --            --
 Issuance of Series C redeemable convertible
 preferred stock, net of issuance costs
 of $34.....................................                  --          --            --
 Deferred stock compensation................              (4,687)         --            --
 Amortization of deferred stock
 compensation...............................                 727          --           727
 Repurchase of common stock.................                  --          --           (25)
 Cancellation of notes receivable from
 stockholders...............................                  --          --            21
 Net loss...................................                  --      (9,352)       (9,352)
                                                    ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1998...............              (3,960)    (20,372)      (18,926)
 Issuance of common stock for cash
 (unaudited)................................                  --          --         1,644
 Issuance of common stock for notes
 receivable (unaudited).....................                  --          --            --
 Issuance of Series C redeemable
 convertible preferred stock (unaudited)....                  --          --            --
 Deferred stock compensation (unaudited)....             (14,812)         --            --
 Amortization of deferred stock compensation
 (unaudited)................................               5,023          --         5,023
 Repurchase of common stock from a founder
 (unaudited)................................                  --          --           (4)
 Net income (unaudited).....................                  --       2,912        2,912
                                                    ------------ ----------- -------------
BALANCES AT JUNE 30, 1999 (unaudited).......            $(13,749)   $(17,460)     $(9,351)
                                                    ============ =========== =============
The accompanying notes are an integral part of these financial statements.

                                      F-5
FOUNDRY NETWORKS, INC.

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
Period
                                from
                             Inception
                              (May 22,      Year Ended      Six Months Ended
                              1996) to     December 31,          June 30,
                            December 31, -----------------  ------------------
                                1996      1997      1998      1998      1999
                            ------------ -------  --------  --------  --------
                                                               (unaudited)
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Net income (loss)........    $(2,013)   $(9,007) $ (9,352) $ (4,230) $  2,912
 Adjustments to reconcile
  net income (loss) to net
  cash provided by (used
  in) operating
  activities:
   Depreciation...........         88        469       630       326       226
   Amortization of
    deferred stock
    compensation..........        --         --        727       --      5,023
   Cancellation of notes
    receivable from
    stockholders..........        --         --         21       --        --
   Provision for allowance
    for doubtful
    accounts..............        --          10       389        89       675
   Provision for excess
    and obsolete
    inventories...........        --         106     1,012        34     1,113
   Issuance of common
    stock for certain
    technology rights.....         94        --        --        --        --
   Change in operating
    assets and
    liabilities:
     Accounts receivable..        --      (1,244)   (5,762)       18    (7,449)
     Inventories..........        --      (1,603)   (6,716)     (862)   (3,647)
     Prepaid expenses and
      other current
      assets..............        (78)      (285)       (4)       41      (215)
     Accounts payable.....        117      1,288     4,654      (122)    1,111
     Accrued liabilities..        123        483       865        25     2,108
     Income taxes
      payable.............        --         --        --        --        982
     Deferred revenue.....        --          23       348        67       527
                              -------    -------  --------  --------  --------
      Net cash provided by
       (used in) operating
       activities.........     (1,669)    (9,760)  (13,188)   (4,614)    3,366
                              -------    -------  --------  --------  --------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Purchases of property and
  equipment...............       (243)      (526)     (414)     (218)     (145)
                              -------    -------  --------  --------  --------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
  Proceeds from bank line
   of credit..............        --         --        --        --      2,000
  Principal payments on
   capital lease
   obligations............        --        (156)     (166)      (82)      (88)
  Proceeds from issuance
   of common stock........         16        416       212        32     1,644
  Repurchase of common
   stock..................        --         (15)      (25)      --         (4)
  Net proceeds from
   issuance of redeemable
   convertible preferred
   stock..................      5,719      9,400    14,966    14,966     1,000
                              -------    -------  --------  --------  --------
      Net cash provided by
       financing
       activities.........      5,735      9,645    14,987    14,916     4,552
                              -------    -------  --------  --------  --------
INCREASE (DECREASE) IN
 CASH AND CASH
 EQUIVALENTS..............      3,823       (641)    1,385    10,084     7,773
CASH AND CASH EQUIVALENTS,
 BEGINNING OF PERIOD......        --       3,823     3,182     3,182     4,567
                              -------    -------  --------  --------  --------
CASH AND CASH EQUIVALENTS,
 END OF PERIOD............    $ 3,823    $ 3,182  $  4,567  $ 13,266  $ 12,340
                              =======    =======  ========  ========  ========
SUPPLEMENTAL SCHEDULE OF
 NONCASH INVESTING AND
 FINANCING ACTIVITIES:
 Purchase of property and
  equipment through
  capital lease
  obligations.............    $   500    $   --   $    --   $    --   $    --
 Issuance of common stock
  for notes receivable....         47        213       474        85       146
 Increase in treasury
  stock on repurchase of
  common stock............        --         --        --        --      6,480
 Cash paid for interest...        --          28        18         9        48
 Cash paid for income
  taxes...................        --           2         1         1         3
The accompanying notes are an integral part of these financial statements.

                                      F-6
FOUNDRY NETWORKS, INC.

