Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
CENTIGRAM COMMUNICATIONS CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CENTIGRAM COMMUNICATIONS CORPORATION
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:*
(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:
- -------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
IMAGE OMITTED CENTIGRAM
COMMUNICATIONS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 24, 1997
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 Monday, March 24, 1997 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 one (1) director to Class II of the Board of Directors.
2. To approve the adoption of the Company's 1997 Stock Plan.
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 575,000 shares to 675,000 shares.
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending November 1, 1997.
5. To transact such other business as may properly come before the meeting or
any adjournment 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 January 24, 1997 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
/s/ LARRY W. SONSINI
LARRY W. SONSINI
Secretary
San Jose, California
February 7, 1997
<PAGE>
IMAGE OMITTED CENTIGRAM
COMMUNICATIONS CORPORATION
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 Monday, March 24, 1997 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 Company's Annual Report on Form
10-K for the year ended November 2, 1996 were first mailed on or about February
22, 1997 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 January 24, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. On
January 1, 1997, 6,978,000 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 January 1, 1997 was $12.75 per
share.
REVOCABILITY OF PROXIES
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 Corporate Investor Communications Inc. ("CIC") to assist in the
solicitation of proxies for the meeting. The Company will pay approximately
$4,500 in fees for CIC's services and will reimburse CIC for reasonable
out-of-pocket expenses.
In addition to solicitation by mail and by CIC, 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 1997
Proposals of stockholders which are intended to be presented by such
stockholders at the Company's 1998 Annual Meeting must be received by the
Company no later than October 25, 1997 to be included in the proxy statement and
form of proxy relating to that meeting.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
There are currently five 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 on the date of this Annual Meeting.
Class III presently consists of one director who is serving a three-year term
expiring in 1998. 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.
One Class II director is to be elected at this Annual Meeting to serve a
three-year term expiring in 2000. The Board has nominated Dean O. Morton for
election to the Class II board seat. 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' nominee.
If the nominee 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 the nominee will be unable or will decline to serve as a director.
The name of the nominee of the Company and certain information about him as
of January 1, 1997 are set forth below. The names of and certain information
about the current directors as of January 1, 1997 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."
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION AND DIRECTORSHIP SINCE
--------------- --- ------------------------------------- -----
CLASS I DIRECTORS
James H. Boyle 42 President of Boyle Enterprises, Inc., a 1988
management and investment consulting firm
George H. Sollman 55 President and Chief Executive Officer 1985
of the Company
CLASS II DIRECTORS
J. Michael Jarvis 50 President of Charter Group, Inc., a lessor 1990
of telecommunications equipment
Dean O. Morton(1) 64 Retired Executive Vice President, Chief 1993
Operating Officer and Director of
Hewlett-Packard Company
CLASS III DIRECTOR
James F. Gibbons 65 Professor and Retired Dean, School of 1992
Engineering of Stanford University
- --------------
(1) Nominee for Class II Director.
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. Sollman joined Centigram in 1985 and is currently President, Chief
Executive Officer and a director of the Company. Before joining Centigram, Mr.
Sollman served as a special partner for Sand Hill Venture Group, a venture
capital firm. From 1976 to 1984, he was employed by Shugart Corporation, a disk
drive manufacturer, in the marketing and sales division, last serving as Vice
President and General Manager. Shugart Corporation was acquired by Xerox Corp.
in 1978. Mr. Sollman has also held various engineering and marketing positions
with Control Data Corporation and Honeywell Information Systems Inc., which are
both computer manufacturers.
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Mr. Jarvis was elected to the Centigram Board in August 1990. Since 1985, Mr.
Jarvis has been President of Charter Group, Inc., a lessor of telecommunications
equipment. From 1970 until 1981, Mr. Jarvis held management positions, and
served as President from 1976 to 1981 of Jarvis Corporation, a distributor of
telecommunications systems. Jarvis Corporation was acquired in 1980 by ROLM and
became its ROLM Atlantic subsidiary with Mr. Jarvis as its president. Mr. Jarvis
was also a founder of Executone Corporation and served as a director of that
corporation until 1990.
