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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended NOVEMBER 1, 1997 or
/ /
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________________ to _________________
Commission file number: 0-19558
CENTIGRAM COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2418021
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
91 EAST TASMAN DRIVE
SAN JOSE, CALIFORNIA
(Address of principal 95134
executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 944-0250
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF CLASS NAME OF EXCHANGE
- ----------------------------------- -----------------------------------------
Common Stock, $0.001 par value NASDAQ/National Market System
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _____ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price as reported on the NASDAQ/NMS for January
2, 1998) was $76,000,000. Shares of the Registrant's Common Stock, par value
$0.001 per share, ("Common Stock") held by each executive officer and director
and by each person who owns 5% or more of the outstanding Common Stock have been
excluded in calculating the aggregate market value of voting stock in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes. The number of
outstanding shares of the Registrant's Common Stock, as of January 2, 1998 was
7,171,000.
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<PAGE>
ITEM 1. BUSINESS
The following discussion contains forward-looking statements
regarding future events or the future financial performance of Centigram
Communications Corporation ("Centigram" or the "Company") that involve
risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in this Item 1 under
"Manufacturing," "Patents, Trade Secrets and Licenses," "Competition," the
last two paragraphs of "Sales and Distribution," and the last two
paragraphs of "Research and Development," as well as in Item 7 hereof under
"Certain Trends and Uncertainties" and elsewhere in this report. This
report includes certain trademarks of Centigram and other companies and
remain the property of their respective holders.
OVERVIEW
Centigram designs, manufactures and markets messaging and
communications systems that integrate voice, data and facsimile on the
Company's communications server, and provides access to this multi-media
information through a telephone or PC. Centigram products allow users to
play, answer and forward voice and fax messages from any touch-tone
telephone or PC anywhere in the world. Users can also add comments to any
message and print fax documents at any fax machine. Centigram's
applications operate on an open platform based on industry-standard
hardware and software. Centigram's system architecture enables a user to
expand the capacity of a system in cost-effective increments from the
Company's smallest to its largest system configuration.
Centigram's "Series 6" platform, which was introduced in the first
quarter of fiscal 1996 was architected to extend across the Company's
entire product line. Series 6 was designed to offer significantly expanded
capacity, improved fault tolerance and greater use of industry-standard
hardware and software than the Company's prior platform. Incorporated into
the Series 6 are the Multi-Vendor Industry Protocol (MVIP) Bus, digital
signal processor (DSP) technology, Intel Pentium processors, high-density
interface cards, and international signaling protocols. Significant changes
in hardware are required to upgrade from earlier generations of the
Company's products to Series 6. These hardware changes include line cards,
and, for the Company's larger configurations, new hardware processors,
which provide greater robustness and fault tolerance.
The Company's systems are based on industry-standard computer
hardware and operating system software. This enables the Company to bring
additional product features and applications to market more quickly, to
utilize low-cost, commonly available components and to capitalize on third
party technological developments. Centigram's systems can be integrated
with central office systems, most telephone PBX systems and mobile switch
and paging terminal systems. Such systems are used for switching telephone
calls in a variety of service provider and customer premises equipment
(CPE) environments. The Company's products can also connect with a broad
range of host and local area network (LAN)-based computer systems,
including systems based on widely-used mainframes and minicomputers and
personal computers in LANs. In addition, Centigram systems located at
different sites can be linked together in a digital network.
Centigram's distribution strategy is to provide broad, effective
market coverage through the Company's direct sales force and its
distributors. The Company sells its complete line of systems to corporate
and institutional end users through a broad network of distributors and
original equipment manufacturers (OEMs). The Company also sells its systems
in North America directly to regional Bell operating companies (RBOCs),
wireless operators and to large independent telephone companies and service
providers around the world. In addition, the Company sells to service
provider customers through arrangements with Motorola, Inc., Siemens, and
Lucent Technologies. Service providers in turn employ Centigram systems to
provide services to corporate, institutional and individual end users.
In recent periods the Company has increased its international sales
and marketing efforts, particularly for international service providers.
Export sales were 44%, 30%, and 23% of net revenue in fiscal 1997, 1996,
and 1995, respectively.
Since 1984, Centigram has been providing innovative, integrated
messaging systems to the CPE and service provider marketplaces, and is
becoming a leader in developing voice messaging and communications
products. Today, close to 15,000 Centigram systems are installed with
nearly 2,000 delivering revenue enhancing services to telephone companies,
cellular providers, paging companies, and service bureaus.
BACKGROUND
The technologies which form the foundation for the Company's
products-voice messaging, facsimile communications, e-mail-originally
emerged as independent technologies and have historically been offered by
different groups of vendors as stand-alone products with little, if any,
ability to integrate the disparate products. These technologies can
generally be described as follows:
VOICE MESSAGING enables users to store, send and receive information,
or to access information from automated voice messaging systems, via
the telephone. Voice messaging applications include automated
attendant for inbound call routing, audio text and voice mail.
FACSIMILE technology permits communication of text and graphics over
the public telephone network using hard copy input and output. This
enables applications such as fax mail, fax broadcast and fax
publishing.
CALL MANAGEMENT allows users to program the features of a switching
system to facilitate call placement, call screening and call
completion.
Recognition of the benefits of simple, integrated access to these
communications technologies from any location continues to grow. The
Company provides users the ability to access these technologies in an
integrated environment using either the telephone or the PC as a
communications workstation. Increasingly, mobile communication devices can
be used to access and process these multi-media messages. Using Centigram's
systems, customers can leverage Internet capabilities to provide increased
accessibility to messaging services.
PRODUCTS AND PRODUCT FEATURES
The Company's applications operate on a common software platform,
which is Centigram's implementation of its Modular Expandable System
Architecture ("MESA"). The MESA architecture allows the Company's systems
generally to be upgraded in continual, cost-effective increments from the
Company's smallest to its largest system configurations. In contrast,
systems offered by the Company's principal competitors, due to their
architectural constraints, more often require customers to purchase a new
system in order to upgrade features or capacity. Significant changes in
hardware are, however, required to upgrade from the Company's Series 5 and
earlier generations of the products to the Company's Series 6 product
line. These hardware changes include line cards, and for the Company's
larger configurations, new hardware platforms which provide greater
robustness and fault tolerance. The Company provides financial incentives
to those customers desiring such upgrades, as well as software programs to
assist in the transfer of data, including recorded speech.
Centigram's systems are available in configurations ranging from four
ports, supporting 50-100 users in small installations, to multiple 240
ports clusters (depending on application configuration), supporting large
headquarters and telecommunications service provider applications of up to
one million users depending on the application. The Company sells its
systems at prices ranging from below $10,000 to more than several hundred
thousand dollars, depending on system configuration.
The Company's MESA architecture uses a distributed processing
approach that links separate modules together into a single system. The
Company's Series 6 users can expand systems to provide more ports and hours
of message storage by adding line cards and opening up partitions in the
disk drive. Additional system modules are added and linked as existing
modules are fully used. This approach provides a low-cost entry-level
product that can be expanded without replacing existing equipment. In
addition, the Company offers connectivity between systems through MESA-Net,
a digital networking option that can link up to 1,500 Centigram systems
anywhere in the world. MESA-Net provides end-to-end digital networking,
which preserves the clarity of voice and fax messages and reduces
transmission time and cost. MESA-Net provides two networking options. Low-
traffic sites can use MESA-Net Async over modem connections. High traffic
sites can use MESA-Net TCP/IP over high-speed Ethernet networks. MESA-Net
II, introduced with the Series 6, enables messaging across wide area
networks at Ethernet speeds using industry-standard TCP/IP protocols. The
Company's products also support the Audio Messaging Interchange
Specification (AMIS) analog networking protocol, providing interoperability
with disparate voice messaging servers from other vendors. In addition,
Centigram has continued to play a leadership role in its participation in
the joint development of the voice profile for Internet mail (VPIM)
protocol for transferring messages between disparate voice messaging
servers. VPIM is being designed to enable the exchange of voice, fax or
compound voice and fax messages between Centigram Series 6 communications
servers and other vendors' voice messaging systems.
Series 6 is based on standard hardware and software technology, such
as MVIP, QNX (a multi-tasking, real-time operating system for Intel
microprocessor-based computers) and the SCSI computer peripherals bus. The
Company believes that its architecture and platform are unique in the
industry, although it has not applied for patent protection (See "Patents,
Trade Secrets, and Licenses"). The Company believes this system
architecture offers competitive advantages to the Company. In the event
that competitors were to successfully implement a similar system
architecture, it could have a material adverse effect on the Company's
competitive position.
The Company's Continuous System Operation Software (CSO) is designed
to increase the reliability of Centigram's systems by providing a software-
based measure of fault tolerance in the Company's systems. Under CSO, the
Company's operating system control is distributed across multiple modules
within a system. If one module ceases to function, the balance of the
operating system activity is shifted to the other modules and the systems
continue to function. In addition, each of the Company's Series 6
configurations can store messages redundantly, thereby providing protection
against system or disk drive failures. The Company believes that system
reliability is a particularly important purchasing criterion for service
providers and large CPE customers.
The Company's family of products include:
VoiceMemo
Centigram's VoiceMemo application provides voice messaging and call
processing capabilities for customers in both CPE and service provider
markets. Centigram's systems can be integrated with most central office,
mobile switch and paging terminal systems as well as with most telephone
PBX systems, including PBXs manufactured by Mitel Corporation, NEC
Corporation, Fujitsu Ltd., Northern Telecom, Hitachi Ltd., and Siemens
Business Communications Systems. VoiceMemo provides a full range of
features that have been designed to improve customer service, increase
operating flexibility and employee productivity, and reduce communications
costs. System services include:
TELEPHONE ANSWERING. Telephone answering automatically answers a
busy or unanswered telephone and records a voice message.
VOICE MESSAGING. Voice messaging enables users to store, forward and
send voice messages to other users on the system, within the network,
or on a telephone not associated with a voicemail box.
AUTOMATED ATTENDANT. Automated attendant answers incoming calls and
allows callers to direct calls to telephone extensions without the
use of a human operator.
PAGING. The VoiceMemo paging feature initiates a page upon receipt
of voicemail messages. VoiceMemo supports all commonly available
(tone only, tone/vibration, digital and voice) pagers.
AUDIOTEXT. Audiotext adds a voice bulletin board to a voice
messaging system, providing callers access to recorded announcements
such as public service, product or service information.
CALL PLACEMENT (OFF-SYSTEM MESSAGING). Call placement allows a
VoiceMemo user to send messages to an "off-system" telephone number,
such as a home number, much the same as a message is sent to a
VoiceMemo mailbox. Before making a message, the user enters a
telephone number to which the message is to be delivered. The system
dials the off-system telephone and attempts to deliver the message.
CALLAGENT. CallAgent is a software application that allows system
users to control the manner in which their telephone is answered and
directed.
FaxMemo
Centigram's FaxMemo application enables a user to have facsimile
communications delivered to voice mailboxes rather than directly to a
facsimile machine. FaxMemo features include:
FAX MAIL. Using FaxMemo, users can receive facsimile messages in
their personal mailboxes with arrival notification, privacy and
control. The user can route the facsimile message to any machine at
any time, or distribute the facsimile to other users on the system or
within the network. Centigram's system permits forwarding of
facsimile messages from one person to another, addition of voice
comments and forwarding of facsimile messages to a facsimile machine
or mailbox at a pre-arranged time.
FAX BROADCASTING AND PUBLISHING. FaxMemo supports facsimile
publishing and broadcast capabilities. Fax publishing makes
frequently required documents such as sales literature, price lists,
technical documentation and reports available to any person who has a
telephone and fax machine. Fax broadcasting automatically
distributes a facsimile message to a large distribution list.
GUARANTEED FAX. Guaranteed Fax stores facsimile messages for a
recipient when the message cannot be delivered to the recipient's
facsimile machine at the time of its initial transmission because the
machine is otherwise occupied. The facsimile message is automatically
delivered to the recipient's facsimile machine when it becomes
available.
OneView
Centigram's OneView products allow users integrated access to multi-
media messaging from their personal computers and, with OneView Remote,
even while away from their offices. Connected through a LAN or in a dial-up
mode on a personal computer operating under Microsoftr WindowsTM, OneView
gives users point and click access to their voice, fax and compound voice
and fax messages by listing them in a single In-Box window. In fiscal 1997,
Centigram expanded OneView's remote capabilities to include a remote mode
which allows users to work "off-line". OneView Remote users can create,
play, answer and forward voice and fax messages from their personal
computers from remote locations by accessing their messaging system,
downloading their messages to their local hard disk, answering messages
off-line, and reconnecting to the messaging system to deliver the messages.
MobileManager
Centigram's MobileManager product adds call management to the message
and information management services provided on the Series 6 platform.
MobileManager is configured on a switching module that integrates with the
Series 6 platform and allows calls to be transferred, connected or
conferenced with other parties and destinations. MobileManager is the
result of the 1995 joint marketing arrangement with Priority Call
Management (PCM), a developer of intelligent telephony systems for large
organizations and service providers. MobileManager services include:
PERSONAL NUMBER SERVICE. Personal Number Service enables network
operators to offer their subscribers the single telephone number that
will seamlessly route important communications to people on the move
at their mobile number, office or home number, or any telephone
number anywhere in the world. In addition to routing, the Personal
Number application uses that same number for faxes, voice messages,
text messages, and numeric or alpha pagers.
PREPAID AND DEBIT CARD SERVICES. Prepaid and Debit Card Services
allow carriers to offer creative, revenue-generating network services
that are purchased in advance by subscribers whose account balances
are debited as calls are made in real time.
CREDIT/CALLING CARD SERVICES. Credit/Calling Card Services let
subscribers bill toll calls to a corporate calling card. Calling card
service tracks and rates calls in real time to provide corporate
expense management tools for mobile employees.
CALLBACK. Callback lets customers call from anywhere in the world
using lowest cost dial tone, least cost routing, and prepaid, or
Credit/Calling card billing.
Text-to-Speech
In the third quarter of fiscal 1997 the Company sold its text-to-
speech (TTS) software, TruVoice, and related business to Lernout & Hauspie
Speech Products N.V. ("L&H") headquartered in Belgium. In connection with
this transaction, L&H has agreed to license to Centigram L&H's automatic
speech recognition, text-to-speech and speech coding technologies
(including TruVoice) on mutually acceptable terms and at their current
market prices, subject to royalty discounts of up to $1,000,000.
SALES AND DISTRIBUTION
The market for the Company's systems has generally been divided into
two segments; the CPE market and the telecommunications services provider
market. The CPE market includes corporations, government agencies,
universities, professional service firms and other institutional end users
that purchase systems for installation directly on their premises.
Providers of telecommunications services, such as large telephone companies
and independent service providers, including RBOCs, independent telephone
companies, cellular providers and voice mail and paging service bureaus,
use Centigram systems to deliver voice, and fax processing capabilities to
third party customers on a subscription basis.
In order to achieve broad market coverage, Centigram has developed
two distinct sales channels focused on separate segments of the voice
processing industry. The Company uses a broad network of distributors and
OEMs to sell into the CPE market, including Ameritech, BellSouth, Fujitsu,
GTE Customer Networks, Mitel Corporation, NEC Business Communications
Systems, Voice Plus and WilTel Communication Systems. Consultants are also
a source of referrals and provide access to requests for proposals in the
CPE market. The Company sells its systems directly to RBOCs, such as Bell
Atlantic and BellSouth and to large independent telephone companies such as
Sprint; to wireless service providers such as BellSouth Mobility (BMI),
Sonofon GSM, Optus Communications Pty Limited, Paging Network Inc.
(PageNet); and to service bureaus such as Premiere Technologies. The
Company also sells to service provider customers through an OEM arrangement
with Motorola, Inc. These large telecommunications service providers
typically require a sustained, intense direct selling effort and continual,
comprehensive customer support.
No customer represented more than 10% of net revenue in fiscal 1997
or 1996. Sprint accounted for approximately 12% of net revenue in fiscal
1995. The Company's top five customers collectively accounted for
approximately 28%, 35% and 42% of the Company's net revenue during fiscal
1997, 1996 and 1995, respectively.
Centigram believes that a high level of product support is essential
to its success. The Company provides system documentation and training to
distributors and to direct end-user customers. The training provided by the
Company includes courses in technical software, installation and
maintenance, and customer support. Centigram also maintains a support
center 24 hours a day to assist with customer and distributor inquiries and
offers on-site assistance through its field operations. Remote Technical
Assistance Centers (TACs) in the United Kingdom, Hong Kong and Sydney,
Australia provide local, on-call service and support. To expand its level
of service to its customers in 1997, the Company continued its "Market
Leadership Program" to deliver a comprehensive, fully integrated program
designed to increase and expand service providers' revenue streams,
maximize resources to reduce costs, and create market leadership in
customer service. The program focuses on key areas of a service launch,
including operations, market research, promotions, media relations, product
packaging and pricing, sales planning and tracking, customer support and
billing requirements. The program also offers consulting services to help
service providers create an enhanced services deployment plan customized to
their market requirements.
In recent periods, the Company has been increasing its focus on
international sales, particularly direct sales to international service
providers. In fiscal 1997, The Company made substantial investments in
sales and support and it now has sales offices in Europe, China, Australia
and Latin America. Export sales were 44%, 30% and 23% of net revenue in
fiscal 1997, 1996 and 1995, respectively. In particular, the Company's
revenue from the Far East region was approximately $9.2 million, $1.5
million, and $2.7 million for fiscal 1997, 1996 and 1995, respectively.
There can be no assurance that the Company will be able to maintain or
increase its international sales or that the Company's sales subsidiaries
will be able to compete effectively.
International sales are subject to inherent risks, including the
need to obtain certain regulatory approvals and meet other standards,
unexpected changes in regulatory requirements and tariffs, difficulties in
staffing and managing foreign operations, costs and risks of localizing
products for foreign countries, more expensive support costs, longer
payment cycles, greater difficulty in accounts receivable collection,
potentially adverse tax consequences, potential restrictions on
repatriating earnings, and the burdens of complying with a wide variety of
foreign laws. In particular, in both 1997 and 1996, the Company experienced
increased expenses associated with its efforts in expanding sales in
certain export markets. Gains and losses on the conversion to U.S. dollars
of assets and liabilities arising from international operations may
contribute to fluctuations in the Company's results of operations, although
such gains and losses have not to date been material to the Company's
results of operations, and fluctuations in exchange rates could affect
demand for the Company's products. In addition, beginning in late fiscal
1997, economies throughout the Far East region were negatively affected by
devaluations in local currencies. These devaluations caused the relative
cost of the Company's products to increase. Moreover, significant
uncertainty exists with respect to these economies, which could cause the
businesses and governmental agencies to delay or cancel plans to purchase
the Company's products. If the Company were to experience a slowdown in
sales to this region, the Company's business, financial condition and
results of operations could be materially adversely affected. In order to
sell its products to customers in other countries, the Company must comply
with governmental regulations, including U.S. export regulations, and
convert its voice prompts to additional foreign languages. Foreign sales
are also constrained by the limited penetration of touch-tone telephones in
some countries and the Company's need to develop adequate sales and
marketing channels.
Most of the Company's distributors also offer systems manufactured
by the competitors of the Company. Accordingly, the Company must compete
within any distributor to have the distributor recommend the Company's
products to end user customers. The Company also competes with other voice
messaging providers for access to distributors. There can be no assurance
that the Company will be able to maintain strong relationships with
existing distributors or establish strong relationships with new
distributors. In addition, certain former customers (including
distributors) of the Company had in the past experienced financial
difficulties resulting in the Company writing off related accounts
receivable balances, and a number of the Company's current customers
(including distributors) have limited financial resources. The loss of one
or more key customers or distributors, the decision by any key distributor
to offer a competitor's product line or otherwise de-emphasize the
Company's products, or the weakening of the financial condition of any of
the Company's key customers or distributors, could have a material adverse
effect on the Company's operating results, financial position and cash
flows.
PATENTS, TRADE SECRETS AND LICENSES
The Company's success depends in part on its proprietary technology.
While the Company attempts to protect its proprietary technology through
patents, trademarks, copyrights and trade secrets, as well as
confidentiality agreements with customers, suppliers and employees and
other security measures, the Company believes that its success will depend
more upon innovation, technological expertise and distribution strength.
There can be no assurance that the Company will be able to protect its
technology or that competitors will not be able to develop similar
technology independently. The Company currently holds a number of patents
and has multiple patent applications on file. No assurance can be given
that patents will issue from any applications filed by the Company or that,
if patents do issue, the claims allowed will be sufficiently broad to
protect the Company's technology. Moreover, the Company relies upon trade
secret protection for its basic systems architecture and hardware platform,
and does not hold any patents thereon. In addition, no assurance can be
given that any patents issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will
provide competitive advantages to the Company.
In addition, a number of other companies, including competitors of
the Company, also hold patents in the same general area as the technology
used by the Company. The Company has obtained licenses to use certain
intellectual property, including patents, from others. The Company from
time to time has received, and may receive in the future, letters alleging
infringement of patent rights by the Company's products. For example, in
December 1997, representatives of Lucent Technologies ("Lucent") informed
the Company that they believed that the Company's products may infringe
upon certain patents issued to Lucent, and that Lucent was seeking
compensation for any past infringement by the Company. The Company is in
the process of evaluating the assertions of Lucent. Lucent, or any other
third party alleging infringement, could seek an injunction prohibiting the
Company from selling some or all of its products, which would have an
immediate, adverse impact in the Company's business, financial condition
and results of operations. There can be no assurance that the Company would
prevail in any litigation to enjoin the Company from selling its products
on the basis of such alleged infringement, or that the Company would be
able to license any valid and infringed patents on reasonable terms, or at
all.
BACKLOG
At November 1, 1997, the Company had a backlog of $15.2 million and
at November 2, 1996, a backlog of $19.4 million. The Company includes in
such backlog orders received that the Company believes are shippable within
the next 12 months. The Company does not believe, however, that current or
future backlog levels are necessarily indicative of future operating
results. A significant portion of bookings and shipments in any quarter
have historically occurred near the end of the quarter, and the Company has
historically operated with very little backlog. There can be no assurance
that backlog will not decrease in the future, that there will not be
cancellation or deferral of a significant portion of backlog, or that the
Company will maintain any backlog level in the future.
RESEARCH AND DEVELOPMENT
Centigram's development strategy is focused on the development of new
applications for the Company's product platform and the enhancement of the
Company's MESA architecture. Expenditures for research and development were
$21.3 million, $20.2 million and $14.8 million and as a percentage of net
revenue these expenses were 19.5%, 19.3%, and 21.3% in fiscal 1997, 1996
and 1995, respectively. Development efforts are focused on enabling
Centigram's messaging platform to operate on an NT operating system,
continuing the development and testing of the Company's Series 6 platform,
continuing to expand the capacity of the Company's systems (particularly
for the telecommunications service provider and large CPE customer
markets), enhancing voice messaging and facsimile product capabilities,
developing additional capabilities to connect the Company's products with
computer databases, high speed transmission networks and foreign
communications networks with non-standard protocols, adding administration
and network management capabilities to the Company's products, and
developing and enhancing the features and overall performance of the
Company's systems.
As the Company seeks to continue to add functionality to its products
and to support a broader range of computer, LAN-based applications and
Internet capable applications, the Company faces continually increasing
technical challenges. There can be no assurance that the Company will be
able to incorporate additional technologies into the Company's products or
introduce new products in a timely manner in order to meet evolving market
needs.
As the functionality of the Company's systems increases, the
complexity of the software utilized in such systems will also increase and
software errors or "bugs" may become more numerous and difficult to cure.
Identifying and correcting errors and making required design modifications
is typically expensive and time consuming and the Company expects that such
modifications will increase in complexity with the increasing
sophistication of the Company's products. The Company has made a
substantial investment in additional testing equipment as well as hiring
additional employees to expand the Company's product testing capabilities.
There can be no assurance that such investment will lead to reduced errors
or that such errors will not in the future cause delays in product
introductions and shipments, require costly design modifications or impair
customer satisfaction with the Company's products.
MANUFACTURING
The Company's manufacturing operations consist primarily of final
assembly and test and quality control of materials, components, sub-
assemblies and systems. The Company's hardware and software product designs
are proprietary but use industry-standard hardware components and an
industry-standard, real time, multi-tasking operating system. The Company
presently uses third parties to perform printed circuit board and subsystem
assembly. Although the Company has not experienced significant problems
with third party manufacturers in the past, there can be no assurance that
such problems will not develop in the future. Although the Company
generally uses standard parts and components for its products, certain
microprocessors, semiconductor devices and other components are available
only from sole source vendors. In addition, other components, including
power supplies, disk drives, other semiconductor devices and line cards are
presently available or acquired from a single source or from limited
sources. The Company to date has been able to obtain adequate supplies of
these components in a timely manner from existing sources or, when
necessary, from alternative sources of supply. However, the inability to
develop such alternative sources if and as required in the future, or to
obtain sufficient sole or limited source components as required, would have
a material adverse effect on the Company's operating results.
EMPLOYEES
As of November 1, 1997, the Company had 418 employees, of whom 107
were engaged in research and development, 220 in sales, marketing and
customer support, 42 in manufacturing and quality assurance and 49 in
finance and administration. The Company's future success will depend on its
ability to attract, train, retain and motivate highly qualified employees,
who are in great demand. The Company's employees are not represented by any
collective bargaining organization, and the Company has never experienced a
work stoppage. The Company believes that its employee relations are good.
COMPETITION
The Company competes in a number of markets within the communications
systems industry, each of which is highly competitive. Many of the
Company's competitors have substantially greater financial, technical,
marketing and sales resources than the Company and have larger installed
bases of existing systems. Furthermore, manufacturers of PBX equipment have
a competitive advantage in selling to the installed base of users of their
PBX equipment and, to an even greater degree, purchasers of new
installations of their PBX equipment. The Company expects to encounter
continued competition from both existing competitors and new market
entrants on the service provider side of the business, as well as in the
customer premise equipment sector. Increased competitive pressures could
result in intensified price competition, which would adversely affect the
Company's operating results. In addition, the Company believes that its
ability to integrate its systems with many different telephone PBX and
Centrex systems is an important competitive feature. Consequently, the
Company's operating results could be adversely affected if PBX
manufacturers, such as AT&T, Northern Telecom and Siemens Business
Communications Systems, redesign their PBXs to limit current methods of
integration. Although the Company is not aware that any significant PBX
manufacturer is pursuing a strategy of redesigning its PBXs to limit the
Company's current integrations there can be no assurance that such
manufacturers are not doing so or will not do so in the future.