                         NOTES TO FINANCIAL STATEMENTS
 (All information as of and for the six months ended June 30, 1998 and 1999 is
                                   unaudited)

1. ORGANIZATION OF THE COMPANY:

  Foundry Networks, Inc. (the Company or Foundry) was incorporated in Delaware
on May 22, 1996 under the name Perennium Networks, Inc., and changed its name
to StarRidge Networks, Inc. on June 5, 1996 and to Foundry Networks, Inc. on
January 22, 1997. Foundry designs, develops, manufactures and markets a
comprehensive suite of high performance networking products for enterprises and
Internet service providers.

  During 1997, Foundry commenced commercial shipment of its products and
emerged from the development stage. Although no longer in the development
stage, Foundry continues to be subject to the risks and challenges similar to
other companies in a comparable stage of development. These risks include, but
are not limited to, dependence on key individuals, dependence on key suppliers
of integral components, successful development and marketing of products, the
ability to obtain adequate financing to support growth and competition from
substitute products and larger companies with greater financial, technical,
management and marketing resources.

2. SIGNIFICANT ACCOUNTING POLICIES:

Unaudited Interim Financial Data

  The unaudited interim financial statements for the six months ended June 30,
1998 and 1999 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all normal recurring
adjustments necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. Results
for the six months ended June 30, 1999 are not necessarily indicative of
results in future periods.

Use of Estimates in Preparation of Financial Statements

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and Cash Equivalents

  Cash and cash equivalents consist of cash deposited in checking and money
market accounts with original maturities of less than three months.

Inventories

  Inventories are stated on a first-in, first-out basis at the lower of cost or
market, and include purchased parts, labor and manufacturing overhead.
Inventories consist of the following (in thousands):
December 31,
                                                     -------------
                                                      1997   1998  June 30, 1999
                                                     ------ ------ -------------
                                                                    (unaudited)
Purchased parts.................................. $  577 $5,302    $6,643
   Work-in-process..................................    667  1,281     1,393
   Finished goods...................................    253    618     1,699
                                                     ------ ------    ------
                                                     $1,497 $7,201    $9,735
                                                     ====== ======    ======
F-7
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  Provision for excess and obsolete inventory in the amounts of $106,000,
$1,012,000 and $1,113,000 were recorded for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1999, respectively. Approximately
$779,000 of work-in-process inventory was consigned at contract manufacturers'
sites as of December 31, 1998.

Concentrations

  Financial instruments that potentially subject Foundry to a concentration of
credit risk principally consist of accounts receivable. Foundry performs
ongoing credit evaluations of its customers and generally does not require
collateral. To date, credit losses have been immaterial and within management's
expectations. During the year ended December 31, 1998, Foundry provided
approximately $389,000 to its allowance for doubtful accounts. Total write-offs
of uncollectible amounts were immaterial during fiscal 1997 and 1998. Ten
customers accounted for 78% and 58% of trade receivables as of December 31,
1997 and 1998, respectively.

  Foundry purchases several key components used in the manufacture of products
from single or limited sources and depends on supply from these sources to meet
its needs. In addition, Foundry depends on contract manufacturers for major
portions of the manufacturing requirements. The inability of the suppliers or
manufacturers to fulfill the production requirements of Foundry could
negatively impact future results.

Property and Equipment

  Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Computers and related equipment...................................... 2 years
   Furniture and fixtures............................................... 3 years
Revenue Recognition

  Foundry generally recognizes product revenue upon shipment to customers.
Revenue from customer support services is deferred and recognized on a
straight-line basis over the contractual period. At shipment date, Foundry
establishes reserves for estimated warranty expenses associated with sales.
From inception to December 31, 1998, Foundry did not record a reserve for sales
returns because product returns were immaterial. For the six months ended June
30, 1999, Foundry recorded a reserve for sales returns equal to $250,000,
consistent with increasing revenue, which has been netted with revenue in the
statements of operations.

  During 1997 and 1998 and the six months ended June 30, 1999, approximately
100%, 99% and 99%, respectively, of Foundry's total revenue were derived from
product sales. The percentages of revenue to significant customers were as
follows:
Year Ended       Six Months
                                                   December 31,         Ended
                                                   ---------------    June 30,
                                                    1997     1998       1999
                                                   ------   ------   -----------
                                                                     (unaudited)
Customer A.....................................     49%      21%       10%
   Customer B.....................................     14%      --        --
   Customer C.....................................     --       --        17%
   Customer D.....................................     --       --        15%
F-8
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  Sales in significant markets are as follows (in thousands):
Year Ended   Six Months
                                                       December 31,     Ended
                                                      --------------  June 30,
                                                       1997   1998      1999
                                                      ------ ------- -----------
                                                                     (unaudited)
United States..................................... $1,649 $11,816   $30,972
   Japan.............................................  1,647   3,657     4,055
Foundry sells to various countries in North America, Europe, Asia, South
America and Australia. Sales to individual countries other than disclosed above
within these continents represent less than 10% of total revenue.

Software Development Costs

  Foundry accounts for internally generated software development costs in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Capitalization of eligible product development costs begins upon the
establishment of technological feasibility, which Foundry has defined as
completion of a working model. Internally generated costs which were eligible
for capitalization, after consideration of factors such as realizable value,
were not material for the period from inception to December 31, 1996, the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1999 and,
accordingly, all software development costs have been charged to research and
development expense in the accompanying statements of operations.