Mr. Morton was elected to the Centigram Board in November 1993. Mr. Morton
joined Hewlett-Packard Company in 1960 and served in several executive
management positions. Most recently, Mr. Morton was Executive Vice President
from 1977, Chief Operating Officer from 1984 and a director of Hewlett-Packard
before his retirement in October 1992. Mr. Morton is a member of the boards of
directors of Alza Corporation, The Clorox Company, Raychem Corporation, Tencor
Instruments, Kaiser Foundation Health Plan and Hospitals, serves as an Associate
of the Monterey Bay Aquarium Research Institute, and is a trustee of State
Street Research Group of Funds, State Street Research Portfolios, Inc.,
Metropolitan Series Fund, Inc. and the David and Lucille Packard Foundation.
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, was named Reid Weaver Dennis Professor of Electrical
Engineering in 1983, and served as the F. E. Terman Dean of the School of
Engineering from 1984 to 1996. He is a director of Amati Communications Corp.,
Cisco Systems Inc., Lockheed Martin Corporation and Raychem Corporation.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company met a total of seven (7) times during
the fiscal year ended November 2, 1996.
The Audit Committee of the Board of Directors consists of directors James H.
Boyle, James F. Gibbons, J. Michael Jarvis and Dean O. Morton. Such committee
met three (3) 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 of the Board of Directors consists of directors
James H. Boyle, James F. Gibbons, J. Michael Jarvis and Dean O. Morton. Such
committee met one (1) time 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, no director attended less than 75% of the
aggregate of all meetings of the Board of Directors and the committees, if any,
upon which such director served and which were held during the period of time
that such person 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 nonemployee director will, starting in 1997, be paid
an annual retainer fee of $12,000, paid quarterly. Under the Company's 1987
Stock Plan and under the Company's new 1997 Stock Plan, provided it is approved
by the stockholders of the Company, each outside director of the Company is and
will be granted options to purchase 15,000 shares of Common Stock at the time of
initial appointment or election to the Board, and 5,000 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 at
the time of such meeting. The Company also reimburses nonemployee directors for
travel expenses incurred in attending meetings of the Board and its committees.
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REQUIRED VOTE
The nominee receiving the highest number of affirmative votes will be elected
as a Class II director of the Company.
RECOMMENDATION
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEE LISTED ABOVE.
PROPOSAL NO. 2
APPROVAL OF THE ADOPTION OF THE
1997 STOCK OPTION PLAN
The Company's 1987 Incentive Stock Option Plan expires by its terms in
December 1997. Consequently, the Company's 1997 Stock Plan (the "1997 Plan") was
adopted by the Board of Directors on January 16, 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 375,000 shares of
the Company's Common Stock has been reserved for issuance upon the exercise of
options granted under the 1997 Plan. As of January 1, 1997, no options to
purchase shares had been granted under the 1997 Plan.
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. Therefore, in order to maximize the Company's
federal income tax deductions, the Board of Directors of the Company is
requesting that the stockholders approve the adoption of the 1997 Plan at the
Annual Meeting.
PROPOSAL
At the Annual Meeting, the stockholders are being asked to approve the
adoption of the 1997 Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED ADOPTION OF THE 1997 PLAN AND
RECOMMENDS THAT STOCKHOLDERS VOTE FOR SUCH ADOPTION.
DESCRIPTION OF THE 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
has been filed by the Company as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended November 2, 1996, 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 adopted by the Board of Directors in January 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 (the "Committee"), to grant
stock options. A total of 375,000 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 that nonstatutory options of 15,000
shares of Common Stock be granted automatically to outside directors of the
Company at the time of initial appointment or election
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to the Board, and 5,000 shares of Common Stock be granted automatically to such
directors annually thereafter on the date of each Annual Meeting of
Stockholders, provided such director has been a member of the Board for at least
six months.
