[CABLETRON LOGO]
35 Industrial Way
Rochester, New Hampshire 03867
June 12, 1996
Dear Stockholder:
We cordially invite you to attend our 1996 Annual Meeting of
Stockholders on July 17, 1996 at Cabletron Systems, Inc., Training Facility,
Pease International Tradeport, Newington, New Hampshire.
At this meeting you are being asked to elect one Class I director.
Your Board of Directors recommends that you vote in favor of the nominee
for election as director. You should read with care the proxy statement which
describes the nominee and presents other important information. Please complete,
sign and return your proxy promptly in the enclosed envelope.
We hope that you will join us on July 17, 1996.
Sincerely,
S. Robert Levine Craig R. Benson
President and Chief Chairman of the Board
Executive Officer and Chief Operating Officer
<PAGE>
CABLETRON LOGO
Notice of Annual Meeting of Stockholders
July 17, 1996
Notice is hereby given that the Annual Meeting of Stockholders of
Cabletron Systems, Inc. will be held at Cabletron Systems, Inc., Training
Facility, Pease International Tradeport, Newington, New Hampshire 03801, on July
17, 1996 at 10:00 a.m., Eastern Time, for the following purposes:
1. To elect one Class I director to serve until the 1999 Annual
Meeting of Stockholders.
2. To transact such other business as may properly come before the
meeting and any and all adjourned sessions thereof.
Only stockholders of record at the close of business on May 29, 1996 are
entitled to notice of and to vote at the Annual Meeting of Stockholders and any
and all adjourned sessions thereof.
By order of the Board of Directors,
MICHAEL D. MYEROW, Secretary
Rochester, New Hampshire
June 12, 1996
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING. PLEASE SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON.
<PAGE>
CABLETRON SYSTEMS, INC.
35 Industrial Way
Rochester, New Hampshire 03866
Annual Meeting of Stockholders
July 17, 1996
PROXY STATEMENT
The enclosed form of proxy is solicited on behalf of the Board of
Directors of Cabletron Systems, Inc. (the "Company") for use at the Annual
Meeting of Stockholders (the "Meeting") to be held at Cabletron Systems, Inc.,
Training Facility, Pease International Tradeport, Newington, New Hampshire
03801, on July 17, 1996, at 10:00 a.m., and at any and all adjourned sessions
thereof. A proxy may be revoked by a stockholder, at any time before it is
voted, (i) by returning to the Company another properly signed proxy
representing such shares and bearing a later date, (ii) by otherwise delivering
a written revocation to the Secretary of the Company or (iii) by attending the
Meeting or any adjourned session thereof and voting the shares covered by the
proxy in person. Shares represented by the enclosed form of proxy properly
executed and returned, and not revoked, will be voted at the Meeting. In the
absence of contrary instructions, the persons named as proxies will vote in
accordance with the intentions stated below.
The expense of soliciting proxies will be borne by the Company. Officers
and regular employees of the Company (who will receive no compensation therefor
in addition to their regular salaries) may communicate directly or by mail,
telephone, or other communication methods with stockholders to solicit proxies.
The Company will also reimburse brokers and other persons for their reasonable
charges and expenses in forwarding soliciting materials to their principals.
The holders of record of shares of Common Stock, $.01 par value (the
"Common Stock"), of the Company at the close of business on May 29, 1996 are
entitled to receive notice of and to vote at the Meeting. As of that date the
Company had issued and outstanding 72,388,152 shares of Common Stock. Each such
share of Common Stock is entitled to one vote on each matter to come before the
Meeting.
It is expected that this Proxy Statement and the enclosed form of proxy
will be mailed to stockholders commencing on or about June 12, 1996.
The Company's Annual Report to Stockholders, including consolidated
financial statements for the year ended February 29, 1996, is being mailed to
the Company's stockholders with this Proxy Statement.
<PAGE>
ELECTION OF DIRECTOR
The Board of Directors has voted to fix the number of directors at five.