Computation of Per Share Amounts

  Basic net income (loss) per common share and diluted net income (loss) per
common share are presented in conformity with Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" for all periods presented.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
98, common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net income
(loss) per common share as if such stock had been outstanding for all periods
presented. To date, Foundry has not had any issuances or grants for nominal
consideration.

  In accordance with SFAS No. 128, basic net income (loss) per common share has
been calculated using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. For the
period from inception to December 31, 1996, the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 Foundry has excluded all
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted net loss per common share because
all such securities are anti-dilutive for those periods. The total number of
shares excluded from the calculations of diluted net loss per common share were
9,249,000, 11,075,829, 17,334,190, and 16,618,430 for the period from inception
to December 31, 1996, the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1998, respectively. For the six months ended June 30,
1999, diluted net income per common share has been calculated assuming the
conversion of all dilutive potential common stock. Pro forma basic net income
(loss) per common share has been calculated

                                      F-9
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

assuming the conversion of the redeemable convertible preferred stock using the
if-converted method into an equivalent number of common shares as if the shares
had been converted on the dates of issuance.
Period from
                             Inception (May    Year Ended        Six Months
                              22, 1996) to    December 31,      Ended June 30,
                              December 31,  -----------------  ----------------
                                  1996        1997     1998     1998     1999
                             -------------- --------  -------  -------  -------
                                  (in thousands, except per share data)
                                                                 (unaudited)
Net income (loss)..........     $(2,013)    $ (9,007) $(9,352) $(4,230) $ 2,912
                                -------     --------  -------  -------  -------
Basic:
  Weighted average shares
   of common stock
   outstanding.............       6,719       14,993   17,799   17,567   18,695
  Less: Weighted average
   shares subject to
   repurchase..............      (5,370)     (10,470)  (8,807)  (9,538)  (6,531)
                                -------     --------  -------  -------  -------
  Weighted average shares
   used in computing basic
   net income (loss) per
   common share............       1,349        4,523    8,992    8,029   12,164
                                =======     ========  =======  =======  =======
Basic net income (loss) per
 common share..............     $ (1.49)    $  (1.99) $ (1.04) $ (0.53) $  0.24
                                =======     ========  =======  =======  =======
Diluted:
  Weighted average shares
   of common stock
   outstanding.............                                              18,695
  Add: Weighted average
   dilutive potential
   common stock............                                              16,185
                                                                        -------
  Weighted average shares
   used in computing
   diluted net income
   (loss) per common
   share...................       1,349        4,523    8,992    8,029   34,880
                                =======     ========  =======  =======  =======
Diluted net income (loss)
 per common share..........     $ (1.49)    $  (1.99) $ (1.04) $ (0.53) $  0.08
                                =======     ========  =======  =======  =======
Pro forma basic:
  Shares used above........                             8,992            12,164
  Pro forma adjustment to
   reflect weighted effect
   of assumed conversion of
   redeemable convertible
   preferred stock
   (unaudited).............                            13,890            15,006
                                                      -------           -------
  Weighted average shares
   used in computing pro
   forma basic net income
   (loss) per common share
   (unaudited).............                            22,882            27,170
                                                      =======           =======
Pro forma basic net income
 (loss) per common share
 (unaudited)...............                           $ (0.41)          $  0.11
                                                      =======           =======
F-10
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Stock-Based Compensation

  In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation (SFAS No. 123), in October 1995.
This accounting standard permits the use of either a fair value based method or
the method defined in Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees" (APB Opinion 25) to account for stock-based
compensation arrangements. Companies that elect to employ the valuation method
provided in APB Opinion 25 are required to disclose the pro forma net income
(loss) that would have resulted from the use of the fair value based method.
Foundry has elected to determine the value of stock-based compensation
arrangements under the provisions of APB Opinion 25, and accordingly, the pro
forma disclosures required under SFAS No. 123 have been included in Note 5.

Recent Accounting Pronouncements

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) which establishes standards
for reporting and presentation of comprehensive income. SFAS No. 130 was
adopted by Foundry in 1998. This standard defines comprehensive income as the
changes in equity of an enterprise except those resulting from stockholder
transactions. Comprehensive income (loss) for the period from inception to
December 31, 1996, the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1999 equaled net income (loss).

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 was adopted by Foundry in 1997. SFAS No. 131 establishes
standards for disclosures about operating segments, products and services,
geographic areas and major customers. Foundry is organized and operates as one
operating segment, the design, development, manufacturing and marketing of high
performance Gigabit Ethernet switches, switching routers, server load balancing
and transparent caching switches.

  In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," (SOP No. 98-1). SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 was adopted by
Foundry in 1998. The adoption of SOP No. 98-1 did not have a material impact on
Foundry's financial position or results of operations.

  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning
after June 15, 2000. Management believes the adoption of SFAS No. 133 will not
have a material effect on Foundry's financial position or results of
operations.

  In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No. 97-
2, Software Revenue Recognition, With Respect to Certain Transactions," (SOP
No. 98-9). SOP No. 98-9 amends SOP No. 97-2 and SOP No. 98-4 by extending the
deferral of the application of certain provisions of SOP No. 97-2 amended by
SOP No. 98-4 through fiscal years beginning on or before March 15, 1999. All
other provisions of SOP No. 98-9 are effective for

                                      F-11
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

transactions entered into in fiscal years beginning after March 15, 1999.
Foundry has not had significant software sales to date and management does not
expect the adoption of SOP No. 98-9 to have a significant effect on the
financial position or results of operations.