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 the 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 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 Nasdaq National Market of the National Association of
Securities Dealers, Inc. Automated Quotation ("Nasdaq") System, the fair
market value shall be the average of the closing sales prices for such stock
(or the average of the closing bids, 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 five market trading days immediately 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 date of determination,
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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 Nasdaq System (but not on the Nasdaq 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, 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 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
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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 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,
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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 2007.
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, assuming approval of the 1997 Plan by the stockholders. Options
granted under the 1997 Plan may be either "incentive stock options," as defined
in Section 422 of the Code, or nonstatutory 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 options. An optionee will not recognize any taxable
income at the time he or she is granted a nonstatutory 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 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.
8
<PAGE>
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 November 2, 1996. In the fiscal year
ended November 2, 1996, no options were granted under the 1997 Plan.
REQUIRED VOTE
The affirmative vote of the majority of the Votes Cast will be required under
Delaware law to approve the adoption of 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 adoption of 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 non-votes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes 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 non-votes with respect to this proposal
will not be counted as Votes Cast.
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 575,000 to 675,000. This increase was approved by the Board of Directors,
subject to stockholder approval, on December 10, 1996. Excluding the proposed
100,000 share increase, a total of 74,130 shares remained available for grant
under the plan on January 1, 1997.
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
9
<PAGE>
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.
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.
10
<PAGE>
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 Nasdaq 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, provided that eligible compensation shall include only base
straight time gross earnings in the event the first payroll following the
offering date and continue until participation is terminated. 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.
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
lessor 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
11
<PAGE>
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. For
years beginning in 1991 and thereafter, the tax on long-term capital gains will
be capped at 28%. Different rules may apply with respect to optionees 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.
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 November 2, 1996, an aggregate of 5,295 shares
of the Common Stock of the Company were issued to all executive officers as a
group and an aggregate of 101,837 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 non-votes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes 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 non-votes 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 November 1, 1997. 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.
12
<PAGE>
<TABLE>
MANAGEMENT
The executive and other officers of the Company, and their ages as of January
1, 1997, are as follows:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George H. Sollman 55 President, Chief Executive Officer and Director
Dennis L. Barsema 42 Senior Vice President and General Manager,
Service Provider Division
Michael J. Wagner 53 Senior Vice President, Operations and Services
Dennis P. Wolf 44 Senior Vice President, Finance and Chief Financial
Officer
David J. Brahm 46 Vice President, Advanced Technology
Thomas E. Brunton 49 Vice President and Controller
Kevin J. Gralen 34 Vice President, Marketing, Service Provider Division
Dana H. Hooper 48 Vice President, Corporate Marketing and Corporate
Development and General Manager of TTS Division
John J. McCarthy 40 Vice President, Customer Premises Equipment
Sales and Service
Carrie Perzow 39 Vice President, Human Resources
Chusak Siripocanont 43 Vice President, Manufacturing
John D. VerMeulen 55 Vice President, Service Provider Division, International
Sales and Service
William H. Warren 55 Vice President, Quality
</TABLE>
Mr. Sollman joined Centigram in 1985 and is currently President, Chief
Executive Officer and a director of the Company. Before joining Centigram, Mr.
Sollman served as a special partner for Sand Hill Venture Group, a venture
capital firm. From 1976 to 1984, he was employed by Shugart Corporation, a disk
drive manufacturer, in the marketing and sales division, last serving as Vice
President and General Manager. Shugart Corporation was acquired by Xerox Corp.
in 1978. Mr. Sollman has also held various engineering and marketing positions
with Control Data Corporation and Honeywell Information Systems Inc., which are
both computer manufacturers.