ITEM 2. PROPERTIES
The Company leases an 85,000 square foot headquarters facility, a
35,000 square foot manufacturing facility, and a 40,000 square foot office
facility in San Jose, California, pursuant to leases that expire in
September 2007, December 1998 and May 1998, respectively. The Company also
leases training facilities and sales and support offices in various cities
in the United States and overseas.
In December 1996, the Company entered into two 12-year leases for
approximately 225,000 square feet of office space in San Jose, California
at a base monthly rent of approximately $293,000 and rent commencing in
January 1999. In January 1998, the Company and the developer of the
property terminated these leases. As a condition of this termination
agreement, the Company loaned the developer $2,243,000 at 9% interest.
This unsecured 10-year loan will be fully amortized by monthly payments of
$28,409, principal and interest, with the first payment commencing in
March 1998.
The Company believes that such facilities are adequate to meet its
current needs and that suitable additional or alternative space will be
available in the future on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The information in the second paragraph in the section entitled
"Patents, Trade Secrets and Licenses" under Item 1 above is hereby
incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Reference is made to the information regarding market, market price
range and dividend information appearing under "Quarterly Financial Data
(Unaudited)" in Registrant's Notes to Consolidated Financial Statements,
November 1, 1997, which is contained elsewhere in this Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Month Year Ended
-------------------------------------- Ended -------------------------
November 1, November 2, October 28, October 29, October 1, October 2,
1997 1996 1995 1994 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................. $108,836 $104,324 $69,374 $1,988 $79,179 $60,002
Net income (loss)............ (1,678) 1,000 (4,134) (1,890) 7,745 5,188
Net income (loss) per share.. (0.24) 0.14 (0.63) (0.30) 1.18 1.00
Research and development..... 21,260 20,154 14,798 1,145 12,644 8,197
BALANCE SHEET DATA:
Working capital.............. $66,824 $65,297 $64,489 $70,132 $72,401 $25,682
Total assets................. 99,920 104,009 99,017 98,374 102,309 47,959
Long-term liabilities........ -- 78 232 409 436 822
Stockholders' equity......... 81,624 83,412 79,800 81,006 83,177 32,149
</TABLE>
The Company has not paid and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The Company's
bank credit line agreement requires the bank's consent to pay cash
dividends.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following contains forward-looking statements regarding future
events or the future financial performance of Centigram that involve risks
and uncertainties. These statements include but are not limited to
statements related to changes in Centigram's research and development and
selling, general and administrative expenses, Centigram's effective tax
rates, Centigram's expenditures for capital equipment and sufficiency of
Centigram's cash reserves. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in this Item 7 under "Certain
Trends and Uncertainties," in Item 1 hereof under "Manufacturing,"
"Patents, Trade Secrets and Licenses," "Competition," the last two
paragraphs of "Sales and Distribution," and the last two paragraphs of
"Research and Development" and elsewhere in this report.
CHANGE IN FISCAL YEAR
In the fourth quarter of fiscal 1995, the Company changed its fiscal
year-end from the Saturday following September 30 to a fiscal year of 52 or
53 weeks ending on the Saturday nearest October 31. Fiscal 1996 included 53
weeks and ended November 2, 1996. Fiscal years 1997 and 1995 included 52
weeks and ended on November 1, 1997 and October 28, 1995, respectively.
This change in the Company's fiscal periods was made primarily to improve
the Company's operational efficiencies. By moving the Company's fiscal
periods out one month, the Company's manufacturing operations have incurred
reduced overtime payments during the December and July holiday periods.
Also, because many of the Company's distributors have calendar quarter ends
and place orders in the third month of the quarter, the Company has not
always been able to process and ship these orders during this third month
of the calendar quarter because of the late receipt of these orders. By
staggering its fiscal quarters to end one month after the calendar quarter-
end, the Company is in a better position to ship these late orders and at
the same time avoid additional overtime and other expediting charges.
RESULTS OF OPERATIONS
NET REVENUE
Net revenue for fiscal 1997 was 4% higher than net revenue for fiscal
1996. This increase was primarily attributable to higher sales of large
system products to service provider customers offset in part by lower sales
of CPE systems and upgrade products and small system sales. Sales to
international customers were 44% of sales for fiscal 1997 as compared to
30% for fiscal 1996 due to increased large orders from Latin America and
Asia. CPE Sales decreased 20% for fiscal 1997 as compared to the prior year
due to reduced orders from the Company's distributors. These reduced sales
are a result of increased competition from PC based systems providers whose
products compete with the Company's small system products.
Net revenue for fiscal 1996 was 50% higher than net revenue for
fiscal 1995. This increase was primarily attributable to general expansion
in the Company's channels of distribution in connection with the
introduction of the Company's Series 6 platform, including an approximately
90% increase in service provider business, improved performance of the
Company's larger distributors, and a 100% increase in sales to customers
located outside the United States which increased from $15.9 million to
$31.8 million. Sales of the Company's larger system configurations
increased approximately 100% as compared to fiscal 1995, with smaller
percentage increases in the Company's smaller product configurations and
system upgrades and expansions. International sales are subject to
numerous risks and uncertainties. See "Sales and Distribution" for a
description of certain risks associated with the Company's international
operations.
There can be no assurance that the market for voice processing
products will grow in future periods at its historical percentage rate and
the Company believes that the growth rates of certain domestic CPE market
segments have declined from prior levels. There is also no assurance that
the Company's markets will remain at current levels in future periods.
Further, there can be no assurance that the Company will be able to
increase or maintain its market share in the future, or to re-attain
historical growth rates. See "Certain Trends and Uncertainties."
GROSS MARGIN
Gross margin for 1997 decreased 1.2% from 59.2% in fiscal 1996 to
58.0% in fiscal 1997. This decrease in gross margin reflects lower margins
on upgrade and expansion products and customer services offset by a
favorable mix of increased sales of large system products and lower
provisions for retrofit obligations and inventory obsolescence.
Gross margin for 1996 decreased 2.2% from 61.4% in fiscal 1995 to
59.2% in fiscal 1996. This decrease in gross margin reflects lower margins
on large system products due to higher warranty and international freight
costs because of increased international shipments and increased costs in
the introduction of the Series 6 platform, offset in part by a favorable
mix with large system products. See "Certain Trends and Uncertainties."
RESEARCH & DEVELOPMENT
Research and development ("R&D") expenses for fiscal 1997 were 5%
higher than fiscal 1996. This increase reflects higher payroll expenses
resulting from higher average engineering staffing levels and increased
supplies and outside services. R&D expenses for fiscal 1996 were 36%
higher than fiscal 1995. This increase reflected general expansion of the
Company's product development programs and increases in compensation
expenses due to higher headcount and depreciation.
As a percentage of net revenue, R&D expenses were 19.5%, 19.3%, and
21.3% in fiscal 1997, 1996 and 1995, respectively. The Company believes
that ongoing development of new products and features is required to
maintain and enhance its competitive position. The Company expects to
continue to invest in R&D and therefore R&D expenses should continue to
increase, notwithstanding the level of sales realized in future quarters.
SELLING, GENERAL & ADMINISTRATIVE
Selling, General & Administrative ("SG&A") expenses in 1997 were 6.5%
higher than fiscal 1996. This increase reflects primarily increases in
salaries and benefits in the sales and marketing functions. SG&A expenses
in 1996 represented 41.0% of net revenue and were 28% higher than such
expenses for fiscal 1995. This increase was primarily related to increased
sales and marketing expenses and increased compensation and travel expenses
due to higher headcount, offset in part by lower litigation expenses
As a percentage of net revenue, SG&A expenses were 41.9%, 41.0%, and
48.2% in fiscal 1997, 1996 and 1995, respectively. The Company believes
that continued investments in sales and customer support, particularly in
export markets, are essential to maintaining its competitive position and
that the dollar amount of SG&A expenses will increase in future periods.
OTHER EXPENSES
During the second quarter of fiscal 1997, the Company recorded
restructuring and other charges of $3.3 million. The expenses consisted of
$2.4 million in restructuring charges and $0.9 million in expenses
associated with the termination of acquisition discussions with Voice-Tel
Enterprises and Voice-Tel Network ("Voice-Tel"). The restructuring charges
primarily represent termination benefits for approximately 40 employees
from all functions of the Company and costs associated with the resignation
of the Company's president and chief executive officer. The Company
restructured its business to align its operational expenses with its
anticipated revenue levels. As of November 1, 1997, $0.3 million remains
in accrued liabilities relating primarily to severance payments after cash
payments of $1.8 million.
OTHER INCOME AND EXPENSE, NET
Interest income on investments increased in fiscal 1997 over 1996 due
to higher average investment balances and higher average interest rates.
Interest income on investments increased in fiscal 1996 over 1995 because
of higher average interest yields as the Company shifted its short-term
investments from tax free state and municipal bonds to higher yielding U.S.
Government and agency obligations and corporate debt securities. Fiscal
1997 included a gain on the sale of the Company's Text-to-Speech business
and a gain on the stock received in this asset sale for a total gain of
approximately $3.9 million. Fiscal 1995 included a charge of $550,000 for
the Company's cost of settling its stockholder class action lawsuit and
certain other litigation.
PROVISION FOR INCOME TAXES
The company recorded income tax provision of $833,000, $53,000, and
$56,000, respectively, for fiscal years 1997, 1996 and 1995. The 1997 tax
provision consists of $333,000 of current foreign and domestic minimum
taxes and $500,000 resulting from an increase in the valuation allowance
for previously recognized deferred tax assets that were no longer
realizable through potentially refundable taxes. The 1996 and 1995 income
tax provisions primarily represent current foreign taxes. No income tax
benefits were recorded for the losses incurred in fiscal years 1997 and
1995 because realization of the deferred tax assets arising as a result of
the loss sustained are dependent upon future taxable income, the amount and
timing of which are uncertain. Accordingly, a valuation allowance has been
established to fully offset the deferred tax assets resulting from the
losses incurred.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments at November 1,
1997 were $52.1 million, increasing $10.0 million from November 2, 1996. At
the end of fiscal 1996 and 1995, cash, cash equivalents and short-term
investments were $42.1 million and $55.7 million, respectively.
Net cash provided from operating activities was $12.2 million during
fiscal 1997. Trade receivables at the end of fiscal 1997 decreased $6.1
million from the prior year balance primarily due to improved collection
efforts and a reduction in extended payment terms to certain domestic
service provider customers. Days sales outstanding (computed using
quarterly revenues) were 68 days at the end of fiscal 1997 compared to 86
days at end of fiscal 1996. This decrease in DSO was primarily due to the
factors as noted above. Inventory levels at November 1, 1997 decreased $2.4
million from fiscal 1996 because of reduced inventory requirements in 1997
for consignment and retrofit inventory over 1996 when the Company
introduced the Series 6 platform. The Company expects investment in
receivables and inventories will continue to represent a significant
portion of working capital.
During the fiscal year ended November 1, 1997, the Company made $6.2
million in capital expenditures. A significant portion of these
expenditures were related to the purchase of engineering equipment,
computer equipment for all functions, as well as increased leasehold
improvements. The Company currently expects to spend approximately $7.0
million for capital equipment during fiscal 1998. On April 15, 1997, the
Company's Board of Directors authorized a stock repurchase program whereby
up to one million shares of its common stock may be repurchased in the open
market from time-to-time. During 1997, the Company purchased 243,000
shares at a cost of approximately $3.0 million under this repurchase
program. The Company may, depending on market conditions, purchase
additional common stock in the open market during fiscal 1998.
The Company's principal sources of liquidity as of November 1, 1997
consisted of $52.1 million of cash and cash equivalents and short-term
investments and $20.0 million available under the Company's bank line of
credit (which expires April 29, 1998). The Company expects to renew this
bank line in fiscal 1998. This bank line requires the Company to maintain
certain financial ratios, minimum working capital, minimum tangible net
worth and financial performance, and requires the bank's consent for the
payment of cash dividends. The Company is in compliance with this agreement
and there were no borrowings outstanding under the bank line as of November
1, 1997. The Company presently believes, notwithstanding its accumulated
deficit, that its existing cash and short-term investments and credit under
its line of credit will be sufficient to support the Company's working
capital and capital equipment purchase requirements at least through fiscal
1998.
CERTAIN TRENDS AND UNCERTAINTIES
The Company has in the past experienced and will likely in the future
experience substantial fluctuations in quarterly operating results. For
instance, the Company has typically experienced a slowdown in its sales
levels in the first quarter of its fiscal year. The Company generally has
no long-term order commitments from its customers, and a significant
portion of bookings and shipments in any quarter have historically occurred
near the end of the quarter. Accordingly, the Company has historically
operated with very little backlog, and net revenue has been difficult to
predict. In addition, the portion of backlog shippable in the next quarter
varies over time. As a result, revenue in future quarters will depend
largely on the level of orders received during such quarters. The Company
has recently experienced an increase in the percentage of its sales from
its international operations, including sales from the Far East region. In
addition to the business risks associated with international operations,
the recent economic turmoil has increased the uncertainty regarding future
sales of the Company's products in the Far East region. See "Sales and
Distribution" for a description of certain risks associated with the
Company's international operations.
If new order bookings do not meet expected levels, or if the Company
experiences delays in shipments at the end of a quarter, operating results
will be adversely affected, and these developments may not become apparent
to the Company until near or at the end of a quarter. Net revenue can also
be affected by product sales mix, distribution mix, the size and timing of
customer orders and shipments, customer returns and reserves provided
therefor, competitive pricing pressures, the effectiveness of key
distributors in selling the Company's products, changes in distributor
inventory levels, the timing of new product introductions by the Company
and its competitors, regulatory approvals, and the availability of
components for the Company's products, each of which is difficult to
predict accurately. Each of such factors has in the past affected the
Company's revenue.
A significant portion of the Company's net revenue is attributable to
a limited number of customers. The Company's top five customers,
representing a combination of major distributors and service providers,
accounted for approximately 28%, 35% and 42% of the Company's net revenue
in fiscal 1997, 1996 and 1995 respectively, although the Company's five
largest customers were not the same in these periods. The Company has no
long-term order commitments from any of its customers. Any material
reduction in orders from one or more such customers or the cancellation or
deferral of any significant portion of backlog could have an adverse effect
on net revenue and operating results. Such concentration of sales typically
results in a corresponding concentration of accounts receivable. Although
the Company has established reserves for uncollectible accounts, the
inability of any large customer to pay the Company could have a material
adverse impact on the Company's financial position, results of operations
and cash flows. See Risk and Uncertainties Note to "Consolidated Financial
Statements".
The Company's gross margin can be affected by a number of factors,
including changes in product, distribution channel, and customer mix, cost
and availability of parts and components, royalty obligations to suppliers
of licensed software, provisions for warranty, retrofits, and excess and
obsolete inventory, customer returns, and competitive pressures on pricing.
The Company has experienced increasing competitive pricing pressure in all
markets and expects this pricing pressure to continue. Further,
distributors purchase products at discounts, and the Company's margins can
therefore vary depending upon the mix of distributor and direct sales in
any particular fiscal period. The Company anticipates that its sales mix
will fluctuate in future periods. As a result of the above factors, gross
margin fluctuations are difficult to predict, and gross margins may decline
from current levels in future periods.
The Company's future success will depend in part upon the ability of
the Company to continue to introduce new features and products as the
Company's markets evolve, new technologies become available, and customers
demand additional functionality. The Company's competitors continue to add
functionality to their products, and any failure by the Company to
introduce in a timely manner new products and features that meet customer
requirements would adversely affect the Company's operating results and
cash flows. The Company's ability to develop such new features and products
depends in large measure on its ability to hire and retain qualified
technical talent and outside contractors in highly competitive markets for
such services. There can be no assurance that the Company's product
development efforts will be successful, or that it will be able to
introduce new products in a timely manner. In this regard, the Company
during fiscal 1996, announced significant new products, after experiencing
delays in the introduction of such products. Moreover, customers'
expectations of the introduction of new products by the Company or its
competitors can adversely affect sales of current products. In addition,
upon the introduction of new products, the Company could be subject to
higher customer returns with respect to prior generations of products,
which could adversely affect financial position, operating results and cash
flows.
The Company presently uses third parties to perform printed circuit
board and subsystem assembly. Although the Company has not experienced
significant problems with third-party manufacturers in the past, there can
be no assurance that such problems will not develop in the future. In
addition, certain components used in the Company's products, including
certain microprocessors, line cards, power supplies, disk drives,
application cards and other semiconductor devices and other components are
available from sole sources. To date, the Company has been able to obtain
adequate supplies of components in a timely manner from existing sources
or, when necessary, from alternative sources of supply. However, the
inability to develop such alternative sources if and as required in the
future, or to obtain sufficient sole or limited source components as
required, would have a material adverse affect on the Company's operating
results and cash flows. In addition, the Company's products are dependent
on the QNX software operating system, a multitasking, real-time operating
system for Intel microprocessor-based computers. In future periods, the
Company's products may become increasingly dependent on software licensed
from third party suppliers. There can be no assurance such licenses will
continue to be available to the Company as needed or at commercially
reasonable prices.
In addition, a number of other companies, including competitors of
the Company, hold patents in the same general area as the technology used
by the Company. The Company from time to time has received, and may
receive in the future, letters alleging infringement of patent rights by
the Company's products. For example, in December 1997, representatives of
Lucent informed the Company that they believed that the Company's products
may infringe upon certain patents issued to Lucent, and that Lucent was
seeking compensation for any past infringement by the Company. The Company
is in the process of evaluating the assertions of Lucent. Lucent, or any
other third party, alleging infringement, could seek an injunction
prohibiting the Company from selling some or all of its products, which
would have an immediate, adverse impact in the Company's business,
financial condition and results of operations, There can be no assurance
that the Company would prevail in any litigation to enjoin the Company from
selling its products on the basis of such alleged infringement, or that the
Company would be able to license any valid and infringed patents on
reasonable terms, or at all.
The Company has conducted a comprehensive review of its internal
computer systems, as well as the Company`s product line, to identify the
systems that could be affected by the "Year 2000" issue and is developing
an implementation plan to resolve the issue. The Year 2000 problem is the
result of computer programs being written using two digits (rather than
four) to define the applicable year. Software programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications
to existing software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems or the Company's
product line. However, if such modifications are not made in a timely
manner, the Company or its customers may be unable to implement appropriate
Year 2000 solutions, which could have a material adverse affect on the
Company's business, financial condition or results of operations.
In recent years, stock markets have experienced extreme price and
volume trading volatility. This volatility has had a substantial effect on
the market prices of securities of many high technology companies for
reasons frequently unrelated to the operating performance of the specific
companies. These broad markets fluctuations may adversely affect the market
price of the Company's common stock. In addition, the trading price of the
Company's common stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcements of new
products or technological innovations by the Company or its competitors,
and general conditions in the computer and communications industries.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements included with this Form 10-K are
set forth under Item 14.
CENTIGRAM COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
November 1, November 2,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $19,791 $12,668
Short-term investments............................. 32,262 29,408
Trade receivables, net of allowances of
$1,724 and $2,055................................ 21,637 27,741
Inventories........................................ 9,060 11,467
Deferred tax assets................................ -- 1,424
Other current assets............................... 2,370 3,108
----------- -----------
Total current assets............................. 85,120 85,816
Property and equipment, net.......................... 12,893 15,249
Intangible assets, net............................... 1,468 2,004
Deposits and other assets............................ 439 940
----------- -----------
$99,920 $104,009
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $6,925 $9,739
Accrued compensation............................... 5,141 4,202
Accrued expenses and other liabilities............. 3,991 4,587
Warranty and retrofit reserves..................... 2,161 1,837
Current portion of capital lease obligations....... 78 154
----------- -----------
Total current liabilities........................ 18,296 20,519
Capital lease obligations............................ -- 78
Commitments and contingencies........................
Stockholders' equity:................................
Preferred stock, $0.001 par value, 1,000,000
authorized; none outstanding...................... -- --
Common stock, $0.001 par value, 25,000,000
authorized; 7,110,000 and 6,908,000 outstanding,
and capital in excess of par value ............... 90,724 88,774
Treasury stock, 198,000 shares, at cost........... (2,427) --
Accumulated deficit................................ (6,670) (4,992)
Unrealized gain(loss)on investments.................. 68 (36)
Cumulative translation adjustments................. (71) (34)
Note receivable from officer....................... -- (300)
----------- -----------
Total stockholders' equity....................... 81,624 83,412
----------- -----------
$99,920 $104,009
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
CENTIGRAM COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------
November 1, November 2, October 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue............................... $108,836 $104,324 $69,374
Cost and expenses:
Cost of goods sold...................... 45,661 42,516 26,802
Research and development................ 21,260 20,154 14,798
Selling, general and administrative..... 45,611 42,832 33,470
Other expenses......................... 3,263 -- --
----------- ----------- -----------
115,795 105,502 75,070
----------- ----------- -----------
Operating loss.......................... (6,959) (1,178) (5,696)
Other income and expense, net............ 6,114 2,231 1,618
----------- ----------- -----------
Income (loss) before income taxes......... (845) 1,053 (4,078)
Provision for income taxes................ 833 53 56
----------- ----------- -----------
Net income (loss)......................... ($1,678) $1,000 ($4,134)
=========== =========== ===========
Net income (loss) per share............... ($0.24) $0.14 ($0.63)
=========== =========== ===========
Common and common equivalent shares used
in computing per share amounts.......... 6,943 6,981 6,560
=========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
CENTIGRAM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended November 1, 1997, November 2, 1996, and October 28, 1995
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------
November 1, November 2, October 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Common stock and capital in excess of
par value:
Balance, beginning of year.............. $88,774 $85,815 $83,184
Shares issued under stock plans......... 2,015 2,412 2,631
Issue of treasury shares under
stock plans........................... (65) -- --
Tax benefits from stock plans........... -- 547 --
----------- ----------- -----------
$90,724 $88,774 $85,815
----------- ----------- -----------
Treasury stock:
Balance, beginning of year.............. $ -- $ -- $ --
Purchase of treasury shares............. (2,970) -- --
Issue of treasury shares under
stock plans........................... 543 -- --
----------- ----------- -----------
($2,427) $ -- $ --
----------- ----------- -----------
Accumulated deficit:
Balance, beginning of year.............. ($4,992) ($5,992) ($1,858)
Net income (loss)....................... (1,678) 1,000 (4,134)
----------- ----------- -----------
($6,670) ($4,992) ($5,992)
----------- ----------- -----------
Unrealized gain (loss) on investments:
Balance, beginning of year.............. ($36) ($14) ($322)
Unrealized gain (loss) on investments
for year.............................. 104 (22) 308
----------- ----------- -----------
$68 ($36) ($14)
----------- ----------- -----------
Cumulative translation adjustments:
Balance, beginning of year.............. ($34) ($9) $1
Translation adjustments................. (37) (25) (10)
----------- ----------- -----------
($71) ($34) ($9)
----------- ----------- -----------
Note receivable from officer:
Balance, beginning of year.............. ($300) $ -- $ --
Loan issued to officer.................. -- ($300) --
Forgiveness of note..................... 300 -- --
----------- ----------- -----------
$ -- ($300) $ --
----------- ----------- -----------
$81,624 $83,412 $79,800
</TABLE> =========== =========== ===========
See accompanying notes.
<PAGE>
CENTIGRAM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
-----------------------------------
November 1, November 2, October 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash and equivalents beginning of year.... $12,668 $10,633 $10,836
----------- ----------- -----------
Cash flows from operations:
Net income (loss)........................ (1,678) 1,000 (4,134)
Gain on sale of business................. (3,598) -- --
Depreciation and amortization............ 8,740 7,729 5,418
Deferred taxes........................... -- 679 --
Trade receivables........................ 6,104 (9,411) 2,416
Inventories.............................. 2,407 (5,646) 419
Other assets............................. 639 (1,392) (702)
Accounts payable......................... (2,814) 2,786 1,365
Other liabilities and accrued expenses... 2,365 (682) 866
----------- ----------- -----------
12,165 (4,937) 5,648
----------- ----------- -----------
Cash flows used for investing:
Purchase of short-term investments....... (127,579) (68,702) (63,900)
Proceeds from sale and maturities of
short-term investments................. 129,829 84,354 65,127
Purchase of property and equipment....... (6,203) (10,615) (7,967)
Increase in intangible assets............ (458) -- (1,350)
Note receivable from officer............. -- (300) --
----------- ----------- -----------
(4,411) 4,737 (8,090)
----------- ----------- -----------
Cash flows from financing:
Proceeds from sale of common stock,
net of issuance costs.................. 2,493 2,412 2,621
Purchase of treasury shares.............. (2,970) -- --
Principal payments on capital leases
and long-term obligations.............. (154) (177) (382)
----------- ----------- -----------
(631) 2,235 2,239
----------- ----------- -----------
Net change in cash and equivalents....... 7,123 2,035 (203)
----------- ----------- -----------
Cash and equivalents, end of year....... $19,791 $12,668 $10,633
=========== =========== ===========
SUPPLEMENTAL DATA:
Interest (paid)............................ ($98) ($37) ($89)
Income taxes (paid) refunded............... $599 $383 ($235)
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS OPERATIONS
Centigram Communications Corporation (the Company) designs,
manufactures and markets wireless and wireline messaging communications
systems that integrate voice, data and facsimile on the Company's
communications server, and provide access to this multimedia information
through a telephone or PC. In addition to these products, the Company
offers installation, training, consulting, and post-contract support
services to its customers. The principal geographic markets for the
Company's products are North America, Australia, Latin America, the Far
East and Europe. The Company sells primarily to distributors, Regional Bell
Operating Companies, independent telephone companies, and other
telecommunications service providers.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The accompanying consolidated financial
statements include the Company and its wholly owned subsidiaries after
eliminating all significant intercompany accounts and transactions.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Revenue Recognition Revenue from sales of the Company's products is
recognized upon shipment to customers. Allowances for estimated future
returns and exchanges are provided at that time based on the Company's
return policies and experience. In October 1997, the AICPA issued Statement
of Position 97-2, "Software Revenue Recognition" which will be effective
for the Company in fiscal 1999. The adoption of this statement is not
expected to have a significant impact on the Company's results of
operations.
Warranty The Company generally warrants its products for one year. A
provision for estimated future warranty costs is recorded at the time of
revenue recognition.
