<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 2000
REGISTRATION NO. 333-47854
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CABLETRON SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3577 04-2797263
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
35 INDUSTRIAL WAY
ROCHESTER, NEW HAMPSHIRE 03867
(603) 332-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID J. KIRKPATRICK
CORPORATE EXECUTIVE VICE PRESIDENT
OF FINANCE AND CHIEF FINANCIAL OFFICER
35 INDUSTRIAL WAY
ROCHESTER, NEW HAMPSHIRE 03867
(603) 332-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID B. WALEK, ESQ. ARTHUR I. ANDERSON, P.C.
ROPES & GRAY MCDERMOTT, WILL & EMERY
ONE INTERNATIONAL PLACE 28 STATE STREET
BOSTON, MASSACHUSETTS 02110-2624 BOSTON, MASSACHUSETTS 02109-1775
(617) 951-7000 (617) 535-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the merger referred to herein.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INDUS RIVER NETWORKS, INC.
31 NAGOG PARK
ACTON, MASSACHUSETTS 01720
(978) 266-8100
November , 2000
Dear Indus River Networks Stockholder:
You are cordially invited to attend our special meeting of stockholders on
, December , 2000, at 10:00 a.m., local time, at the offices of
McDermott, Will & Emery, 28 State Street, 34th Floor, Boston, Massachusetts
02109.
At the special meeting, we will ask you to vote on the merger of Indus
River and Cabletron Systems, Inc. Cabletron will issue an aggregate of 4,000,000
shares of Cabletron common stock and 50,000 shares of Cabletron series C
preferred stock in exchange for all of the shares of Indus River preferred
stock, Indus River common stock, and all options and warrants to purchase Indus
River stock. Holders of additional options granted in exchange for the
forfeiting of acceleration rights and some options granted to some employees
hired by Indus River after August 18, 2000 with Cabletron's consent will not
receive any Cabletron stock for these options.
In the merger, you will receive a number of shares of Cabletron series C
preferred stock and Cabletron common stock for each share of Indus River
preferred stock and Indus River common stock that you own. The exact exchange
rate will not be known until five trading days before the closing date of the
merger because it depends on the average closing price of Cabletron common stock
for the ten trading days ending on and including the fifth trading day before
the closing of the merger, and the fair market value of Cabletron series C
preferred stock determined as of the fifth trading day before the closing date
of the merger by an appraisal, both of which may fluctuate.
Based on an average closing price of $ per share of Cabletron common
stock for the ten trading days ending on and including November , 2000 and an
appraised value of $ per share of Cabletron series C preferred stock as of
November , 2000, and assuming the closing of the merger occurs on December ,
2000 and a warrant to purchase 60,847 shares of Indus River series D preferred
stock is not exercised before the merger:
- each holder of Indus River series A preferred stock would receive
shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by that holder;
- each holder of Indus River series B preferred stock would receive
shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by that holder;
- each holder of Indus River series C preferred stock would receive
shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive shares of Cabletron series C preferred stock
and shares of Cabletron common stock for each share of Indus
River series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive shares of Cabletron series C preferred stock
and shares of Cabletron common stock for each share of Indus
River series D preferred stock held by that holder; and
<PAGE> 3
- each holder of Indus River common stock would receive shares of
Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron series C preferred stock that you would be entitled to receive in the
merger.
The Cabletron series C preferred stock may be converted into Cabletron
common stock at the option of the holder at any time after the earliest of:
- a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus
River after the merger, after the first anniversary of the date the
Cabletron series C preferred stock is issued;
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for a spin-off of Enterasys before the
first anniversary of the date the Cabletron series C preferred stock is issued,
and that spin-off is to be completed before that anniversary, then the Cabletron
series C preferred stock may be converted into Cabletron common stock at the
option of the holder immediately before the spin-off.
The Cabletron series C preferred stock may be redeemed at the option of the
holder immediately before the first to occur of:
- a spin-off of Enterasys after the first anniversary of the date the
Cabletron series C preferred stock is issued and before the second
anniversary of the issuance of the stock; and
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys before the second anniversary of the date the
Cabletron series C preferred stock is issued.
In a spin-off of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in shares of Enterasys stock.
In a change of control of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in securities or assets of the
surviving corporation immediately after the change of control of Enterasys.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, holders of Cabletron series C preferred stock will not be able to redeem
their shares of Cabletron series C preferred stock in the spin-off. However,
they will be able to convert their shares into Cabletron common stock before the
spin-off. If Cabletron begins a transaction resulting in a change of control of
Enterasys before the first anniversary of the date the Cabletron series C
preferred stock is issued, holders of Cabletron series C preferred stock will be
able to redeem or convert their shares of Cabletron series C preferred stock in
that transaction.
If Cabletron conducts a spin-off of Enterasys after the first anniversary
of the date the Cabletron series C preferred stock is issued, holders of
Cabletron series C preferred stock will be able to redeem or convert their
shares of Cabletron series C preferred stock in the spin-off.
The terms of the Cabletron series C preferred stock will provide for a more
favorable exchange ratio for redemption of the Cabletron series C preferred
stock compared to the exchange ratio for conversion of the stock if the holders
are able to choose between the two options.
Cabletron is not obligated to conduct a spin-off of Enterasys or other
disposition of Enterasys. If Cabletron does not do so, then holders of the
Cabletron series C preferred stock will not be able to exercise the redemption
right, and will not be able to exercise any conversion right until the second
anniversary of the
<PAGE> 4
date the Cabletron series C preferred stock is issued. A more detailed
description of the Cabletron series C preferred stock is contained in the
accompanying proxy statement/prospectus.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the Indus River preferred stockholders and
founders will be placed in an escrow account to secure the indemnification
obligations of those Indus River stockholders under the merger agreement. All of
the Cabletron series C preferred stock issued in the merger will be held in an
escrow account for up to 30 months to facilitate any conversion or redemption of
that stock which may occur within 24 months of the closing. If, after this
30-month period, there has been no redemption or conversion of the shares of
Cabletron series C preferred stock, then those shares will be distributed to the
stockholders who are entitled to receive them.
Cabletron common stock is listed on the New York Stock Exchange under the
trading symbol "CS" and on , 2000, Cabletron common stock closed at
$ per share. The Cabletron series C preferred stock will not be listed on
any securities exchange and there is no existing trading market for the
Cabletron series C preferred stock. The shares of Cabletron series C preferred
stock will not be transferable except under the laws of descent and distribution
or to the partners of any stockholder which is an entity.
Cabletron and Indus River plan to treat the merger as a tax-free
reorganization for federal income tax purposes. After the merger, Cabletron
plans to transfer all of the stock in Indus River to its subsidiary, Enterasys.
Although Cabletron has announced its desire to establish its four operating
subsidiaries, including Enterasys, as an independent company, Cabletron is not
obligated to do so and continues to consider several possibilities for
Enterasys, including retaining Enterasys as a subsidiary of Cabletron. Depending
on if, and when, Cabletron conducts a spin-off or other disposition of
Enterasys, the IRS may attempt to combine the merger with that other
transaction, and take the position that the merger does not qualify as a
tax-free organization. If the IRS were successful, you would recognize gain or
loss for federal income tax purposes based on the difference between the fair
market value of the Cabletron common stock and Cabletron series C preferred
stock you received and the tax basis of the Indus River stock that you exchanged
for the Cabletron common stock and the Cabletron series C preferred stock. A
more detailed analysis of the material federal income tax consequences of the
merger is discussed in the accompanying proxy statement/prospectus.
Holders of Indus River stock who properly comply with statutory
requirements will be entitled to an appraisal under Delaware law if the merger
is completed.
Completion of the merger requires the approval of the holders of a majority
of the outstanding shares of Indus River common and preferred stock, voting
together as a single class, and the holders of two-thirds of the outstanding
shares of the Indus River convertible preferred stock, voting as a separate
class.
A number of Indus River stockholders have entered into a voting agreement
with Cabletron, and have agreed to vote their shares of Indus River stock for
adoption of the merger agreement. These stockholders have also granted to a
Cabletron representative an irrevocable proxy and a power of attorney to vote
its shares of Indus River stock for adoption of the merger agreement. On the
record date, these stockholders in the aggregate owned and were entitled to
vote:
- 86.3% of the Indus River preferred stock and Indus River common stock,
voting together as a single class; and
- 95.5% of the Indus River preferred stock, voting as a separate class.
Only stockholders who hold shares of Indus River stock at the close of
business on , 2000 will be entitled to vote at the special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON
PAGE 13 OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS BEFORE VOTING. PLEASE REVIEW
CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS.
<PAGE> 5
AFTER CAREFUL CONSIDERATION, INDUS RIVER'S BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS UNANIMOUSLY DETERMINED THAT THE
MERGER IS ADVISABLE AND IS FAIR TO YOU AND IN YOUR BEST INTERESTS AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
Please complete, sign and return your proxy card. Please do not send any
stock certificates at this time. Thank you for your cooperation.
Sincerely,
--------------------------------------
Per A. Suneby,
President
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in the proxy
statement/prospectus or the Cabletron common stock and Cabletron series C
preferred stock to be issued in the merger, or determined if the proxy
statement/prospectus is accurate or adequate. Any representation to the contrary
is a criminal offense.
THE PROXY STATEMENT/PROSPECTUS IS DATED , 2000,
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT , 2000.
<PAGE> 6
INDUS RIVER NETWORKS, INC.
31 NAGOG PARK
ACTON, MASSACHUSETTS 01720
(978) 266-8100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER , 2000
To the Stockholders of Indus River Networks, Inc.:
We will hold a special meeting of the stockholders of Indus River Networks,
Inc. on , December , 2000, at 10:00 a.m., local time, at the offices of
McDermott, Will & Emery, 28 State Street, Boston, 34th Floor, Massachusetts
02109 to consider and vote upon a proposal to adopt the merger agreement among
Cabletron Systems, Inc., Acton Acquisition Co., a wholly owned subsidiary of
Cabletron, and Indus River.
Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock, and
all options and warrants to purchase Indus River stock. Holders of additional
options granted in exchange for the forfeiting of acceleration rights and some
options granted to some employees hired by Indus River after August 18, 2000
with Cabletron's consent will not receive any Cabletron stock for these options.
Under the merger agreement, each outstanding share of Indus River common
stock and Indus River preferred stock will be converted into a number of shares
of Cabletron series C preferred stock and Cabletron common stock. The exact
exchange rate will not be known until five trading days before the closing date
of the merger because it depends on the average closing price of Cabletron
common stock for the ten trading days ending on and including the fifth trading
day before the closing of the merger, and the fair market value of Cabletron
series C preferred stock determined as of the fifth trading day before the
closing date of the merger by an appraisal, both of which may fluctuate.
Based on an average closing price of $ per share of Cabletron common
stock for the ten trading days ending on and including November , 2000 and an
appraised value of $ per share of Cabletron series C preferred stock as of
November , 2000, and assuming the closing of the merger occurs on December ,
2000 and a warrant to purchase 60,847 shares of Indus River series D preferred
stock is not exercised before to the merger:
- each holder of Indus River series A preferred stock would receive
shares of Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River series A preferred stock held
by that holder;
- each holder of Indus River series B preferred stock would receive
shares of Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River series B preferred stock held
by that holder;
- each holder of Indus River series C preferred stock would receive
shares of Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River series C preferred stock held
by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River
series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River
series D preferred stock held by that holder; and
<PAGE> 7
- each holder of Indus River common stock would receive shares of
Cabletron series C preferred stock and shares of Cabletron common
stock for each share of Indus River common stock held by that holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron series C preferred stock that you would be entitled receive in the
merger.
Although we know of no other matters that are expected to come before the
special meeting, the stockholders of Indus River may transact any other business
that may properly come before the meeting.
Only holders of record of shares of Indus River common stock and Indus
River preferred stock at the close of business on , 2000, the record
date for the special meeting, are entitled to notice of, and to vote at, the
special meeting and any adjournments or postponements of it.
We cannot complete the merger unless the merger agreement is adopted by
holders of a majority of the outstanding shares of Indus River common stock and
Indus River preferred stock, voting together as a single class, and holders of a
majority of the outstanding shares of Indus River preferred stock, voting
together as a single class.
Holders of Indus River stock who properly comply with statutory
requirements are entitled to an appraisal of their shares under Delaware law.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX A TO THE PROXY
STATEMENT/PROSPECTUS.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY VOTE IN PERSON AT THE SPECIAL MEETING, EVEN IF
YOU HAVE RETURNED A PROXY CARD. IF YOU DO NOT VOTE BY PROXY OR IN PERSON AT THE
SPECIAL MEETING, IT WILL COUNT AS A VOTE AGAINST THE MERGER AGREEMENT.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
By Order of the Board of Directors,
--------------------------------------
Per A. Suneby
Secretary
Acton, Massachusetts
November , 2000
<PAGE> 8
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Cabletron from documents that are not included in or
delivered with this proxy statement/prospectus. This information is available to
you without charge upon your request. You can obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them in writing or by
telephone from Cabletron at:
CABLETRON SYSTEMS, INC.
INVESTOR RELATIONS
35 INDUSTRIAL WAY
ROCHESTER, NEW HAMPSHIRE 03867
(603) 332-9400
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY , 2000
TO RECEIVE THEM BEFORE THE INDUS RIVER SPECIAL MEETING.
See "Where You Can Find More Information" on page 81.
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 6
General................................................... 6
The Companies............................................. 9
Stock Prices and Dividends................................ 10
The Special Meeting....................................... 10
Selected Historical Financial Data -- Cabletron........... 12
RISK FACTORS................................................ 13
Risk Factors Relating to the Merger....................... 13
Risk Factors Relating to the Cabletron Series C Preferred
Stock.................................................. 13
Risk Factors Relating to Cabletron........................ 14
Risk Factors Relating to Indus River...................... 18
THE COMPANIES............................................... 20
Indus River Networks, Inc. ............................... 20
Cabletron Systems, Inc. .................................. 20
THE SPECIAL MEETING......................................... 21
Date, Time and Place...................................... 21
Purpose of Special Meeting................................ 21
Record Date; Stock Entitled to Vote; Quorum............... 21
Vote Required............................................. 22
Stockholder Agreements.................................... 22
Voting of Proxies......................................... 23
Revocability of Proxies................................... 23
Solicitation of Proxies................................... 23
Appraisal Rights.......................................... 23
THE MERGER.................................................. 24
Background to the Merger.................................. 24
Reasons for the Merger and Board of Directors
Recommendation......................................... 27
Appraisals of Cabletron Series C Preferred Stock by Adams,
Harkness & Hill, Inc. ................................. 28
Interests of Indus River Directors, Management and
Employees in the Merger................................ 32
Stock Options and Restricted Stock Agreements............. 33
Accounting Treatment...................................... 34
Form of the Merger........................................ 35
Merger Consideration...................................... 35
Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares........................ 36
Effective Time of the Merger.............................. 38
Stock Exchange Listing of Cabletron Common Stock.......... 38
Employment Agreements..................................... 38
Significant United States Federal Income Tax Consequences
of the Merger.......................................... 38
Government Filings........................................ 41
Rights of Stockholders to Appraisals...................... 41
Appraisal Rights Procedures............................... 42
Resale of Cabletron Common Stock and Cabletron Series C
Preferred Stock........................................ 44
THE MERGER AGREEMENT........................................ 45
Conditions to the Completion of the Merger................ 45
No Solicitation........................................... 46
Termination............................................... 47
Conduct of Business Pending the Merger.................... 48
Amendment, Extension and Waiver........................... 49
Fees and Expenses......................................... 49
</TABLE>
i
<PAGE> 10
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PAGE
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<S> <C>
Representations and Warranties............................ 49
Additional Agreements..................................... 51
Indemnification and Insurance............................. 51
Amendments to Indus River's Certificate of
Incorporation.......................................... 51
Amendments to Indus River's By-Laws....................... 51
Indemnification and Escrow Agreement...................... 51
STOCK PRICES AND DIVIDENDS.................................. 54
DESCRIPTION OF CABLETRON CAPITAL STOCK...................... 56
Preferred Stock........................................... 56
Warrants, Options and Put Rights.......................... 66
COMPARISON OF RIGHTS OF SERIES C PREFERRED AND COMMON
STOCKHOLDERS OF CABLETRON AND STOCKHOLDERS OF INDUS
RIVER..................................................... 66
Capitalization............................................ 67
Voting Rights............................................. 67
Voting Requirement and Quorums for Stockholder Meetings... 67
Number of Directors....................................... 68
Board Classification...................................... 68
Nomination and Election of Directors...................... 68
Removal of Directors...................................... 69
Newly Created Directorships and Vacancies................. 69
Amendments to Certificate of Incorporation................ 70
Amendments to By-Laws..................................... 70
Stockholder Action........................................ 70
Special Stockholder Meetings.............................. 71
Limitation of Personal Liability of Directors and
Indemnification........................................ 71
Dividends................................................. 72
Liquidation............................................... 72
Conversion................................................ 73
Redemption Rights......................................... 74
Appraisal Rights.......................................... 75
Vote Required for Mergers................................. 76
Anti-Takeover Provisions.................................. 77
Stockholder Derivative Suits.............................. 77
INFORMATION CONCERNING INDUS RIVER.......................... 78
Security Ownership of Directors, Executive Officers and
Principal Stockholders of Indus River.................. 78
LEGAL MATTERS............................................... 81
EXPERTS..................................................... 81
OTHER MATTERS............................................... 81
WHERE YOU CAN FIND MORE INFORMATION......................... 81
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS............... 83
</TABLE>
Annexes:
Annex A Agreement and Plan of Merger
Annex B Section 262 of the Delaware General Corporation Law
Annex C Form of Escrow Agreement
Annex D Form of Stockholder Agreement for Founders
Annex E Form of Stockholder Agreement for Preferred Stockholders
Annex F Preliminary Appraisal of Adams, Harkness & Hill, Inc. dated November
, 2000
ii
<PAGE> 11
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHY IS INDUS RIVER MERGING WITH CABLETRON?
A: Indus River will join and become part of Cabletron, one of the world's
leading developers, manufacturers and marketers of networking systems and
technology, and Indus River stockholders will become Cabletron stockholders.
Indus River will be joining Cabletron's Enterasys division, a leading
provider of global business communication solutions to enterprise customers.
By joining Enterasys, Indus River gains access to Enterasys' large installed
base of enterprise customers and generally gains access to Enterasys' large
distribution channels.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock,
and all options and warrants to purchase Indus River stock. Holders of
additional options granted in exchange for the forfeiting of acceleration
rights and some options granted to some employees hired by Indus River after
August 18, 2000 with Cabletron's consent will not receive any Cabletron stock
for these options.
If the merger is completed, you will receive a specified number of shares of
Cabletron common stock and Cabletron series C preferred stock for each share
of Indus River common stock and Indus River preferred stock that you own, and
cash for any fractional share of Cabletron common stock and any fractional
share of Cabletron series C preferred stock you would be entitled to receive
in the merger. Holders of Indus River preferred stock are entitled to be paid
a liquidation preference payment as part of the merger. Because the dollar
amount of the liquidation preference will be determined as of the closing
date and because the number of shares of Cabletron series C preferred stock
and Cabletron common stock constituting the liquidation preference payment
will be determined based on a 10 trading day average closing price of
Cabletron's common stock and an appraised value of the Cabletron series C
preferred stock, the exact exchange ratios for the number of shares of
Cabletron common stock and Cabletron series C preferred stock to be issued in
the merger will not be known until the fifth trading day before the closing
date.
Based on an average closing price of Cabletron common stock for the ten
trading days ending on and including November , 2000 and the appraised
value of the Cabletron series C preferred stock as of November , 2000,
and assuming that the closing of the merger occurs on December , 2000
and a warrant to purchase 60,847 shares of Indus River series D preferred
stock is not exercised before the merger:
- each holder of Indus River series A preferred stock would receive
shares of Cabletron series C preferred stock and shares of
Cabletron common stock for each share of Indus River series A preferred
stock held by that holder;
- each holder of Indus River series B preferred stock would receive
shares of Cabletron series C preferred stock and shares of
Cabletron common stock for each share of Indus River series B preferred
stock held by that holder;
- each holder of Indus River series C preferred stock would receive
shares of Cabletron series C preferred stock and shares of
Cabletron common stock for each share of Indus River series C preferred
stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive shares of Cabletron series C preferred stock
and shares of Cabletron common stock for each share of Indus River
series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive shares of Cabletron series C preferred stock
and shares of Cabletron common stock for each share of Indus River
series D preferred stock held by that holder; and
<PAGE> 12
- each holder of Indus River common stock would receive shares of
Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
The Cabletron series C preferred stock may be converted into Cabletron
common stock at the option of the holder at any time after the earliest of:
- a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus
River after the merger, after the first anniversary of the date the
Cabletron series C preferred stock is issued;
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys at any time; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for a spin-off of Enterasys before the
first anniversary of the date the Cabletron series C preferred stock is issued,
and that spin-off is to be completed before that anniversary, then the Cabletron
series C preferred stock may be converted into Cabletron common stock at the
option of the holder immediately before the spin-off.
The Cabletron series C preferred stock may be redeemed at the option of the
holder immediately before the first to occur of:
- a spin-off of Enterasys after the first anniversary of the date the
Cabletron series C preferred stock is issued and before the second
anniversary of the issuance of the stock; and
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys before the second anniversary of the date the
Cabletron series C preferred stock is issued.
In a spin-off of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in shares of Enterasys stock.
In a change of control of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in securities or assets of the
surviving corporation immediately after the change of control of Enterasys.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, holders of Cabletron series C preferred stock will not be able to redeem
their shares of Cabletron series C preferred stock in the spin-off. However,
they will be able to convert their shares into Cabletron common stock before the
spin-off. If Cabletron begins a transaction resulting in a change of control of
Enterasys before the first anniversary of the date the Cabletron series C
preferred stock is issued, holders of Cabletron series C preferred stock will be
able to redeem or convert their shares of Cabletron series C preferred stock in
that transaction.
If Cabletron conducts a spin-off of Enterasys after the first anniversary
of the date the Cabletron series C preferred stock is issued, holders of
Cabletron series C preferred stock will be able to redeem or convert their
shares of Cabletron series C preferred stock in the spin-off.
The terms of the Cabletron series C preferred stock will provide a more
favorable exchange ratio for redemption of the Cabletron series C preferred
stock compared to the exchange ratio for conversion of the stock if the holders
are able to choose between the two options.
Cabletron is not obligated to conduct a spin-off of Enterasys or other
disposition of Enterasys. If Cabletron does not do so, then holders of the
Cabletron series C preferred stock will not be able to exercise the redemption
right at all, and will not be able to exercise any conversion right until the
second anniversary of the date the Cabletron series C preferred stock is issued.
There is a description of the Cabletron series C preferred stock on pages 59 to
66 of this proxy statement/prospectus.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the Indus River preferred stockholders and
founders will be placed in an escrow account to secure the indemnification
obligations of those Indus River stockholders under the merger agreement. All of
the
2
<PAGE> 13
shares of Cabletron series C preferred stock issued in the merger will be
deposited in an escrow account for a period of up to 30 months to facilitate any
conversion or redemption of that stock.
Q: WHAT IS THE ESCROW FUND AND HOW DOES IT WORK?
A: If the merger is completed, Cabletron will deposit into an escrow account 10%
of the Cabletron common stock to be issued to the preferred stockholders and
founders of Indus River. The escrowed shares will be available to compensate
Cabletron if it is entitled to indemnification under the merger agreement.
The escrow account will be the sole and exclusive source available to
compensate Cabletron for damages due to a breach under the merger agreement,
other than for any claim of fraud, intentional misrepresentation or other
willful conduct. Any escrowed shares not used to indemnify Cabletron and
which are not the subject of an unresolved claim for indemnification by
Cabletron will be distributed to the Indus River stockholders entitled to
receive them after the first anniversary of the merger.
If the merger is completed, Cabletron will deposit into a separate escrow
account all of the Cabletron series C preferred stock to be issued to all
Indus River stockholders. The escrowed shares of Cabletron series C preferred
stock will not be used to secure the indemnification obligations of Indus
River stockholders, but rather will be held in escrow only to facilitate any
conversion or redemption of the shares of Cabletron series C preferred stock
occurring within 24 months of the closing. The shares of Cabletron series C
preferred stock will remain in the escrow account for up to 30 months. If,
after this 30-month period, there has been no redemption or conversion of the
shares of Cabletron series C preferred stock, then those shares will be
distributed by the escrow agent to the stockholders on whose behalf the
shares are being held.
Q: WHY IS THE INDUS RIVER BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR
ADOPTION OF THE MERGER AGREEMENT?
A: After considering the support for the merger from its independent directors
and the other reasons described on pages 27 to 28 of this proxy
statement/prospectus, your board of directors unanimously believes that the
terms of the merger agreement are advisable and fair to, and in the best
interests of, Indus River and its stockholders.
Q: WHAT IS THE VOTE REQUIRED TO ADOPT THE MERGER AGREEMENT?
A: The affirmative vote of the holders of:
- a majority of the outstanding shares of Indus River common stock and
Indus River preferred stock, voting together as a single class; and
- two-thirds of the outstanding shares of Indus River preferred stock,
voting as a separate class,
is required to adopt the merger agreement. You will be able to vote your shares
of Indus River common stock and Indus River preferred stock at a special meeting
of Indus River stockholders to be held on December , 2000 at 10:00 a.m., local
time, at the offices of McDermott, Will & Emery, 28 State Street, Boston,
Massachusetts 02109.
Indus River stockholders holding:
- 86.3% of the outstanding shares of Indus River preferred stock and
Indus River common stock, voting together as a single class; and
- 95.5% of the outstanding shares of Indus River preferred stock, voting
as a separate class,
have executed stockholder agreements agreeing to vote their shares of Indus
River stock for adoption of the merger agreement. These stockholders have also
granted an irrevocable proxy and a power of attorney to Cabletron
representatives to vote their shares of Indus River stock for adoption of the
merger agreement. Thus, the required vote to adopt the merger agreement has been
obtained. There is a description of these stockholder agreements on page 22 of
this proxy statement/prospectus.
3
<PAGE> 14
Q: WHAT IF THE MERGER IS NOT COMPLETED?
A: It is possible the merger will not be completed. That might happen if, for
example, any of the closing conditions specified in the merger agreement do
not occur. Should that occur, Cabletron, Indus River or any third party is
not under any obligation to make or consider any alternative proposal to
purchase your Indus River stock. The closing conditions specified in the
merger agreement are described in pages 45 to 46 of this proxy
statement/prospectus.
Q: WHAT ELSE WILL HAPPEN AT THE MEETING?
A: Although we expect no other matters to come before the special meeting, the
stockholders of Indus River may transact any other business that may properly
come before the meeting.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, PLEASE COMPLETE AND SIGN YOUR PROXY CARD AND
RETURN IT IN THE ENCLOSED RETURN ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR
SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING. If you sign and send in
your proxy card and do not indicate how you want to vote, we will count your
proxy as a vote for adoption of the merger agreement. IF YOU ABSTAIN FROM
VOTING OR DO NOT VOTE ON THE PROPOSAL, YOUR ABSTENTION OR FAILURE TO VOTE
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT.
The special meeting will take place on , 2000. You may attend the
special meeting and vote your shares in person, rather than signing and
mailing your proxy card.
Q: WHO MAY VOTE AT THE SPECIAL MEETING?
A: All stockholders of record as of the close of business on , 2000
may vote. You are entitled to one vote for each share of Indus River common
stock that you own on the record date, and one vote for each share of Indus
River preferred stock that you own on the record date.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote in one of three ways before your proxy is voted
at the special meeting. First, you may send a written notice stating that you
would like to revoke your proxy. Second, you may complete and submit a new
proxy card. If you choose either of these two methods, you must submit your
notice of revocation or your new proxy card to the secretary of Indus River
at the address given in the answer to the last question below. Third, you may
attend the special meeting and vote in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger has been completed, you will receive written
instructions for exchanging your stock certificates. PLEASE DO NOT SEND IN
YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will be held at the offices of McDermott, Will & Emery,
28 State Street, 34th Floor, Boston, Massachusetts 02109.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger immediately after the special meeting.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: You may seek appraisal of the fair value of your shares by complying with all
the Delaware law procedures explained on pages 42 to 45 and in annex B to
this proxy statement/prospectus.
4
<PAGE> 15
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional copies
of this proxy statement/ prospectus or the enclosed proxy card, you should
contact:
Indus River Networks, Inc.
Attention: David P. Gamache
31 Nagog Park
Acton, Massachusetts 01720
Telephone: (978) 266-8100
5
<PAGE> 16
--------------------------------------------------------------------------------
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all the information that is important
to you. For a more complete understanding of the merger, you should carefully
read this entire proxy statement/prospectus and the other documents to which we
refer you.
You should read the documents attached to this proxy statement/prospectus,
including the merger agreement which is attached as annex A, your appraisal
rights under Delaware law, which are attached as annex B, the form of escrow
agreement which is attached as annex C, the form of stockholder agreement for
Indus River founders, which is attached as annex D, the form of stockholder
agreement for Indus River preferred stockholders, which is attached as annex E,
and the preliminary appraisal of Adams, Harkness & Hill, Inc. dated November ,
2000 of the Cabletron series C preferred stock, which is attached as annex F.
GENERAL
WHAT YOU WILL RECEIVE IN THE MERGER
Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock, and
all options and warrants to purchase Indus River stock. Holders of additional
options granted in exchange for the forfeiting of acceleration rights and some
options granted to some employees hired by Indus River after August 18, 2000
with Cabletron's consent will not receive any Cabletron stock for these options.
Because each holder of Indus River preferred stock is entitled to a liquidation
preference payment as part of the merger, and because the market price of
Cabletron common stock fluctuates and the value of the Cabletron series C
preferred stock also varies, the exact exchange rate for Indus River preferred
stock and Indus river common stock will not be known until five trading days
before the closing date of the merger.
Based on an average closing price of $ per share of Cabletron common
stock for the ten trading days ending on and including November , 2000 and an
appraised value of $ per share of Cabletron series C preferred stock as of
November , 2000, and assuming that the closing of the merger occurs on
December , 2000 and a warrant to purchase 60,847 shares of Indus River series
D preferred stock is not exercised before the merger:
- each holder of Indus River series A preferred stock would receive
shares of Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River series A preferred stock held
by that holder;
- each holder of Indus River series B preferred stock would receive
shares of Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River series B preferred stock held
by that holder;
- each holder of Indus River series C preferred stock would receive
shares of Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River series C preferred stock held
by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River
series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River
series D preferred stock held by that holder; and
- each holder of Indus River common stock would receive shares of
Cabletron series C preferred stock and shares of Cabletron common
stock for each share of Indus River common stock held by that holder.
--------------------------------------------------------------------------------
6
<PAGE> 17
--------------------------------------------------------------------------------
You will receive cash for any fractional share of Cabletron common stock or
Cabletron series C preferred stock that you would be entitled to receive in the
merger.
The Cabletron series C preferred stock may be converted into Cabletron
common stock at the option of the holder at any time after the earliest of:
- a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus
River after the merger, after the first anniversary of the date the
Cabletron series C preferred stock is issued;
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys at any time; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, and that spin-off is to be completed before that anniversary, then the
Cabletron series C preferred stock may be converted into Cabletron common stock
at the option of the holder immediately before the spin-off.
The Cabletron series C preferred stock may be redeemed at the option of the
holder immediately before to the first to occur of:
- a spin-off of Enterasys after the first anniversary of the date the
Cabletron series C preferred stock is issued and before the second
anniversary of the issuance of the stock; and
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys before the second anniversary of the date the
Cabletron series C preferred stock is issued.
In a spin-off of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in shares of Enterasys stock.
In a change of control of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in securities or assets of the
surviving corporation immediately after the change of control of Enterasys.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, holders of Cabletron series C preferred stock will not be able to redeem
their shares of Cabletron series C preferred stock in the spin-off. However,
they will be able to convert their shares into Cabletron common stock before the
spin-off. If Cabletron begins a transaction resulting in a change of control of
Enterasys before the first anniversary of the date the Cabletron series C
preferred stock is issued, holders of Cabletron series C preferred stock will be
able to redeem or convert their shares of Cabletron series C preferred stock in
that transaction.