Mr. Barsema joined the Company as Senior Vice President, Worldwide Sales in
January 1995. In September 1996, Mr. Barsema was promoted to Senior Vice
President/General Manager of the Company's Service Provider Division. Prior to
joining Centigram, he was Director of Sales, Southern Region, for Lotus
Development Corporation, a software developer, and was employed by that company
from October 1993 to December 1995. During such period he was also Vice
President, North American Operations for SoftSwitch Incorporated, a software
developer acquired by Lotus. From January 1993 to October 1993 he was Vice
President of Sales for Primary Access, Inc., a supplier of network access
products. From January 1985 to October 1993, he was employed by AT&T Paradyne, a
manufacturer of data communications products, most recently as Vice President of
U.S. Sales.
Mr. Wagner joined Centigram in February 1995 as Vice President, Customer
Services, and became the Company's Senior Vice-President of Operations and
Services in September 1996. From 1990 to 1994, Mr. Wagner served as Director of
International Sales and Marketing for Wyse Technology, a computer and terminal
manufacturer. From 1982 to 1990, he served in a number of capacities including
Branch Manager for ROLM/IBM. Mr. Wagner's earlier experience included positions
with Acurex Corporation and Arcata Communications.
Mr. Wolf joined Centigram in January 1997 as Senior Vice President, Finance
and Chief Financial Officer. From October 1995 to January 1997 he was Vice
President and Chief Financial Officer of Pyramid Technology, Inc. From October
1993 to October 1995 he served as Vice President, Finance and Chief Financial
Officer of Dynacraft, Inc. From 1989 to 1993 Mr. Wolf held various finance
director positions with Apple Computer. His earlier experience included his
position as Finance Director of Sun Microsystems, Inc., as well as management
positions at Tandem Computers and IBM Corporation.
13
<PAGE>
Mr. Brahm joined Centigram as Director of Product Development in March 1993
and became Vice President, Product Development in May 1994. In September 1996,
Mr. Brahm was promoted to Vice President, Advanced Technology. From 1984 to 1993
Mr. Brahm was employed by Digital Sound Corporation, a manufacturer of voice
processing systems, in various technical management positions including Vice
President of Engineering and Vice President of Quality. Earlier, he was employed
by AT&T Bell Laboratories in engineering and engineering management positions
for 12 years.
Mr. Brunton joined Centigram in March 1991 as Controller and became Vice
President and Controller in July 1995. 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. From 1990 to 1991 he was Manager of
Corporate Consolidations for 3Com, a manufacturer of computer networking
products. He earlier held accounting and accounting management positions with
Sun Microsystems, a computer systems manufacturer, and IBM/ROLM, a
telecommunications equipment manufacturer. Earlier, he was employed for eight
years by Coopers & Lybrand LLP in various auditing positions.
Mr. Gralen became Vice President of Service Provider Marketing on November 1,
1996. He joined Centigram in December 1992 and was most recently the Senior
Director of Strategic Accounts. Before coming to Centigram, he held various
management positions with IBM/ROLM.
Mr. Hooper joined the Company as Director of Product Marketing in November
1992 and served as Vice President of Marketing from July 1994 to October 1996.
Mr. Hooper became the Company's Vice President of Corporate Marketing and
Business Development and General Manager of the Company's Text to Speech
Division (TTS) in November 1996. He was Director of Business Development for
Software Publishing Corporation, a publisher of personal computer software, from
1990 until 1992. Earlier he was Vice President and General Manager of the
graphics business for Digital Research Corporation, a publisher of personal
computer software, and held a variety of marketing positions with Xerox
Corporation from 1971 to 1988.
Mr. McCarthy became Vice President, Customer Premises Equipment Sales in
September 1995. He joined Centigram in October 1990 as a Regional Sales Manager
and became Director, Northeast Sales in October 1993. He was a Branch Manager
with Sprint Corporation from 1988 to 1990 and from 1980 to 1988 he held sales
and sales management positions with IBM/ROLM.
Ms. Perzow joined the Company as a Director of Human Resources in February
1995 and became Vice President of Human Resources in September 1996. Prior to
joining the Company she served as a Senior Human Resources Manager at Sun
Microsystems, Inc. from 1989 to 1995, as a Human Resources Generalist at 3Com
Corporation from 1988 to 1989 and as a Human Resources Director with Scientific
Micro Systems from 1984 to 1988.
