[GRAPHIC OMITTED] CENTIGRAM
COMMUNICATIONS CORPORATION
Notice of Annual Meeting of Stockholders
March 28, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Centigram
Communications Corporation, a Delaware corporation (the "Company"), will be held
on Tuesday, March 28, 2000 at 10:00 a.m., at the offices of the Company, 91 East
Tasman Drive, San Jose, California 95134, for the following purposes:
1. To elect two (2) directors to Class II of the Board of Directors.
2. To approve an amendment to the Company's 1997 Stock Option Plan to increase
the number of shares of the Company's Common Stock reserved for issuance
thereunder from 1,030,000 shares to 1,180,000 shares.
3. To approve an amendment to the Company's 1991 Employee Stock Purchase Plan
to increase the number of shares of the Company's Common Stock reserved for
issuance thereunder from 900,000 shares to 1,025,000 shares.
4. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending October 28, 2000.
5. To transact such other business as may properly come before the meeting or
any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on February 3, 2000
are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even if he or she has returned a proxy.
By order of the Board of Directors
LARRY W. SONSINI
Secretary
San Jose, California
February 18, 2000
<PAGE>
[GRAPHIC OMITTED] CENTIGRAM
COMMUNICATIONS CORPORATION
PROXY STATEMENT
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Centigram Communications Corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on Tuesday, March 28, 2000 at 10:00 a.m. at
the offices of the Company, 91 East Tasman Drive, San Jose, California 95134, or
at any adjournment or adjournments thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting. The Company's principal
executive offices are located at 91 East Tasman Drive, San Jose, California
95134, and its telephone number is (408) 944-0250.
These proxy solicitation materials and the Annual Report on Form 10-K for
the year ended October 30, 1999 were first mailed on or about February 18, 2000
to all stockholders entitled to vote at the meeting.
Record Date; Outstanding Shares; Procedural Matters
Stockholders of record as of the close of business on February 3, 2000 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. On
February 3, 2000, 6,079,410 shares of the Company's common stock, $.001 par
value (the "Common Stock"), were issued and outstanding. Each share has one vote
on all matters. For information regarding holders of more than 5% of the
outstanding Common Stock, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT." The closing sale price of the Company's Common Stock as
reported on the Nasdaq National Market System on February 3, 2000 was $15.625
per share.
Revocability of Proxies
A stockholder may revoke any proxy given pursuant to this solicitation by
attending the Annual Meeting and voting in person, or by delivering to the
Company's Corporate Secretary at the Company's principal executive offices
referred to above prior to the Annual Meeting a written notice of revocation, or
by delivering a duly executed proxy bearing a date later than that of the
previous proxy.
The solicitation of proxies is made on behalf of the management of the
Company and the associated costs will be borne by the Company. The Company has
engaged American Stock Transfer & Trust Company to assist in the solicitation of
proxies for the meeting and will pay such company a customary fee.
In addition to solicitation by mail and by American Stock Transfer & Trust
Company, the Company may use the services of its directors, officers and others
to solicit proxies, personally or by telephone. Arrangements may also be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
solicitation material to the beneficial owners of the stock held of record by
such persons and the Company may reimburse them for reasonable out-of-pocket and
clerical expenses incurred by them in so doing.
Deadline for Receipt of Stockholder Proposals for Annual Meeting for Fiscal
Year 2000.
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 2000 Annual Meeting must be received by the
Company no later than October 27, 2000 to be included in the proxy statement and
form of proxy relating to that meeting.
In addition, the Company's Bylaws provide that stockholders intending to
nominate candidates for election as directors or to bring business before an
annual meeting of stockholders which were not included in the Company's proxy
statement, must deliver the prescribed notice and information to the Secretary
of the Company not less than ninety (90) days prior to the annual meeting.
However, the Bylaws also provide that, where less than one-hundred (100) days
notice or prior public disclosure of the date of the stockholders' meeting is
given, advance notice of stockholder nominations for the election of directors
or business to be brought before the annual meeting must be received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. If a stockholder who has notified the Company of his or her
intention to present a proposal at an annual meeting does not appear or send a
qualified representative to present his or her proposal at such meeting, the
Company need not present the proposal for a vote at such meeting.
Fiscal Year End
The Company's Fiscal Year ends on the Saturday nearest October 31. The
Company's last fiscal year ended on October 30, 1999 and is referred to herein
as the "last fiscal year."