If Cabletron conducts a spin-off of Enterasys after the first anniversary
of the date the Cabletron series C preferred stock is issued, holders of
Cabletron series C preferred stock will be able to redeem or convert their
shares of Cabletron series C preferred stock in the spin-off.
The terms of the Cabletron series C preferred stock will provide for a more
favorable exchange ratio for redemption of the Cabletron series C preferred
stock compared to the exchange ratio for conversion of the stock if the holders
are able to choose between the two options.
Cabletron is not obligated to conduct a spin-off of Enterasys or other
disposition of Enterasys. If Cabletron does not do so, then holders of the
Cabletron series C preferred stock will not be able to exercise the redemption
right, and will not be able to exercise any conversion right until the second
anniversary of the date the Cabletron series C preferred stock is issued.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the Indus River preferred stockholders and
founders will be placed in an escrow account that may be used to compensate
Cabletron if it is entitled to indemnification under the merger agreement. The
escrow account will be the sole and exclusive source available to compensate
Cabletron for damages due to a breach under the merger agreement, other than for
any claim of fraud, intentional misrepresentation or other willful conduct. Any
escrowed shares not used to indemnify Cabletron and which are not the subject of
an unresolved
--------------------------------------------------------------------------------
7
<PAGE> 18
claim for indemnification by Cabletron will be distributed to each Indus River
stockholder on whose behalf the escrowed shares are being held after the first
anniversary of the merger.
All of the shares of Cabletron series C preferred stock will be placed in a
separate escrow account with an escrow agent. The Cabletron series C preferred
stock will not be used to secure the indemnification obligations of Indus River
stockholders, but rather will be held in escrow only to facilitate any
conversion or redemption of the Cabletron series C preferred stock occurring
within 24 months of the closing. The shares of Cabletron series C preferred
stock will remain in the escrow account for up to 30 months. If, after this
30-month period, there has been no conversion or redemption of the shares of
Cabletron series C preferred stock, then those shares will be distributed to the
stockholders on whose behalf the shares are being held.
SIGNIFICANT UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Cabletron and Indus River plan to treat the merger as a tax-free
reorganization for federal income tax purposes. After the merger, Cabletron
plans to transfer all of the stock in Indus River to its subsidiary, Enterasys.
Although Cabletron has announced its desire to establish its four operating
subsidiaries, including Enterasys, as an independent company, Cabletron is not
obligated to do so and continues to consider several possibilities for
Enterasys, including retaining Enterasys as a subsidiary of Cabletron. Depending
on if, and when, Cabletron conducts a spin-off or other disposition of
Enterasys, the Internal Revenue Service may attempt to combine the merger with
that other transaction, and take the position that the merger does not qualify
as a tax-free reorganization. If the IRS were successful, you would recognize
gain or loss for federal income tax purposes based on the difference between the
fair market value of the Cabletron common stock and Cabletron series C preferred
stock you received and the tax basis of the Indus River stock that you exchanged
for the Cabletron common stock and the Cabletron series C preferred stock.
RECOMMENDATION OF THE INDUS RIVER BOARD OF DIRECTORS
The Indus River board of directors believes that the terms of the merger
and the merger agreement are advisable and fair to, and in the best interests
of, Indus River and its stockholders and unanimously recommends that
stockholders vote for adoption of the merger agreement.
APPRAISALS OF CABLETRON SERIES C PREFERRED STOCK BY ADAMS, HARKNESS & HILL, INC.
There is no established trading market for the Cabletron series C preferred
stock. Indus River has retained Adams, Harkness & Hill, Inc. to deliver an
appraisal of the fair market value of the shares of Cabletron series C preferred
stock to be paid as the liquidation preference payment due to Indus River
preferred stockholders in the merger. At the request of Indus River, Adams,
Harkness & Hill delivered a preliminary appraisal on November , 2000 that, as
of November , 2000, the aggregate fair market value of the Cabletron series C
preferred stock to be received by the Indus River stockholders in the merger was
approximately $ million. It is possible that the valuation determined in the
final appraisal could be materially different from that determined in the
preliminary appraisal.
Adams, Harkness & Hill's appraisal addresses only the fair market value of
the Cabletron series C preferred stock to be received under the merger agreement
and does not address any other aspect of the merger or constitute a
recommendation to any holder of Indus River stock about how to vote at the Indus
River stockholder meeting.
INTERESTS OF INDUS RIVER DIRECTORS, MANAGEMENT AND EMPLOYEES IN THE MERGER
A number of directors, officers and employees of Indus River have interests
in the merger as directors, officers or employees that are different from those
of a stockholder generally. If we complete the merger, indemnification
arrangements for current directors, officers and employees of Indus River will
be continued and it is anticipated that some employees of Indus River will be
retained as employees of Cabletron. It is a condition of the merger that some
executives and employees, with stock options, enter into amendments to their
stock option agreements to modify the accelerated vesting provisions for those
options in exchange for
8
<PAGE> 19
the grant of additional stock options. Two executive officers of Indus River
will also receive options to purchase 200,000 shares of stock of Cabletron's
subsidiary, Enterasys.
APPRAISAL RIGHTS
If you do not wish to accept Cabletron common stock and Cabletron series C
preferred stock in the merger, you have the right under Delaware law to have the
fair value of your shares determined by the Delaware chancery court. This right
to appraisal is subject to a number of restrictions and technical requirements.
Generally, to exercise your appraisal rights you must:
- send a written demand to Indus River for appraisal in compliance with
Delaware law before the vote on the merger;
- not vote in favor of the merger; and
- continuously hold your Indus River stock, from the date you make the
demand for appraisal through the closing of the merger.
Merely voting against the merger will not protect your rights to an
appraisal. If you fail to follow all the steps required by Delaware law you will
lose your rights to appraisal.
THE COMPANIES
INDUS RIVER NETWORKS, INC.
31 Nagog Park
Acton, Massachusetts
(978) 266-8100
Indus River Networks designs, manufactures and markets enterprise-class
network hardware and software that enables organizations of all sizes to install
and manage remote access and site to site virtual private networks, or VPNs,
with centralized control and remote enforcement of predefined network access
policies. Additionally, the product suite incorporates fault management with
automatic error detection and recovery methods. These features simplify the
process of virtual private network installation and operational management while
enhancing control over network security and improving the cost-effectiveness of
the network.
Indus River sells its products and services to corporate and institutional
customers using both direct and indirect sales channels. RiverWorks(TM)
Enterprise VPN solutions are deployed in several industry sectors including
major financial, industrial, and service companies. These network installations
represent some of the largest VPN installations in the world with several
thousand remote users. The solution provides a broad range of connectivity
options that enable mobile access, high-speed telecommuting and global
site-to-site interconnection over the public Internet. Networks are secured with
technologies that provide end-point authentication and encryption of the data
stream. The products have been tested and certified by leading technology
companies and independent test labs for interoperability, performance and
standards compliance.
Indus River has approximately 60 employees, most of whom are located at its
headquarters in Acton, Massachusetts. Indus River was organized under the laws
of Delaware on August 7, 1996 and maintains its executive offices at 31 Nagog
Park, Acton, Massachusetts.
CABLETRON SYSTEMS, INC.
35 Industrial Way
Rochester, New Hampshire 03867
(603) 332-9700
Cabletron is one of the world's leading designers, developers and
manufacturers of communications systems, software and products. Cabletron
delivers flexible and scalable network access and communications equipment and
software to Global 2000 enterprises, service providers and small businesses
worldwide.
9
<PAGE> 20
Cabletron's products include standards-based Ethernet, Fast Ethernet, Token
Ring, fiber distributed data interface, asynchronous transfer mode and wide area
networks networking solutions. Cabletron provides its business solutions to
global customers for enterprise connectivity, service provider infrastructures,
software and professional services by maintaining significant operations in the
United States, Europe, the Pacific Rim and other industrialized areas of the
world. Cabletron has established four operating subsidiaries -- Aprisma
Management Technologies, Enterasys Networks, GlobalNetwork Technology Services
and Riverstone Networks -- to enable it to focus on the key high-growth areas of
the communications marketplace, including infrastructure management, business
conducted electronically over the Internet, professional services and service
providers. Cabletron conducts its operations through these subsidiaries.
STOCK PRICES AND DIVIDENDS
Shares of Cabletron common stock are listed on the New York Stock Exchange.
On August 18, 2000, the last full trading day before the public announcement of
the proposed merger, the last reported sale price of one share of Cabletron
common stock, as reported on the New York Stock Exchange Composite Transactions
Tape, was $34.77. On , 2000, the last day for which information was
available before the date of this proxy statement/prospectus, the last reported
sale price of one share of Cabletron common stock, as reported on the New York
Stock Exchange Composite Transactions Tape, was $ . We are unable to provide
information about the market prices of the Cabletron series C preferred stock
and the Indus River stock, and the equivalent per share market prices of
Cabletron common stock have been omitted, because there is no established
trading market for shares of Indus River stock.
Cabletron has never paid dividends on its common stock and anticipates it
will continue to reinvest earnings to finance future growth. Indus River has
never paid dividends on its common stock.
THE SPECIAL MEETING
The special meeting of Indus River stockholders will be held at the offices
of McDermott, Will & Emery, 28 State Street, 34th Floor, Boston, Massachusetts
02109, at 10:00 a.m. local time on December , 2000. At the special meeting,
all stockholders will be asked to adopt the merger agreement among Cabletron,
Acton Acquisition Co., a wholly owned subsidiary of Cabletron, and Indus River.
RECORD DATE; VOTING POWER
Indus River stockholders are entitled to notice of, and to vote at, the
special meeting if they owned shares as of the close of business on
, 2000 the record date.
VOTE REQUIRED
The affirmative vote of holders of:
- a majority of the outstanding shares of the Indus River common stock and
preferred stock, voting together as a single class; and
- two-thirds of the outstanding shares of the Indus River preferred stock,
voting together as a single class,
is required to adopt the merger agreement.
WE CANNOT COMPLETE THE MERGER UNLESS THE MERGER PROPOSAL IS ADOPTED BY THE
REQUIRED VOTE.
STOCKHOLDER AGREEMENTS
A number of Indus River stockholders have entered into stockholder
agreements with Cabletron and have agreed to vote their shares of Indus River
stock for adoption of the merger agreement. These stockholders have also granted
an irrevocable proxy and a power of attorney to Cabletron representatives to
vote that stockholder's shares of Indus River stock for adoption of the merger
agreement.
10
<PAGE> 21
--------------------------------------------------------------------------------
On the record date, these stockholders in the aggregate owned and agreed to
vote 86.3% of the Indus River preferred stock and Indus River common stock,
voting together as a single class, and 95.5% of the preferred stock, voting
together as a single class.
GOVERNMENT FILINGS
Cabletron and Indus River do not believe that any governmental filings are
required for the merger, except for the filing of the registration statement
with the Securities and Exchange Commission of which this proxy
statement/prospectus is a part.
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11
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA -- CABLETRON
HISTORICAL
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
------------------------- ------------------------------------------------------------------------
SEPTEMBER 2, AUGUST 31, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 2000 1999 1998 1997 1996
------------ ---------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 536,498 $706,172 $1,459,593 $1,411,279 $1,377,330 $1,406,552 $1,100,349
Income (loss) from
operations............... (121,663) (34,096) (5,775) (291,616) (88,812) 326,278 206,935
Net income (loss) to common
stockholders............. $(180,732) $ (9,516) $ 464,271 $ (245,391) $ (34,961) $ 226,079 $ 144,485
========= ======== ========== ========== ========== ========== ==========
Net income (loss) per
common share -- basic.... $ (0.98) $ (0.05) $ 2.62 $ (1.47) $ (0.22) $ 1.46 $ 0.95
========= ======== ========== ========== ========== ========== ==========
Weighted average number of
common shares
outstanding -- basic..... 184,150 173,624 177,541 167,432 157,686 155,207 151,525
========= ======== ========== ========== ========== ========== ==========
Net income (loss) per
common share --
diluted.................. $ (0.98) $ (0.05) $ 2.46 $ (1.47) $ (0.22) $ 1.42 $ 0.93
========= ======== ========== ========== ========== ========== ==========
Weighted average number of
common shares
outstanding -- diluted... 184,150 173,624 188,618 167,432 157,686 158,933 155,171
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 2, AUGUST 31, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 2000 1999 1998 1997 1996
------------ ---------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $ 469,592 $ 407,464 $ 448,168 $ 370,945 $ 593,046 $ 679,056 $485,152
Total assets............... 1,919,634 1,477,084 3,166,507 1,566,500 1,682,048 1,310,809 996,908
Total stockholders'
equity................... 1,327,693 1,101,439 2,147,439 1,089,833 1,085,075 1,085,452 809,886
========== ========== ========== ========== ========== ========== ========
</TABLE>
THE INFORMATION IN THIS SECTION SHOULD BE READ WITH CABLETRON'S HISTORICAL
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
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RISK FACTORS
Indus River stockholders should consider carefully the matters described
below in determining whether to adopt the merger agreement.
RISK FACTORS RELATING TO THE MERGER
- DECREASES IN THE PRICE OR VALUE OF CABLETRON COMMON STOCK AND CABLETRON
SERIES C PREFERRED STOCK WILL NOT ENTITLE INDUS RIVER STOCKHOLDERS OR
OPTIONHOLDERS TO RECEIVE ADDITIONAL CABLETRON SHARES IN THE
MERGER. Cabletron will issue a fixed number of shares of Cabletron
common stock and Cabletron series C preferred stock in the merger
transaction, including to holders of options and warrants to purchase
Indus River stock. Changes in the price of Cabletron common stock or in
the value of Cabletron series C preferred stock will not result in an
adjustment in the total shares of Cabletron common stock and Cabletron
series C preferred stock to be issued by Cabletron. If the price or value
of Cabletron common stock or Cabletron series C preferred stock declines,
then the value to Indus River stockholders of the merger transaction will
also decline.
The price of Cabletron common stock and the value of Cabletron series C
preferred stock may vary because of changes in the business, operations or
prospects of Cabletron, the timing of the completion of the merger, the
prospects of post-merger operations and general market and economic
conditions. Because the date that the merger is completed may be later than
the date of the special meeting, the price of Cabletron common stock and
the value of Cabletron series C preferred stock on the date of the special
meeting may not be indicative of its price on the date the merger is
completed. We urge Indus River stockholders to obtain current market
quotations for Cabletron common stock.
- THE SHARES OF CABLETRON COMMON STOCK THAT WILL BE ISSUED IN THE MERGER TO
THE INDUS RIVER PREFERRED STOCKHOLDERS AND FOUNDERS AND PLACED IN ESCROW
TO SECURE CABLETRON'S INDEMNIFICATION CLAIMS UNDER THE MERGER AGREEMENT
MAY NEVER BE DISTRIBUTED TO THE INDUS RIVER PREFERRED STOCKHOLDERS AND
FOUNDERS. The merger agreement provides that the shares of Cabletron
common stock placed in escrow will be available to indemnify Cabletron,
the surviving corporation and other specified persons after the merger for
breaches by Indus River of the merger agreement. If Indus River breaches
the merger agreement, Cabletron would be entitled to be paid from the
escrow fund the amount necessary to satisfy its damages. Indus River
founders and preferred stockholders may not receive any of the shares in
the escrow account since those shares might be used to indemnify
Cabletron.
- DEPENDING ON IF, AND WHEN, CABLETRON CONDUCTS A SPIN-OFF OR OTHER
DISPOSITION OF ENTERASYS, THE IRS MAY TAKE THE POSITION THAT THE MERGER
IS TAXABLE. Cabletron and Indus River plan to treat the merger as a
tax-free reorganization for federal income tax purposes. The federal
income tax treatment of the merger depends in part on whether, for
federal income tax purposes, the merger would be combined with a spin-off
or other disposition of Enterasys by Cabletron, the company to which
Cabletron plans to transfer the Indus River stock after the merger.
Cabletron has announced its desire to establish its four operating
subsidiaries, including Enterasys, as an independent company. Because
Cabletron is not obligated to carry out a spin-off or any other
disposition of Enterasys and continues to consider several possibilities
for Enterasys, including retaining Enterasys as a subsidiary of
Cabletron, Cabletron and Indus River plan to treat the merger as a
tax-free reorganization. If Cabletron carries out its announced intention
to spin off or dispose of Enterasys, and if the IRS were to successfully
assert that the spin-off or disposition should be combined with this
merger, then this merger would constitute a taxable purchase of stock.
You would recognize gain or loss for federal income tax purposes based on
the difference between the fair market value of the Cabletron common
stock and Cabletron series C preferred stock you received and the tax
basis of the Indus River stock that you exchanged for the Cabletron
common stock and the Cabletron series C preferred stock.
RISK FACTORS RELATING TO THE CABLETRON SERIES C PREFERRED STOCK
- THE CABLETRON SERIES C PREFERRED STOCK WILL HAVE LIMITED LIQUIDITY AND
MARKETABILITY. The Cabletron series C preferred stock will not be
registered for resale under the Securities Act and may not be
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<PAGE> 24
transferred except under the laws of descent and distribution or to the partners
or equity holders of any stockholder which is an entity. There is no existing
market for the Cabletron series C preferred stock and a liquid market may not
develop for the Cabletron series C preferred stock. The holders of
Cabletron series C preferred stock may be unable to sell their Cabletron
series C preferred stock, and the price at which holders of the Cabletron
series C preferred stock may be able to sell their Cabletron series C
preferred stock, if at all, is uncertain. Cabletron does not intend to
apply for listing of its series C preferred stock on any securities
exchange.
- THE HOLDERS OF CABLETRON SERIES C PREFERRED STOCK MAY NEVER BE ABLE TO
REDEEM THEIR SHARES OF CABLETRON SERIES C PREFERRED STOCK. The terms of
the Cabletron series C preferred stock provide that those shares may be
redeemed if Cabletron conducts a spin-off of its subsidiary, Enterasys,
after the first anniversary of the issuance of the shares and before the
second anniversary of the issuance of the shares, or if there is a
transaction involving Enterasys after which Cabletron no longer controls
Enterasys before the second anniversary of the issuance of the shares. It
is possible that Cabletron will not conduct a spin-off of Enterasys
within this time frame. Similarly, it is possible that there will not be
a change of control of Enterasys within this time frame. The holders of
Cabletron series C preferred stock may not able to redeem their shares of
Cabletron series C preferred stock.
- THE HOLDERS OF CABLETRON SERIES C PREFERRED STOCK MAY NOT BE ABLE TO
CONVERT THEIR SHARES FOR A PERIOD OF TWO YEARS. The terms of the
Cabletron series C preferred stock provide that those shares may be
converted by the holders into shares of Cabletron common stock after the
earlier to occur of a spin-off of Enterasys, a transaction involving
Enterasys after which Cabletron no longer controls Enterasys, and the
second anniversary of the issuance of the Cabletron series C preferred
stock. If Cabletron conducts a spin-off of Enterasys within one year of
the issuance of the Cabletron series C preferred stock, the shares of
Cabletron series C preferred stock may be converted immediately before
the spin-off. It is possible that Cabletron will not conduct an Enterasys
spin-off before the second anniversary of the issuance of the Cabletron
series C preferred stock. Similarly, it is possible that there will not
be a change of control of Enterasys within this time frame. The holders
of Cabletron series C preferred stock may not be able to convert their
shares of Cabletron series C preferred stock until after the second
anniversary of the issuance of the shares of Cabletron series C preferred
stock.
RISK FACTORS RELATING TO CABLETRON
Cabletron's business is subject to numerous risks and uncertainties,
including those described below. References to Cabletron are to Cabletron and
its subsidiaries, through which Cabletron conducts its operations.
- CABLETRON'S RESULTS OF OPERATIONS MAY BE NEGATIVELY AFFECTED IF CABLETRON
IS NOT ABLE TO COMPLETE ITS PLANNED TRANSFORMATION. Cabletron has
transformed its business by creating four operating subsidiaries and
transferring a portion of its operating assets and related liabilities to
these four subsidiaries. Cabletron plans to conduct an initial public
offering of some or all of the operating subsidiaries followed by a
distribution of the remaining shares of the operating subsidiaries to
Cabletron's stockholders. Cabletron may also consider selling one or more
of its operating subsidiaries. If Cabletron does not complete the
transformation as planned, Cabletron's results of operations could be
negatively affected. Cabletron will have devoted significant time and
resources to complete the transformation. Cabletron will have already
incurred increased expenses for the build-up of management and
administrative capacity of each operating subsidiary. Cabletron is not
obligated to complete any of these strategic transactions, and it is
uncertain when or whether any of these transactions will happen.
- EVEN IF CABLETRON SUCCESSFULLY COMPLETES ITS PLANNED TRANSFORMATION, ITS
OPERATING RESULTS MAY BE NEGATIVELY AFFECTED. As part of its
transformation, Cabletron has announced plans to discontinue several
product lines to allow the new subsidiaries to focus on their core
technologies. The discontinuance of these products may cause Cabletron's
overall revenue to decrease in the future if it is unable to increase
sales of other products. The cost of the transformation, such as the
buildup of management and administrative capacity at each subsidiary,
could also have a negative effect on Cabletron's operating results.
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<PAGE> 25
- CABLETRON MAY NOT COMPLETE ITS PLANNED TRANSFORMATION BECAUSE OF NEGATIVE
EVENTS IN THE PUBLIC MARKET FOR TECHNOLOGY STOCKS. The public market for
technology stocks has recently experienced a significant downturn, with
many stocks suffering price declines of 50 percent or more. Trading in
these stocks has become extremely volatile. If current market conditions
persist, Cabletron may be unable or unwilling to complete initial public
offerings or private sales of any of its operating subsidiaries.
- CABLETRON MAY NOT OBTAIN APPROVAL OF ALL ASPECTS OF ITS PLANNED
TRANSFORMATION, OR MAY NOT CARRY OUT ITS INTENT EVEN IF THE APPROVALS ARE
OBTAINED. Any distribution of shares of a subsidiary to Cabletron's
stockholders may depend on receipt from the Internal Revenue Service of a
ruling that the distribution would be tax-free to Cabletron's
stockholders, that the transaction would qualify as a tax-free
reorganization, or other regulatory approvals. Also, a public offering of
any shares of a Cabletron subsidiary will depend on factors such as the
market conditions for public offerings, the operating performance of that
subsidiary, and the prospects of the markets for that subsidiary's goods
or services. Any of the strategic transactions related to Cabletron's
transformation would be implemented only if Cabletron's board of
directors continues to believe that the transaction is in the best
interests of Cabletron, its stockholders, and its subsidiaries.
- CABLETRON FACES SIGNIFICANT COMPETITIVE PRESSURES IN THE DATA NETWORKING
INDUSTRY THAT MIGHT CAUSE CABLETRON TO LOSE MARKET SHARE, SUFFER
DECREASED REVENUES OR EXPERIENCE FLUCTUATIONS IN OPERATING RESULTS. The
data networking industry is subject to intense and increasing levels of
competition and consolidation. Cabletron expects substantial increases in
future competition from its current competitors, and from new competitors
that enter Cabletron's existing or future markets by acquiring data
networking companies or by other means. Increased competition could
result in lower sales, reduced margins and loss of market share. Any of
these factors could increase fluctuations in operating results. If
Cabletron fails to successfully develop and market new products, enhance
existing products or respond adequately to technological changes, new
standards or product announcements, Cabletron may lose market share, and
may suffer decreased revenues because of the loss of market share.
Cabletron's primary competitors are Cisco, Lucent, Nortel, 3Com, Extreme
Networks, Foundry Networks and Juniper Networks. Several large
telecommunications equipment companies, including Nokia Corp., Alcatel,
Ericsson and Siemens have begun to compete in the data networking
industry and have recently made investments in or acquired several
smaller data networking companies.
- IF CABLETRON IS UNABLE TO DEVELOP AND MAINTAIN BRAND RECOGNITION IT MAY
HAVE DIFFICULTY ATTRACTING CUSTOMERS. As the data networking industry
has grown and matured, customers purchasing decisions have been
increasingly influenced by brand recognition. If Cabletron is unable to
develop and maintain competitive brand recognition, Cabletron's market
share will likely decrease.
- CABLETRON'S SUCCESS WILL DEPEND ON ITS ABILITY TO INTRODUCE NEW PRODUCTS
THAT HAVE GREATER MARKET APPEAL THAN ITS COMPETITORS' PRODUCTS.
Cabletron's competitors have pursued and are continuing to pursue a
strategy of acquiring and investing in data networking companies
possessing advanced networking technologies, to secure access to their
advanced technologies under development, to enhance the ability to later
acquire these companies and to deter other competitors, including
Cabletron, from obtaining access to these companies' products or
acquiring these companies. The acquisition of and investment in these
companies allows Cabletron's competitors to offer new products without
the lengthy time delays that occur with internal product development and
also permits potential competitors who lack data networking products and
technologies to more quickly enter the data networking market. If
Cabletron cannot acquire or invest in data networking companies, its
access to commercially significant technologies may be limited and
Cabletron may not be able to offer products to meet its customers' needs,
causing Cabletron's market share to decline. Cabletron may have
difficulty acquiring data networking companies because there is
significant competition for these acquisitions, causing the prices paid
to acquire data networking companies to be extremely high compared to the
assets and sales of these companies. Cabletron's competitors may also
have greater resources that enable them to compete more effectively for
the acquisition of companies.
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<PAGE> 26
- CABLETRON MUST SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES TO MEET ITS
PRODUCT DEVELOPMENT OBJECTIVES. Cabletron has partially addressed the need
to develop new products by acquiring or investing in other data networking
companies. These acquisitions and investments involve risks that include:
- - difficulties in assimilating the operations, technologies and products
of the acquired companies;
- - the diversion of management's attention from other business concerns;
- - entering markets in which competitors have established market
positions; and
- - the potential loss of key employees of the acquired company.
The successful combination of companies in the high technology industry may
be more difficult to accomplish than in other industries because these
companies will require integration of product offerings and coordination of
their sales and marketing and research and development efforts.
- THE PERFORMANCE OF EARLY STAGE COMPANIES ACQUIRED BY CABLETRON COULD
CAUSE CABLETRON'S OVERALL PERFORMANCE TO DECLINE. The acquisition of
early stage companies poses risks not posed by other acquisitions. These
companies often have limited operating histories, limited or no prior
sales, and may not have achieved profitability. The technologies possessed
by these companies are often unproven and the development and marketing of
products based upon these technologies may require the investment of
substantial time and resources. Despite any investment of time and
resources, Cabletron may not develop commercially viable or profitable
products. Cabletron may also not experience revenues sufficient to justify
its investment. If Cabletron engages in several acquisitions of early
stage companies, these risks could be magnified.
- IF CABLETRON IS UNABLE TO HIRE AND RETAIN KEY PERSONNEL ITS ABILITY TO
COMPETE MAY BE HARMED. Cabletron's success depends greatly upon its key
employees and management, including the presidents of the four new
operating subsidiaries. Recruiting and retaining skilled personnel,
including engineers, is highly competitive. If Cabletron cannot
successfully recruit and retain skilled personnel, particularly engineers
and sales personnel, its competitive position may be harmed and Cabletron
may have difficulty managing its business and meeting key objectives on
time. The volatility of Cabletron's common stock can also impact
Cabletron's ability to retain employees. When the Cabletron common stock
price is less than the exercise price of stock options granted to
employees, turnover is likely to increase, which could have a negative
effect on Cabletron's operating results and financial condition.
- CABLETRON'S COMMON STOCK PRICE IS VOLATILE AND WILL LIKELY CONTINUE TO BE
SO. As is frequently the case with the stocks of high technology
companies, the market price of the Cabletron's stock has been, and may
continue to be, volatile. The price of Cabletron's common stock may be
affected by:
- - periodic fluctuations in results of operations;
- - shortfalls in revenues or earnings from the levels anticipated by
securities analysts and others;
- - increased competition;
- - the introduction of new products by the Cabletron or its competitors;
- - delays or difficulties in completing Cabletron's transformation into
four new companies;
- - changes in the mix of sales channels through which Cabletron's
products and services are sold;
- - the timing of significant customer orders; and
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- - general U.S. and international business and economic conditions.
The stock market has recently experienced extreme price and volume
fluctuations, which have particularly affected the market price for many
high-technology companies, but which have not necessarily been related to
the operating performance of these companies. Past performance of
Cabletron's stock price or of other technology companies' stock prices
should not be considered a reliable indicator of future performance of
Cabletron's stock price.
- CABLETRON'S MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE REQUIRING
LARGE EXPENDITURES FOR RESEARCH AND DEVELOPMENT THAT MAY NOT RESULT IN
INCREASED REVENUES. The market for networking products is subject to
rapid technological change, evolving industry standards and frequent new
product introductions requiring a high level of expenditures for research
and development. Cabletron may be required to make significant
expenditures to develop new integrated product offerings. If Cabletron
encounters delays in developing or introducing new products or product
enhancements or if the product enhancements do not gain market acceptance,
Cabletron will have difficulty maintaining its competitive position. Even
if Cabletron makes significant expenditures to develop new products,
customer demand for products may not grow at the rate expected by
Cabletron. Cabletron may also not be successful in developing,
manufacturing and marketing new products or product enhancements that
respond to customer demands or to evolving industry standards and
technological change. Cabletron may experience difficulties that could
delay or prevent the successful development, introduction, manufacture and
marketing of these products.
- CABLETRON MUST PROTECT ITS PROPRIETARY TECHNOLOGY TO MAINTAIN ITS MARKET
POSITION. Cabletron's success depends on its proprietary technology.
Cabletron attempts to protect its proprietary technology through patents,
copyrights, trademarks, trade secrets and license agreements. Cabletron's
efforts may not be adequate to prevent misappropriation of its technology.
Patents issued to issued to Cabletron may be challenged, invalidated or
circumvented. The laws of some foreign countries do not protect
Cabletron's proprietary rights at the same level as do the laws of the
United States.
- CABLETRON COULD BE LIABLE FOR SUBSTANTIAL DAMAGES IF A THIRD PARTY
SUCCESSFULLY ESTABLISHES THAT CABLETRON'S PRODUCTS INFRINGE ON THAT THIRD
PARTY'S INTELLECTUAL PROPERTY RIGHTS. Although Cabletron does not believe
that its products infringe the proprietary rights of any third parties,
third parties have periodically asserted infringement and other claims
against Cabletron and others could assert claims against Cabletron in the
future. If these claims are successful, the party making the claims could
obtain a judgment awarding substantial damages. This party could also
obtain an order which could effectively block Cabletron's ability to
license its products in the United States or abroad. Cabletron could also
be required to license technology to replace its infringing technology at
substantial cost and may be unable to license replacement technology at
all. Cabletron could also incur substantial costs and diversion of
management resources to defend any claims relating to proprietary rights
even if Cabletron did ultimately prevail in the matter.
- CABLETRON COULD BE FORCED TO ABANDON A SUCCESSFUL PRODUCT OFFERING IF A
THIRD PARTY SUCCESSFULLY ESTABLISHED THAT CABLETRON'S PRODUCTS INFRINGE ON
THE THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS. If a third party
threatens to establish or successfully establishes that a Cabletron
product infringes on that third party's intellectual property rights,
Cabletron might be forced to abandon efforts to sell that product. If this
were to happen, Cabletron's revenues could fall.
- DISRUPTIONS IN THE SUPPLY OF COMPONENTS USED BY CABLETRON TO MANUFACTURE
ITS PRODUCTS COULD AFFECT CABLETRON'S ABILITY TO DELIVER ITS PRODUCTS IN A
TIMELY AND COST-EFFECTIVE MANNER. Cabletron's products include components
that are currently available from single or limited sources, some of which
require long order lead times. Any reduction in supply, interruption or
extended delay in timely supply, variances in actual needs from forecasts
for long order lead time components, or change in costs of components
could affect Cabletron's ability to deliver its products in a timely and
cost-effective manner. With the increasing technological sophistication of
new products and related design and manufacturing complexities, Cabletron
anticipates that it may need to rely on additional single source or
limited suppliers for components or manufacture of products and
subassemblies.
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- DISRUPTIONS IN THE MANUFACTURE OF CABLETRON'S PRODUCTS COULD AFFECT
CABLETRON'S ABILITY TO DELIVER ITS PRODUCTS ON TIME. Nearly all of
Cabletron's products are manufactured by third-party contract
manufacturers. The failure of a third-party manufacturer to manufacture
the products, to meet Cabletron's manufacturing standards or to deliver
the products in time for Cabletron to meet its delivery requirements could
negatively affect Cabletron's revenues and competitive position.
