<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[x] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Cabletron Systems
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Cabletron Systems
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
(Cabletron Systems Inc. Logo Appears Here)
35 Industrial Way
Rochester, New Hampshire 03867
June 10, 1999
Dear Stockholder:
You are cordially invited to attend our 1999 Annual Meeting of Stockholders
to be held on July 13, 1999 at the Frank Jones Center, 400 Route One By-Pass,
Portsmouth, New Hampshire, 03801 (see directions on last page).
At this meeting you are being asked to (i) elect one Class I director, (ii)
approve an amendment to the 1989 Employee Stock Purchase Plan to increase the
number of shares of Common Stock authorized for issuance by 1,500,000, (iii)
approve an amendment to the 1998 Equity Incentive Plan to increase the number
of options to purchase shares of the Company's Common Stock authorized for
issuance by 7,000,000 and (iv) transact such other business as may properly
come before the meeting and any and all adjourned sessions thereof.
Your Board of Directors recommends that you vote in favor of the proposals.
You should read with care the proxy statement which describes the nominee and
presents other important information about the proposals. Please complete,
sign and return your proxy promptly in the enclosed envelope.
We hope that you will join us on July 13, 1999.
Sincerely,
/s/Piyush Patel
------------------------------------
Piyush Patel
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
(Cabletron Systems Inc. Logo Appears Here)
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 13, 1999
Notice is hereby given that the Annual Meeting of Stockholders of Cabletron
Systems, Inc. (the "Company") will be held at the Frank Jones Center, 400
Route One By-Pass, Portsmouth, New Hampshire 03801, on July 13, 1999 at 10:00
a.m., Eastern Time, for the following purposes:
1. To elect one Class I director to serve until the 2002 Annual Meeting
of Stockholders.
2. To approve an amendment to the 1989 Employee Stock Purchase Plan to
increase the number of shares of Common Stock authorized for issuance
by 1,500,000 shares.
3. To approve an amendment to the 1998 Equity Incentive Plan to increase
the number of options to purchase shares of the Company's Common Stock
authorized for issuance by 7,000,000.
4. 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 17, 1999 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 10, 1999
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 03867
For the 1999 Annual Meeting of
Stockholders to be held on July 13, 1999
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 the Frank Jones Center, 400 Route
One By-Pass, Portsmouth, New Hampshire 03801, on July 13, 1999, at 10:00 a.m.,
Eastern Time, 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 17, 1999 are entitled
to receive notice of and to vote at the Meeting. As of that date the Company
had issued and outstanding 173,000,986 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 11, 1999.
The Company's Annual Report to Stockholders, including consolidated
financial statements for the year ended February 28, 1999, is being mailed to
the Company's stockholders with this Proxy Statement.
1
<PAGE>
1. ELECTION OF CLASS I DIRECTOR
The Board of Directors has voted to fix the maximum 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 2002 Annual Meeting of Stockholders and until his
successor is duly elected and qualified. If the nominee shall be unavailable
as a candidate at the Annual Meeting, votes pursuant to the proxy will be
voted either for a substitute nominee designated by the Board of Directors or,
in the absence of such designation, in such other manner as the directors may
in their discretion determine. Alternatively, in such a situation, the Board
of Directors may take action to fix the number of directors for the ensuing
year at four, depending on if the nominee named herein is then able to serve.
The Board of Directors does not anticipate that the nominee will become
unavailable as a candidate. 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 2002
Michael D. Myerow, 50
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. He has
served as a Director of Vitts Networks, Inc. since August 1996. From September
1979 to March 1986, Mr. Myerow was General Counsel of Exeter Equities, Inc., a
consulting firm.
Class II Director
Term Expires 2000
Donald F. McGuinness, 66
Director since 1989
Member of the Incentive Compensation Committee and Audit Committee
Prior to his retirement in 1998, Mr. McGuinness served as Chairman,
President and Chief Executive Officer of Electronic Designs, Inc., a
semiconductor memory company for eleven years. From December 1983 until
January 1987, Mr. McGuinness was Executive Vice President and Chief Operating
Officer of Sprague Electric Company, an electronic components manufacturer.
Piyush Patel, 43
Director since 1999
On June 3, 1999, the Board of Directors voted to fill the Class II Director
vacancy and appointed Mr. Patel to this position. On the same date, Mr. Patel
was appointed Chairman, Chief Executive Officer and President. From October
1998 to June 1999, Mr. Patel served as Senior Vice President of Worldwide
Engineering of the Company. Prior to joining the Company, Mr. Patel served as
the CEO of Yago Systems, Inc. from September 1996 to October 1998. From April
1995 to September 1996, Mr. Patel served as Senior Project Manager for QED,
and from October 1991 to April 1995, he served as Senior Project Manager for
Sun Microsystems. From 1980 to 1991, he held a variety of senior management
positions at Intel and MIPS Computers.
2
<PAGE>
Class III Directors
Terms Expire 2001
Craig R. Benson, 44
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. In September 1997, Mr. Benson resigned as Chief Operating Officer.
In May 1998, Mr. Benson was appointed President, Chief Executive Officer,
Chairman, and Treasurer of the Company. On June 3, 1999, Mr. Benson resigned
as President, Chief Executive Officer, Chairman, and Treasurer.
Paul R. Duncan, 58
Director since 1989
Member of the Incentive Compensation Committee and Audit Committee
Prior to his retirement in 1999, Mr. Duncan was an Executive Vice President
of Reebok International Ltd., a manufacturer of athletic footwear and apparel,
since 1990, with responsibility for special projects since November 1996.
During that time, Mr. Duncan served as Chief Operating Officer of Reebok from
June 1995 to October 1995, Chief Financial Officer from May 1985 to June 1995
and has been a Director of Reebok since February 1989.