PROPOSAL NO. 1
ELECTION OF DIRECTORS
There are currently five members of the Board of Directors, divided into
three classes. Class I presently consists of two directors who are serving a
three-year term expiring in 2002. Class II presently consists of two directors
who are serving a three-year term expiring in 2000. Class III presently consists
of one director who is serving a three-year term expiring in 2001. At each
annual meeting of stockholders, directors elected to succeed those in the class
whose terms expire will be elected for a three-year term so that the term of one
class of directors will expire each year. In each case, a director serves for
the designated term and until his or her respective successor is elected and
qualified.
Two Class II directors are to be elected at this Annual Meeting to serve a
three-year term expiring in 2003. The Board has nominated David S. Lee and Dean
O. Morton for election to the Class II board seats. Holders of proxies solicited
by this Proxy Statement will vote the proxies received by them as directed on
the proxy card or if no direction is made, for the election of the Board of
Directors' nominees. If any of the nominees is unable or declines to serve as a
director at the time of the Annual Meeting, the proxy holders will vote for a
nominee designated by the present Board of Directors to fill the vacancy. It is
not presently expected that any of the nominees will be unable or will decline
to serve as a director.
The names of the nominees of the Company and certain information about them
as of January 1, 2000 are set forth below. The names of and certain information
about the Company's current directors as of January 1, 2000 are also set forth
below. Information as to the stock ownership of each director and all current
directors and executive officers of the Company as a group is set forth below
under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Name of Nominee Age Principal Occupation Director Since
- ------------------- --- ------------------------------ ---------------
Class I Directors
James H. Boyle 45 President of Boyle Enterprises 1988
Robert L. Puette 57 President and Chief Executive 1997
Officer of the Company
Class II Directors
David S. Lee 62 Chairman of the Board of eOn 1997
Communications Corporation and
Cortelco Kellog
Dean O. Morton 67 Retired Executive Vice President, 1993
Chief Operating Officer and Director
of Hewlett-Packard Company
Class III Directors
Doug Chance 57 President and Chief Executive Officer 1997
Officer of WYSE Technology Inc.
Except as set forth below, each of the directors has been engaged in his
principal occupation set forth above during the past five years. There are no
family relationships between any director and executive officer of the Company.
Mr. Boyle was elected to the Centigram Board in November 1988. Mr. Boyle is
President of Boyle Enterprises, Inc., a management and investment consulting
firm. From 1988 to 1991, Mr. Boyle was Vice President of BCE Ventures, which, at
that time managed venture capital investments for BCE Inc., and Northern
Telecom. Mr. Boyle was Manager of Venture Capital for Northern Telecom from 1985
to 1988. Mr. Boyle is also on the Board of Directors of a number of private
companies.
Mr. Puette was elected to the Centigram Board in September 1997, at which
time he became President and Chief Executive Officer of the Company. Before
joining Centigram, Mr. Puette served as President, CEO and Chairman of the Board
at NetFRAME Systems, a high-availability computer server company, from January
1995 to September 1997. Prior to that, Mr. Puette was President and Chief
Executive Officer of Puette Consulting, a marketing and sales consulting firm,
from November 1993 to December 1994. Mr. Puette held the position of President
of Apple USA from June 1990 to October 1993, and was a Group General Manager at
the Hewlett-Packard Company prior to that time.
Mr. Lee was elected to the Centigram Board in March 1997. Mr. Lee is the
Chairman of the Board of eOn Communications Corporation and Cortelco Kellogg,
both telecommunications companies, and he serves as a director of ACT
Manufacturing Inc. and Linear Technology Corporation. From 1983 to 1985, Mr. Lee
served as a Vice President of ITT Corporation and as Group Executive and
Chairman of its Business Information Systems Group.
Mr. Morton was elected to the Centigram Board in November 1993, and became
Chairman of the Board in April 1997. Prior to his retirement in October 1992,
Mr. Morton was Executive Vice President, Chief Operating Officer and a director
of the Hewlett-Packard Company. Mr. Morton is a member of the boards of
directors of ALZA Corp., BEA Systems, Inc., Cepheid, The Clorox Company,
KLA-Tencor Corporation and a number of private companies. He is a trustee of the
State Street Research group of mutual funds and a director of the Metropolitan
Series Fund, Inc., and State Street Research Portfolios, Inc. He serves on the
Board of Kaiser Foundation Health Plan and Hospitals, the Board of the Monterey
Bay Aquarium Research Institute and is a trustee of the David and Lucille
Packard Foundation.