3. COMMITMENTS AND CONTINGENCIES:

  Foundry leases its office facilities under a noncancellable operating lease
expiring in October 2001. Rent expense was approximately $66,000, $245,000 and
$263,000, respectively, for the period from inception to December 31, 1996 and
the years ended December 31, 1997 and 1998.

  Foundry leases equipment under a long-term lease agreement that is classified
as a capital lease. The lease expires in December 1999. Future payments on the
lease together with the present value of the payments, as of December 31, 1998
were as follows (in thousands):
Capital Operating
                                                                Lease    Lease
                                                               ------- ---------
1999.......................................................  $ 184    $248
   2000.......................................................     --     258
   2001.......................................................     --     235
                                                                -----    ----
     Total minimum lease payments.............................    184    $741
                                                                         ====
   Less: Amount representing interest (6.6%)..................     (6)
                                                                -----
   Present value of minimum lease payments....................    178
   Less: Current portion of capital lease obligations.........   (178)
                                                                -----
   Long-term portion of capital lease obligations.............  $  --
                                                                =====
Included in property and equipment are assets acquired under capital lease
obligations with a cost and related accumulated depreciation of approximately
$500,000 and $312,000, respectively, at December 31, 1997 and $500,000 and
$500,000, respectively, at December 31, 1998.

  Foundry is subject to various claims which arise in the normal course of
business. Although the amount of any liability with respect to such litigation
cannot be determined, in the opinion of management, the ultimate disposition of
these claims will not have a material adverse effect on Foundry's financial
position or results of operations. During 1997, Foundry incurred costs and
expenses in the amount of $750,000 related to the settlement of a lawsuit,
which is reflected in the 1997 statements of operations under general and
administrative expenses.

                                      F-12
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

4. INCOME TAXES:

  Foundry accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". A valuation
allowance has been recorded for the total net deferred tax assets as a result
of uncertainties regarding realization of the assets based upon the limited
operating history of Foundry, the lack of profitability to date and the
uncertainty of future profitability. As of December 31, 1997 and 1998,
components of the net deferred income tax assets were as follows (in
thousands):
December 31,
                                                                 --------------
                                                                  1997    1998
                                                                 ------  ------
Net operating loss carryforwards.......................... $3,348  $6,126
      Capitalized start-up costs................................    699     552
      Capitalized organization costs............................     12       9
      Tax credits...............................................    514   1,348
      Reserve and other cumulative temporary differences........    345   1,150
                                                                 ------  ------
                                                                  4,918   9,185
      Less: Valuation allowance................................. (4,918) (9,185)
                                                                 ------  ------
        Net deferred tax assets................................. $   --  $   --
                                                                 ======  ======
As of December 31, 1998, Foundry had cumulative net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $15.3 million, which expire in various periods from 2003 to 2015.
Under current tax law, net operating loss carryforwards available in any given
year may be limited upon the occurrence of certain events, including
significant changes in ownership interests.

  As of December 31, 1997 and 1998, Foundry had no significant deferred tax
liabilities.

5. STOCKHOLDERS' EQUITY (DEFICIT):

Redeemable Convertible Preferred Stock

  In June 1996, Foundry issued 5,750,000 shares of Series A redeemable
convertible preferred stock (Series A) at $1.00 per share. In June to December
1997, Foundry issued 4,086,954 shares of Series B redeemable convertible
preferred stock (Series B) at $2.30 per share. In March 1998 Foundry issued
5,154,642 shares of Series C redeemable convertible preferred stock (Series C)
at $2.91 per share. The rights with respect to Series A, B and C are as
follows:

  Dividends

  Holders of Series A, B and C are entitled to receive non-cumulative dividends
at an annual rate of $0.07, $0.16 and $0.23 per share, respectively, when and
if declared by the board of directors. No distributions may be made to holders
of common stock until all dividends declared on Series A, B and C have been
paid. No dividends have been declared or paid through December 31, 1998.

                                      F-13
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  Liquidation

  In the event of liquidation, Series A, B and C stockholders have a preference
of $1.00, $2.30 and $2.91 per share (with the Series C having a preference over
Series A and B, and Series B having a preference over Series A), respectively,
plus all declared and unpaid dividends over holders of the common stock.
Thereafter, all remaining assets will be distributed among holders of common
stock as if the Series A, B and C shares were converted into common stock.

  Conversion

  Each share of outstanding preferred stock is convertible, at the option of
the holder, into one share of common stock. The conversion rate is subject to
adjustment based on a formula to prevent dilution. Each share of convertible
preferred stock will automatically convert into common stock upon the closing
of a public offering resulting in proceeds of not less than $20,000,000.

  Redemption

  Each share of outstanding preferred stock must be redeemed in four annual
installments beginning on March 19, 2004, and continuing thereafter on each
March 19 until and including March 19, 2007. The preferred stock is redeemable
for cash equal to $1.00, $2.30 and $2.91 per share of Series A, B and C,
respectively (as adjusted for any stock dividends, combinations or splits).

  Voting Rights

  The holders of Series A, B and C are entitled to the number of votes equal to
the number of shares of common stock into which such preferred stock is
convertible.