3
<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 17, 1999, by (i) each current director of the Company
and each nominee director, (ii) each executive officer of the Company named in
the Summary Compensation Table, (iii) all directors and officers of the
Company as a group and (iv) each person who is known to the Company to
beneficially own more than five percent (5%) of the outstanding shares of
Common Stock of the Company and the percentage of the Common Stock outstanding
represented by each such amount. Unless otherwise noted, the address of each
person listed below is c/o Cabletron Systems, Inc., 35 Industrial Way,
Rochester, New Hampshire 03867.
<TABLE>
<CAPTION>
Shares of Common
Stock Percent of
Beneficially Common
Name Owned Stock
---- ---------------- ----------
<S> <C> <C>
Craig R. Benson + (1)........................ 19,263,408 11.1%
Carl E. Boisvert (2)......................... 30,000 *
John d'Auguste (2)........................... 40,334 *
Paul R. Duncan + (2)......................... 103,334 0.1%
Earle S. Humphreys (2)....................... 20,000 *
David J. Kirkpatrick (2)..................... 30,975 *
Donald F. McGuinness + (2)................... 116,200 0.1%
Michael D. Myerow + (2), (3)................. 318,650 0.2%
Piyush Patel + (2), (4)...................... 297,894 0.2%
All directors and officers as a group (14
persons).................................... 20,278,037
</TABLE>
- ---------------------
* Less than 0.1%
+ Director of the Company
(1) Includes 1,400 shares held in the Benson Family Charitable Trust.
(2) Includes options held by Messrs. Boisvert, d'Auguste, Duncan, Humphreys,
Kirkpatrick, McGuinness, Myerow, and Patel exercisable with respect to
25,000, 33,334, 100,000, 9,667, 14,000, 116,000, 85,000, and 25,000
respectively, which are exercisable within sixty days of May 17, 1999.
(3) Includes a total of 225,000 shares held in two trusts for the benefit of
the children of Mr. Benson and Mr. Robert S. Levine, respectively. Mr.
Myerow is the sole trustee of each trust. Excludes 2,050 shares held by
Mr. Myerow's spouse and 6,600 shares held by Mr. Myerow's spouse as
custodian for their children, as to which shares Mr. Myerow disclaims
beneficial ownership.
(4) Includes 197,215 shares of restricted stock for which Mr. Patel has the
power to vote but which are subject to repurchase by the Company if Mr.
Patel's employment terminates. Such right of repurchase by the Company
lapses ratably per month through September 2000. Includes a total of 4,552
shares held in two trusts for the benefit of the children of Mr. Patel.
4
<PAGE>
Board of Directors and Committee Organization
During the Company's fiscal year ended February 28, 1999, the Board of
Directors of the Company held a total of fifteen meetings and acted by
unanimous written consent on five occasions. 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, except for Mr. Donald B. Reed who
resigned on March 30, 1998.
The Audit Committee, which held four meetings during fiscal 1999, 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 109 occasions and held two committee meetings
during the fiscal year ended February 28, 1999. In general, the function of
the Incentive Compensation Committee is to review the operation of the
Company's 1998 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. In order to comply with certain provisions of the Securities
Exchange Act of 1934 and the Internal Revenue Code of 1986, Mr. Myerow does
not participate in the administration of the 1998 Equity Incentive Plan and
related programs of the Company in connection with awards to named executive
officers of the Company.
Director Compensation
For their services to the Company, non-employee directors receive an annual
retainer of $10,000, plus $750 for each Board and committee meeting attended
during the year. Directors who are employed by the Company do not receive
compensation for attendance at Board or committee meetings. Outside directors
are reimbursed for any expenses attendant to Board membership.
Pursuant to the Company's Directors' Option Plan, Messrs. Duncan, McGuinness
and Myerow were initially granted options to purchase 100,000, 150,000 and
190,000 shares, respectively, of Common Stock upon the consummation of the
Company's initial public offering in 1989. During fiscal years 1989--1998,
each non-employee director was automatically granted an option to purchase
25,000 additional shares of Common Stock on the day after the date of each
Meeting of Stockholders of the Company pursuant to the terms of the Company's
Directors' Option Plan. As of March 1, 1999, the Company's 1989 Directors'
Option Plan was replaced with the Company's 1998 Equity Incentive Plan. During
the Board's meeting on May 5, 1999, the Board voted unanimously to grant non-
employee directors options to purchase 25,000 additional shares of Common
Stock pursuant to the terms of the Company's 1998 Equity Incentive Plan. The
options granted on May 5, 1999 to non-employee directors were granted at their
fair market value on the date of grant, vest after a period of three years and
expire ten years from the grant date.
5
<PAGE>
Executive Compensation
The following table below discloses the compensation received by the
Company's Chief Executive Officer and the Company's other four most-highly
compensated executive officers for the fiscal years ended February 28, 1999,
February 29, 1998 and February 28, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
----------------------- ------------
Shares
Name and Principal Underlying All Other
Position Year Salary ($)(1) Bonus ($) Options Compensation ($)
------------------ ---- ------------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Craig R. Benson (2)..... 1999 52,000 -- -- --
Chairman, President, Chief 1998 52,000 -- -- --
Executive Officer and Treasurer 1997 52,000 -- -- --
Carl E. Boisvert (3).... 1999 130,924 206,730 125,000 34,556
Executive Vice President, Sales 1998 N/A N/A N/A N/A
1997 N/A N/A N/A N/A
John d'Auguste (4)...... 1999 312,748 115,625 100,000 22,212
President of Operations 1998 N/A N/A N/A N/A
1997 N/A N/A N/A N/A
Earle S. Humphreys (5).. 1999 138,462 177,750 100,000 39,748
Executive Vice President, 1998 N/A N/A N/A N/A
Global Services 1997 N/A N/A N/A N/A
David J. Kirkpatrick.... 1999 271,212 95,625 35,000 --
Corporate Executive Vice 1998 240,317 165,000 75,000 --
President of Finance and 1997 213,421 80,000 30,000 --
Chief Financial Officer
Donald B. Reed (6)...... 1999 61,853 -- -- 1,139,040
Former Chief Executive Officer 1998 216,346 25,000 800,000 --
1997 N/A N/A N/A N/A
</TABLE>
- ---------------------
(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) Mr. Benson has served as President and Chief Executive Officer since March
30, 1998. Mr. Benson resigned as Chairman, President, Chief Executive
Officer and Treasurer on June 3, 1999.