Research and Development Research and Development expenses include
costs of developing new products and processes as well as design and
engineering costs. Such costs are charged to expense as incurred. Product
customization costs incurred pursuant to customer orders and/or contracts
are included in cost of sales. Development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological
feasibility is established, any additional costs are capitalized in
accordance with Statement of Financial Accounting Standards No.86 (FAS86).
Net Income (Loss) Per Share The computation of net income (loss) per
share in each year is based on the weighted average number of shares
outstanding. Stock options are included as share equivalents using the
treasury stock method when the effect would be to decrease net income per
share. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. Statement No. 128 is not expected to change the Company's per
share calculation for fiscal year 1997, but would increase basic earnings
per share by $0.01 per share in fiscal 1996.
Cash Equivalents and Short-term Investments Cash equivalents consist
of highly liquid investments with a maturity of three months or less at the
time of acquisition and are carried at cost plus accrued interest which
approximates fair value. Short-term investments have an initial maturity of
greater than three months and are carried at fair value.
Inventories Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property and Equipment Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to five years.
Capitalized leases and leasehold improvements are amortized using the
straight-line method over the shorter of the useful lives of the assets or
the terms of the leases. Depreciation expense includes amortization of
assets under capital leases and leasehold improvements.
Intangible Assets Intangible assets consist of patent license
acquisition costs and goodwill and are stated at cost. Patent license costs
are being amortized over ten years, the estimated useful lives of the
patents. The carrying values of intangible assets are reviewed if the facts
and circumstances suggest that they may be impaired. If this review
indicates that the asset is not fully recoverable, as determined, by the
undiscounted cash flows of the acquired business or the related products
over the remaining amortization period, the Company would reduce these
asset's carrying value to net realizable value. During fiscal 1997 the
Company sold its Text-to-Speech business and as a result of this
transaction the Company reduced goodwill by $703,000, net. Intangible
amortization expense was approximately $290,000, $375,000, and $356,000 in
fiscal 1997, 1996 and 1995, respectively.
Foreign Currency Translation The Company's international
subsidiaries use their local currencies as their functional currencies.
Assets and liabilities are translated at exchange rates in effect at the
balance sheet date, and income and expense accounts at average exchange
rates during the year. Translation adjustments are recorded to a separate
component of stockholders' equity.
Capital Structure In February 1997, the FASB released Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" (FAS 129). FAS 129 consolidates the existing guidance
regarding disclosure relating to a company's capital structure and is
effective for fiscal years beginning after December 15, 1997. Adoption of
FAS 129 is not expected to have a material impact on the Company's
consolidated financial statements.
Comprehensive Income In June 1997, the FASB released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(FAS 130). FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after
December 15, 1997. The Company believes that adoption of FAS 130 will not
have a material impact on the Company's consolidated financial statements.
Segment Information In June 1997, the FASB released Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 will change the way
companies report selected segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to stockholders. FAS 131 is
effective for fiscal years beginning after December 15, 1997. The Company
has not yet reached a conclusion as to the appropriate segments, if any,
which it will be required to report to comply with FAS 131.
Reclassifications Certain prior year amounts have been reclassified
to conform to the current year presentation.
RISK AND UNCERTAINTIES
Supplies/Source of Supply The Company's manufacturing operations
consist primarily of final assembly and test and quality control of
materials, components, sub-assemblies and systems. The Company's hardware
and software product designs are proprietary but use industry-standard
hardware components and an industry-standard, real time, multi-tasking
operating system. The Company presently uses third parties to perform
printed circuit board and subsystem assembly. Although the Company
generally uses standard parts and components for its products, certain of
these parts and components are available only from sole source vendor or
from limited sources. The Company to date has been able to obtain adequate
supplies of these components in a timely manner from existing sources or,
when necessary, from alternative sources of supply. However, the inability
to develop such alternative sources if and as required in the future, or to
obtain sufficient sole or limited source components as required, would have
a material adverse effect on the Company's operating results.
Diversification of Credit Risks and Off-balance-sheet Risks The
Company's investments and trade receivables subject the Company to certain
credit risks. The Company maintains cash and investments in various
financial instruments, and maintains policies establishing credit and
concentration criteria for such assets and limiting the exposure to any
one institution or guarantor. Cash equivalents and short-term investments
at November 1, 1997 consisted primarily of U.S. government and agency
bonds and corporate debt obligations. The Company sells primarily to
distributors, Regional Bell Operating Companies, independent telephone
companies, and other telecommunications service providers. The Company
performs ongoing credit evaluations of its customers' financial condition
and generally requires no collateral. At November 1, 1997 five customers
represented approximately 41% of trade receivables.
The Company occasionally enters into foreign exchange forward
contracts to hedge certain balance sheet exposures. Gains and losses on the
foreign exchange contracts are included in other income and expense, net,
which offset foreign exchange gains or losses from revaluation of foreign
currency-denominated balance sheet items. The counterparties to such
contracts are major financial institutions and the Company's policy is to
not require collateral. No foreign exchange contracts were entered into
during fiscal 1997.
INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
Management determines the appropriate classifications of securities
at the time of the investment purchase and reevaluates such designation as
of each balance sheet date. The Company has classified its investments as
"available for sale" at the estimated fair value with unrealized gains and
losses reported as a separate component of stockholders' equity.
Investment income is recorded using an effective interest rate for each
investment which includes interest earned and an amortization or accretion
of each investment's associated premium or discount over the term of the
investment. Realized gains or losses, using the specific identification
method, and declines in value judged to be other than temporary are also
included in investment income. The fair values of the Company's
investments are based on quoted market prices at November 1, 1997 and
November 2, 1996.
Investments at November 1, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government and agency
obligations.................. $17,086 $34 ($23) $17,097
Corporate debt securities...... 4,564 12 -- 4,576
Commercial paper............... 9,489 45 -- 9,534
Temporary cash investments..... 3,006 -- -- 3,006
---------- ---------- ---------- ---------
Total available-for-sale securities 34,145 91 (23) 34,213
Less amounts classified as
cash equivalents (1,951) -- -- (1,951)
---------- ---------- ---------- ---------
$32,194 $91 ($23) $32,262
========== ========== ========== =========
Investments at November 2, 1996 were as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government and agency
obligations.................. $16,346 $6 ($72) $16,280
Corporate debt securities...... 11,728 4 (3) 11,729
Commercial paper............... 1,842 -- -- 1,842
Temporary cash investments..... 4,976 29 -- 5,005
Municipal securities........... 1,022 -- -- 1,022
---------- ---------- ---------- ---------
Total available-for-sale securities 35,914 39 (75) 35,878
Less amounts classified as
cash equivalents (6,470) -- -- (6,470)
---------- ---------- ---------- ---------
$29,444 $39 ($75) $29,408
========== ========== ========== =========
</TABLE>
Contractual maturities of available-for-sale securities at November 1, 1997
are as follows (in thousands):
Estimated
Amortized Fair
Cost Value
---------- ----------
Due in one year or less........ $19,554 $19,598
Due in one to three years...... 14,591 14,615
---------- ----------
$34,145 $34,213
========== ==========
BANK CREDIT LINES
The Company has a $20,000,000 unsecured line of credit which expires
April 29, 1998. Amounts borrowed bear interest at various rates as defined
under the agreement, including the banks' reference rate (8.5% at November
1, 1997). The loan agreement requires the Company to maintain certain
financial ratios, minimum working capital, and minimum tangible net worth
and requires the banks' consent for the payment of cash dividends. The
Company is in compliance with this agreement and there were no borrowings
outstanding under the line on November 1, 1997. The Company plans to renew
this line of credit upon its expiration.
The Company also has bank contracts allowing it to enter into foreign
currency spot and future exchange transactions in amounts not to exceed
$10,000,000 outstanding at one time. At November 1, 1997, the Company had
no outstanding foreign exchange contracts.
BALANCE SHEET COMPONENTS (in thousands)
November 1, November 2,
1997 1996
---------- ----------
Inventories
Raw materials..................... $3,005 $4,603
Work-in-process................... 2,274 2,898
Finished goods.................... 3,781 3,966
---------- ----------
$9,060 $11,467
========== ==========
Property and equipment
Equipment......................... $35,701 $30,810
Furniture and fixtures............ 4,709 3,514
Leasehold improvements............ 2,785 2,593
---------- ----------
43,195 36,917
Less accumulated depreciation
and amortization................ (30,302) (21,668)
---------- ----------
$12,893 $15,249
========== ==========
Intangible assets
Goodwill.......................... $ -- $2,557
Patent licenses................... 1,350 1,350
Computer based training software.. 458 --
---------- ----------
1,808 3,907
Less accumulated amortization..... (340) (1,903)
---------- ----------
$1,468 $2,004
========== ==========
Accrued expenses and other liabilities
Accrued expenses.................. $3,040 $3,680
Deferred income .................. 600 312
Other liabilities................. 351 595
---------- ----------
$3,991 $4,587
========== ==========
COMMITMENTS AND CONTINGENCIES
Leases The Company leases its facilities and certain equipment under
noncancellable operating leases expiring through 2007. Leases for the
Company's three principal operating facilities require the Company to pay
property taxes, insurance premiums and normal maintenance costs, and one
such lease contains provisions for rental adjustments.
In December 1996, the Company entered into two 12-year leases ("the
new leases") for approximately 225,000 square feet of office space
currently under construction in San Jose, California at a base monthly
rent of approximately $293,000 with rent commencing in January 1999. In
January 1998, the Company and the developer of the property terminated
these leases. As a condition of this termination agreement, the Company
loaned the developer $2,243,000 at 9% interest. This unsecured 10-year
loan will be fully amortized by monthly payments of $28,409, including
principal and interest, with the first payment commencing in March 1998.
Future minimum lease payments under noncancellable operating leases and the
present value of future minimum capital lease payments as of November 1, 1997,
are as follows for the following years (in thousands):
Operating
Leases
excluding
Capital the New
Leases Leases
---------- ----------
1998............................. $80 $2,391
1999............................. -- 1,787
2000............................. -- 1,743
2001............................. -- 1,567
2002 and beyond.................. -- 9,081
---------- ----------
Total minimum payments............. 80 $16,569
==========
Less amount representing interest.. (2)
----------
Present value of minimum lease
payments......................... 78
Less current portion............... (78)
----------
$ --
==========
The Company acquired equipment, now fully amortized, of $640,000 under
these capital leases. Rent expense totaled approximately $2,548,000,
$1,964,000 and $1,475,000 for years 1997, 1996 and 1995, respectively.
Letters of Credit The Company frequently enters into purchase agreements
with vendors whereby the Company guarantees payment with standby letters of
credit. Also, letters of credit are provided as performance securities for
certain sales contracts. Various standby letters of credit totaling
approximately $800,000 were outstanding as of year end 1997 and 1996,
respectively.
Litigation The Company from time to time has received letters from other
parties, including competitors of the Company, that make allegations of
patent infringement. Certain lawsuits have also arisen from time to time in
the ordinary course of business. In December 1997, representatives of
Lucent Technologies ("Lucent") informed the Company that they believed that
the Company's products may infringe upon certain patents issued to Lucent.
While the Company believes that it does not infringe the intellectual
property rights of Lucent or any other third parties, the Company is in the
process of evaluating the assertions of Lucent. Lucent, or any other
third party alleging infringement, could seek an injunction prohibiting the
Company from selling some or all of its products, which would have an
immediate, adverse impact in the Company's business, financial condition
and results of operations.
STOCKHOLDERS' EQUITY
Common Stock The Company had 7,110,000 and 6,908,000 shares outstanding
for fiscal 1997 and 1996, respectively. This increase represents 127,000
shares issued for exercises of stock options under the Company's stock
plans and 120,000 shares issued under the Company's stock purchase plan.
Approximately 45,000 of these shares were issued from the Company's
treasury shares.
Shares Authorized The Company has authorized but unissued shares of
2,183,000 and 111,000 common shares for the Company's Stock Option Plans
and the Employee Stock Purchase Plan, respectively, at November 1, 1997.
Treasury Stock On April 15, 1997 the Company's Board of Directors
authorized a stock repurchase program whereby up to 1 million shares of its
common stock may be repurchased in the open market from time-to-time.
During fiscal 1997 the Company purchased 243,000 shares at a cost of
approximately $3.0 million.
Stockholder Rights Plan The Company has adopted a Stockholder Rights Plan
(the Rights Plan) which is intended to protect stockholders from unfair or
coercive takeover practices. In accordance with the Rights Plan, the
Company declared a dividend distribution of one Preferred Share Purchase
Right (the Purchase Right) for each outstanding share of the Company's
common stock held at the close of business on November 30, 1992. Each
Purchase Right entitles the registered holder to purchase from the Company
a unit consisting of one-thousandth of a share of the Company's Series A
Participating Preferred Stock at an exercise price of $115.00. The Purchase
Rights separate from the common stock and become exercisable by the holders
and are redeemable by the Company on various dates and in certain
situations as defined in the Rights Plan. The Purchase Rights expire
November 30, 2002.
Note Receivable from Officer In April 1996, the Company loaned $300,000 to
an officer of the corporation. The note was secured by real property and
was payable in full April 15, 2001, with interest thereon at the rate of
5.88% per annum, compounded annually. The Board of Directors approved
forgiveness of this note with related accrued interest in fiscal 1997.
STOCK AND BENEFIT PLANS
Employee Stock Purchase Plan The Company's 1991 Employee Stock Purchase
Plan (the Purchase Plan), as amended, allows eligible employees through
payroll deduction to purchase shares of the Company's common stock at the
lower of 85% of the fair market value of the stock on the first or last day
of a six-month offering period, or such other offering period as determined
by the Board of Directors but at no time to exceed 27 months. Approximately
120,000 and 107,000 shares were issued under the Purchase Plan at average
prices of $10.89 and $13.70 per share in 1997 and 1996, respectively.
Stock Option Plans The Company has in effect two stock option plans:
the 1997 Stock Plan (the 1997 Plan) and the 1995 Nonstatutory Stock Option
Plan (the 1995 Plan).
The 1997 Plan has a ten year term and provides for the granting of
incentive stock options and nonstatutory stock options to officers,
directors, employees and consultants of the Company at prices ranging from
100% to 110% of the fair market value of the common stock on the date prior
to the grant as determined by the Board of Directors. Also, stock options
are automatically granted to directors who are not employees of the
Company. Options generally expire five or ten years after the date of
grant. The vesting and exercise provisions of option grants are determined
by the Board of Directors. Options to new employees generally vest at the
rate of 25% of the shares subject to the option one year after the date of
grant, and then ratably over the following 36 months, based on continued
service to the Company. Options granted to current employees generally vest
at the rate of 12.5% of the shares subject to the option six months after
the date of grant and then ratably over the following 42 months, based on
continued service to the Company. Options to outside directors generally
vest in equal monthly amounts over a three-year or one-year period
depending on the nature of the option. Unexercised options are canceled
thirty days following termination of the optionee's service to the Company.
The 1995 Plan has a ten year term and was approved by the Board of
Directors on July 25, 1995. The 1995 plan provides for the granting of
nonstatutory stock options to employees (excluding officers and directors)
and consultants of the Company at the fair market value of the common stock
on the date prior to the option grant. The vesting and exercise provisions
of option grants are determined by the Board of Directors, and are
generally similar to those provided under the 1997 Plan.
A summary of stock option plan transactions follows (shares in thousands):
<TABLE>
<CAPTION>
Author- Out- Option Weighted
ized standing Price Average
--------- --------- ---------------- ----------
<S> <C> <C> <C> <C>
October 29, 1994 ............... 96 848 $ 2.04-41.50 $17.98
Additional shares authorized .. 375 -- -- --
Granted ....................... (895) 895 12.63-21.50 15.55
Exercised ..................... -- (207) 2.04-19.00 6.43
Canceled ...................... 572 (572) 2.40-41.50 23.50
--------- ---------
October 28, 1995 ............... 148 964 3.20-40.25 14.93
Additional shares authorized .. 505 -- -- --
Granted ....................... (637) 637 14.00-21.88 18.23
Exercised ..................... -- (123) 3.20-19.00 7.92
Canceled ...................... 147 (147) 5.00-21.50 14.37
--------- ---------
November 2, 1996 ............... 163 1,331 5.00-40.25 17.22
Additional shares authorized .. 1,002 -- -- --
Granted ....................... (2,027) 2,027 9.50-17.75 12.68
Exercised ..................... -- (127) 5.00-15.63 9.42
Expired........................ (187) -- -- --
Canceled ...................... 1,272 (1,272) 6.75-40.25 16.33
--------- ---------
November 1, 1997 ............... 223 1,959 $ 9.50-35.50 $13.62
========= ========= ================ ==========
</TABLE>
The following table summarizes information about options outstanding
at November 1, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------ ------------------------
Weighted
Number average Weighted Number Weighted
of shares contractual average of shares average
Range of outstanding life exercise exercisable exercise
Exercise Prices at 11/1/97 (in years) price at 11/1/97 price
- ----------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 9.50 - $10.13 227 9.42 $9.68 17 $9.63
10.38 574 7.73 10.38 271 10.38
11.25 - 13.50 473 8.85 12.25 59 12.98
13.75 - 16.94 402 8.96 16.85 39 16.49
17.38 - 35.50 283 7.07 21.08 118 25.71
------------ ------------
$ 9.50 - $35.50 1,959 8.35 $13.62 504 $14.72
============ ============
</TABLE>
These options will expire if not exercised at specific dates ranging from
December 1997 to October 2007.
Stock Based Compensation As permitted under Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation," the Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25),
and related interpretations, in accounting for stock-based awards to
employees. Under APB 25, the Company generally recognized no compensation
expense with respect to such awards since the exercise price of such grants
were at the market price of the Company's stock on the date of such grants.
Pro forma information regarding net income (loss) and net income
(loss) per share is required by FAS 123 for awards granted in fiscal years
beginning after December 31, 1994 (fiscal 1996), as if the Company had
accounted for its stock-based awards to employees under the fair value
method of FAS 123. The fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, the Black-Scholes model requires the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of the Company's stock-
based awards to employees was estimated assuming no expected dividends and
the following weighted-average assumptions:
Option Plans Purchase Plan
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Expected life in years 4.0 4.0 0.5 0.5
Expected stock price
volatility factors 0.6 0.6 0.5 0.5
Risk-free interest rate
percentage 6.0 5.9 5.4 5.7
For pro forma purposes, the estimated fair value of the Company's
stock-based awards is amortized over the options vesting period (for
Option Plans) and the six-month purchase period (for the Purchase Plan).
The Company's reported and pro forma information follows (in thousands
except per share data):
1997 1996
--------- ---------
Net income (loss) - as reported ($1,678) $1,000
Net income (loss) - pro forma ($6,427) ($452)
Net income (loss) per share - as reported ($0.24) $0.14
Net income (loss) per share - pro forma ($0.93) ($0.06)
The weighted-average estimated fair value of employee stock options granted
for fiscal year 1997 and 1996 were $6.89 and $9.83 per share, respectively.
The weighted-average estimated fair value of employee stock purchase
rights granted under the Purchase Plan during fiscal year 1997 and 1996
were $4.30 and $5.59, respectively.
The effects on pro forma disclosures of applying FAS No. 123 are not likely
to be representative of the effects on pro forma disclosures of future
years. Because FAS 123 is applicable only to options granted subsequent to
October 28, 1995, its pro forma effect will not be fully reflected until
approximately fiscal 2000.
In June 1997, the Company offered all employees the option to exchange
their stock options on a 5 for 4 share exchange ratio at the current market
price, with no change in the stock options vesting periods. As a result of
the offer, stock options to purchase 809,000 shares of common stock with a
weighted average exercise price of $16.50 per share were canceled and
exchanged for new stock options to purchase 641,000 shares with an exercise
price of $10.38 per share.
Employee Benefit Plan The Company has an employee savings plan, which
qualifies under Section 401(k) of the Internal Revenue Code (the 401(k)
Plan). Under the 401(k) Plan, all eligible employees may defer from 1% to
20% of their pre-tax compensation, but not more than statutory limits. The
Company is allowed to make contributions as defined in the 401(k) Plan and
as approved by the Board of Directors. Company contributions of $532,000
were made through fiscal 1997. The Company contributed $205,000, $152,000
and $175,000 in 1997, 1996 and 1995, respectively. In December 1996 the
Board of Directors approved a matching program, not to exceed $500 per
eligible employee.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net consists of (in thousands):
1997 1996 1995
---------- ---------- ----------
Investment income $2,645 $2,321 $2,287
Interest expense (103) (76) (108)
Other 3,572 (14) (561)
---------- ---------- ----------
$6,114 $2,231 $1,618
========== ========== ==========
During fiscal 1997 the Company sold its Text-to-Speech business to
Learnout & Hauspie Speech Products ("L&H") for $5.0 million in L&H common
stock. The Company recorded a pre-tax gain, computed as the difference
between the fair market value of the shares received at closing and the net
carrying value of related Text-to-Speech tangible and intangible assets of
approximately $3.6 million. The Company subsequently sold this common stock
for an additional gain of approximately $.3 million which was included
in investment income.
INCOME TAXES
Income tax provisions have been determined in accordance with
statement of Financial Accounting Standards No. 109 -- "Accounting for
Income Taxes" (FAS 109). The components of the provision for income taxes
are as follows (in thousands):
1997 1996 1995
--------- --------- ---------
FEDERAL
Current.................... ($1,475) ($901) $ --
Deferred................... 2,023 901 --
STATE
Current.................... 35 -- --
FOREIGN
Current.................... 250 53 56
--------- --------- ---------
$833 $53 $56
========= ========= =========
The tax benefits resulting from the exercise of nonqualified stock
options and the disqualifying dispositions of shares acquired under the
Company's stock option plans and employee stock purchase plan reduced taxes
currently payable as shown above by $0 and $547,000 in 1997 and 1996,
respectively. Such benefits are credited to additional paid-in capital when
realized.
The total provision for income taxes differs from the amount
computed by applying the federal statutory income tax rate to income before
taxes as follows:
1997 1996 1995
--------- --------- ---------
Income tax (benefit) computed at
federal statutory rate................. -34.0% 34.0% -34.0%
State taxes, net of federal benefit...... 2.7% -- --
Foreign taxes............................ 29.6% 5.0% 1.4%
Goodwill amortization.................... 36.0% 8.3% 2.1%
Adjustment to valuation allowance........ 49.0% -27.3% 49.5%
Tax-exempt interest income............... -- -16.1% -19.0%
Other individually immaterial items...... 15.3% 1.1% 1.4%
--------- --------- ---------
Effective tax rate....................... 98.6% 5.0% 1.4%
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of deferred tax assets and liabilities are as
follows (in thousands):
1997 1996
--------- ---------
DEFERRED TAX LIABILITIES
Difference in accounting periods........... ($2,889) ($2,854)
--------- ---------
DEFERRED TAX ASSETS
Net operating loss carryforwards........... 2,531 2,576
Tax credit carryforwards................... 2,886 2,622
Fixed assets............................... 1,686 986
Allowance for doubtful accounts............ 780 839
Other accruals and reserves not currently
deductible for tax purposes.............. 2,206 1,897
Inventory valuation accounts............... 2,026 2,272
Other...................................... 63 41
--------- ---------
12,178 11,233
Valuation allowance........................ (9,289) (6,356)
--------- ---------
2,889 4,877
--------- ---------
Total deferred taxes........................ $ -- $2,023
========= =========
The change in the valuation allowance was a net increase of
$2,933,000, $770,000 and $3,468,000 for 1997, 1996 and 1995, respectively.
Approximately $775,000 of the valuation allowance is related to stock
options which will be credited to additional paid-in capital when realized.
As of November 1, 1997, the Company has federal tax net operating
loss carryforwards of approximately $7,100,000 which will expire in 1999
through 2012, if not utilized. Also available at November 1, 1997 are tax
credit carryforwards for federal and state income tax purposes of
approximately $1,875,000 and $1,500,000 respectively, which will expire in
the years 2002 through 2010, if not utilized. Utilization of approximately
$5,000,000 of the federal net operating loss carryforwards and the
deduction equivalent of approximately $118,000 of tax credit carryforwards
are limited to less than $1,000,000 per year, due to the application of the
change in ownership provisions of Sections 382 and 383 of the Internal
Revenue Code of 1986, as amended.
OTHER EXPENSES
During the second quarter of fiscal 1997, the Company recorded
restructuring and other charges of $3.3 million. These expenses consisted
of $2.4 million in restructuring charges and $0.9 million in expenses
associated with the termination of acquisition discussions with Voice-Tel
Enterprises and Voice-Tel Network ("Voice-Tel"). The restructuring charges
primarily represent termination benefits for approximately 40 employees
from all functions of the Company and costs associated with the resignation
of the Company's president. The Company restructured its business to align
its operational expenses with its anticipated revenue levels. As of
November 1, 1997, $0.3 million remains in accrued liabilities relating
primarily to severance payments after cash payments of $1.8 million.
SEGMENT INFORMATION
The Company operates in a single industry segment: the design,
manufacture and marketing of systems and software for communications
applications including voice messaging, facsimile storage and forwarding
and interactive voice response. No customer represented more than 10% of
net revenue in 1996. Sprint Corporation accounted for approximately 12% of
net revenue in 1995.