Common Stock

  Foundry had 17,514,375 and 18,610,656 shares of common stock issued and
outstanding at December 31, 1997 and 1998, respectively. Included in such
outstanding shares are 10,980,000 shares issued to Foundry's founders in 1996
(the Founders Shares). The Founders Shares were issued subject to a repurchase
option by Foundry. The Founders Shares vest out of the repurchase option 25
percent upon issuance, with the balance vesting ratably each month for the 48
months after issuance. At December 31, 1998, approximately 2,917,000 of the
Founders Shares are unvested and no Founders Shares have been repurchased. As
further defined in the respective stock purchase agreements, (i) any unvested
Founders Shares immediately vest prior to the sale or merger of Foundry to
certain non-controlled parties and (ii) Foundry has certain rights of first
refusal to repurchase the Founders Shares until such time that Foundry's common
shares trade on a public market.

                                      F-14
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  The following shares of common stock have been reserved for future issuance
as of December 31, 1998:
Conversion of Series A convertible redeemable preferred
       stock outstanding..........................................  5,750,000
      Conversion of Series B convertible redeemable preferred
       stock outstanding..........................................  4,086,954
      Conversion of Series C convertible redeemable preferred
       stock outstanding..........................................  5,154,642
      1996 Stock Plan.............................................  3,234,344
      Conversion of preferred stock warrants outstanding..........     30,000
                                                                   ----------
                                                                   18,255,940
                                                                   ==========
Notes Receivable from Stockholders

  Foundry's stock option plan allows for the exercise of stock options in
exchange for stockholders' notes receivable. The following table summarizes the
non-recourse notes receivable outstanding as of December 31, 1998 (in
thousands, except interest rate):
Maturity
     Date                               Principal Number of Shares Interest Rate
   --------                             --------- ---------------- -------------
2001................................   $ 36           475        6.16%
   2002................................   $203         1,830        5.97%--6.68%
   2003................................   $474           985        5.03%--5.58%
Preferred Stock Warrants

  During October 1996, in connection with a sales and leaseback arrangement,
Foundry issued warrants, to the lessor to purchase 30,000 shares of Series A at
$1.00 per share, which will convert to warrants to purchase common stock upon
completion of an initial public offering. At the date of issuance, the value of
the warrants were deemed immaterial and, accordingly, no expense was recorded.
These warrants expire in September 2003.

Pro Forma Stockholders' Equity

  The board of directors has authorized the filing of a registration statement
with the Securities and Exchange Commission to register shares of its common
stock in connection with a proposed initial public offering (IPO). If the IPO
is consummated under the terms presently anticipated, (i) all of the
outstanding redeemable convertible preferred stock at June 30, 1999 will be
converted into 15,116,596 shares of common stock upon the closing of the IPO.
The effect of the conversion has been reflected as unaudited pro forma
stockholders' equity in the accompanying balance sheet as of June 30, 1999.

Stock Options

  Under Foundry's 1996 Stock Plan (the Plan), the board of directors authorized
the issuance of 11,270,000 shares to employees and consultants as of December
31, 1998. Nonstatutory options granted under the Plan must be issued at a price
equal to at least 85% of the fair

                                      F-15
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

market value of Foundry's common stock at the date of grant if granted to
others. Incentive stock options granted under the Plan must be issued at a
price at least equal to the fair market value of Foundry's common stock at the
date of grant. All options may be exercised at any time within ten years of the
date of grant or within one month of termination of employment, or such shorter
time as may be provided in the stock option agreement, and vest over a vesting
schedule determined by the board of directors, generally four years.

  The following option activity in the Plan occurred during the period from
inception (May 22, 1996) to June 30, 1999:
Weighted
                                                       Options       Average
                                                     Outstanding  Exercise Price
                                                     -----------  --------------
Granted.....................................  3,944,000       $0.10
        Exercised...................................   (475,000)       0.10
                                                     ----------
      Balances, December 31, 1996...................  3,469,000        0.10
        Granted.....................................  4,250,500        0.13
        Exercised................................... (6,209,375)       0.10
        Cancelled...................................   (301,250)       0.10
                                                     ----------
      Balances, December 31, 1997...................  1,208,875        0.19
        Granted.....................................  2,722,500        0.62
        Exercised................................... (1,351,281)       0.51
        Cancelled...................................   (267,500)       0.25
                                                     ----------
      Balances, December 31, 1998...................  2,312,594        0.51
        Granted (unaudited).........................  1,691,000        6.43
        Exercised (unaudited).......................   (430,041)       4.16
        Cancelled (unaudited).......................    (64,584)       0.30
                                                     ----------
      Balances, June 30, 1999 (unaudited)...........  3,508,969        2.92
                                                     ==========
As of December 31, 1998, Foundry had issued an aggregate of 8,035,656 shares
of common stock to employees of Foundry of which 4,316,268 shares are subject
to repurchase rights at the option of Foundry at $0.10 - $1.00 per share. In
1997 and 1998, Foundry repurchased 150,000 and 255,000 shares, respectively, of
unvested common stock from employees at $0.10 per share. As of June 30, 1999,
an aggregate of 295,334 shares were available for future option grants under
the Plan.