(3) Mr. Boisvert has served as Executive Vice President, Sales since October
1998 and his other compensation refers to relocation expenses.
(4) Mr. d'Auguste has served as President of Operations since December 1997
and his other compensation refers to relocation expenses.
(5) Mr. Humphreys has served as Executive Vice President, Global Services
since July 1998 and his other compensation refers to relocation expenses.
(6) Mr. Reed resigned as President and Chief Executive Officer of the Company
as of March 30, 1998. His other compensation refers to the severance
arrangement within his employment agreement.
6
<PAGE>
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 28, 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Number of % of Rates of Stock
shares Total Options Price Appreciation For
underlying Granted to Option Term(1)
options Employees in Per Share Expiration -----------------------
Name Granted(#) Fiscal Year Price($/sh) Date 5% 10%
- ---- ---------- ------------- ----------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Carl E. Boisvert 125,000 (2) 0.8% 8.2500 09/13/08 648,548 1,643,547
John d'Auguste 150,000 (a,3) 0.9% 7.2500 12/18/07 599,569 1,476,768
John d'Auguste 100,000 (b,4) 0.6% 7.2500 03/30/08 455,949 1,155,463
Earle S. Humphreys 100,000 (b,5) 0.6% 7.2500 07/13/08 455,949 1,155,463
David J. Kirkpatrick 7,000 (a,6) 0.0% 7.2500 12/31/04 17,260 39,157
David J. Kirkpatrick 20,000 (a,7) 0.1% 7.2500 10/08/05 59,030 137,564
David J. Kirkpatrick 30,000 (a,8) 0.2% 7.2500 10/17/06 103,847 248,731
David J. Kirkpatrick 40,000 (a,9) 0.3% 7.2500 10/26/07 159,885 393,805
David J. Kirkpatrick 35,000 (b,10) 0.2% 7.2500 01/07/08 159,582 404,412
</TABLE>
- ---------------------
(a) This option reprices an option originally granted in a prior fiscal year.
(b) This option was granted in the current fiscal year and repriced on
September 1, 1998.
(1) These potential realizable values are based on assumed rates of
appreciation required by applicable regulations of the SEC. The potential
realizable values stated are not discounted to present value.
(2) The option is exercisable at a rate of 25,000 shares on September 13, of
1999, 2000, 2001, 2002 and 2003.
(3) The option is exercisable in equal increments of 25,000 shares on
December 4, of 1998, 1999, 2000, 2001 and 50,000 shares on December 19,
2001.
(4) The option is exercisable at a rate of 8,333 shares on December 4 of
1998, 1999, 2000, 2001 and 33,333 shares on March 31 of 2001 and 2002.
(5) The option is exercisable in equal increments of 5,000 shares on December
4, 1998, 1999, 2000, 2001 and 20,000 shares on July 13 of 2001, 2002,
2003, and 2004.
(6) The option is exercisable at a rate of 1,750 shares on December 4 of
1998, 1999, 2000 and 2001.
(7) The option is exercisable at a rate of 4,000 shares on December 4 of
1998, 1999, 2000, 2001 and October 9, 2001.
(8) The option is exercisable at a rate of 4,500 shares on December 4 of
1998, 1999, 2000, 2001 and 6,000 shares on October 18 of 2001 and 2002.
(9) The option is exercisable at a rate of 4,000 shares on December 4 of
1998, 1999, 2000, 2001 and 8,000 shares on October 27 of 2001, 2002 and
2003.
(10) The option is exercisable at a rate of 1,750 shares on December 4 of
1998, 1999, 2000, 2001 and 7,000 shares on January 8 of 2001, 2002, 2003
and 2004.
7
<PAGE>
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 on the New York Stock Exchange at February
28, 1999 was $8.125 per share.
Aggregate Option Exercises in the Fiscal Year Ended
February 28, 1999 and February 28, 1999 Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Underlying in-the-Money
Shares Acquired Value Options at 2/28/99 Options at 2/28/99
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Carl E. Boisvert 0 0 25,000/100,000 0/0
John d'Auguste 0 0 33,334/216,666 29,167/189,583
Earle S. Humphreys 0 0 5,000/95,000 4,375/83,125
David J. Kirkpatrick 0 0 16,000/116,000 14,000/101,500
</TABLE>
Ten Year Option Repricing
At September 1, 1998, most employees (Directors' options were not eligible
for repricing) holding outstanding stock options to purchase Common Stock with
an exercise price exceeding $7.25 per share were given the right to have their
stock options canceled and reissued with an exercise price of $7.25 per share.
Pursuant to the terms of the September 1, 1998 repricing arrangement, all
vested and unexercised options and options scheduled to vest prior to January
1, 2000 were canceled and new options to purchase the Company's Common Stock
were granted with a vesting schedule equal to twenty-five percent (25%) per
year beginning on December 4, 1998. Vesting of new options granted in place of
canceled options which would have vested on or after January 1, 2000 will
occur exactly one (1) year later than those canceled options would have
vested, and the right(s) to exercise options will expire on the same date(s)
as the canceled options would have expired, but not earlier than December 31,
2004. The nature of the options granted was changed from incentive stock
options to non-qualified options.
8
<PAGE>
The following table depicts, for applicable executive officers, information
regarding repricing of stock options held by such executive officers on
September 1, 1998 and December 4, 1997.