Mr. Siripocanont joined Centigram as Vice President, Manufacturing in October
1993. 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 Production Manager for Octel Communications Corporation, a
telecommunications equipment manufacturer. From 1980 to 1988, he was a
manufacturing manager and production manager with IBM/ROLM.
Mr. VerMeulen became Vice President, Service Provider Division, International
Sales, in October 1994. He joined the Company as a sales director in June 1989
and became Vice President, Sales, Northern Region in November 1992. From 1986 to
1989 he was Vice President, Sales and Marketing of ComDev, Inc., a
telecommunications equipment manufacturer. Earlier, he served United
Technologies Communications Company, a telecommunications equipment
manufacturer, in sales and marketing positions including Vice President, North
Central Division and Vice President, National Accounts.
Mr. Warren joined Centigram in March 1989 as Vice President, Customer Support
and became Vice President, Quality in December 1992. From 1982 to 1988, Mr.
Warren had various positions with IBM/ROLM including Director of Operations,
General Manager of Northern California and Manager of Product Planning for the
CBX division.
14
<PAGE>
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. During fiscal
1996, the Company leased a 40,000 square foot facility in San Jose, California
from Uniphase Corporation, a company for which Anthony Muller, the Company's
then-Chief Financial Officer, served as a Director.
The Company also provided a loan of $300,000 to George Sollman, the Company's
President and Chief Executive Officer, on April 15, 1996, pursuant to a full
recourse note which is presently secured by 20,428 shares of Common Stock. The
Board of Directors of the Company has approved the substitution of a security
interest in certain real property of Mr.Sollman's for such Common Stock as
collateral for the note. Interest on the loan is 5.88% per annum, compounded
annually, and the principal plus all accrued but unpaid interest on the note are
due on April 15, 2001.
OTHER INFORMATION
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive officers,
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 Company's last fiscal year all executive officers and
directors complied with their filing requirements under Section 16(a) for all
reportable transactions during the year.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 1, 1997 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, and
by all directors and executive officers as a group. 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 ............... 1,171,792 16.79%
6600 France Avenue, Suite 672
Edina, MN 55435
George H. Sollman(1) ................... 235,311 3.33%
Dennis L. Barsema(2) ................... 12,152 *
Michael J. Wagner(3) ................... 15,100 *
David J. Brahm(4) ...................... 37,970 *
Dana H. Hooper(5) ...................... 16,043 *
James H. Boyle(6) ...................... 11,000 *
James F. Gibbons(7) .................... 32,500 *
J. Michael Jarvis(8) ................... 25,000 *
Dean O. Morton(9) ...................... 24,500 *
Anthony R. Muller(10) .................. 12,109 *
All directors and executive officers
as a group (11 persons)(11) .......... 429,682 6.11%
- -----------------
* Less than one percent (1%).
(1) Includes 82,316 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(2) Includes 12,152 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(3) Includes 13,316 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(4) Includes 32,207 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(5) Includes 10,239 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(6) Includes 10,000 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(7) Includes 27,500 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(8) Includes 12,500 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(9) Includes 22,500 shares issuable upon exercise of options which are
exercisable within 60 days of January 1, 1997.
(10) Mr. Muller no longer serves as an executive officer of the Company.
(11) Includes 247,325 shares issuable upon exercise of options held by all
executive officers and directors as a group, which options are exercisable
within 60 days of January 1, 1997.
16
<PAGE>
<TABLE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chief Executive Officer and each of the
four other most highly compensated executive officers whose salary plus bonus
exceeded $100,000, information concerning compensation paid for services to the
Company in all capacities during the fiscal year ended November 2, 1996, 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 such fiscal year).