Export revenue consist of sales from the Company's U.S. operating
company to non-affiliated customers by geographic area after adjustments to
include such export sales based on the location of the customer (in
thousands):
1997 1996 1995
---------- ---------- ----------
Latin America.................. $16,200 $9,800 $2,900
Europe......................... 10,200 5,600 2,700
Far East....................... 9,200 1,500 2,700
Canada......................... 6,700 5,900 3,600
Australia...................... 5,200 9,000 4,000
---------- ---------- ----------
$47,500 $31,800 $15,900
========== ========== ==========
SUBSEQUENT EVENT
In December 1997, the Board of Directors approved an increase in
shares reserved for issuance under the Company's stock option plans and the
Employee Stock Purchase plan of 555,000 and 100,000, respectively. The
increase in the shares for the Employee Stock Plan and the increase in ISO
shares for the 1997 Plan are subject to stockholders' approval. See the
second and sixth paragraphs of "Commitments and Contingencies" Note.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Research Net Income (Loss) Shares
and Operating ------------------- Used in
Net Gross Develop- Income Per Per Share Stock Price Range
Revenue Margin ment (Loss) Amount Share Calculations High - Low
--------- --------- --------- --------- --------- --------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First quarter $27,913 $16,570 $5,693 $259 $680 $0.10 6,986 $14.73 - 12.13
Second quarter (1) 24,899 14,060 5,451 (6,871) (6,304) (0.90) 6,994 (2) 13.75 - 9.50
Third quarter 27,010 15,461 4,959 (1,138) 3,149 0.45 7,019 13.75 - 9.50
Fourth quarter 29,014 17,084 5,157 791 797 0.11 7,176 21.88 - 11.00
--------- --------- --------- --------- --------- ---------
$108,836 $63,175 $21,260 ($6,959) ($1,678) ($0.24) 6,943 (2) $21.88 - 9.50
========= ========= ========= ========= ========= ========= ============= ==================
1997
First quarter $24,013 $14,502 (3) $4,574 $42 $507 $0.07 6,980 $23.00 - 16.25
Second quarter 24,533 13,583 (3) 4,961 (1,861) (1,311) (0.19) 6,806 (2) 23.75 - 15.88
Third quarter 26,500 15,714 (3) 5,114 100 710 0.10 6,958 23.63 - 12.88
Fourth quarter 29,278 18,009 (3) 5,505 541 1,094 0.16 6,954 16.88 - 12.75
--------- --------- --------- --------- --------- ---------
$104,324 $61,808 $20,154 ($1,178) $1,000 $0.14 6,981 $23.75 - 12.75
========= ========= ========= ========= ========= ========= ============= ==================
</TABLE>
(1) During the second quarter of fiscal 1997, the Company recorded
restructuring and other charges of $3.3 million. The expenses consisted of
$2.4 million in restructuring charges and $0.9 million in expenses
associated with the termination of acquisition discussions with Voice-Tel
Enterprises and Voice-Tel Network ("Voice-Tel"). The restructuring charges
primarily represent termination benefits for approximately 40 employees
from all functions of the Company and costs associated with the resignation
of the Company's president and chief executive officer.
(2) Stock option shares excluded from the shares used in per share
calculations since including these shares would decrease the net loss per
share.
(3) In the fourth quarter of fiscal 1996, the Company reclassified
certain customer training and support costs from selling, general, and
administrative expenses to cost of goods sold to more properly reflect
their current and anticipated future direct correlation to product and
service revenues. All 1996 quarterly financial data has been reclassified
for consistent presentation.
The Company's Common Stock is traded on the over-the-counter market
and is quoted on The Nasdaq National Market System under the symbol CGRM.
As of November 1, 1997, there were approximately 350 stockholders of
record. The Company has not paid and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The Company's
bank credit line agreement requires the banks consent to pay cash
dividends.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CENTIGRAM COMMUNICATIONS CORPORATION
We have audited the accompanying consolidated balance sheets of
Centigram Communications Corporation as of November 1, 1997 and November 2,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the three years in the period ended November 1,
1997. Our audits also included the financial statement schedule listed in
the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Centigram Communications Corporation at November 1, 1997 and November 2,
1996, and the consolidated results of its operations and its cash flows for
the three years in the period ended November 1, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Jose, California
December 1, 1997
except for the second and sixth paragraphs of "Commitments and Contingencies"
and the note "Subsequent Events" as to which this date is January 9, 1998
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE
REGISTRANT
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders scheduled to be
held on March 31, 1998, under the headings "Proposal No. 1" and "Management".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, scheduled to
be held on March 31, 1998, under the heading "Executive Officer Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, scheduled to
be held on March 31, 1998, under the heading "Security Ownership of Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, scheduled to
be held on March 31, 1998, under the heading "Certain Transactions".
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS OF CENTIGRAM
COMMUNICATIONS CORPORATION ARE INCLUDED IN ITEM 8:
FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS:
Report of Independent Auditors
Consolidated Balance Sheets--November 1, 1997 and November 2, 1996
Consolidated Statement of Operations--Years ended November 1, 1997,
November 2, 1996 and October 28, 1995
Consolidated Statements of Stockholders' Equity--Years ended November
1, 1997, November 2, 1996 and October 28, 1995
Consolidated Statements of Cash Flows--Years ended November 1, 1997,
November 2, 1996 and October 28, 1995
Notes to Consolidated Financial Statements--November 1, 1997 (except the
note "Quarterly Financial Data (Unaudited)"
SUPPLEMENTARY FINANCIAL DATA NOT COVERED BY REPORT OF INDEPENDENT
AUDITORS:
The note "Quarterly Financial Data (Unaudited)" in Notes to
Consolidated Financial Statements
(A) 2. FINANCIAL STATEMENT SCHEDULES:
The following financial schedules of the Registrant for the years ended
November 1, 1997, November 2, 1996 and October 28, 1995
SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS:
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal
year covered by this Annual Report on Form 10-K.
(C) EXHIBITS
(The Company will furnish to any stockholders who so request a copy of this
Annual Report on Form 10-K, as amended, including a copy of any Exhibit listed
below, provided that the Company may require payment of a reasonable fee not to
exceed its expense in furnishing any such Exhibit.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Second Restated Certificate of Incorporation of Registrant.(1)
3.2 Bylaws of Registrant.(1)
4.1 Preferred Shares Rights Agreement dated as of October 20, 1992 by and between Registrant and The First
National Bank of Boston.(2)
4.2 Amendment to Preferred Shares Rights Agreement dated April 26, 1994.(4)
10.1 Amended and Restated 1987 Incentive Stock Option Plan.(4)
10.2 Amended and Restated 1991 Employee Stock Purchase Plan.(4)
10.3 Settlement Agreement and Cross-License between the Company and VMX, Inc. dated June 29, 1990.(1)+
10.4 Standard Triple Net Industrial Lease between the Company and Pactel Properties dated May 30, 1990.(1)
10.7 Form of Change of Control Agreement.(1)
10.8 Employment Agreement dated February 22, 1985 by and between Registrant and George H. Sollman, as
amended.(1)
10.11 Credit Agreement dated as of March 28, 1994 by and between the Registrant and Silicon Valley Bank.(4)
10.12 Industrial Lease Agreement dated June 7, 1993 between the Company and Aetna Life Insurance Company.(3)
10.13 Loan Modification Agreement entered into as of April 21, 1995 between the Registrant and Silicon Valley
Bank.(5)
10.14 Loan Modification Agreement entered into as of September 12, 1995 between the Registrant and Silicon
Valley Bank.(5)
10.15 1995 Nonstatutory Stock Option Plan.(5)
10.16 Amendment to Triple Net Industrial Lease Between the Company and Bryan/Cilker Properties (successor in
interest to Pactel Properties) dated December 23, 1996. (6)
10.17 1997 Stock Plan. (6)
10.18 Promissory Note dated April 15, 1996 between the Company and George H. Sollman. (6)
10.19 Standard Triple Net Industrial Lease between the Company and Sobrato Interests III dated December 20,
1996. (6)
10.20 Standard Triple Net Industrial Lease between the Company and Sobrato Interests III dated December 20,
1996. (6)
10.21 Amended and Restated Loan Agreement entered into April 30, 1997 between the Company and Silicon
Valley Bank and Bank of Hawaii.
10.22 Settlement Agreement and Mutual Release between the Company and George H. Sollman dated August 1,
1997.
10.23 Promissory note dated February 18, 1997 between the Company and Dennis L. Barsema.
10.24 Settlement Agreement and General Release dated October 4, 1997 between the Company and Dennis L.
Barsema.
10.25 Termination of Build to Suit Leases and Loan to Sobtrato Interests III.
11.1 Statement of Computation of Earnings Per Share.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedules.
</TABLE>
- - -----------------------
(1) Incorporated by reference to the Form S-1 Registration Statement as filed
with the Securities and Exchange Commission on October 10, 1991
(Registration No. 33-42039).
(2) Incorporated by reference to the Form 8-A Registration Statement as filed
with the Securities and Exchange Commission on November 3, 1992.
(3) Incorporated by reference to Annual Report on Form 10-K for fiscal 1993.
(4) Incorporated by reference to Annual Report on Form 10-K for fiscal 1994.
(5) Incorporated by reference to Annual Report on Form 10-K for fiscal 1995.
(6) Incorporated by reference to Annual Report on Form 10-K for fiscal 1996.
+ Confidential treatment granted as to certain portions.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CENTIGRAM COMMUNICATIONS CORPORATION
Date: January 23, 1998 By: /s/ Robert L. Puette
----------------------------------------
Robert L. Puette
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George H. Sollman and Dennis P. Wolf, jointly and
severally his attorneys-in-fact, each with the power of substitution for him in
any and all capacities, to sign any amendments to this Report on Form 10-K, and
to file the same with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ -------------------------------- --------------
<S> <C> <C>
/s/ ROBERT L. PUETTE President, Chief Executive January 23, 1998
---------------------------- Officer, Director
Robert L. Puette (Principal Executive
Officer)
/s/ DENNIS P. WOLF Senior Vice President and January 23, 1998
---------------------------- Chief Financial Officer
Dennis P. Wolf (Principal Financial Officer)
/s/ THOMAS E. BRUNTON Vice President and January 23, 1998
---------------------------- Controller (Principal
Thomas E. Brunton Accounting Officer)
/s/ JAMES H. BOYLE Director January 23, 1998
----------------------------
James H. Boyle
/s/ DOUGLAS CHANCE Director January 23, 1998
----------------------------
Douglas Chance
/s/ JAMES F. GIBBONS Director January 23, 1998
----------------------------
James F. Gibbons
/s/ DAVID S. LEE Director January 23, 1998
----------------------------
David S. Lee
/s/ DEAN O. MORTON Director January 23, 1998
----------------------------
Dean O. Morton
</TABLE>
<PAGE>
SCHEDULE II
CENTIGRAM COMMUNICATIONS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance
Beginning Statement of Other at end
of Year Operations Amounts (2) Deductions (1) of Year
----------- ------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended November 1, 1997
Allowance for doubtful accounts $955 $160 $ -- $341 $774
Product return reserve 1,100 -- (150) -- 950
Year ended November 2, 1996
Allowance for doubtful accounts 841 330 -- 216 955
Product return reserve 1,100 -- -- -- 1,100
Year ended October 28, 1995
Allowance for doubtful accounts 1,380 -- -- 539 841
Product return reserve 825 -- 275 -- 1,100
</TABLE>
- --------------------------------
(1) Writeoffs of uncollectible accounts, net of recoveries.
(2) The product return reserve is charged to revenue.
CENTIGRAM
COMMUNICATIONS
CORPORATION
AMENDED AND RESTATED
LOAN AGREEMENT
(UNSECURED)
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 8
2. LOAN AND TERMS OF PAYMENT 8
2.1 Advances 8
2.2 Overadvances 12
2.3 Interest Rates, Payments, and Calculations 12
2.4 Crediting Payments 13
2.5 Fees 13
2.6 Additional Costs 13
2.7 Conversion/Continuation of Advances 14
2.8 Additional Requirements/Provisions Regarding LIBOR
Rate Advances. 15
2.9 Term 16
3. CONDITIONS OF LOANS 17
3.1 Conditions Precedent to Initial Advance 17
3.2 Conditions Precedent to all Advances 17
4. REPRESENTATIONS AND WARRANTIES 17
4.1 Due Organization and Qualification 17
4.2 Due Authorization; No Conflict 17
4.3 No Prior Encumbrances 18
4.4 Name; Location of Chief Executive Office 18
4.5 Litigation 18
4.6 No Material Adverse Change in Financial Statements 18
4.7 Solvency 18
4.8 Regulatory Compliance 18
4.9 Environmental Condition 18
4.10 Taxes 19
4.11 Subsidiaries 19
4.12 Government Consents 19
4.13 Full Disclosure 19
5. AFFIRMATIVE COVENANTS 19
5.1 Good Standing 19
5.2 Government Compliance 19
5.3 Financial Statements, Reports, Certificates 19
5.4 Inventory; Returns 20
5.5 Taxes 20
5.6 Insurance 20
5.7 Principal Depository 20
5.8 Quick Ratio 20
5.9 Debt-Tangible Net Worth Ratio 20
5.10 Tangible Net Worth 20
5.11 Out-of-Debt 20
5.12 Further Assurances 21
6. NEGATIVE COVENANTS 21
6.1 Dispositions 21
6.2 Change in Business 21
6.3 Mergers or Acquisitions 21
6.4 Indebtedness 21
6.5 Encumbrances 21
6.6 Distributions 21
6.7 Investments 22
6.8 Transactions with Affiliates 22
6.9 Subordinated Debt 22
6.10 Compliance 22
7. EVENTS OF DEFAULT 22
7.1 Payment Default 22
7.2 Covenant Default 22
7.3 Material Adverse Change 23
7.4 Attachment 23
7.5 Insolvency 23
7.6 Other Agreements 23
7.7 Subordinated Debt 23
7.8 Judgments 23
7.9 Misrepresentations 23
8. BANK'S RIGHTS AND REMEDIES 23
8.1 Rights and Remedies 23
8.2 Bank Expenses 24
8.3 Remedies Cumulative 24
8.4 Demand; Protest 24
9. NOTICES 24
10. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 25
11. INTERCREDITOR PROVISIONS 25
11.1 Proportionate Interests 25
11.2 Designation of Service Agent 26
11.3 No Agency 26
11.4 No Reliance 26
12. GENERAL PROVISIONS 26
12.1 Successors and Assigns 26
12.2 Indemnification 26
12.3 Time of Essence 26
12.4 Severability of Provisions 26
12.5 Amendments in Writing, Integration 26
12.6 Effect of Amendment and Restatement 27
12.7 Counterparts 27
12.8 Survival 27
12.9 Confidentiality 27
This AMENDED AND RESTATED LOAN AGREEMENT is entered into as of
April 30, 1997 by and among SILICON VALLEY BANK ("SVB") as Servicing
Agent and a Bank and BANK OF HAWAII ("BofH;" SVB and BofH are referred
to individually herein as a "Bank," and collectively as the "Banks") and
CENTIGRAM COMMUNICATIONS CORPORATION, a Delaware corporation
("Borrower"). SVB will act as Agent for the Banks pursuant to the terms
of the Master Agreement between SVB and BofH dated as of August 30,
1996.
RECITALS
A. Borrower and Bank are parties to that certain Credit
Agreement dated as of March 28, 1994 (the "Credit Agreement"), that
certain Foreign Exchange Letter Agreement dated as of April 1, 1994 (the
"F/X Letter") and a Note dated March 28, 1994 by Borrower to Bank (the
"Note") (the Credit Agreement, the F/X Letter and the Note, each as
amended by Loan Modification Agreements dated March 1, 1995, April 21,
1995, September 12, 1995, February 16, 1996, and May 1, 1996,
respectively and as may have been further amended, the "Original Loan
Documents").
B. Borrower and Bank wish to amend and restate the terms of the
Original Loan Documents as stated herein. This Agreement sets forth the
terms on which Bank will loan money to Borrower and Borrower will repay
the amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION1. DEFINITIONS AND
CONSTRUCTION
1.1 Definitions1.1 Definitions. As used in this
Agreement, the following terms shall have the following definitions:
"Advance" or "Advances" means a cash advance or cash
advances under the Revolving Facility.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any
Person that controls or is controlled by or is under common control with
such Person, and each of such Person's senior executive officers,
directors, and partners.
"Bank Expenses" means all: reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; and each Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records relating to its property.
"Business Day" means a day of the year (a) that is not
a Saturday, Sunday or other day on which banks in the States of
California or Hawaii or the City of London are authorized or required to
close and (b) on which dealings are carried on in the interbank market
in which Banks customarily participate.
"Cash Management Services" has the meaning set forth
in Section 2.1.3.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Committed Line" means Twenty Million Dollars
($20,000,000).
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to (i) any indebtedness, lease, dividend,
letter of credit or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or
in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit
issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest
rate cap agreement, interest rate collar agreement, or other agreement
or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided,
however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability
in respect thereof as determined by such Person in good faith; provided,
however, that such amount shall not in any event exceed the maximum
amount of the obligations under the guarantee or other support
arrangement.
"Current Liabilities" means, as of any applicable
date, all amounts that should, in accordance with GAAP, be included as
current liabilities on the consolidated balance sheet of Borrower and
its Subsidiaries, excluding all outstanding Advances made under
Section 2.1 hereof, but including all other Indebtedness that is payable
upon demand or within one year from the date of determination thereof
unless such Indebtedness is renewable or extendable at the option of
Borrower or any Subsidiary to a date more than one year from the date of
determination.
"Daily Balance" means the amount of the Obligations
owed at the end of a given day.
"Equipment" means machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and
attachments.
"Equivalent Amount" means the equivalent in United
States Dollars of an Optional Currency, calculated at the spot rate for
the purchase of such Optional Currency by BofH.
"Exchange Contracts" means the foreign exchange
contracts entered into pursuant to Section 2.1.2.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles
as in effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed
money or the deferred purchase price of property or services, including
without limitation reimbursement and other obligations with respect to
surety bonds and letters of credit, (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all capital lease
obligations and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced
by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including assignments for the benefit of creditors,
extension generally with all or substantially all creditors, or
proceedings seeking general reorganization, arrangement, or other
relief.
"Interest Period" means for each LIBOR Rate Advance, a
period of approximately one, three or six months as Borrower may elect,
provided that the last day of an Interest Period for a LIBOR Rate
Advance shall be determined in accordance with the practices, of the
LIBOR interbank market as from time to time in effect, provided,
further, in all cases such period shall expire not later than the
applicable Maturity Date.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials,
parts, supplies, packing and shipping materials, work in process and
finished products intended for sale or lease or to be furnished under a
contract of service, of every kind and description now or at any time
hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily
out of its custody or possession or in transit and including any returns
upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books
relating to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person,
or any loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Issuing Bank" means the Bank issuing a Letter of
Credit pursuant to Section 2.1.1. SVB shall be the Issuing Bank, except
that BofH shall be the Issuing Bank if (i) SVB is unable to issue a
Letter of Credit or (ii) a Letter of Credit issued by SVB would require
confirmation by another bank under circumstances in which a Letter of
Credit issued by BofH would not require confirmation.
"LIBOR Base Rate" means, for any Interest Period for a
LIBOR Rate Advance, the rate of interest per annum determined by SVB to
be the per annum rate of interest at which deposits in United States
Dollars are offered to SVB in the London interbank market in which SVB
customarily participates at 11:00 A.M. (local time in such interbank
market) three (3) Business Days before the first day of such Interest
Period for a period approximately equal to such Interest Period and in
an amount approximately equal to the amount of such Advance.
"LIBOR Rate" shall mean, for any Interest Period for a
LIBOR Rate Advance, a rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate for such
Interest Period divided by (ii) 1 minus the Reserve Requirement for such
Interest Period.
"LIBOR Rate Advance" means an Advance bearing interest
at a rate equal to the LIBOR Rate plus one and one-half percent (1 1/2%)
and made pursuant to Section 2.1.
"Lien" means any mortgage, lien, deed of trust,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other agreement entered
into between Borrower and Banks in connection with this Agreement, all
as amended or extended from time to time.
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or financial condition of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower,
taken as a whole, to repay the Obligations.
"Maturity Date" means the date immediately preceding
the first anniversary of the Closing Date.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to the Banks by Borrower pursuant
to this Agreement, whether absolute or contingent, due or to become due
(including any interest accruing after the commencement of an Insolvency
Proceeding and any interest that would have accrued but for the
commencement of an Insolvency Proceeding), now existing or hereafter
arising.
"Original Loan Documents" has the meaning set forth in
the recital paragraph above.
"Percentage Share" means, as to each Bank, the
percentage calculated in accordance with Section 11.1 hereof.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated
to pay to either Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between Borrower
and such Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Indebtedness to trade creditors and with
respect to surety bonds and similar obligations incurred in the ordinary
cause of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of
Borrower (provided that the primary obligations are not prohibited
hereby), and Indebtedness of any Subsidiary to any other Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of
any other Subsidiary (provided that the primary obligations are not
prohibited hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely
to purchase equipment which is secured in accordance with clause (c) of
"Permitted Liens" below and is not in excess of the lesser of the
purchase price of such equipment or the fair market value of such
equipment on the date of acquisition; and
(h) Extensions, refinancings, modifications,
amendments and restatements of any of items of Permitted Indebtedness
(a) through (g) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more
burdensome terms upon Borrower or its Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency
or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1)
year from the date of creation thereof and currently having the highest
rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by
Bank, and (iv) any Investments permitted by Borrower's investment
policy, as amended from time to time, provided that such investment
policy (any such amendment thereto) has been approved by Bank;
(c) Investments consisting of the endorsement of
negotiable instrument for deposit or collection or similar transaction
in the ordinary course of business;
(d) Investments accepted in connection with
Transfers permitted by Section 5.1;
(e) Investments (whether consisting of the purchase
or securities, loans, capital contribution, or otherwise) of
Subsidiaries in or to other Subsidiaries or in Borrower;
(f) Investments consisting of (i) compensation of
employees, officers and directors of Borrower or its Subsidiaries so
long as the Board of Directors of Borrower determines that such
compensation is in the best interests of Borrower, (ii) travel advances,
employee relocation loans and other employee loans and advances in the
ordinary course of business, and (iii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower or
its Subsidiaries pursuant to employee stock purchase plans or agreements
approved by Borrower's Board of Directors;
(g) Investments (including debt obligations)
received in connection with the bankruptcy or reorganization of
customers or suppliers and in settlement of delinquent obligations of,
and other disputes with, customers or suppliers arising in the ordinary
course of business;
(h) Investments pursuant to or arising under
currency agreements or interest rate agreements entered into in the
ordinary course of business;
(i) Investments consisting of notes receivable of,
or prepaid royalties and other credit extensions, to customers and
suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments by
Borrower in any Subsidiary;
(j) Investments constituting acquisitions permitted
under Section 7.3;
(k) Deposit accounts of Borrower in which Banks
have a Lien prior to any other Lien; and
(l) Investments made in accordance with Borrower's
investment policy, as reviewed by Banks and approved from time to time
by Borrower's board of directors.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested
in good faith by appropriate proceedings;
(c) Liens (i) upon or in any Equipment acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price
of such Equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such Equipment, or (ii) existing on such
Equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon,
and the proceeds of such Equipment;
(d) Liens on Equipment leased by Borrower or any
Subsidiary pursuant to an operating or capital lease in the ordinary
course of business (including proceeds thereof and accessions thereto)
incurred solely for the purpose of financing the lease of such Equipment
(including Liens pursuant to leases permitted pursuant to Section 6.1
and Liens arising from UCC financing statements regarding leases
permitted by this Agreement);
(e) Leases or subleases and license and sublicenses
granted to others in the ordinary course of Borrower's business not
interfering in any material respect with the business of Borrower and
its Subsidiaries taken as a whole, and any interest or title of a
lessor, licensor or under any lease or license;
(f) Liens on assets (including the proceeds thereof
and accessions thereto) that existed at the time such assets were
acquired by Borrower or any Subsidiary (including Liens on assets of any
corporation that existed at the time it became or becomes a Subsidiary);
provided such Liens are not granted in contemplation of or in connection
with the acquisition of such asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under
Section 7.8;
(h) Easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances affecting real property not constituting a
Material Adverse Effect;
(i) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of customs
duties in connection with the importation of goods;
(j) Liens which constitute rights of set-off of a
customary nature or banker's Liens with respect to amounts on deposit,
whether arising by operation of law or by contract, in connection with
arrangement entered in to with banks in the ordinary course of business;
(k) Earn-out and royalty obligations existing
on the date hereof or entered into in connection with an acquisition
permitted by Section 6.3;
(l) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clauses (a), (c), (d), (e), (f) and (k) above,
provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does not
increase; and
(m) Liens on insurance proceeds in favor of
insurance companies granted solely as security for financed premiums.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
public benefit corporation, firm, joint stock company, estate, entity or
governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by SVB as its "prime rate," or by BofH as
its "base rate," as applicable to the Advances made hereunder by each
Bank, whether or not such announced rate is the lowest rate available
from such Bank.
"Prime Rate Advance" means an Advance bearing interest
at a rate equal to the Prime Rate and made pursuant to Section 2.1.
"Quick Assets" means, at any date as of which the
amount thereof shall be determined, the unrestricted cash and
cash-equivalents; net, billed accounts receivable; and investments with
maturities not to exceed twelve (12) months of Borrower determined in
accordance with GAAP.
"Reserve Requirement" means, for any Interest Period,
the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during
such Interest Period under Regulation D against "Eurocurrency
liabilities" (as such term is used in Regulation D) by member banks of
the Federal Reserve System. Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by Banks by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by
reference to which the LIBOR Rate is to be determined as provided in the
definition of "LIBOR Base Rate" or (ii) any category of extensions of
credit or other assets which include Advances.
"Responsible Officer" means each of the Chief
Executive Officer, the Chief Financial Officer and the Corporate
Controller of Borrower.
"Revolving Facility" means the facility under which
Borrower may request Bank to issue cash advances, as specified in
Section 2.1 hereof.
"Schedule" means the schedule of exceptions, if any,
attached hereto.
"Subordinated Debt" means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to Bank on
terms acceptable to Bank (and identified as being such by Borrower and
Bank).
"Subsidiary" means any corporation or partnership in
which (i) any general partnership interest or (ii) more than 50% of the
stock of which by the terms thereof ordinary voting power to elect the
Board of Directors, managers or trustees of the entity shall, at the
time as of which any determination is being made, be owned by Borrower,
either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the
amount thereof shall be determined, the consolidated total assets of
Borrower and its Subsidiaries minus, without duplication, (i) the sum of
any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, patents, trade and service marks
and names, copyrights and research and development expenses except
prepaid expenses, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the
amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated
balance sheet of Borrower, including in any event all Indebtedness, but
specifically excluding Subordinated Debt.
1.2 Accounting Terms1.2 Accounting Terms. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP and all calculations made hereunder shall be made in
accordance with GAAP. When used herein, the terms "financial statements"
shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT2. LOAN AND TERMS OF PAYMENT
2.1 Advances2.1 Advances.
(a) Advances. Subject to and upon the terms and
conditions of this Agreement, each Bank agrees to make Advances to Borrower
in an aggregate amount not to exceed such Bank's Percentage Share of the
Committed Line minus the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) minus the outstanding
amount of the Foreign Exchange Reserve minus any amounts owed from Borrower
to Bank pursuant to Cash Management Services. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1
may be repaid and reborrowed at any time during the term of this Agreement.