The Company's Restated Certificate of Incorporation, as amended, and by-laws
provide for the classification of the Board of Directors into three classes, as
nearly equal in number as possible, with the term of office of one class
expiring each year. Unless otherwise instructed, the enclosed proxy will be
voted to elect the person named below as Class I director for a term of three
years expiring at the 1999 Annual Meeting of Stockholders and until their
successor is duly elected and qualified. If the nominee should become
unavailable, such proxy will be voted either for a substitute nominee designated
by management, unless instructions are given to the contrary, or the directors
will fix the number of directors at four. Management does not anticipate that
the nominee will become unavailable. A plurality of the votes represented at the
meeting is required to elect the nominee for director. The nominee as Class I
director, and the incumbent Class II and Class III directors, are as follows:
Nominee as Class I Director
Term Expires 1999
Michael D. Myerow, 47
Director since 1989
Member of the Incentive Compensation Committee
Mr. Myerow has been a partner in the Franklin, Massachusetts law firm of Myerow
& Poirier since June 1987. He joined the firm in June 1986. From September 1979
to March 1986, Mr. Myerow was General Counsel of Exeter Equities, Inc., a
consulting firm.
Class II Directors
Terms Expire 1997
S. Robert Levine, 38
Director since 1983
Mr. Levine founded the Company in March 1983 and has been President, Chief
Executive Officer and a director of the Company since that date.
Donald F. McGuinness, 63
Director since 1989
Member of the Incentive Compensation Committee and Audit Committee
Mr. McGuinness has been Chairman, President and Chief Executive Officer of
Electronic Designs, Inc., a semiconductor memory company, since November 1987.
From December 1983 until January 1987, Mr. McGuinness was Executive Vice
President and Chief Operating Officer of Sprague Electric Company, an electronic
components manufacturer.
<PAGE>
Class III Directors
Terms Expire 1998
Craig R. Benson, 41
Director since 1984
Mr. Benson was Director of Operations of the Company from November 1984 until
April 1989, when he became Chairman, Chief Operating Officer and Treasurer.
Paul R. Duncan, 55
Director since 1989
Member of the Incentive Compensation Committee and Audit Committee
Mr. Duncan is Executive Vice President and President, Specialty Business Group
since October 1995 and had been Executive Vice President and Chief Financial
Officer from May 1985 to October 1995 and a director since February 1989 of
Reebok International Ltd., a manufacturer of athletic footwear and apparel. Mr.
Duncan is also a director of BGS Systems, Inc., a computer software company.
<PAGE>
Beneficial Ownership
The following table sets forth the amount of Common Stock of the Company
beneficially owned (as determined under the rules of the SEC), directly or
indirectly, as of May 29, 1996, by (i) each director, each of the chief
executive officer and all other executive officers of the Company in fiscal
1996, and by all directors and officers as a group and (ii) each person who is
known to the Company to beneficially own more than 5% of the outstanding shares
of Common Stock of the Company and the percentage of the class outstanding
represented by each such amount.
Shares of Common
Stock Beneficially Percent of
Name Owned Class
S. Robert Levine (1)+ 9,475,462(2) 13.1%
Craig R. Benson (1)+ 9,635,854(3) 13.3
Paul R. Duncan+ 39,167(4) *
Donald F. McGuinness+ 36,450(4) *
Michael D. Myerow+ 246,725(4)(5) *
Christopher J. Oliver 1,024,212 1.4
,
David J. Kirkpatrick 8,342(4) *
All directors and officers
as group (7 persons) 20,466,212 28.3
- -----------------------
* Less than 1%
+ Director of the Company
(1) Mr. Levine's and Mr. Benson's address is c/o Cabletron Systems, Inc.,
35 Industrial Way, Rochester, New Hampshire 03866.
(2) Includes (i) 458,726 shares of Common Stock transferred to Mr. Levine's
former spouse over which Mr. Levine maintains voting control as long as his
former spouse is the beneficial owner of such shares and (ii) 136,550 shares
held in the Levine Family Charitable Trust.