                                      F-16
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  The following table summarizes information about stock options outstanding
and vested at December 31, 1998:
Options Outstanding         Options Vested
                             --------------------------------- -----------------
                                          Weighted-
                                           Average   Weighted-         Weighted-
   Range of                               Remaining   Average           Average
   Exercise                    Number    Contractual Exercise  Number  Exercise
     Prices                  Outstanding    Life       Price   Vested    Price
   --------                  ----------- ----------- --------- ------- ---------
$0.10....................    524,844     8.06       $0.10   190,746   $0.10
   $0.30....................    326,000     8.63       $0.30    81,500   $0.30
   $0.50....................    877,750     9.54       $0.50    26,479   $0.50
   $1.00....................    584,000     9.84       $1.00     1,677   $1.00
                              ---------                -----   -------
   $0.10-$1.00..............  2,312,594                $0.51   300,402
                              =========                =====   =======
Weighted
                                                        Number of    Average
                                                         Options  Exercise Price
                                                        --------- --------------
Vested at December 31, 1997.....................  200,104      $0.10
       Vested at December 31, 1998.....................  300,402      $0.19
       Vested at June 30, 1999 (unaudited).............  378,862      $0.35
Foundry accounts for stock options issued to employees under APB Opinion No.
25 whereby the difference between the exercise price and the fair value at the
date of grant is recognized as compensation expense. Had compensation expense
been determined consistent with SFAS No. 123, net income would have decreased
and losses would have increased to the following pro forma amounts (in
thousands except per share data):
Period
                              from Inception     Year Ended
                             (May 22, 1996) to   December 31,      Six Months
                               December 31,    ----------------  Ended June 30,
                                   1996         1997     1998         1999
                             ----------------- -------  -------  --------------
                                                                  (unaudited)
Net income (loss) as
 reported..................       $(2,013)     $(9,007) $(9,352)     $2,912
Pro forma net income
 (loss)....................        (2,035)      (9,060)  (9,483)      2,570
Basic net income (loss) per
 share as reported.........         (1.49)       (1.99)   (1.04)       0.24
Pro forma net income (loss)
 per share.................         (1.51)       (2.00)   (1.05)       0.21
Diluted net income (loss)
 per share as reported.....         (1.49)       (1.99)   (1.04)       0.08
Pro forma diluted net
 income (loss) per share...         (1.51)       (2.00)   (1.05)       0.07
The weighted average fair value of options granted during 1996, 1997 and 1998
was $0.02, $0.03 and $0.12, respectively. Pursuant to the provisions of SFAS
No. 123, the compensation cost associated with options granted in 1996, 1997
and 1998 was estimated on the grant date using the Black-Scholes model and the
following assumptions:
Risk free interest rate..................................... 5.13 to 6.83%
      Average expected life of option.............................      4 years
      Dividend yield..............................................            0%
      Volatility of common stock..................................         0.01%
F-17
FOUNDRY NETWORKS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  In connection with the issuance of certain stock options to employees in 1998
and for the six months ended June 30, 1999, Foundry has recorded deferred stock
compensation in the aggregate amount of approximately $4,687,000 and
$14,812,000, respectively, representing the difference between the deemed fair
value of Foundry's common stock for accounting purposes and the exercise price
of stock options at the date of grant. Foundry is amortizing the deferred stock
compensation expense over the vesting period, generally four years. For the
year ended December 31,1998 and the six months ended June 30, 1999,
amortization expense was approximately $727,000 and $5,023,000, respectively.
At June 30, 1999, the remaining deferred stock compensation of approximately
$13.7 million will be amortized as follows: $4.1 million in the last two
quarters of fiscal 1999, $5.3 million during fiscal 2000, $2.9 million during
fiscal 2001, $1.2 million during fiscal 2002 and $200,000 during fiscal 2003.
The amortization expense relates to options granted to employees in all
operating expense categories. The amortization of deferred stock compensation
has not been separately allocated to these categories. The amount of deferred
stock compensation expense to be recorded in future periods could decrease if
options for which accrued but unvested compensation has been recorded are
forfeited.

6. SUBSEQUENT EVENTS:

  In January 1999, Foundry granted 353,000 nonstatutory stock options to
certain key employees outside of the 1996 Plan at an exercise price of $2.50
per share. The options vest over a four-year period and expire in January 2009.
The weighted average remaining contractual life of the options was 9.6 years as
of June 30, 1999.

  In January 1999, the Company entered into a lease agreement for additional
office facilities. The following summarizes future payments (in thousands):
1999................................ $126
             2000................................   18
                                                  ----
                                                  $144
                                                  ====
In February 1999, Foundry entered into a revolving line of credit agreement
(the Agreement) with a bank which expires on February 18, 2000. The Agreement
provides for borrowings up to $10,000,000 of eligible accounts receivable at
the bank's prime rate. Borrowings are collaterized by substantially all of
Foundry's assets. The Agreement contains restrictive covenants which, among
other things, require Foundry to maintain certain financial ratios and limits
the payment of dividends. Borrowings outstanding under the line of credit as of
June 30, 1999 were $2,000,000.

  In March 1999, Foundry issued a letter of credit in the amount of $1,000,000
to a supplier which expires on December 31, 1999.

  In May 1999, the board of directors approved an amendment to Foundry's 1996
Stock Option Plan to increase the number of shares of common stock reserved
under the Plan from 11,270,000 to 12,270,000 shares.

  In June 1999, Foundry issued 125,000 shares of Series C redeemable
convertible preferred stock at $8.00 per share to a family trust, of which a
director of Foundry is a trustee, for gross proceeds of $1,000,000.