(b) Requests for Advances. Whenever Borrower desires
an Advance, Borrower will notify Servicing Agent by facsimile transmission
or telephone no later than 3:00 p.m. California time on the Business Day
that a Prime Rate Advance is to be made and 3:00 p.m. California time on
the Business Day that is three (3) Business Days prior to the Business Day
on which a LIBOR Rate Advance is to be made. Servicing Agent shall
promptly deliver such notice to the Banks. Each Bank may make Advances
under this Agreement, based upon instructions received by Servicing Agent
from a Responsible Officer, or without instructions if in Servicing Agent's
discretion such Advances are necessary to meet Obligations under this
Agreement which have become due and remain unpaid. Each Bank shall be
entitled to rely on any notice by telephone or otherwise given by a person
who Servicing Agent reasonably believes to be a Responsible Officer, and
Borrower shall indemnify and hold such Bank harmless for any damages or
loss suffered by such Bank as a result of such reliance. Such Bank will
wire or credit, as appropriate, the amount of Advances in United States
Dollars made under this Section 2.1 to Borrower's deposit account held by
Servicing Agent.
Each such notice shall specify:
(i) the date such Advance is to be
made, which shall be a Business Day;
(ii) the amount of such Advance;
(iii) whether such Advance is to be a
Prime Rate Advance or a LIBOR Rate Advance;
(iv) if the Advance is to be a LIBOR
Rate Advance, the Interest Period for such Advance.
Each written request for an Advance, and each confirmation of a telephone
request for such an Advance, shall be in the form of an Advance Request
Form in the form of Exhibit A for a Prime Rate Advance, and an Advance
Request Form in the form of Exhibit B-1 for a LIBOR Rate Advance, in each
case executed by Borrower.
(c) Prime Rate Advances. Each Prime Rate Advance
shall be in an amount not less than Twenty Five Thousand Dollars
($25,000). The outstanding principal balance of each Prime Rate
Receivables Advance shall bear interest (computed daily on the basis of
a 360 day year and actual days elapsed), at a rate per annum equal to
the Prime Rate. Borrower shall pay the entire outstanding principal
amount of each Prime Rate Advance on the Maturity Date.
(d) LIBOR Rate Advances. Each LIBOR Rate Advance
shall be in an amount of not less than Five Hundred Thousand Dollars
($500,000). The outstanding principal balance of each LIBOR Rate
Advance shall bear interest until principal is due (computed daily on
the basis of a 360 day year and actual days elapsed) at a rate per annum
equal to the LIBOR Rate plus 150 basis points for such LIBOR Rate
Advance. The entire outstanding principal amount of each LIBOR Rate
Advance shall be due and payable on the last day of the LIBOR Rate
Interest Period for such LIBOR Rate Advance. Not more than ten (10)
LIBOR Rate Advances shall be outstanding at any time.
(e) Prepayment of the Advances. Borrower may
at any time prepay any Prime Rate Advance or any LIBOR Rate Advance, in
full or in part. Each partial prepayment for a LIBOR Rate Advance shall
be in an amount not less than Two Hundred Fifty Thousand Dollars
($250,000). Each prepayment shall be made upon the irrevocable written or
telephone notice of Borrower received by Servicing Agent not later than
10:00 a.m. California time on the date of the prepayment of a Prime Rate
Advance, and not less than three (3) Business Days prior to the date of
the prepayment of a LIBOR Rate Advance. The notice of prepayment shall
specify the date of the prepayment, the amount of the prepayment, and the
Advance or Advances to be prepaid. Each prepayment of a LIBOR Rate
Advance shall be accompanied by the payment of accrued interest on the
amount prepaid and any amount required by Section 2.8.
(f) Maturity. The Revolving Facility shall
terminate on the Maturity Date, at which time all Advances under this
Section 2.1 and other amounts due under this Agreement shall be
immediately due and payable.
2.1.1 Letters of Credit.
(a) At Borrower's written request, Issuing
Bank shall issue Letters of Credit for Borrower's account. Each Bank
severally agrees to participate in Letters of Credit, in accordance with
such Bank's Percentage Share.
(b) Issuing Bank shall issue the Letter of
Credit upon receipt of a Borrower's written request and Issuing Bank's
standard form of application, stating (a) the date such Borrower wishes
to receive the Letter of Credit (which shall be a Business Day); (b) the
requested amount of such Letter of Credit; (c) the aggregate amount of
all Advances and Letters of Credit then outstanding; (d) if appropriate,
the conditions requested by Borrower under which the Letter of Credit
may be drawn upon; and (e) any other information Issuing Bank might need
to issue the Letter of Credit. Issuing Bank shall promptly notify the
other Bank upon receipt of a request for a Letter of Credit.
(c) The maximum aggregate obligation at
any one time for undrawn and drawn but unreimbursed Letters of Credit shall
not exceed the Committed Line minus the outstanding amount of the
Foreign Exchange Reserve minus any amounts owed from Borrower to Bank
pursuant to Cash Management Services, provided that the aggregate face
amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) shall not in any case exceed Two Million
Dollars ($2,000,000). Each Letter of Credit shall be issued pursuant to
the terms and conditions of this Agreement and of the Issuing Bank's
standard form of application and security agreement for letters of
credit. Each Letter of Credit shall (a) expire no later than the
Maturity Date, and (b) be otherwise in form and substance satisfactory
to Issuing Bank, provided that a Letter of Credit may expire after the
Maturity Date for so long as Borrower's reimbursement obligation in
connection therewith is secured by cash on terms acceptable to Banks.
Upon issuing a Letter of Credit, the Issuing Bank shall immediately
notify the other Bank of such issuance and shall, on a continuing basis,
keep the other Bank informed of the drawn and undrawn but unreimbursed
amount of each Letter of Credit for so long as such Letter of Credit is
outstanding. With respect to standby Letters of Credit, Borrower shall
pay to Issuing Bank a nonrefundable issuance fee of at least one and
one-half percent (1 1/2%) of the face amount of the Letter of Credit at the
time Borrower requests the Letter of Credit. The Issuing Bank shall
retain a fee equal to one-eighth of one percent (0.125%) of the face
amount of the Letter of Credit, and shall share the balance of such
issuance fee equally with the other Bank. With respect to commercial
Letters of Credit, Borrower shall pay to Issuing Bank a nonrefundable
issuance fee equal to one-eighth of one percent (0.125%) of the face
amount of the Letter of Credit at the time Borrower requests the Letter of
Credit and a negotiation fee equal to one-eighth of one percent (0.125%)
of the face amount of the Letter of Credit at the time a draw is made on
the Letter of Credit. The Issuing Bank shall retain an issuance fee of
One Hundred Dollars ($100) and a negotiation fee of One Hundred Dollar
($100), and shall share the balance of such issuing fee and negotiation
fee equally with the other Bank. On the day on which Issuing Bank honors
any drawing made by the beneficiary of a Letter of Credit, Borrower shall
pay to Issuing Bank the full amount of the drawing so honored, or at
Borrower's option, shall treat the amount of such drawing as an Advance
under Section 2.1. The obligation to reimburse Issuing Bank for the
amount of such drawing is absolute, unconditional, and irrevocable.
(d) Borrower may request that Issuing Bank
issue a Letter of Credit payable in a currency other than United States
Dollars. If a demand for payment is made under any such Letter of
Credit, Issuing Bank shall treat such demand as an Advance to Borrower
of the Equivalent Amount thereof. Upon the issuance of any Letter of
Credit payable in a currency other than United States Dollars, Banks
shall create a reserve under the Committed Line for letters of credit
against fluctuations in currency exchange rates, in an amount equal to
twenty percent (20%) of the face amount of such Letter of Credit. The
amount of such reserve may be amended by Banks from time to time to
account for fluctuations in the exchange rate. The availability of
funds under the Committed Line shall be reduced by the amount of such
reserve for so long as such Letter of Credit remains outstanding.
2.1.2 Foreign Exchange Contract; Foreign Exchange
Settlements.
(a) Subject to the terms of this
Agreement, Borrower may enter into foreign exchange contracts, in
currencies acceptable to the Banks, (the "Exchange Contracts") not to
exceed an aggregate amount of Two Million Dollars ($2,000,000) (the
"Contract Limit"), pursuant to which a Bank shall sell to or purchase from
Borrower foreign currency on a spot or future basis. Borrower shall not
request any Exchange Contracts at any time it is out of compliance with
any of the provisions of this Agreement. All Exchange Contracts must
provide for delivery of settlement on or before the Maturity Date. The
amount available under the Committed Line at any time shall be reduced by
the following amounts (the "Foreign Exchange Reserve") on any given day
(the "Determination Date"): (i) on all outstanding Exchange Contracts on
which delivery is to be effected or settlement allowed more than two
business days after the Determination Date, ten percent (10%) of the gross
amount of the Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement allowed within
two business days after the Determination Date, one hundred percent (100%)
of the gross amount of the Exchange Contracts.
(b) Either Bank may, in its discretion,
terminate the Exchange Contracts at any time (a) that an Event of
Default occurs or (b) that there is no sufficient availability under the
Committed Line and Borrower does not have available funds in its bank
account to satisfy the Foreign Exchange Reserve. If a Bank terminates
the Exchange Contracts, and without limitation of any applicable
indemnities, Borrower agrees to reimburse Bank for any and all fees,
costs and expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total
gross amount of all Exchange Contracts on which delivery is to be effected
and settlement allowed in any two business day period to be more than Two
Million Dollars ($2,000,000) (the "Settlement Limit"), nor shall Borrower
permit the total gross amount of all Exchange Contracts to which Borrower
is a party, outstanding at any one time, to exceed the Contract Limit.
Notwithstanding the above, however, the amount which may be settled in any
two (2) business day period may be increased above the Settlement Limit up
to, but in no event to exceed, the amount of the Contract Limit under
either of the following circumstances:
(i) if there is sufficient
availability under the Committed Line in the amount of the Foreign
Exchange Reserve as of each Determination Date, provided that Bank in
advance shall reserve the full amount of the Foreign Exchange Reserve
against the Committed Line; or
(ii) if there is insufficient
availability under the Committed Line, as to settlements within any two
(2) business day period, provided that a Bank, in its sole discretion,
may: (A) verify good funds overseas prior to crediting Borrower's
deposit account with such Bank (in the case of Borrower's sale of
foreign currency); or (B) debit Borrower's deposit account with such
Bank prior to delivering foreign currency overseas (in the case of
Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of
foreign currency, Borrower in advance shall instruct a Bank upon
settlement either to treat the settlement amount as an advance under the
Committed Line, or to debit Borrower's account for the amount settled.
(e) Borrower shall execute all standard
form applications and agreements of Banks in connection with the Exchange
Contracts and, without limiting any of the terms of such applications and
agreements, Borrower will pay all standard fees and charges of Banks in
connection with the Exchange Contracts.
(f) Without limiting any of the other
terms of this Agreement or any such standard form applications and
agreements of Banks, Borrower agrees to indemnify Banks and hold them
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, costs and expenses (including, without limitation,
attorneys' fees of counsel of Banks' choice), of every nature and
description which it may sustain or incur, based upon, arising out of, or
in any way relating to any of the Exchange Contracts or any transactions
relating thereto or contemplated thereby.
2.1.3 PC-ACH Sublimit. Subject to the terms and
conditions of this Agreement, Borrower may utilize, subject to
availability under the Committed Line, up to an aggregate amount not to
exceed Five Hundred Thousand Dollars ($500,000) for PC-ACH services as
defined in that certain Cash Management Services Agreement provided to
Borrower in connection herewith (a "Cash Management Service", or the
"Cash Management Services"). Any amounts actually paid by Bank in
respect of a Cash Management Service or Cash Management Services shall,
when paid, constitute an Advance under this Agreement.
2.2 Overadvances2.2 Overadvances. If, at any time or
for any reason, the sum of (i) Advances owed by Borrower to Banks
pursuant to Section 2.1(a) of this Agreement plus (ii) the face amount
of Letters of Credit issued under Section 2.1.1 (including undrawn and
drawn but unreimbursed Letters of Credit) plus (iii) the reserve, if
any, taken under Section 2.1.1(d) plus (iv) the Foreign Exchange Reserve
plus (v) any Advances owed by Borrower to Banks pursuant to
Section 2.1.3 is greater than the Committed Line, Borrower shall
immediately pay to Servicing Agent, in cash, the amount of such excess,
for payment to the Banks according to their respective Percentage
Shares.
2.3 Interest Rates, Payments, and Calculations2.3
Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in
Section 2.3(b), any Advances of each Bank shall bear interest, on the
average Daily Balance, at the rates specified in Sections 2.1(c), and
2.1(d), respectively.
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate
applicable immediately prior to the occurrence of the Event of Default.
(c) Payments. Accrued interest shall be due and
payable in arrears upon the earlier of (i) with respect to any LIBOR
Advance, the end of the Interest Period or (ii) any payment of principal or
(iii) on the twenty-ninth (29th) day of each calendar month (except for the
month of February for which the date shall be the twenty-eighth (28th)
day). Servicing Agent shall, at the option of Servicing Agent, charge such
interest, all Bank Expenses, and all Periodic Payments against Borrower's
deposit account held at SVB or against the Committed Line, in which case
those amounts shall thereafter accrue interest at the rate then applicable
hereunder. Any interest not paid when due shall be compounded by becoming
a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest
hereunder shall be increased or decreased effective as of 12:01 a.m. on the
day the Prime Rate is changed, by an amount equal to such change in the
Prime Rate. All interest chargeable under the Loan Documents shall be
computed on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed.
2.4 Crediting Payments2.4 Crediting Payments. Prior
to the occurrence of an Event of Default, each Bank shall credit a wire
transfer of funds, check, or other item of payment to such deposit account
or Obligation as Borrower specifies. After the occurrence and during the
continuation of an Event of Default, the receipt by a Bank of any wire
transfer of funds, check, or other item of payment shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment on account unless such payment is of immediately available federal
funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by a Bank after
noon California time shall be deemed to have been received by such Bank as
of the opening of business on the immediately following Business Day.
Whenever any payment to a Bank under the Loan Documents would otherwise be
due (except by reason of acceleration) on a date that is not a Business
Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be
payable for the period of such extension.
2.5 Fees2.5 Fees. Borrower shall pay to Banks the
following:
(a) Facility Fee. A facility fee equal to
Twenty-Seven Thousand Five Hundred Dollars ($27,500) which fee shall be
due and payable on the Closing Date and shall be fully earned and
non-refundable as of such date;
(b) Financial Examination and Appraisal Fees. Each
Bank's customary fees and out-of-pocket expenses for such Bank's financial
analysis and examination of Borrower performed from time to time by such
Bank or its agents; and
(c) Bank Expenses. Upon the date hereof, all Bank
Expenses incurred through the date hereof, including reasonable attorneys'
fees and expenses, and, within thirty (30) days of demand, other Bank
Expenses as they become due from time to time hereunder.
2.6 Additional Costs2.6 Additional Costs. In case any
law, regulation, treaty or official directive or the written interpretation
or application thereof by any court or any governmental authority charged
with the administration thereof or the compliance with any guideline or
request of any central bank or other governmental authority (whether or not
having the force of law):
(a) subjects any Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder
by Borrower or otherwise with respect to the
transactions contemplated hereby (except for taxes on the overall net
income of such Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account of, or loans
by, any Bank; or
(c) imposes upon any Bank any other material
condition with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to such
Bank, reduce the income receivable by such Bank or impose any expense
upon such Bank with respect to any loans, such Bank shall notify
Borrower thereof in writing. Borrower shall pay to such Bank the amount
of such increase in cost, reduction in income or additional expense as
and when such cost, reduction or expense is incurred or determined, upon
presentation by such Bank of a statement of the amount and setting forth
such Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error;
provided, however, that Borrower shall not be liable for any such amount
attributable to any period prior to 180 days prior to the date of such
certificate.
2.7 Conversion/Continuation of Advances2.7
Conversion/Continuation of Advances.
(a) Borrower may from time to time submit in
writing a request that Prime Rate Advances be converted to LIBOR Rate
Advances or that any existing LIBOR Rate Advances continue for an additional
Interest Period. Such request shall specify the amount of the Prime
Rate Advances that will constitute LIBOR Rate Advances (subject to the
limits set forth below) and the Interest Period to be applicable to such
LIBOR Rate Advances. Each written request for a conversion to a LIBOR
Rate Advance or a continuation of a LIBOR Rate Advance shall be
substantially in the form of a LIBOR Rate Conversion/Continuation
Certificate as set forth on Exhibit B-2, which shall be duly executed by
a Responsible Officer. Subject to the terms and conditions contained
herein, three (3) Business Days after Servicing Agent's receipt of such
a request from Borrower, such Prime Rate Advances shall be converted to
LIBOR Rate Advances or such LIBOR Rate Advances shall continue, as the
case may be provided that:
(i) no Event of Default or
event which with notice or passage of time or both would constitute an
Event of Default exists;
(ii) no party hereto shall have
sent any notice of termination of the Agreement;
(iii) Borrower shall have
complied with such customary procedures as Banks have established from time
to time for Borrower's requests for LIBOR Rate Advances;
(iv) the amount of a Prime Rate
Advance shall be Twenty-Five Thousand Dollars ($25,000) or more, and the
amount of a LIBOR Rate Advance shall be Five Hundred Thousand Dollars
($500,000) or such greater amount which is an integral multiple of Fifty
Thousand Dollars ($50,000); and
(v) Servicing Agent shall have
determined that the Interest Period or LIBOR Rate is available to Banks
as of the date of the request for such LIBOR Rate Advance.
Any request by Borrower to convert Prime Rate Advances to LIBOR
Rate Advances or continue any existing LIBOR Rate Advances shall be
irrevocable. Notwithstanding anything to the contrary contained herein,
Banks shall not be required to purchase United States Dollar deposits in
the London interbank market or other applicable LIBOR Rate market to
fund any LIBOR Rate Advances, but the provisions hereof shall be deemed
to apply as if Banks had purchased such deposits to fund the LIBOR Rate
Advances.
(b) Any LIBOR Rate Advances shall automatically
convert to Prime Rate Advances upon the last day of the applicable
Interest Period, unless Banks have received and approved a complete and
proper request to continue such LIBOR Rate Advance at least three (3)
Business Days prior to such last day in accordance with the terms
hereof. Any LIBOR Rate Advances shall, at Banks' option, convert to
Prime Rate Advances in the event that an Event of Default shall exist.
Borrower shall pay to Banks, upon demand by Banks (or Servicing Agent
may, at its option, charge Borrower's deposit account) any amounts
required to compensate Banks for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the
conversion of LIBOR Rate Advances to Prime Rate Advances pursuant to any
of the foregoing.
2.8 Additional Requirements/Provisions Regarding LIBOR
Rate Advances.2.8 Additional Requirements/Provisions Regarding LIBOR
Rate Advances.
(a) If for any reason (including voluntary or
mandatory prepayment or acceleration), Banks receive all or part of the
principal amount of a LIBOR Rate Advance prior to the last day of the
Interest Period for such LIBOR Rate Advance Borrower shall on demand by
Servicing Agent, pay Servicing Agent the amount (if any) by which
(i) the additional interest which would have been payable on the amount
so received had it not been received until the last day of such Interest
Period or term exceeds (ii) the interest which would have been
recoverable by Banks by placing the amount so received on deposit in the
certificate of deposit markets or the offshore currency interbank
markets or United States Treasury investment products, as the case may
be, for a period starting on the date on which it was so received and
ending on the last day of such Interest Period or term at the interest
rate determined by Servicing Agent in its reasonable discretion.
Servicing Agent's determination as to such amount shall be conclusive
absent manifest error.
(b) Borrower shall pay to a Bank, upon demand
by a Bank, from time to time such amounts as such Bank may reasonably
determine to be necessary to compensate it for any costs incurred by
such Bank that such Bank determines are attributable to its making or
maintaining of any amount receivable by such Bank hereunder in respect
of any Advances relating thereto (such increases in costs and reductions
in amounts receivable being herein called "Additional Costs"), in each
case resulting from any Regulatory Change which:
(i) changes the basis of taxation of any
amounts payable to such Bank under this Agreement in respect of any
Advances (other than changes which affect taxes measured by or imposed
on the overall net income of such Bank by the jurisdiction in which such
Bank has its principal office); or
(ii) imposes or modifies any reserve,
special deposit or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of
such Bank (including any Advances or any deposits referred to in the
definition of "LIBOR Base Rate"); or
(iii) imposes any other material condition
affecting this Agreement (or any of such extensions of credit or
liabilities).
Such Bank will notify Borrower of any event occurring after the date of
the Agreement which will entitle such Bank to compensation pursuant to
this section as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. Such Bank will
furnish Borrower with a statement setting forth the basis and amount of
each request by such Bank for compensation under this Section 2.8.
Determinations and allocations by a Bank for purposes of this
Section 2.8 of the effect of any Regulatory Change on its costs of
maintaining its obligations to make Advances or of making or maintaining
Advances or on amounts receivable by it in respect of Advances, and of
the additional amounts required to compensate such Bank in respect of
any Additional Costs, shall be conclusive absent manifest error.
(c) Borrower shall pay to a Bank, upon the request
of such Bank, such amount or amounts as shall be sufficient (in the sole
good faith opinion of such Bank) to compensate it for any reasonable
loss, costs or expense incurred by it as a result of any failure by
Borrower to borrow a LIBOR Rate Advance on the date for such borrowing
specified in the relevant notice of borrowing hereunder.
(d) If a Bank shall determine that the adoption or
implementation of any applicable law, rule, regulation or treaty
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Bank (or its applicable lending
office) with any respect or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of such Bank or any person or entity
controlling Bank (a "Parent") as a consequence of its obligations
hereunder to a level below that which Bank (or its Parent) could have
achieved but for such adoption, change or compliance (taking into
consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within
fifteen (15) days after demand by such Bank, Borrower shall pay to Bank
such additional amount or amounts as will compensate such Bank for such
reduction. A statement of such Bank claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to
it hereunder shall be conclusive absent manifest error.
(e) If at any time a Bank, in its sole and absolute
discretion, determines that: (i) the amount of the LIBOR Rate Advances
for periods equal to the corresponding Interest Periods or any other
period are not available to such Bank in the offshore currency interbank
markets, or (ii) the LIBOR Rate does not accurately reflect the cost to
Bank of lending the LIBOR Rate Advance, then such Bank shall promptly
give notice thereof to Borrower, and upon the giving of such notice such
Bank's obligation to make the LIBOR Rate Advances shall terminate,
unless Banks and Borrower agree in writing to a different interest rate
applicable to LIBOR Rate Advances. If it shall become unlawful for a
Bank to continue to fund or maintain any Advances, or to perform its
obligations hereunder, upon demand by such Bank, Borrower shall prepay
the Advances in full with accrued interest thereon and all other amounts
payable by Borrower hereunder (including, without limitation, any amount
payable in connection with such prepayment pursuant to Section 2.8(a)).
2.9 Term2.9 Term. This Agreement shall become
effective upon the date hereof and shall continue in full force and
effect for a term ending on the Maturity Date. Notwithstanding the
foregoing, Banks shall have the right to terminate any obligation to
make Advances under this Agreement immediately and without notice upon
the earlier of (i) the occurrence and during the continuance of an Event
of Default or (ii) the Maturity Date. On the date of termination, all
Obligations shall become immediately due and payable in cash or by wire
transfer.
3. CONDITIONS OF LOANS3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance3.1
Conditions Precedent to Initial Advance. The obligation of either
Bank to make the initial Advance is subject to the condition precedent
that such Bank shall have received, in form and substance satisfactory
to such Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof, provided reasonably detailed invoices
are received; and
(d) such other documents, and completion of such
other matters, as Banks may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances3.2 Conditions
Precedent to all Advances. The obligation of any Bank to make each
Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Servicing Agent of the Loan
Payment/Advance Request Form or LIBOR Rate Advance Request Form, as
applicable, as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 4 shall be true and correct in all material respects on and as
of the date of such Loan Payment/Advance Request Form or LIBOR Rate
Advance Request Form, as applicable, and on the effective date of each
Advance as though made at and as of each such date (except to the extent
they relate specifically to an earlier date, in which case such
representations and warranties shall continue to have been true and
accurate as of such date), and no Event of Default shall have occurred
and be continuing, or would result from such Advance.
The making of each Advance shall be deemed to be a representation
and warranty by Borrower on the date of such Advance or Inventory
Advance as to the accuracy of the facts referred to in this
Section 3.2(b).
4. REPRESENTATIONS AND WARRANTIES4. REPRESENTATIONS AND
WARRANTIES
Borrower represents and warrants as follows:
4.1 Due Organization and Qualification4.1 Due
Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its
state of incorporation and qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business
or its ownership of property requires that it be so qualified.
4.2 Due Authorization; No Conflict4.2 Due
Authorization; No Conflict. The execution, delivery, and performance of
the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws,
nor will they constitute an event of default under any material agreement
to which Borrower is a party or by which Borrower is bound. Borrower is
not in default under any agreement to which it is a party or by which it
is bound, which default could have a Material Adverse Effect.
4.3 No Prior Encumbrances4.3 No Prior Encumbrances.
Borrower has good and indefeasible title to its property, free and clear
of Liens, except for Permitted Liens.
4.4 Name; Location of Chief Executive Office4.4 Name;
Location of Chief Executive Office. Borrower has not done business
under any name other than that specified on the signature page hereof.
The chief executive office of Borrower is located at the address
indicated in Section 9 hereof.
4.5 Litigation4.5 Litigation. There are no actions or
proceedings pending by or against Borrower or any Subsidiary before any
court or administrative agency in which an adverse decision could have a
Material Adverse Effect. Borrower does not have knowledge of any such
pending or threatened actions or proceedings.
4.6 No Material Adverse Change in Financial Statements4.6
No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary
that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the
date thereof and Borrower's consolidated results of operations for the
period then ended. There has not been a material adverse change in the
consolidated financial condition of Borrower since the date of the most
recent of such financial statements submitted to Bank.
4.7 Solvency4.7 Solvency. The fair saleable value of
Borrower's assets (including good will minus disposition costs) exceeds
the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions contemplated by this
Agreement; and Borrower is able to pay its debts (including trade debts)
as they mature.
4.8 Regulatory Compliance4.8 Regulatory Compliance.
Borrower and each Subsidiary has met the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA. No
event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any
liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important
activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.