Mr. Chance was elected to the Centigram Board in 1997. Mr. Chance has been
the President and Chief Executive Officer and a director of WYSE Technology
Inc., a manufacturer of computer display products, since 1994. Prior to that
time, Mr. Chance was the President and Chief Executive Officer of Octel
Communications Corporation from November 1990 to November 1993, and before that
served as Executive Vice President, Network Systems Sector, at the
Hewlett-Packard Company.
Board Meetings and Committees
The Board of Directors of the Company met a total of 6 times during the
last fiscal year. Each director attended at least 75% of the meetings of the
Board together with the meetings of any committee on which he served during the
last fiscal year.
The Audit Committee of the Board of Directors consists of directors James
Boyle, David Lee and Doug Chance. Doug Chance serves as the Chairman of the
Audit Committee. The Audit Committee met 4 times during the last fiscal year.
This Committee is primarily responsible for reviewing the services performed by
the Company's independent auditors and evaluating the Company's accounting
policies and its system of internal controls.
The Compensation Committee consists of Dean Morton and David Lee. David Lee
serves as Chairman of the Compensation Committee. The Compensation Committee met
4 times during the last fiscal year. This Committee is primarily responsible for
reviewing and recommending compensation to be paid to officers of the Company,
as well as reviewing and approving stock option grants.
The Board of Directors has no nominating committee or any committee
performing such functions.
Directors' Fees
Directors who are not employees of the Company are paid an annual retainer
of $20,000 if they are regular non-employee directors and $25,000 for the
Chairman of the Board. This retainer is paid on the date of the annual
stockholder's meeting. The Company also reimburses non-employee directors for
travel and related expenses incurred in attending meetings of the Board and its
committees. Under the Company's 1997 Stock Plan, each non-employee director of
the Company is granted options to purchase 20,000 shares of Common Stock at the
time of initial appointment or election to the board, and 7,500 shares of Common
Stock annually thereafter on the day immediately following each Annual Meeting
of the Stockholders; provided the director has been a member of the board for at
least six months.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any members of the Company's
Board of Directors or Compensation Committee and the Board of Directors or
Compensation Committee of any other company, nor has any such interlocking
relationship existed in the past.
Required Vote
The nominees receiving a majority of affirmative votes will be elected as
Class II directors of the Company.
Recommendation
The Company's Board of Directors recommends a vote FOR the nominees listed
above.
PROPOSAL NO. 2
APPROVAL OF THE AMENDMENT TO THE
1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Plan") was approved by the
stockholders in March 1997. The 1997 Plan is designed to retain, motivate and
reward senior personnel by providing such personnel long term equity
participation in the Company relating directly to the financial performance and
long-term growth of the Company. A total of 1,030,000 shares of the Company's
Common Stock have been reserved for issuance upon the exercise of options
granted under the 1997 Plan. In December 1999, the Board of Directors adopted,
subject to stockholder approval, an amendment to the 1997 Plan to increase the
number of shares reserved for issuance thereunder from 1,030,000 shares to
1,180,000 shares. Including the proposed 150,000 share increase, a total of
341,855 shares remained available for grant under the 1997 Plan on February 3,
2000.
In 1993, Section 162(m) was added to the Internal Revenue Code of 1986, as
amended (the "Code"). Section 162(m) limits the Company's deduction in any one
fiscal year for federal income tax purposes to $1,000,000 per person with
respect to the Company's Chief Executive Officer and its four other highest paid
executive officers who are employed on the last day of the fiscal year unless
the compensation was not otherwise subject to the deduction limit. Compensation
which is performance-based and approved by the Company's stockholders is not
subject to the deduction limit.
Proposal
The proposed amendment to the Company's 1997 Plan is to increase the number
of shares of the Company's Common Stock reserved for issuance thereunder from
1,030,000 shares 1,180,000 shares.
Recommendation
The Board of Directors has unanimously approved the amendment of the 1997
Plan and recommends that stockholders vote FOR such amendment.
Description of 1997 Plan
The essential features of the 1997 Plan are outlined below. Such outline is
qualified in its entirety by the provisions of the 1997 Plan, a copy of which
was filed by the Company with the Securities and Exchange Commission and is
incorporated herein by reference. Copies of the 1997 Plan are available upon
written request to the Company at 91 East Tasman Drive, San Jose, California
95134, Attn: Chief Financial Officer.