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- --------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS(3) COMPENSATION
------------------ ---- ------ -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George H. Sollman 1996 $250,473 $ 70,000 $1,085 50,000 $17,787(4)
President and Chief 1995 243,006 30,000 1,922 30,000 13,042(5)
Executive Officer 1994 230,098 90,039 3,200 25,000 13,351(6)
Dennis L. Barsema 1996 129,787 100,878(7) -- 105,000 74,835(4)
Senior Vice President
and General Manager,
Service Provider
Division
Michael J. Wagner 1996 145,970 25,000 -- 40,000 6,197(4)
Senior Vice President, 1995 90,860 20,000 -- 25,000 4,445(5)
Operations and Services
David J. Brahm 1996 162,387 10,000 923 -- 4,547(4)
Vice President, Advanced 1995 148,128 40,000 912 45,000 72,075(5)
Technology 1994 115,694 32,888 -- 14,500 2,171(6)
Dana H. Hooper 1996 137,312 20,000 80 15,000 5,604(4)
Vice President, 1995 132,024 20,000 -- 20,500 2,734(5)
Corporate Marketing and 1994 121,581 15,017 -- 2,000 3,087(6)
Corporate Development
and General Manager of
TTS Division
Anthony R. Muller(8) 1996 175,232 -- 1,017 10,000 6,212(4)
Senior Vice President, 1995 174,706 25,000 910 35,000 7,581(5)
Operations and 1994 165,037 60,294 1,000 17,000 6,403(6)
Administration and Chief
Financial Officer
<FN>
- ------------
(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 has
not granted stock appreciation rights or restricted stock awards.
(4) The amounts disclosed in the "All Other Compensation" column include:
(a) Payments by the Company in 1996 of premiums for term life insurance on
behalf of each of Mr. Sollman, $10,890; Mr. Brahm, $947; Mr. Hooper,
$804; Mr. Barsema, $435; Mr. Wagner, $1,397; and Mr. Muller, $1,644.
(b) Payment by the Company in 1996 of car allowances as follows: Mr.
Sollman, $6,000; Mr. Brahm, $3,600; Mr. Hooper, $4,800; Mr. Barsema,
$4,400; Mr. Wagner, $4,800; and Mr. Muller, $4,000.
(c) Payment by the Company of expenses for annual physical examinations in
the amount of $604 on behalf of Mr. Sollman; and $568 on behalf of Mr.
Muller.
(d) Payment by the Company of relocation expenses on behalf of Mr. Barsema
in the amount of $70,000.
17
<PAGE>
(e) Payment by the Company of car insurance expenses on behalf of Mr.
Sollman in the amount of $293.
(5) The amounts disclosed in the "All Other Compensation" column include:
(a) Payments by the Company in 1995 of premiums for term life insurance on
behalf of each of Mr. Sollman, $6,222; Mr. Brahm, $789; Mr. Hooper,
$734; Mr. Wagner, $845; and Mr. Muller, $1,705.
(b) Payment by the Company in 1995 of car allowances in the amount of
$6,000 to Mr. Sollman; $3,600 to Mr. Brahm; $2,000 to Mr. Hooper;
$3,600 to Mr. Wagner; and $4,800 to Mr. Muller.
(c) Payment by the Company in 1995 of personal travel expenses in the
amount of $820 on behalf of Mr. Sollman; and $1,060 on behalf of Mr.
Brahm.
(d) Payment by the Company of expenses for annual physical examinations in
the amount of $626 for Mr. Brahm and $1,076 for Mr. Muller.
(e) Payment by the Company of relocation expenses on behalf of Mr. Brahm
in the amount of $66,000.
(6) The amounts disclosed in the "All Other Compensation" column include:
(a) Payment by the Company in 1994 of premiums for term life insurance on
behalf of each of Mr. Sollman, $6,072; Mr. Brahm, $371; Mr. Hooper,
$658; and Mr. Muller, $1,603.
(b) Payment by the Company in 1994 of car allowances in the amount of
$6,452 to Mr. Sollman; $1,800 to Mr. Brahm; $1,600 to Mr. Hooper; and
$4,800 to Mr. Muller.
