-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DuMXWr8irwLQk5lyRh7W8W//CiHKXlQRleVIl10RWv7GYhOVINsHjo375D6mUKip XzkK7Zm6/7my5Id5dC2eng== 0000950005-99-000215.txt : 19990218 0000950005-99-000215.hdr.sgml : 19990218 ACCESSION NUMBER: 0000950005-99-000215 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990326 FILED AS OF DATE: 19990217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTIGRAM COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000877908 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 942418021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1102 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-19558 FILM NUMBER: 99544342 BUSINESS ADDRESS: STREET 1: 91 EAST TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089440250 MAIL ADDRESS: STREET 1: 91 E TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134 DEF 14A 1 NOTICE AND PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment no. 1) Filed by the Registrant [X] Filed by a party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the [X] Definitive Proxy Statement Commission Only (as permitted by [ ] Definitive Additional Materials Rule 14a-6(e)(2)) [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Centigram Communications Corporation ------------------------------------------------ (Name of Registrant as Specified in Its Charter) ------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of filing fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transactions applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transactions applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. - -------------------------------------------------------------------------------- [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount previously paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing party: - -------------------------------------------------------------------------------- (4) Date filed: - -------------------------------------------------------------------------------- [Company Logo] Notice of Annual Meeting of Stockholders March 26, 1999 TO THE STOCKHOLDERS: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Centigram Communications Corporation, a Delaware corporation (the "Company"), will be held on Friday, March 26, 1999 at 10:00 a.m., at the offices of the Company, 91 East Tasman Drive, San Jose, California 95134, for the following purposes: 1. To elect two (2) directors to Class I of the Board of Directors. 2. To approve an amendment to the Company's 1997 Stock Option Plan to increase the number of shares of the Company's Common Stock reserved for issuance thereunder from 730,000 shares to 1,030,000 shares. 3. To approve an amendment to the Company's 1991 Employee Stock Purchase Plan to increase the number of shares of the Company's Common Stock reserved for issuance thereunder from 775,000 shares to 900,000 shares. 4. To ratify the appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending October 30, 1999. 5. To transact such other business as may properly come before the meeting or any adjournment(s) thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Only stockholders of record at the close of business on February 5, 1999 are entitled to notice of and to vote at the Annual Meeting. All stockholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, you are urged to mark, sign, date and return the enclosed proxy as promptly as possible in the postage prepaid envelope enclosed for that purpose. Any stockholder attending the meeting may vote in person even if he or she has returned a proxy. By order of the Board of Directors LARRY W. SONSINI Secretary San Jose, California February 19, 1999 [Company Logo] PROXY STATEMENT General The enclosed Proxy is solicited on behalf of the Board of Directors of Centigram Communications Corporation (the "Company"), for use at the Annual Meeting of Stockholders to be held on Friday, March 26, 1999 at 10:00 a.m. at the offices of the Company, 91 East Tasman Drive, San Jose, California 95134, or at any adjournment or adjournments thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting. The Company's principal executive offices are located at 91 East Tasman Drive, San Jose, California 95134, and its telephone number is (408) 944-0250. These proxy solicitation materials and the Annual Report on Form 10-K for the year ended October 31, 1998 were first mailed on or about February 19, 1999 to all stockholders entitled to vote at the meeting. Record Date; Outstanding Shares; Procedural Matters Stockholders of record as of the close of business on February 5, 1999 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. On February 5, 1999, 6,583,598 shares of the Company's common stock, $.001 par value (the "Common Stock"), were issued and outstanding. Each share has one vote on all matters. For information regarding holders of more than 5% of the outstanding Common Stock, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." The closing sale price of the Company's Common Stock as reported on the Nasdaq National Market System on February 5, 1999 was $10.4375 per share. Revocability of Proxies A stockholder may revoke any proxy given pursuant to this solicitation by attending the Annual Meeting and voting in person, or by delivering to the Company's Corporate Secretary at the Company's principal executive offices referred to above prior to the Annual Meeting a written notice of revocation, or by delivering a duly executed proxy bearing a date later than that of the previous proxy. The solicitation of proxies is made on behalf of the management of the Company and the associated costs will be borne by the Company. The Company has engaged American Stock Transfer & Trust Company to assist in the solicitation of proxies for the meeting and will pay such company a customary fee. In addition to solicitation by mail and by American Stock Transfer & Trust Company, the Company may use the services of its directors, officers and others to solicit proxies, personally or by telephone. Arrangements may also be made with brokerage houses and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of the stock held of record by such persons and the Company may reimburse them for reasonable out-of-pocket and clerical expenses incurred by them in so doing. Deadline for Receipt of Stockholder Proposals for Annual Meeting for Fiscal Year 1999 Proposals of stockholders that are intended to be presented by such stockholders at the Company's 2000 Annual Meeting must be received by the Company no later than October 29, 1999 to be included in the proxy statement and form of proxy relating to that meeting. Fiscal Year End The Company's Fiscal Year ends on the Saturday nearest October 31. The Company's last fiscal year ended on October 31, 1998 and is referred to herein as the "last fiscal year." -1- PROPOSAL NO. 1 ELECTION OF DIRECTORS There are currently seven members of the Board of Directors, divided into three classes. Class I presently consists of two directors who are serving a three-year term expiring in 1999. Class II presently consists of two directors who are serving a three-year term expiring in 2000. Class III presently consists of three directors who are serving three-year terms expiring in 2001. At each annual meeting of stockholders, directors elected to succeed those in the class whose terms expire will be elected for a three-year term so that the term of one class of directors will expire each year. In each case, a director serves for the designated term and until his or her respective successor is elected and qualified. Two Class I directors are to be elected at this Annual Meeting to serve a three-year term expiring in 2002. The Board has nominated James H. Boyle and Robert L. Puette for election to the Class I board seats. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or if no direction is made, for the election of the Board of Directors' nominees. If any of the nominees is unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders will vote for a nominee designated by the present Board of Directors to fill the vacancy. It is not presently expected that any of the nominees will be unable or will decline to serve as a director. The names of the nominees of the Company and certain information about them as of January 1, 1999 are set forth below. The names of and certain information about the Company's current directors as of January 1, 1999 are also set forth below. Information as to the stock ownership of each director and all current directors and executive officers of the Company as a group is set forth below under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Name of Nominee Age Principal Occupation Director Since - --------------- --- -------------------- -------------- Class I Directors James H. Boyle (1) 44 President of Boyle Enterprises, Inc. 1988 Robert L. Puette (1) 56 President and Chief Executive Officer of the Company 1997 Class II Directors David S. Lee 61 Chairman of the Board of Cortelco Systems Holding Corp. 1997 and of CMC Industries, Inc. Dean O. Morton 66 Retired Executive Vice President, Chief Operating Officer 1993 and Director of Hewlett-Packard Company Class III Directors Doug Chance 56 President and Chief Executive Officer of WYSE 1997 Technology Inc. James F. Gibbons 67 Professor of Electrical Engineering and Special Counsel to 1992 the President, School of Engineering of Stanford University; Consultant, SRI International Edward R. Kozel 53 Senior Vice President, Corporate Development, 1998 Cisco Systems, Inc. - ----------------------------------- (1) Nominees for Class I Director