4.9 Environmental Condition4.9 Environmental
Condition. None of Borrower's or any Subsidiary's properties or assets
has ever been used by Borrower or any Subsidiary or, to the best of
Borrower's knowledge, by previous owners or operators, in the disposal of,
or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law;
to the best of Borrower's knowledge, none of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to
any environmental protection statute as a hazardous waste or hazardous
substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
4.10 Taxes4.10 Taxes. Borrower and each
Subsidiary have filed or caused to be filed all tax returns required to be
filed, and have paid, or have made adequate provision for the payment of,
all taxes reflected therein.
4.11 Subsidiaries4.11 Subsidiaries. Borrower
does not own any stock, partnership interest or other equity securities of
any Person, except for Permitted Investments.
4.12 Government Consents4.12 Government Consents. Borrower
and each Subsidiary have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all
notices to, all governmental authorities that are necessary for the
continued operation of their respective businesses as currently
conducted.
4.13 Full Disclosure4.13 Full Disclosure. No
representation, warranty or other statement made by Borrower in any
certificate or written statement furnished to Bank contains any untrue
statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or
statements not misleading (it being recognized by Bank, except as
provided in Section 4.12, that the projections and forecasts provided by
Borrower are not viewed as facts and that the actual results during the
period or periods covered by any such projections or forecasts may
differ from the projected or forecasted results).
5. AFFIRMATIVE COVENANTS5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as a Bank may have any
commitment to make an Advance hereunder, Borrower shall do all of the
following:
5.1 Good Standing5.1 Good Standing. Borrower shall
maintain its and each of its Subsidiaries' corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification
in each jurisdiction in which the failure to so qualify could have a
Material Adverse Effect. Borrower shall maintain, and shall cause each
of its Subsidiaries to maintain, in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
5.2 Government Compliance5.2 Government Compliance.
Borrower shall meet, and shall cause each Subsidiary to meet, the
minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause
each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance
with which could have a Material Adverse Effect.
5.3 Financial Statements, Reports, Certificates5.3
Financial Statements, Reports, Certificates. Borrower shall
deliver to Banks: (a) within five (5) days upon becoming available or,
if earlier, to the extent applicable, forty-five (45) days after the end
of each fiscal quarter, copies of all statements, reports and notices
sent or made available generally by Borrower to its security holders or
to any holders of Subordinated Debt and all reports on Form 10-K and 10-
Q filed with the Securities and Exchange Commission; (b) as soon as
available, but in any event within one hundred and twenty (120) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of Five Hundred Thousand Dollars ($500,000) or more; and
(d) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time.
Borrower shall deliver to Banks with the quarterly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto.
5.4 Inventory; Returns5.4 Inventory; Returns. Borrower
shall keep all Inventory in good and marketable condition, free from all
material defects. Returns and allowances, if any, as between Borrower
and its account debtors shall be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall
promptly notify Servicing Agent of all returns and recoveries and of all
disputes and claims, where the return, recovery, dispute or claim
involves more than Two Million Dollars ($2,000,000).
5.5 Taxes5.5 Taxes. Borrower shall make, and shall
cause each Subsidiary to make, due and timely payment or deposit of all
material federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to Banks, on demand,
appropriate certificates attesting to the payment or deposit thereof;
and Borrower will make, and will cause each Subsidiary to make, timely
payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those
laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Banks with
proof satisfactory to Banks indicating that Borrower or a Subsidiary has
made such payments or deposits; provided that Borrower or a Subsidiary
need not make any payment if the amount or validity of such payment is
contested in good faith by appropriate proceedings and is reserved
against (to the extent required by GAAP) by Borrower.
5.6 Insurance5.6 Insurance. Borrower, at its
expense, shall keep its business insured against loss or damage by fire,
theft, explosion, sprinklers, and all other hazards and risks, and in
such amounts, as ordinarily insured against by other owners in similar
businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of its assets in amounts and of
a type that are customary to businesses similar to Borrower's.
5.7 Principal Depository5.7 Principal Depository.
Borrower shall maintain its principal depository and operating accounts
with SVB.
5.8 Quick Ratio5.8 Quick Ratio. Borrower shall
maintain, as of the last day of each fiscal quarter, a ratio of Quick
Assets to Current Liabilities of at least 2.00 to 1.00.
5.9 Debt-Tangible Net Worth Ratio5.9
Debt-Tangible Net Worth Ratio. Borrower shall maintain, as of the last
day of each fiscal quarter, a ratio of Total Liabilities less Subordinated
Debt to Tangible Net Worth plus Subordinated Debt of not more than 1.00 to
1.00.
5.10 Tangible Net Worth5.10 Tangible Net Worth. Borrower
shall maintain, as of the last day of each fiscal quarter, a Tangible
Net Worth of not less than Seventy Million Dollars ($70,000,000), minus
up to an aggregate amount of Fifteen Million Dollars (15,000,000)
provided such amount is used to repurchase Borrower's capital stock in
accordance with Section 6.6.
5.11 Out-of-Debt5.11 Out-of-Debt. Borrower shall,
between the time of the date of the initial Advance hereunder and the
Maturity Date, have repaid all outstanding Obligations hereunder for a
period of thirty (30) consecutive days.
5.12 Further Assurances5.12 Further Assurances. At any
time and from time to time Borrower shall execute and deliver such
further instruments and take such further action as may reasonably be
requested by Bank to effect the purposes of this Agreement.
6. NEGATIVE COVENANTS6. NEGATIVE COVENANTS
Borrower covenants and agrees that, without the prior
written consent of Banks, which may be withheld in Banks' sole
discretion, so long as any credit hereunder shall be available and until
payment in full of the outstanding Obligations or for so long as a Bank
may have any commitment to make any Advances, Borrower will not do any
of the following:
6.1 Dispositions6.1 Dispositions. Convey, sell, lease,
transfer or otherwise dispose of (collectively, a "Transfer"), or permit
any of its Subsidiaries to Transfer, all or any part of its business or
property, other than: (i) Transfers of Inventory in the ordinary course
of business; (ii) Transfers of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment, or
Equipment financed by other vendors; (iv) Transfers which constitute
liquidation of Investments permitted under Section 6.7; and (v) other
Transfers not otherwise permitted by this Section 6.1 not exceeding One
Million Dollars ($1,000,000) in the aggregate in any fiscal year.
6.2 Change in Business6.2 Change in Business. Engage in
any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental
thereto), or suffer a material change in Borrower's ownership other than
the sale of additional Common Stock of the Company. Borrower will not,
without thirty (30) days prior written notification to Banks, relocate
its chief executive office.
6.3 Mergers or Acquisitions6.3 Mergers or
Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other business organization, or
acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person where
the aggregate consideration paid in any fiscal year with respect to such
mergers, consolidations and acquisitions exceeds One Million Dollars
($1,000,000); provided that this Section 6.3 shall not apply to (i) the
purchase of inventory, equipment or intellectual property rights in any
transaction valued at less than One Hundred Thousand Dollars ($100,000) in
the ordinary course of business or (ii) transactions among Subsidiaries or
among Borrower and its Subsidiaries in which Borrower is the surviving
entity.
6.4 Indebtedness6.4 Indebtedness. Create, incur, assume
or be or remain liable with respect to any Indebtedness, or permit any
Subsidiary so to do, other than Permitted Indebtedness.
6.5 Encumbrances6.5 Encumbrances. Create, incur, assume
or suffer to exist any Lien with respect to any of its property, or
assign or otherwise convey any right to receive income, including the
sale of any accounts receivable, or permit any of its Subsidiaries so to
do, except for Permitted Liens.
6.6 Distributions6.6 Distributions. Pay any
dividends or make any other distribution or payment on account of or in
redemption, retirement or purchase of any capital stock; provided, that
(i) Borrower may declare and make any dividend payment or other
distribution payable in its equity securities, (ii) Borrower may convert
any of its convertible securities into other securities pursuant to the
terms of such convertible securities or otherwise in exchange therefor,
and (iii) Borrower may repurchase stock in an aggregate amount not to
exceed Fifteen Million Dollars ($15,000,000) for so long as an Event of
Default has not occurred and will not exist after giving effect to such
repurchase.
6.7 Investments6.7 Investments. Directly or indirectly
acquire or own, or make any Investment in or to any Person, or permit
any of its Subsidiaries so to do, other than Permitted Investments.
6.8 Transactions with Affiliates6.8 Transactions with
Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-
affiliated Person except for transactions with a Subsidiary that are
upon fair and reasonable terms and transactions constituting Permitted
Investments.
6.9 Subordinated Debt6.9 Subordinated Debt. Make any
payment in respect of any Subordinated Debt, or permit any of its
Subsidiaries to make any such payment, except in compliance with the
terms of such Subordinated Debt, or amend any provision contained in any
documentation relating to the Subordinated Debt without Banks' prior
written consent.
6.10 Compliance6.10 Compliance. Become an "investment
company" controlled by an "investment company," within the meaning of
the Investment Company Act of 1940, or become principally engaged in, or
undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use
the proceeds of any Advance for such purpose. Fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect, or permit any of its
Subsidiaries to do any of the foregoing.
7. EVENTS OF DEFAULT7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
7.1 Payment Default7.1 Payment Default. If Borrower
fails to pay the principal of, or any interest on, any Advances when due
and payable; or fails to pay any portion of any other Obligations not
constituting such principal or interest, including without limitation
Bank Expenses, within thirty (30) days of receipt by Borrower of an
invoice for such other Obligations;
7.2 Covenant Default7.2 Covenant Default. If Borrower
fails to perform any obligation under Sections 5.7, 5.8, 5.9, 5.10 or
5.11 or violates any of the covenants contained in Article 6 of this
Agreement, or fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and a Bank and as to any default under
such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after
Borrower receives notice thereof or any officer of Borrower becomes
aware thereof; provided, however, that if the default cannot by its
nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrower be cured within such ten (10) day period, and such
default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall
not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);
7.3 Material Adverse Change7.3 Material Adverse
Change. If there occurs a material adverse change in Borrower's business
or financial condition, or if there is a material impairment of the
prospect of repayment of any portion of the Obligations;
7.4 Attachment7.4 Attachment. If any material portion
of Borrower's assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such
attachment, seizure, writ or distress warrant or levy has not been
removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs,
or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets
by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or
governmental agency, and the same is not paid within ten (10) days after
Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is
stayed or an adequate bond has been posted pending a good faith contest
by Borrower (provided that no Advances will be required to be made
during such cure period);
7.5 Insolvency7.5 Insolvency. If Borrower becomes
insolvent, or if an Insolvency Proceeding is commenced by Borrower, or
if an Insolvency Proceeding is commenced against Borrower and is not
dismissed or stayed within thirty (30) days (provided that no Advances
will be made prior to the dismissal of such Insolvency Proceeding);
7.6 Other Agreements7.6 Other Agreements. If there is
a default in any agreement to which Borrower is a party with a third
party or parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness
in an amount in excess of Five Hundred Thousand Dollars ($500,000) or
that could have a Material Adverse Effect;
7.7 Subordinated Debt7.7 Subordinated Debt. If
Borrower makes any payment on account of Subordinated Debt, except to
the extent such payment is allowed under any subordination agreement
entered into with Bank;
7.8 Judgments7.8 Judgments. If a judgment or
judgments for the payment of money in an amount, individually or in the
aggregate, of at least Five Hundred Thousand Dollars ($500,000) shall be
rendered against Borrower and shall remain unsatisfied and unstayed for
a period of ten (10) days (provided that no Advances will be made prior
to the satisfaction or stay of such judgment); or
7.9 Misrepresentations7.9 Misrepresentations. If any
material misrepresentation or material misstatement exists now or
hereafter in any warranty or representation set forth herein or in any
certificate delivered to Bank by any Responsible Officer pursuant to
this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.
8. BANK'S RIGHTS AND REMEDIES8. BANK'S RIGHTS AND REMEDIES
8.1 Rights and Remedies8.1 Rights and Remedies. Upon the
occurrence and during the continuance of an Event of Default, Bank may,
at its election, without notice of its election and without demand, do
any one or more of the following, all of which are authorized by
Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable (provided that upon the occurrence of an
Event of Default described in Section 7.5 all Obligations shall become
immediately due and payable without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Bank; and
(c) Demand that Borrower (i) deposit cash with Bank
in an amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any future drawings
under such Letters of Credit, and Borrower shall forthwith deposit and
pay such amounts, and (ii) pay in advance all Letters of Credit fees
scheduled to be paid or payable over the remaining term of the Letters
of Credit;
(d) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that
Bank reasonably considers advisable;
(e) Without notice to Borrower set off and apply to
the Obligations any and all (i) balances and deposits of Borrower held
by Bank, or (ii) indebtedness at any time owing to or for the credit or
the account of Borrower held by Bank.
8.2 Bank Expenses8.2 Bank Expenses. If Borrower
fails to pay any amounts or furnish any required proof of payment due to
third persons or entities, as required under the terms of this Agreement,
then a Bank may do any or all of the following: (a) make a payment of the
same or any parts thereof; (b) set up such reserves under the Revolving
Facility as Banks deem necessary to protect Banks from the exposure
created by such failure; or (c) obtain and maintain insurance policies of
the type discussed in Section 6.6 of this Agreement, and take any action
with respect to such policies as Bank deems prudent. Any amounts so paid
or deposited by a Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then
applicable rate hereinabove provided. Any payments made by a Bank shall
not constitute an agreement by a Bank to make similar payments in the
future or a waiver by a Bank of any Event of Default under this Agreement.
8.3 Remedies Cumulative8.3 Remedies Cumulative. Banks'
rights and remedies under this Agreement, the Loan Documents, and all
other agreements shall be cumulative. A Bank shall have all other
rights and remedies not inconsistent herewith as provided under
applicable law. No exercise by a Bank of one right or remedy shall be
deemed an election, and no waiver by a Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by a Bank
shall constitute a waiver, election, or acquiescence by it. No waiver
by a Bank shall be effective unless made in a written document signed on
behalf of a Bank and then shall be effective only in the specific
instance and for the specific purpose for which it was given.
8.4 Demand; Protest8.4 Demand; Protest. Subject to
any requirement under other sections of this Agreement, Borrower waives
demand, protest, notice of protest, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and guarantees at any
time held by a Bank on which Borrower may in any way be liable.
9. NOTICES9. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement
entered into in connection herewith shall be in writing and (except for
financial statements and other informational documents which may be sent
by first-class mail, postage prepaid) shall be personally delivered or
sent by a recognized overnight delivery service, certified mail, postage
prepaid, return receipt requested, or by telefacsimile to Borrower or to
a Bank, as the case may be, at its addresses set forth below:
If to Borrower: Centigram Communications Corporation
91 East Tasman Drive
San Jose, CA 95134
Attn: Mr. Tom Brunton
FAX: (408) 428-3732
If to Servicing Agent Silicon Valley Bank
or SVB: 3003 Tasman Drive
Santa Clara, CA 95054
Attn: Mr. Jeffrey Huhn
FAX: (408) 748-9478
If to BofH: Bank of Hawaii
1850 North Central Avenue, Suite 400
Phoenix, AZ 85004
Attn: Mr. Kenneth Loveless
FAX: (602) 257-2235
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner
given to the other.
10. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER10. CHOICE OF
LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principles of conflicts of law. Each of Borrower and Bank
hereby submits to the exclusive jurisdiction of the state and Federal
courts located in the County of Santa Clara, State of California.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES
THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH
LEGAL COUNSEL.
11. INTERCREDITOR PROVISIONS11. INTERCREDITOR PROVISIONS
11.1 Proportionate Interests11.1 Proportionate
Interests. Except as otherwise provided in this Agreement, the rights,
interests, and obligations of each Bank under this Agreement and the Loan
Documents at any time shall be shared in the ratio of (a) the maximum
amount the Bank has committed to advance as set forth on the signature
page signed by the Bank to (b) the Committed Line. Any reference in this
Agreement or the Loan Documents to an allocation between or sharing by the
Banks of any right, interest, or duty "ratably," "proportionally," "pro
rata," or in similar terms shall refer to this ratio. No Bank is
obligated to advance any funds in lieu of or for the account of the other
Bank if the latter Bank fails to make such Advance.
11.2 Designation of Service Agent11.2 Designation of
Service Agent. To facilitate the administration of this Agreement, SVB
shall act as "Servicing Agent" for itself and BofH. Servicing Agent
shall have only such duties as are expressly set forth in this
Agreement, or as otherwise agreed in writing by the Banks. Servicing
Agent shall be deemed to act on behalf of both Banks whenever Servicing
Agent acts under this Agreement.
11.3 No Agency11.3 No Agency. EXCEPT AS SPECIFIED
HEREIN, NEITHER BANK IS AN AGENT OF THE OTHER. NEITHER BANK HAS ANY
AUTHORITY TO ACT OR FAIL TO ACT FOR THE OTHER. THE OBLIGATIONS OF EACH
BANK HEREUNDER ARE SEVERAL. NO BANK SHALL BE LIABLE FOR THE FAILURE OF
ANY OTHER BANK TO PERFORM ITS OBLIGATIONS HEREUNDER.
11.4 No Reliance11.4 No Reliance. The provisions of this
Article 11 are solely for the benefit of Banks in specifying their
rights and obligations with respect to each other, and not for the
benefit of any Borrower or its assigns or successors.
12. GENERAL PROVISIONS12. GENERAL PROVISIONS
12.1 Successors and Assigns12.1 Successors and Assigns.
This Agreement shall bind and inure to the benefit of the respective
successors and permitted assigns of each of the parties; provided,
however, that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Banks' prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Banks shall have
the right without the consent of or notice to Borrower to sell,
transfer, negotiate, or grant participation in all or any part of, or
any interest in, Banks' obligations, rights and benefits hereunder.
12.2 Indemnification12.2 Indemnification. Borrower
shall defend, indemnify and hold harmless each Bank and its officers,
employees, and agents against (a) all obligations, demands, claims, and
liabilities claimed or asserted by any other party in connection with
the transactions contemplated by this Agreement, and (b) all losses or
Bank Expenses in any way suffered, incurred, or paid by a Bank as a
result of, or in any way arising out of, following, or consequential to,
transactions between such Bank and Borrower, whether under this
Agreement or otherwise, (including without limitation reasonable
attorneys fees and expenses), except for losses caused by such Bank's
gross negligence or willful misconduct.
12.3 Time of Essence12.3 Time of Essence. Time is of
the essence for the performance of all obligations set forth in this
Agreement.
12.4 Severability of Provisions12.4 Severability of
Provisions. Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining
the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration12.5 Amendments
in Writing, Integration. This Agreement cannot be amended or terminated
orally. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to
the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Effect of Amendment and Restatement12.6 Effect of
Amendment and Restatement. This Agreement is intended to and does
completely amend and restate, without novation, the Original Loan
Documents.
12.7 Counterparts12.7 Counterparts. This
Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
12.8 Survival12.8 Survival. All covenants,
representations and warranties made in this Agreement shall continue in
full force and effect so long as any Obligations (excluding Obligations
under Section 2.6 and 12.2 to the extent they remain inchoate at the
time the outstanding payment Obligations are paid in full) remain
outstanding. The obligations of Borrower to indemnify a Bank with
respect to the expenses, damages, losses, costs and liabilities
described in Section 12.2 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought against
such Bank have run.
12.9 Confidentiality12.9 Confidentiality. In handling
any confidential information each Bank shall exercise the same degree of
care that it exercises with respect to its own proprietary information
of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the
subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Advances, provided that
they have entered into a comparable confidentiality agreement in favor
of Borrower and have delivered a copy to Borrower, (iii) as required by
law, regulations, rule or order, subpoena, judicial order or similar
order (iv) as may be required in connection with the examination, audit
or similar investigation of Bank and (v) as Bank may deem appropriate in
the exercise of its remedies under this Agreement. Confidential
information hereunder shall not include information that either: (a) is
in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure
to Bank through no fault of Bank; or (b) is disclosed to Bank by a third
party, provided Bank does not have actual knowledge that such third
party is prohibited from disclosing such information. Notwithstanding
any provision of this Agreement to the contrary, neither Borrower nor
any of its Subsidiaries will be required to disclose, permit the
inspection, examination, copying or making extracts of, or discussions
of: any document, information or other matter (i) prior to the
occurrence of an Event of Default that constitutes non-financial trade
secrets or non-financial proprietary information (provided that the
terms of agreements that generate Accounts shall not be deemed to be
"non-financial trade secrets or non-financial proprietary information"),
or (ii) in respect to which disclosure to Bank (or designated
representative) is then prohibited by (a) law, or (b) an agreement
binding upon Borrower or any Subsidiary that was not entered into by
Borrower or such Subsidiary for the primary purpose of concealing
information from Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
CENTIGRAM COMMUNICATIONS CORPORATION
By:
Title:
SILICON VALLEY BANK
By:
Title:
Maximum Commitment Amount: $10,000,000
BANK OF HAWAII
By:
Title:
Maximum Commitment Amount: $10,000,000
EXHIBIT A
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M. PACIFIC TIME
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
FAX#: (408) 496-2426 TIME:
FROM: Centigram Communications Corporation
CLIENT NAME (BORROWER)
REQUESTED BY:
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT # TO ACCOUNT #
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the Amended and
Restated Loan Agreement are true, correct and complete in all material
respects as of the date of the telephone request for an Advance confirmed
by this Loan Payment/Advance Form; provided, however, that those
representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment
transfer/loan advance on the advance designated account and is known to
me.
Authorized Requester Phone #
Received By (Bank) Phone #
Authorized Signature (Bank)
EXHIBIT B-1
LIBOR RATE ADVANCE REQUEST FORM
The undersigned hereby certifies as follows:
I, , am the duly elected and acting
of Centigram Communications Corporation
("Borrower").
This certificate is delivered to Silicon Valley Bank, as Servicing
Agent, pursuant to Section 2 of that certain Amended and Restated Loan
Agreement by and between Borrower and Banks (the "Agreement"). The
terms used in this LIBOR Rate Advance Request Form that are defined in
the Agreement have the same meaning herein as ascribed to them therein.
Borrower hereby requests a LIBOR Rate Advance as follows:
(a) The date on which the Advance is to be made is
, 19 .
(b) The amount of the Advance is to be
($ ), in the form of a LIBOR
Rate Advance for an Interest Period of months.
All representations and warranties of Borrower stated in the
Agreement are true, correct and complete in all material respects as of
the date of this request for a loan; provided, however, that those
representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Advance Request Form is
executed by the undersigned as of this day of
, 19 .
CENTIGRAM COMMUNICATIONS
CORPORATION
By:
Title:
For Internal Bank Use Only
LIBOR Pricing
Date
LIBOR Rate
LIBOR Rate
Variance
Maturity Date
%
EXHIBIT B-2
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, , am the duly elected and acting
of Centigram Communications Corporation
("Borrower").
This certificate is delivered to Silicon Valley Bank, as Servicing
Agent, pursuant to Section 2 of that certain Amended and Restated Loan
Agreement by and between Borrower and Banks (the "Agreement"). The
terms used in this LIBOR Rate Conversion/Continuation Certificate that
are defined in the Agreement have the same meaning herein as ascribed to
them therein.
Borrower hereby requests on , 19 a
LIBOR Rate Advance (the "Advance") as follows:
(a) (i) A rate conversion of an existing Prime Rate
Advance from a Prime Rate Advance to a LIBOR
Rate Advance; or
(ii) A continuation of an existing LIBOR Rate
Advance as a LIBOR Rate Advance.
[Check (i) or (ii) above]
(b) The date on which the Advance is to be made is
, 19 .
(c) The amount of the Advance is to be
($ ), for an Interest Period
of month(s).
All representations and warranties of Borrower stated in the
Agreement are true, correct and complete in all material respects as of
the date of this request for a loan; provided, however, that those
representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation
Certificate is executed by the undersigned as of this day
of , 19 .
CENTIGRAM COMMUNICATIONS
CORPORATION
By:
Title:
For Internal Bank Use Only
LIBOR Pricing
Date
LIBOR Rate
LIBOR Rate
Variance
Maturity Date
%
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK, BANK OF HAWAII
FROM: CENTIGRAM COMMUNICATIONS CORPORATION
The undersigned authorized officer of Centigram Communications
Corporation hereby certifies that in accordance with the terms and
conditions of the Amended and Restated Loan Agreement between Borrower
and Banks (the "Agreement"), (i) Borrower is in complete compliance for
the period ending with all required covenants except as
noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as
of the date hereof. Attached herewith are the required documents
supporting the above certification. The Officer further certifies that
these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the
next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required Complies
Quarterly financial statements Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
Financial Covenant Required Actual Complies
Maintain on a Quarterly Basis:
Minimum Quick Ratio 2.00:1.00 _____:1.0 Yes No
Minimum Tangible Net Worth $70,000,000* $_______ Yes No
Maximum Debt/Tangible Net Worth 1.00:1.00 ____:1.0 Yes No
30 consecutive days during
term
Out of Debt after first Advance _________ Yes No
* Minus up to aggregate of $15,000,000 utilized for stock repurchases.
BANK USE ONLY
Received by:
AUTHORIZED SIGNER
Date:
Verified:
AUTHORIZED SIGNER
Date:
Compliance Status: Yes No
Comments Regarding Exceptions: See Attached.
Sincerely,
SIGNATURE
TITLE
DATE
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Centigram
Communications Corporation Banks:
Silicon Valley Bank
Bank
of Hawaii
LOAN TYPE. This is a variable rate, revolving line of credit of a
principal amount up to $20,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for
business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term
Working Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds
will be disbursed until all of Bank's conditions for making the loan
have been satisfied. Please disburse the loan proceeds as follows:
Revolving Line
Amount paid to Borrower directly: $
Undisbursed Funds $
Principal $
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed
the following charges:
Charges Paid in Cash:
$27,500 Loan Fee
$TBD Outside Counsel Fees and Expenses (Estimate)
$TBD UCC Search Fee
$TBD UCC Filing Fee
Total Charges Paid in Cash $
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to
deduct from Borrower's account numbered the amount of any
loan payment. If the funds in the account are insufficient to cover any
payment, Bank shall not be obligated to advance funds to cover the
payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS
AND WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND
CORRECT AND THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S
FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL
STATEMENT TO BANK. THIS AUTHORIZATION IS DATED AS OF APRIL 30, 1997.