(c) Payment by the Company in 1994 of personal travel expenses in the
amount of $827 on behalf of Mr. Sollman and $829 on behalf of Mr.
Hooper.
(7) Includes a commission paid in 1996 in the amount of $65,878.
(8) Mr. Muller no longer serves as an executive officer of the Company.
</FN>
</TABLE>
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth information with respect to options granted to
the named executive officers under the Company's stock option plans and the
options exercised by such named executive officers during the fiscal year ended
November 2, 1996.
<TABLE>
STOCK OPTION GRANTS IN FISCAL YEAR 1996
The Option/SAR Grant Table sets forth hypothetical gains or "option spreads"
for the options at the end of their respective five-year terms, as calculated in
accordance with the rules of the Securities and Exchange Commission. Each gain
is based on an arbitrarily assumed annualized rate of compound appreciation of
the market price at the date of grant of five percent (5%) and ten percent (10%)
from the date the option was granted to the end of the option term. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's Common Stock and overall market conditions.
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR
GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- --------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
George H. Sollman ....... 50,000 8.0 21.50 12/01/00 $289,026 $646,233
David J. Brahm ........... -- -- -- -- -- --
Dana H. Hooper ........... 15,000 2.4 15.63 09/12/06 150,376 378,321
Dennis L. Barsema ....... 45,000 7.2 19.50 01/03/01 242,437 535,723
60,000 9.6 13.75 07/25/00 113,966 251,835
Michael J. Wagner ....... 5,000 0.8 21.50 12/01/00 28,903 64,623
35,000 5.6 15.63 09/12/06 350,878 882,751
Anthony R. Muller(2) .... 10,000 1.6 21.50 12/01/00 57,805 129,247
<FN>
- -------------
(1) Represents number of shares granted under stock options. The Company did
not grant stock appreciation rights or restricted stock awards in fiscal
1996.
(2) Mr. Muller no longer serves as an executive officer of the Company.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1996 AND YEAR-END VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during 1996, and
unexercised options held as of November 2, 1996.
<CAPTION>
TOTAL NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George H. Sollman ........ 28,428 $332,365 71,068 62,811 -- --
David J. Brahm ............ -- -- 31,749 33,751 -- --
Dana H. Hooper ............ 1,500 21,750 8,782 26,291 11,162 1,531
Dennis L. Barsema ........ -- -- -- 105,000 -- --
Michael J. Wagner ........ -- -- 10,240 54,760 -- --
Anthony R. Muller (2) ..... 26,386 248,516 50,146 34,354 -- --
<FN>
- --------------
(1) Total value of vested options based on fair market value of Company Common
Stock of $13.125 per share as of November 2, 1996.
(2) Mr. Muller no longer serves as an executive officer of the Company.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In February 1985 (and as amended in May 1991), the Company entered into an
employment agreement with Mr. Sollman, which provides that Mr. Sollman will be
employed as President and Chief Executive Officer and will be named a director
of the Company. The agreement also provides that Mr. Sollman will receive a
salary of at least $115,000 per year, an annual performance-based bonus of not
more than half his annual salary, and insurance and automobile allowances. The
agreement is terminable at will by either party, but if it is terminated by the
Company for any reason other than cessation of its business or certain willful
misconduct by Mr. Sollman, Mr. Sollman will receive salary, vacation and other
benefits for nine months after termination.
The Board of Directors on August 1, 1991 approved agreements with all of the
Company's executive officers, to provide that in the event that any such officer
is involuntarily terminated within twelve months following 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, the vesting of the
officer's outstanding options will be accelerated by twelve months from the date
of the termination. Involuntary terminations for willful misconduct do not
trigger the accelerated vesting.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company during fiscal 1996 consisted of
James H. Boyle, James F. Gibbons, J. Michael Jarvis and Dean O. Morton, each of
whom is 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.
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.