<TABLE>
<CAPTION>
Length of
Exercise original option
Number of Market price price at term remaining
securities underlying at time of time of at date of
Repricing options/SARs repriced repricing or repricing or New exercise repricing or
Name Date or amended(#) amendment amendment Price ($) amendment
---- --------- --------------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John d'Auguste 09/01/98 150,000 $ 7.25 $13.8750 $ 7.25 9.3 years
John d'Auguste 09/01/98 100,000 $ 7.25 $14.5625 $ 7.25 9.6 years
Allen J. Finch 09/01/98 12,500 $ 7.25 $14.6875 $ 7.25 8.8 years
Allen J. Finch 09/01/98 5,000 $ 7.25 $14.6875 $ 7.25 9.2 years
Allen J. Finch 09/01/98 75,000 $ 7.25 $14.0000 $ 7.25 9.4 years
Allen J. Finch 09/01/98 50,000 $ 7.25 $14.5625 $ 7.25 9.6 years
Allen J. Finch 12/04/97 12,500 $14.6875 $30.7500 $14.6875 10.0 years
Allen J. Finch 12/04/97 5,000 $14.6875 $26.7500 $14.6875 10.0 years
Earle S. Humphreys 09/01/98 100,000 $ 7.25 $12.2500 $ 7.25 9.9 years
David J. Kirkpatrick 09/01/98 5,000 $ 7.25 $21.4750 $ 7.25 5.0 years
David J. Kirkpatrick 09/01/98 2,000 $ 7.25 $23.5630 $ 7.25 6.0 years
David J. Kirkpatrick 09/01/98 20,000 $ 7.25 $30.3750 $ 7.25 7.1 years
David J. Kirkpatrick 09/01/98 30,000 $ 7.25 $30.3750 $ 7.25 8.1 years
David J. Kirkpatrick 09/01/98 40,000 $ 7.25 $26.7500 $ 7.25 9.2 years
David J. Kirkpatrick 09/01/98 35,000 $ 7.25 $13.4375 $ 7.25 9.4 years
Piyush Patel 09/01/98 120,000 $ 7.25 $13.4900 $ 7.25 9.4 years
Linda F. Pepin 09/01/98 14,500 $ 7.25 $14.6875 $ 7.25 5.0 years
Linda F. Pepin 09/01/98 5,000 $ 7.25 $14.6875 $ 7.25 6.0 years
Linda F. Pepin 09/01/98 6,000 $ 7.25 $14.6875 $ 7.25 7.1 years
Linda F. Pepin 09/01/98 10,000 $ 7.25 $14.6875 $ 7.25 8.1 years
Linda F. Pepin 09/01/98 15,000 $ 7.25 $14.6875 $ 7.25 9.2 years
Linda F. Pepin 12/04/97 14,500 $14.6875 $21.4750 $14.6875 6.0 years
Linda F. Pepin 12/04/97 5,000 $14.6875 $23.5630 $14.6875 7.0 years
Linda F. Pepin 12/04/97 6,000 $14.6875 $30.3750 $14.6875 8.0 years
Linda F. Pepin 12/04/97 10,000 $14.6875 $30.3750 $14.6875 9.0 years
Linda F. Pepin 12/04/97 15,000 $14.6875 $26.7500 $14.6875 10.0 years
Michael A. Skubisz 09/01/98 35,000 $ 7.25 $14.6875 $ 7.25 6.0 years
Michael A. Skubisz 09/01/98 6,000 $ 7.25 $14.6875 $ 7.25 7.1 years
Michael A. Skubisz 09/01/98 10,000 $ 7.25 $14.6875 $ 7.25 8.1 years
Michael A. Skubisz 09/01/98 7,500 $ 7.25 $14.6875 $ 7.25 9.2 years
</TABLE>
9
<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 and the Company's 1998
Equity Incentive Plan except for grants of stock-based incentive awards to
named executive officers, in which case only Messrs. Duncan and McGuinness
participate in determining the recipients and terms of such grants.
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 computer
networking industry. This report is submitted by the Board of Directors and
addresses the Company's compensation policies for fiscal 1999 as they affected
the Company's executive officers.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits to $1 million the tax deduction a public company may claim in any
taxable year for compensation to the chief executive officer and the four
other most highly compensated executive officers unless certain conditions
related to such compensation are satisfied. Executive officer compensation in
fiscal 1999 was not affected by Section 162(m) because compensation levels
were below the threshold established by that statute, and the Board does not
expect Section 162(m) to affect executive compensation in the foreseeable
future.
Compensation for Mr. Benson
In determining the Company's executive compensation program the Board has
generally drawn a distinction between Mr. Benson, the Company's Chairman,
President, Chief Executive Officer and Treasurer for the last fiscal year, on
the one hand, and the Company's other executive officers on the other.
From September 1997 until March 1998, Mr. Benson served the Company as
Chairman of the Board and Treasurer. In connection with Mr. Reed's resignation
on March 30, 1998, Mr. Benson agreed to assume the position of President and
Chief Executive Officer of the Company. Prior to his becoming President and
Chief Executive Officer, Mr. Benson was Director of Operations of the Company
from November 1984 until April 1989 and Chairman, Chief Operating Officer
(until September 1997) and Treasurer thereafter. On June 3, 1999, Mr. Benson
resigned as Chairman, President, Chief Executive Officer and Treasurer of the
Company.
Mr. Benson currently owns 11.1% of the Company's outstanding Common Stock.
As the Company's principal stockholder, Mr. Benson has directly participated
in increasing the value of the Common Stock since its initial public offering.
Accordingly, in the past, the Board of Directors has determined that his cash
compensation may remain low, both absolutely and in relation to his
contribution to the Company's growth. Therefore, Mr. Benson's salary has not
increased since the Company's initial public offering. Mr. Benson's relatively
low salary is 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 Mr. Benson's
primary form of compensation for his leadership of the Company should be
derived from sales and increases in value of his Common Stock.
Compensation for Executive Officers other than Mr. Benson
The compensation program for the Company's executive officers other than Mr.
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.