RISK FACTORS RELATING TO INDUS RIVER
As a stand-alone company, Indus River's business is subject to numerous
risks and uncertainties, including those described below. Indus River's
stockholders should understand that these risks will continue to apply to Indus
River's business if the merger is not completed.
- INDUS RIVER HAS EXPERIENCED SIGNIFICANT OPERATING LOSSES THROUGHOUT ITS
HISTORY, EXPECTS THESE LOSSES TO CONTINUE AND MAY NOT ACHIEVE
PROFITABILITY IN THE FUTURE. Since its formation on August 7, 1996,
Indus River has incurred losses. Indus River incurred net losses of
$7,039,360 in the year ending December 31, 1998 and net losses of
$9,766,791 in the year ending December 31, 1999. As of July 31, 2000,
Indus River had an accumulated deficit of $27.1 million. If Indus River
fails to increase revenues substantially, then it could fail to achieve
profitability.
- INDUS RIVER MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING WHEN NEEDED,
WHICH COULD REDUCE ITS ABILITY TO FUND OR EXPAND OPERATIONS. If the
merger with Cabletron is not completed and Indus River continues as a
stand-alone company, Indus River would not have sufficient capital to
continue its business operations as currently conducted. As a stand-alone
company, Indus River will need to obtain significant additional funds for
research and development and working capital. If Indus River cannot
obtain funds, it could be forced to curtail its future business
operations, or seek combination with another company on terms less
favorable than the terms of the merger with Cabletron.
- INDUS RIVER'S BUSINESS COULD BE HARMED IF ITS PRODUCTS DO NOT ACHIEVE
MARKET ACCEPTANCE. The success of Indus River's products depends on the
ability to make potential customers recognize the advantages and
cost-effectiveness of its products. Many of its customers and potential
customers have long-standing relationships with established competitors
of Indus River. If Indus River is unable to achieve widespread acceptance
of its products, it will have difficulty increasing its revenues.
- INDUS RIVER'S RELIANCE ON A SINGLE PRODUCT COULD AFFECT THE SUCCESS OF
ITS BUSINESS. Indus River's future revenues depend substantially on the
commercial success of its virtual private network hardware and software
products. If Indus River's customers and potential customers do not
adopt, purchase and successfully implement its virtual private network
systems in large numbers, Indus River does not have other products
through which it can earn revenue.
- INDUS RIVER'S LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT QUARTERLY
RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY SIGNIFICANTLY. Indus
River typically completes a sale of its product within four to nine
months of the initial customer inquiry. Timing of customer purchase
decisions is unpredictable and depends on a number of factors outside of
Indus River's control, including the technical skills of the customer and
its end-users, the size of the network being installed, the complexity of
the network environment and the degree of hardware and software
configuration required. If Indus River receives purchase orders for
significant dollar amounts on an irregular and unpredictable basis, its
business operations and financial condition could be harmed.
- INDUS RIVER EARNS MOST OF ITS REVENUE FROM A SMALL BASE OF CUSTOMERS AND
ITS REVENUES MAY DECLINE SIGNIFICANTLY IF ANY CUSTOMER CANCELS OR DELAYS
A PURCHASE OF INDUS RIVER'S PRODUCTS. Indus River anticipates that sales
of its products to approximately 40 customers will account for a
significant portion of its total revenue. The failure of Indus River to
diversify its customer base and increase its sales to a greater number of
customers could adversely affect its results of operations and financial
condition.
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<PAGE> 29
- INDUS RIVER FACES INTENSE COMPETITION AND FAILURE TO COMPETE SUCCESSFULLY
COULD MAKE IT DIFFICULT FOR INDUS RIVER TO ACQUIRE AND RETAIN
CUSTOMERS. Competitors in the virtual private network market include
large companies such as Nortel, Cisco and Checkpoint Systems. Many of
these competitors have substantially greater financial, technical, sales,
marketing and other resources than Indus River. These competitors also
have greater name recognition and larger customer bases. These
competitors are able to devote greater resources to the development,
promotion, sale and support of their products than Indus River. If Indus
River is unable to compete efficiently, its ability to increase its
revenue and market share may be harmed.
- THE FAILURE OF INDUS RIVER'S SUPPLIERS TO MEET ITS MANUFACTURING NEEDS
WOULD SERIOUSLY HARM ITS ABILITY TO TIMELY FILL CUSTOMER ORDERS. Indus
River uses Avnet Applied Computing to supply server platforms and Lineo
to supply its remote gateway products. If either of these suppliers
terminates its relationship with Indus River or is unable to satisfy
Indus River's supply requirements, Indus River's ability to fill customer
orders on time, its reputation and its operating results will suffer.
Qualifying new contract manufacturers and beginning production is
expensive and time consuming, and changing contract manufacturers would
disrupt Indus River's business, potentially causing Indus River to lose
revenue.
- THE LOSS OF KEY PERSONNEL COULD HARM INDUS RIVER'S ABILITY TO
COMPETE. Indus River's success depends upon the continued contributions
of key management, engineering, sales and marketing and manufacturing
personnel. Competition for highly skilled personnel is intense and Indus
River may not be successful in retaining its existing personnel or
attracting additional key personnel. The loss of the services of key
personnel, or the inability to attract and retain qualified personnel in
the future, particularly engineers and sales personnel or could
materially adversely affect Indus River's ability to manage its business
and meet key objectives.
- INDUS RIVER'S ABILITY TO RETAIN OR ATTRACT CUSTOMERS WILL SUFFER IF IT IS
UNABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE. The market for Indus
River's virtual private network systems and other service delivery
products is subject to rapid technological change. The introduction of
new products by competitors, market acceptance of products based on new
or alternative technologies or the emergence of new industry standards,
could cause Indus River's existing or future products to be obsolete.
- IF INDUS RIVER IS UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY IT MAY BE
UNABLE TO COMPETE EFFECTIVELY. Indus River relies on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure
to protect its intellectual property rights. Indus River also enters into
confidentiality or license agreements with its employees, consultants and
business partners. Despite Indus River's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy or obtain
and use its products or technology. Monitoring unauthorized use of Indus
River's products is difficult, and if Indus River is unable to prevent
unauthorized use of Indus River's technology, its business could be
harmed.
- IF INDUS RIVER IS UNABLE TO SUCCESSFULLY EXPAND ITS INTERNATIONAL
OPERATIONS, IT MAY BE UNABLE TO SUCCESSFULLY COMPETE. Indus River has
limited experience in marketing and distributing its products
internationally and may be unable to develop international market demand
for its products. Indus River may also not be able to take advantage of
free local dialing and other key domestic market incentives for its
product, which are unavailable internationally.
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THE COMPANIES
INDUS RIVER NETWORKS, INC.
31 Nagog Park
Acton, Massachusetts 01720
(978) 266-8100
Indus River Networks designs, manufactures and markets enterprise-class
network hardware and software that enables organizations of all sizes to install
and manage remote access and site to site virtual private networks, or VPNs,
with centralized control and remote enforcement of predefined network access
policies. Additionally, the product suite incorporates fault management with
automatic error detection and recovery methods. These features simplify the
process of virtual private network installation and operational management while
enhancing control over network security and improving the cost-effectiveness of
the network.
Indus River sells its products and services to corporate and institutional
customers using both direct and indirect sales channels. RiverWorks Enterprise
VPN solutions are used in several industry sectors including major financial,
industrial, and service companies. These network installations represent some of
the largest VPN installations in the world with several thousand remote users.
The solution provides a broad range of connectivity options that enable mobile
access, high-speed telecommuting and global site-to-site interconnection over
the public Internet. Networks are secured with technologies that provide
end-point authentication and encryption of the data stream. The products have
been tested and certified by leading technology companies and independent test
labs for interoperability, performance and standards compliance.
Indus River has approximately 60 employees, most of whom are located at its
headquarters in Acton, Massachusetts. Indus River was organized under the laws
of Delaware on August 7, 1996 and maintains its executive offices at 31 Nagog
Park, Acton, Massachusetts.
CABLETRON SYSTEMS, INC.
35 Industrial Way
Rochester, New Hampshire 03867
(603) 332-9700
Cabletron is one of the world's leading designers, developers and
manufacturers of communications systems, software and products. Cabletron
delivers flexible and scalable network access and communications equipment and
software to Global 2000 enterprises, service providers and small businesses
worldwide. Cabletron's products include standards-based Ethernet, Fast Ethernet,
Token Ring, fiber distributed data interface, asynchronous transfer mode and
wide area networks networking solutions. Cabletron provides its business
solutions to global customers for enterprise connectivity, service provider
infrastructures, software and professional services by maintaining significant
operations in the United States, Europe, the Pacific Rim and other
industrialized areas of the world. Cabletron has established four operating
subsidiaries -- Aprisma Management Technologies, Enterasys Networks,
GlobalNetwork Technology Services and Riverstone Networks -- to enable it to
focus on the key high-growth areas of the communications marketplace, including
infrastructure management, business conducted electronically over the Internet,
professional services and service providers. Cabletron conducts its operations
through these subsidiaries.
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THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of Indus
River as part of the solicitation of proxies by the Indus River board of
directors for use at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting at the offices of McDermott, Will & Emery,
28 State Street, Boston, Massachusetts 02109, at 10:00 a.m., local time, on
December , 2000.
PURPOSE OF SPECIAL MEETING
At the special meeting, we will ask holders of Indus River stock to adopt
the merger agreement among Cabletron, Acton Acquisition Co., a wholly-owned
subsidiary of Cabletron, and Indus River. The Indus River board of directors has
determined that the merger is advisable and fair to, and in the best interests
of, Indus River stockholders, has unanimously approved the merger agreement and
the merger, and unanimously recommends that Indus River stockholders vote for
adoption of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Indus River stock at the close of business on
, 2000, the record date, are entitled to notice of and to vote
at the special meeting. On the record date:
- 4,204,883 shares of Indus River common stock were issued and outstanding
and held by 57 holders of record;
- 5,100,000 shares of Indus River series A convertible preferred stock were
issued and outstanding and held by 8 holders of record;
- 3,197,973 shares of Indus River series B convertible preferred stock were
issued and outstanding and held by 16 holders of record;
- 70,710 shares of Indus River series C convertible preferred stock were
issued and outstanding and held by 5 holders of record; and
- 2,068,783 shares of Indus River series D convertible preferred stock were
issued and outstanding and held by 20 holders of record.
A quorum is present at the special meeting for purposes of the combined
vote of the holders of Indus River common stock and preferred stock if a
majority of the shares of Indus River preferred stock and Indus River common
stock, which are issued, outstanding and entitled to vote on the record date,
are represented in person or by proxy. A quorum is present for the single class
vote of the preferred stockholders if the holders of two-thirds of the shares of
preferred stock which are issued, outstanding and entitled to vote on the record
date are represented in person or by proxy. If the quorum for either the vote of
Indus River common and preferred stockholders or the vote of Indus River
preferred stockholders is not present at the special meeting, it is expected
that the meeting will be adjourned or postponed to solicit additional proxies.
Holders of record of Indus River common stock on the record date are
entitled to one vote for each share of Indus River common stock at the special
meeting. Holders of record of Indus River preferred stock on the record date are
entitled to one vote for each share of Indus River preferred stock at the
meeting.
On the record date, 92.5% of the outstanding shares of Indus River
preferred stock and Indus River common stock, and 70.2% of the outstanding
shares of Indus River preferred stock, were held by directors and executive
officers of Indus River and their affiliates.
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VOTE REQUIRED
The affirmative vote of holders of:
- a majority of the outstanding shares of the Indus River preferred stock
and Indus River common stock, voting together as a single class; and
- two-thirds of the outstanding shares of the Indus River preferred stock,
voting together as a single class,
is required to adopt the merger agreement.
IF YOU ABSTAIN FROM VOTING OR DO NOT VOTE, EITHER IN PERSON OR BY PROXY, IT
WILL HAVE THE EFFECT OF A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT. WE
CANNOT COMPLETE THE MERGER UNLESS THE PROPOSAL TO ADOPT THE MERGER AGREEMENT IS
APPROVED BY THE REQUIRED VOTE.
STOCKHOLDER AGREEMENTS
Cabletron and the individuals listed below entered into stockholder
agreements and agreed to vote the shares of Indus River stock they own for
adoption of the merger agreement. The form of the voting agreement for Indus
River founders is attached as annex D to the proxy statement/prospectus and the
form of stockholders agreement for the Indus River preferred stockholders is
attached as annex E to the proxy statement/prospectus.
The individuals that have entered into stockholder agreements with
Cabletron are:
- New Enterprise Associates III, Limited Partnership;
- NEA Presidents' Fund, LP;
- NEA Ventures 1997, LP;
- Canaan Equity, LP;
- Canaan Ventures II, Limited Partnership;
- Canaan Venture Partners II, LP;
- Canaan Ventures II Offshore C.V.;
- One Liberty Fund III, LP;
- Ascent Venture Partners II, LP;
- Ascent Venture Partners, LP;
- MCI Worldcom Venture Fund;
- Novell, Inc;
- Per A. Suneby;
- Malik Z. Khan; and
- Julian W. West
On the record date, these stockholders owned and agreed to vote:
- 86.3% of the outstanding shares of Indus River preferred stock and Indus
River common stock, voting together as a single class; and
- 95.5% of the Indus River preferred stock, voting together as a single
class.
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VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the special meeting will be voted at the special meeting in the manner specified
by the holders. PROPERLY EXECUTED PROXIES THAT DO NOT CONTAIN VOTING
INSTRUCTIONS ABOUT THE PROPOSAL WILL BE VOTED FOR ADOPTION OF THE MERGER
AGREEMENT.
Shares of Indus River stock represented at the special meeting but not
voting, including abstentions, will be treated as present at the special meeting
for purposes of determining the presence or absence of a quorum for the
transaction of all business.
Only shares voted for the proposal, including properly executed proxies
that do not contain voting instructions, will be counted as favorable votes for
adoption of the merger agreement. If an Indus River stockholder abstains from
voting or does not vote, either in person or by proxy, it will have the effect
of a vote against adoption of the merger agreement.
The persons named as proxies may propose and vote for one or more
adjournments or postponements of the special meeting, including adjournments or
postponements to permit further solicitation of proxies. No proxy voted against
the proposal to adopt the merger agreement will be voted in favor of any
adjournment or postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude you
from voting in person at the special meeting. You may revoke a proxy at any time
before its exercise by filing with the secretary of Indus River a duly executed
revocation of proxy, by submitting a duly executed proxy card to the secretary
of Indus River bearing a later date or by voting in person at the special
meeting. Attendance at the special meeting will not itself constitute revocation
of a proxy.
SOLICITATION OF PROXIES
The directors, officers and employees of Indus River may solicit proxies
from stockholders in person, by telephone or other electronic means.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD. A transmittal
form with instructions for the surrender of Indus River stock certificates will
be mailed to you as soon as possible after completion of the merger.
APPRAISAL RIGHTS
If you do not wish to accept Cabletron common stock and Cabletron series C
preferred stock in the merger, you have the right under Delaware law to have the
fair value of your shares determined by the Delaware Court of Chancery. This
right to appraisal is subject to a number of restrictions and technical
requirements. Generally, to exercise your appraisal rights you must:
- send a written demand to Indus River for appraisal in compliance with
Delaware law before the vote on the merger;
- not vote in favor of the merger; and
- continuously hold your Indus River stock from the date you make the
demand for appraisal through the closing of the merger.
Merely voting against the merger will not protect your rights to an appraisal.
Annex B to this proxy statement/prospectus contains a copy of the Delaware
statute governing appraisal rights. If you do not follow all the steps required
by Delaware law, you will lose your rights to appraisal. The Delaware law
requirements for exercising appraisal rights are described in further detail on
pages 41 to 44.
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THE MERGER
The discussion below summarizes the material terms of the merger. We urge
stockholders to read carefully the merger agreement and the form of escrow
agreement which are attached as annexes A and C to this proxy
statement/prospectus.
BACKGROUND TO THE MERGER
At the end of 1999 and the beginning of 2000, management of Indus River
made presentations to the Indus River board of directors about Indus River's
business model and strategy. These presentations included the timing of and need
for additional financing. They also discussed the desirability of identifying
potential strategic partners or acquiring companies who could help Indus River
maximize the market potential for existing and planned product offerings.
At the request of the Indus River board of directors, Per A. Suneby,
president and chief executive officer of Indus River and Stephen J. Ricci, a
director of Indus River, interviewed several investment banking firms. On
February 7, 2000, Indus River retained Deutsche Banc Alex.Brown as a financial
advisor. Deutsche Banc was hired primarily to explore strategic alternatives
which might lead to a possible sale, merger or joint venture transaction for
Indus River and secondarily to advise on financial strategy and to provide
assistance with a possible financing. The Indus River board of directors had
determined that a sale, merger or a joint venture transaction had the potential
to provide Indus River with greater resources to compete with some of its large
competitors.
Beginning in February 2000, representatives of Indus River and Cabletron
held numerous discussions. The purpose of these discussions was to evaluate a
range of possible business relationships between Cabletron and Indus River.
On February 8, 2000, Garth Rose, vice president of business development for
Indus River, and Dan Harding, vice president of business development for
Cabletron, held a teleconference to discuss Cabletron's needs for virtual
private network equipment. They discussed a range of issues surrounding
Cabletron building a business relationship with Indus River.
On February 9, 2000, a non-disclosure agreement was executed between Indus
River and Cabletron.
On February 16, 2000, representatives of Indus River, including Julian W.
West, chief technology officer, David Zwicker, vice president of marketing, and
Mr. Rose met in Acton, Massachusetts with representatives of Cabletron,
including Mr. Harding, Graham Morrison, senior director of corporate
development, Ken Pappas, director of wide area network access and virtual
private network marketing, and Dick Bussiere, director of engineering. Michael
Murray, managing director at Deutsche Banc was also present at the meeting.
Indus River presented an overview of Indus River and its products, gave customer
examples, and gave a product demonstration.
On February 22, 2000, representatives of Indus River, including Mr. West,
and Paul Jones, vice president of engineering, met with Mr. Bussiere, and Dana
Cook from Cabletron in Acton, Massachusetts. Indus River held an in-depth
engineering discussion and gave an in-depth product demonstration. About one
week after this meeting, a RiverWorks VPN evaluation system was requested and
was installed in Cabletron's offices in Rochester, New Hampshire.
On February 25, 2000, Mr. Rose and Mr. West from Indus River met with John
Roese, chief technology officer, Ron Oakley, vice president of information
technology, Bill Burger, senior director service provider marketing, Mr. Pappas,
Mr. Bussiere, and other technical representatives from Cabletron in Rochester,
New Hampshire. The objective of the meeting was to demonstrate a typical Indus
River sales call to an enterprise customer using Cabletron as the prospect. At
the end of the meeting, Cabletron information technology representatives
requested a second RiverWorks VPN evaluation system for internal use and
testing. A lengthy technical discussion followed the mock sales call and Mr.
Jones from Indus River joined that meeting.
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On February 28, 2000, Mr. Rose and Mr. Morrison spoke about the status of
the discussions between Indus River and Cabletron. Mr. Morrison asked several
questions exploring Indus River's valuation expectations and indicated that Mr.
Harding would be calling Deutsche Banc to discuss next steps.
During the month of March 2000, numerous discussions occurred between Mr.
Harding and Deutsche Banc, primarily with Mr. Murray. Discussions were generally
about Cabletron's perception of Indus River's value and Indus River's valuation
expectations. During this time, a second RiverWorks VPN system was installed in
the Cabletron information technology department in Rochester, New Hampshire.
During the months of February and March 2000, Indus River also engaged in
strategic discussion with several other companies contacted through executives
of Indus River and representatives of Deutsche Banc concerning possible
acquisition, joint venture and original equipment manufacturer transactions.
On March 27, 2000, Mr. Suneby, David Gamache, chief financial officer, and
Mr. Rose of Indus River, and Robert Benner, managing director, Edward Arnstein,
associate, and Mr. Murray from Deutsche Banc spoke with the Indus River board of
directors to give them a merger and acquisition status update. The board was
advised of Cabletron's interest and also about other companies that were
expressing interest in Indus River.
On March 28, 2000, Mr. Suneby, Mr. Gamache, and Mr. Rose, from Indus River
and Mr. Benner from Deutsche Banc met with Mr. Harding and Mr. Roese from
Cabletron in Acton, Massachusetts. Mr. Roese presented Cabletron's planned
transformation of its four divisions and covered the plans surrounding an
Enterasys transformation in detail. Mr. Roese discussed Enterasys' technology
vision, internal organizational structure, and the synergy of merging Indus
River into Enterasys. Mr. Harding discussed Cabletron's view of Indus River's
value and proposed that the structure for the deal combine Cabletron shares and
Enterasys warrants. The meeting ended with the understanding that Cabletron
would submit a term sheet to Indus River within several days.
On April 3, 2000, Mr. Harding of Cabletron and Mr. Murray talked on the
phone. Cabletron had announced quarterly earnings and the status of the planned
transformation of four divisions on March 31, 2000. The stock market reacted
negatively to the news and Cabletron's stock price had dropped substantially.
Mr. Harding indicated that these developments had delayed his preparation of a
term sheet.
On April 5, 2000, Mr. Harding of Cabletron wrote to Mr. Suneby of Indus
River and stated that although Cabletron remained interested in Indus River,
Cabletron was not then going to make an acquisition offer for Indus River.
During April and May, Mr. Rose and multiple members of the Indus River
customer service group actively supported the ongoing RiverWorks VPN evaluations
at Cabletron.
On June 2, 2000, Cabletron placed a purchase order for a 1,000 user
RiverWorks VPN system for internal use at their Enterasys division.
On June 6, 2000, Mr. Pappas and Mr. Bussiere from Cabletron met with Mr.
Suneby, Mr. West, Mr. Gamache, Mr. Rose, and Mr. Zwicker from Indus River in
Acton, Massachusetts. Mr. Pappas expressed interest in signing an original
equipment manufacturer deal with Indus River and presented the advantages of an
original equipment manufacturer deal with Enterasys. The Indus River team
expressed a willingness to discuss an original equipment manufacturer
transaction, but also openly questioned if that was the right kind of business
relationship between Indus River and Enterasys.
On June 22, 2000, Mr. Suneby, and Mr. Rose from Indus River, and Mr. Murray
from Deutsche Banc met with Mr. Harding, Mr. Pappas, Mr. Bussiere, and Garry
McGuire, vice president of worldwide marketing for Enterasys, in Andover,
Massachusetts. The objective of the meeting was to do a full review and status
update and to discuss a range of possible business relationships among Indus
River, Cabletron and Enterasys. At the meeting Mr. Harding agreed that it made
sense to re-explore acquisition as an option. Mr. Pappas asked questions about
Indus River's site-to-site virtual private network capabilities and it was
agreed to set up a demonstration of Indus River's new site-to-site
functionality.
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On June 27, 2000, Mr. Bussiere and Mr. Pappas from Cabletron and Enterasys
met with Mr. West, Mr. Zwicker, Mr. Rose, Al Harper, vice president of sales,
and several senior Indus River engineers in Acton, Massachusetts. They observed
an in-depth demonstration of new site-to-site virtual private network
functionality and said they were very pleased with the demonstration. Mr.
Zwicker also presented a three-phase strategy of aggressively developing
next-generation virtual private network products and quickly bringing them to
market through Enterasys' sales channels.
On June 30, 2000, Henry Fiallo, president of Enterasys, Mr. Harding, Mr.
Pappas, Mr. Morrison, and Mr. Bussiere of Cabletron and Enterasys met with Mr.
Suneby, Mr. West, Mr. Zwicker and Mr. Rose of Indus River in Andover,
Massachusetts. Piyush Patel, chief executive officer of Cabletron, and Eric
Jaeger, executive vice president of corporate affairs for Cabletron, joined the
meeting by teleconference. Mr. Fiallo presented Enterasys' vision and the Indus
River team presented Indus River's company history and vision of synergy with
Enterasys.
On July 7, 2000, Mr. Harding of Cabletron called Mr. Suneby of Indus River
and indicated that Cabletron wanted to proceed with an acquisition of Indus
River. From July 10 to July 12, 2000, multiple conversations occurred between
Mr. Harding and Deutsche Banc discussing Cabletron's perception of Indus River's
value and Indus River's valuation expectations. On July 12, 2000, Mr. Harding
orally outlined to Mr. Benner the terms of an offer to acquire Indus River.
On July 12, 2000, at a regularly scheduled meeting of the Indus River board
of directors, Mr. Suneby, Mr. Gamache, and Mr. Rose and representatives of
Deutsche Banc and McDermott, Will & Emery, Indus River's law firm, discussed the
terms of Cabletron's oral offer to acquire Indus River. The representatives of
Deutsche Banc presented information concerning Cabletron and Enterasys and
information concerning Indus River's competitive position. The representative of
McDermott, Will & Emery reviewed some of the legal issues that would have to be
addressed in the transaction terms being proposed by Cabletron. After discussion
and analysis, the board of directors recommended that Indus River proceed with
the discussions with Cabletron.
On July 13, 2000, Mr. Suneby and Mr. Zwicker of Indus River met with Mr.
Jaeger, Mr. Harding, and Mr. Patel of Cabletron in Rochester, New Hampshire. The
objective of the meeting was for Mr. Jaeger and Mr. Patel to become better
acquainted with Mr. Suneby and Indus River.
On July 19 and 21, 2000, Mr. Suneby, Mr. Gamache, Mr. Rose of Indus River
and Mr. Benner of Deutsche Banc met with Mr. Harding of Cabletron at the offices
of Ropes & Gray, Cabletron's law firm, in Boston, Massachusetts. Representatives
of Ropes & Gray and McDermott, Will & Emery also participated in the meetings.
The meetings focused on discussing and negotiating the details of the
acquisition.
On July 25, 2000, Cabletron submitted a written term sheet to Indus River
outlining the terms of an acquisition of Indus River and a special meeting of
the Indus River board of directors was held by teleconference to evaluate the
term sheet. After discussion and analysis, all of the board members present
expressed their approval of moving forward with negotiations with Cabletron. By
a unanimous written consent circulated following the meeting, the board of
directors authorized the execution of a letter of intent incorporating the term
sheet presented by Cabletron. The letter of intent would be non-binding except
for the establishment of an exclusive dealing period for the purpose of
continuing negotiations and completing due diligence.
On July 31, 2000, the letter of intent was executed. It provided for an
exclusive dealing period through August 16, 2000.
During the last week of July through August 18, 2000, ongoing discussions
and negotiations continued primarily between Mr. Harding of Cabletron and
Cabletron's legal counsel, Ropes & Gray, and Mr. Gamache of Indus River, Mr.
Benner of Deutsche Banc and Indus River's legal counsel, McDermott, Will &
Emery. Meetings were held at the offices of Ropes & Gray in Boston,
Massachusetts.
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During the week of August 7, 2000, Cabletron completed its business and
technical due diligence. During that week, representatives of Ropes & Gray
conducted legal due diligence of Indus River at the offices of Indus River in
Acton, Massachusetts.
On August 14, 2000, a special meeting of the Indus River board of directors
was held. Representatives of Deutsche Banc and McDermott, Will & Emery reviewed
the terms of the acquisition transaction which had been negotiated and which
were substantially similar to the terms included in the letter of intent
previously authorized by the board of directors. After discussion and analysis
and consultation with Deutsche Banc and McDermott, Will & Emery and for the
reasons described under "-- Reasons for the Merger and Board of Directors
Recommendation" beginning on page 27 of this proxy statement/prospectus, the
Indus River board of directors unanimously authorized management to execute the
definitive merger agreement and related agreements.
On August 16, 2000, the parties extended the exclusive dealing period
through August 23, 2000.
In the evening of August 18, 2000, a definitive merger agreement was signed
by executives of Indus River and Cabletron.
On August 21, 2000, before trading began on the New York Stock Exchange,
Cabletron issued a press release announcing the execution of the merger
agreement.
REASONS FOR THE MERGER AND BOARD OF DIRECTORS RECOMMENDATION
In reaching its decision to approve the merger agreement and the merger and
to recommend adoption of the merger agreement by Indus River stockholders, the
Indus River board of directors consulted with management, its financial and
legal advisors and independently considered the proposed merger agreement and
the transactions covered by the merger agreement. The discussion below of the
factors considered by the Indus River board of directors in making its decision
is not intended to be exhaustive but includes all significant factors considered
by the Indus River board of directors.
The Indus River board of directors considered the following factors as
reasons that the merger will be beneficial to Indus River and its stockholders:
- The financial resources of Cabletron and its ability to fund the
continued development of Indus River's virtual private network product
suite;
- The access afforded to Indus River's products through Enterasys'
established relationships with large business organizations and
enterprises and with major customers, sales and marketing resources and
distribution channels;
- The strategic fit and complementary nature of Indus River's product suite
with Enterasys' security strategy and equipment and hardware; and
- The belief that an exchange of Indus River stock for shares of Cabletron
common stock and Cabletron series C preferred stock would provide Indus
River stockholders with greater future liquidity in a company that could
potentially capitalize on the business prospects of Indus River and
provide a better return on stockholder investment.
The Indus River board of directors reviewed with Indus River management:
- Information relating to the business, assets, management, competitive
position and operating performance of Indus River, including the
prospects of Indus River if it were to continue as an independent company
and its requirements for additional funding;
- The strategic importance of securing a larger partner for Indus River to
better exploit the potential market for virtual private networks and take
advantage of Indus River's technological leadership in virtual private
networks;
- The market price and anticipated stability of Cabletron stock;
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- The likelihood that the merger would be completed; and
- The expected qualification of the merger as a reorganization under
section 368(a) of the Internal Revenue Code.
The Indus River board of directors also identified and considered a number
of potentially negative factors in its deliberations concerning the merger,
including:
- The risk that the operations of Enterasys and Indus River might not be
successfully integrated;
- The risk that, despite the efforts of Indus River and Enterasys after the
merger, key personnel might leave Indus River;
- The risk that the potential benefits of the merger might not be fully
realized; and
- The risk that the market price for Cabletron stock might decline.
The Indus River board of directors believed that some of these risks were
unlikely to occur, that Indus River could avoid or mitigate others, and that,
overall, these risks were outweighed by the potential benefits of the merger.
In view of the variety of factors considered in its evaluation of the
merger agreement and the merger, the Indus River board of directors did not find
it practicable to quantify or assign relative weight to the specific factors
considered in reaching its determination. Individual members of the Indus River
board of directors may have given different weight to different factors.
Recommendation of the Indus River Board of Directors. After careful
consideration, the Indus River board of directors unanimously determined that
the terms of the merger agreement and the merger are advisable and fair to, and
in the best interests of, Indus River and its stockholders and has unanimously
approved the merger agreement and the merger. The Indus River board of directors
unanimously recommends that the stockholders of Indus River vote for adoption of
the merger agreement.
APPRAISALS OF CABLETRON SERIES C PREFERRED STOCK BY ADAMS, HARKNESS & HILL, INC.
The merger agreement specifies that the number of shares of Cabletron stock
issued in the merger that will constitute the liquidation preference payment
will be determined based on a 10 trading day average closing price of
Cabletron's common stock and an appraised value of the Cabletron series C
preferred stock as of five trading days before the closing date of the merger.
Adams, Harkness & Hill, Inc. has agreed to deliver this appraisal at the
closing.
Indus River selected Adams, Harkness & Hill to deliver the appraisal for a
number of reasons, including Adams, Harkness & Hill's qualifications, expertise
and reputation in the area of valuation and financial advisory work. Indus River
placed greatest emphasis on Adams, Harkness & Hill's reputation as a nationally
recognized investment banking firm and the fact that Adams, Harkness & Hill is
regularly engaged in the valuation of businesses and their securities in
mergers, acquisitions, leveraged buyouts, underwritings, private placements and
valuations for corporate and other purposes.