-2- Except as set forth below, each of the directors has been engaged in his principal occupation set forth above during the past five years. There are no family relationships between any director or executive officer of the Company. Mr. Boyle was elected to the Centigram Board in November 1988. Mr. Boyle is President of Boyle Enterprises, Inc., a management and investment consulting firm. From 1988 to 1991, Mr. Boyle was Vice President of BCE Ventures, which, at that time managed venture capital investments for B.C.E. Inc., and Northern Telecom. Mr. Boyle was Manager of Venture Capital for Northern Telecom from 1985 to 1988. Mr. Puette was elected to the Centigram Board in September 1997, at which time he became President and Chief Executive Officer of the Company. Before joining Centigram, Mr. Puette served as President, CEO and Chairman of the Board at NetFRAME Systems, a high-availability computer server company, from January 1995 to September 1997. Prior to that, Mr. Puette was President and Chief Executive Officer of Puette Consulting, a marketing and sales consulting firm, from November 1993 to December 1994. Mr. Puette held the position of President of Apple USA from June 1990 to October 1993, and was a Group General Manager at the Hewlett-Packard Company prior to that time. Mr. Puette is also a director of Cisco Systems, Inc. and Quality Semiconductor Corporation. Mr. Lee was elected to the Centigram Board in March 1997. Mr. Lee is the Chairman of the Board of Cortelco Systems Holding Corp., a telecommunications company, and of CMC Industries, Inc., an electronics contract manufacturing company, and serves as a director of Linear Technology Corporation, an analog semiconductor company. From 1983 to 1985, Mr. Lee served as a Vice President of ITT Corporation and as Group Executive and Chairman of its Business Information Systems Group. Mr. Morton was elected to the Centigram Board in November 1993, and became Chairman of the Board in April 1997. Prior to his retirement in October 1992, Mr. Morton was Executive Vice President, Chief Operating Officer and a director of the Hewlett-Packard Company. Mr. Morton is a member of the boards of directors of ALZA Corp., BEA Systems, Inc., The Clorox Company, Raychem Corp., KLA-Tencor Corporation and a number of private companies. Mr. Chance was elected to the Centigram Board in 1997. Mr. Chance has been the President and Chief Executive Officer and a director of WYSE Technology Inc., a manufacturer of computer display products, since 1994. Prior to that time, Mr. Chance was the President and Chief Executive Officer of Octel Communications Corporation from November 1990 to November 1993, and before that served as Executive Vice President, Network Systems Sector, at the Hewlett-Packard Company. Dr. Gibbons was elected to the Centigram Board in June 1992. He joined the Stanford University faculty in 1957, was appointed Professor of Electrical Engineering in 1964 and served as Dean of the School of Engineering from 1984 to 1996. He was appointed as Special Counsel to the President in June 1996. In addition, since January 1996, Dr. Gibbons has served as a consultant for SRI International. He is a director of Cisco Systems, Inc., Lockheed Martin Corporation, Raychem Corporation and El Paso Energy Corporation. Mr. Kozel was elected to the Centigram Board in January 1998. Mr. Kozel serves as Senior Vice President, Corporate Development of Cisco Systems, Inc. He served as the Chief Technology Officer and Senior Vice President of Business Development of Cisco Systems, Inc. from 1989 to 1998. -3- Board Meetings and Committees The Board of Directors of the Company met a total of eleven times during the last fiscal year. The Audit Committee of the Board of Directors consists of directors James Boyle, Doug Chance and Edward Kozel. Doug Chance serves as the Chairman of the Audit Committee. The Audit Committee met four times during the last fiscal year. This Committee is primarily responsible for reviewing the services performed by the Company's independent auditors and evaluating the Company's accounting policies and its system of internal controls. The Compensation Committee consists of Dean Morton, David Lee and James Gibbons. David Lee serves as Chairman of the Compensation Committee. Such committee did not meet during the last fiscal year. This Committee is primarily responsible for reviewing and recommending compensation to be paid to officers of the Company. The Board of Directors has no nominating committee or any committee performing such functions. During the last fiscal year, one director, Mr. Edward R. Kozel, attended less than 75% of the aggregate of all meetings of the Board of Directors and the committees, if any, upon which he served and which were held during the period of time he served on the Board or such committee. Directors' Fees Directors who are not employees of the Company are paid a fee of $1,100 per Board meeting attended in person, $750 if the meeting is held by telephone conference call (or if a meeting held in person is attended by conference call), $500 to each Board committee member for each committee meeting when held concurrently with a meeting of the Board, whether attended in person or by conference call, and $800 to each board committee member for each committee meeting attended on a day other than a day on which a meeting of the full Board is held. In addition, each non-employee director is paid an annual retainer fee of $12,000, paid quarterly. Under the Company's 1997 Stock Plan, each outside director of the Company is granted options to purchase 20,000 shares of Common Stock at the time of initial appointment or election to the Board, and 7,500 shares of Common Stock annually thereafter on the date of each Annual Meeting of the Stockholders; provided the Director has been a member of the Board for at least six months. The Company also reimburses non-employee directors for travel and related expenses incurred in attending meetings of the Board and its committees. Compensation Committee Interlocks and Insider Participation No interlocking relationship exists between the Company's Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. Required Vote The nominees receiving a majority of affirmative votes will be elected as Class I directors of the Company. Recommendation The Company's Board of Directors recommends a vote FOR the nominees listed above. -4- PROPOSAL NO. 2 APPROVAL OF THE AMENDMENT TO THE 1997 STOCK OPTION PLAN The Company's 1997 Stock Option Plan (the "1997 Plan") was approved by the stockholders in March 1997. The 1997 Plan is designed to retain, motivate and reward senior personnel by providing such personnel long term equity participation in the Company relating directly to the financial performance and long-term growth of the Company. A total of 730,000 shares of the Company's Common Stock have been reserved for issuance upon the exercise of options granted under the 1997 Plan. In December 1998, the Board of Directors adopted, subject to stockholder approval, an amendment to the 1997 Plan to increase the number of shares reserved for issuance thereunder from 730,000 shares to 1,030,000 shares. Including the proposed 300,000 share increase, a total of 338,000 shares remained available for grant under the 1997 Plan on February 5, 1999. In 1993, Section 162(m) was added to the Internal Revenue Code of 1986, as amended (the "Code"). Section 162(m) limits the Company's deduction in any one fiscal year for federal income tax purposes to $1,000,000 per person with respect to the Company's Chief Executive Officer and its four other highest paid executive officers who are employed on the last day of the fiscal year unless the compensation was not otherwise subject to the deduction limit. Compensation which is performance-based and approved by the Company's stockholders is not subject to the deduction limit. Proposal The proposed amendment to the Company's 1997 Plan is to increase the number of shares of the Company's Common Stock reserved for issuance thereunder from 730,000 shares to 1,030,000 shares. Recommendation The Board of Directors has unanimously approved the amendment of the 1997 Plan and recommends that stockholders vote FOR such amendment. Description of 1997 Plan The essential features of the 1997 Plan are outlined below. Such outline is qualified in its entirety by the provisions of the 1997 Plan, a copy of which was filed by the Company with the Securities and Exchange Commission and is incorporated herein by reference. Copies of the 1997 Plan are available upon written request to the Company at 91 East Tasman Drive, San Jose, California 95134, Attn: Chief Financial Officer. General The 1997 Plan was approved by the stockholders in March 1997. The 1997 Plan authorizes the Board of Directors (the "Board"), or one or more committees which the Board may appoint from among its members (a "Committee"), to grant stock options. To date, a total of 730,000 shares of Common Stock has been reserved for issuance under the 1997 Plan. Options granted under the 1997 Plan may be either "Incentive Stock Options" as defined in Section 422 of the Code, or nonstatutory stock options, as determined by the Board or the Committee. Additionally, the 1997 Plan provides for the automatic grant of nonstatutory stock options to purchase 20,000 shares of Common Stock to outside directors at the time of such director's initial appointment or election to the Board, and the automatic grant of nonstatutory stock options to purchase 7,500 shares of Common Stock annually thereafter on the date of each Annual Meeting of Stockholders, provided the director has been a member of the Board for at least six months. -5- Purpose The general purpose of the 1997 Plan is to attract and retain quality personnel for positions of substantial responsibility, to create additional incentive for senior personnel of the Company by offering long term equity participation in the Company, and to promote the success of the Company's business. Eligibility The Option Plan provides that options may be granted thereunder to employees, consultants and directors ("Optionees") of the Company. The Board of Directors selects the Optionees and determines the number of shares subject to each option. In making such determination, the duties and responsibilities of the Optionee, the value of the Optionee's services, his or her present and potential contributions to the success of the Company and other relevant factors are considered. Administration The 1997 Plan may be administered by the Board or a Committee (collectively the "Administrator"). Subject to the other provisions of the 1997 Plan, the Administrator has the authority to: (i) determine the fair market value of the Common Stock; (ii) select the Optionees to whom options may