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Compensation for the executive officers other than Mr. Benson consists of
base salary, an incentive cash bonus segment and a stock-based incentive
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. The Board does not formally weigh these factors.
Incentive cash bonuses are based on the Company's meeting or exceeding certain
specified financial targets which may include revenue and income growth, cost
cutting measures, inventory measures or similar types of targets. In fiscal
1999, the Company enhanced its management team and awarded bonuses to these
individuals that were 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 an exercise 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. Stock options are granted to key
employees, including the named executive officers, based on current
performance, anticipated future contribution based on such performance,
ability to contribute to the achievement of the Company's strategic goals and
objectives, awards generally made to persons in comparable positions in the
industry, as well as the individual's current level of Company stock holdings.
In fiscal 1999, 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, Messrs. Boisvert, d'Auguste, Humphreys and Kirkpatrick,
have 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 28, 1999." Current levels of
stock ownership are provided in the table entitled "Beneficial Ownership."
The Company maintains two broad-based, qualified employee stock purchase
plans to encourage employee ownership of Common Stock. Participation in the
Plans is generally open to all employees based upon the length of continuous
service with the Company. The plans allow participants to buy Common Stock at
a discount to the market price with up to 10% of their salaries, subject to a
maximum dollar value. In addition, the Company maintains an equity incentive
plan to encourage employee ownership of Common Stock. This plan allows the
Incentive Compensation Committee to issue awards.
Compensation Committee Interlocks and Insider Participation
During fiscal 1999, the law firm of Myerow & Poirier, of which Mr. Myerow is
a partner, from time to time provided legal services to the Company, for which
the Company paid such firm a total of approximately $223,458. The Company
expects to continue to retain the services of this firm from time to time
during fiscal 2000.
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
Michael D. Myerow*
Paul R. Duncan*
Donald F. McGuinness*
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* Member of Incentive Compensation Committee
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Report of the Incentive Compensation Committee
The Committee and Board of Directors, at a meeting held on September 1,
1998, unanimously voted to grant most employees (Directors' options were
excluded) holding incentive stock options with an exercise price above $7.25
per share the right to have their options canceled and reissued with non-
qualified stock options with a new exercise price of $7.25 per share. The
options were repriced at $7.25 per share, which was the then fair market value
of the Common Stock. All previously vested options were unvested and subject
to a new vesting schedule. All previously unvested options were rescheduled to
vest exactly one year later than the original options would have vested. In
taking this action, the Committee and the Board of Directors considered
numerous factors including the fact that stock options are viewed by
management and employees as a significant part of their compensation packages,
the potential impact on the retention of certain employees, possible dilution
of the Common Stock and the desire to improve the general morale of the
Company's workforce.
INCENTIVE COMPENSATION COMMITTEE
Paul R. Duncan
Donald F. McGuinness
Michael D. Myerow
Employment Agreements and Severance Arrangements
The Company does not regularly enter into written employment agreements with
its executive officers. However, in connection with the recruitment of Mr.
d'Auguste for the position of President of Operations, the Company entered
into an employment agreement effective as of April 1, 1998. Under the terms of
the employment agreement, Mr. d'Auguste is entitled to a base salary of
$300,000 per annum, subject to increase by the Board.
Under the agreement, Mr. d'Auguste is entitled to quarterly cash bonuses
upon growth in the Company's earnings per share. In addition, Mr. d'Auguste
received an option to purchase 100,000 shares of the Common Stock, which was
granted under the Company's 1989 Equity Incentive Plan. The options were
scheduled to become exercisable ratably upon the first, second and third
anniversaries of Mr. d'Auguste's employment. However, Mr. d'Auguste repriced
these options on December 4, 1998; therefore, the vesting schedule was changed
to 8,333 shares on December 4, of 1998, 1999, 2000, 2001 and 33,333 shares on
March 31 of 2001 and 2002.
Pursuant to the terms of the agreement, Mr. d'Auguste is also entitled to
participate in all other employee benefit plans of the Company that cover
executives generally and to reimbursement of expenses incurred in the
performance of his duties and responsibilities.
Mr. d'Auguste's employment agreement provides for an initial term of three
years, and for successive one year periods thereafter, unless terminated. In
the event that Mr. d'Auguste's employment is terminated without cause, Mr.
d'Auguste would be entitled to (i) a lump-sum cash payment equal to $600,000
and (ii) any other compensation, including bonus compensation, that has been
earned but not paid through the date of such termination. In addition, the
option to purchase 100,000 shares of Common Stock, which was granted to Mr.
d'Auguste pursuant to his employment agreement, would become immediately
exercisable in full. Further, the employment agreement provides that if any
person other than Mr. d'Auguste or Mr. Bensen is hired as President of the
Company, the Company shall pay Mr. d'Auguste a lump-sum cash payment equal to
$600,000. If the Company makes this $600,000 payment it is not obligated to
make the $600,000 payment described above upon termination of Mr. d'Auguste's
employment.
In connection with the recruitment of Mr. Reed for the position of President
and Chief Executive Officer, the Company entered into an employment agreement
effective as of September 1, 1997. Under the terms of the employment
agreement, Mr. Reed was entitled to a base salary of $450,000 per annum,
subject to increase by the Board. Mr. Reed also received a signing bonus of
$250,000.
Under the agreement, Mr. Reed was entitled to quarterly cash bonuses based
upon growth in the Company's earnings per share. In addition, Mr. Reed
received an option to purchase 600,000 shares of
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the Common Stock, which was granted under the Company's 1989 Equity Incentive
Plan. The option was scheduled to become exercisable with respect to 150,000
shares on each of the first, second and third anniversaries of Mr. Reed's
employment and with respect to 75,000 shares on each of the fourth and fifth
anniversaries of Mr. Reed's employment.
The employment agreement also provided that the Company would reimburse Mr.