General
The 1997 Plan was approved by the stockholders in March 1997. The 1997 Plan
authorizes the Board of Directors (the "Board"), or one or more committees which
the Board may appoint from among its members (a "Committee"), to grant stock
options. To date, a total of 1,030,000 shares of Common Stock have been reserved
for issuance under the 1997 Plan. Options granted under the 1997 Plan may be
either "Incentive Stock Options" as defined in Section 422 of the Code, or
nonstatutory stock options, as determined by the Board or the Committee.
Additionally, the 1997 Plan provides for the automatic grant of
nonstatutory stock options to purchase 20,000 shares of Common Stock to
non-employee directors at the time of such director's initial appointment or
election to the Board, and the automatic grant of nonstatutory stock options to
purchase 7,500 shares of Common Stock annually thereafter on the day immediately
following each Annual Meeting of Stockholders, provided the director has been a
member of the Board for at least six months.
Purpose
The general purpose of the 1997 Plan is to attract and retain quality
personnel for positions of substantial responsibility, to create additional
incentive for senior personnel of the Company by offering long-term equity
participation in the Company, and to promote the success of the Company's
business.
Eligibility
The Option Plan provides that options may be granted thereunder to
employees, consultants and directors ("Optionees") of the Company. The Board of
Directors selects the Optionees and determines the number of shares subject to
each option. In making such determination, the duties and responsibilities of
the Optionee, the value of the Optionee's services, his or her present and
potential contributions to the success of the Company and other relevant factors
are considered.
Administration
The 1997 Plan may be administered by the Board or a Committee (collectively
the "Administrator"). Subject to the other provisions of the 1997 Plan, the
Administrator has the authority to: (i) determine the fair market value of the
Common Stock; (ii) select the Optionees to whom options may be granted
thereunder; (iii) determine whether and to what extent options are granted
thereunder; (iv) determine the number of shares of Common Stock to be covered by
each option granted thereunder; (v) approve forms of agreement for use under the
1997 Plan; (vi) determine the terms and conditions, not inconsistent with the
terms of the 1997 Plan, of any award granted thereunder (such terms and
conditions include, but are not limited to, the exercise price, the time or
times when options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine); (vii) construe and interpret the terms of
the 1997 Plan and awards granted pursuant to the 1997 Plan; (viii) prescribe,
amend and rescind rules and regulations relating to the 1997 Plan, including
rules and regulations relating to sub-plans established for the purpose of
qualifying for preferred tax treatment under foreign tax laws; (ix) modify or
amend each option, including the discretionary authority to extend the
post-termination exercisability period of options longer than is otherwise
provided for in the 1997 Plan; and (x) make all other determinations deemed
necessary or advisable for administering the 1997 Plan.
<PAGE>
Terms and Conditions of Options
Each option granted under the 1997 Plan is evidenced by a written stock
option agreement ("Notice of Grant") between the Optionee and the Company and is
subject to the following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options to purchase shares of Common Stock at the time the options are granted.
However, excluding options issued to 10% stockholders (an Optionee who owns more
than 10% of the combined total voting power of all classes of outstanding stock
of the Company), the exercise price under an incentive stock option must not be
less than 100% of the fair market value of the Common Stock on the date the
option is granted. If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation System, the fair market value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest value of trading in Common
Stock) on the last trading day preceding the day of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable; provided, however, that in the event the fair market value as so
determined is more than 20% greater or more than 20% less than the closing sales
prices for such stock as so quoted on the date of determination, then the
Administrator shall be entitled to determine the fair market value in good
faith, at a price within the range of prices from the fair market value as
otherwise determined above to the closing price (or closing bid, as applicable)
on the date of determination. If the Common Stock is quoted on the System (but
not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not provided, the fair market value of
a share of Common Stock shall be the average of the means between the high bid
and low asked prices for the Common Stock on the five market trading days
immediately preceding the date of determination, as reported in The Wall Street
Journal or such other source as the Administrator of the 1997 Plan deems
reliable; provided, however, that in the event the fair market value as so
determined is more than 20% greater or more than 20% less than the mean between
the high bid and low asked prices for such stock as so quoted on the date of
determination, then the Administrator shall be entitled to determine the fair
market value in good faith, at a price within the range of prices from the fair
market value as otherwise determined above to the mean between the high bid and
low asked prices on the date of determination. In the absence of an established
market for the Common Stock, the fair market value shall be determined in good
faith by the Administrator. No amendment may be made to the Plan which allows
the Board to reduce the exercise price of any Option to the then current fair
market value if the fair market value of the Common Stock covered by such Option
shall have declined since the date the Option was granted without approval of a
majority of stockholders.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally may be
made by cash, check, promissory note, other shares of Common Stock of the
Company owned by the Optionee, delivery of an exercise notice together with
irrevocable instructions to a broker to deliver the exercise price to the
Company from sale or loan proceeds, reduction of any Company liability to the
Optionee or, by a combination thereof.