  In June 1999, the Company repurchased 400,000 unvested shares from a founder
at $0.01 per share. The repurchase was recorded as treasury stock on the
accompanying balance sheet as of June 30, 1999. Foundry recorded the repurchase
at the deemed fair value of the common stock on the transaction date.

                                      F-18
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in the
prospectus is current only as of its date.

                               TABLE OF CONTENTS
Page
                                                                          ----
Prospectus Summary.......................................................   2
Risk Factors.............................................................   5
Forward-Looking Statements...............................................  18
Use of Proceeds..........................................................  18
Dividend Policy..........................................................  18
Capitalization...........................................................  19
Dilution.................................................................  20
Selected Financial Data..................................................  21
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  22
Business.................................................................  31
Management...............................................................  44
Principal Stockholders...................................................  54
Certain Transactions.....................................................  56
Description of Capital Stock.............................................  58
Shares Eligible for Future Sale..........................................  61
Underwriting.............................................................  63
Legal Matters............................................................  65
Experts..................................................................  65
Additional Information Available
 to You..................................................................  65
Index to Financial Statements............................................ F-1
Until    , 1999 (25 days after the date of this prospectus), all dealers that
buy, sell or trade in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. Dealers are also obligated
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
-------------------------------------------------------------------------------

 [CORPORATION LOGO]

                            Foundry Networks, Inc.

      Shares

 Common Stock

 Deutsche Banc Alex. Brown

 Merrill Lynch & Co.

 J.P. Morgan & Co.

 Prospectus

         ,
PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

  The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.
Amount
                                                                        -------
SEC registration fee................................................ $23,978
   NASD filing fee.....................................................   9,125
   Nasdaq National Market listing fee..................................    *
   Printing and engraving expenses.....................................    *
   Legal fees and expenses.............................................    *
   Accounting fees and expenses........................................    *
   Blue Sky qualification fees and expenses............................  5,000
   Transfer Agent and Registrar fees...................................    *
   Miscellaneous fees and expenses.....................................    *
                                                                        -------
     Total.............................................................    *
                                                                        =======
--------
* to be filed by amendment

Item 14. Indemnification of Directors and Officers

  Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Upon
completion of this offering, Article XIII of our certificate of incorporation
(Exhibit 3.2) and Article VI of our bylaws (Exhibit 3.4) will provide for
indemnification of our directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
we have entered into indemnification agreements with our officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-
indemnification among Foundry and the Underwriters with respect to certain
matters, including matters arising under the Securities Act.

Item 15. Recent Sales of Unregistered Securities

  Since inception in May 1996, we have sold and issued the following
unregistered securities:

1. In June 1996, we issued and sold 10,980,000 shares of common stock to a
   total of 4 investors for an aggregate purchase price of $109,800.

2. In June 1996, we issued 5,750,000 shares of Series A preferred stock to a
   total of 17 investors for an aggregate cash consideration of $5,750,000.

3. In October 1996, we issued warrants to purchase 30,000 shares of Series A
   preferred stock, which will convert to warrants to purchase common stock
   upon completion of this offering, to an entity in connection with an
   equipment lease agreement.

4. In June, August and December 1997, we issued a total of 4,086,954 shares of
   Series B preferred stock to a total of 14 investors for an aggregate cash
   consideration of $9,399,994.20.

                                     II-1
5. In March 1998, we issued 5,154,642 shares of Series C preferred stock to a
   total of 15 investors for an aggregate cash consideration of $15,000,008.

6. In June 1999, we issued 125,000 shares of Series C preferred stock to one
   investor, a family trust of which Andrew K. Ludwick, a director of Foundry,
   is a trustee, for an aggregate cash consideration of $1,000,000.

  The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 2 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.

Item 16. Exhibits and Financial Statement Schedules

  (a) Exhibits

  See exhibits listed on the Exhibit Index following the signature page of
this Form S-1, which is incorporated herein by reference.

  (b) Financial Statement Schedules

    Schedule II--Valuation and Qualifying Accounts

  Other schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.

Item 17. Undertakings

  The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

  Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

  The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
    1933, the information omitted from the form of prospectus filed as part of
    this registration statement in reliance upon Rule 430A and contained in a
    form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
    (4) or 497(h) under the Securities Act shall be deemed to be part of this
    registration statement as of the time it was declared effective.

                                     II-2
(2) For the purpose of determining any liability under the Securities Act of
    1933, each post-effective amendment that contains a form of prospectus
    shall be deemed to be a new registration statement relating to the
    securities offered therein, and the offering of such securities at that
    time shall be deemed to be the initial bona fide offering thereof.

                                      II-3
SIGNATURES

  Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Sunnyvale, State of
California on July 9, 1999.

                                          FOUNDRY NETWORKS, INC.

                                               /s/ Bobby R. Johnson, Jr.
                                          By: _________________________________
                                                   Bobby R. Johnson, Jr.
                                                 President, Chief Executive
                                              Officer andChairman of the Board
                                                        of Directors

                               POWER OF ATTORNEY

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Bobby R.
Johnson, Jr. and Timothy D. Heffner, and each of them, as his attorney-in-
fact, with full power of substitution, for him in any and all capacities, to
sign any and all amendments to this Registration Statement (including post-
effective amendments), and any and all Registration Statements filed pursuant
to Rule 462 under the Securities Act of 1933, as amended, in connection with
or related to the offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorney to any and all amendments to said Registration
Statement.

  Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature                          Title                   Date
/s/ Bobby R. Johnson, Jr.          President, Chief Executive    July 9, 1999
______________________________________  Officer and Chairman of
       (Bobby R. Johnson, Jr.)          the Board of Directors
                                        (Principal Executive
                                        Officer)

      /s/ Timothy D. Heffner           Vice President, Finance &     July 9, 1999
______________________________________  Administration, Chief
         (Timothy D. Heffner)           Financial Officer
                                        (Principal Financial and
                                        Accounting Officer)

        /s/ Seth D. Neiman             Director                      July 9, 1999
______________________________________
           (Seth D. Neiman)

      /s/ Andrew K. Ludwick            Director                      July 9, 1999
______________________________________
         (Andrew K. Ludwick)
II-4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Board of Directors and Stockholders
of Foundry Networks, Inc.

  We have audited, in accordance with generally accepted auditing standards,
the financial statements of Foundry Networks, Inc. included in this
Registration Statement and have issued our report thereon dated June 17, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

                                          ARTHUR ANDERSEN LLP

San Jose, California
June 17, 1999
FOUNDRY NETWORKS, INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Column A                Column B   Column C   Column D  Column E
-------------------------------------- --------- ---------- ---------- --------
                                        Balance                        Balance
                                          at     Charged to             at End
                                       Beginning Costs and                of
             Description               of Period  Expenses  Deductions  Period
-------------------------------------- --------- ---------- ---------- --------
Period ended December 31, 1996:
Allowance for doubtful accounts.......  $    --   $     --     $--     $     --
Allowance for sales returns...........  $    --   $     --     $--     $     --
Year ended December 31, 1997:
Allowance for doubtful accounts.......  $    --   $ 10,000     $--     $ 10,000
Allowance for sales returns...........  $    --   $     --     $--     $     --
Year ended December 31, 1998:
Allowance for doubtful accounts.......  $10,000   $389,000     $--     $399,000
Allowance for sales returns...........  $    --   $     --     $--     $     --
Foundry Networks, Inc. Exhibits Index
Number Description
 ------ -----------
1.1   Form of Underwriting Agreement.*
  3.1   Amended and Restated Certificate of Incorporation of Foundry Networks,
        Inc.
  3.2   Amended and Restated Certificate of Incorporation of Foundry Networks,
        Inc. (proposed).
  3.3   Amended and Restated Bylaws of Foundry Networks, Inc.
  3.4   Amended and Restated Bylaws of Foundry Networks, Inc. (proposed).
  4.1   Specimen Stock Certificate.
  4.2   Preferred Stock Purchase Warrant dated October 9, 1996.
  5.1   Opinion of Venture Law Group regarding the legality of the common stock
        being registered.*
 10.1   1996 Stock Plan (amended July 8, 1999).
 10.2   1999 Employee Stock Purchase Plan dated July 8, 1999.
 10.3   1999 Directors' Stock Option Plan dated July 8, 1999.
 10.4   Form of Indemnification Agreement between Foundry Networks, Inc. and
        each of its Officers and Directors.
 10.5   OEM Purchase Agreement dated January 6, 1999 between Foundry Networks,
        Inc. and Hewlett-Packard Company, Workgroup Networks Division.**
 10.6   Reseller Agreement dated July 1, 1997 between Foundry Networks, Inc.
        and Mitsui & Co., Ltd.**
 10.7   Common Stock Purchase Agreement and Assignment Agreement between
        StarRidge Networks, Inc. and Bobby R. Johnson, Jr. dated June 6, 1996.
 10.8   Promissory Note, Pledge and Security Agreement and Assignment Separate
        from Certificate dated June 25, 1997, executed by Drusilla Demopoulos
        in connection with a loan from Foundry Networks, Inc. in connection
        with the exercise of options to purchase common stock.
 10.9   Promissory Note, Pledge and Security Agreement and Assignment Separate
        from Certificate dated April 29, 1998, executed by Drusilla Demopoulos
        in connection with a loan from Foundry Networks, Inc. in connection
        with the exercise of options to purchase common stock.
 10.10  Promissory Note, Pledge and Security Agreement and Assignment Separate
        from Certificate dated October 6, 1998, executed by Ken Cheng in
        connection with a loan from Foundry Networks, Inc. in connection with
        the exercise of options to purchase common stock.
 10.11  Lease agreement dated October 16, 1996, between StarRidge Networks,
        Inc. and PaineWebber Qualified Plan Property Fund Four, L.P. for
        offices at 680 W. Maude Ave., Sunnyvale, CA 94086.
 10.12  Sublease agreement dated March 15, 1999 between Foundry Networks, Inc.
        and Prolifix Medical, Inc. for offices at 680 W. Maude Ave., Sunnyvale,
        CA 94086.
 23.1   Consent of Arthur Andersen, LLP, Independent Auditors
 23.2   Consent of Counsel (included in Exhibit 5.1).*
 24.1   Power of Attorney (included on Page II-4)
 27.1   Financial Data Schedule (EDGAR-filed version only)
--------
* To be filed by amendment.
** Confidential treatment requested as to certain portions of this exhibit.