be granted thereunder; (iii) determine whether and to what extent options are granted thereunder; (iv) determine the number of shares of Common Stock to be covered by each option granted thereunder; (v) approve forms of agreement for use under the 1997 Plan; (vi) determine the terms and conditions, not inconsistent with the terms of the 1997 Plan, of any award granted thereunder (such terms and conditions include, but are not limited to, the exercise price, the time or times when options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine); (vii) reduce the exercise price of any Option to the then current fair market value if the fair market value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (viii) construe and interpret the terms of the 1997 Plan and awards granted pursuant to the 1997 Plan; (ix) prescribe, amend and rescind rules and regulations relating to the 1997 Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) modify or amend each option, including the discretionary authority to extend the post-termination exercisability period of options longer than is otherwise provided for in the 1997 Plan; and (xi) make all other determinations deemed necessary or advisable for administering the 1997 Plan. Terms and Conditions of Options Each option granted under the 1997 Plan is evidenced by a written stock option agreement ("Notice of Grant") between the Optionee and the Company and is subject to the following terms and conditions: (a) Exercise Price. The Administrator determines the exercise price of options to purchase shares of Common Stock at the time the options are granted. However, excluding options issued to 10% stockholders (an Optionee who owns more than 10% of the combined total voting power of all classes of outstanding stock of the Company), the exercise price under an incentive stock option must not be less than 100% of the fair market value of the Common Stock on the date the option is granted. If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation System, the fair market value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest value of trading in Common Stock) on the last trading day preceding the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; provided, however, that in the event the fair market value as so determined is more than 20% greater or more than 20% less than the closing sales prices for such stock as so quoted on the -6- date of determination, then the Administrator shall be entitled to determine the fair market value in good faith, at a price within the range of prices from the fair market value as otherwise determined above to the closing price (or closing bid, as applicable) on the date of determination. If the Common Stock is quoted on the System (but not on the National Market thereof) or is regularly quoted by a recognized securities dealer but selling prices are not provided, the fair market value of a share of Common Stock shall be the average of the means between the high bid and low asked prices for the Common Stock on the five market trading days immediately preceding the date of determination, as reported in The Wall Street Journal or such other source as the Administrator of the 1997 Plan deems reliable; provided, however, that in the event the fair market value as so determined is more than 20% greater or more than 20% less than the mean between the high bid and low asked prices for such stock as so quoted on the date of determination, then the Administrator shall be entitled to determine the fair market value in good faith, at a price within the range of prices from the fair market value as otherwise determined above to the mean between the high bid and low asked prices on the date of determination. In the absence of an established market for the Common Stock, the fair market value shall be determined in good faith by the Administrator. (b) Form of Consideration. The means of payment for shares issued upon exercise of an option is specified in each option agreement and generally may be made by cash, check, promissory note, other shares of Common Stock of the Company owned by the Optionee, delivery of an exercise notice together with irrevocable instructions to a broker to deliver the exercise price to the Company from sale or loan proceeds, reduction of any Company liability to the Optionee or, by a combination thereof. (c) Exercise of the Option. Each stock option agreement will specify the term of the option and the date when the option is to become exercisable. However, in no event shall an option granted under the 1997 Plan be exercised more than 10 years after the date of grant or such shorter term as may be provided in the Notice of Grant. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more the ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Notice of Grant. (d) Termination of Employment. Upon termination of an Optionee's continuous status as an employee or consultant with the Company, such Optionee may exercise his or her option to the extent that he or she was entitled to exercise it as of the date of such termination. Such exercise may occur only before the end of the period determined by the Administrator for exercise following termination. In the case of an Incentive Stock Option, such period shall not exceed three (3) months and in the event that no period is specified in any stock option agreement, such period shall be 30 days. In no event shall such period extend beyond the expiration date of the term of the option as set forth in the applicable option agreement. An Optionee's change of status from employee to consultant shall not be treated as a termination of the Optionee's continuous status as an employee or consultant, and any option held by the Optionee shall remain in effect, except as provided herein below. Any Incentive Stock Option held by such Optionee shall automatically cease to be treated for tax purposes as an Incentive Stock Option and shall be treated as a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status. Notwithstanding the above, within thirty (30) days after any such change of status, the Administrator may in its discretion determine that such change of status shall be treated as a termination of the Optionee's continuous status as an employee or consultant. To the extent that the Optionee is not entitled to exercise his or her option at the date of such termination, or if the Optionee does not exercise such option to the extent so entitled within the time specified herein, the option shall terminate. (e) Disability. If an employee is unable to continue as an employee or consultant with the Company as a result of disability, then all options held by such Optionee under the 1997 Plan shall expire upon the earlier of (i) twelve months after the date of termination of the Optionee's employment or (ii) the expiration -7- date of the term of such option. The Optionee may exercise all or part of his or her option at any time before such expiration to the extent that such option was exercisable at the time of termination of employment. To the extent that the Optionee is not entitled to exercise his or her option at the date of such termination, or if the Optionee does not exercise such option to the extent so entitled within the time specified herein, the option shall terminate. (f) Death. Upon the death of an Optionee, the option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the option by bequest or inheritance, only to the extent that the Optionee was entitled to exercise the option at the date of death. If at the time of death, the Optionee was not entitled to exercise his or her entire option, the shares of Common Stock covered by the unexercisable portion of the option shall immediately revert to the 1997 Plan. If, after death, the Optionee's estate or person who acquired the right to exercise the option by bequest or inheritance does not exercise the option within the time specified herein, the option shall terminate, and the shares covered by such option shall revert to the 1997 Plan. (g) Nontransferability of Options. In general, an option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. (h) Value Limitation. If the aggregate fair market value of all shares of Common Stock subject to an Optionee's Incentive Stock Option which are exercisable for the first time during any calendar year exceeds $100,000, the excess options shall be treated as nonstatutory stock options. (i) Other Provisions. The stock option agreement may contain such terms, provisions and conditions not inconsistent with the 1997 Plan as may be determined by the Board or Committee. Adjustments Upon Changes in Capitalization, Dissolution Liquidation, Merger or Asset Sale In the event that the capital stock of the Company is changed by reason of recapitalization, dissolution, liquidation, merger or asset sale, the following provisions will apply: (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding option, and the number of shares of Common Stock which have been authorized for issuance under the 1997 Plan but as to which no options have yet been granted or which have been returned to the 1997 Plan upon cancellation or expiration of an option, as well as the price per share of Common Stock covered by each such outstanding option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, to the extent that an option has not been previously exercised, it will terminate immediately prior to consummation of such proposed action. The Board may, in the exercise of its sole discretion in such instances, declare that any option shall terminate as of a date fixed by the Board and give each Optionee the right to -8- exercise his or her option as to all or any part of the optioned stock, including shares as to which the Option would not otherwise be exercisable. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding option may be assumed or an equivalent option may be substituted by the successor corporation or a parent or subsidiary of the successor corporation. The Administrator may, in lieu of such assumption, provide for the Optionee to have the right to exercise the option as to all or a portion of the optioned stock, including shares as to which it would not otherwise be exercisable. If the Administrator makes an option exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the option will terminate upon the expiration of such period. For the purposes of this paragraph, the option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each share of optioned stock subject to the option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the option, for each share of optioned stock subject to the option, to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger of sale of assets. Amendments, Suspensions and Termination of the 1997 Plan The Board may amend, suspend or terminate the 1997 Plan at any time; provided, however, that stockholder approval is required for any amendment to the extent necessary to comply with Section 422 of the Code, or any similar rule or statute. In any event, the 1997 Plan will terminate automatically in 2006. Federal Tax Information for 1997 Plan The following is a summary of the effect of federal income taxation upon the Optionee and the Company with respect to the grant and exercise of options under the 1997 Plan. Options granted under the 1997 Plan may be either "Incentive Stock Options," as defined in Section 422 of the Code, or nonstatutory stock options. An Optionee who is granted an Incentive Stock Option will not recognize taxable income either at the time the option is granted or upon its exercise, although the exercise may subject the Optionee to the alternative minimum tax. Upon the sale or exchange of the shares more than two years after grant of the option and one year after exercising the option, any gain or loss will be treated as long-term capital gain or loss. If these holding periods are not satisfied, the Optionee will recognize ordinary income at the time of sale or exchange equal to the difference between the exercise price and the lower of (i) the fair market value of the shares at the date of the option exercise or (ii) the sale price of the shares. A different rule for measuring ordinary income upon such a premature disposition may apply if the Optionee is also an officer, director, or 10% stockholder of the Company. The Company will be entitled to a deduction in the same amount as the ordinary income recognized by the Optionee. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income will be characterized as long-term or short-term capital gain or loss, depending on the holding period. All other options which do not qualify as Incentive Stock Options are referred to as nonstatutory stock options. An Optionee will not recognize any taxable income at the time he or she is granted a nonstatutory -9- stock option. However, upon its exercise, the Optionee generally will recognize taxable income generally measured as the excess of the then fair market value of the shares purchased over the purchase price. Any taxable income recognized in connection with an option exercise by an Optionee who is also an employee of the Company may be subject to tax withholding by the Company. Upon resale of such shares by the Optionee, any difference between the sales price and the Optionee's purchase price, to the extent not recognized as taxable income as described above, will be treated as long-term or short-term capital gain or loss, depending on the holding period. The Company will be entitled to a tax deduction in the same amount as the ordinary income recognized by the Optionee with respect to shares acquired upon exercise of a nonstatutory stock option. The foregoing does not purport to be a complete summary of the effect of federal income taxation upon holders of options or upon the Company. It also does not reflect provisions of the income tax laws of any municipality, state or foreign country in which an Optionee may reside. Plan Benefits The Company cannot now determine the exact number of options to be granted in the future under the 1997 Plan to the executive officers named under "EXECUTIVE OFFICER COMPENSATION Summary Compensation Table," all current executive officers as a group or all employees (including executive officers) as a group. See "EXECUTIVE OFFICER COMPENSATION Stock Option Grants and Exercises" for the number of stock options granted to the executive officers named in the Summary Compensation Table in the fiscal year ended October 31, 1998. Required Vote The affirmative vote of the majority of the Votes Cast will be required under Delaware law to approve the amendment to the 1997 Plan. For this purpose, the term "Votes Cast" is defined under Delaware law to be the shares of the Company's Common Stock present in person or represented by proxy at the Annual Meeting and "entitled to vote on the subject matter." Votes that are cast against the proposal will be counted for purposes of determining (i) the presence or absence of a quorum for the transaction of business and (ii) the total number of Votes Cast with respect to the proposal. While there is no definitive statutory or case law authority in Delaware as to the proper treatment of abstentions in the counting of votes with respect to a proposal such as the amendment to the 1997 Plan, the Company believes that abstentions should be counted for purposes of determining both (i) the presence or absence of a quorum for the transaction of business and (ii) the total number of Votes Cast with respect to the proposal. In the absence of controlling precedent to the contrary, the Company intends to treat abstentions in this manner. Accordingly, abstentions will have the same effect as a vote against the proposal. In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme Court held that, while broker nonvotes may be counted for purposes of determining the presence or absence of a quorum for the transaction of business, broker nonvotes should not be counted for purposes of determining the number of Votes Cast with respect to the particular proposal on which the broker has expressly not voted. Accordingly, broker nonvotes with respect to this proposal will not be counted as Votes Cast. -10- PROPOSAL NO. 3 APPROVAL OF AMENDMENT TO 1991 EMPLOYEE STOCK PURCHASE PLAN The 1991 Employee Stock Purchase Plan (the "Purchase Plan") provides employees of the Company and its designated subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. Proposed Amendment At the Annual Meeting, the stockholders are being asked to approve an increase in the number of shares reserved for issuance under the Purchase Plan from 775,000 shares to 900,000 shares. This increase was approved by the Board of Directors, subject to stockholder approval, on December 4, 1998. Including the proposed 125,000 share increase, a total of 197,000 shares remained available for grant under the plan on February 5, 1999. Recommendation The Board of Directors has unanimously approved the proposed amendment to the Purchase Plan and recommends that stockholders vote FOR such amendment. Description of Purchase Plan The essential features of the Purchase Plan are outlined below. Such outline is qualified in its entirety by the provisions of the Purchase Plan, a copy of which has been filed by the Company with the Securities and Exchange Commission, and is incorporated herein by reference. Copies of the Purchase Plan are available upon written request to the Company at 91 East Tasman Drive, San Jose, California 95134, Attn: Chief Financial Officer. Purpose The purpose of the Purchase Plan is to provide employees (including officers) of the Company with an opportunity to purchase Common Stock of the Company through payroll deductions. The Purchase Plan is intended to qualify under Sections 421 and 423 of the Code as an "employee stock purchase plan." Administration The Purchase Plan is administered by the Board of Directors or a Committee of the Board (the "Administrator"). Eligibility Only employees employed by the Company or its subsidiaries on the first day of an offering period may participate in the Purchase Plan. For this purpose, an "employee" is any person who is regularly employed at least twenty hours per week and at least five months per calendar year by the Company or any of its subsidiaries. No employee shall be granted an option under the Purchase Plan if immediately after the grant of the option, the employee (or any other person whose stock would be attributed to the employee pursuant to Section 424(d) of the Code) would own five percent (5%) or more of the total combined voting power or value of the stock of the Company or any of its subsidiaries. Subject to these eligibility criteria, the Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions subject to certain limitations described below. -11- Offering Period Each offering of Common Stock under the Purchase Plan ("Offering") is for a period of six months ("Offering Period"), unless the participant withdraws or terminates employment earlier. The Administrator may change the timing and duration of the Offering Periods without stockholder approval if such change is announced at least fifteen (15) days prior to the beginning of the first Offering Period to be affected. The initial Offering Period under the Purchase Plan began on November 2, 1991. To participate in the Purchase Plan, each eligible employee must authorize payroll deductions pursuant to the Purchase Plan. Such payroll deductions may not exceed 10% of a participant's eligible compensation. Once an employee becomes a participant in the Purchase Plan, the employee will automatically participate in each successive Offering Period until such time as the employee withdraws from the Purchase Plan or the employee's employment terminates. Eligible employees may participate in only one Offering at a time. Grant and Exercise of Option At the beginning of each Offering Period, each participant is automatically granted an option to purchase shares of the Company's Common Stock. The option may be exercised at the end of an Offering Period to the extent of the payroll deductions accumulated during such Offering Period. In the event the option is not exercised, the option expires at the end of the Offering Period or upon termination of employment, whichever is earlier. The number of shares subject to the option will not exceed a number determined by dividing $12,500 by