BORROWER:
CENTIGRAM COMMUNICATIONS CORPORATION
Authorized Officer
CORPORATE RESOLUTIONS TO BORROW
Borrower: CENTIGRAM COMMUNICATIONS CORPORATION
I, the undersigned Secretary or Assistant Secretary of Centigram
Communications Corporation (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of
the State of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are
true and complete copies of the Certificate of Incorporation and Bylaws
of the Corporation, each of which is in full force and effect on the
date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the
Corporation duly called and held, at which a quorum was present and
voting (or by other duly authorized corporate action in lieu of a
meeting), the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are
shown below:
NAMES POSITIONS ACTUAL
SIGNATURES
acting for an on behalf of this Corporation and as its act and deed be,
and they hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from Silicon Valley
Bank and Bank of Hawaii ("Banks"), on such terms as may be agreed upon
between the officers, employees, or agents and Banks, such sum or sums
of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain Amended and
Restated Loan Agreement dated as of April 30, 1997 (the "Loan
Agreement").
Execute Notes. To execute and deliver to Banks the Loan
Agreement and extensions, modifications, refinancings, consolidations,
or substitutions for the Loan Agreement.
Negotiate Items. To draw, endorse, and discount with Banks all
drafts, trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to the Corporation or in which the
Corporation may have an interest, and either to receive cash for the
same or to cause such proceeds to be credited to the account of the
Corporation with Banks, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.
Letters of Credit; Foreign Exchange. To execute letters of
credit applications, foreign exchange agreements and other related
documents pertaining to Banks' issuance of letters of credit and foreign
exchange contracts.
Further Acts. In the case of lines of credit, to designate
additional or alternate individuals as being authorized to request
advances thereunder, and in all cases, to do and perform such other acts
and things, to pay any and all fees and costs, and to execute and
deliver such other documents and agreements as they may in their
discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant
to these resolutions and performed prior to the passage of these
resolutions are hereby ratified and approved, that these Resolutions
shall remain in full force and effect and Banks may rely on these
Resolutions until written notice of their revocation shall have been
delivered to and received by Banks. Any such notice shall not affect
any of the Corporation's agreements or commitments in effect at the time
notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named
above are duly elected, appointed, or employed by or for the
Corporation, as the case may be, and occupy the positions set forth
opposite their respective names; that the foregoing Resolutions now
stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on April 30, 1997
and attest that the signatures set opposite the names listed above are
their genuine signatures.
CERTIFIED TO AND
ATTESTED BY:
X
Attachment 1 - Certificate of Incorporation
Attachment 2 - ByLaws
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is made by
and between Centigram Communications Corporation, a Delaware corporation (the
"Company"), and George Sollman, an individual residing in California
("Employee").
WHEREAS, Employee was employed by the Company;
WHEREAS, the Company and Employee have entered into a Confidential
Information and Invention Assignment Agreement (the "Confidentiality
Agreement");
WHEREAS, the Company and Employee have entered into a letter agreement
(the "Change in Control Agreement") dated October 8, 1991 pursuant to which
Employee has been granted certain rights in connection with any "Involuntary
Termination" within 12 months of a "Change of Control" of the Company (as
such terms are defined in the Change in Control Agreement);
WHEREAS, the Company and Employee have entered into an Employment
Agreement dated February 22, 1985, as amended by that certain First Amended
Employment Agreement between the Company and Employee dated as of January 6,
1986 and that certain Amendment No. 1 to First Amended Employment Agreement
between the Company and Employee dated as of May 13, 1991 (together with the
Change in Control Agreement, the "Employment Agreements");
WHEREAS, the Company has loaned $300,000 to Employee pursuant to a
Promissory Note dated as of April 1996, which loan has been secured pursuant
to a Stock Pledge Agreement between the Company and Employee dated as of
April 1996 (together, the "Note");
WHEREAS, the Company has advanced $10,000 to Employee in connection
with certain travel expenses (the "Advance");
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and to release each other from any claims arising
from or related to the employment relationship;
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as "the Parties") hereby agree
as follows:
1. Resignation. Employee resigned from his positions as the
Company's President and Chief Executive Officer effective April 15, 1997.
2. Consideration.
(a) Severance Payment. The Company agrees to pay Employee the
net sum of Two Hundred and Eighty Nine Thousand Three Hundred and Twenty
Dollars ($289,320), which number reflects applicable deductions and
withholding consistent with the Company's usual payroll practices, promptly
following the Effective Date (as defined in Section 28 hereof).
(b) Loan Forgiveness. At the later of the Effective Date or
January 1, 1998, (i) if Employee has satisfied the terms of Section 7 through
such date, the Note shall be canceled and of no further effect and the
principal and accrued interest owing thereon shall be forgiven and (ii) all
obligations of Employee to repay the Advance shall be forgiven and shall be
of no further effect, provided, however, that in the event that prior to the
later of the Effective Date or January 1, 1998, there shall occur a breach
of any representation, warranty, covenant or agreement on the part of
Employee set forth in this Agreement, then the terms of this Section 2(b)
shall be void and of no force and effect.
(c) Benefits. For the time period from April 15, 1997 through
April 15, 1999 (the "payment period"), Employee shall continue to participate
in the Company's health and dental insurance benefit plans in accordance with
the rules established for individual participation in such plans, as such
rules may be amended from time to time. The Company shall also reimburse
Employee for the actual cost of one medical exam per calendar year, such
amount not to exceed $650 per exam. In addition, the Company shall pay
Employee the actual cost of his maintaining a life insurance policy in the
amount of $1,000,000 on his own life (with such beneficiaries as he may
select) during the payment period and shall reimburse Employee for up to
$1,000 per year in costs incurred in connection with Employee's preparation
of federal and state income tax returns during the payment period. Except
as set forth in this Section 2(c), during the payment period, Employee will
not be entitled to accrual of any employee benefits, including, but not
limited to, vacation benefits or bonuses.
(d) Office Support. For the time period from April 15, 1997
through the earlier of (i) November 1, 1997 or (ii) such time as Employee
shall commence employment with a party other than the Company (the "office
period"), the Company shall allow Employee to maintain an office at the
Company's headquarters facility (the "office"). Such office shall be
selected by the Company in its sole discretion. In addition, during the
office period, (i) the Company shall provide Employee with reasonable
secretarial support at the office, and (ii) the Company shall reimburse
Employee for Employee's reasonable telephone expense incurred at the office,
such expense not to exceed $200 per month. Moreover, for the time period
from April 15, 1997 through the earlier of April 15, 1998 or such time as
Employee shall commence employment with a party other than the Company, the
Company shall provide Employee with continued access to e-mail and voice-mail
selected by the Company.
(e) Computer System. After the Effective Date, the Employee
may purchase the Dell 486 computer system now in his possession at its book
value in the event he notifies the Company of his intent to do so within ten
days following the later of (i) the Effective Date and (ii) receipt of
notification of such book value from the Company.
3. Board of Directors. Employee hereby irrevocably tenders his
resignation from the Company's Board of Directors, effective November 1,
1997. Employee acknowledges and agrees that he shall not be entitled to
receive any additional grants of stock or stock options by virtue of his
service on the Company's Board of Directors.
4. Options. Except as provided herein, the exercise of any stock
options held by Employee shall continue to be subject to the terms and
conditions of the Company's stock plans and the applicable stock option
agreements between Employee and the Company.
5. Employment Agreements. As of the Effective Date, the Employment
Agreements shall be canceled and of no further force or effect.
6. Consulting.
(a) During the period from April 15, 1997 through November 1,
1997 (the "first consulting period"), Employee shall make himself available
to the Company as a consultant at least two full working days during any one-
month period. In the event that the Company shall request in writing that
Employee perform consulting services on behalf of the Company during the
first consulting period (such services not to include Employee's service as
a member of the Company's Board of Directors), then the Company shall pay
Employee $200 per hour, in a minimum increment of four (4) hours for any
consulting day, for the performance of such services, payable in accordance
with the Company's regular payroll practices.
(b) During the period from November 1, 1997 through May 1,
1998 (the "second consulting period"), the Company shall request and Employee
shall perform consulting services on behalf of the Company at least thirty-
five hours during each calendar month period. Employee shall receive no
further compensation for the first thirty-five hours per month of such
services, and Employee acknowledges and agrees that the payments made
hereunder shall constitute full consideration for such services. Services in
addition to such thirty-five hours shall be compensated at the rate set forth
in Section 6(a) above. Employee and the Company further agree that all
options to purchase Common Stock of the Company granted by the Company to the
Employee, except those granted pursuant to grant number 002527 (granted
December 10, 1996 to purchase 117,700 shares of the Company's Common Stock
at an exercise price of $13.50 per share) and grant number 002528 (granted
December 10, 1996 to purchase 7,300 shares of the Company's Common Stock at
an exercise price of $13.50 per share) (the "Excepted Options"), shall expire
and be of no further force and effect, effective November 30, 1997, and that
the Excepted Options shall expire and be of no further force and effect on
the thirtieth day following the earlier of (i) the last day of the second
consulting period or (ii) such time following the thirtieth day of the second
consulting period as Employee shall not have performed at least thirty-five
hours of consulting services on behalf of the Company during any calendar
month of the second consulting period. The Company covenants that it shall
take all reasonable action under its control reasonably necessary to enable
Employee to perform consulting services on behalf of the Company at least
thirty-five hours during each calendar month until the last day of the second
consulting period (or such earlier time as Employee shall not have performed
at least thirty-five hours of consulting services on behalf of the Company
during any calendar month of the second consulting period). Employee and the
Company shall cooperate with each other to reasonably schedule the time, date
and location of performance of Employee's obligations pursuant to this
Section 6(b). Without limiting the generality of the foregoing, in the event
that the services requested by the Company to be performed by the Employee
in connection with this Section 6(b) must, by their nature, be performed on
a specific day and time, Employee shall have the right, if Employee is
subject to preexisting obligations conflicting with such day and time, to
request in good faith an alternative assignment, which request shall be
accommodated by the Company, provided that such right shall not be exercised
with regard to more than 10 days in any calendar month.
7. Covenant Not to Compete.
(a) During the first consulting period and the second
consulting period, Employee shall not, directly or indirectly, either as an
individual or as an employee, agent, consultant, advisor, independent
contractor, general partner, officer, director, shareholder, investor,
lender, or in any other capacity whatsoever, of any person, firm,
corporation, partnership or other entity or in any other capacity directly
or indirectly:
(1) own, manage, control or participate in the
ownership, management or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent contractor
or otherwise with, any of Octel Communications Corporation, Boston
Technology, Inc., Converse Technology (S) Pte Ltd., Applied Voice Technology,
Inc., Active Voice Corporation or any other corporation, partnership,
proprietorship, firm, association or other business entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, any of the foregoing (a "Competitive
Business");
(2) induce or attempt to induce any person who at the
time of such inducement is an employee of the Company or any subsidiary
thereof to perform work or services for any other person or entity other than
the Company; or
(3) permit the name of Employee to be used in connection
with a Competitive Business.
Employee and the Company expressly acknowledge and agree that the
non-competition provisions contained in this Section 7 are entered into in
connection with Employee's service as a consultant of the Company and are
permissible and enforceable pursuant to the provisions of applicable law.
Nonetheless, if any restriction set forth in this Section 7 is held to be
unreasonable or unenforceable, then Employee agrees, and hereby submits, to
the reduction and limitation of such prohibition to such area or period as
shall be deemed reasonable.
8. Confidential Information. Employee shall continue to maintain
the confidentiality of all confidential and proprietary information of the
Company and shall continue to comply with the terms and conditions of the
Confidentiality Agreement between Employee and the Company. Employee shall
return all the Company property and confidential and proprietary information
in his possession to the Company on the Effective Date of this Agreement.
9. Payment of Salary. Employee acknowledges and represents that the
Company has paid all salary, wages, bonuses, accrued vacation, amounts
payable for sabbaticals not taken, commissions and any and all other benefits
due to Employee.
10. Release of Claims. Employee agrees that the foregoing
consideration represents settlement in full of all outstanding obligations
owed to Employee by the Company. Employee and the Company, on behalf of
themselves, and their respective heirs, family members, executors, officers,
directors, employees, investors, shareholders, administrators, affiliates,
divisions, subsidiaries, predecessor and successor corporations, and assigns,
hereby fully and forever release each other and their respective heirs,
family members, executors, officers, directors, employees, investors,
shareholders, administrators, affiliates, divisions, subsidiaries, predeces-
sor and successor corporations, and assigns, from, and agree not to sue
concerning, any claim, duty, obligation or cause of action relating to any
matters of any kind, whether presently known or unknown, suspected or
unsuspected, that any of them may possess arising from any omissions, acts
or facts that have occurred up until and including the Effective Date of this
Agreement including, without limitation,
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from,
Employee's right to purchase, or actual purchase of shares of stock of the
Company, including, without limitation, any claims for fraud,
misrepresentation, breach of fiduciary duty, breach of duty under applicable
state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment;
termination in violation of public policy; discrimination; breach of
contract, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; promissory estoppel; negligent or
intentional infliction of emotional distress; negligent or intentional
misrepresentation; negligent or intentional interference with contract or
prospective economic advantage; unfair business practices; defamation; libel;
slander; negligence; personal injury; assault; battery; invasion of privacy;
false imprisonment; and conversion;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair
Labor Standards Act, the Employee Retirement Income Security Act of 1974, The
Worker Adjustment and Retraining Notification Act, Older Workers Benefit
Protection Act; the California Fair Employment and Housing Act, and Labor
Code section 201, et seq. and section 970, et seq.;
(e) any and all claims for violation of the federal, or any
state, constitution;
(f) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(g) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release
as to the matters released. This release does not extend to any obligations
incurred under this Agreement.
11. Acknowledgment of Waiver of Claims under ADEA. Employee
acknowledges that he is waiving and releasing any rights he may have under
the Age Discrimination in Employment Act of 1967 ("ADEA") and that this
waiver and release is knowing and voluntary. Employee and the Company agree
that this waiver and release does not apply to any rights or claims that may
arise under ADEA after the Effective Date of this Agreement. Employee
acknowledges that the consideration given for this waiver and release
Agreement is in addition to anything of value to which Employee was already
entitled. Employee further acknowledges that he has been advised by this
writing that (a) he should consult with an attorney prior to executing this
Agreement; (b) he has at least twenty-one (21) days within which to consider
this Agreement; (c) he has at least seven (7) days following the execution
of this Agreement by the parties to revoke the Agreement; and (d) this
Agreement shall not be effective until the revocation period has expired.
12. Civil Code Section 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released
by this Agreement. Employee and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.
Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any
other statute or common law principles of similar effect.
13. No Pending or Future Lawsuits. Employee represents that he has
no lawsuits, claims, or actions pending in his name, or on behalf of any
other person or entity, against the Company or any other person or entity
referred to herein. Employee also represents that he does not intend to
bring any claims on his own behalf or on behalf of any other person or entity
against the Company or any other person or entity referred to herein.
14. Application for Employment. Employee understands and agrees
that, as a condition of this Agreement, he shall not be entitled to any
employment with the Company, its subsidiaries, or any successor, and he
hereby waives any right, or alleged right, of employment or re-employment
with the Company. Employee further agrees that he will not apply for
employment with the Company, its subsidiaries or related companies, or any
successor.
15. Confidentiality. The Parties hereto each agree to use
their best efforts to maintain in confidence the existence of this
Agreement, the contents and terms of this Agreement, and the consideration
for this Agreement (hereinafter collectively referred to as "Settlement
Information"). Each Party hereto agrees to take every reasonable
precaution to prevent disclosure of any Settlement Information to third
parties, and each agrees that there will be no publicity, directly or
indirectly, concerning any Settlement Information except as required by
court order or in connection with the Company's reporting obligations under
the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, or any state "blue sky laws." The Parties hereto agree
to take every precaution to disclose Settlement Information only to those
employees, officers, directors, attorneys, accountants, governmental
entities, and family members who have a reasonable need to know of such
Settlement Information.
16. No Cooperation. Employee agrees he will not act in any manner
that might damage the business of the Company. Employee agrees that he will
not counsel or assist any attorneys or their clients in the presentation or
prosecution of any disputes, differences, grievances, claims, charges, or
complaints by any third party against the Company and/or any officer,
director, employee, agent, representative, shareholder or attorney of the
Company, unless under a subpoena or other court order to do so.
17. Non-Disparagement. Each party agrees to refrain from any
defamation, libel or slander of the other, or tortious interference with the
contracts and relationships of the other. All inquiries by potential future
employers of Employee will be directed to Dean Morton or such other
representative of the Company reasonably approved by the Employee. Upon
inquiry, the Company shall state no more than Employee's last position, dates
of employment and the statement set forth in paragraph 4 of the Company's
press release dated April 2, 1997, a copy of which is attached.
18. Tax Consequences. The Company makes no representations or
warranties with respect to the tax consequences of the payment of any sums
to or forgiveness of indebtedness of Employee under the terms of this
Agreement. Employee agrees and understands that he is responsible for
payment, if any, of local, state and/or federal taxes on the sums paid and
debt forgiven hereunder by the Company and any penalties or assessments
thereon. Employee further agrees to indemnify and hold the Company harmless
from any claims, demands, deficiencies, penalties, assessments, executions,
judgments, or recoveries by any government agency against the Company for any
amounts claimed due on account of Employee's failure to pay federal or state
taxes or damages sustained by the Company by reason of any such claims,
including reasonable attorneys' fees.
19. No Admission of Liability. No action taken by the Parties
hereto, or either of them, either previously or in connection with this
Agreement shall be deemed or construed to be (a) an admission of the truth
or falsity of any claims heretofore made or (b) an acknowledgment or
admission by either party of any fault or liability whatsoever to the other
party or to any third party.
20. Costs. The Parties shall each bear their own costs, expert fees,
attorneys' fees and other fees incurred in connection with this Agreement;
however, following the Effective Date, the Company will pay the reasonable
fees and expenses of one special counsel to Employee and reasonable
accounting fees and expenses incurred by Employee, in an aggregate amount not
to exceed $7,500.
21. Arbitration. The Parties agree that any and all disputes arising
out of the terms of this Agreement, their interpretation, and any of the
matters herein released, shall be subject to binding arbitration in Santa
Clara County before the American Arbitration Association under its California
Employment Dispute Resolution Rules, or by a judge to be mutually agreed
upon. The Parties agree that the prevailing party in any arbitration shall
be entitled to injunctive relief in any court of competent jurisdiction to
enforce the arbitration award. The Parties agree that the prevailing party
in any arbitration shall be awarded its reasonable attorney's fees and costs.
22. Authority. The Company represents and warrants that the
undersigned has the authority to act on behalf of the Company and to bind the
Company and all who may claim through it to the terms and conditions of this
Agreement. Employee represents and warrants that he has the capacity to act
on his own behalf and on behalf of all who might claim through him to bind
them to the terms and conditions of this Agreement. Each Party warrants and
represents that there are no liens or claims of lien or assignments in law
or equity or otherwise of or against any of the claims or causes of action
released herein.
23. No Representations. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Agreement.
Neither party has relied upon any representations or statements made by the
other party hereto which are not specifically set forth in this Agreement.
24. Severability. In the event that any provision hereof becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision.
25. Entire Agreement. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company, and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and his compensation by the Company.
26. No Oral Modification. This Agreement may only be amended in
writing signed by Employee and the President, Chairman of the Board, Chief
Financial Officer or Senior Vice President and General Manager, Service
Provider Division of the Company.
27. Governing Law. This Agreement shall be governed by the laws of
the State of California without regard to the conflict of laws provisions
thereof.
28. Effective Date. This Agreement is effective seven days after it
has been signed by both Parties (the "Effective Date").
29. Counterparts. This Agreement may be executed in counterparts,
and each counterpart shall have the same force and effect as an original and
shall constitute an effective, binding agreement on the part of each of the
undersigned.
30. Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf
of the Parties hereto, with the full intent of releasing all claims. The
Parties acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation,
negotiation, and execution of this Agreement by legal counsel of their own
choice or that they have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this
Agreement and of the releases it contains;
(d) They are fully aware of the legal and binding effect of
this Agreement.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
CENTIGRAM COMMUNICATIONS CORPORATION
Dated: August 1, 1997 By:
Dean O. Morton
Chairman of the Board
GEORGE SOLLMAN, an individual
Dated: August 1, 1997
George Sollman
APPROVED AS TO FORM:
WILSON SONSINI GOODRICH & ROSATI,
PROFESSIONAL CORPORATION
Attorneys for Centigram Communications
Corporation
Dated: August 1, 1997 By:
Todd Cleary
HELLER, EHRMAN, WHITE & MCAULIFFE
Attorneys for George Sollman
Dated: August 1, 1997 By:
Matthew P. Quilter
PROMISSORY NOTE
$100,000
San Jose, California
February 18, 1997
FOR VALUE RECEIVED, the undersigned, Dennis L.
Barsema, hereby promises to pay to Centigram Communications
Corporation, a Delaware corporation (the "Company"), the principal
sum of One Hundred Thousand Dollars ($100,000), with interest thereon
at the rate of five point eight one percent (5.81%) per annum,
compounded annually, at the principal offices of the Company, upon
the following terms and conditions:
The principal amount of this Note and all accrued but
unpaid interest from the date hereof shall be due on the third
anniversary of the date of execution of this Note as set forth above
(the "Maturity Date")
In the event that prior to the Maturity Date the
undersigned shall cease to be an employee of the Company for any
reason other than death or permanent disability, then the principal
amount of this Note shall be due and payable on written demand by the
Company on or at any time after the tenth (10th) day following the
occurrence of such event, together with all interest accrued but
unpaid thereon.
The undersigned shall have the right to prepay at any
time, and from time to time, without premium or penalty all or any
portion of the principal and/or accrued interest hereunder.
The undersigned hereby waives presentment, protest,
demand for payment, notice of dishonor and all other notices or
demands in connection with the delivery, acceptance, performance,
default or endorsement of this Note.
The undersigned agrees to pay any costs of collection
of this Note, including without limitation reasonable attorneys' fees
and costs, in the event it is not fully paid when due.
This Note has been made and delivered in the State of
California and shall be construed in accordance with, and all actions
arising hereunder shall be governed by, the laws of the State of
California
Dennis L. Barsema
October 2, 1997
Dennis Barsema
18140 Barnard Road
Morgan Hill, Ca 95037
Dear Dennis,
Pursuant to our discussions, it has been mutually agreed that
as of November 3, 1997, your position with Centigram
Communications Corporation has been eliminated.
Attached you will find a Summary Plan Document outlining the
terms and conditions of your separation from Centigram. These
outlined benefits will be paid to you provided you sign the
General Release and Termination Certificate documents which are
also attached. Please review these documents carefully and let
me know if you have any questions that I or Carrie Perzow can
answer.
Dennis, I have appreciated the contributions you have made to
Centigram and in particular the leadership role you assumed on
the operating committee over these last several months. Once
again, I am available to answer any further questions you may
have or provide assistance as you approach your next career
endeavor.
Sincerely,
Dean O. Morton
Chairman, Centigram Communications Corporation
Severance Package Compensation Elements
I, Dennis Barsema, understand that upon my consent and affixing
of my signature to the attached General Release and Termination
Certificate, Centigram agrees to:
1. provide me with 4 weeks of notification commencing
November 3, 1997 through December 1, 1997, at my
current salary of $3,462 per week and car allowance
of $400 per month.
2. pay me a continuous payout for 48 weeks of severance
at my current salary of $3,462 per week and car
allowance of $400 per month
3. pay me 50% of my FY'98 executive bonus at target of
$118,800 ($59,400) after the end of the 1998 fiscal
year. Pay me the remaining 50% of my FY'98 executive
bonus at target of $118,800 against the following
criteria:
- $39,800 will be paid against achievement of the
FY'97 Q4 revenue at the following percentages and
payouts: Minimum of $29M in revenue equals 100%
payout, minimum of $28M in revenue equals 50%
payout, minimum of $27M in revenue equals 25%
payout.
- $19,600 will be paid against achievement of the
following development criteria: 1) A plan for
reengineering 6.0 base software should be presented
to CEO by 11/3/97, and
2) by 11/3/97 we will deliver 6.1 to a beta
customer, and we will have an agreed to
list of at least three (3) beta customers, as well
as a beta plan for those customers.
4. continue my vacation until December 1,1997, and pay
all unused, accrued vacation at that time.
5. should I elect it, Centigram will pay COBRA premiums
for medical dental and vision coverage under the
existing Centigram plan through November 2, 1998 or
until such time as I secure other coverage, whichever
comes first.
6. permit my options to continue to vest through November
2, 1998 and, if vested, to be exercised until 30 days
from that date.
7. I agree to execute the attached General Release and
Termination Certificate and abide by Centigram's
Employee Nondisclosure and Assignment of Inventions
Agreement and to refrain from disclosing any non-
public information about Centigram or its business
that I may have acquired during my period of
employment with the company.
8. I understand that I may file for unemployment
compensation and that my claim will not be contested
by Centigram.
9. I agree to notify Centigram promptly upon the
acceptance of other employment, at such time a lump
sum payout for remaining severance due will be made
and stock options will cease to continue to vest and
may be exercised 30 days from that date.
10. I agree that these terms fully satisfy Centigram's
obligation to me.
------------------------------------- ---------
Dennis Barsema Date
------------------------------------- ---------
Dean O. Morton Date
Chairman, Centigram Communications Corporation
<PAGE>
CENTIGRAM COMMUNICATIONS CORPORATION
SENIOR OFFICER SEPARATION PAY PLAN
AND
SUMMARY PLAN DESCRIPTION
Amended Plan Effective Date: September 10, 1997
CENTIGRAM COMMUNICATIONS CORPORATION
SEPARATION PAY PLAN
AND
SUMMARY PLAN DESCRIPTION
The Centigram Communications Corporation Officer Separation Pay Plan
(the "Plan") is primarily designed to provide eligible Senior Officers
of Centigram Communications Corporation (the "Company") whose
employment is terminated as a result of a work force reduction or job
elimination with financial assistance while they are seeking new
employment opportunities. The Plan is also intended to satisfy, where
applicable, the obligations of the Company under the federal Worker and
Retraining Notification ("WARN") Act. The Plan is effective for
eligible employees whose employment is terminated on or after September
10, 1997 and not later than April 30, 1998.
Centigram Communications Corporation competes within an industry where
technology, markets and competition change rapidly. Therefore, one of
our sources of competitive advantage is our ability to change more
quickly than the competition. This may result in evolving requirements
in terms of our financial plan, locations and employee core
competencies.
This policy is written to define a reduction in workforce, which
results in long-term employment losses, motivated by reasons of cost-
reduction, efficiency improvement, reorganization, loss of business,
plant or department closures, or other reasons unrelated to the
affected individual. This policy does not apply to employment
termination for reasons of misconduct or lack of performance.