(3) Includes 2,900 shares held in the Benson Family Charitable Trust.
(4) Includes options held by Messrs. Duncan, McGuinness, Myerow and
Kirkpatrick exercisable with respect to 37,500, 26,500, 20,000 and 8,000 shares,
respectively.
(5) Includes a total of 212,500 shares held in two trusts for the benefit of
the children of Messrs. Benson and Levine, respectively. Mr. Myerow is the sole
trustee of each trust. Excludes 3,500 shares held by Mr. Myerow's spouse as
custodian for their children, as to which shares Mr. Myerow disclaims beneficial
ownership.
<PAGE>
Board of Directors and Committee Organization
During the Company's fiscal year ended February 29, 1996, the Board of
Directors of the Company held a total of seven meetings. The Company has a
standing Audit Committee and a standing Incentive Compensation Committee. No
director attended fewer than 75% of the Board of Directors meetings or meetings
of committees of the board on which he served.
The Audit Committee, which held one meeting during fiscal 1996, reviews
with management and the Company's independent public accountants the Company's
financial statements, the accounting principles applied in their preparation,
the scope of the audit, any comments made by the independent public accountants
upon the financial condition of the Company and its accounting controls and
procedures, and such other matters as the Committee deems appropriate. In
addition, the Committee reviews with management such matters relating to
compliance with corporate policies as the Committee deems appropriate. Messrs.
Duncan and McGuinness, neither of whom is an executive officer or employee of
the Company, currently serve on the Audit Committee.
The Incentive Compensation Committee of the Board of Directors acted
pursuant to written consent on 20 occasions and held one committee meeting
during the fiscal year ended February 29, 1996. In general, the function of the
Incentive Compensation Committee is to review the operation of the Company's
1989 Equity Incentive Plan and related programs of the Company. Messrs. Duncan,
McGuinness and Myerow, none of whom is an executive officer or employee of the
Company, currently serve on the Incentive Compensation Committee.
Director Compensation
For their services to the Company, non-employee directors receive an
annual retainer of $10,000, plus $750 for each Board and committee meeting
attended during the year. Directors who are employed by the Company do not
receive compensation for attendance at Board or committee meetings. Outside
directors are reimbursed for any expenses attendant to Board membership.
Pursuant to the Company's Directors' Option Plan, Messrs. Duncan,
McGuinness and Myerow were initially granted options to purchase 50,000, 75,000
and 95,000 shares, respectively, of Common Stock upon the consummation of the
Company's initial public offering in 1989. Subsequent to 1989, under this Plan
each non-employee director has been automatically granted an option to purchase
12,500 additional shares of Common Stock on the day after the date of each
Meeting of Stockholders of the Company and similar grants will be made to each
eligible director after this year's Annual Meeting. Options under the Directors'
Option Plan are granted at their fair market value on the date of grant, vest
over a period of three years and expire six years from the grant date.
<PAGE>
<TABLE>
Executive Compensation
The following table below discloses the compensation received by the
Company's Chief Executive Officer and the Company's three other executive
officers for the fiscal years ended February 29, 1996 and February 28, 1995 and
1994.