the fair market value of the Common Stock on the first day of the Offering Period. Participants may not purchase shares having a fair market value exceeding $25,000 in any calendar year. The Company may make a pro rata reduction in the number of shares subject to options if the total number of shares which would otherwise be subject to options granted at the beginning of an offering period exceeds the number of shares remaining available for issuance under the Purchase Plan. Unless an employee withdraws his or her participation in the Purchase Plan by giving written notice to the Company of his or her election to withdraw all accumulated payroll deductions prior to the end of a purchase period, the employee's option for the purchase of shares will be exercised automatically at the end of the purchase period, and the maximum number of full shares subject to option which are purchasable with the accumulated payroll deductions in his or her account will be purchased at the applicable purchase price determined as provided below. Purchase Price The purchase price per share at which shares are sold to participating employees is 85% of the lower of the fair market value per share of the Common Stock on (i) the first day of the Offering Period or (ii) the last day of the Offering Period. The fair market value of the Common Stock on a given date is determined by reference to the last reported sales price on the National Market System. Payroll Deductions The purchase price of the shares acquired is accumulated by payroll deductions over the six-month Offering Period. The deductions may not exceed 10% of a participant's aggregate eligible compensation. Eligible compensation shall include all base straight time gross earnings, payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions and other compensation. A participant may reduce the rate of payroll deductions at any time during the Offering Period. Any participant may discontinue his or her participation in the Purchase Plan at any time. The rate of participation may be increased only for a new plan period. Upon the withdrawal of a participant from the Purchase Plan, the Company returns to the participant all funds credited to a participant's payroll deduction account, without interest. -12- Termination of Employment Termination of a participant's employment for any reason, including retirement or death, or the failure of the participant to remain in the continuous employ of the Company for in excess of 20 hours per week and 5 months per year during the applicable Offering Period, cancels his or her option and his or her participation in the Purchase Plan immediately. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of death, to the person or persons entitled thereto as provided in the Purchase Plan. Capital Changes In the event any change is made in the Company's capitalization in the middle of an Offering Period, such as a stock split or stock dividend, which results in an increase or decrease in the number of shares of Common Stock outstanding without receipt of consideration by the Company, appropriate adjustment shall be made in the purchase price and in the number of shares subject to options under the Purchase Plan. Amendment and Termination of the Plan The Board of Directors may at any time amend, alter or terminate the Purchase Plan. No amendment may be made to the Purchase Plan without approval of the stockholders of the Company if such amendment would increase the number of shares reserved under the Purchase Plan, change the standards of eligibility for participation in the Purchase Plan or materially increase the benefits accruing to participants in the Purchase Plan. In the event the Purchase Plan is terminated, the Board may elect to terminate all outstanding options either immediately or upon completion of the purchase of shares on the next purchase date, or may elect to permit options to expire in accordance with their terms (and participation to continue through such expiration dates). Federal Income Tax Information The Purchase Plan, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant at the time of grant of the option or purchase of the shares. Upon disposition of the shares, the participant will generally be subject to tax. If the shares have been held by the participant for more than two years after the date of option grant and more than one year after the purchase date of the shares, the lesser of (a) the excess of the fair market value of the shares at the time of such disposition over the purchase price of the shares subject to the option, or (b) 15% of the fair market value of the shares on the first day of the offering period will be treated as ordinary income, and any further gain upon such disposition will be treated as long-term capital gain. If the shares are disposed of before the expiration of the holding periods described above, the excess of the fair market value of the shares on the exercise date over the option price will be treated as ordinary income, and further gain or loss on such disposition will be capital gain or loss. However, if the shares are disposed of for less than the exercise price there is no ordinary income and the participant recognizes a capital loss measured by the difference between the exercise price and the sales price. Different rules may apply with respect to participants subject to Section 16(b) of the Exchange Act. The Company is not entitled to a deduction for amounts taxable to a participant except to the extent of ordinary income taxable to a participant upon disposition of shares prior to the expiration of the holding periods described above. The foregoing is only a summary of the federal income tax consequences of the Purchase plan to participants and the Company. In addition, the summary does not discuss the tax consequences of a participant's death or the income tax laws of any state or foreign country in which the participant may reside. -13- Plan Benefits The Company cannot now determine the exact number of shares to be issued in the future under the Purchase Plan to the executive officers named under "EXECUTIVE OFFICER COMPENSATION Summary Compensation Table," all current executive officers as a group or all employees (including executive officers) as a group. In the fiscal year ended October 31, 1998, an aggregate of 5,177 shares of Common Stock of the Company were issued to all executive officers as a group and an aggregate of 99,390 shares of Common Stock of the Company were issued to all employees (including executive officers) under the Purchase Plan. Required Vote The affirmative vote of the majority of the Votes Cast will be required under Delaware law to approve the amendment to the Purchase Plan. For this purpose, the term "Votes Cast" is defined under Delaware law to be the shares of the Company's Common Stock present in person or represented by proxy at the Annual Meeting and "entitled to vote on the subject matter." Votes that are cast against the proposal will be counted for purposes of determining (i) the presence or absence of a quorum for the transaction of business and (ii) the total number of Votes Cast with respect to the proposal. While there is no definitive statutory or case law authority in Delaware as to the proper treatment of abstentions in the counting of votes with respect to a proposal such as the amendments of the Purchase Plan, the Company believes that abstentions should be counted for purposes of determining both (i) the presence or absence of a quorum for the transaction of business and (ii) the total number of Votes Cast with respect to the proposal. In the absence of controlling precedent to the contrary, the Company intends to treat abstentions in this manner. Accordingly, abstentions will have the same effect as a vote against the proposal. In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme Court held that, while broker nonvotes may be counted for purposes of determining the presence or absence of a quorum for the transaction of business, broker nonvotes should not be counted for purposes of determining the number of Votes Cast with respect to the particular proposal on which the broker has expressly not voted. Accordingly, broker nonvotes with respect to this proposal will not be counted as Votes Cast. PROPOSAL NO. 4 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS The Board of Directors has appointed Ernst & Young LLP as the Company's independent auditors to audit the books, records and accounts of the Company for the current fiscal year ending October 30, 1999. Such appointment is being presented to the stockholders for ratification at the Annual Meeting. Representatives of Ernst & Young LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions from stockholders. The Board of Directors recommends voting FOR the ratification of its appointment of Ernst & Young LLP as the Company's independent auditors. -14- MANAGEMENT The executive and other officers of the Company, and their ages as of January 1, 1999, are as follows:
Name Age Position - ------------------------ ------------ ------------------------------------------------------------- Robert L. Puette 56 President and Chief Executive Officer and Director Thomas E. Brunton 51 Senior Vice President, Finance and Chief Financial Officer Robert M. Krueger 51 Senior Vice President, Product Development Chusak Siripocanont 45 Senior Vice President, Operations James A. Donnelly 46 Vice President, Domestic Service Provider, Sales and Service David P. McLoughlin 39 Vice President, Human Resources and Facilities Thomas H. Rappath 56 Vice President, Asia Pacific Sales and Service Janine Roth 43 Vice President, Business Development Carol Sorrick 42 Vice President, Marketing John D. VerMeulen 57 Vice President, International Sales and Service