At the request of Indus River, Adams, Harkness & Hill has also delivered
the preliminary appraisal attached as annex F to this proxy
statement/prospectus. The sole purpose of this preliminary appraisal is to
include in this proxy statement/prospectus, an illustration of the distribution
of the shares of Cabletron common stock and Cabletron series C preferred stock
to be issued in the merger. Adams, Harkness & Hill expects that the types of
information obtained by and the valuation methodologies used by it in delivering
its final appraisal will be similar to those used in delivering its preliminary
appraisal. The valuation determined in the final appraisal may be materially
different from that determined in the preliminary appraisal.
On November , 2000, Adams, Harkness & Hill delivered its preliminary
appraisal that the aggregate fair market value of the Cabletron series C
preferred stock to be received by the Indus River stockholders in the merger was
approximately $ million as of November , 2000, based upon and subject to the
various considerations described in the preliminary appraisal.
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The full text of Adams, Harkness & Hill's preliminary appraisal, dated
November , 2000, is attached as annex F to this proxy statement/prospectus and
is incorporated in this proxy statement/prospectus by reference. The preliminary
appraisal describes the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by Adams,
Harkness & Hill in delivering the preliminary appraisal. Adams, Harkness &
Hill's appraisal is directed to the board of directors of Indus River and
addresses only the fair market value of the Cabletron series C preferred stock
to be received under the merger agreement and does not address any other aspect
of the merger or constitute a recommendation to any holder of Indus River stock
about how to vote at the Indus River stockholder meeting. The following summary
of Adams, Harkness & Hill's preliminary appraisal is qualified in its entirety
by reference to the full text of the preliminary appraisal.
The discussion below is a summary of the various sources of information and
valuation methodologies used by Adams, Harkness & Hill in appraising the fair
market value of the Cabletron series C preferred stock. To determine the fair
market value of these securities, Adams, Harkness & Hill employed analyses based
on:
- The financial performance and relative valuations of selected public
companies considered to be comparable to Enterasys; and
- Discounted cash flow analysis of Enterasys.
In preparing its analysis, Adams, Harkness & Hill:
- Reviewed publicly available information concerning the business and
operations of Cabletron and Enterasys, including Cabletron's recent
filings with the Securities and Exchange Commission;
- Reviewed the merger agreement in the form presented to the Indus River
board of directors;
- Compared the financial position and operating results of Enterasys with
those of other publicly traded companies that Adams, Harkness & Hill
considered to be relevant; and
- Held discussions with members of Enterasys' management concerning
Enterasys' historical and current financial condition and operating
results, and its future prospects.
Adams, Harkness & Hill also reviewed relevant industry market research
studies, company research reports and general stock market performance. Other
than the information discussed above, Adams, Harkness & Hill did not review any
additional information in preparing its preliminary appraisal that was
independently material to its analysis. The Indus River board of directors did
not place any limitation on the procedures followed or factors considered by
Adams, Harkness & Hill in delivering its preliminary appraisal.
In delivering its preliminary appraisal, Adams, Harkness & Hill assumed and
relied upon the accuracy and completeness of all of the financial and other
information that was publicly available or provided to Adams, Harkness & Hill
by, or on behalf of, Enterasys, and did not independently verify that
information. Adams, Harkness & Hill assumed that projections and assumptions
were reasonably prepared on a basis not materially different from the best
currently available estimates and judgments of the management of Enterasys about
the future operating and financial performance of Enterasys. Adams, Harkness &
Hill did not obtain an independent evaluation or appraisal of any of the assets
or liabilities, whether or not contingent, of Cabletron or Enterasys. Adams,
Harkness & Hill's preliminary appraisal was based on economic, market, and
financial information existing on, and available to, Adams, Harkness & Hill as
of the date of its preliminary appraisal. Adams, Harkness & Hill's preliminary
appraisal did not predict or take into account any possible economic, monetary
or other changes which may occur, or information which may become available,
after the date of its preliminary appraisal.
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Public Company Peer Analysis -- Enterasys
Adams, Harkness & Hill established a group of publicly traded companies to
address the business areas in which Enterasys operates. The group consists of:
- 3Com Corporation
- ADTRAN, Inc.
- Alcatel SA
- Alteon Websystems, Inc.
- Applied Digital Solutions
- Cisco Systems, Inc.
- Copper Mountain Networks, Inc.
- Extreme Networks, Inc.
- Foundry Networks, Inc.
- Avaya, Inc.
- Marconi, plc
- Nortel Networks Corporation
- Tut Systems, Inc.
Adams, Harkness & Hill compared financial measures and metrics of Enterasys
with the financial measures and metrics of the above peer group companies. The
information included: market capitalization; enterprise value, calculated in the
manner described below; price/projected 2000 & 2001 earnings ratios; 2001
projected revenue; last twelve months revenue; enterprise value/2001 projected
revenue; enterprise value/last twelve months revenue; last twelve months
operating margin; last twelve months gross margin; and year/year quarterly
revenue growth.
Enterprise value/2001 projected revenue and price/projected 2000 & 2001
earnings ratios imply the range of value that public markets place on companies
in a particular market segment. Adams, Harkness & Hill employed an enterprise
value valuation in this analysis because this methodology implies value based on
a company's operations, regardless of how the company finances those operations.
To determine enterprise value, market capitalization is calculated as the
product of a company's common stock price per share multiplied by the number of
diluted shares outstanding. Adams, Harkness & Hill used a 20 trading day average
ending November , 2000, for all public company compatible analyses. The market
capitalization is then adjusted for a company's debt and cash positions by
adding the debt balance and subtracting the cash balance to arrive at an
enterprise value. Stated mathematically, enterprise value has been calculated
as:
(market value of equity) + (debt) - (cash, cash equivalents and short-term
investments)
The low, high and mean financial ratios for the peer group companies are
listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
-------- --- ---- -------
<S> <C> <C> <C>
Enterprise Value/2001 Projected Revenue.....................
2001 Price/Projected Calendar Year 2001 Earnings............
</TABLE>
To arrive at Enterasys' price/earnings multiples for calendar year 2001,
Adams, Harkness & Hill relied on guidance from Enterasys' management as a check
to validate published external research analysts' projections. Adams, Harkness &
Hill then compared the gross margins of the peer group companies to Enterasys'
estimated gross margins to narrow the peer group companies to a set of more
truly comparable companies. This group of comparable peer group companies
consists of:
- ADTRAN, Inc.
- Avaya, Inc.
- Copper Mountain Networks, Inc.
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<PAGE> 41
- Foundry Networks, Inc.
- Nortel Networks Corporation
- Tut Systems, Inc.
The low, high and mean financial ratios for the comparable peer group
companies are listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
-------- --- ---- -------
<S> <C> <C> <C>
Enterprise Value/2001 Projected Revenue.....................
Price/Projected 2000 to 2001 Earnings Ratios................
</TABLE>
Applying the mean enterprise value/2001 projected revenue and
price/projected 2000 & 2001 earnings ratio multiples of the comparable peer
group companies to Enterasys' calendar year 2001 projected revenue of $890
million and calendar year 2001 projected earnings of $48.9 million, Adams,
Harkness & Hill calculated the following implied estimated enterprise values for
Enterasys:
<TABLE>
<CAPTION>
IMPLIED ENTERASYS
MULTIPLE ENTERPRISE VALUE
-------- -----------------
<S> <C>
Enterprise Value/2001 Projected Revenue ($ in millions)..... $
Price/Projected 2000 to 2001 Earnings Ratios ($ in
millions)................................................. $
</TABLE>
Since Enterasys is not a publicly traded company, Adams, Harkness & Hill
applied an illiquidity discount to the implied enterprise values arrived at
using these multiples. Based upon historical studies, Adams, Harkness & Hill
used illiquidity discounts ranging between 30 - 40% to arrive at the following
adjusted implied range of enterprise values for Enterasys:
<TABLE>
<CAPTION>
(ILLIQUIDITY DISCOUNT)
--------------------------------
MULTIPLE 40% 35% 30%
-------- -------- -------- --------
<S> <C> <C> <C>
Enterprise Value/2001 Projected Revenue multiple ($
in millions)..................................... $ $ $
Price/Projected 2000 to 2001 Earnings Ratios ($ in
millions)........................................ $ $ $
</TABLE>
Discounted Cash Flow Analysis
Adams, Harkness & Hill performed a discounted cash flow analysis to
estimate the present value of the stand-alone unlevered after-tax cash flows of
Enterasys. This means they analyzed after-tax cash flows before interest expense
of Enterasys. To perform the discounted cash flow analysis, Adams, Harkness &
Hill used the following data sources and assumptions:
- Management projections for revenue, gross margin, and operating margin;
- Projections by equity analysts of future Enterasys revenue growth;
- Enterasys beta, estimated based on the historical behavior of the peer
group companies and market research analyst estimates;
- Terminal value based upon 7.5 - 8.5% perpetual growth applied to
projected 2005 cash flow; and
- Cost of capital for Enterasys calculated using a risk free rate of 5.9%
and a market risk premium of 7.0%.
To determine a range of net present values for Enterasys, Adams, Harkness &
Hill performed a sensitivity analysis isolating two key variables: the five-year
annualized revenue growth rate, focusing on growth rates between 20-30%, and the
terminal value growth rate, focusing on growth rates between 7.5% and 8.5%.
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<PAGE> 42
SUMMARY CHART OF DISCOUNTED CASH FLOW RANGE AND RESULTING IMPLIED VALUE
<TABLE>
<CAPTION>
LOW MIDPOINT HIGH
-------- -------- --------
<S> <C> <C> <C>
Enterprise Value ($ in millions)................... $ $ $
</TABLE>
Conclusion
To arrive at a preliminary appraised value for the shares of Cabletron
series C preferred stock to be received by the Indus River stockholders in the
merger, Adams, Harkness & Hill:
- Identified the high, low and midpoint valuations determined from the two
multiples analysis and the discounted cash flow analysis;
- Performed a weighted average calculation, assigning a 2x weight to each
midpoint value from each analysis; and
- Multiplied the resulting value by 1%.
Taken together, the information and analyses employed by Adams, Harkness &
Hill lead to Adams, Harkness & Hill's overall conclusion that, for purposes of
the preliminary appraisal, the aggregate value of the 50,000 shares of Cabletron
series C preferred stock to be issued in the transaction is $ , or $ per
share of Cabletron series C preferred stock.
INTERESTS OF INDUS RIVER DIRECTORS, MANAGEMENT AND EMPLOYEES IN THE MERGER
In considering the recommendation of the Indus River board of directors in
favor of the merger, you should be aware that some directors, executive officers
and employees of Indus River have interests in the merger that are different
from the interests of stockholders of Indus River generally. These interests
relate to or arise from:
- the continued indemnification of current directors and officers and some
employees of Indus River;
- the retention of some current officers as employees of Cabletron or
Enterasys;
- accelerated vesting of rights relating to shares of other Indus River
common stock, or Cabletron restricted stock substituted for the Indus
River common stock, acquired or to be acquired by executives and
employees of Indus River subject to stock option agreements or restricted
stock purchase agreements with Indus River;
- the grant of additional Indus River stock options to employees who were
granted options on May 11, 2000, which contain a two-year vesting term,
in exchange for their agreement to modify the accelerated vesting
provisions for those options; and
- the potential payment of additional bonuses to Indus River employees
following the merger.
Except as described below those persons have, to the knowledge of Cabletron
and Indus River, no material interest in the merger apart from those of
stockholders generally. The Indus River board of directors was aware of, and
considered the interests of, their directors, executive officers, employees and
stockholders when it approved the merger agreement and the merger.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that
Cabletron will, or will cause the surviving corporation to, fulfill and honor
all rights to indemnification or exculpation now existing in favor of the
employees, directors or officers of Indus River. These indemnification rights
are provided in: the Indus River certificate of incorporation and the Indus
River by-laws as these documents existed on August 18, 2000. Cabletron will
maintain for six years after the merger executive risk liability insurance for
employees, directors and officers for acts or omissions of those persons
occurring before the merger under terms and conditions at least as favorable as
Indus River's executive risk liability insurance policy in effect on August 18,
2000.
INDUS RIVER EXECUTIVE OFFICERS. It is anticipated that some Indus River
executive officers will become employees of Cabletron after the merger.
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<PAGE> 43
EMPLOYEE BENEFITS. Cabletron has agreed to provide employee benefit plans,
programs and arrangements to those individuals who will continue to be employees
of Indus River after the merger. Cabletron has also agreed that:
- the eligibility of each employee of Indus River, and that employee's
spouse and dependents, to participate in Cabletron's welfare plans after
the effective time of the merger will be determined without considering
any preexisting condition, waiting period, actively-at-work, or similar
exclusion or condition except for any condition or exclusion to which the
employee is subject under the applicable welfare plan of Indus River
before the effective time of the merger;
- employees of Indus River will receive credit under the Cabletron welfare
plans in which they participate after the effective time of the merger
toward coinsurance and deductibles for any payments made by them during
the calendar year in which the merger occurs under the applicable welfare
plans of Indus River; and
- after the merger, employees of Indus River will receive credit, for
purposes of determining eligibility for or vesting under its retirement,
welfare, vacation and similar plans or policies, for service with Indus
River before the effective time of the merger.
If Cabletron so requests, Indus River will cause its 401(k) plan to be
terminated before the completion of the merger. Cabletron will then cause its
401(k) plan to accept rollover distributions from Indus River's terminated plan.
EMPLOYEE ARRANGEMENTS. Per A. Suneby, the president and chief executive
officer of Indus River and Julian W. West, the chief technology officer of Indus
River, have entered into employment terms with the surviving corporation and
will, as part of their compensation packages, receive options to purchase
200,000 shares of Enterasys stock. Those options will vest 25 percent after one
year and monthly from that point on for a period of three years.
STOCK OPTIONS AND RESTRICTED STOCK AGREEMENTS
Under the merger agreement, Cabletron will assume the Indus River stock
incentive program and all stock options granted under that plan. Each stock
option outstanding under the plan at the effective time of the merger will be
converted into a stock option to acquire Cabletron common stock and Cabletron
series C preferred stock on the same terms and conditions as applied to the
Indus River stock option. The exact conversion rate will not be known until five
trading days before the closing date of the merger.
The number of shares of Cabletron common stock to be issued for each Indus
River stock option will be equal to the product of (1) and (2) below.
(1) the number of shares of Indus River common stock that would be issued
for that option multiplied by
(2) the number of shares of Cabletron common stock issuable in exchange for
each share of Indus River common stock in the merger,
rounded down to the nearest whole share.
The number of shares of Cabletron series C preferred stock to be issued for
each Indus River stock option will be equal to the product of (1) and (2) below.
(1) the number of shares of Indus River common stock that would be issued
for that option, multiplied by
(2) the number of shares of Cabletron series C preferred stock issuable in
exchange for each share of Indus River common stock in the merger,
rounded down to the nearest whole share.
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<PAGE> 44
The exercise price per Cabletron option issued in exchange for Indus River
stock options will be equal to the sum of (1) and (2) below.
(1) the product of:
- the exercise price per share of Indus River common stock for that option
immediately before the merger divided by the number of shares of
Cabletron common stock issuable in exchange for each share of Indus
River common stock in the merger, multiplied by
- the ratio of the total fair market value, determined as of the ten
trading days ending on and including the fifth trading day before the
closing date of the merger, of the Cabletron common stock issuable in
the merger to the total fair market value of all Cabletron stock issued
in the merger; and
(2) the product of:
- the exercise price per share of Indus River common stock for that option
immediately before the merger divided by the number of shares of
Cabletron series C preferred stock issuable in exchange for each share
of Indus River common stock in the merger, multiplied by
- the ratio of the total fair market value, determined as of the fifth
trading day before the closing date of the merger, of the Cabletron
series C preferred stock issuable in the merger to the total fair market
value of all Cabletron stock issued in the merger,
rounded up to the nearest cent.
Based on an average closing price of $ per share of Cabletron
common stock for the ten trading days ending on and including November
, 2000 and an appraised value of $ per share of Cabletron
series C preferred stock as of November , 2000, as determined by
Adams, Harkness & Hill, and assuming that the closing of the merger occurs on
December , 2000 and a warrant to purchase 60,847 shares of Indus
River series D preferred stock is not exercised before the merger, each Indus
River stock option would convert into an option to purchase shares
of Cabletron common stock and shares of Cabletron series C preferred
stock at an aggregate exercise price of $ . As of the record date,
the number of shares of Indus River common stock reserved for issuance under
outstanding Indus River stock options under the plan was .
After the merger, each restricted stock agreement between an Indus River
stockholder and Indus River and each stock option agreement between an Indus
River option holder and Indus River will be assumed by Cabletron, subject to the
same restrictions and vesting provisions contained in the related Indus River
restricted stock or stock option agreement, as any of those agreements may be
amended before the merger.
Subject to completion of the merger, some of Indus River's employees have
agreed to modify the terms of their stock options issued on May 11, 2000, which
contain a two-year vesting term, by agreeing to forfeit their right to
acceleration for 50% of the shares subject to those options. This acceleration
would have been triggered by the merger. In exchange for forfeiting this right,
those employees will receive additional grants of stock options that will vest
50 percent on August 21, 2001, with the remaining 50 percent vesting in three
equal installments on the last day of each three-month period from that point
on, so long as the employee remains employed by the surviving corporation or any
successor in interest.
Cabletron will prepare and file with the Securities and Exchange Commission
an appropriate registration statement registering the shares of Cabletron common
stock and the shares of Cabletron series C preferred stock subject to the
assumed Indus River stock options. The registration statement will be kept
effective and current under the requirements of the Securities Act and the
Securities Exchange Act of 1934, for so long as any assumed Indus River options
remain outstanding.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting
under generally accepted accounting principles. Cabletron expects a significant
portion of the purchase price to be allocated to goodwill and identifiable
intangible assets. Under the purchase method, Cabletron will determine the fair
value of
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<PAGE> 45
assets acquired on liabilities assumed. Any premium paid over fair value will be
reflected on Cabletron's balance sheet as an intangible asset.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and the
requirements of Delaware law, Acton Acquisition Co., a wholly owned subsidiary
of Cabletron, will merge with and into Indus River. Indus River will be the
surviving corporation of the merger and a wholly owned subsidiary of Cabletron,
and will continue under the same name.
MERGER CONSIDERATION
Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock, and
all options and warrants to purchase Indus River stock. Holders of additional
options granted in exchange for the forfeiting of acceleration rights described
above and some options granted to some employees hired by Indus River after
August 18, 2000 with Cabletron's consent will not receive any Cabletron stock
for these options. The exact exchange rate will not be known until five trading
days before the closing date of the merger. Based on an average price of
$ per share of Cabletron common stock for the ten trading days ending
on and including November , 2000 and an appraised value of $ per
share of Cabletron series C preferred stock as of November , 2000, as
determined by Adams, Harkness & Hill, this represents an aggregate of
approximately $ million in total consideration to be paid by
Cabletron in the merger.
At the effective time of the merger, each holder of Indus River preferred
stock will receive the liquidation preference specified in the Indus River
certificate of incorporation:
- holders of Indus River series A preferred stock will receive $1.00 per
share of Indus River series A preferred stock, plus all accrued but
unpaid dividends
- holders of Indus River series B preferred stock will receive $2.72 per
share of Indus River series B preferred stock, plus all accrued but
unpaid dividends
- holders of Indus River series C preferred stock will receive $4.08 per
share of Indus River series C preferred stock, plus all accrued but
unpaid dividends
- holders of Indus River series D preferred stock will receive $5.34 per
share of Indus River series D preferred stock, plus all accrued but
unpaid dividends
Cabletron will pay this liquidation preference in shares of Cabletron
common stock and Cabletron series C preferred stock. The value of Cabletron
common stock and Cabletron series C preferred stock paid for the liquidation
preference will be determined based on the average closing price of Cabletron
common stock on the New York Stock Exchange for the ten trading days ending on
and including the fifth trading day before the closing date of the merger, and
the appraised fair market value of the series C preferred stock determined as of
the fifth trading day before the closing date of the merger by Adams, Harkness &
Hill. Cabletron will issue cash for any fractional shares of Cabletron common
stock or Cabletron series C preferred stock that Indus River preferred
stockholders would be entitled to receive as part of the liquidation preference
payment.
After the liquidation preference is paid, each holder of Indus River common
stock and each holder of Indus River preferred stock will receive, in exchange
for the Indus River shares held by that holder, shares of Cabletron series C
preferred stock and shares of Cabletron common stock for each share of Indus
River stock, whether common stock or preferred stock. The exact exchange rate
will not be known until five trading days before the closing date of the merger
because it is depends on the average closing price of Cabletron common stock for
the ten trading days ending on and including the fifth trading day before the
closing date of the merger, and the fair market value of Cabletron series C
preferred stock determined as of the fifth trading day before the closing date
of the merger by an appraisal conducted by Adams, Harkness & Hill, both of which
may fluctuate. The market price of Cabletron common stock and the fair market
value of Cabletron series C
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<PAGE> 46
preferred stock will affect the number of shares paid to the holders of Indus
River preferred stock as the liquidation preference payment, which will in turn
affect the number of shares to be issued to each holder of Indus River common
stock and Indus River preferred stock. Cabletron will issue cash for any
fractional shares that Indus River stockholders would be entitled to receive in
the merger.
Based on an average closing price of $ per share of Cabletron
common stock for the ten trading days ending on and including November , 2000,
and an appraised value of $ per share of Cabletron series C preferred
stock as of November , 2000, as determined by Adams, Harkness & Hill, and
assuming that the closing of the merger occurs on December , 2000 and a
warrant to purchase 60,847 shares of Indus River series D preferred stock is not
exercised before the merger, shares of Cabletron series C preferred
stock and shares of Cabletron common stock will be issued to Indus
River preferred stockholders to pay the liquidation preference. After the
payment of the liquidation preference:
- each holder of Indus River series A preferred stock would receive
shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by that holder;
- each holder of Indus River series B preferred stock would receive
shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by that holder;
- each holder of Indus River series C preferred stock would receive
shares of Cabletron series C preferred stock and
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive shares of Cabletron series C preferred
stock and shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive shares of Cabletron series C preferred
stock and shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder; and
- each holder of Indus River common stock would receive shares
of Cabletron series C preferred stock and shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
Upon completion of the merger, all shares of Indus River stock will no
longer be outstanding, will automatically be canceled and will cease to exist.
Each holder of a certificate representing shares of Indus River stock, other
than shares for which appraisal rights have been properly exercised, will cease
to have any rights as a stockholder of Indus River except the right to receive
Cabletron common stock and Cabletron series C preferred stock, and to receive
cash for any fractional share of Cabletron common stock or series C preferred
stock that the holder would be entitled to receive. The total number of shares
of Cabletron common stock and Cabletron preferred stock to be paid in the merger
was determined through arm's-length negotiations between Cabletron and Indus
River.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of Indus River stock into the right to receive Cabletron
series C preferred stock and Cabletron common stock will occur automatically at
the effective time of the merger. As of the effective time of the merger,
Cabletron will deposit with Boston Equiserve, or another institution selected by
Cabletron, the exchange agent, for the benefit of the holders of Indus River
stock, certificates representing the shares of the Cabletron common stock to be
issued under the merger agreement, less the number of shares of Cabletron common
stock to be deposited in an escrow account to secure the indemnification
obligations of the Indus River stockholders to Cabletron. After the merger,
Cabletron will deposit all of the shares of Cabletron series C preferred stock
to be issued under the merger agreement into a separate escrow account. The
Cabletron series C preferred stock will be held in the escrow account until the
earliest to occur of the 30
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<PAGE> 47
month anniversary of the closing date of the merger or any conversion or
redemption of those shares. As soon as possible after the merger, the exchange
agent will send a transmittal letter to each Indus River stockholder. The
transmittal letter will contain instructions for obtaining shares of Cabletron
common stock and Cabletron series C preferred stock in exchange for shares of
Indus River stock. PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
After the merger, each certificate that previously represented shares of
Indus River stock will represent only the right to receive the Cabletron series
C preferred stock and Cabletron common stock into which those shares were
converted in the merger and the right to receive cash for any fractional share
of Cabletron series C preferred stock and Cabletron common stock as described
below.
Until holders of certificates previously representing Indus River stock or
the purchase of that stock have surrendered those certificates to the exchange
agent for exchange, holders will not receive dividends or distributions on the
Cabletron series C preferred stock and the Cabletron common stock into which
those shares have been converted with a record date after the merger, and will
not receive cash for any fractional shares of Cabletron series C preferred stock
and the Cabletron common stock they would be entitled to receive. When holders
surrender those certificates, they will receive any unpaid dividends and any
cash for any fractional share of Cabletron series C preferred stock and the
Cabletron common stock they would be entitled to receive without interest.
Upon surrender of certificates previously representing Indus River stock,
and the letter of transmittal described above properly executed and any other
documents the exchange agent may reasonably require, the holder will be entitled
to receive:
- a certificate representing the number of whole shares of Cabletron common
stock into which the Indus River stock, represented by the surrendered
certificates, will have been converted at the effective time of the
merger, less the number of shares of Cabletron common stock, if any, to
be deposited in the escrow account on behalf of the holder;
- notice of the number of whole shares of Cabletron series C preferred
stock into which the Indus River stock, represented by the surrendered
certificates, will have been converted at the effective time of the
merger, and that those shares of Cabletron series C preferred stock have
been deposited into an escrow account on behalf of the holder; and
- cash instead of any fractional share of Cabletron common stock or
Cabletron series C preferred stock, calculated in the manner described in
the merger agreement and described below.
If there is a transfer of ownership of Indus River stock which is not
registered in the records of Indus River's transfer agent, certificates
representing the proper number of shares of Cabletron common stock and Cabletron
series C preferred stock may be issued to a person other than the person in
whose name the certificate so surrendered is registered if:
- that certificate is properly endorsed and in proper form for transfer;
and
- the person requesting the issuance:
- - pays to the exchange agent any transfer or other taxes resulting from
the issuance of shares of Cabletron stock in a name other than that
on the surrendered certificate; or
- - establishes to the satisfaction of Cabletron or any agent designated
by it that the tax has been paid or is not payable.
All shares of Cabletron common stock and Cabletron series C preferred stock
issued upon conversion of shares of Indus River stock, including any cash paid
for any fractional share of Cabletron stock or Cabletron series C preferred
stock, will be issued in full satisfaction of all rights relating to those
shares of Indus River stock.
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<PAGE> 48
No fractional share of Cabletron common stock or Cabletron series C
preferred stock will be issued to any Indus River stockholder upon surrender for
exchange of certificates previously representing Indus River stock.
Instead of any fractional share of Cabletron common stock, the Indus River
stockholder will receive cash equal to the product obtained by multiplying:
- the average closing price for a share of Cabletron common stock on the
New York Stock Exchange Composite Transactions Tape for the ten trading
days ending on and including the fifth trading day before the closing
date of the merger by
- the fractional share which the stockholder would be entitled to receive.
Instead of any fractional share of Cabletron series C preferred stock, the
Indus River stockholder will receive cash equal to the product obtained by
multiplying:
- the fair market value per share of Cabletron series C preferred stock
determined as of the fifth trading day before the closing date of the
merger, by an appraisal conducted by Adams, Harkness & Hill by
- the fractional share to which the stockholder would be entitled to
receive.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the secretary of state of the State of Delaware, or at a later time stated
in the certificate of merger or agreed upon by Cabletron and Indus River. The
filing of a certificate of merger will occur at the time of the closing of the
merger.
STOCK EXCHANGE LISTING OF CABLETRON COMMON STOCK
It is a condition to completion of the merger that the Cabletron common
stock issued to Indus River stockholders in the merger be authorized for listing
on the New York Stock Exchange, subject to official notice of issuance.
EMPLOYMENT AGREEMENTS
It is a condition to the merger that Per A. Suneby and Julian W. West, the
president and chief executive officer and chief technology officer of Indus
River enter into employment agreements with the surviving corporation and that
those agreements be in full force and effect at the effective time of the
merger.
SIGNIFICANT UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax
consequences of the merger to the stockholders of Indus River. This summary is
not a complete description of all the tax consequences of the merger and does
not address the tax consequences that may be relevant to particular categories
of stockholders subject to special treatment under federal income tax laws, such
as dealers in securities, banks, insurance companies, tax-exempt organizations,
corporate stockholders that are collapsible corporations, non-United States
persons, stockholders who acquired shares of Indus River common stock by
exercising options or in another manner as compensation, holders of options,
warrants or similar rights to acquire Indus River stock, stockholders who are
subject to the alternative minimum tax provisions of the Internal Revenue Code
of 1986, or stockholders who hold their shares as part of a hedging, straddle,
conversion or other risk reduction or constructive sale transaction.
This summary is based upon the Internal Revenue Code, currently applicable
Treasury regulations, published administrative rulings and court decisions all
as of the date of this proxy statement/prospectus. All of these items are
subject to change either prospectively or retroactively, and any change could
affect the continuing validity of the tax consequences described below. No
information is provided in this proxy statement/prospectus about the tax
consequences of the merger arising under the laws of any state, local or foreign
jurisdiction. This summary discusses only the federal income tax consequences of
the merger and does
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<PAGE> 49
not discuss the tax consequences of any other transaction that may occur before,
after or at the same time as the merger, whether or not any of these
transactions are undertaken as part of with the merger.
No ruling from the IRS concerning the federal income tax consequences of
the merger will be requested. The tax consequences described in this discussion
are not binding on the IRS or the courts and contrary positions may be
successfully asserted by the IRS or adopted by a court.
INDUS RIVER STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
CHARACTERIZATION OF THE MERGER FOR FEDERAL INCOME TAX PURPOSES
Cabletron and Indus River plan to treat the merger as a tax-free
reorganization for federal income tax purposes. This treatment will depend in
part on if, and when, Cabletron conducts a spin-off or other disposition of
Enterasys, the company to which Cabletron plans to transfer the Indus River
stock after the merger, and whether the IRS would attempt to assert that, for
federal income tax purposes, a spin-off or other disposition of Enterasys should
be combined with the merger. Although Cabletron has announced its desire to
establish its four operating subsidiaries, including Enterasys, as an
independent company, Cabletron is not obligated to do so and continues to
consider several possibilities for Enterasys, including the possibility of
retaining Enterasys as a subsidiary of Cabletron. Cabletron might carry out its
announced intention to spin off or dispose of Enterasys. If the IRS were to
successfully assert that, for federal income tax purposes, this merger should be
combined with the spin-off or other disposition of Enterasys, this merger would
constitute a taxable purchase and sale of Indus River stock.
Federal Income Tax Consequences to Indus River Stockholders
Treatment of Merger as a Tax-Free Reorganization. If the merger is treated
as a tax-free reorganization, the merger should result in the following federal
income tax consequences:
- An Indus River stockholder should not recognize gain or loss on the
exchange of Indus River stock solely for Cabletron stock. An Indus River
stockholder who receives cash proceeds instead of a fractional share
interest in Cabletron stock will recognize gain or loss equal to the
difference between those proceeds and the tax basis allocated to the
fractional share interest. This gain or loss will constitute capital gain
or loss if the stockholder's Indus River stock is held as a capital asset
at the effective time of the merger.
- The aggregate tax basis of the Cabletron stock, including any fractional
share of Cabletron stock not actually received and any shares of
Cabletron stock held in escrow, received by an Indus River stockholder
who exchanges Indus River stock for Cabletron stock will be the same as
the stockholder's aggregate tax basis in the Indus River stock
surrendered in exchange for Cabletron common stock and Cabletron series C
preferred stock.
- The holding period of the Cabletron stock received by an Indus River
stockholder will include the period during which the shares of Indus
River stock surrendered in exchange for Cabletron common stock and
Cabletron series C preferred stock were held so long as the Indus River
stock is held by the stockholder as a capital asset at the effective time
of the merger.
- Part of the aggregate shares of Cabletron common stock to be issued in
the merger will be held in escrow to satisfy possible indemnification
claims. Each former Indus River stockholder who has shares of Cabletron
common stock held in escrow should be treated for federal income tax
purposes as the owner of the escrow portion of its merger consideration.
That stockholder should recognize no gain or loss on the receipt of the
Cabletron common stock upon the release to the stockholder of its shares
from escrow. However, if the escrow agent pays any of the escrowed shares
to Cabletron to indemnify
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Cabletron, each former Indus River stockholder who has shares of
Cabletron common stock held in escrow will recognize gain or loss equal
to the difference between:
- - the fair market value of its portion of the escrowed shares paid to
Cabletron; and
- - its tax basis in the escrowed shares.