Summary Compensation Table
<CAPTION>
Long Term
Compensation Awards
Annual Compensation Options Granted
Name and Principal Position Year Salary($)(1) Bonus($)(2) (in Shares))(2)
<S> <C> <C> <C> <C>
- --------------------------- ---- -------------------------- -------------------
S. Robert Levine ................... 1996 52,200 0 0
President and ...................... 1995 52,000 0 0
Chief Executive Officer ............ 1994 52,000 0 0
Craig R. Benson .................... 1996 52,000 0 0
Chairman and ....................... 1995 52,000 0 0
Chief Operating Officer ............ 1994 52,000 0 0
Christopher J. Oliver .............. 1996 275,000 0 0
Director of Engineering and ........ 1995 275,000 0 0
Manufacturing ...................... 1994 275,000 0 0
David J. Kirkpatrick ............... 1996 174,952 65,000 10,000
Director of Finance and ............ 1995 161,682 60,000 2,500
Chief Financial Officer ............ 1994 141,921 60,000 5,000
- -------------------------
(1) Amounts shown include cash and non-cash compensation earned and received by
executive officers as well as amounts earned but deferred by certain executive
officers at their election pursuant to the Cabletron Systems, Inc. 401(k) Saving
and Investment Plan.
(2) Does not include perquisites having aggregate value equal to the lessor of
$50,000 or 10% of total annual salary and bonus reported.
</TABLE>
<PAGE>
<TABLE>
OPTION TABLES
The following table below sets forth, for applicable executive officers
in the Summary Compensation Table, information regarding individual grants of
options made in the last fiscal year, and their potential realizable values.
Option Grants in the Fiscal Year Ended February 29, 1996
<CAPTION>
Potential Realizable
% of Value at
Total Options Rates of Stock
Options Granted to Price Appreciation
Granted Employees in Exercise Expiration for Option Term(2)
Name (in shares) Fiscal Year Price Date 5 % 10 %
<S> <C> <C> <C> <C> <C> <C>
- ---- ------------ ------------- ---------- ------------ -------- ----------
David J. Kirkpatrick 10,000(1) .6% $60.75 10/09/05 $518,303 $1,104,449
- -----------------
(1) The option is exercisable in annual increments of 2,000 shares over the next
five years.
(2) These potential realizable values are based on assumed rates of appreciation
required by applicable regulations of the Securities and Exchange Commission.
The potential realizable values stated are not discounted to present value.
</TABLE>
The following table below depicts option exercise activity in the last
fiscal year and fiscal year-end option values with respect to applicable
executive officers named in the Summary Compensation Table. The fair market
value of the Company's Common Stock at February 29, 1996 was $75.125 per share.
Aggregate Option Exercises in the Fiscal Year Ended February 29, 1996
and February 29, 1996 Option Values
Number of Unexercised
Unexercised In-the-Money
Options Options
Shares at 2/29/96 at 2/2996
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---- ----------- -------- ------------ -------------
David J. Kirkpatrick 15,000 $775,813 8,000/24,500 $348,313/$713,688
<PAGE>
Report of the Board of Directors on Executive Compensation
The Company's executive compensation program is administered by the
Board of Directors. The Board's Incentive Compensation Committee, comprised of
the Company's three outside directors, Messrs. Duncan, McGuinness and Myerow,
determines the recipients and terms of all grants of stock-based incentive
awards under the Company's 1989 Equity Incentive Plan.
The Company's executive compensation program is designed to retain and
reward executives who are capable of leading the Company in achieving its
business objectives in the competitive and rapidly changing LAN industry. This
report is submitted by the Board of Directors and addresses the Company's
compensation policies for fiscal 1996 as they affected the Company's executive
officers.
In determining the Company's executive compensation program the Board
has drawn a distinction between Mr. Levine, the Company's President and Chief
Executive Officer, and Mr. Benson, the Company's Chairman and Chief Operating
Officer, on the one hand, and the Company's other executive officers on the
other.
Compensation for Messrs. Levine and Benson
Mr. Levine and Mr. Benson currently own 26.4% the Company's outstanding
Common Stock. As the Company's principal stockholders, Messrs. Levine and Benson
have participated very directly in the increase in value of the Company's Common
Stock since its initial public offering. Accordingly, the Board of Directors has
determined that their cash compensation may remain low, both absolutely and in
relation to their contributions to the Company's growth. Therefore, Messrs.