Mr. Puette was elected to the Centigram Board in September 1997, at which time he became President and Chief Executive Officer of the Company. Before joining Centigram, Mr. Puette served as President, CEO and Chairman of the Board at NetFRAME Systems, a high-availability computer server company, from January 1995 to September 1997. Prior to that, Mr. Puette was President and Chief Executive Officer of Puette Consulting, a marketing and sales consulting firm, from November 1993 to December 1994. Mr. Puette held the position of President of Apple USA from June 1990 to October 1993, and was a Group General Manager at the Hewlett-Packard Company prior to that time. Mr. Puette is also a director of Cisco Systems, Inc. and Quality Semiconductor Corporation. Mr. Brunton joined the Company in March 1991 as Controller and became Vice President and Controller in July 1995, Treasurer in August 1997, and Senior Vice President-Finance, Chief Financial Officer in March 1998. Mr. Brunton also serves as director of several subsidiaries of the Company: Centigram Asia Limited, Centigram Australasia Pty Limited, Centigram Communications (Barbados), Inc., Centigram Europe B.V., and Centigram UK Limited. He earlier held accounting management positions with 3Com Corporation and Sun Microsystems, Inc., and he was employed for eight years by Coopers & Lybrand LLP in various auditing positions. Mr. Krueger joined the Company as Senior Vice President, Product Development in December 1997. Prior to joining the Company, Mr. Krueger was the Vice President and General Manager of the Network Products Division at Advanced Micro Devices, Inc. from 1990 to November 1997. From 1968 to 1990, Mr. Krueger held various management positions in product development at Digital Equipment Corporation, Datapoint Corporation and Texas Instruments Incorporated. Mr. Siripocanont joined the Company as Vice President, Manufacturing in October 1993 and became Senior Vice President, Operations in May 1998. From 1991 to 1993 he was Vice President, Manufacturing of E-Mu Systems, Inc., a manufacturer of digital audio systems which became a subsidiary of Creative Technology, Inc. in 1993. From 1988 to 1991 he served as Director of Corporate Quality and Manufacturing Management for Octel Communications Corporation. From 1980 to 1988, he held various manufacturing management positions at IBM/Rolm. -15- Mr. Donnelly joined the Company in May 1997 as Vice President, Domestic Service Provider, Sales and Service, and is responsible for overseeing all North American sales and service activities. From June 1980 to April 1997 Mr. Donnelly held management positions in operations, sales and product management at AT&T. Previous to joining Centigram he was General Manager, Business Communications Services. He has also held engineering positions at Westinghouse Electric Corporation, and prior to that, positions in sales at IBM and finance at Ford Motor Company. Mr. McLoughlin joined the Company in October 1998 as Vice President, Human Resources and Facilities. From June to October 1998, he was Director, North American Human Resources for Micro Focus, Inc. From September 1995 to May 1998, Mr. McLoughlin held several worldwide human resources management positions with NetFRAME Systems and MICRON Electronics, Inc. From 1989 to September 1995 he held several human resource positions with Mervyn's, a retail sales company. Mr. Rappath joined the Company in November 1998 as Vice President, Asia Pacific Sales and Service. He was Vice President for the Asia Pacific sector at Digital Microwave Corporation from September 1995 to November 1998. Mr. Rappath was President of the Rappath Group, a marketing and sales consulting firm, from January 1995 to September 1995. From September 1993 to January 1995, he was Vice President, World Wide Sales for Interlink Computer Sciences Inc. He has also held various management and sales positions with Aristacom International, Inc., Rational Software Corporation, and the Hewlett-Packard Company. Ms. Roth joined the Company in April 1998 as Vice President, Business Development. Her major responsibilities include: mergers and acquisitions, alliance development, assessment of alternative technology partnerships, and managing the strategic business planning process. From June 1995 to March 1998 she served as Senior Director of Strategic Product Planning at Bell South International and from May 1989 to May 1995 she held various management positions at BellSouth. Prior to BellSouth, Ms. Roth held positions at Touche Ross and Company, Digital Equipment Corporation and AT&T Bell Laboratories. Ms. Sorrick joined the Company in May 1998 as Vice President, Marketing. Her responsibilities include Product Management, Corporate Communications, Corporate Sales Engineering and Worldwide Market Development. From August 1997 to April 1998 she was Vice President of Worldwide Marketing for Unisys Corporation, Communications Market Sector Group. From 1979 to August 1997 she held various management and marketing positions with Pacific Bell, including Vice President, Sales and Marketing and Vice President, Sales National Accounts. Ms. Sorrick also has been Chairman of the Board of Patelco Credit Union since 1993. Mr. VerMeulen joined the Company as a Sales Director in June 1989 and became Vice President, Sales, Northern Region in November 1992, and Vice President, International Sales and Service in October 1994. From 1986 to 1989 he was Vice President, Sales and Marketing of ComDev, Inc., a telecommunications equipment manufacturer. Earlier, he served in various sales and marketing positions, including Vice President, North Central Division, and Vice President, National Accounts at United Technologies Communications Company, a telecommunications equipment manufacturer. -16- CERTAIN TRANSACTIONS The Company has entered into indemnification agreements with each of its directors and executive officers. Such agreements require the Company to indemnify such individuals to the fullest extent permitted by law. OTHER INFORMATION Compliance with Section 16(a) of the Securities Exchange Act of 1934. Section 16(a) of the Exchange Act requires certain of the Company's executive officers, as well as its directors and persons who own more than ten percent (10%) of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on its review of the copies of such forms received by the Company, or written representations from certain reporting persons, the Company believes that during the Last Fiscal Year all executive officers and directors complied with their filing requirements under Section 16(a) for all reportable transactions during the year. -17- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of January 1, 1999 information relating to the beneficial ownership of the Company's Common Stock by each person known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding shares of Common Stock, by each director and nominee for director, by each of the executive officers named in the Summary Compensation Table currently employed by the Company, and by all directors and executive officers as a group. As of January 1, 1999, 6,583,598 shares of the Company's Common Stock were outstanding. Unless otherwise indicated, all persons named as beneficial owners of Common Stock have sole voting power and sole investment power with respect to the shares indicated as beneficially owned.
No. of Approximate Name Shares Owned Percentage Owned - ------------------------------------------------------------------- ------------ ---------------- Kopp Investment Advisors (1)....................................... 1,153,299 17.5% 7701 France Avenue, Suite 500 Edina MN 55435 Fidelity Management & Research Company (2).......................... 816,875 12.4% 82 Devonshire Street Boston, MA 02109 Dimensional Fund Advisers, Inc. (3)................................ 409,900 6.2% 1099 Ocean Avenue 11th Floor Santa Monica, CA 90401 Robert L. Puette (4)............................................... 0 * Thomas E. Brunton (4) (5).......................................... 46,079 * Robert M. Krueger (4).............................................. 6,250 * Chusak Siripocanont (4)............................................ 42,601 * Carol Sorrick (4).................................................. 0 * James H. Boyle (4) ................................................ 21,000 * Doug Chance (4).................................................... 6,444 * James F. Gibbons (4)............................................... 42,708 * Edward R. Kozel (4)................................................ 0 * David S. Lee (4)................................................... 24,791 * Dean O. Morton (4) (6)............................................. 30,499 * All directors and executive officers as a group (11 persons) (4)............................................... 220,372 3.3% - ------------------------------- * Less than one percent (1%). (1) Based on information provided by Kopp Investment Advisors on January 5, 1999. (2) Based on information provided by Fidelity Investments on January 5, 1999. (3) Based on information provided by Dimensional Fund Advisers, Inc. and Nasdaq on January 5, 1999. (4) Includes shares issuable upon exercise of stock options presently exercisable within 60 days of January 1, 1999 as follows: Mr. Puette, none; Mr. Brunton, 32,532 shares; Mr. Krueger, 6,250 shares; Mr. Siripocanont, 42,601 shares; Ms. Sorrick, none; Mr. Boyle, 20,000; Mr. Chance, 4,444 shares; Dr. Gibbons, 22,708 shares; Mr. Kozel, none; Mr. Lee, 24,791 shares; Mr. Morton, 27,499 shares; and all directors and executive officers as a group, 180,825 shares. (5) Includes 100 shares held by Mr. Brunton's son as to which Mr. Brunton disclaims beneficial ownership. (6) Includes 3,000 shares issued in the name of the Dean O. and Laura Morton Trust UTA DTD 9/20/78.
-18- EXECUTIVE OFFICER COMPENSATION Summary Compensation Table The following table shows, as to each Chief Executive Officer during the Last Fiscal Year, each of the four other most highly compensated executive officers whose salary plus bonus exceeded $100,000 and up to two former executive officers who would have been included if they had been executive officers at the end of the Last Fiscal Year, information concerning compensation paid for services to the Company in all capacities during the Last Fiscal Year as well as the total compensation paid to each such individual for the Company's previous two fiscal years (if such person was the Chief Executive Officer or an executive officer, as the case may be, during any part of the Last Fiscal Year).