Each former Indus River stockholder who has shares of Cabletron common
stock held in escrow will increase the tax basis in its remaining
Cabletron stock by an amount equal to any indemnification payment.
- Indus River stockholders who exercise dissenters' rights and who receive
payment for their Indus River stock in cash should recognize gain or loss
measured by the difference between the amount of cash received and the
stockholder's basis in the shares surrendered. This is the case so long
as the payment is neither essentially equivalent to a dividend within the
meaning of section 302 of the Internal Revenue Code nor has the effect of
a distribution of a dividend within the meaning of section 356(a)(2) of
the Internal Revenue Code.
A sale of Indus River stock as part of an exercise of dissenters' rights
will not be essentially equivalent to a dividend if the stockholder exercising
dissenters' rights owns no shares of Cabletron stock or Indus River stock,
either actually or constructively within the meaning of section 318 of the
Internal Revenue Code, immediately after the merger. If a stockholder's sale for
cash of Indus River stock as part of an exercise of dissenters' rights is
essentially equivalent to a dividend, then the stockholder may recognize
ordinary income for federal income tax purposes in an amount equal to the entire
amount of cash received.
Treatment of Merger as a Taxable Sale of Indus River Stock. If the merger
does not qualify as a tax-free reorganization, an Indus River stockholder will
be treated as having sold Indus River stock to Cabletron in exchange for
Cabletron stock. Each Indus River stockholder will recognize gain or loss at the
effective time of the merger equal to the difference between the stockholder's
adjusted tax basis in the Indus River stock and the fair market value of the
Cabletron stock received in exchange for the Indus River stock.
The gain or loss recognized by Indus River stockholders will be capital
gain or loss if the Indus River stock was held as a capital asset in the hands
of the stockholder, and will be long-term capital gain or loss if the
stockholder has held Indus River stock for more than one year. Long-term gain
will in general be subject to a maximum federal income tax rate of 20% for
noncorporate taxpayers. An Indus River stockholder's aggregate basis in the
Cabletron stock received will equal the fair market value at the effective time
of the merger of the Cabletron stock received. The holding period for the
Cabletron stock will begin the day after the effective time of the merger.
Treatment of Cabletron Series C Preferred Stock. The Cabletron series C
preferred stock should be treated for federal income tax purposes as common
stock of Cabletron, and holders of Indus River stock should not recognize gain
or loss on the exchange of Indus River stock for Cabletron series C preferred
stock as long as the merger is treated as a tax-free reorganization under the
Internal Revenue Code. However, because in some circumstances, the Cabletron
series C preferred stock is exchangeable for shares of Enterasys and has
economic rights that are determined based on the value of Enterasys, it is
possible that the IRS might assert that the Cabletron series C preferred stock
is nonqualified preferred stock of Cabletron or stock of Enterasys. If the IRS
were to prevail in either of these assertions, and even if the merger qualifies
as a tax-free reorganization in every other way, holders of Indus River stock
would recognize gain at the effective time of the merger equal to the lesser of:
- the fair market value of the Cabletron series C preferred stock or
- the difference between the fair market value of the Cabletron series C
preferred stock and Cabletron common stock received in the merger, and
the stockholder's adjusted tax basis in the Indus River stock exchanged
for the Cabletron series C preferred stock and Cabletron common stock.
If the Cabletron series C preferred stock were determined to be stock of
Enterasys and to constitute more than 20% of the aggregate consideration
provided in the merger, then the merger would be fully taxable and
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holders of Indus River stock would recognize gain or loss equal to the
difference between the fair market value of the Cabletron series C preferred
stock and Cabletron common stock received in the merger and their adjusted tax
basis in the Indus River stock exchanged for the Cabletron series C preferred
stock and the Cabletron common stock.
Cabletron and Indus River believe that the Cabletron series C preferred
stock should not constitute nonqualified preferred stock or Enterasys stock.
However, the IRS has not issued any administrative guidance concerning the scope
of the term nonqualified preferred stock or when stock of a parent would be
considered stock of the subsidiary and there can be no assurance that this
interpretation is correct.
If the Cabletron series C preferred stock is treated as stock of Cabletron,
its conversion into Cabletron common stock or redemption for Enterasys stock,
cash or other property should have the following federal income tax
consequences:
- Holders of Cabletron series C preferred stock should not recognize any
gain or loss on the conversion of their Cabletron series C preferred
stock into Cabletron common stock.
- Holders of Cabletron series C preferred stock should not recognize any
gain or loss on the redemption of their Cabletron series C preferred
stock for Enterasys stock, so long as the redemption is part of
Cabletron's distribution of Enterasys stock to the Cabletron stockholders
and is governed by section 355 of the Internal Revenue Code.
- If the redemption of Cabletron series C preferred stock is not governed
by section 355 of the Internal Revenue Code, holders of Cabletron series
C preferred stock will have a taxable redemption and should recognize
gain or loss on the redemption if the redemption is not essentially
equivalent to a dividend within the meaning of section 302 of the
Internal Revenue Code, as described above. The amount of gain or loss
recognized in a taxable redemption will equal the difference between the
cash, if any, and fair market value of other property received as
redemption proceeds and the adjusted tax basis in the Cabletron series C
preferred stock redeemed. If a stockholder's taxable redemption is
essentially equivalent to a dividend, that stockholder may recognize
ordinary income in an amount equal to the redemption proceeds, whether or
not received in cash.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF SIGNIFICANT
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS NOT A COMPLETE ANALYSIS OR
DISCUSSION OF ALL RELEVANT POTENTIAL TAX EFFECTS. INDUS RIVER STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX
LAWS.
GOVERNMENT FILINGS
Cabletron and Indus River do not believe that any governmental filings in
the United States are required for the merger, other than the filing of the
registration statement with the Securities and Exchange Commission of which this
proxy statement/prospectus is a part.
RIGHTS OF STOCKHOLDERS TO APPRAISALS
Under the Delaware General Corporation Law, any holder of Indus River stock
who does not wish to accept the merger consideration for its shares of Indus
River common stock or Indus River preferred stock has the right to dissent from
the merger. A stockholder has the right to seek an appraisal of, and to be paid
the fair cash value for, its shares of Indus River preferred stock or Indus
River common stock, judicially determined, and paid to the stockholder in cash,
with a fair rate of interest, if any, as long as that stockholder fully complies
with the provisions of section 262 of the Delaware General Corporation Law.
However, a dissenting Indus River stockholder will not be entitled to receive
any cash that represents value arising from the accomplishment or expectation of
the merger. A copy of section 262 of the Delaware General Corporation Law is
attached as annex B to this proxy statement/prospectus.
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Making sure that you actually perfect your appraisal rights can be
complicated. The procedural rules are specific and must be followed precisely.
Failure to comply with the procedure may cause a termination of your appraisal
rights. The following information is intended as a brief summary of the material
provisions of the statutory procedures you must follow to perfect your appraisal
right. Please review section 262 for the complete procedure. Indus River will
not give you any notice other than what is described in this proxy
statement/prospectus and what is required by the Delaware General Corporation
Law.
APPRAISAL RIGHTS PROCEDURES
If you are an Indus River preferred stockholder or an Indus River common
stockholder and you wish to exercise your appraisal rights, you must satisfy the
provisions of section 262 of the Delaware General Corporation Law. Section 262
requires that:
- YOU MUST MAKE A WRITTEN DEMAND FOR APPRAISAL: You must deliver a written
demand for appraisal to Indus River before the vote on the merger
agreement is taken at the special meeting. This written demand for
appraisal must be separate from your proxy card. A vote against the
merger agreement alone will not constitute demand for appraisal.
- YOU MUST REFRAIN FROM VOTING FOR APPROVAL OF THE MERGER: You must not
vote for approval of the merger agreement. If you vote, by proxy or in
person, in favor of the merger agreement, this will terminate your right
to appraisal. You can also terminate your right to appraisal if you
return a signed proxy card and:
- fail to vote against approval of the merger; or
- fail to note that you are abstaining from voting.
If you do either of these two things, then your appraisal rights will be
terminated even if you previously filed a written demand for appraisal.
- YOU MUST CONTINUOUSLY HOLD YOUR INDUS RIVER SHARES: You must
continuously hold your shares of Indus River stock, from the date you
make the demand for appraisal through the closing of the merger. If you
are the record holder of Indus River stock on the date the written demand
for appraisal is made but then transfer the shares before the merger, you
will lose any right to appraisal of those shares. You should read the
paragraphs below for more details on making a demand for appraisal.
A written demand for appraisal of Indus River stock is only effective if it
is signed by, or for, the stockholder of record who owns the shares at the time
the demand is made. The demand must be signed as the stockholder's name appears
on its Indus River preferred stock or common stock certificates. If you are the
beneficial owner of Indus River stock, but not the stockholder of record, you
must have the stockholder of record sign a demand for appraisal.
If you own Indus River stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity.
If you own Indus River stock with more than one person, such as in a joint
tenancy or tenancy in common, all the owners must sign, or have signed for them,
the demand for appraisal. An authorized agent, which could include one or more
of the joint owners, may sign the demand for appraisal for a stockholder of
record. The agent must expressly disclose who the stockholder of record is and
that the agent is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds Indus River stock as
a nominee for others, you may exercise a right of appraisal for the shares held
for one or more beneficial owners, while not exercising the right for other
beneficial owners. You should specify in the written demand the number of shares
for which you wish to demand appraisal. If you do not expressly specify the
number of shares, Indus River will assume that your written demand covers all
the shares of Indus River stock that are in your name.
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If you are an Indus River stockholder who elects to exercise appraisal
rights, you should mail or deliver a written demand to:
31 Nagog Park
Acton, Massachusetts, 01720
Attention: David P. Gamache
It is important that Indus River receive all written demands before the
vote concerning the merger agreement is taken at the special meeting. As
explained above, this written demand should be signed by, or on behalf of, the
stockholder of record. The written demand for appraisal should specify the
stockholder's name and mailing address, the number of shares of stock owned, and
that the stockholder is demanding appraisal of his shares.
If you fail to comply with any of these conditions and the merger becomes
effective, you will only be entitled to receive the merger consideration
provided in the merger agreement.
WRITTEN NOTICE: Within ten days after the closing of the merger, Indus
River must give written notice that the merger has become effective to each
stockholder who has fully complied with the conditions of section 262.
PETITION WITH THE CHANCERY COURT: Within 120 days after the merger, either
the surviving corporation or any stockholder who has complied with the
conditions of section 262, may file a petition in the Delaware Court of
Chancery. This petition should request that the chancery court determine the
value of the shares of stock held by all the stockholders who are entitled to
appraisal rights. If you intend to exercise your appraisal rights, you should
file this petition in the chancery court. Indus River has no intention at this
time to file this petition. Because Indus River has no obligation to file this
petition, if you do not file this petition within 120 days after the closing,
you will lose your rights of appraisal.
WITHDRAWAL OF DEMAND: If you change your mind and decide you no longer
want appraisal rights, you may withdraw your demand for appraisal rights at any
time within 60 days after the closing of the merger. You may also withdraw your
demand for appraisal rights after 60 days after the closing of the merger, but
only with the written consent of Indus River. If you effectively withdraw your
demand for appraisal rights, you will receive the merger consideration provided
in the merger agreement.
REQUEST FOR APPRAISAL RIGHTS STATEMENT: If you have complied with the
conditions of section 262, you are entitled to receive a statement from Indus
River. This statement will describe the number of shares that have demanded
appraisal rights, and the number of stockholders who own those shares. To
receive this statement, you must send a written request to Indus River within
120 days after the merger. After the merger, Indus River has 10 days after
receiving a request to mail you the statement.
CHANCERY COURT PROCEDURES: If you properly file a petition for appraisal
in the chancery court and deliver a copy to Indus River, Indus River will then
have 20 days to provide the chancery court with a list of the names and
addresses of all stockholders who have demanded appraisal rights and have not
reached an agreement with Indus River concerning the value of their shares. The
chancery court will then send notice to all the stockholders who have demanded
appraisal rights. If the chancery court thinks it is appropriate, the chancery
court has the power to conduct a hearing to determine whether the stockholders
have fully complied with section 262 and whether they are entitled to appraisal
rights under that section. The chancery court may also require you to submit
your stock certificates to the Registry in Chancery so that it can note on the
certificates that an appraisal proceeding is pending. If you do not follow the
chancery court's directions, you may be dismissed from the proceeding.
APPRAISAL OF SHARES: After the chancery court determines which
stockholders are entitled to appraisal rights, the chancery court will appraise
the shares of stock. To determine the fair value of the shares, the chancery
court will consider all relevant factors except for any appreciation or
depreciation due to the anticipation or accomplishment of the merger. After the
chancery court determines the fair value of the shares, it will direct Indus
River to pay that value to the stockholders who are entitled to appraisal
rights. The chancery court can also direct Indus River to pay interest, simple
or compound, on that value if the chancery court determines that interest is
appropriate. To receive payment for your shares, you must then surrender your
stock certificates to Indus River.
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The chancery court could determine that the fair value of shares of stock
is more than, the same as, or less than the merger consideration. If you demand
appraisal rights, you could receive less consideration than you would under the
merger agreement.
COSTS AND EXPENSES OF APPRAISAL PROCEEDING: The costs of the appraisal
proceeding may be assessed against Indus River and the stockholders
participating in the appraisal proceeding, in whatever manner the chancery court
believes is equitable under the circumstances. You may request that the chancery
court determine the amount of interest, if any, Indus River should pay on the
value of stock owned by stockholders entitled to the payment of interest. You
may also request that the chancery court allocate the expenses of the appraisal
action incurred by any stockholder pro rata against the value of all the shares
entitled to appraisal.
LOSS OF STOCKHOLDER'S RIGHTS: If you demand appraisal rights, after the
closing of the merger you will not be entitled:
- to vote the shares of stock for which you have demanded appraisal rights
for any purpose;
- to receive payment of dividends or any other distribution on the shares
of stock for which you have demanded appraisal, except for dividends or
distributions, if any, that are payable to holders of record as of a
record date before the effective time of the merger; or
- to receive the payment of the consideration provided for in the merger
agreement, unless you properly withdraw your demand for appraisal.
If no petition for an appraisal is filed within 120 days after the closing
of the merger, your right to an appraisal will cease. You may withdraw your
demand for appraisal and accept the merger consideration by delivering to Indus
River a written withdrawal of your demand, except that:
- any attempt to withdraw made more than 60 days after the closing of the
merger will require the written approval of Indus River; and
- an appraisal proceeding in the chancery court cannot be dismissed unless
the chancery court approves.
If you fail to comply strictly with the procedures described above you will
lose your appraisal rights. If you wish to exercise your appraisal rights, we
strongly urge you to consult a legal advisor before attempting to exercise your
appraisal rights.
RESALE OF CABLETRON COMMON STOCK AND CABLETRON SERIES C PREFERRED STOCK
Cabletron common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act, except for shares
covered by a restricted stock agreement, shares to be placed in escrow to secure
the indemnification obligations of some Indus River stockholders under the
merger agreement and shares issued to any Indus River stockholder who may be
considered an affiliate of Indus River. An affiliate of Indus River is any
individual or entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with,
Indus River or Cabletron. Affiliates are subject to the Rule 145 limitations on
the resale of their securities. If you are an affiliate you will be prohibited
from transferring any of the Cabletron series C preferred stock or Cabletron
common stock you receive in the merger, unless the disposition complies with the
volume limitations of paragraph (e)(1) of Rule 144 under the Securities Act and
is accomplished by using a broker that serves only in a broker capacity for you,
or until you are no longer an affiliate of Cabletron and at least one year has
passed since the date you acquired the securities. This proxy
statement/prospectus does not cover resales of Cabletron common stock received
by any person upon completion of the merger, and no person is authorized to make
any use of this proxy statement/prospectus in any resale.
Cabletron series C preferred stock issued in the merger will be subject to
restrictions on transfer and will bear a legend stating that the shares are
subject to restrictions on transfer. The shares will not be listed for trading
on the New York Stock Exchange or any other exchange. The shares of Cabletron
series C preferred stock issued in the merger will be held in escrow until the
earliest to occur of the 30 month anniversary of the closing date of the merger
or any conversion or redemption of the shares.
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THE MERGER AGREEMENT
This description summarizes the material provisions of the merger agreement
and the escrow agreement. We urge stockholders to read carefully the merger
agreement and the form of escrow agreement which are attached as annexes A and C
to this proxy statement/prospectus.
CONDITIONS TO THE COMPLETION OF THE MERGER
Each party's obligation to complete the merger is subject to the
satisfaction or waiver of various conditions that include:
- holders of a majority of the outstanding shares of Indus River common
stock and preferred stock, voting together as a single class, must agree
to adopt the merger agreement;
- holders of two-thirds of the outstanding shares of Indus River preferred
stock, voting together as a single class, must agree to adopt the merger
agreement;
- the registration statement on Form S-4, of which this proxy
statement/prospectus is a part, must have become effective under the
Securities Act and must not be the subject of any stop order or
proceedings seeking a stop order;
- no law, order, injunction or other legal restraint or prohibition
preventing the merger may be in effect;
- no proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, seeking to restrain or
prohibit the merger, may be pending;
- there may not be any action taken, or any statute, rule, regulation or
order applicable to the merger, which makes the merger illegal;
- there must not have been instituted, pending or threatened, any action or
proceeding, or any investigation or other inquiry that might result in an
action or proceeding, by any governmental authority or administrative
agency before any governmental authority, administrative agency or court
of competent jurisdiction;
- there must not be any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction,
seeking to prohibit or limit Cabletron from exercising rights and
privileges pertaining to its ownership of Indus River or the ownership or
operation by Cabletron or any of its subsidiaries of the business or
assets of Cabletron or any of its subsidiaries;
- there must not be any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction
seeking to compel Cabletron or any of its subsidiaries to dispose of or
hold separate the business or assets of Cabletron or any of its
subsidiaries, including Indus River, because of the merger;
- all approvals, waivers and consents of any governmental or regulatory
authority necessary for the merger must have been obtained, including any
approvals, waivers and consents required under any federal or state
securities laws;
- the escrow agreement must have been entered into by Cabletron, Indus
River, a representative of the Indus River stockholders and the escrow
agent;
- Cabletron and Indus River must comply with their agreements and covenants
in all material respects; and
- the representations and warranties of Cabletron and Indus River contained
in the merger agreement must be true and correct in all material
respects.
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Cabletron's obligation to complete the merger is also subject to the
satisfaction or waiver of additional conditions:
- Indus River must have obtained all necessary consents, waivers,
approvals, authorizations or orders required to be obtained, and must
have made all filings required to have been made;
- all existing registration rights, preemptive rights and rights of first
refusal agreements entered into by the Indus River stockholders before
August 18, 2000 must have been terminated;
- Per A. Suneby and Julian W. West must have entered into employment terms
with the surviving corporation;
- Indus River must have retained a required percentage of employees
required by the merger agreement;
- a required percentage of Indus River employees who received stock options
on May 11, 2000, which contain a two-year vesting term, must have signed
agreements modifying the vesting terms of those options and, in exchange,
Indus River must have granted additional stock options to those
employees;
- no changes or circumstances shall have occurred that are or are
reasonably likely to be materially adverse to the business, assets,
prospects, financial condition or results of operations of Indus River,
or is or is reasonably likely to materially delay or prevent the merger
or the transactions described in the merger agreement.
Indus River's obligation to complete the merger is also subject to the
satisfaction or waiver of additional conditions:
- Cabletron common stock to be issued in the merger must be authorized for
listing on the New York Stock Exchange, subject to official notice of
issuance;
- Cabletron shall have caused the surviving corporation to have made offers
of employment to all employees of Indus River, subject to the completion
of the merger, the terms of which will be comparable in the aggregate to
the current employment arrangements between the employees and Indus
River;
- Cabletron must have obtained all necessary consents, waivers, approvals,
authorizations or orders required to be obtained and must have made all
filings required to have been made.
NO SOLICITATION
The merger agreement provides that Indus River will not, directly or
indirectly, through any officer, director, employee, representative or agent:
- solicit, initiate or encourage the initiation of any acquisition proposal
involving Indus River, other than the merger with Cabletron;
- engage in negotiations or discussions concerning, or provide any
nonpublic information to any person relating to, any acquisition
proposal, or
- agree to, approve or recommend any acquisition proposal.
An acquisition proposal is defined in the merger agreement as any inquiries
or proposals involving any merger, sale of substantial assets, sale of shares of
stock, including through a tender offer, or similar transactions involving Indus
River.
The merger agreement also provides that Indus River shall immediately
notify Cabletron after receipt of any acquisition proposal, or any modification
of or amendment to any acquisition proposal, or any request for nonpublic
information relating to Indus River in an acquisition proposal or for access to
the properties, books or records of Indus River by any person or entity that
informs the board of directors of Indus River that it is considering making, or
has made, an acquisition proposal.
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The merger agreement also provides that Indus River shall immediately cease
any existing discussions or negotiations with any persons, other than Cabletron,
conducted before August 18, 2000 concerning any of the matters mentioned above.
Indus River has also agreed not to release any third party from the
confidentiality provisions of any confidentiality agreement to which it is a
party. Indus River must also ensure that its officers, directors and employees
and any investment banker or other advisor or representative retained by Indus
River are aware of the restrictions described above.
TERMINATION
The merger agreement may be terminated at any time before the merger,
whether before or after approval of the merger by the stockholders of Indus
River:
- by mutual agreement of Cabletron and Indus River;
- by either Cabletron or Indus River, if the merger has not been completed
by January 15, 2001, so long as the party terminating the merger
agreement did not fail to fulfill any obligation under the merger
agreement that causes the merger not to be completed;
- by either Cabletron or Indus River, if any court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission has issued a nonappealable final order, decree or ruling or
taken any other action having the effect of prohibiting the merger, so
long as the party terminating the merger agreement did not fail to comply
with its obligations under the merger agreement in a way that materially
contributed to the issuance of the order, decree, ruling or the taking of
the action;
- by Cabletron, if the stockholders of Indus River have not approved the
merger by January 15, 2001;
- by Cabletron or Indus River, if any representation or warranty made by
the other party was not true and correct in any material respect when
made, or has become untrue or incorrect;
- by Cabletron or Indus River, if the other party has materially breached
its obligations under the merger agreement, unless the breach is curable
before January 15, 2001 and the breaching party exercises its reasonable
best efforts to cure the breach;
- by Cabletron, if the board of directors of Indus River withdraws,
modifies or changes its approval or recommendation of the merger
agreement in a manner adverse to Cabletron, or resolves to do so, or
recommends an alternative acquisition transaction;
- by Cabletron or Indus River, if Indus River enters into an agreement
relating to an alternative acquisition transaction.
The merger agreement defines an alternative acquisition transaction as:
- a transaction in which any person, or group of persons, other than
Cabletron or its affiliates acquires or would acquire more than 25% of
the outstanding shares of Indus River preferred stock and Indus River
common stock;
- a merger or other business combination involving Indus River in which any
person, or group of persons, other than Cabletron and its affiliates
acquires more than 25% of the outstanding equity securities of Indus
River or the entity surviving the merger or business combination; or
- any other transaction in which any person, or group of persons, other
than Cabletron and its affiliates acquires or would acquire control of
assets of Indus River having a fair market value, as determined by Indus
River's board of directors in good faith, equal to more than 25% of the
fair market value of all of the assets of Indus River immediately before
the transaction.
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CONDUCT OF BUSINESS PENDING THE MERGER
Indus River has agreed that, before the merger, it will, subject to
exceptions in the merger agreement, or unless approved by Cabletron in writing:
- conduct its business only in the ordinary course of business and in a
manner consistent with past practice and shall not take any actions
except those that are in the ordinary course of business and in a manner
consistent with past practice;
- use all reasonable commercial efforts to preserve substantially intact
its business organization; and
- keep available the services of its present officers, employees and
consultants and preserve its present relationships with customers,
suppliers and other persons with which it has business relations.
Indus River has agreed that, before the merger and unless approved by
Cabletron in writing, it will not:
- amend or change its certificate of incorporation or by-laws, except as
described in the merger agreement;
- issue, sell, pledge, dispose of or encumber any shares of stock of any
class, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of stock, or any other ownership
interest in Indus River,
- authorize the issuance, sale, pledge, disposition or encumbrance of any
shares of stock of any class, or any options, warrants, convertible
securities or other ownership interest in Indus River, except for the
issuance of stock options to be issued in exchange for the forfeiting of
acceleration rights and to be issued to new employees hired with
Cabletron's consent;
- sell, pledge, dispose of or encumber any of its assets, tangible or
intangible, except for dispositions of obsolete or worthless assets and
sales of assets not in excess of $10,000 in the aggregate, other than
sales of inventory in the ordinary course of business;
- declare, set aside, make or pay any dividend or other distribution,
whether in cash, stock or property, on any of its stock;
- split, combine or reclassify any of its stock or issue or authorize or
propose the issuance of any other securities on behalf of, instead of or
in substitution for shares of its stock, except for the issuance of those
options to be issued in exchange for the forfeiting of acceleration
rights and to be issued to new employees hired with Cabletron's consent;
- amend the terms or change the period of exercisability of its securities
or purchase, repurchase, redeem or acquire in any other manner any of its
securities, or propose to do any of these actions, except for the
amendment of stock option agreements in exchange for the forfeiting of
acceleration rights;
- acquire, by merger, consolidation, or acquisition of stock or assets, any
corporation, partnership or other business organization or division of
another business organization or enter into or amend any contract,
agreement, commitment or arrangement to do so;
- incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse or, as an accommodation, become responsible
for, the obligations of any person or, except in the ordinary course of
business consistent with past practice, make any loans or advances, or
enter into or amend any contract, agreement, commitment or arrangement to
do so, except for the borrowing under a promissory note issued by
Cabletron to Indus River as provided for in the merger agreement;
- enter into or amend any material contract or agreement;
- authorize any capital expenditures or purchases of fixed assets which
are, in the aggregate, in excess of $50,000 or enter into or amend any
contract, agreement, commitment or arrangement to do so;
- increase the compensation payable or to become payable to its current
officers, employees or consultants;
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- grant any severance or termination pay to, or enter into any agreement
with any current director, officer or other employee of or consultant to
Indus River related to the terms or conditions of his employment or
engagement to provide services or the termination of that person's
employment or engagement;
- establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, stock option, restricted stock, pension, or other
compensation plan, employment, termination, severance or other plan,
agreement, trust, fund, or arrangement for the benefit of any current or
former directors, officers or employees, except as required by law or
permitted under the merger agreement;
- conduct a reduction-in-force, job or position elimination, lay off or the
like;
- take any action to change accounting policies or procedures;
- make or change any material tax election inconsistent with past practice
or change any tax accounting method or amend any tax return or file any
income tax return or settle or compromise any material federal, state,
local or foreign tax liability or agree to an extension of a statute of
limitations;
- pay, discharge or satisfy any claims, liabilities or obligations, other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in its financial statements or incurred in the ordinary
course of business and consistent with past practice; or
- take, or agree to take, any of the above actions or any other action
which would make any of its representations or warranties contained in
the merger agreement untrue or incorrect or prevent it from performing or
cause it not to perform its obligations under the merger agreement.
AMENDMENT, EXTENSION AND WAIVER
Subject to applicable law:
- the merger agreement may be amended by the parties at any time before the
effective time of the merger, except that once the stockholders of Indus
River have approved the merger, no amendments may be made which by law
require approval of the stockholders of Indus River unless approval is
obtained; and
- waiver of compliance or consent to provisions of the merger agreement or
extensions of time must be in a writing signed by Cabletron and Indus
River.
FEES AND EXPENSES
Cabletron and Indus River will each pay its own expenses incidental to the
preparation of the merger agreement, the carrying out of the provisions of the
merger agreement and the merger itself, whether or not the merger occurs, except
that Cabletron will pay all fees and expenses for printing this proxy
statement/prospectus and all SEC filing fees.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to:
- corporate organization and qualification;
- charter documents and by-laws;
- capital structure;
- authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the merger agreement and related
matters;
- the accuracy of information supplied in this proxy statement/prospectus
and the registration statement of which it is a part;
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- absence of conflicts;
- required consents;
concerning only Indus River:
- required stockholder vote;
- status of contracts and other agreements entered into by Indus River and
absence of default by Indus River under those contracts and other
agreements;
- compliance with applicable laws;
- compliance with permits;
- financial statements provided by Indus River to Cabletron and accuracy
and fairness of those financial statements;
- absence of material changes or events;
- absence of undisclosed liabilities of Indus River;
- absence of material litigation;
- matters related to employee benefit plans;
- matters related to employment agreements;
- labor matters;
- absence of restrictions on business activities;
- good and valid title to property and validity of its leases;
- filing of tax returns and payment of taxes;
- environmental matters;
- intellectual property matters;
- affiliate transactions;
- government contracts;
- insurance matters;
- accounts receivable and inventories;
- equipment matters, including equipment leases;
- payment of fees to brokers, investment bankers and financial advisors;
- absence of change of control payments;
- expenses for negotiating the merger agreement and completing merger;
- product warranties and defects;
- absence of illegal payments;
- distributors, customers and suppliers; and
- the execution of stockholder agreements by the principal stockholders and
founders of Indus River;
concerning only Cabletron:
- documents filed by Cabletron with the SEC, the accuracy of information
contained in those documents and the absence of undisclosed liabilities
of Cabletron expected to have a material adverse effect on Cabletron and
its subsidiaries;
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- ownership of the merger subsidiary, Acton Acquisition Co., and lack of
prior activities by the merger subsidiary;
- validity of shares of Cabletron stock to be issued in the merger;
- validity of shares of Enterasys stock payable if there is a spin-off of
Enterasys;
- capital structure of Enterasys; and
- financial statements of Enterasys provided by Cabletron to Indus River
and accuracy and fairness of those financial statements.
ADDITIONAL AGREEMENTS
The merger agreement contains additional agreements, relating to:
- employee benefits plans, programs and arrangements to be provided by
Cabletron;
- stockholder agreements to be entered into by the principal stockholders
and founders of Indus River;
- that neither Cabletron nor Indus River will take any action that could
reasonably be expected to jeopardize the merger's ability to qualify as a
reorganization within the meaning of the Internal Revenue Code;
- indemnification by Cabletron of directors, officers and employees of
Indus River and maintenance by Cabletron of executive risk liability
insurance as described below under "-- Indemnification and Insurance;"
- indemnification of Cabletron by Indus River under an escrow agreement
described below under "-- Indemnification and Escrow Agreement;" and
- working capital financing to be provided to Indus River by Cabletron
under a promissory note issued by Cabletron to Indus River.
INDEMNIFICATION AND INSURANCE
Cabletron will, or will cause the surviving corporation to, fulfill and
honor in all respects all rights to indemnification or exculpation of directors
or officers and employees of Indus River, under any indemnification provision of
the Indus River certificate of incorporation, or Indus River by-laws as in
effect on the date of the merger agreement. Cabletron will maintain for 6 years
after the effective time of the merger executive risk liability insurance for
the benefit of those directors, officers and employees for their acts or
omissions which occur before the merger, under customary terms and conditions no
less favorable to those of Indus River's executive risk liability insurance
policy in effect on the date of the merger agreement.
AMENDMENTS TO INDUS RIVER'S CERTIFICATE OF INCORPORATION
As of the effective time of the merger, the certificate of incorporation of
Indus River, as in effect immediately before the merger, will be amended to be
the same as the certificate of incorporation of Acton Acquisition Co., except
that the name of the surviving corporation will be Indus River Networks, Inc.
AMENDMENT'S TO INDUS RIVER'S BY-LAWS
The by-laws of Acton Acquisition Co., as in effect immediately before the
merger, will be the by-laws of the surviving corporation after the merger.
INDEMNIFICATION AND ESCROW AGREEMENT
Escrow Fund and Indemnification.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to holders of Indus River preferred stock and
the founders of Indus River will be placed in escrow with
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an escrow agent as soon as possible after the merger is completed. Those shares
of Cabletron common stock held in escrow will be subject to an escrow agreement
by and among State Street Bank and Trust Company, as escrow agent, Stephen J.