Levine's and Benson's salaries have not increased since the Company's initial
public offering. The relatively low salary levels of Messrs. Levine and Benson
are not determined by comparison to other companies in the industry or to the
Company's corporate performance. Rather, the Board of Directors has determined
that it is in the best interest of the Company that Messrs. Levine's and
Benson's primary form of compensation for their leadership of the Company be
derived from sales and increases in value of their Common Stock.
The Board of Directors believes the leadership of Messrs. Levine and
Benson has been crucial to the Company's outstanding growth record. The
Company's overall compensation program for Messrs. Levine and Benson may change
in the future as their respective shareholdings decrease to levels at which
sales of their existing holdings do not adequately compensate them for their job
performance. In particular, cash compensation levels for Messrs. Levine and
Benson may, in the future, be based much more directly upon corporate
performance, individual contribution and compensation levels for competitive
positions in the industry, as is the case for the Company's other executive
officers. In addition, the Incentive Compensation Committee may determine that
it is in the best interests of the Company and its stockholders to include
Messrs. Levine and Benson in the Company's stock-based incentive program.
Compensation for Executive Officers other than Messrs. Levine and Benson
The compensation program for the Company's executive officers other than
Messrs. Levine and Benson is based on the philosophy that cash compensation
should vary with the performance of the Company and any long-term incentive
should closely align the officers' interests with the interests of the Company's
stockholders. Additionally, the Company is committed to providing an executive
compensation program that attracts and retains highly qualified executives.
Compensation for the executive officers other than Messrs. Levine and
Benson consists of base salary, an incentive cash bonus segment and a
stock-based incentive bonus segment. In setting base salary levels, the Board of
Directors reviews compensation for competitive positions in the industry and the
historical compensation levels of the executives. Increases in annual salaries
year-to-year are based upon corporate performance and merit ratings measured by
actual individual performance (against targeted performance) and various
subjective performance criteria. Incentive cash bonuses are based on the
Company's meeting or exceeding certain specified financial targets. In fiscal
1996, the Company exceeded its targets and thus Mr. Kirkpatrick was awarded a
bonus of $65,000, paid in quarterly installments.
The Company seeks to provide long-term compensation through its
stock-based incentive compensation program. Stock options are granted to aid in
the retention of key employees, including eligible named executives, and to
align the interests of key employees with those of stockholders. Stock options
are granted at a price equal to the fair market value on the date of grant.
Stock options typically are granted on an annual basis and become exercisable
over a five-year period. They are granted to key employees, including the named
executive officers, based on current performance, anticipated future
contribution based on that performance, ability to contribute to the achievement
of the Company's strategic goals and objectives, taking into account awards
generally made to persons in competitive positions in the industry, as well as
the individual's current level of Company stock holding. The size of the award
is also determined based upon these factors. In fiscal 1996, stock options for
key employees, including eligible named executive officers, were granted upon
recommendation of the management and approval of the Incentive Compensation
Committee.
Consistent with the parameters of the Company's stock-based incentive
compensation program, Mr. Oliver, in light of his significant stockholdings in
the Company and the resulting alignment of his interests with those of the
Company's stockholders, has not been awarded options or other stock-based
incentives. Mr. Kirkpatrick, in contrast, has been awarded significant
stock-based incentives. Details on stock options granted to the named executive
officers are provided in the table entitled "Option Grants in the Fiscal Year
Ended February 29, 1996." Current levels of stock ownership are provided in the
table entitled "Beneficial Ownership."
The Company maintains a broad-based, qualified employee stock purchase
plan to encourage employee ownership of Cabletron stock. Participation in the
Plan is generally open to all employees after six months of continuous
employment. This plan allows participants to buy Cabletron stock at a discount
to the market price with up to 10% of their salaries, subject to a maximum
dollar value.
With respect to the above matters, the Board of Directors, including
members of its Incentive Compensation Committee in such capacity, submits this
report.