Annual Compensation Long Term ----------------------------- Compensation Other Annual ------------ All Other Name and Principal Position Year Salary Bonus (1) Compensation (2) Options (3) Compensation --------------------------- ---- ------ --------- ---------------- ---------- ------------ Robert L. Puette 1998 $340,018 $170,000 $ 1,475 -- $ 12,179 (7) President and Chief 1997 31,386 -- -- 350,000 1,437 (8) Executive Officer (4) Thomas E. Brunton 1998 165,984 54,000 340 90,000 7,564 (7) Senior Vice President and 1997 150,048 25,000 275 51,098 6,685 (8) Chief Financial Officer 1996 137,312 25,000 215 -- 5,604 (9) Robert M. Krueger 1998 182,319 130,000 645 200,000 7,166 (7) Senior Vice President, Product Development (5) Chusak Siripocanont 1998 176,946 34,000 495 60,000 4,027 (7) Senior Vice President, 1997 150,037 25,000 670 50,698 1,023 (8) Operations 1996 142,078 20,000 415 15,000 473 (9) Carol Sorrick 1998 87,506 39,000 -- 100,000 3,207 (7) Vice President, Marketing (6) Dennis P. Wolf Senior Vice President and 1998 88,569 50,003 -- -- 4,177 (7) Chief Financial Officer (10) 1997 145,387 72,800 1,500 120,000 5,565 (8) - ------------------------------- (1) Bonus amounts are reported for the fiscal year in which earned without regard to when paid. (2) The amounts included in this column represent amounts reimbursed by the Company for tax preparation fees. (3) Represents number of shares granted under stock options. The Company did not grant stock appreciation rights or restricted stock awards in fiscal 1998. Included in these grants in fiscal year 1998 were shares granted as a result of the Company's June 1998 stock option repricing. As part of this stock option repricing, shares previously granted under the Company's stock plans were canceled and new grants were issued with the vesting period set as of the date of the issuance of the new option grant. Stock option grants issued in fiscal 1998 as part of this repricing program were as follows: Mr. Brunton, 50,000 shares; Mr. Siripocanont, 35,000 shares; and Ms. Sorrick, 50,000 shares. (4) Mr. Puette became President and Chief Executive Officer of the Company in September 1997. (5) Mr. Krueger became Senior Vice President, Product Development in December 1997. (6) Ms. Sorrick became Vice President, Marketing in May 1998. (7) The amounts disclosed in the "All Other Compensation" column include: (a) Payments by the Company in 1998 of premiums for group term life insurance on behalf of each of Mr. Puette, $5,679; Mr. Brunton, $1,614; Mr. Krueger, $1,866; Mr. Siripocanont, $927; Mr. Wolf, $477; and Ms. Sorrick, $307. This benefit is extended to all employees. (b) Payment by the Company in 1998 of car allowances as follows: Mr. Puette, $6,000; Mr. Brunton, $4,800; Mr. Krueger, $4,800; Mr. Siripocanont, $2,600; Mr. Wolf, $3,200; and Ms. Sorrick, $2,400. (c) Payment by the Company of expenses for annual physical examinations in the amount as follows: Mr. Brunton, $650, Mr. Siripocanont, $632. -19- (d) Payment by the Company in 1998 for 401(k) match in the amount of $500 each for Mr. Puette, Mr. Brunton, Mr. Krueger, Mr. Siripocanont, Mr. Wolf, and Ms. Sorrick. This benefit is extended to all employees. (8) The amounts disclosed in the "All Other Compensation" column include: (a) Payments by the Company in 1997 of premiums for group term life insurance on behalf of each of: Mr. Puette, $437; Mr. Brunton, $1,385; Mr. Siripocanont, $523; and Mr. Wolf, $756. This benefit is extended to all employees. (b) Payment by the Company in 1997 of car allowances as follows: Mr. Puette, $500; Mr. Brunton, $4,800; and Mr. Wolf, $4,300. (c) Payment by the Company in 1997 for 401(k) match in the amount of $500 each for Mr. Puette, Mr. Brunton, Mr. Siripocanont, and Mr. Wolf. This benefit is extended to all employees. (9) The amounts disclosed in the "All Other Compensation" column include: (a) Payments by the Company in 1996 of premiums for group term life insurance on behalf of each of Mr. Brunton, $804; and Mr. Siripocanont, $473. This benefit is extended to all employees. (b) Payment by the Company in 1996 of car allowances as follows: Mr. Brunton, $4,800 (10) Mr. Wolf no longer serves as an executive officer of the Company. Included in 1998 Bonus Annual Compensation for Mr. Wolf was $50,003 in severance compensation.
Stock Option Grants and Exercises The following tables set forth information with respect to options granted to the named executive officers and the options exercised by such named executive officers during the Last Fiscal Year. STOCK OPTION GRANTS IN FISCAL YEAR 1998 The Option Grant Table sets forth hypothetical gains or "option spreads" for the options at the end of their respective five-year terms, as calculated in accordance with the rules of the Securities and Exchange Commission. Each gain is based on an arbitrarily assumed annualized rate of compound appreciation of the market price at the date of grant of five percent (5%) and ten percent (10%) from the date the option was granted to the end of the option term. Actual gains, if any, on option exercises are dependent on the future performance of the Company's Common Stock and overall market conditions.
Individual Grants Potential Realizable ------------------------------------------------------- Value of Assumed Annual Number of Percent of Rates of Stock Price Securities Total Options Appreciation for Underlying Granted to Exercise or Option Term Options Employees in Base Price Expiration ------------------------ Name Granted (1) Fiscal Year ($/share) Date 5% 10% - -------------------------------------------------------------------------------------------------------------------- Robert L. Puette............ -- -- -- -- -- -- Thomas E. Brunton........... 40,000 2.70% 13.00 5/19/08 355,564 874,189 50,000 3.37% 10.13 6/19/08 318,535 807,230 Robert M. Krueger........... 150,000 10.11% 16.13 12/5/07 1,734,181 4,194,543 50,000 3.37% 11.00 8/19/08 345,892 876,558 Chusak Siripocanont......... 25,000 1.69% 13.00 5/19/08 222,227 546,368 35,000 2.36% 10.13 6/19/08 222,975 565,061 Carol Sorrick............... 50,000 3.37% 13.00 5/19/08 444,454 1,092,736 50,000 3.37% 10.13 6/19/08 318,535 807,230 (1) Represents number of shares granted under stock options. The Company did not grant stock appreciation rights or restricted stock awards in fiscal 1998. Included in these grants in fiscal year 1998 were shares granted as a result of the Company's June 1998 stock option repricing. As part of this stock option repricing, shares previously granted under the Company's stock plans were canceled and new grants were issued with the vesting period set as of the date of the issuance of the new option grant. Stock option grants issued in fiscal 1998 as part of this repricing program were as follows: Mr. Brunton, 50,000 shares; Mr. Siripocanont, 35,000 shares; and Ms. Sorrick, 50,000 shares.
-20- AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1998 AND YEAR-END VALUES The following table sets forth information with respect to the named executive officers concerning the exercise of options during 1997 and unexercised options held as of October 31, 1998.