Centigram is an employment at-will employer, meaning both the employee
and the employer have the right to terminate the employment
relationship at any time.
If you are an eligible Officer employee you will receive at least four
(4) weeks advance notice of your termination date. In the event the
Company does not provide you with the full notice period, you will
receive your base Salary (as that term is defined in Section II below)
for the four(4) week (as applicable) period, in addition to any
benefits that you are eligible to receive under this Plan.
This Plan is designed to be an "employee welfare benefit plan," as
defined in Section 3(1) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). This Plan is governed by ERISA and, to
the extent applicable, the laws of the State of California. This
document constitutes both the official plan document and the required
summary plan description under ERISA.
I. ELIGIBILITY
You will be generally eligible for severance benefits under this Plan
if:
- you are a regular full-time U.S. employee of the Company
with the title of Sr. Vice President or above;
- your active employment is involuntarily terminated as a
result of work force reduction or job elimination during
the term of the Plan;
- you execute the General Release Of All Claims, a copy of
which is attached as Exhibit A, within forty-five (45) days
of your date of termination if you are age forty (40) or
older, or you execute the General Release of All Claims, a
copy of which is attached as Exhibit B, within seven (7)
days of your date of termination if you are under age forty
(40); and
- you are not in one of the excluded categories listed below.
You are not eligible for severance benefits under this Plan if:
- you voluntarily terminate employment, unless such voluntary
termination occurs after you receive notice of an
involuntary termination which would otherwise qualify you
for severance benefits and the Plan Administrator
determines, in its sole discretion, that your earlier
voluntary termination is in the best interests of the
Company;
- you are employed by, or are offered continued employment
with, a successor employer which directly or indirectly
acquires (i) all or any portion of the assets or operations
of the Company or any subsidiary, (ii) all or any portion
of the outstanding capital stock of the Company, or (ii)
fifty percent (50%) or more of the capital stock of any
subsidiary of the Company;
- you are dismissed for a reason other than work force
reduction or job elimination (including, but not limited
to, poor performance, violation of Company policy or
procedures, insubordination, misconduct, the unauthorized
use or disclosure of confidential information or trade
secrets of the Company or any subsidiary), whether or not
you already received notice of an involuntary termination
which would otherwise qualify you for severance benefits;
- you are a temporary employee or work for the Company solely
as an independent contractor, consultant or agent;
- you are covered by any other severance or separation pay
plan or arrangement with the Company or by an employment
agreement with the Company;
- you die before you receive any or all of your severance
benefits under the Plan; or
- you are on a leave of absence (including disability leave),
except to the extent the Plan Administrator decides, in its
sole discretion, to provide you with severance benefits
upon your involuntary termination.
II. HOW THE PLAN WORKS
If you are eligible for severance benefits under the Plan, you will
receive those benefits in continuous payments unless you become
employed during the severance period, at which time the remaining
severance due would be made in a lump-sum payment . Payment of your
severance benefits will be made as soon as administratively practicable
after the occurrence of the following events:
- your termination of employment as a result of a work
force reduction or job elimination;
- the Company's receipt of your executed General
Release; and
- the expiration of any rescission period applicable to
your executed General Release.
The amount of your severance benefits will generally be determined in
accordance with the guidelines set forth below on the basis of the
following factors, measured as of the effective date of your
termination of active employee status: (i) your Salary, (ii) your
Year(s) of Service with the Company, and (iii) your job classification:
Severance Benefit Guidelines
- Notification Period: 4 weeks
- Severance: 48 weeks
- Executive Bonus: Paid at target after the end of
FY'98
Severance and Executive Bonus may be paid in either a
lump sum payment or continuous payout to be chosen or
changed at any time during the severance period. If
a lump sum payment is chosen, stock vesting ends the
date of payout. If continuous payout is chosen,
stock will continue to vest until the end of the
severance period.
- Salary generally means your base salary and does not
include, for example, bonuses, overtime compensation,
incentive pay, compensation associated with employee stock
options, reimbursements, or expense allowances (with the
exception of car allowance)
- The Plan Administrator may, as it deems appropriate and in
its sole discretion, authorize severance benefits in an
amount different from the guidelines amount. Under certain
circumstances, the Plan Administrator may, in its sole
discretion, waive or modify, with respect to one or more
classes of employees, the eligibility requirements for
severance benefits or modify the method of calculating
their severance benefits.
- When an eligible employee's termination is deemed covered
by the WARN Act, the benefit payable under this Plan shall
be considered to be payments required by that Act.
If you are an eligible Officer employee, you will also receive the
following benefits:
- Your existing group health coverage (and, if applicable,
the existing group health coverage of your eligible
dependents) will end as of your date of termination. You
may then be eligible to elect temporary continuation
coverage of the Company's group health plan under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"). If you are eligible and elect COBRA
continuation coverage, then the Company will pay for such
coverage for 48 weeks that you will receive severance
benefits (pursuant to the guidelines formula specified
above). You (and, if applicable, your eligible dependents)
will be provided with a COBRA election form and notice
which describes your right to continuation coverage under
COBRA. In no case, will you or your dependents receive
Company-paid or employee-paid group health coverage beyond
the period provided under COBRA.
III. OTHER IMPORTANT INFORMATION
Plan Administration. As the Plan Administrator, the Company has full
discretionary authority to administer and interpret the Plan, including
discretionary authority to determine eligibility for severance benefits
under the Plan. The Plan Administrator hereby delegates to the Vice
President of Human Resources all of its administrative duties.
Accordingly, the Vice President of Human Resources on behalf of the
Plan Administrator, has full discretionary authority to carry out its
delegated duties. Any determination by the Vice President of Human
Resources will be final and conclusive upon all persons. The Company,
as the Plan Administrator, will indemnify and hold harmless the Vice
President of Human Resources for carrying out the responsibilities of
the Plan Administrator; provided, however, the Vice President of Human
Resources does not act with gross negligence or wilful misconduct.
Benefits. When benefits are due, they will be paid from the general
assets of the Company. The Company is not required to establish a
trust to fund the Plan. The benefits provided under this Plan are not
assignable.
Claims Procedure. If you believe you are incorrectly denied a benefit
or are entitled to a greater benefit than the benefit you receive under
the Plan, you may submit a signed, written application to the Plan
Administrator within ninety (90) days of your termination. You will be
notified of the approval or denial of this claim within ninety (90)
days of the date that the Plan Administrator receives the claim, unless
special circumstances require an extension of time for processing the
claim. If your claim is denied, the notification will state specific
reasons for the denial and you will have sixty (60) days from receipt
of the written notification of the denial of your claim to file a
signed, written request for a review of the denial with the Plan
Administrator. This request should include the reasons you are
requesting a review, facts supporting your request and any other
relevant comments. Pursuant to its discretionary authority to
administer and interpret the Plan, and to determine eligibility for
benefits under the Plan, the Plan Administrator will generally make a
final, written determination of your eligibility for benefits within
sixty (60) days of receipt of your request for review.
Plan Terms. This Plan supersedes and any and all previous existing
separation, severance, retention and salary continuation arrangements,
programs and plans which were previously offered by the Company to
employees eligible to receive benefits under this Plan.
Plan Amendment or Termination. The Plan is effective only for
employees who are terminated on or after May 1, 1997 and no later than
April 30, 1998. The Vice President, Human Resources, on behalf of the
Company, reserves the right to terminate or amend the Plan at any time
and in any manner. Because the provisions of the Plan are intended to
serve as mere guidelines for the payment of severance benefits under
certain prescribed circumstances, it is not intended that any employee
obtain any vested right to severance benefits. Accordingly, any
termination or amendment of the Plan may be made effective immediately
with respect to any benefits not yet paid, whether or not prior notice
of such amendment or termination has been given to affected employees.
In no event, however, will the Plan be effective after April 30, 1998.
Taxes. The Company will withhold taxes and other payroll deductions
from any severance payment.
No Right to Employment. This Plan does not provide you with any right
to continue employment with the Company or affect the Company's right,
which right is hereby expressly reserved, to terminate the employment
of any individual at any time for any reason with or without cause.
IV. STATEMENT OF ERISA RIGHTS
As a participant in the Centigram Communications Corporation Separation
Pay Plan (the "Plan"), you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). ERISA provides that all Plan participants shall
be entitled to:
1. Examine, without charge, at the Plan Administrator's
office, all Plan documents, including all documents filed
by the Plan with the U.S. Department of Labor.
2. Obtain copies of all Plan documents and other Plan
information upon written request to the Plan Administrator.
The Plan Administrator may make a reasonable charge for
the copies.
3. Receive a summary of the Plan's annual financial report.
The Plan Administrator is required by law to furnish each
participant with a copy of this summary financial report.
4. File suit in a federal court, if you, as a participant,
request materials and do not receive them within thirty
(30) days of your request. In such a case, the court may
require the Plan Administrator to provide the materials and
to pay you a fine of up to $100 for each day's delay until
the materials are received, unless the materials were not
sent because of reasons beyond the control of the Plan
Administrator.
In addition to creating rights for certain employees of the Company
under the Plan, ERISA imposes obligations upon the people who are
responsible for the operation of the Plan. The people who operate the
Plan (called "fiduciaries") have a duty to do so prudently and in the
interest of the Company's employees who are covered by the Plan.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from
obtaining a benefit to which you are entitled under the Plan or from
exercising your rights under ERISA.
If your claim for a severance benefit is denied or ignored, in whole or
in part, you have a right to file suit in a federal or a state court.
If Plan fiduciaries are misusing the Plan's assets (if any) or if you
are discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor or file suit in a federal
court. The court will decide who will pay court costs and legal fees.
If you are successful in your lawsuit, the court may, if it so
decides, order the party you have sued to pay your legal costs,
including attorney fees. However, if you lose, the court may order you
to pay these costs and fees, for example, if it finds that your claim
or suit is frivolous.
If you have any questions about the Plan, this statement or your rights
under ERISA, you should contact the Plan Administrator or the nearest
Area Office of the U.S. Labor-Management Services Administration,
Department of Labor.
ADDITIONAL PLAN INFORMATION
Name of Plan: Centigram Communications Corporation Separation
Pay Plan
Company Sponsoring Centigram Communications Corporation
Plan:
Employer Identification 94-2418021
Number:
Plan Number: 5B
Plan Year: The twelve (12) consecutive month period beginning May 1, 1997.
Plan Administrator: Centigram Communications Corporation
c/o Vice President, Human Resources
91 East Tasman Drive
San Jose, California 95134
(408) 944-0250
Agent for Service of Legal Process: Plan Administrator
Type of Plan: Severance Plan/Employee Welfare Benefit Plan
Plan Costs: The cost of the Plan is paid by Centigram
Communications Corporation
<PAGE>
GENERAL RELEASE OF ALL CLAIMS
In consideration of the benefits offered to me under the
Centigram Communications Corporation 1997 Severance Plan (the "Plan")
as described in the Summary Plan Description provided to me, and in
connection with the termination of my employment as a result of
Centigram's reduction in force or job elimination, on behalf of myself,
my heirs, executors, administrators, successors, and assigns, I hereby
fully and forever RELEASE and DISCHARGE Centigram, its officers,
directors, agents, employees, affiliates, representatives, successors
and assigns (hereinafter, collectively called the "Company") from any
and all claims and causes of action arising out of or relating in any
way to my employment with the Company, including, but not limited to,
the offer and termination of my employment.
1. I understand and agree that this RELEASE is a full
and complete waiver of all claims, including, but not limited to,
claims of wrongful discharge, breach of contract, breach of the
covenant of good faith and fair dealing, violation of public
policy, defamation, personal injury, emotional distress, claims
under Title VII of the 1964 Civil Rights Act, as amended, the
California Fair Employment and Housing Act, the Equal Pay Act of
1963, California Labor Code Section 1197.5, the Age
Discrimination in Employment Act of 1967, as amended, the
Americans with Disabilities Act, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and any other laws
and regulations relating to employment or employment
discrimination. The only exceptions are claims I may have for
unemployment compensation and workers' compensation.
2. I understand and agree that the Company will not
provide me with any enhanced severance benefits, as outlined in
the Plan, unless I execute this RELEASE. I further understand
that I have received or will receive, regardless of the execution
of this RELEASE, all salary owed to me together with any accrued
but unused vacation pay, less deductions, in my final paycheck
earned through my termination date.
3. In addition, and in further consideration of the
foregoing, I acknowledge that I may hereafter discover facts
different from or in addition to those which I now know or
believe to be true and that this RELEASE shall be and remain
effective in all respects notwithstanding such different or
additional facts or the discovery thereof. Furthermore, in
consideration of the foregoing, I hereby expressly waive any and
all rights and benefits conferred upon me by the provisions of
Section 1542 of the Civil Code of the State of California and/or
any analogous law of any other state, which states as follows:
A general release does not extend
to claims which the creditor
[employee] does not know or
suspect to exist in his favor at
the time of executing the release,
which if known by him must have
materially affected his settlement
with the debtor [Company].
4. As part of my existing and continuing obligation to
the Company, I have returned or, within seven (7) days of my
termination will return to the Company all Company Information,
including files, records, computer access codes and instruction
manuals, as well as any Company assets or equipment that I have
in my possession or under my control. I further agree not to
keep any copies of Company Information. I affirm my obligation
to keep all Company Information confidential and not to disclose
it to any third party in the future. I understand that the term
"Company Information" includes, but is not limited to, the
following:
(a) Confidential information, including information
received from third parties under confidential
conditions; and
(b) Other technical, scientific, marketing, business,
product development or financial information, the use
or disclosure of which might reasonably be determined
to be contrary to the interests of the Company,
including solicitation of employees.
The Company's Proprietary Information Agreement is incorporated
herein by this reference.
5. I agree to keep this RELEASE confidential and not to
reveal its contents to anyone except my lawyer, my spouse and/or
my financial consultant.
6. All disputes under this RELEASE will be settled by
arbitration in the County of Santa Clara, in accordance with the rules
of the American Arbitration Association, or its successor, and judgment
upon the award rendered may be entered in any court with jurisdiction.
If there is a dispute with respect to this RELEASE, the prevailing
party will be entitled to its reasonable attorney fees and other costs
and expenses incurred in resolving the dispute.
7. This RELEASE contains the entire agreement between
the Company and me with respect to any matters referred to in the
RELEASE and supercedes any previous oral or written agreements.
I understand and agree that this RELEASE shall not be deemed or
construed at any time as an admission of liability or wrongdoing
by either myself or the Company.
8. If any one or more of the provisions contained in
this RELEASE is, for any reason, held to be unenforceable, that
holding will not affect any other provision of this RELEASE, but,
with respect only to that jurisdiction holding the provision to
be unenforceable, this Release shall then be construed as if such
unenforceable provision or provisions had never been contained
therein.
9. Before executing this RELEASE, I obtained sufficient
information to intelligently exercise my own judgment about the
terms of the RELEASE. I understand that I may discuss this
RELEASE with an attorney of my own choosing before signing this
RELEASE. The Company has also given me forty-five (45) days in
which to consider this RELEASE, if I wish. I also understand for
a period of seven (7) days after I sign this RELEASE, I may
revoke this RELEASE and that the RELEASE will not become
effective until seven (7) days after I sign it, and only then if
I do not revoke it. In order to revoke this RELEASE, I must
deliver to the Company's Vice President of Human Resources, by no
later than seven (7) days after I execute this RELEASE, a letter
stating that I am revoking it.
10. The Plan provides that enhanced severance pay may be
paid in a lump-sum payment as soon as administratively feasible
but not earlier than seven (7) days following my execution of
this RELEASE. If I choose to revoke this RELEASE within seven
(7) days after I sign it, any enhanced severance benefits to
which I was otherwise entitled to receive, will not be due and
payable, and the RELEASE will have no effect. If I do not elect
to sign this RELEASE, I will receive the basic severance pay and
I will not be eligible to receive the enhanced severance benefits
as outlined in the Plan.
11. The following information is attached to this RELEASE
and has been provided to me:
(a) Attachment "A" to this RELEASE is a copy of
the Plan which contains the eligibility
requirements and time limits applicable to the
Plan.
EMPLOYEE'S ACCEPTANCE OF RELEASE
BEFORE SIGNING MY NAME TO THIS RELEASE, I STATE THAT: I HAVE READ IT;
I UNDERSTAND IT AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS; I AM
AWARE OF MY RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING IT; AND I
HAVE SIGNED IT KNOWINGLY AND VOLUNTARILY.
Date delivered to employee , 199 .
Executed this day of , 199 .
Employee's Signature
Printed Name and Employee No.
January 9, 1998
CENTIGRAM COMMUNICATIONS CORPORATION
91 East Tasman Drive
San Jose, CA. 95134
Attn: Tom Brunton
Re: Termination of Build to Suit Leases and Loan to Sobrato Interests
III
Dear Mr. Brunton:
As you are aware, under that certain Option to Terminate Certain Leases
dated March, 1997 (the "Option Agreement") between Sobrato Interests III
("Sobrato III") and Centigram Communications Corporation ("Centigram"),
Sobrato was granted the option to terminate the leases referred to
therein. This letter serves to notify Centigram that Sobrato Interests
III has elected to terminate the two build to suit leases that Sobrato,
as landlord, and Centigram, as tenant, previously entered into covering
certain property located at the corner of Guadalupe Parkway and North
First Street (and which leases are referred to in the aforementioned
Option Agreement). This letter further serves to confirm that, as of the
date of this letter, Sobrato and Centigram each waive and release the
other from all right, obligations, costs, damages, liabilities and
claims under, relating to or arising out of the aforementioned two build
to suit leases. The preceding to the contrary notwithstanding, Sobrato
agrees to promptly return to Centigram the letter of credit or letters
of credit that Centigram previously delivered to Sobrato in the total
principal amount of $280,000 as a security deposit under the
aforementioned two build to suit leases. In consideration of Sobrato
terminating the two build to suit leases referred to above, Centigram
agrees to make an unsecured loan to Sobrato in the amount of Two Million
Two Hundred Fortytwo Thousand Six Hundred Twenty Dollars ($2,242,620).
The loan shall bear interest at the rate of nine percent (9%) per annum
and shall be fully amortized over a ten year term, with monthly
principal and interest payments to be in the amount of $28,408.56 (or
more at Sobrato's election). Such principal and interest payments shall
commence to be made on the first day of March, 1998 and continue to be
paid by Sobrato Interests III on the first day of each month thereafter
for one hundred nineteen successive months, with the entire balance of
principal and interest due and payable on February 1, 2008. The loan
shall be evidenced by an Unsecured Promissory Note in the form and
content of Exhibit A attached hereto. A copy of the amortization
schedule applicable to the loan is attached hereto as Exhibit B. The
loan is scheduled to fund on February 1, 1998 and Sobrato agrees to
execute and deliver the Unsecured Promissory Note in favor of Centigram
concurrently with or prior to the funding of the loan. Sobrato and
Centigram shall coordinate the execution and delivery of the Unsecured
Promissory Note and the funding of the loan.
If Centigram is in agreement with the foregoing, please execute a copy
of this letter attached and return the same to me as soon as possible.
Thank you for your cooperation in this matter.
Very truly yours,
SOBRATO ITERESTS III, a California limited partnership
By: John Michael Sobrato 1985 Separate Property Trust
Its: Trustee
AGREED AND ACCEPTED:
CENTIGRAM COMMUNICATIONS CORPORATION, a Delaware corporation
By: Tom Brunton
Its: VP Controller & Treasurer
UNSECURED PROMISSORY NOTE
$2,242,620
San Jose, California
February 1, 1998
For value received, the undersigned, SOBRATO INTERESTS III, a
California limited partnership ("Borrower"), promises to pay to
CENTIGRAM COMMUNICATIONS CORPORATION, a Delaware corporation, or order
("Lender") at 91 East Tasman Drive, San Jose, CA 95134 Attn: Accounts
Receivable, or at such other place as may be designated in writing by
Lender, the principal sum of TWO MLLION TWO HUNDRED FORTY-TWO THOUSAND
SIX HUNDRED TWENTY DOLLARS ($2,242,620), with interest thereon rate of
nine percent (9%) per annum until fully paid. Interest shall be
calculated on a 360 day year consisting of twelve months containing
thirty days each. The principal amount owing hereunder shall be fully
amortized over a ten year period at the interest rate set forth above,
and Borrower shall pay to Lender on the first day of each month,
commencing on March 1, 1998, and continuing on the first day of each
month thereafter for one hundred nineteen successive months, the sum of
Twenty-eight Thousand Four Hundred Eight and 56/100 Dollars ($28,408.56)
or more. On February 1, 2008 (the "Maturity Date"), the entire balance
of principal and interest unpaid shall be due and payable. All sums
owing hereunder are payable in lawful money of the United States of
America
If Borrower shall fail to make any payment required hereunder on
or before ten (10) days following the date on which it becomes due,
Borrower shall pay, at Lender's option, a late or collection charge
equal to four percent (4%) of the amount of such unpaid payment.
From and after the Maturity Date, or such earlier date on which
all sums owing under this Note become due and payable by acceleration or
otherwise, all sums owing under this Note shall bear interest until paid
in full at a rate equal to five percent (5%) per annum in excess of the
rate of interest specified above (based on a 360 day year consisting of
twelve (12) months containing thirty (30) days each).
All payments on this Note shall be applied first to the payment of
any costs, fees, late charges or other charges incurred in connection
with the indebtedness evidenced hereby; next to the payment of accrued
interest; then to the reduction the principal balance; or in such other
order as Lender shall require.
If Borrower shall fail to pay when due any part or installment of
principal or interest or other sums payable hereunder and such failure
continues for fourteen (14) days following delivery of written notice to
Borrower that such payment is past due, then Lender, at its sole option,
shall have the right to declare all sums owing under this Note
immediately due and payable.
Borrower shall have the right to pay, without penalty or premium,
all or any portion of the outstanding principal amount of this Note.
Lender shall apply all such prepayments first to the payment of any
costs, fees, late charges or other charges incurred in connection with
the indebtedness evidenced hereby; next to the payment of accrued
interest; then to the outstanding principal amount of this note in
inverse order of maturity, or, at the option of Lender, in the regular
order of maturity; or in such other order as Lender shall require.
Borrower shall pay to Lender all sums owing under this Note
without deduction, offset or counterclaim of any kind. Lender shall
have the right to assign this Note and any or all payments owing
hereunder to a third party or parties without the consent of Borrower.
If any attorney is engaged by Lender to enforce any provision of
this Note, or as a consequence of any default or breach hereunder, with
or without the filing of any legal action
or proceeding, then Borrower shall immediately pay to Lender on demand
all attorneys' fees and other costs incurred by Lender, together with
interest thereon from the date of such demand until paid at the rate
applicable to the principal owing hereunder as if such unpaid attorneys'
fees and costs had been added to the principal
No previous waiver and no failure or delay by Lender in acting
with respect to the terms of this Note shall constitute a waiver of any
breach, default or failure of condition under this note. A waiver of any
term of this Note must be made in writing and shall be limited to the
express written terms of such waiver.
Borrower waives presentment; demand; notice of dishonor, notice of
default or delinquency; notice of acceleration; notice of protest and
nonpayment; notice of costs, expenses or losses and interest thereon;
notice of interest on interest and late charges; and diligence in taking
any action to collect any sums owing under this Note. Time is of the
essence with respect to every provision hereof this Note shall be
construed and enforced in accordance with the laws of the State of
California, except to the extent that Federal laws preempt the laws of
the State of California, and all persons and entities in any manner
obligated under this Note consent to the jurisdiction of any Federal or
State Court in the State of California having proper venue and also
consent to service of process by any means authorized by California or
Federal law.
BORROWER:
SOBRATO INTERESTS III, a California limited partnership
By: John Michael Sobrato 1985 Separate Property Trust
EXHIBIT 11.1
CENTIGRAM COMMUNICATIONS CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996 AND OCTOBER 28, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------
November 1, November 2, October 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)......................... ($1,678) $1,000 ($4,134)
=========== =========== ===========
Computation of common and common
equivalent shares outstanding:
Common stock............................ 6,943 6,824 6,560
Options and warrants.................... -- 157 --
----------- ----------- -----------
Common and common equivalent shares
used in computing per share amounts...... 6,943 6,981 6,560
=========== =========== ===========
Net income (loss) per share............... ($0.24) $0.14 ($0.63)
=========== =========== ===========
</TABLE>
Fully diluted computation not presented since such amount differs by less
than 3% of the net income per share amounts shown above
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF REGISTRANT
Centigram Asia Limited
Centigram Australasia Pty Limited
Centigram Communications (Barbados), Inc.
Centigram Europe B.V.
Centigram UK Limited
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 Nos. 33-43726, 33-98484, 333-4215, 333-4217, 333-
21051, and 333-41831) pertaining to the Amended and Restated 1987 Stock
Option Plan, 1991 Employee Stock Purchase Plan, the 1995 Nonstatutory
Stock Option Plan, 1997 Stock Plan and Stock Option Agreement of
Centigram Communications Corporation of our report dated December 1,
1997, except for the second and sixth paragraphs of "Commitments and
Contingencies" and the note "Subsequent Events" as to which the date is
January 9, 1998, with respect to the consolidated financial statements
and schedule of Centigram Communications Corporation included in the
Annual Report (Form 10-K) for the year ended November 1, 1997.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Jose, California
January 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Balance Sheet and Statement of Operations included in
the Company's Form 10-K for the year ended November 1, 1997 and
is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Nov-01-1997
<PERIOD-START> Nov-03-1996
<PERIOD-END> Nov-01-1997
<PERIOD-TYPE> 12-MOS
<CASH> 19,791
<SECURITIES> 32,262
<RECEIVABLES> 23,361
<ALLOWANCES> 1,724
<INVENTORY> 9,060
<CURRENT-ASSETS> 85,120
<PP&E> 43,195
<DEPRECIATION> 30,302
<TOTAL-ASSETS> 99,920
<CURRENT-LIABILITIES> 18,296
<BONDS> 0
0
0
<COMMON> 90,724
<OTHER-SE> (9,100)
<TOTAL-LIABILITY-AND-EQUITY> 99,920
<SALES> 108,836
<TOTAL-REVENUES> 108,836
<CGS> 45,661
<TOTAL-COSTS> 45,661
<OTHER-EXPENSES> 70,134
<LOSS-PROVISION> 160
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> (845)
<INCOME-TAX> 833
<INCOME-CONTINUING> (1,678)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,678)
<EPS-PRIMARY> ($0.24)
<EPS-DILUTED> ($0.24)
</TABLE>