Ricci, as stockholder representative, and Cabletron, which is attached as annex
C to this proxy statement/prospectus. The number of shares of Cabletron common
stock to be received by those Indus River stockholders will be reduced by 10% of
the shares of Cabletron common stock the stockholders would otherwise be
entitled to receive. The escrow account will be the sole and exclusive source
available to compensate Cabletron for the indemnification obligations of each
Indus River stockholder under the merger agreement, other than for any claim of
fraud, intentional misrepresentation or other willful conduct.
Indus River has agreed to indemnify Cabletron, the surviving corporation
and their subsidiaries and affiliates from and against all claims, damages,
costs and expenses, including reasonable legal fees, because of breaches by
Indus River of the merger agreement. Cabletron may not seek indemnification
until the aggregate amount of all damages for which Cabletron is seeking
indemnification is at least $300,000. Cabletron may then seek indemnification
for all of its damages. If any claim is required to be paid from the escrow fund
containing the shares of Cabletron common stock, the value of the shares of
Cabletron common stock held in the escrow fund will be determined based on the
average of the closing prices of Cabletron common stock as reported in the Wall
Street Journal for the 30 trading days before the date of determination.
The escrow fund for the Cabletron common stock will terminate on the first
anniversary of the closing date of the merger. The remaining Cabletron common
stock in the escrow fund will then be distributed by the escrow agent to the
stockholders on whose behalf the shares are being held based on each
stockholder's percentage of the escrow fund. Any escrowed shares against which
Cabletron has made a claim before the first anniversary of the closing date of
the merger, and which claim is unresolved, will not be released until the claim
is resolved.
The merger agreement provides that Stephen J. Ricci has been appointed as a
representative for the Indus River stockholders whose shares are being held in
escrow to take all actions necessary or appropriate in his judgment for the
accomplishment of the terms of the merger agreement. The holders of a majority
in interest of the shares of Cabletron common stock held in the escrow fund may
replace the stockholder representative upon at least 10 days' prior written
notice to Cabletron. The stockholder representative will not be required to
provide a bond and will not receive any compensation for his services. Notices
of communications to or from the stockholder representative will constitute
notice to or from each Indus River stockholder who has Cabletron common stock
deposited in the escrow fund. If Mr. Ricci is no longer able or willing to serve
as the stockholder representative, a new stockholder representative will be
chosen by stockholders holding a majority of the shares of Cabletron common
stock being held in escrow.
The stockholder representative will not be liable for any act done or
omitted in his capacity as stockholder representative while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted based on
the advice of counsel will be conclusive evidence of good faith. Those Indus
River stockholders who have executed a stockholder agreement, and whose shares
of Cabletron common stock are being held in the escrow account, have agreed to
individually indemnify the stockholder representative and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on his part and arising out of the acceptance or administration of his
duties.
Any decision, act, consent or instruction of the stockholder representative
will constitute a decision of all Indus River stockholders whose shares of
Cabletron common stock are being held in the escrow account and will be final,
binding and conclusive upon each stockholder, and the escrow agent and Cabletron
may rely upon any decision, act, consent or instruction of the stockholder
representative. The escrow agent and Cabletron are relieved from any liability
to any person for acts done by them based on a decision, act, consent or
instruction of the stockholder representative.
Escrow of Shares of Cabletron Series C Preferred Stock.
The merger agreement also provides that all of the shares of Cabletron
series C preferred stock to be issued in the merger will be placed in a separate
escrow account with an escrow agent after the merger is
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completed. The shares of Cabletron series C preferred stock will be subject to
the provisions of the escrow agreement, the form of which is attached as annex C
to this proxy statement/prospectus.
The shares of Cabletron series C preferred stock will be held in escrow
only to facilitate any conversion or redemption occurring within 24 months of
the date of issuance of the Cabletron series C preferred stock. The shares will
remain in the escrow account until any conversion or redemption of the Cabletron
series C preferred stock, after which the stockholders on whose behalf the
shares are being held will receive;
- shares of Cabletron common stock issued upon conversion of Cabletron
series C preferred stock; or
- shares of Enterasys common stock or other securities issued upon
redemption of Cabletron series C preferred stock.
If no redemption or conversion occurs within 24 months of the date of
issuance of the Cabletron series C preferred stock, the shares held in escrow
will be distributed by the escrow agent to the stockholders on whose behalf the
shares are being held on or before the 30-month anniversary of the date of
issuance of the Cabletron series C preferred stock. The escrow agreement states
that the shares of Cabletron series C preferred stock may not be transferred
except under the laws of descent and distribution or to the partners or equity
holders of any stockholder which is an entity.
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STOCK PRICES AND DIVIDENDS
Cabletron common stock is listed for trading on the New York Stock Exchange
under the trading symbol "CS". The following table lists, for the periods
indicated, the high and low sales prices per share of Cabletron common stock on
the New York Stock Exchange Composite Transactions Tape. Cabletron has paid no
dividends on its common stock and anticipates it will continue to reinvest
earnings to finance future growth. For current price information, stockholders
are urged to consult publicly available sources. Because there is no established
trading market for shares of Cabletron series C preferred stock or Indus River
stock, information concerning the market prices of Cabletron series C preferred
stock and Indus River stock has been omitted.
<TABLE>
<CAPTION>
CABLETRON
COMMON STOCK
------------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1996
First Quarter............................................. $ 27.88 $ 19.44
Second Quarter............................................ 29.81 24.31
Third Quarter............................................. 43.88 26.00
Fourth Quarter............................................ 41.63 32.94
FISCAL YEAR 1997
First Quarter............................................. $ 43.56 $ 31.63
Second Quarter............................................ 36.06 26.50
Third Quarter............................................. 41.50 27.56
Fourth Quarter............................................ 42.50 28.00
FISCAL YEAR 1998
First Quarter............................................. $ 46.50 $ 27.50
Second Quarter............................................ 46.13 27.88
Third Quarter............................................. 36.25 22.94
Fourth Quarter............................................ 23.50 12.63
FISCAL YEAR 1999
First Quarter............................................. $ 15.56 $ 12.50
Second Quarter............................................ 14.31 6.63
Third Quarter............................................. 15.31 6.63
Fourth Quarter............................................ 14.38 7.69
FISCAL YEAR 2000
First Quarter............................................. $ 15.31 $ 7.25
Second Quarter............................................ 16.81 11.94
Third Quarter............................................. 24.38 14.81
Fourth Quarter............................................ 49.00 22.00
FISCAL YEAR 2001
First Quarter............................................. $ 50.88 $ 19.00
Second Quarter............................................ 37.44 21.00
Third Quarter (through November 20, 2000)................. 37.13 20.63
</TABLE>
The following table provides the high and low sales prices per share of
Cabletron common stock on the New York Stock Exchange Composite Transactions
Tape on August 18, 2000, the last trading day before the public announcement of
the merger agreement, and on , 2000, the last trading day before the
date of this proxy statement/prospectus. Because there is no established trading
market for shares of Cabletron
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series C preferred stock or Indus River stock, information concerning the market
prices of Cabletron series C preferred stock and Indus River stock has been
omitted.
<TABLE>
<CAPTION>
CABLETRON
COMMON STOCK
-----------------
HIGH LOW
------ ------
<S> <C> <C>
August 18, 2000............................................. $35.88 $34.06
, 2000..........................................
</TABLE>
Because the market price of Cabletron common stock fluctuates, the market
value of the shares of Cabletron common stock that Indus River stockholders will
receive in the merger, may increase or decrease after the receipt of the shares.
Because there is no established trading market for the Cabletron series C
preferred stock, the market value of the shares of Cabletron series C preferred
stock that Indus River stockholders will receive in the merger may be difficult
to determine and the market value, if determinable, may increase or decrease
after the receipt of the shares. WE CANNOT GUARANTEE THE FUTURE PRICES OR
MARKETS FOR CABLETRON COMMON STOCK OR CABLETRON SERIES C PREFERRED STOCK.
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DESCRIPTION OF CABLETRON CAPITAL STOCK
Below is a description of the material terms of Cabletron's capital stock.
You should also read Cabletron's restated certificate of incorporation,
including the certificate of designation, preferences and rights of the series A
and series B participating convertible preferred stock and the form of
certificate of designation, preferences and rights of the series C convertible
preferred stock. Cabletron has filed copies of its certificate of incorporation,
by-laws and the form of the certificate of designation for the Cabletron series
C preferred stock with the SEC and has incorporated by reference those documents
as exhibits to the registration statement of which this prospectus is a part.
As of the date of this proxy statement/prospectus, Cabletron's authorized
capital consisted of:
- 450,000,000 shares of Cabletron common stock
- 2,000,000 shares of preferred stock designated as:
- 65,000 shares of series A participating convertible preferred stock;
- 25,000 shares of series B participating convertible preferred stock;
- 1,910,000 shares of preferred stock which have not been designated.
As of October 2, 2000, Cabletron's outstanding capital consisted of:
- 90,000 shares of preferred stock, with the following amounts outstanding:
- 65,000 shares of Cabletron series A preferred stock;
- 25,000 shares of Cabletron series B preferred stock;
- 184,294,457 shares of Cabletron common stock
- Warrants to purchase up to 450,000 shares of Cabletron common stock;
- Additional warrants to purchase Cabletron common stock if specified
events occur or do not occur that affect any of Cabletron's operating
subsidiaries, Enterasys, Riverstone Networks, Inc., Aprisma Management
Technologies, Inc. or GlobalNetwork Technology Services, Inc.;
- As of February 29, 2000, an aggregate of 15,998,256 options to purchase
Cabletron common stock of which, as of that date, 2,916,651 options were
exercisable;
- As of February 29, 2000, 3,100,558 shares of Cabletron common stock were
subject to employee stock purchase plans; and
- Put options to repurchase approximately 725,000 shares of Cabletron
common stock to Cabletron.
As of the effective time of the merger, Cabletron will designate a
sufficient number of shares of Cabletron series C preferred stock to be issued
in exchange for all of the shares of Indus River preferred stock, Indus River
common stock and all options and warrants to purchase Indus River stock.
PREFERRED STOCK
Cabletron may issue shares of preferred stock in one or more series as its
board of directors authorizes Cabletron to do. Before Cabletron issues a new
series of preferred stock, its board of directors must pass a resolution
designating the series, which serves to distinguish the new series from other
series and classes of stock. The resolution also states the number of shares to
be included in the new series and establishes the terms, rights, restrictions
and qualifications of the shares of the new series. These may include any
preferences, voting powers, dividend rights and redemption, sinking fund and
conversion rights. Before issuing the shares in a series, and unless it violates
the terms of any other outstanding series of preferred stock, Cabletron's board
of directors can increase or decrease the number of shares in a series, alter
the designation of a series or classify or reclassify any unissued shares of a
series by fixing or altering any terms, rights, restrictions and qualifications
of the shares in that series.
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SERIES A AND SERIES B PREFERRED STOCK
DIVIDENDS. The holders of shares of Cabletron series A and Cabletron
series B preferred stock are entitled to receive, when and as declared by
Cabletron's board of directors, cumulative cash dividends per share equal to the
greater of (1) and (2) below:
(1) $40.00 per year, plus accrued and unpaid dividends; and
(2) the amount determined by calculating the quotient of (X) and (Y) below:
(X) the product of (A), (B) and (C) below:
(A) all ordinary cash dividends declared during a fiscal quarter or a
share of Cabletron common stock, but excluding extraordinary
dividends or distributions;
(B) four; and
(C) the number of shares of Cabletron common stock issuable upon
conversion of a share of Cabletron series A or Cabletron series B
preferred stock, on the first day of the fiscal quarter.
(Y) divided by $1,000, plus accrued and unpaid dividends on the share of
Cabletron series A or Cabletron series B preferred stock.
Holders of Cabletron series A and Cabletron series B preferred stock are
entitled to accrual of dividends before Cabletron can distribute dividends to
holders of Cabletron common stock. Dividends on the Cabletron series A and
Cabletron series B preferred stock will accrue, whether or not they have been
declared and whether or not Cabletron has profits, surplus or other funds
legally available to pay them. Cabletron will not pay any cash dividends to
holders of Cabletron series A and Cabletron series B preferred stock without the
written consent or affirmative vote of the then issued and outstanding shares of
Cabletron series A preferred stock and Cabletron series B preferred stock.
Holders of Cabletron series A and Cabletron series B preferred stock are not
entitled to participate in any other dividends or distributions Cabletron makes
except a liquidation, as discussed below, or after conversion of Cabletron
series A or Cabletron series B preferred stock into Cabletron common stock.
LIQUIDATION. Upon Cabletron's liquidation, dissolution or winding up, the
holders of Cabletron series A and Cabletron series B preferred stock are
entitled to be paid in full a liquidation amount, determined as described below,
after the distribution of any of Cabletron's assets to the holders of any other
series or class of Cabletron's stock ranking senior to the Cabletron series A
and Cabletron series B preferred stock in a liquidation. For each share of
Cabletron series A and Cabletron series B preferred stock, the liquidation
amount is equal to the greater of:
- $1,000, plus accrued and unpaid dividends through the last day of the
most recently completed calendar quarter before the date of liquidation,
dissolution or winding up; and
- the amount a holder would be entitled to receive on a share of Cabletron
series A or Cabletron series B preferred stock in the liquidation,
dissolution or winding up if the holder converted that share into
Cabletron common stock immediately before the effectiveness of the
liquidation, dissolution or winding up.
If, after distribution of Cabletron's assets to the holders of stock senior
to Cabletron series A and Cabletron series B preferred stock, Cabletron's assets
are insufficient to pay the holders of Cabletron series A and Cabletron series B
preferred stock and the holders of any stock ranking equally with the Cabletron
series A and Cabletron series B preferred stock their full liquidation amounts,
then Cabletron's remaining assets legally available for distribution will be
distributed ratably among the holders of Cabletron series A and Cabletron series
B preferred stock. The holders of stock ranking junior to the Cabletron series A
and Cabletron series B preferred stock, including the holders of Cabletron
common stock and Cabletron series C preferred stock, will not be entitled to
participate in the liquidation.
VOTING RIGHTS. Except as required by law, the holders of Cabletron series
A and Cabletron series B preferred stock will have voting rights and powers
equal to the voting rights and powers of the holders of
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Cabletron common stock, voting with the holders of Cabletron common stock as a
single class, and any other shares of Cabletron's stock which, by their terms,
are entitled to vote with the Cabletron common stock as a single class. Each
holder of a Cabletron series A and Cabletron series B preferred stock will be
entitled to the number of votes for each share of Cabletron series A and
Cabletron series B preferred stock it holds equal to the number of shares of
Cabletron common stock into which each share of Cabletron series A or Cabletron
series B preferred stock, may be converted on the record date for holders
entitled to participate in the vote. Any holders of Cabletron series A and
Cabletron series B preferred stock will have the following additional voting
rights:
- the holders of a majority of the then outstanding shares of Cabletron
series A and Cabletron series B preferred stock must approve any
amendment or restatement of Cabletron's certificate of incorporation or
of the certificate of designation for the Cabletron series A and
Cabletron series B preferred stock that adversely affects the powers,
preferences and rights of the Cabletron series A and Cabletron series B
preferred stock;
- the holders of a majority of the then outstanding shares of Cabletron
series A preferred stock must approve any amendment or restatement of
Cabletron's certificate of incorporation or of the certificate of
designation for the Cabletron series A and Cabletron series B preferred
stock that adversely affects the powers, preferences and rights of the
Cabletron series A preferred stock; and
- the holders of a majority of the then outstanding shares of Cabletron
series B preferred stock must approve any amendment or restatement of
Cabletron's certificate of incorporation or of the certificate of
designation for the Cabletron series A and Cabletron series B preferred
stock that adversely affects the powers, preferences and rights of the
Cabletron series B preferred stock.
CONVERSION RIGHTS. Each holder of Cabletron series A and Cabletron series
B preferred stock may, at its option, convert any of its shares of Cabletron
series A and Cabletron series B preferred stock at any time into shares of
Cabletron common stock. Cabletron series A and Cabletron series B preferred
stock can be converted into Cabletron common stock at an initial rate obtained
by multiplying the applicable conversion rate by the number of shares of
Cabletron series A and Cabletron series B preferred stock held by the holder
that are being converted by the holder.
For each share of Cabletron series A and Cabletron series B preferred
stock, the applicable conversion rate is determined by dividing $1,000, plus
accrued and unpaid dividends, by the applicable conversion value. The applicable
conversion value is $40.00 for Cabletron series A preferred stock and $30.00 for
Cabletron series B preferred stock. The applicable conversion value will be
adjusted for stock splits, stock dividends, recapitalizations and other similar
events.
If Cabletron is unable to redeem the Cabletron series A and Cabletron
series B preferred stock as Cabletron is required to do, then the applicable
conversion value will be adjusted to equal the product of 90% multiplied by the
market price of Cabletron common stock on the date specified for redemption or
on the date the holders of Cabletron series A and Cabletron series B preferred
stock receive notice that Cabletron cannot conduct a redemption. Generally, the
market price of the Cabletron common stock will be equal to the last sale price
of the stock on the New York Stock Exchange.
Before any corporate change, Cabletron will make appropriate provisions to
ensure that each holder of Cabletron series A and Cabletron series B preferred
stock will have the right to receive, upon conversion of the holder's preferred
stock into Cabletron common stock, the stock, securities or assets that the
holder would have been entitled to receive in the corporate change if that
holder had converted its preferred stock into Cabletron common stock before the
record date for the corporate change. Cabletron will not engage in any corporate
change unless, before the corporate change, the successor corporation or the
purchasing corporation assumes in writing the obligation to deliver to each
holder of Cabletron series A and Cabletron series B preferred stock the shares
of stock, securities or assets that the holder is entitled to receive as
described above. For purposes of the Cabletron series A and Cabletron series B
preferred stock, a corporate change means any capital reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
Cabletron's assets to another person which is completed in a way that holders of
Cabletron common stock are entitled to
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receive either directly or upon Cabletron's subsequent liquidation, securities
or assets in exchange for Cabletron common stock.
REDEMPTION.
At Holder's Option. From February 23, 2003 on, each holder of Cabletron
series A and Cabletron series B preferred stock shall have the right to require
Cabletron to redeem all, but not less than all, of that holder's shares of
Cabletron series A and Cabletron series B preferred stock at a redemption price
per share equal to $1,000, plus accrued and unpaid dividends. If Cabletron
enters into any agreement which will result in a change of control, then each
holder of Cabletron series A and Cabletron series B preferred stock will have
the right to require Cabletron to redeem all, but not less than all, of that
holder's shares of Cabletron series A and Cabletron series B preferred stock at
a redemption price per share equal to the greater of (1) and (2) below:
(1) $1,010, plus accrued and unpaid dividends; and
(2) the market price per share of Cabletron common stock into which each
share of Cabletron series A and Cabletron series B preferred stock
could then be converted upon the change of control.
At Cabletron's Option. From February 23, 2004 on, Cabletron may redeem
all, but not less than all, of the outstanding shares of Cabletron series A and
Cabletron series B preferred stock. The redemption price per share will be equal
to $1,000, plus accrued and unpaid dividends. Cabletron's redemption rights are
subject to the conversion rights of each holder of Cabletron series A and
Cabletron series B preferred stock, who may exercise their redemption rights at
any time before the close of business on the redemption date.
Cabletron is not prohibited from redeeming or repurchasing any shares of
Cabletron series A or Cabletron series B preferred stock while there is any
arrearage in the payment of dividends on the stock.
SERIES C PREFERRED STOCK
DIVIDENDS. When the Cabletron series C preferred stock is issued, the
holders of Cabletron series C preferred stock will be entitled to receive cash
dividends that do not constitute extraordinary distributions to the same extent
as holders of Cabletron common stock. Each share of Cabletron series C preferred
stock will be entitled to receive dividends at a rate per share equal to the
product of the dividend declared on each share of Cabletron common stock and the
applicable conversion rate. The applicable conversion rate is currently 10,
adjusted for stock splits, stock dividends, recapitalizations and other similar
events. The applicable conversion rate will be adjusted in the manner described
below in "-- Conversion Rights." The holders of Cabletron series C preferred
stock will not be entitled to participate in any extraordinary distribution. An
extraordinary distribution means any dividend or distribution, including, any
distribution of cash, stock or other securities or property, by way of dividend,
spin-off, reclassification, recapitalization or similar corporate rearrangement,
on the Cabletron common stock other than:
- a stock split, stock dividend or similar transaction;
- an Enterasys spinoff;
- an Enterasys transaction;
- the payment of an ordinary cash dividend; or
- the purchase or repurchase by Cabletron of any shares of Cabletron common
stock.
An Enterasys spinoff means the distribution, through a dividend, exchange,
issuance or other similar transaction, of 51% or more of the common stock of
Enterasys to Cabletron's stockholders. An Enterasys transaction means a sale,
other disposition, consolidation, merger or reorganization of Enterasys, other
than an Enterasys spinoff, after which Cabletron no longer controls Enterasys.
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CONVERSION RIGHTS. The Cabletron series C preferred stock will be
convertible into Cabletron common stock at the option of the holder at any time
following the earliest to occur of:
- an Enterasys spinoff that occurs on or after the first anniversary of the
date the Cabletron series C preferred stock is issued;
- an Enterasys transaction at any time; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for an Enterasys spinoff before the
first anniversary of the date the Cabletron series C preferred stock is issued,
and that spin-off is to be completed before the first anniversary, then the
Cabletron series C preferred stock will be convertible into Cabletron common
stock at the option of the holder immediately before the Enterasys spinoff.
Cabletron may never conduct an Enterasys spinoff or an Enterasys transaction. It
is possible that holders of Cabletron series C preferred stock will not be able
to convert their shares of Cabletron series C preferred stock until the second
anniversary of the date the Cabletron series C preferred stock is issued.
A holder of Cabletron series C preferred stock that elects to convert its
shares of Cabletron series C preferred stock into Cabletron common stock will
receive the number of shares of Cabletron common stock equal to the number of
shares of Cabletron series C preferred stock held by that holder multiplied by
the applicable conversion rate.
The Applicable Conversion Rate. The applicable conversion rate will
initially be 10. The applicable conversion rate will be adjusted for a number of
circumstances as discussed below. Other than adjustments to the applicable
conversion rate for events such as stock splits, stock dividends and
combinations discussed under "-- Adjustments to the Applicable Conversion
Rate -- Stock Dividends, Stock Splits, Combinations," the applicable conversion
rate will never be adjusted to exceed 65. The applicable conversion rate will
usually be determined based on the value of the stock of Cabletron's subsidiary,
Enterasys. The value will be determined in the manner described below.
ADJUSTMENTS TO THE APPLICABLE CONVERSION RATE -- STOCK DIVIDENDS, STOCK
SPLITS, COMBINATIONS. If there is:
- a subdivision of the outstanding shares of Cabletron common stock into a
greater number of shares of Cabletron common stock, such as through a
stock split, stock dividend or recapitalization; or
- a combination of the outstanding shares of Cabletron common stock into a
smaller number of shares of Cabletron common stock, such as through a
reverse stock split,
then the applicable conversion rate will be adjusted to reflect the stock
dividend, stock split or recapitalization.
ENTERASYS SPINOFF WITHIN ONE YEAR OF THE DATE OF ISSUANCE OF THE CABLETRON
SERIES C PREFERRED STOCK. If Cabletron establishes a record date for an
Enterasys spinoff before the first anniversary of the date the Cabletron series
C preferred stock is issued, and that spin-off is to be completed before the
first anniversary, then the Cabletron series C preferred stock will be
convertible into Cabletron common stock at the option of the holder immediately
before the Enterasys spinoff. The applicable conversion rate will be permanently
adjusted to equal the quotient obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
applicable conversion rate E X P(E)
= -------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock
of Enterasys;
- P(E) is the market price of the Enterasys stock, determined as of the
close of business on the applicable record date; and
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- P(C) is the market price of Cabletron common stock as of the close of
business on that record date.
For an Enterasys spinoff, the market price of Enterasys stock will usually
be equal to the last sale price of the stock on the New York Stock Exchange on
the applicable trading day. For an Enterasys transaction, the market price of
Enterasys stock will usually be the price at which Enterasys stock is sold in
the Enterasys transaction. Generally, the market price of the Cabletron common
stock will be equal to the last sale price of the stock on the New York Stock
Exchange on the applicable trading day.
ENTERASYS SPINOFF OR ENTERASYS TRANSACTION WITHIN TWO YEARS OF THE DATE OF
ISSUANCE OF THE CABLETRON SERIES C PREFERRED STOCK. If Cabletron conducts an
Enterasys spinoff after the first anniversary of the date the Cabletron series C
preferred stock is issued and before the second anniversary of that date, or if
Cabletron conducts an Enterasys transaction before the second anniversary of the
date the Cabletron series C preferred stock is issued, then the Cabletron series
C preferred stock will be convertible into Cabletron common stock at the option
of the holder after the earlier to occur of that event. After that event, the
applicable conversion rate will be permanently adjusted to equal the quotient
obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
Applicable Conversion Rate = .9 X E X P(E)
-------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock
of Enterasys;
- P(E) is the market price of the Enterasys stock distributed in the
Enterasys spinoff or the Enterasys transaction determined as of the close
of business on the first trading day after the Enterasys spinoff or
Enterasys transaction; and
- P(C) is the market price of Cabletron common stock as of the close of
business on that trading day.
For an Enterasys spinoff, the market price of Enterasys stock will usually
be equal to the last sale price of the stock on the New York Stock Exchange on
the applicable trading day. For an Enterasys transaction, the market price of
Enterasys stock will usually be the price at which Enterasys stock is sold in
the Enterasys transaction. The market price of the Cabletron common stock will
usually be equal to the last sale price of the stock on the New York Stock
Exchange on the applicable trading day.
NO ENTERASYS SPINOFF OR ENTERASYS TRANSACTION WITHIN TWO YEARS OF THE DATE
OF ISSUANCE OF THE CABLETRON SERIES C PREFERRED STOCK. If Cabletron does not
conduct either an Enterasys spinoff or an Enterasys transaction before the
second anniversary of the date the Cabletron series C preferred stock is issued,
then the Cabletron series C preferred stock will be convertible into Cabletron
common stock at the option of the holder immediately after the second
anniversary of the date the Cabletron series C preferred stock is issued. After
this second anniversary, the applicable conversion rate will be permanently
adjusted to equal the quotient obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
applicable conversion rate = E X P(E)
-------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock
of Enterasys;
- P(E) is the market price of the Enterasys stock, determined as of the
second anniversary of the date the Cabletron series C preferred stock is
issued; and
- P(C) is the market price of Cabletron common stock as of the close of
business on that day.
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Cabletron's board of directors will determine the market price of Enterasys
stock. If the holders of a majority of the outstanding shares of Cabletron
series C preferred stock object to the determination by Cabletron's board, then
Cabletron will hire an investment banking firm to conduct an appraisal of the
fair value of Enterasys stock. The market price of the Cabletron common stock
will usually be equal to the last sale price of the stock on the New York Stock
Exchange on the second anniversary of the date the Cabletron series C preferred
stock is issued.
Corporate Change. Before any corporate change, Cabletron will make sure
that each holder of Cabletron series C preferred stock will receive, upon
conversion of the holder's preferred stock into Cabletron common stock, the
stock, securities or assets that the holder would have been entitled to receive
in the corporate change if that holder had converted its preferred stock into
Cabletron common stock before the record date for the corporate change.
Cabletron will not engage in any corporate change unless, before the corporate
change, the successor corporation or the purchasing corporation assumes in
writing the obligation to deliver to each holder of Cabletron series C preferred
stock, the shares of stock, securities or assets that the holder is entitled to
receive as described above. For purposes of the Cabletron series C preferred
stock, a corporate change shall mean any capital reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
Cabletron's assets to another person which is completed in a way that holders of
Cabletron common stock are entitled to receive, either directly or upon
Cabletron's subsequent liquidation, securities or assets in exchange for
Cabletron common stock.
CORPORATE CHANGE BEFORE ENTERASYS SPINOFF, ENTERASYS TRANSACTION OR THE
SECOND ANNIVERSARY OF THE DATE OF ISSUANCE OF THE CABLETRON SERIES C PREFERRED
STOCK. If a corporate change were to occur before the first to occur of an
Enterasys spinoff, an Enterasys transaction and the second anniversary of the
date the Cabletron series C preferred stock is issued, then the applicable
conversion rate will be adjusted to equal the greater of (1) and (2) below:
(1) 10, adjusted for stock splits, stock dividends and combinations, as
described above under "-- Adjustments to the Applicable Conversion
Rate -- Stock Dividends, Stock Splits, Combinations;" and
(2) the quotient obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
applicable conversion rate = E X P(E)
-------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the
stock of Enterasys;
- P(E) is the market price of the Enterasys stock, determined as of the
effective date of the corporate change; and
- P(C) is the market price of Cabletron common stock as of the close of
business on that day.
Cabletron's board of directors will determine the market price of Enterasys
stock. If the holders of a majority of the outstanding shares of Cabletron
series C preferred stock object to the determination by Cabletron's board, then
Cabletron will hire an investment banking firm to conduct an appraisal of the
fair value of Enterasys stock. The market price of the Cabletron common stock
will usually be equal to the price at which Cabletron common stock is sold in
the corporate change.
CORPORATE CHANGE AFTER AN ENTERASYS SPINOFF, ENTERASYS TRANSACTION OR THE
SECOND ANNIVERSARY OF THE DATE OF ISSUANCE OF THE CABLETRON SERIES C PREFERRED
STOCK. If a corporate change were to occur after the first to occur of an
Enterasys spinoff, an Enterasys transaction and the second anniversary of the
date the Cabletron series C preferred stock is issued, then the applicable
conversion rate will be adjusted in the manner described above under
"-- Enterasys spinoff or Enterasys transaction within Two Years of the Date of
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<PAGE> 73
Issuance of the Cabletron Series C Preferred Stock" or "-- No Enterasys Spinoff
or Enterasys Transaction within Two Years of the Date of Issuance of the
Cabletron Series C Preferred Stock."
Conversion Procedure. Cabletron will give each holder of Cabletron series
C preferred stock at least 30 days notice of Cabletron's intention to either
conduct an Enterasys spinoff or an Enterasys transaction. Cabletron's notice
will also advise each holder of Cabletron series C preferred stock of its
conversion rights for its Cabletron series C preferred stock. After receipt of
this notice, each holder of Cabletron series C preferred stock will have 15 days
to deliver a written notice to Cabletron advising Cabletron of its intention to
require or not require Cabletron to convert all, but not less than all, of the
shares of Cabletron series C preferred stock held by that holder. Each holder of
Cabletron series C preferred stock wishing to exercise its conversion right must
surrender the certificate or certificates representing the shares being
converted with this written notice. Each conversion of Cabletron series C
preferred stock will be considered to have been completed as of the close of
business on the effective date of the conversion as specified in the conversion
notice, except that this date cannot be earlier than the date Cabletron or
Cabletron's agent receives the conversion notice. If the conversion notice does
not specify a date, then the conversion date will be considered to be the date
on which Cabletron or Cabletron's agent receives the conversion notice. On the
conversion date, the holder's rights as a holder of Cabletron series C preferred
stock will cease and the holder will subsequently have the rights of a holder of
Cabletron common stock.
Promptly after the conversion date Cabletron will deliver to the converting
holder at the address provided in the conversion notice:
- a certificate or certificates representing the number of shares of
Cabletron common stock issued upon conversion, in the same name or names
as the certificates representing the converted shares or in any other
name or names as the converting holder tells Cabletron, subject to legal,
contractual or other restrictions on transfer, and in the denomination or
denominations that the converting holder tells Cabletron;
- a check for cash for any fractional interest in a share of Cabletron
common stock as discussed below; and
- a certificate representing any shares of Cabletron series C preferred
stock that were represented by the certificate or certificates delivered
to the Corporation as part of the conversion but that were not converted.
If Cabletron is to issue certificates for shares of Cabletron common stock
upon the conversion of Cabletron series C preferred stock in the name of the
holder of the Cabletron series C preferred stock, Cabletron will do so without
charging the holder any issuance tax. If Cabletron is to issue certificates for
shares of Cabletron common stock upon conversion of Cabletron series C preferred
stock in any other name, Cabletron will not issue any certificates until payment
of any applicable transfer tax has been made by the holder.