Reed for reasonable relocation expenses and up to $25,000 for temporary living
expenses in New Hampshire. Under the agreement, Mr. Reed was also entitled to
participate in all other employee benefit plans of the Company that cover
executives generally and for reimbursement of expenses incurred in the
performance of his duties and responsibilities.
Mr. Reed's employment agreement provided for an initial term of three years,
and for continuation for successive one year periods thereafter, unless
terminated. In the event that Mr. Reed's employment was terminated without
cause, Mr. Reed would be entitled to (i) a lump-sum payment equal to the
greater of the amount of his base salary for the remainder of the term of
employment and $450,000, (ii) continuation of other compensation benefit for
the remainder of the term of employment and (iii) all other earned but unpaid
compensation. In addition, any stock options held by Mr. Reed would become
immediately exercisable in full.
Upon Mr. Reed's resignation on March 30, 1998, Mr. Reed's employment
agreement was terminated. At the time of his resignation, in accordance with
his employment agreement, Mr. Reed received a lump-sum cash payment of
$1,125,000, which equaled the amount of Mr. Reed's base salary due for the
remainder of his employment term. In addition, as part of his severance
package, the vesting schedule of Mr. Reed's stock options (which included the
600,000 options granted under his employment agreement and 200,000 options
granted in January 1998) was accelerated and all such options became
immediately exercisable in full. In connection with Mr. Reed's resignation,
the Company agreed to retain Mr. Reed as a consultant to the Chief Executive
Officer for a period of six months and paid Mr. Reed a retainer of $8,334 per
month. The Company currently has no continuing obligations under the
employment agreement.
The Company has not entered into employment agreements with any other named
executive officers.
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Comparison of Stockholder Return
The graph below compares cumulative total stockholder returns for the Company
for the preceding five fiscal years with the S&P 500 Index and the S&P
Communication-Equipment/Manufacturer Index. The graph assumes the investment of
$100 at the commencement of the measurement period with dividends reinvested.
Comparison of 5 Year Cumulative Total Return, from February 28, 1994 Through
February 28, 1999
(Graph Appears Here)
Cumulative Total Return
<TABLE>
<CAPTION>
2/94 2/95 2/96 2/97 2/98 2/99
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cabletron Systems, Inc............................ 100 79 150 121 62 33
S & P 500......................................... 100 107 145 182 246 295
S & P Communications Equipment Index.............. 100 113 187 208 302 453
</TABLE>
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.
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<PAGE>
2. APPROVAL OF AMENDMENT TO THE 1989 EMPLOYEE STOCK PURCHASE PLAN
The 1989 Employee Stock Purchase Plan (the "1989 Purchase Plan") was
designed to enhance the Company's ability to attract and retain employees. As
of the record date, employees had purchased 1,942,663 shares of Common Stock
under the 1989 Purchase Plan, leaving 557,337 shares available for future
purposes.
On June 3, 1999, the Board of Directors, subject to shareholder approval,
voted to approve an amendment to the 1989 Purchase Plan in order to increase
the number of shares of Common Stock available for grant thereunder from
2,500,000 to 4,000,000. The Board of Directors believes that this increase is
necessary in order to provide sufficient shares to continue to attract, retain
and provide incentive compensation to employees.
The 1989 Purchase Plan is administered by the Board of Directors.
Participation in the 1989 Purchase Plan is generally open to all employees of
the Company after six months of continuous employment, other than those
employees owning 5% or more of the Common Stock. It allows participants to buy
shares of Common Stock at a discount to the market price with between 2% to
10% of their pay, subject to a maximum dollar value. Purchases may occur twice
a year, at the end of designated 26 week periods. The purchase price for
shares of Common Stock under the 1989 Purchase Plan is 85% of the lesser of
(a) the value of the Common Stock at the beginning of the purchase period and
(b) the value of the Common Stock when the shares of Common Stock are
purchased by the participant.
The Company may amend the 1989 Purchase Plan at any time upon a vote by the
Board of Directors provided that such amendment does not adversely affect the
rights of the participants. In addition, any amendment relating to the
aggregate number of shares of Common Stock to be issued under the 1989
Purchase Plan must be approved by the shareholders within 12 months before or
after its adoption.
The following discussion summarizes certain federal income tax consequences
of participation in the 1989 Purchase Plan, based on the law as currently in
effect and assuming continued qualification of the 1989 Purchase Plan under
Section 423 of the Internal Revenue Code of 1986 (the "Code"). The summary
does not purport to be a complete description of federal income tax aspects of
the 1989 Purchase Plan. Moreover, the summary does not discuss possible
foreign, state, estate, employment or other tax consequences.
Neither enrollment in, nor the purchase of stock pursuant to, the 1989
Purchase Plan produces taxable ordinary income to the employee or a deduction
to the Company. However, pay that is withheld under the 1989 Purchase Plan for
application toward the purchase of shares at the end of a purchase period is
taxed when earned.
If a participant sells or otherwise disposes of shares of Common Stock
purchased under the 1989 Purchase Plan after having held the shares for the
two-year period beginning with the first day of the purchase period in which
the shares were purchased, or dies at any time while holding the shares, the
participant will have ordinary income equal to the lesser of (i) the excess of
the fair market value of the shares at the time of sale (or death) over the
price paid for the shares, or (ii) 15% of the value of the shares at the
beginning of the purchase period. The Company will not be entitled to a
deduction for this amount. If the participant sells or otherwise disposes of
any shares of Common Stock during the two-year period described above, the
participant will have ordinary income equal to the excess of the fair market
value of the shares on the last day of the purchase period over the price paid
for the shares. The Company will be entitled to claim a deduction for this
amount provided it satisfies applicable reporting requirements.
The proposed amendment will not take effect unless it is approved by the
affirmative vote of the holders of at least a majority of the votes cast at
the Meeting. The Board of Directors believes that this amendment to the 1989
Purchase Plan is in the best interests of the Company and its stockholders and
recommends a vote "FOR" Proposal 2.