Total Number of Value of Unexercised Shares Unexercised Options Held In-the-Money Option Held Acquired at Fiscal Year End at Fiscal Year End (1) on Value --------------------------- --------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ---- -------- -------- ----------- ------------- ----------- ------------- Robert L. Puette.............. -- -- -- 350,000 -- -- Thomas E. Brunton............. -- -- 22,614 56,084 -- -- Robert M. Krueger............. -- -- -- 200,000 -- -- Chusak Siripocanont........... -- -- 34,536 41,162 -- -- Carol Sorrick................. -- -- -- 50,000 -- --
Employment Contracts, Termination of Employment and Change-in-Control Arrangements The Board of Directors on October 24, 1997 approved change-in-control agreements with all of the Company's outside directors and executive officers, and certain key employees of the Company. The change-in-control agreements provide that in the event of a merger, consolidation, tender offer, sale of assets or similar event resulting in stockholders of Centigram receiving less than fifty percent (50%) of the outstanding voting stock of the surviving corporation (a "Change in Control"), the vesting of such person's outstanding options will be accelerated by two (2) years from the date of the Change in Control, in the case of executive officers and key employees, and in the case of outside directors, the options shall become fully vested. In the event an executive officer or key employee is involuntarily terminated within twelve (12) months of a Change in Control, all of such person's outstanding options will become fully vested, and such person will receive as severance pay six (6) months of his or her base salary, in the case of a key employee, or twelve (12) months of his or her base salary and bonus, in the case of an executive officer. Involuntary terminations for willful misconduct do not trigger the change-in-control provisions. In September 1997, Mr. Puette was hired as the Company's President and Chief Executive Officer pursuant to an offer letter dated September 24, 1997. In October 1997, the Company entered into an employment agreement with Mr. Puette which provides that he will receive an annual base salary of $340,000 and will participate in the Company's Executive Bonus Program. Mr. Puette also received an option to purchase 350,000 shares of the Company's Common Stock. The agreement is terminable at will by either party, but if it is terminated by the Company for other than cause, Mr. Puette will receive salary and other benefits for one year after termination. In the event of a Change in Control of the Company, Mr. Puette shall receive severance equal to 150% of his base and bonus compensation and other benefits, including the acceleration of stock options that become exercisable within two years following such Change In Control. COMPENSATION COMMITTEE REPORT The Compensation Committee consists of Dean Morton, David Lee and James Gibbons. Each of such directors at the time of serving on the Compensation Committee was an independent director of the Company. The Committee is responsible for administering the Company's compensation and benefits programs. The Committee sets executive salary levels, establishes the Company's executive bonus plan and determines target bonuses thereunder, and determines option grants under the Company's stock option programs. The Company's executive compensation program has been designed to ensure that the compensation provided to executive officers is closely aligned with the Company's financial performance and, ultimately, the creation of stockholder value, and to ensure that the Company can attract and retain key executives critical to the Company's long-term success. -21- The Committee establishes the salary of each executive officer, including the Chief Executive Officer, by considering (i) the salaries of executive officers in similar positions with comparably sized companies in the Company's and related industries, based upon survey data obtained from various sources, (ii) the experience and contribution levels of the individual executive officers, (iii) the Company's financial performance during the past year, and (iv) in the case of executive officers other than the Chief Executive Officer, the recommendations of the Chief Executive Officer. Under the Company's executive bonus plan for the Last Fiscal Year, executive officers were eligible to receive bonuses based primarily upon achievement by the Company of operating profit performance objectives established by the Compensation Committee at the commencement of the Last Fiscal Year. Executive officers, including the Chief Executive Officer, were also eligible to receive additional bonuses at the discretion of the Committee based upon individual performance. For financial performance below a specified level, executive officers were not eligible for any bonus except at the discretion of the Committee, and for performance in excess of plan, executives were eligible for the full performance-based bonus plus such additional bonuses as the Committee might determine in its discretion. Based upon the Company's financial performance in the Last Fiscal Year, the Committee awarded bonuses to executive officers, consisting of discretionary bonuses awarded for performance relative to personal objectives and hire-on bonuses, in the amount of up to 65% of base salary. The bonus program for the Last Fiscal Year provided for a portion of the full-year performance bonus to be paid at mid-year, based upon achievement of targeted operating income performance for the first half of the year. For Fiscal 1999, the executive bonus program provides for the payment of bonuses based on three independent performance criterion: achievement by the Company of revenue objectives established by the Committee at the commencement of the fiscal year; achievement by the Company of profit objectives established by the Committee at the commencement of the fiscal year; and achievement by each executive of individual/functional objectives established by the executive and Chief Executive Officer at the commencement of the fiscal year (in the case of the Chief Executive Officer as established by the Chief Executive Officer and the Committee at the commencement of the fiscal year). In the event the Company achieves revenue or profit performance less than a specified level, or the executive achieves individual/functional objectives at less than a specified level, no bonuses will be paid out. If the Company meets its financial performance goals, and if the executive officers meet their specified individual/functional objectives, the Chief Executive Officer is entitled to a performance-based bonus of 55% of base salary and other executive officers are entitled to a performance-based bonus of 15% to 45% of base pay. Higher performance-based bonuses can be earned for revenue, profit and individual objectives achieved above target levels. The Committee also grants stock options to executive officers to provide long-term incentive to the executive officers aligned with the creation of increased stockholder value over time. The Committee grants options based upon a number of factors, including each such officer's responsibilities and position in the Company, any changes in the executive officer's responsibility and position, and the executive officer's existing equity interest in the Company in the form of vested and unvested options. All options are granted at the current market price of the Company's Common Stock on the date of grant. During the Last Fiscal Year, the Committee granted options to purchase an aggregate of 450,000 shares of Common Stock to four executive officers at exercise prices ranging from $10.13 to $16.13 per share. No options were granted during the fiscal year to the chief executive officer. Included in these shares granted to executive officers were 135,000 shares granted in fiscal year 1998 as part of the Company's June 1998 stock option repricing. As part of this repricing, 404,000 shares previously granted were canceled and option agreements with respect to 500,000 shares were amended. -22- The principal purpose of the Company's 1997 Plan is to provide an equity incentive to employees to remain in the employment of the Company and to work diligently in its best interests. The Board of Directors determined that this purpose would not be achieved for employees holding options exercisable at prices above the market price of the Company's Common Stock, and further determined that it was critical to the best interests of the Company and to its stockholders that the Company retain the services of these employees. As such, the Board of Directors authorized the repricing of certain stock options in 1997 and 1998. In 1997 the Board of Directors offered to all employees, other than individuals currently serving on the Board of Directors, with outstanding options to purchase the Common Stock of the Company the opportunity to exchange such options on a 5 for 4 share exchange ratio for new nonstatutory and/or incentive stock options at a price per share equal to the closing price of the Company's Common Stock on the Nasdaq National Market System on April 11, 1997, with no change in the stock option vesting periods and a six month blackout period on the repriced stock options. In June 1998 the Board of Directors offered to all employees, including individuals currently serving on the Board of Directors, with outstanding options to purchase the Common Stock of the Company the opportunity to exchange such options or to amend their option agreements, which would result in an equal number of new nonstatutory and/or incentive stock options or an amended option agreement at a price per share equal to the closing price of the Company's Common Stock on National Market System on June 19, 1998, with a restart of the vesting periods. The following table provides information with respect to these repricings. Ten-Year Option/SAR Repricings
Length of Number of Original Securities Market Price Option Term Underlying of Stock at Exercise Price New Remaining at Options Time of at Time of Exercise Date of Name Date Repriced Repricing Repricing Price Repricing ---- ---- -------- --------- --------- ----- --------- Robert L. Puette.......... 6/19/98 350,000 $10.13 $16.94 $10.13 9.28 years Thomas E. Brunton......... 6/19/98 10,000 10.13 17.75 10.13 9.35 years 6/19/98 21,600 10.13 13.00 10.13 9.92 years 6/19/98 18,400 10.13 13.00 10.13 9.92 years 6/2/97 1,999 11.63 13.50 10.38 9.52 years 6/2/97 2,400 11.63 35.50 10.38 1.39 years 6/2/97 2,000 11.63 19.00 10.38 2.42 years 6/2/97 3,200 11.63 12.63 10.38 2.65 years 6/2/97 7,999 11.63 13.75 10.38 3.15 years 6/2/97 6,000 11.63 13.50 10.38 9.52 years Robert M. Krueger 6/19/98 150,000 10.13 16.13 10.13 9.46 years Chusak Siripocanont 6/19/98 10,000 10.13 17.75 10.13 9.35 years 6/19/98 19,350 10.13 13.00 10.13 9.92 years 6/19/98 5,650 10.13 13.00 10.13 9.92 years Carol Sorrick 6/19/98 35,860 10.13 13.00 10.13 9.92 years 6/19/98 14,140 10.13 13.00 10.13 9.92 years
-23- No member of the Compensation Committee is a former or current executive officer or employee of the Company. Compensation Committee James F. Gibbons David S. Lee Dean O. Morton PERFORMANCE GRAPH Set forth below is a line graph comparing the annual percentage change in the cumulative total return among Centigram Communications Corporation, the S&P 500 Index and the H&Q Technology Index, from October 2, 1993 through October 31, 1998, the end of the last fiscal year. [GRAPH OMITTED] [The following descriptive data is supplied in accordance with Rule 304(d) of Regulation S-T) 10/2/93 10/1/94 10/28/95 11/2/96 11/1/97 10/31/98 -------- -------- -------- -------- -------- -------- Centigram $100 $ 50.77 $ 65.38 $ 40.38 $ 51.15 $ 20.38 H&Q Tech. $100 $114.13 $202.91 $216.52 $292.53 $314.96 S&P 500 $100 $103.69 $134.05 $166.35 $219.77 $268.10 -24- COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity. OTHER MATTERS The Board of Directors does not intend to bring before the meeting any matters other than those set forth herein, and has no present knowledge that any other matters will or may be brought before the meeting by others. If, however, any other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of proxy to vote the proxies in accordance with their judgment. Dated: February 19, 1999 BY ORDER OF THE BOARD OF DIRECTORS -25- -----END PRIVACY-ENHANCED MESSAGE-----