Cabletron will not issue any fractional shares or scrip representing
fractions of shares of Cabletron common stock upon conversion of any shares of
Cabletron series C preferred stock. If a holder of Cabletron series C preferred
stock makes a conversion that results in the holder's having a fractional
interest in a share of Cabletron common stock, Cabletron will pay to the holder
of those shares a cash amount based on the current market price of the Cabletron
common stock on the trading day immediately before the conversion, instead of
issuing a fractional share of Cabletron common stock.
REDEMPTION. Each holder of Cabletron series C preferred stock will have
the right to require Cabletron to redeem all, but not less than all, of that
holder's shares of Cabletron series C preferred stock immediately before the
occurrence of the first to occur of:
- an Enterasys spinoff after the first anniversary of the date of issuance
of the Cabletron series C preferred stock and before the second
anniversary of the date of issuance of the Cabletron series C preferred
stock; and
- an Enterasys transaction.
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<PAGE> 74
If a holder of Cabletron series C preferred stock requests redemption of
its shares in an Enterasys spinoff, Cabletron will pay the redemption price at
the beginning of the spin-off. The redemption price that Cabletron will pay for
each share of Cabletron series C preferred stock will be paid in shares of
Enterasys stock and will be equal to the number of Enterasys shares equal to 1%
of the fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock of
Enterasys, divided by 50,000.
If a holder of Cabletron series C preferred stock seeks to redeem its
shares in an Enterasys transaction, Cabletron will pay the redemption price on
an after-tax basis immediately after the Enterasys transaction. The redemption
price that Cabletron will pay for each share of Cabletron series C preferred
stock will be paid in securities or assets of the surviving corporation
immediately after the Enterasys transaction. The redemption price will be equal
in value, on an after-tax basis, to the number of Enterasys shares equal to 1%
of the fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock of
Enterasys, divided by 50,000.
If Cabletron intends to conduct an Enterasys spinoff before the first
anniversary of the date of issuance of the Cabletron series C preferred stock,
holders of Cabletron series C preferred stock will not be able to redeem their
shares of Cabletron series C preferred stock as part of the spin-off. They will
be able to convert their shares into Cabletron common stock before the spin-off.
If Cabletron conducts an Enterasys transaction before the first anniversary of
the date of issuance of the Cabletron series C preferred stock, holders of
Cabletron series C preferred stock will be able to redeem their shares of
Cabletron series C preferred stock in that transaction. Cabletron may never
conduct an Enterasys spinoff. It is possible that holders of the Cabletron
series C preferred stock will not be able to exercise the redemption right
described above.
The redemption rights for the Cabletron series C preferred stock will
terminate immediately after the first to occur of:
- an Enterasys spinoff;
- an Enterasys transaction; and
- the second anniversary of the date of issuance of the Cabletron series C
preferred stock.
Redemption Procedures. Cabletron will give each holder of Cabletron series
C preferred stock at least 30 days notice of its intention to either conduct an
Enterasys spinoff or an Enterasys transaction. Cabletron's notice will also
advise each holder of Cabletron series C preferred stock of its redemption
rights. After receipt of this notice, each holder of Cabletron series C
preferred stock will have 15 days to deliver a written notice to Cabletron
advising Cabletron of its intention to require or not require Cabletron to
redeem all, but not less than all, of the Cabletron series C preferred stock
held by that holder. If a holder of Cabletron series C preferred stock desires
to redeem its shares in an Enterasys spinoff, Cabletron will be obligated on the
redemption date to pay to that holder, upon the holder's surrender to Cabletron
of the certificate or certificates representing the shares of Cabletron series C
preferred stock to be redeemed, the full redemption price of the shares of
Cabletron series C preferred stock in shares of Enterasys stock. If a holder of
Cabletron series C preferred stock desires to redeem its shares in an Enterasys
transaction, Cabletron will be obligated on the redemption date to pay to that
holder, upon the holder's surrender to Cabletron of the certificate or
certificate representing the shares of Cabletron series C preferred stock to be
redeemed, the full redemption price of the shares of Cabletron series C
preferred stock in the securities or assets of the surviving corporation after
the Enterasys transaction.
LIQUIDATION. Upon Cabletron's liquidation, dissolution or winding up, the
holders of Cabletron series C preferred stock will be entitled to be paid in
full a liquidation amount, determined as described below, after the distribution
of any of Cabletron's assets to the holders of any other series or class of
Cabletron's stock ranking senior to the Cabletron series C preferred stock in a
liquidation, including the Cabletron series A and Cabletron series B preferred
stock.
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<PAGE> 75
If Cabletron's liquidation, dissolution or winding up occurs before the
first to occur of an Enterasys spinoff, an Enterasys transaction and the second
anniversary of the date of issuance of the Cabletron series C preferred stock,
then the liquidation amount will be equal to the greater of:
- $1.00;
- the amount a holder would be entitled to receive on a share of Cabletron
series C preferred stock in the liquidation, dissolution or winding up if
the holder converted that share into Cabletron common stock immediately
before the liquidation, dissolution or winding up is effective; and
- the amount a holder would be entitled to receive on a share of Cabletron
series C preferred stock in the liquidation, dissolution or winding up if
the holder converted that share into Cabletron common stock immediately
before the liquidation, dissolution or winding up is effective, but
without taking into account any adjustment to the applicable conversion
rate for an Enterasys spinoff or an Enterasys transaction.
If Cabletron's liquidation, dissolution or winding up occurs after the
first to occur of an Enterasys spinoff, an Enterasys transaction and the second
anniversary of the date of issuance of the Cabletron series C preferred stock,
then the liquidation amount will be equal to the greater of:
- $1.00;
- the amount a holder would be entitled to receive on a share of Cabletron
series C preferred stock in the liquidation, dissolution or winding up if
the holder converted that share into Cabletron common stock immediately
before the liquidation, dissolution or winding up is effective, including
taking into account any adjustment to the applicable conversion rate for
an Enterasys spinoff, an Enterasys transaction or following the second
anniversary of the date of issuance of the Cabletron series C preferred
stock.
If, after distribution of any of Cabletron's assets to the holders of stock
senior to the Cabletron series C preferred stock, Cabletron's assets are
insufficient to pay the holders of Cabletron series C preferred stock and the
holders of any stock ranking equally with the Cabletron series C preferred
stock, their full liquidation amounts, then Cabletron's remaining assets legally
available for distribution will be distributed ratably among the holders of
Cabletron series C preferred stock and the holders of any stock ranking equally
with the Cabletron series C preferred stock. The holders of stock ranking junior
to the Cabletron Series C preferred stock, including the holders of Cabletron
common stock, will not be entitled to participate in the liquidation.
VOTING RIGHTS. Except as required by law, the holders of Cabletron series
C preferred stock will have voting rights and powers equal to the voting rights
and powers of the holders of Cabletron common stock. The holders of Cabletron
series C preferred stock will vote with the holders of Cabletron common stock
and any other shares of Cabletron's stock which, by their terms, are entitled to
vote with the Cabletron common stock, as a single class. Each holder of
Cabletron series C preferred stock will be entitled to the number of votes for
each share of Cabletron series C preferred stock it holds equal to the product
of the number of shares of Cabletron series C preferred stock held by the holder
and the applicable conversion rate on the record date for holders entitled to
participate in the vote. The holders of a majority of the then outstanding
shares of Cabletron series C preferred stock must also approve any amendment or
restatement of Cabletron's certificate of incorporation or of the certificate of
designation for the Cabletron series C preferred stock that adversely affects
the powers, preferences and rights of the Cabletron series C preferred stock.
ESCROW AGREEMENT. The shares of Cabletron series C preferred stock will be
held by State Street Bank and Trust Company, as escrow agent, and will be
subject to the provisions of the escrow agreement, the form of which is attached
as annex C to this proxy statement/prospectus. The shares of Cabletron series C
preferred stock will be held in escrow only to facilitate any conversion or
redemption of the Cabletron series C preferred stock occurring within 24 months
of the date of issuance of the Cabletron series C preferred stock. The shares
will remain in the escrow account until any conversion or redemption, after
which the stockholders on whose behalf the shares are being held will receive
the shares of Cabletron common stock issued upon the conversion of the Cabletron
series C preferred stock or the shares of Enterasys common stock or any other
securities issued upon the redemption of the Cabletron series C preferred stock.
If no redemption of
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<PAGE> 76
conversion occurs within 24 months of the date of issuance of the Cabletron
series C preferred stock, the shares being held in escrow will be distributed by
the escrow agent to the stockholders on whose behalf the shares are being held
on or before the 30-month anniversary of the date of issuance of the Cabletron
series C preferred stock. The escrow agreement provides that the shares of
Cabletron series C preferred stock may not be transferred except under the laws
of descent and distribution or to the partners or equity holders of any
stockholder which is an entity.
WARRANTS, OPTIONS AND PUT RIGHTS
In August 2000, Cabletron issued warrants to Silver Lake Partners, L.P. and
other investors under a securities purchase agreement to purchase up to 250,000
shares of Cabletron common stock at an initial exercise price of $45.00 per
share, in cash, adjusted for dividends, distributions, stock splits, stock
dividends, combinations, consolidations, mergers, sales of assets,
reorganizations and similar matters. These warrants expire on August 30, 2007.
In August 2000, Cabletron also issued warrants to Silver Lake Partners and other
investors under the securities purchase agreement to purchase up to an aggregate
of 200,000 shares of Cabletron common stock at an initial exercise price of
$35.00 per share, adjusted for dividends, distributions, stock splits, stock
dividends, combinations, consolidations, mergers, sales of assets,
reorganizations and similar matters. These warrants also expire on August 30,
2007. Cabletron has also agreed to issue additional warrants to Silver Lake
Partners and other investors under the securities purchase agreement to purchase
additional shares of Cabletron common stock if, before an initial public
offering of the stock of any of Cabletron's operating subsidiaries to Cabletron
stockholders, or a sale of a majority of the assets or voting stock of any of
Cabletron's operating subsidiaries, Cabletron:
- determines to recombine a majority of the assets of an operating
subsidiary with Cabletron;
- informs Silver Lake Partners and other investors that an operating
subsidiary does not intend to engage in an initial public offering, a
distribution of its stock to Cabletron stockholders or a sale of a
majority of its assets or voting stock;
- grants to employees of an operating subsidiary rights to acquire stock of
Cabletron in consideration of the cancellation of substantially all of
the options to acquire stock of an operating subsidiary held by
employees; or
- is acquired by a third party.
Each operating subsidiary has granted to Silver Lake Partners and other
investors rights to purchase common stock of the operating subsidiaries.
As of February 29, 2000, Cabletron had options outstanding to purchase
15,998,256 shares of Cabletron common stock, at a weighted-average exercise
price of $11.16. As of that date, 2,916,651 options, at a weighted-average
exercise price of $10.26, were exercisable. Also, 3,100,558 shares of Cabletron
common stock were subject to purchase by Cabletron employees under employee
stock purchase plans.
COMPARISON OF RIGHTS OF SERIES C PREFERRED AND COMMON STOCKHOLDERS
OF CABLETRON AND STOCKHOLDERS OF INDUS RIVER
The rights of Cabletron and Indus River stockholders are governed by the
Delaware General Corporation Law, and the certificates of incorporation and
by-laws of Cabletron and Indus River. Upon completion of the merger, the rights
of Indus River stockholders who become stockholders of Cabletron in the merger
will be governed by the Delaware General Corporation Law, Cabletron's
certificate of incorporation, including the certificate of designation for the
Cabletron series C preferred stock, and Cabletron's by-laws.
The following description summarizes the material differences that may
affect the rights of stockholders of Cabletron series C preferred and common
stockholders of Cabletron and stockholders of Indus River but is not a complete
statement of all those differences, or a complete description of the specific
provisions referred to in this summary. The identification of specific
differences is not intended to indicate that other equally or more significant
differences do not exist. Stockholders should read carefully the relevant
provisions of the Delaware
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General Corporation Law, Cabletron's certificate of incorporation, the form of
certificate of designation for the Cabletron series C preferred stock, and
Cabletron's by-laws and Indus River's certificate of incorporation and by-laws.
CAPITALIZATION
CABLETRON. Cabletron's authorized stock is described above under
"Description of Cabletron Capital Stock."
INDUS RIVER. The total authorized shares of stock of Indus River consists
of 30,000,000 shares of common stock and 22,000,000 shares of preferred stock.
As of the record date, 4,204,883 shares of Indus River common stock were issued
and outstanding, and 10,437,466 shares were reserved for issuance upon the
conversion of preferred stock. As of the same date, the breakdown of Indus
River's preferred stock was:
- 5,100,000 shares of preferred stock had been designated as series A
convertible preferred stock, of which 5,100,000 shares were issued and
outstanding;
- 3,197,973 shares of preferred stock had been designated as series B
convertible preferred stock, of which 3,197,973 shares were issued and
outstanding;
- 70,710 shares of preferred stock had been designated as series C
convertible preferred stock, of which 70,710 shares were issued and
outstanding; and
- 2,500,000 shares of preferred stock had been designated as series D
convertible preferred stock, of which 2,068,783 shares were issued and
outstanding.
Indus River's certificate of incorporation provides that the board of
directors may increase or decrease the number of shares of any series of
preferred stock after the issuance of shares of that series, but not above the
total number of authorized shares of the preferred stock and not below the
number of shares of that series then outstanding.
VOTING RIGHTS
CABLETRON. Each holder of Cabletron common stock is entitled to one vote
for each share held of record and may not cumulate votes for the election of
directors. Each holder of Cabletron series C preferred stock is entitled to the
number of votes equal to the number of whole shares of Cabletron common stock
into which the shares of Cabletron series C preferred stock held are convertible
on the record date. The initial conversion rate for the Cabletron series C
preferred stock will be 10-to-1 and will be adjusted as described above under
"Description of Cabletron Capital Stock -- Preferred Stock -- Series C Preferred
Stock -- Conversion Rights." Except as provided by law and in some situations
described in the certificate of designation for the Cabletron series C preferred
stock, holders of Cabletron series C preferred stock will vote with the holders
of Cabletron common stock, and the holders of any other series of Cabletron
stock entitled to vote, as a single class.
INDUS RIVER. Each holder of Indus River common stock is entitled to one
vote for each share held at all meetings of stockholders and written actions and
may not cumulate votes. Each holder of Indus River preferred stock is entitled
to the number of votes equal to the number of whole shares of Indus River common
stock into which the shares of Indus River preferred stock held are convertible
on the record date. Except as provided by law and in some situations described
in Indus River's certificate of incorporation, holders of Indus River preferred
stock vote with the holders of Indus River common stock as a single class.
VOTING REQUIREMENT AND QUORUMS FOR STOCKHOLDER MEETINGS
CABLETRON. Under Cabletron's certificate of incorporation and by-laws, a
majority of the issued and outstanding stock entitled to vote, present in person
or by proxy, at any meeting of stockholders will constitute a quorum for the
transaction of business at the meeting.
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The Cabletron by-laws provide that a majority of the votes properly cast
upon any question other than an election to an office will decide the question,
except when a larger vote is required by law, by the Cabletron certificate of
incorporation or by the Cabletron by-laws. A plurality of the votes properly
cast for election to any office will elect to that office, except when a larger
vote is required by law, by the Cabletron certificate of incorporation or the
Cabletron by-laws.
INDUS RIVER. Under Indus River's by-laws, a majority of the issued and
outstanding stock entitled to vote, present in person or by proxy, at any
meeting of stockholders will constitute a quorum for the transaction of business
at the meeting. The Indus River by-laws provide that a majority of the votes
properly cast upon any question other than an election to an office will decide
the question, except when a larger vote is required by law, by the Indus River
certificate of incorporation or by the Indus River by-laws. A plurality of the
votes properly cast for election to any office will elect to that office, except
when a larger vote is required by law, by the Indus River certificate of
incorporation or the Indus River by-laws.
NUMBER OF DIRECTORS
Under the Delaware General Corporation Law, the minimum number of directors
is one. The Delaware General Corporation Law permits the board of directors to
change the authorized number of the range of directors by amendment to the
by-laws, unless the directors are not authorized in the certificate of
incorporation to amend the by-laws or the number of directors is fixed in the
certificate of incorporation. If the board of directors is not authorized to
change the number of directors, then a change may be made only upon approval by
the stockholders.
CABLETRON. The Cabletron certificate of incorporation does not set a
number of directors.
INDUS RIVER. The Indus River by-laws provide for not less than three and
no more than seven directors, or any other number that the stockholders may
establish. The Indus River certificate of incorporation provides for the
election of seven directors, and that the directors may not be increased in
excess of seven without the consent of at least two-thirds of the then
outstanding shares of each series of Indus River preferred stock, voting
together as a single class.
BOARD CLASSIFICATION
CABLETRON. The Cabletron by-laws provide for Cabletron's directors to be
divided into three equal classes with each class comprised of one-third of the
directors being elected to serve until the third succeeding annual meeting.
INDUS RIVER. Neither the Indus River certificate of incorporation nor the
Indus River by-laws provides for board classification.
NOMINATION AND ELECTION OF DIRECTORS
CABLETRON. Cabletron's certificate of incorporation provides for directors
to be elected at an annual meeting of stockholders held on a date and at a time
designated by or in the manner provided in the Cabletron by-laws. Cabletron's
certificate of incorporation provides that elections of directors need not be by
written ballot, unless required by the Cabletron by-laws. The Cabletron by-laws
state that no ballot will be required for any election unless requested by a
stockholder present or represented at the meeting and entitled to vote in the
election. The Cabletron by-laws provide that directors are elected by a
plurality of the votes properly cast by stockholders voting in person or by
proxy at the annual meeting of stockholders. Subject to the rights of the
holders of any Cabletron preferred stock, nominations for the election of
directors may be made by the board of directors or by any stockholder entitled
to vote for the election of directors.
Any Cabletron stockholder entitled to vote for the election of directors
may nominate persons for election as directors by giving timely written notice
to the secretary accompanied by a petition signed by at least 100 record holders
of Cabletron's stock, which represent 1% of the outstanding shares entitled to
vote in the election of directors. To be timely, notice must be given to
Cabletron's principal executive offices not less than 45 days nor more than 60
days before the meeting. If less than 40 days notice or prior public disclosure
of the
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date of the meeting is given or made to the stockholders, to be timely, notice
by the stockholder must be received at Cabletron's principal executive offices
not later than the close of business on the 10th day after the day on which
notice of the date of the meeting was mailed or public disclosure was made. To
be in proper written form, a stockholder's notice must state in writing:
- for each person nominated by the stockholder to serve as director, all
information relating to that person that is required to be disclosed in
solicitations of proxies for election of directors under Regulation 14A
under the Exchange Act, including, the person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected; and
- for the stockholder giving the notice, the name and address of the
stockholder, and the class and number of shares of Cabletron stock which
are beneficially owned by the stockholder.
If any person is nominated by Cabletron's board of directors for election as a
director, that person shall furnish to the secretary the same information about
the nominee that those stockholders submitting notices of nomination are
required to submit.
INDUS RIVER. Indus River's by-laws provide that directors are elected at
the annual meeting of the stockholders in the manner provided in the Indus River
certificate of incorporation. Each director holds office until a successor is
elected and qualified, or until his earlier, resignation, removal or
disqualification.
Indus River's certificate of incorporation provides that the holders of
record of the shares of Indus River preferred stock, voting together as a single
class, are entitled to elect three members of Indus River's board of directors,
and the holders of record of the shares of Indus River common stock, voting as a
separate class, are entitled to elect three directors, one of whom shall be the
chief executive officer. The seventh director will be designated by the chief
executive officer and confirmed by a vote of the holders of record of the shares
of Indus River preferred stock, voting together as a single class. If Indus
River fails to redeem the Indus River preferred stock in the manner provided in
its certificate of incorporation, the holders of record of the shares of Indus
River preferred stock, voting together as a single class, will be entitled to
elect a majority of the directors, and will use their best efforts to cure the
default as soon as possible. A majority of the shares of Indus River preferred
stock then outstanding will constitute a quorum for the election of directors by
the holders of Indus River preferred stock. Directors may resign by delivering a
written resignation to Indus River at its principal office or to Indus River's
president or secretary.
REMOVAL OF DIRECTORS
CABLETRON. Cabletron's certificate of incorporation provides for removal
of directors at any time, but only if there is a valid concern about the
director's ability and fitness to perform his duties, and only by the
affirmative vote of 85% of the total number of votes of the then outstanding
shares of Cabletron stock entitled to vote generally in the election of
directors, voting together as a single class excluding shares beneficially owned
by a related person. Related person is defined below under "-- Vote Required for
Mergers".
INDUS RIVER. Indus River's by-laws provide that, a director may be removed
at any time by the affirmative vote of a majority of shares issued and
outstanding and entitled to vote to elect that director. The Indus River
certificate of incorporation provides that any director elected by a separate
class may only be removed by a vote of the holders of a majority of the shares
of that class.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
CABLETRON. Cabletron's by-laws provide that vacancies may be filled only
by a majority vote of the directors in office, even if the number of directors
remaining in office is less than a quorum, and newly created directorships may
be filled by the board of directors, or if not so filled, by the stockholders at
the next annual meeting or at any special meeting they called for that purpose.
INDUS RIVER. Indus River's by-laws provide that, subject to the provision
of the Indus River certificate of incorporation, any vacancies and newly created
directorships resulting from an increase in the number of
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directors may be filled by a vote of the stockholders, or by a majority of the
directors then in office, even if than a quorum, or by a sole remaining
director.
The Indus River certificate of incorporation provides for a vacancy in any
directorship elected by the holders of the Indus River preferred stock will be
filled only by vote of the holders of Indus River preferred stock, and a vacancy
in any directorship elected by the holders of Indus River common stock to be
filled only by vote of the holders of Indus River common stock.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
CABLETRON. Cabletron's certificate of incorporation provides that the
affirmative vote of the holders of at least 85% of the total number of votes of
the then outstanding shares of stock of Cabletron entitled to vote generally in
the election of directors, voting together as a single class, but excluding
shares beneficially owned by a related person, will be required to amend
significant provisions contained in Cabletron's certificate of incorporation.
Cabletron's certificate of incorporation also provides in the applicable
certificate of designation that Cabletron may not amend, alter or repeal the
preference, rights, or powers of Cabletron's preferred stock, including the
Cabletron series C preferred stock, if the amendment would adversely affect the
preferred stock, without the written consent or affirmative vote of the holders
of a majority of the then outstanding shares of preferred stock to be affected
by the action, given in writing or by vote at a meeting, consenting or voting
separately as a class.
INDUS RIVER. Indus River's certificate of incorporation provides that so
long as any shares of Indus River preferred stock are outstanding, Indus River
may not amend, alter or repeal its certificate of incorporation in a manner
materially detrimental or adverse to the rights of the holders of Indus River
preferred stock, without the approval of the holders of at least two-thirds of
the then outstanding shares of Indus River preferred stock, voting or consenting
together as a single class. The certificate of incorporation also provides that
no provision of the terms of the Indus River series A, series B, series C or
series D preferred stock may be amended, modified or waived without the written
consent or affirmative vote of at least two-thirds of the then outstanding
shares of Indus River preferred stock, voting or consenting together as a single
class.
AMENDMENTS TO BY-LAWS
CABLETRON. Cabletron's certificate of incorporation provides that
Cabletron's by-laws may be altered or repealed and new by-laws may be adopted by
a vote of a majority of the directors, and also by a 2/3 vote of the Cabletron
stockholders.
INDUS RIVER. Indus River's certificate of incorporation provides that so
long as any shares of Indus River preferred stock are outstanding, Indus River
may not amend, alter or repeal its by-laws in a manner materially detrimental or
adverse to the rights of the holders of Indus River preferred stock, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Indus River preferred stock, voting or consenting together as a single class.
The Indus River by-laws provide that the by-laws may be adopted, amended or
repealed by a vote of a majority of the directors then in office or by vote of a
majority of the stock outstanding and entitled to vote. Any by-law, whether
adopted, amended or repealed by the stockholders or directors, may be amended or
reinstated by the stockholders or the directors.
STOCKHOLDER ACTION
CABLETRON. Cabletron's certificate of incorporation provides that any
action required or permitted to be taken by the Cabletron stockholders must be
done at a properly called annual or special meeting and may not be done by
written consent.
INDUS RIVER. Indus River's by-laws provide that, unless otherwise provided
in the certificate of incorporation, any action which may be taken at a meeting
of stockholders may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, describing the action taken, is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to
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authorize or take the action at a meeting at which all shares entitled to vote
on the matter were present and voted.
SPECIAL STOCKHOLDER MEETINGS
CABLETRON. Cabletron's by-laws provide that a special meeting of
Cabletron's stockholders may be called at any time by the chairman, if any, of
Cabletron's board of directors, the president or the board of directors. A
special meeting may also be called by the secretary upon application of a
majority of the directors.
INDUS RIVER. Indus River's by-laws provide that special meetings of the
stockholders may be called at any time by request of:
- the chairman of the board of directors,
- the president,
- any two directors,
- the holders of at least 35% of the outstanding shares of Indus River
series A preferred stock,
- the holders of at least 45% of the outstanding shares of Indus River
series B preferred stock, or
- the holders of at least 45% of the outstanding shares of Indus River
series D preferred stock.
The request shall state the purpose of the proposed meeting. Notice of the
special meeting must be given to each stockholder entitled to vote at the
meeting, not less than ten and not more than sixty days before the date of the
meeting.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION
CABLETRON. Cabletron's certificate of incorporation provides that a
director will not be personally liable to Cabletron or to its stockholders for
monetary damages for a breach of fiduciary duty as a director, except if
exculpation from liabilities is not permitted under the Delaware General
Corporation Law. The Delaware General Corporation Law prohibits exculpation for:
- any breach of the director's duty of loyalty to Cabletron or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- liability for unlawful payment of dividends or unlawful stock purchases
or redemptions; or
- any transaction from which the director received an improper personal
benefit.
Cabletron's certificate of incorporation also provides that no amendment
to, or repeal of, the provisions related to liability will apply to or affect
the liability or alleged liability of any director for, or related to, any acts
or omissions of the director before the amendment.
Cabletron's certificate of incorporation provides a right to
indemnification to directors and officers of Cabletron subject to the
limitations under Delaware General Corporation Law.
INDUS RIVER. Indus River's certificate of incorporation also provides that
a director will not be personally liable to Cabletron or to its stockholders for
monetary damages for a breach of fiduciary duty as a director, except if
exculpation from liabilities is not permitted under the Delaware General
Corporation Law.
Indus River's certificate of incorporation also provides that no amendment
to, or repeal of, the provisions related to liability will apply to or affect
the liability or alleged liability of any director for, or related to, any acts
or omissions of the director before the amendment.
Indus River's certificate of incorporation provides a right to
indemnification to directors and officers of Indus River subject to the
limitations under Delaware General Corporation Law.
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DIVIDENDS
CABLETRON. Cabletron's certificate of designation for the Cabletron series
A and Cabletron series B preferred stock provides that the holders of
outstanding shares of Cabletron series A and Cabletron series B preferred stock
are entitled to receive, when declared by Cabletron's board of directors,
cumulative cash dividends per share equal to a minimum of $40.00 per year and
those holders may receive a greater amount as provided in the certificate of
designation. Holders of Cabletron series A and Cabletron series B preferred
stock are entitled to accrual of dividends before Cabletron can distribute
dividends to holders of Cabletron common stock or holders of Cabletron series C
preferred stock, and dividends on the Cabletron series A and Cabletron series B
preferred stock will accrue, whether or not they have been declared and whether
or not Cabletron has profits, surplus or other funds legally available to pay
them. Cabletron will not pay any cash dividends to holders of Cabletron series A
and Cabletron series B preferred stock without the written consent or
affirmative vote of the then issued and outstanding shares of Cabletron series A
preferred stock and Cabletron series B preferred stock. Holders of Cabletron
series A and Cabletron series B preferred stock are not entitled to participate
in any other dividends.
Cabletron's certificate of designation for the Cabletron series C preferred
stock will provide that the holders of outstanding shares of Cabletron series C
preferred stock will be entitled to receive cash dividends to the same extent as
holders of Cabletron common stock, except that the holders of Cabletron series C
preferred will not be entitled to receive dividends that constitute an
extraordinary distribution. Each share of Cabletron series C preferred stock
will be entitled to receive dividends at a rate per share equal to the dividend
declared on each share of Cabletron common stock multiplied by the applicable
conversion rate, which is determined as described above under "Description of
Cabletron Capital Stock -- Preferred Stock -- Series C Preferred
Stock -- Conversion Rights."
Cabletron has paid no dividends on its common stock and anticipates that it
will continue to reinvest earnings to finance future growth.
INDUS RIVER. Indus River's certificate of incorporation provides that the
holders of Indus River series A preferred stock are entitled to receive, when
declared by the Indus River board of directors, quarterly dividends at the rate
of $0.07 per share. The holders of Indus River series B preferred stock are
entitled to receive, when declared by the Indus River board of directors,
quarterly dividends at the rate of $0.19 per share. The holders of Indus River
series C preferred stock are entitled to receive, when declared by the Indus
River board of directors, quarterly dividends at the rate of $0.29 per share.
The holders of Indus River series D preferred stock are entitled to receive,
when declared by the Indus River board of directors, quarterly dividends at the
rate of $0.374 per share. Dividends accrue from day to day, whether or not
earned or declared, and are cumulative. Dividends may also be declared and paid
on the common stock, when declared by the Indus River board of directors,
subject to the rights and preferences of the holders of Indus River preferred
stock.
Indus River's certificate of incorporation also provides that, so long as
any shares of Indus River preferred stock are outstanding, Indus River may not
pay any dividend on any shares of stock other than the Indus River preferred
stock, without the approval of the holders of at least two-thirds of the then
outstanding shares of Indus River preferred stock, voting or consenting together
as a single class. However, Indus River may pay dividends that are payable on
Indus River stock if the dividends are solely in the form of additional shares
of Indus River stock without this approval.
LIQUIDATION
CABLETRON. Holders of Cabletron common stock have no preferential rights
if there is a liquidation of Cabletron. Holders of Cabletron series C preferred
stock have preferential rights over holders of Cabletron common stock if there
is a liquidation of Cabletron. Holders of Cabletron series C preferred stock are
junior in rights of liquidation to holders of Cabletron series A and Cabletron
series B preferred stock. If there is a liquidation, holders of Cabletron series
C preferred stock will be entitled to receive a liquidation amount determined in
the manner described above in "Description of Cabletron Capital Stock --
Preferred Stock -- Series C Preferred Stock -- Liquidation."
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INDUS RIVER. Indus River's certificate of incorporation provides that in a
liquidation of Indus River, the holders of Indus River preferred stock then
outstanding are entitled to be paid out of Indus River's assets available for
distribution to its stockholders:
- holders of shares of Indus River series A preferred stock are entitled to
be paid an amount equal to $1.00 per share;
- holders of shares of Indus River series B preferred stock are entitled to
be paid an amount equal to $2.72 per share;
- holders of shares of Indus River series C preferred stock are entitled to
be paid an amount equal to $4.08 per share; and
- holders of shares of Indus River series D preferred stock are entitled to
be paid an amount equal to $5.34 per share.
Payment is subject to appropriate adjustment for stock dividends, stock
splits, combinations or other similar recapitalizations affecting the preferred
shares, plus any accrued dividends, whether or not declared, and any dividends
declared but unpaid on the preferred shares. If, upon the liquidation of Indus
River the remaining assets of Indus River available for distribution to its
stockholders are insufficient to pay the holders of a particular series of Indus
River preferred stock the full amount they are entitled to receive, the holders
of shares of Indus River preferred stock will share ratably in distribution of
the remaining assets and funds of Indus River in proportion with their holdings.
Indus River's certificate of incorporation also provides that, after the payment
of all preferential amounts required to be paid to the holders of Indus River
preferred stock, any remaining assets and funds of Indus River available for
distribution will be distributed ratably among the holders of Indus River common
stock and Indus River preferred stock, based upon the number of shares held by
each stockholder, on an as-converted basis.
Indus River's certificate of incorporation provides that the consolidation
or merger of Indus River into or with any other entity or entities which results
in the exchange of outstanding securities of Indus River for securities or other
consideration issued or paid by that entity or its affiliate, and the sale,
lease, abandonment, transfer or other disposition by Indus River of all or
substantially all its assets, will be a liquidation.