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<PAGE>
3. APPROVAL OF AMENDMENT TO THE 1998 EQUITY INCENTIVE PLAN
The 1998 Equity Incentive Plan (the "1998 Incentive Plan") was adopted by
the Board of Directors and the shareholders in July of 1998. It was
established to enable the Company to attract and retain key employees and
other persons or entities who are in a position to make significant
contributions to the success of the Company and its subsidiaries, through
ownership of shares of Common Stock of the Company. The 1998 Incentive Plan is
administered by the Incentive Compensation Committee of the Board of
Directors. As of June 7, 1999, there were outstanding options to purchase
4,284,000 shares of Common Stock and 3,216,000 shares remained available for
grant.
On June 3, 1999, the Board of Directors, subject to shareholder approval,
voted to approve an amendment to the 1998 Incentive Plan to increase the
number of shares of Common Stock available for grant thereunder from 7,500,000
to 14,500,000. The Board of Directors believes that an increase in the number
of shares of Common Stock under the 1998 Incentive Plan is needed in order to
provide sufficient shares to continue to attract and retain key employees.
The exercise price of an incentive stock option (an "ISO") granted under the
1998 Incentive Plan may not be less than 100% (110% in the case of owners of
more than 10% of the Common Stock) of the fair market value of the Common
Stock at the time of grant. The exercise price of a nonstatutory option
granted under the 1998 Incentive Plan may not be less than 50% of such fair
market value. The term of each option may be set by the Incentive Compensation
Committee but cannot exceed ten years from grant (five years from grant in the
case of an ISO granted to someone owning more than 10% of the Common Stock),
and each option is exercisable at such time or times as the Incentive
Compensation Committee specifies. The option price may be paid in cash, by
check, bank draft or money order, or, if permitted by the Incentive
Compensation Committee and subject to certain additional limitations, by
tendering shares of Common Stock held for at least six months, by use of a
promissory note or by delivery of an undertaking by a broker to deliver the
option price. The 1998 Incentive Plan limits to 2,000,000 the maximum number
of shares for which stock options may be awarded to any participant during any
three-year period.
Stock appreciation rights ("SARs") may be granted under the 1998 Incentive
Plan either alone or in tandem with stock option grants. Each SAR entitles the
holder on exercise to receive an amount in cash or Common Stock or a
combination thereof (such form to be determined by the Incentive Compensation
Committee) determined in whole or in part by reference to appreciation in the
fair market value of a share of Common Stock. SARs may be based solely on the
appreciation in the fair market value of the Common Stock or a comparison of
such appreciation with some other measures of market growth. If an SAR is
granted in tandem with an option, the SAR will be exercisable only to the
extent the option is exercisable. To the extent the option is exercised, the
accompanying SAR will cease to be exercisable, and vice versa. The 1998
Incentive Plan limits to 2,000,000 the maximum number of shares for which SARs
may be awarded to any participant in any three-year period.
The 1998 Incentive Plan also provides for awards of nontransferable shares
of restricted Common Stock subject to forfeiture as well as of unrestricted
shares of Common Stock. Except as otherwise determined by the Incentive
Compensation Committee, shares of restricted Common Stock may not be
transferred until the end of the applicable restriction period and the
satisfaction of any other conditions established by the Incentive Compensation
Committee.
The Incentive Compensation Committee may grant other types of awards under
which stock is or may in the future be acquired. The 1989 Incentive Plan
provides that the Incentive Compensation Committee may impose the condition
that performance goals be met prior to the realization of any vesting, payment
or benefit under an award. The Incentive Compensation Committee may also
entitle a participant to receive an amount in cash upon the attainment of
specified performance goals. In the case of performance-based awards intended
to qualify for the performance-based compensation exception to the $1,000,000
deduction limitation under Section 162(m) of the Code, benefits under the
award must be conditioned upon the attainment of preestablished performance
goals or measures that are based on specified performance criteria approved by
the stockholders of the Company in 1998. The
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maximum number of shares subject to performance awards (other than cash
incentives) awarded under the 1998 Incentive Plan to any participant during
any three-year period is 2,000,000. The maximum performance-based cash
incentives payable under the 1998 Incentive Plan to any participant for any
year is $1,000,000.
The Incentive Compensation Committee may amend or terminate the 1998
Incentive Plan at any time; however, if shareholder approval is required by
the Code, no amendment will be effective to effectuate a change to the 1998
Incentive Plan until shareholder approval is received.
In the case of a merger, consolidation or other change of control
transaction, all outstanding awards will terminate. The Incentive Compensation
Committee, may in its discretion, prior to the effective date of the
transaction, cause unvested awards to vest, remove performance conditions,
remove restrictions, provide for replacement awards, or arrange to have the
surviving or acquiring entity assume the awards.
The following discussion summarizes certain federal income tax consequences
of the issuance and receipt of options under the 1998 Incentive Plan. The
summary does not purport to cover federal employment tax or other federal tax
consequences that may be associated with the 1998 Incentive Plan, nor does it
cover state, local or foreign taxes.
Incentive Stock Options. In general, an optionee realizes no taxable income
upon the grant or exercise of an ISO. However, the exercise of an ISO may
result in an alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an ISO within two years
from the date of grant or within one year after exercise produces ordinary
income to the optionee (and a deduction to the Company) equal to the value of
the shares at the time of exercise less the exercise price. Any additional
gain recognized in the disposition is treated as a capital gain for which the
Company is not entitled to a deduction. If the optionee does not dispose of
the shares until after the expiration of these one and two-year holding
periods, any gain or loss recognized upon a subsequent sale is treated as a
long-term capital gain or loss for which the Company is not entitled to a
deduction.