19
<PAGE>
Under the Company's executive bonus plan for fiscal 1996, executive officers
were entitled to receive bonuses based primarily upon achievement by the Company
of operating income performance objectives established by the Compensation
Committee at the commencement of the fiscal year. Executive officers, including
the CEO, were also entitled 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 entitled to any bonus except at
the discretion of the Committee, and for performance in excess of plan
executives were entitled to 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 fiscal year 1996, the Committee
awarded bonuses to executive officers, consisting of discretionary bonuses
awarded for performance relative to personal objectives, in the amount of 27% of
base salary in the case of the Chief Executive Officer and 0% to 23% for other
executives.
For fiscal 1997, the executive bonus program provides for the payment of
performance-related bonuses based upon achievement by the Company of operating
income performance objectives established by the Committee at the commencement
of the fiscal year, and, at the discretion of the Committee, performance against
individual goals. In the event that the Company achieves operating income
performance less than a specified level, the executive officers will receive no
bonuses except at the discretion of the Committee. If the Company meets its
financial performance goals, and if the executive officers meet their specified
individual goals, the Chief Executive Officer is entitled to a performance-based
bonus of 66% of base salary and other executive officers are entitled to
performance-based bonuses of 30% to 66%, and higher performance-based bonuses
can be earned for operating income achieved above the target levels. The fiscal
year 1997 bonus program provides 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. The fiscal year 1996 program
similarly provided for mid-year bonuses.
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 fiscal
year 1996, the Committee granted options to purchase an aggregate of 50,000
shares of Common Stock to the Chief Executive Officer at an exercise price of
$21.50 per share, and options to purchase an aggregate of 243,500 shares of
Common Stock to nine other officers (including two who no longer serve as
officers) at exercise prices ranging from $13.75 to $21.50 per share.
No member of the Compensation Committee is a former or current executive
officer or employee of the Company.
Compensation Committee
James H. Boyle
James F. Gibbons
J. Michael Jarvis
Dean O. Morton
20
<PAGE>
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 10, 1991 (the date of the
Company's initial public offering) through November 2, 1996, the end of the
Company's last fiscal year.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
10/10/91 10/03/92 10/02/93 10/01/94 10/28/95 11/02/96
-------- -------- -------- -------- -------- --------
CENTIGRAM
COMMUNICATIONS CORP. 100 65 302 153 198 122
S & P 500 100 113 128 132 171 212
HAMBRECHT & QUIST
TECHNOLOGY 100 115 138 157 265 285
21
<PAGE>
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 7, 1997
BY ORDER OF THE
BOARD OF DIRECTORS
22
<PAGE>
APPENDIX A
CENTIGRAM COMMUNICATIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George H. Sollman and Dennis P. Wolf, and
each of them, as Proxies, each with the power to appoint his or her substitute
and hereby authorizes them to represent and to vote, as designated on the
reverse side, all the shares of Common Stock, par value $0.001 per share
("Common Stock") of Centigram Communications Corporation ("Centigram") held of
record by the undersigned on January 24, 1997, at the annual meeting of
stockholders to be held on March 24, 1997 and any adjournment thereof.
---------------
SEE REVERSE
SIDE
--------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
[X] Please mark votes as in this example.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder, If no direction is made, this proxy will be voted
FOR Dean O. Morton as Class II Director and will be voted FOR Proposals 2, 3 and
4.
1. ELECTION OF CLASS II DIRECTOR TO THE BOARD OF DIRECTORS OF CENTIGRAM:
Nominee: Dean O. Morton
FOR [ ] WITHHELD [ ]
2. PROPOSAL TO APPROVE THE ADOPTION OF THE CENTIGRAM 1997 STOCK PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AMENDMENT OF THE CENTIGRAM 1991 EMPLOYEE STOCK PURCHASE
PLAN to increase the number of shares of Common Stock reserved for issuance
thereunder from 575,000 shares to 675,000 shares:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY the appointment to Ernst & Young LLP as Centigram's
independent auditors for the fiscal year ending November 1, 1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature: Date:
----------------------------------- -----------------
Signature: Date:
------------------------------------ -----------------