CONVERSION
CABLETRON. Holders of Cabletron common stock have no rights to convert
their shares into any other securities. Subject to the terms, conditions,
limitations and adjustments stated in the certificate of designation for the
Cabletron series C preferred stock, the holders of Cabletron series C preferred
stock will generally have the right, at their option, to convert their shares of
Cabletron series C preferred stock into Cabletron common stock after the earlier
to occur of:
- an Enterasys spinoff that occurs on or after the first anniversary of the
date the series C preferred stock is issued;
- an Enterasys transaction at any time; and
- the second anniversary of the date the series C preferred stock is
issued.
If Cabletron establishes a record date for an Enterasys spinoff before the
first anniversary of the date the series C preferred stock is issued, then the
holders of Cabletron series C preferred stock will have the right, at their
option, to convert their shares of Cabletron series C preferred stock
immediately before the Enterasys spinoff. If any holder of Cabletron series C
preferred stock elects to exercise its conversion rights, it will receive the
number of fully paid and non assessable shares of Cabletron common stock,
determined by using the formula in the certificate of designation for the
Cabletron series C preferred stock, and that is described above under
"Description of Cabletron Capital Stock -- Preferred Stock -- series C Preferred
Stock -- Conversion Rights." No fractional shares of Cabletron common stock may
be issued upon conversion of Cabletron series C preferred stock. Instead of any
fractional shares that a holder would be entitled to receive, Cabletron will pay
cash equal to the fraction multiplied by the then applicable conversion rate.
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INDUS RIVER. Holders of Indus River common stock have no right to convert
their shares into any other securities. Subject to the terms, conditions,
limitations and adjustments stated in Indus River's certificate of
incorporation, the holders of each series of Indus River preferred stock have
the right, at their option, to convert any shares of preferred stock into the
number of fully paid and nonassessable shares of Indus River common stock,
determined by using the formula in the Indus River certificate of incorporation.
Based on the formula and taking into consideration previous stock splits, the
current rates of conversion are:
- each share of Indus River series A preferred stock is convertible into
one share of Indus River common stock;
- each share of Indus River series B preferred stock is convertible into
one share of Indus River common stock;
- each share of Indus River series C preferred stock is convertible into
one share of Indus River common stock; and
- each share of Indus River series D preferred stock is convertible into
one share of Indus River common stock.
No fractional shares of common stock may be issued upon conversion of Indus
River preferred stock. Instead of any fractional shares that a holder would be
entitled to receive, Indus River will pay cash equal to the fraction multiplied
by the then effective applicable conversion price.
The Indus River certificate of incorporation also provides that if Indus
River conducts a firm commitment underwritten public offering of shares of Indus
River common stock in which the aggregate price paid for those shares by the
public is at least $30,000,000, and the price paid by the public is at least
$10.68 per share, then the Indus River preferred stock shall be subject to
mandatory conversion into shares of common stock on the basis described above.
REDEMPTION RIGHTS
CABLETRON. Holders of Cabletron common stock have no redemption rights.
Each holder of Cabletron series C preferred stock has the right to require
Cabletron to redeem all, but not less than all, of that holder's shares of
series C preferred stock immediately before the occurrence of the first to occur
of:
- an Enterasys spinoff after the first anniversary of the date of issuance
of the series C preferred stock and before the second anniversary of the
date of issuance of the series C preferred stock; and
- an Enterasys transaction.
The redemption price to be paid will be equal in value to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger closes,
adjusted for stock splits, stock dividends, recapitalizations, extraordinary
distributions and other similar events affecting the stock of Enterasys, divided
by 50,000. If the redemption right is exercised in an Enterasys spinoff, the
redemption price will be paid in shares of Enterasys stock at the beginning of
the spin-off. If the redemption right is exercised in an Enterasys transaction,
the redemption price will be paid in securities or assets of the surviving
corporation immediately after the transaction.
The redemption rights for the Cabletron series C preferred stock will
terminate immediately after the first to occur of:
- an Enterasys spinoff;
- an Enterasys transaction; and
- the second anniversary of the date of issuance of the series C preferred
stock.
Cabletron will give each holder of Cabletron series C preferred stock at
least 30 days notice of its intention to either conduct an Enterasys spinoff or
an Enterasys transaction, advising each holder of series C preferred stock of
its conversion and redemption rights. After receipt of this notice, each holder
of series C
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preferred stock will have 15 days to deliver a notice to Cabletron advising
Cabletron of its intention to require Cabletron to redeem or convert all, but
not less than all, of the series C preferred stock held by that holder.
INDUS RIVER. Indus River's certificate of incorporation provides that on
June 30, 2004, June 30, 2005 and June 30, 2006, at the election of the holders
of a majority of the shares of Indus River series A preferred stock, Indus River
series B preferred stock, Indus River series C preferred stock and Indus River
series D preferred stock then outstanding, Indus River will redeem the shares of
Indus River preferred stock. The redemption price will be $1.00 per share of
Indus River series A preferred stock, $2.72 per share of Indus River series B
preferred stock, $4.08 per share of Indus River series C preferred stock and
$5.34 per share of Indus River series D preferred stock, plus declared but
unpaid dividends for each share of preferred stock. This Redemption price will
be adjusted for dividends, stock splits, combinations or other similar
recapitalizations affecting the shares. The portions of Indus River preferred
stock to be redeemed on each redemption date will be:
- 33 1/3% on June 30, 2004
- 50% of the remaining outstanding shares on June 30, 2005 and
- 100% all remaining outstanding shares on June 30, 2006.
If the funds of Indus River legally available for redemption of Indus River
preferred stock on any mandatory redemption date are not sufficient to redeem
the shares of Indus River preferred stock required to be redeemed, the funds
that are legally available for redemption will be used to redeem the maximum
possible number of shares of Indus River preferred stock on a pro rata basis.
If, at any time, additional funds of Indus River become legally available for
redemption of Indus River preferred stock, those funds will be used, at the end
of the next fiscal quarter, to redeem, the balance of the shares that are
subject to the right of redemption.
Indus River's certificate of incorporation also provides for a special
mandatory conversion of the Indus River series A preferred stock, Indus River
series B preferred stock and Indus River series D preferred stock if the holders
of that preferred stock do not exercise rights to participate in a subsequent
equity financing. If that occurs, the shares of Indus River preferred stock will
be automatically converted into Indus River series A-1 preferred stock, Indus
River series B-1 preferred stock and Indus River series D-1 preferred stock,
with rights and preferences similar to the original preferred stock, except that
the conversion price will be fixed and will not be subject to adjustment.
APPRAISAL RIGHTS
CABLETRON. Cabletron is a Delaware corporation. Under the Delaware General
Corporation Law, dissenters' rights of appraisal are available to a stockholder
of a corporation only in some mergers or consolidations involving that
corporation. Appraisal rights are not available under the Delaware General
Corporation Law if the corporation's stock is either:
- listed on a national securities exchange, as the Cabletron common stock
is, or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or
- held of record by more than 2,000 stockholders;
Appraisal rights will be available if the merger or consolidation requires
stockholders to exchange their shares of Cabletron common stock for anything
other than:
- shares of the surviving corporation, plus cash instead of any fractional
shares; or
- shares of another corporation that will be listed on a national
securities exchange, designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers or held of record by more than 2,000 stockholders, plus cash
instead of fractional shares.
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No appraisal rights are available under the Delaware General Corporation
Law if the corporation is the surviving corporation, and no vote of its
stockholders is required for the merger.
INDUS RIVER. Indus River is also a Delaware corporation and dissenters'
rights of appraisal are available for shares of Indus River common stock and
Indus River preferred stock in some mergers or consolidations involving Indus
River in the same manner as described above.
VOTE REQUIRED FOR MERGERS
The Delaware General Corporation Law generally requires the affirmative
vote of a majority of a corporation's outstanding shares entitled to vote,
unless the certificate of incorporation requires a greater proportion, to
authorize a merger, consolidation, share exchange, dissolution or disposition of
all or substantially all of its assets. Unless required by its charter, no
authorizing stockholder vote is required of a corporation surviving a merger if:
- that corporation's charter is not amended by the merger;
- each share of stock of that corporation will be an identical share of the
surviving corporation after the merger; and
- the number of shares to be issued in the merger does not exceed 20% of
that corporation's outstanding common stock immediately before the
effective date of the merger.
Unless a dissolution is adopted by a majority of the board of directors, a
dissolution must be approved by all stockholders entitled to vote on the matter.
CABLETRON. Cabletron's certificate of incorporation provides that some
transactions, including mergers, consolidations, issuances of securities, some
asset dispositions, liquidations or dissolutions between Cabletron and a related
person must be approved by the affirmative vote of 85% of the outstanding shares
of stock entitled to vote generally for the election of directors unless:
- the board of directors of Cabletron has approved a binding agreement with
the person or entity for the transaction or has approved the transaction
which resulted in that party becoming a related person, before the time
that party became a related person, and a majority of the members of the
board of directors that voted for the approval of the transaction were
continuing directors; or
- the related person is a majority-owned subsidiary of Cabletron.
The Cabletron certificate of incorporation defines a related person as any
individual, corporation, partnership, unincorporated association or other person
or entity that, with its affiliates and associates, beneficially owns, or during
the three-year period immediately before the date on which it is sought to be
determined whether that person is a related person, owned 5% or more of the
outstanding shares of voting stock of any class of Cabletron's securities. The
term related person does not include:
- Cabletron or any direct or indirect majority-owned subsidiary of
Cabletron;
- any person that, with its affiliates and associates, beneficially owned
in the aggregate 5% or more of the outstanding shares of voting stock of
any class of Cabletron stock at the time of Cabletron's initial public
offering, any affiliate or associate of that person or any person that
acquired those shares from that person by gift, inheritance or in a
transaction in which no consideration was exchanged; or
- any person whose ownership of shares in excess of the 5% limitation
stated above is the result of action taken solely by Cabletron.
However, a person will be a related person if afterwards that person acquires
additional shares of voting stock of Cabletron, except because of corporate
action not caused, directly or indirectly by that person. For the purpose of
determining whether a person is a related person, the voting stock of Cabletron
considered outstanding shall include stock beneficially owned by the person.
However, the voting stock outstanding will not include any other unissued stock
of Cabletron which may be issuable under any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
other similar securities.
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<PAGE> 87
INDUS RIVER. Indus River is a Delaware corporation and is subject to the
provisions of the Delaware General Corporation Law described above. The Indus
River's certificate of incorporation also provides that so long as any shares of
Indus River preferred stock are outstanding, Indus River may not consolidate or
merge with or into any other entity without the approval of the holders of at
least two-thirds of the then outstanding shares of Indus River preferred stock,
voting or consenting as a single class.
ANTI-TAKEOVER PROVISIONS
The Delaware General Corporation Law prohibits some transactions between a
Delaware corporation and an interested stockholder, which is defined as a person
that is directly or indirectly a beneficial owner of 15% or more of the voting
power of the outstanding voting stock of a Delaware corporation and affiliates
and associates of that person. This provision prohibits some business
combinations, which is defined broadly to include mergers, consolidations, sales
or other dispositions of assets having an aggregate value in excess of 10% of
the consolidated assets of the corporation, and other transactions, between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock. However, the prohibition
does not apply if either:
- the business combination is approved by the corporation's board of
directors before the date the interested stockholder acquired its shares;
- the interested stockholder acquired at least 85% of the voting stock of
the corporation, excluding shares held by directors of the corporation
who are also officers and shares held under employee stock plans, in the
transaction in which it became an interested stockholder; or
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the votes entitled to
be cast by disinterested stockholders at an annual or special meeting.
This law applies automatically to a Delaware corporation unless its
certificate of incorporation or bylaws explicitly state that the law will not
apply, or if the corporation has less than 2,000 stockholders of record and does
not have voting stock listed on a national securities exchange or listed for
quotation with a registered national securities association.
CABLETRON. Neither the Cabletron certificate of incorporation nor the
Cabletron by-laws exempts Cabletron from the provision of the Delaware General
Corporation Law limiting transactions with interested stockholders.
INDUS RIVER. Indus River is also a Delaware corporation and is subject to
the same provisions of the Delaware General Corporation Law. Neither the Indus
River certificate of incorporation nor the Indus River by-laws exempts Indus
River from the provision of the Delaware General Corporation Law limiting
transactions with interested stockholders.
STOCKHOLDER DERIVATIVE SUITS
Under the Delaware General Corporation Law, a stockholder may bring a
derivative action on behalf of the corporation only if the stockholder was a
stockholder of the corporation at the time of the transaction in question or if
his stock devolved upon him by operation of law. A stockholder must also first
make demand on the corporation that it bring suit and have that demand be
refused, unless it is shown that the demand would have been futile.
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<PAGE> 88
INFORMATION CONCERNING INDUS RIVER
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
OF INDUS RIVER
The following table provides information about the number of shares of
Indus River stock that were beneficially owned as of September 30, 2000 by:
- each person that beneficially owns more than 5% of the outstanding shares
of Indus River common stock and preferred stock;
- each director of Indus River;
- Indus River's chief executive officer;
- the four other most highly compensated Indus River executive officers who
received annual compensation in excess of $100,000, collectively referred
to below as the executive officers; and
- all Indus River executive officers and directors as a group.
Except as indicated by the notes to the table below, the holders listed
below have sole voting and investment power over the shares beneficially owned.
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission. Beneficial ownership includes restricted stock or shares
subject to options which will vest or will be exercisable within 60 days
following September 30, 2000, and shares which become exercisable upon the
completion of the merger. All percentages assume that the restricted stock or
options of the particular person or group in question, and no others, have
vested or have been exercised. Unless stated differently below, the address for
each person is to the care of Indus River.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF SEPTEMBER 30, 2000
-------------------------------------------------------
NAME OF DIRECTORS, EXECUTIVE OFFICERS, PERCENT PERCENT
PRINCIPAL STOCKHOLDERS, AND OF CLASS OF CLASS
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP CLASS OF STOCK SHARES (#) (PREFERRED) (COMMON)
------------------------------------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
5% BENEFICIAL HOLDERS
New Enterprise Associates(1).................. Preferred 2,411,544 23.1% 36.4%
11951 Freedom Drive, Suite 1240
Reston, VA 20190
Canaan Ventures(2)............................ Preferred 2,411,543 23.1% 36.4%
105 Rowayton Avenue
Rowayton, CT 06853
One Liberty Fund.............................. Preferred 2,411,543 23.1% 36.4%
One Liberty Square Common 266,333 * 4.0%
Boston, MA 02109
Ascent Venture Partners(3).................... Preferred 1,426,217 13.7% 25.3%
60 State Street
Boston, MA 02109
MCI Worldcom Venture Fund..................... Preferred 936,101 9.0% 18.2%
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20036
Per A. Suneby................................. Common 1,041,630 * 24.8%
EXECUTIVE OFFICERS AND DIRECTORS
Per A. Suneby(4).............................. Common 1,041,630 * 24.8%
Julian W. West(5)............................. Common 580,073 * 13.8%
Malik Z. Khan(6).............................. Common 775,296 * 18.4%
David Zwicker(7).............................. Common 214,999 * 5.1%
Garth Rose(8)................................. Common 152,812 * 3.6%
David Gamache(9).............................. Common 155,625 * 3.7%
William A. Harper(10)......................... Common 37,500 * 0.9%
Craig DeMunbrun(11)........................... Common 50,000 * 1.2%
Stephen J. Ricci.............................. Common 266,333 * 4.0%
Preferred 2,411,543 23.1% 36.4%
</TABLE>
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<PAGE> 89
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF SEPTEMBER 30, 2000
-------------------------------------------------------
NAME OF DIRECTORS, EXECUTIVE OFFICERS, PERCENT PERCENT
PRINCIPAL STOCKHOLDERS, AND OF CLASS OF CLASS
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP CLASS OF STOCK SHARES (#) (PREFERRED) (COMMON)
------------------------------------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Arthur Marks.................................. Preferred 2,411,544 23.1% 36.4%
James C. Furnivall............................ Preferred 2,411,543 23.1% 36.4%
Arthur I. Anderson(12)........................ Preferred 43,744 * 1.0%
Benson P. Shapiro(13)......................... Common 75,000 * 1.8%
Preferred 50,955 * 1.2%
All executive officers and directors as a
group (13 individuals)...................... Common 3,349,268 * 29.0%
Preferred 7,329,329 70.2% 63.5%
</TABLE>
---------------
* Beneficial ownership does not exceed 1% of the outstanding Indus River
common stock.
(1) Includes 2,374,466 held by NEA Associates VII, Limited Partnership, 32,078
shares held by NEA Presidents' Fund, L.P., and 5,000 shares held by NEA
Ventures 1997, L.P. Arthur J. Marks, a member of the board of directors of
Indus River, is the general partner of NEA Partners VII, Limited
Partnership, the general partner of NEA Associates VII, Limited Partnership
and the general partner of NEA General Partners, L.P., which is the general
partner of NEA President's Fund, L.P. Mr. Marks disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
in the Shares. The following natural persons exercise voting or dispositive
powers for shares held by New Enterprise Associates: Peter J. Barris, Nancy
Dorman, Ronald H. Kase, C. Richard Kramlich, Thomas C. McConnell, Arthur J.
Marks, Peter T. Morris, John M, Nebra, Charles W. Newhall, Louis B. Van
Dyck, IV and Mark W. Perry.
(2) Includes 1,569,877 shares held by Canaan Equity L.P., 326,566 shares held
by Canaan Ventures II Limited Partnership and 515,100 shares held by Canaan
Ventures II Offshore C.V. James C. Furnivall is a manager member of Canaan
Equity Partners LLC, the general partner of Canaan Equity L.P. Mr.
Furnivall disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest in the shares.
(3) Includes 814,981 shares held by Ascent Venture Partners II, L.P. and
611,236 shares held by Ascent Venture Partners, L.P.
(4) Shares consist of restricted stock, 911,426 vested as of September 30,
2000, and 130,204 shares which vest as part of the accelerated vesting
provisions upon completion of the merger.
(5) Shares consist of restricted stock, 507,564 vested as of September 30,
2000, and 72,509 shares which vest as part of accelerated vesting
provisions upon completion of the merger.
(6) Shares consist of restricted stock, 678,384 vested as of September 30,
2000, and 96,912 shares which vest as part of accelerated vesting
provisions upon completion of the merger.
(7) Shares consist of restricted stock, 81,250 vested as of September 30, 2000,
and 18,750 shares which vest as part of accelerated vesting provisions upon
completion of the merger. Also includes stock options, 82,187 shares vested
as of September 30, 2000, 3,750 shares to vest within 60 days of September
30, 2000, and 29,062 shares which vest as part of accelerated vesting
provisions upon completion of the merger.
(8) Shares consist of restricted stock, 110,625 vested as of September 30,
2000, 937 shares to vest within 60 days of September 30, 2000, and 41,250
shares which vest as part of accelerated vesting provisions upon completion
of the merger.
(9) Shares consist of restricted stock, 92,812 vested as of September 30, 2000,
10,313 shares to vest within 60 days of September 30, 2000, and 41,250
shares which vest as part of accelerated vesting provisions upon completion
of the merger. Also includes stock options, 5,000 shares vested as of
September 30, 2000, 1,250 shares to vest within 60 days of September 30,
2000, and 5,000 shares which vest as part of accelerated vesting provisions
upon completion of the merger.
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<PAGE> 90
(10) Shares consist of stock options, 37,500 shares which vest as part of
accelerated vesting provisions upon completion of the merger.
(11) Shares consist of stock options, 50,000 shares which vest as part of
accelerated vesting provisions upon completion of the merger.
(12) Shares consist of restricted stock, all of which are held by an affiliate
of Mr. Anderson. Mr. Anderson disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in the shares.
(13) Shares consist of restricted stock, 56,250 vested as of September 30, 2000,
and 18,750 shares which vest as part of accelerated vesting provisions upon
completion of the merger.
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<PAGE> 91
LEGAL MATTERS
Ropes & Gray, Boston, Massachusetts will deliver an opinion to Cabletron
about the validity of the securities offered by this proxy statement/prospectus.
Ropes & Gray, Boston, Massachusetts will deliver an opinion to Cabletron
about the income tax consequences of the merger. McDermott, Will & Emery,
Boston, Massachusetts will deliver an opinion to Indus River about the income
tax consequences of the merger. Arthur Anderson, the president of a professional
corporation that is a partner of McDermott, Will & Emery, owns 43,744 shares of
Indus River preferred stock. Mr. Anderson disclaims his beneficial ownership
except to the extent of his pecuniary interest in these shares.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedule of Cabletron and its subsidiaries as of February
29, 2000 and February 28, 1999, and for each year in the three-year period ended
February 29, 2000, have been incorporated by reference in the registration
statement, of which this proxy statement/prospectus is a part, in reliance upon
the reports of KPMG LLP, independent certified public accountants. Those reports
are also incorporated by reference in the registration statement of which this
proxy statement/prospectus is a part, and upon the authority of that firm as
experts in accounting and auditing.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Indus River board of
directors knows of no matters that will be presented for consideration at the
special meeting of stockholders other than as described in this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Cabletron files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that Cabletron files with the
Securities and Exchange Commission at the Securities and Exchange Commission's
public reference room at:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference room. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov." Reports, proxy
statements and other information concerning Cabletron may also be inspected at
the offices of the New York Stock Exchange at 20 Broad Street, New York, New
York 10005.
Cabletron filed a registration statement on Form S-4 on , 2000 to
register with the Securities and Exchange Commission the Cabletron common stock
and the Cabletron series C preferred stock to be issued to Indus River
stockholders in the merger. This proxy statement/prospectus is a part of that
registration statement. As allowed by Securities and Exchange Commission rules,
this proxy statement/prospectus does not contain all the information you can
find in Cabletron's registration statement or the exhibits to the registration
statement.
The Securities and Exchange Commission allows Cabletron to incorporate by
reference information into this proxy statement/prospectus, which means that
Cabletron can disclose important information to you by referring you to other
documents filed separately by Cabletron with the Securities and Exchange
Commission.
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<PAGE> 92
The information incorporated by reference is considered part of this proxy
statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus or in later filed
documents incorporated by reference in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents
mentioned below that Cabletron previously filed with the Securities and Exchange
Commission. These documents contain important business and financial information
about Cabletron that is not included in or delivered with this proxy
statement/prospectus.
<TABLE>
<CAPTION>
CABLETRON FILINGS
(FILE NO. 1-10228) PERIOD
--------------------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended February 29, 2000, as filed
on May 30, 2000
Quarterly Reports on Form 10-Q Quarters ended June 3, 2000 and September 2,
2000
Current Reports on Form 8-K Filed May 5, 2000 and September 11, 2000 (as
amended by Form 8-K/A filed September 29,
2000)
Proxy Statement, including any additional Filed June 6, 2000
materials submitted with the Proxy Statement
The description of Cabletron common stock Filed April 9, 1989
contained in Cabletron's Registration
Statement on Form 8-A, including any
amendments or reports filed for the purpose
of updating the description
</TABLE>
Cabletron also incorporates by reference additional documents that may be
filed with the Securities and Exchange Commission under sections 13(a), 13(c),
14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the special meeting. These include periodic
reports, such as annual reports on Form 10-K, quarterly reports on Form 10-Q
current reports on Form 8-K, and proxy statements.
Cabletron has supplied all information contained or incorporated by
reference in this proxy statement/ prospectus relating to Cabletron and Indus
River has supplied all information relating to Indus River.
Indus River stockholders should not send in their Indus River certificates
until they receive the transmittal materials from the exchange agent. Indus
River stockholders of record who have further questions about their share
certificates or the exchange of their Indus River stock for Cabletron common
stock should call the exchange agent.
You can obtain any of the documents incorporated by reference through
Cabletron, the Securities and Exchange Commission or the Securities and Exchange
Commission's Internet web site mentioned above. Documents incorporated by
reference are available from Cabletron without charge, excluding all exhibits,
except that if Cabletron has specifically incorporated by reference an exhibit
in this proxy statement/prospectus, the exhibit will also be provided without
charge. Stockholders may obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
Cabletron at:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire 03867
Attention: Investor Relations
Telephone: (603) 332-9400
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Neither Cabletron nor Indus River
has authorized anyone to provide you with information that is different from
what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated , 2000. You should not assume that the
information contained in this
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<PAGE> 93
proxy statement/prospectus is accurate as of any date other than that date.
Neither the mailing of this proxy statement/prospectus to stockholders nor the
issuance of Cabletron common stock and Cabletron series C preferred stock in the
merger creates any implication to the contrary.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this proxy statement/prospectus, including those
in the Summary, Risk Factors, Merger, Stock Prices and Dividends and Description
of Cabletron Capital Stock sections, are forward-looking statements that involve
risks and uncertainties. Some of the statements in the documents incorporated by
reference in this proxy statement/prospectus, including Cabletron's annual
report on form 10-K and quarterly reports on form 10-Q, are also forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about Cabletron's and Indus River's financial
condition, plans, objectives, strategies, expectations, intentions, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing products, plans and objectives of management, markets for stock of
Cabletron and Indus River, future financial performance and other statements
that are not historical facts. This proxy statement/prospectus contains words
like anticipates, believes, expects, future and intends, and similar expressions
to mean that the statement is forward-looking. You should not unduly rely on
these forward-looking statements, which apply only as of the date of this proxy
statement/prospectus. Cabletron's and Indus River's actual results could differ
materially from those anticipated in the forward-looking statements for many
reasons, including the risks described under Risk Factors.
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<PAGE> 94
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interest of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Delaware Court of Chancery or such other court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The registrant's Restated Certificate of Incorporation provides that the
registrant's directors shall not be liable to the registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liabilities is not permitted under the Delaware
General Corporation Law as in effect at the time such liability is determined.
The Restated Certificate of Incorporation further provides that the registrant
shall indemnify its directors and officers to the full extent permitted by the
law of the State of Delaware.
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<PAGE> 95
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following Exhibits are filed with, or incorporated by reference in,
this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*2 Agreement and Plan of Merger by and among the registrant,
Acton Acquisition, Co. and Indus River Networks, Inc.
("Indus River") dated as of August 18, 2000 (the "Merger
Agreement"), which is included as Annex A to the proxy
statement/prospectus which is part of this registrant
statement. The Exhibits to the Merger Agreement (other than
Exhibit 1.2 (the "Agreement of Merger")) and the Disclosure
Schedules of the registrant and of Indus River are not
included with the Merger Agreement.
3.1 Amended and Restated Certificate of Incorporation of
Cabletron Systems, Inc., a Delaware corporation, which is
incorporated by reference to Exhibit 3.1 of the registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 2, 2000.
3.2 Amended and Restated By-laws of Cabletron Systems, Inc.,
which is incorporated by reference to Exhibit 3.6 of the
registrant's Annual Report on Form 10-K for the fiscal year
ended February 29, 2000.
3.3 Certificate of Designation, Preferences and Rights of the
Series A Preferred and Series B Participating Convertible
Preferred Stock of Cabletron Systems, Inc., which is
incorporated by reference to Exhibit 2.4 of the registrant's
Current Report on Form 8-K, filed on September 11, 2000.
*3.4 Form of Certificate of Designation, Preferences and Rights
of the Series C Convertible Preferred Stock of Cabletron
Systems, Inc.
4.1 Specimen stock certificate of Cabletron common stock, which
is incorporated by reference to Exhibit 4.1 of the
registrant's registration statement on Form S-1, No.
33-28055.
*4.2 Specimen stock certificate of Cabletron series C preferred
stock.
*4.3 Form of Escrow Agreement by and among the registrant, Indus
River, the stockholder representative and State Street Bank
& Trust, as escrow agent, which is included as Annex C to
the proxy statement/prospectus which is part of this
registration statement.
*5.1 Form of Opinion of Ropes & Gray as to the legality of the
securities to be issued.
*8.1 Form of Opinion of Ropes & Gray as to certain United States
federal income tax consequences of the merger.
*8.2 Form of Opinion of McDermott, Will & Emery as to certain
United States federal income tax consequences of the merger.
10.1 Amended and Restated Securities Purchase Agreement, dated as
of August 29, 2000, between Cabletron and Silver Lake, which
is incorporated by reference to Exhibit 2.1 of the
registrant's Current Report on Form 8-K, filed on September
11, 2000.
10.2 Assignment Agreement, dated as of August 29, 2000, among
Silver Lake Partners, L.P. and the Investors named therein,
which is incorporated by reference to Exhibit 4.1 of the
registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 2, 2000.
10.3 Standstill Agreement, dated as of August 29, 2000, between
Cabletron and the Investors, which is incorporated by
reference to Exhibit 2.3 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.4 Form of Class A Warrant of Cabletron, which is incorporated
by reference to Exhibit 2.5 of the registrant's Current
Report on Form 8-K, filed on September 11, 2000.
10.5 Form of Class B Warrant of Cabletron, which is incorporated
by reference to Exhibit 2.6 of the registrant's Current
Report on Form 8-K, filed on September 11, 2000.
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.6 Form of Subsidiary Stock Purchase Right, which is
incorporated by reference to Exhibit 4.6 of the registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 2, 2000.
10.7 Form of Subsidiary Warrant, which is incorporated by
reference to Exhibit 4.7 of the registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
2, 2000.
10.8 Registration Rights Agreement, dated as of August 29, 2000,
among Cabletron and the Investors, which is incorporated by
reference to Exhibit 2.7 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.9 Registration Rights Agreement, dated as of August 29, 2000,
among Aprisma and the Investors, which is incorporated by
reference to Exhibit 2.8 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.10 Registration Rights Agreement, dated as of August 29, 2000,
among Enterasys and the Investors, which is incorporated by
reference to Exhibit 2.9 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.11 Registration Rights Agreement, dated as of August 29, 2000,
among GNTS and the Investors, which is incorporated by
reference to Exhibit 2.10 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.12 Registration Rights Agreement, dated as of August 29, 2000,
among Riverstone and the Investors, which is incorporated by
reference to Exhibit 2.11 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
*23.1 Consent of Ropes & Gray (included as part of Exhibit 5.1 to
this registration statement).
*23.2 Consent of Ropes & Gray (included as part of Exhibit 8.1 to
this registration statement).
*23.3 Consent of McDermott, Will & Emery (included as part of
Exhibit 8.2 to this registration statement).
23.4 Consent of KPMG LLP.
*24 Power of Attorney (Previously filed as part of signature
page to the initial filing of this registration statement,
filed on October 12, 2000).
*99.1 Form of Proxy Card to be mailed to the holders of Indus
River stock.
*99.2 Form of Stockholder Agreement between the registrant and the
Indus River stockholder named therein, which is included as
Annex D to the proxy statement/prospectus which is part of
this registration statement.
*99.3 Form of Stockholder Agreement between the registrant and the
Indus River stockholder, named therein, which is included as
Annex E to the proxy statement/prospectus which is part of
this registration statement.
**99.4 Preliminary Appraisal of Adams, Harkness & Hill, Inc., which
is included as Annex F to the proxy statement/prospectus
which is part of this registration statement.
**99.5 Consent of Adams, Harkness & Hill, Inc. (included as part of
Exhibit 99.4 to this registration statement).
</TABLE>
---------------
* Previously filed.
** To be filed by amendment.
II-3
<PAGE> 97
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforce-
II-4
<PAGE> 98
able. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy s
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(6) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(7) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the town of
Rochester, State of New Hampshire.
CABLETRON SYSTEMS, INC.
By: /s/ DAVID J. KIRKPATRICK
------------------------------------
David J. Kirkpatrick
Corporate Executive Vice President
and Chief Financial Officer
Dated: November 21, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below on November 21, 2000
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman, President and Chief Executive Officer
--------------------------------------------------- (principal executive officer)
Piyush Patel
/s/ DAVID J. KIRKPATRICK Corporate Executive Vice President of Finance and
--------------------------------------------------- Chief Financial Officer (principal financial
David J. Kirkpatrick and accounting officer)
* Secretary and Director
---------------------------------------------------
Michael D. Myerow
* Director
---------------------------------------------------
Craig R. Benson
* Director
---------------------------------------------------
Paul R. Duncan
</TABLE>
*By: /s/ DAVID J. KIRKPATRICK
---------------------------------------------------
David J. Kirkpatrick
Attorney-in-fact
II-6
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
23.4 Consent of KPMG LLP.
</TABLE>