Nonstatutory Options ("non-ISO"). In general, in the case of a non-ISO, the
optionee has no taxable income at the time of grant but realizes income in
connection with exercise of the option in an amount equal to the excess (at
the time of exercise) of the fair market value of the shares acquired upon
exercise over the exercise price. A corresponding deduction is available to
the Company. Any gain or loss recognized upon a subsequent sale or exchange of
the shares is treated as capital gain or loss for which the Company is not
entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment is treated as a non-ISO. (Special rules apply in the
case of permanent disability or death.) ISOs are also treated as non-ISOs to
the extent that, in the aggregate, they first become exercisable by an
individual in any calendar year for shares having a fair market value
(determined as of the date of grant) in excess of $100,000.
In the event of a change in control of the Company, certain payments in the
nature of compensation to certain individuals, if contingent on the change in
control, could be nondeductible to the Company and subject to an additional
20% tax. Awards under the 1998 Incentive Plan that are made or that vest or
become payable in connection with a change in control may be required to be
taken into account in determining whether these penalties apply.
Under Section 162(m) of the Code, certain remuneration in excess of
$1,000,000 may be nondeductible if paid by a publicly traded corporation to
any of its chief executive officer or other four most highly compensated
officers. Option awards under the 1998 Incentive Plan are intended to be
eligible for exemption from the Section 162(m) deduction limit.
The proposed amendment to the 1998 Inventive Plan will not take effect
unless it is approved by the affirmative bote of the holders of at least a
majority of the votes cast at the Meeting. The Board of Directors believes
that this amendment to the 1998 Incentive Plan is in the best interest of the
Company and its stockholders and recommends a vote "FOR" Proposal 3.
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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 nominee for election as director at the Meeting will be elected if he
receives a plurality of votes properly cast. The election inspectors will
count the total number of votes cast "for" approval of this proposal for the
purposes of determining whether sufficient affirmative votes have been cast.
The election inspectors will count shares represented by proxies that withhold
authority to vote a nominee for election as a director 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 election of
Directors.
For purposes of the proposals to amend the 1989 Purchase Plan and the 1998
Incentive Plan (i) abstentions are considered in determining the number of
votes required to obtain a majority of the shares present and entitled to vote
and will have the same effect as votes that are against the proposal and (ii)
broker non-votes are not considered shares entitled to vote on the matter and
accordingly will not affect the outcome of the vote.
CERTAIN TRANSACTIONS
See the discussion under the caption "Compensation Committee Interlocks and
Insider Participation" relating to Mr. Myerow.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors has selected the firm of KPMG LLP, independent
auditors, as auditors for the Company for the fiscal year ending February 28,
2000. A representative of KPMG 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 2000 Annual
Meeting of Stockholders must be received by the Company not later than March
11, 2000 in order to be considered for inclusion in the Company's proxy
materials for that meeting.
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
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 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 Form 5s were
required for those persons, the Company
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believes that during the fiscal year ended February 28, 1999, all filing
requirements were timely satisfied except that Ms. Pepin and Messrs.
d'Auguste, Finch, Kirkpatrick and Skubisz each filed a Form 5 late. In
addition, the Forms 3 and 5 for each of Messrs. Boisvert, Fiallo, Humphreys
and Patel will, upon filing, be late.
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.
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DIRECTIONS to the FRANK JONES CENTER
INTERSTATE 95 (NORTH) take exit 5 and enter the Portsmouth traffic circle.
Take the first exit off the traffic circle (Route 1 South). At the second
traffic light (less than 1/2 a mile) take a left. Continue down this road to
the parking area. Bear right towards the Frank Jones Center.
INTERSTATE 95 (SOUTH) take exit 5 and stay right as you come off the exit.
This road will take you under Interstate 95. As you come to the Portsmouth
traffic circle get into the left lane. Enter the traffic circle and take the
second exit off the circle (Route 1 South). At the second traffic light (less
than 1/2 a mile) take a left. Continue down this road to the parking area.
Bear right towards the Frank Jones Center.
SPAULDING TURNPIKE (SOUTH). After you pass the Pease Tradeport stay in the
left most lanes. As you come to the Portsmouth traffic circle get into the
left lane. Enter the traffic circle and take the second exit off the circle
(Route 1 South). At the second traffic light (less than 1/2 a mile) take a
left. Continue down this road to the parking area. Bear right towards the
Frank Jones Center.
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[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------
CABLETRON SYSTEMS, INC.
- --------------------------------
CONTROL NUMBER:
RECORD DATE SHARES:
------------------------
Please be sure to sign and date this Proxy. Date
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- -Stockholder sign here----------------Co-owner sign here-------------
1. Election of Director: For the With-
Nominee hold
Michael D. Myerow [ ] [ ]
For Against Abstain
2. Amendment to the Company's 1989 Employee [ ] [ ] [ ]
Stock Purchase Plan.
For Against Abstain
3. Amendment to the Company's 1998 Equity [ ] [ ] [ ]
Incentive Plan.
Mark box at right if an address change or comment has been noted on [ ]
the reverse side of this card.
DETACH CARD DETACH CARD
CABLETRON SYSTEMS, INC.
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are discussed
in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, July 13,
1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Cabletron Systems, Inc.
<PAGE>
CABLETRON SYSTEMS, INC.
Proxy for the Meeting of Stockholders, July 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Craig R. Benson attorney and proxy, with full
power of substitution, to represent and to vote at the Annual Meeting of
Stockholders of Cabletron Systems, Inc. (the "Company") to be held at The Frank
Jones Center, 300 Route One By-Pass, Portsmouth, New Hampshire 03801, on July
13, 1999 at 10:00 a.m., and at any and all adjourned sessions thereof, all
shares of Common Stock of the Company which the undersigned could vote, if
present, in such manner as the proxy determines on any matters which may
properly come before the meeting and to vote on the following, as specified
below, on the reverse side hereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEE FOR DIRECTOR, FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1989
EMPLOYEE STOCK PURCHASE PLAN AND FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S
1998 EQUITY INCENTIVE PLAN. THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE AND FOR THE MATTERS SPECIFIED
ON THE REVERSE HEREOF.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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