BOARD OF DIRECTORS
Craig R.. Benson
S. Robert Levine
Michael D. Myerow*
Paul R. Duncan*
Donald F. McGuinness*
*Member of Incentive Compensation Committee
<PAGE>
Comparison of Stockholder Return
Set forth in the line graph below is a comparison of the annual
percentage change in the cumulative total return on the Company's Common Stock
to the cumulative total return of the S&P 500 Index and the S&P Communication -
Equipment/Manufacturer Index and for the Company for the period commencing on
February 28, 1991 for the indices and ending on February 29, 1996.
Comparison of Cumulative Total Return from February 28, 1991 through
February 29, 1996(1)
Cabletron Systems, Inc., S&P 500 Index and S&P Communication -
Equipment/Manufacturer Index
The following table will be presented in graphical format in the
definitive proxy
Cumulative Total Return
2/91(1) 2/92 2/93 2/94 2/95 2/96
Cabletron Systems, Inc. $100 $165 $212 $339 $269 $509
S&P 500 Index $100 $116 $128 $139 $149 $201
S&P Communication - Equip- $100 $158 $162 $156 $176 $292
ment/Manufacturer Index
- ----------------------
(1) Assumes that $100 was invested on February 28, 1991, at the closing sales
price of the Company's Common Stock and each index and that all dividends were
reinvested. No cash dividends have been declared on the Company's Common Stock.
Stockholders' returns over the indicated period should not be considered
indicative of future stockholder returns.
Each of the Report of the Board of Directors on Executive Compensation
and the Performance Graph set forth above shall not be deemed incorporated by
reference by any general statement incorporating this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise to deemed filed under such
Acts.
<PAGE>
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with state law and under the Company's by-laws, a majority of
the shares entitled to be cast on a particular matter, present in person or
represented by proxy, constitutes a quorum as to such matter. Votes cast by
proxy or in person at the Meeting will be counted by persons appointed by the
Company to act as election inspectors for the meeting.
The nominees for election as a director at the Meeting will be elected
if they receive a plurality of votes properly cast. An affirmative vote of a
majority of shares present, in person or by proxy, and entitled to vote at the
meeting is required to approve the increase in the Company's authorized Common
Stock and the increase in shares of Common Stock available for grant under the
1989 Equity Incentive Plan. The election inspectors will count shares
represented by proxies that withhold authority to vote for a particular matter
or that reflect abstentions and "broker non-votes" (i.e., shares represented at
the meeting held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote and (ii)
the broker or nominee does not have the discretionary voting power on a
particular matter) only as shares that are present and entitled to vote on the
matter for purposes of determining the presence of a quorum, but neither
abstentions nor broker non-votes have any effect on the outcome of voting on the
matter.
CERTAIN TRANSACTIONS
During fiscal 1996, the law firm of Myerow & Poirier, of which Mr.
Myerow, a director of the Company and member of its Incentive Compensation
Committee, is a partner, from time to time provided legal services to the
Company, for which the Company paid such firm a total of approximately $223,100.
The Company expects to continue to retain the services of this firm from time to
time during fiscal 1996.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors has selected the firm of KPMG Peat Marwick LLP,
independent auditors, as auditors for the Company for the fiscal year ending
February 28, 1997. A representative of KPMG Peat Marwick LLP is expected to be
present at the Meeting with the opportunity to make a statement if he or she
desires and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders submitted for consideration at the 1997 Annual
Meeting of Stockholders must be received by the Company not later than February
8, 1997 in order to be considered for inclusion in the Company's proxy materials
for that meeting.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of the
Company's outstanding Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and the New York
Stock Exchange. Officers, directors and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with all copies of
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the fiscal year
ended February 29, 1996, all filing requirements were timely satisfied.
OTHER BUSINESS
The Board of Directors knows of no business to be brought before the
Annual Meeting which is not referred to in the accompanying Notice of Annual
Meeting. Should any such matters be presented, the persons named in the proxy
shall have the authority to take such action in regard to such matters as in
their judgment seems advisable.