(c) Exercise of the Option. Each stock option agreement will specify the
term of the option and the date when the option is to become exercisable.
However, in no event shall an option granted under the 1997 Plan be exercised
more than 10 years after the date of grant or such shorter term as may be
provided in the Notice of Grant. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more the ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary of the
Company, the term of the Incentive Stock Option shall be five (5) years from the
date of grant or such shorter term as may be provided in the Notice of Grant.
(d) Termination of Employment. Upon termination of an Optionee's continuous
status as an employee or consultant with the Company, such Optionee may exercise
his or her option to the extent that he or she was entitled to exercise it as of
the date of such termination. Such exercise may occur only before the end of the
period determined by the Administrator for exercise following termination. In
the case of an Incentive Stock Option, such period shall not exceed three (3)
months and in the event that no period is specified in any stock option
agreement, such period shall be 30 days. In no event shall such period extend
beyond the expiration date of the term of the option as set forth in the
applicable option agreement. An Optionee's change of status from employee to
consultant shall not be treated as a termination of the Optionee's continuous
status as an employee or consultant, and any option held by the Optionee shall
remain in effect, except as provided herein below. Any Incentive Stock Option
held by such Optionee shall automatically cease to be treated for tax purposes
as an Incentive Stock Option and shall be treated as a Nonstatutory Stock Option
on the ninety-first (91st) day following such change of status. Notwithstanding
the above, within thirty (30) days after any such change of status, the
Administrator may in its discretion determine that such change of status shall
be treated as a termination of the Optionee's continuous status as an employee
or consultant. To the extent that the Optionee is not entitled to exercise his
or her option at the date of such termination, or if the Optionee does not
exercise such option to the extent so entitled within the time specified herein,
the option shall terminate.
(e) Disability. If an employee is unable to continue as an employee or
consultant with the Company as a result of disability, then all options held by
such Optionee under the 1997 Plan shall expire upon the earlier of (i) twelve
months after the date of termination of the Optionee's employment or (ii) the
expiration date of the term of such option. The Optionee may exercise all or
part of his or her option at any time before such expiration to the extent that
such option was exercisable at the time of termination of employment. To the
extent that the Optionee is not entitled to exercise his or her option at the
date of such termination, or if the Optionee does not exercise such option to
the extent so entitled within the time specified herein, the option shall
terminate.
(f) Death. Upon the death of an Optionee, the option may be exercised at
any time within twelve (12) months following the date of death (but in no event
later than the expiration of the term of such option as set forth in the Notice
of Grant), by the Optionee's estate or by a person who acquired the right to
exercise the option by bequest or inheritance, only to the extent that the
Optionee was entitled to exercise the option at the date of death. If at the
time of death, the Optionee was not entitled to exercise his or her entire
option, the shares of Common Stock covered by the unexercisable portion of the
option shall immediately revert to the 1997 Plan. If, after death, the
Optionee's estate or person who acquired the right to exercise the option by
bequest or inheritance does not exercise the option within the time specified
herein, the option shall terminate, and the shares covered by such option shall
revert to the 1997 Plan.
(g) Nontransferability of Options. In general, an option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
(h) Value Limitation. If the aggregate fair market value of all shares of
Common Stock subject to an Optionee's Incentive Stock Option which are
exercisable for the first time during any calendar year exceeds $100,000, the
excess options shall be treated as nonstatutory stock options.
(i) Other Provisions. The stock option agreement may contain such terms,
provisions and conditions not inconsistent with the 1997 Plan as may be
determined by the Board or Committee.
Adjustments Upon Changes in Capitalization, Dissolution Liquidation, Merger
or Asset Sale
In the event that the capital stock of the Company is changed by reason of
recapitalization, dissolution, liquidation, merger or asset sale, the following
provisions will apply:
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding option, and the number of shares of Common Stock which have
been authorized for issuance under the 1997 Plan but as to which no options have
yet been granted or which have been returned to the 1997 Plan upon cancellation
or expiration of an option, as well as the price per share of Common Stock
covered by each such outstanding option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock subject to
an option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, to the extent that an option has not been previously
exercised, it will terminate immediately prior to consummation of such proposed
action. The Board may, in the exercise of its sole discretion in such instances,
declare that any option shall terminate as of a date fixed by the Board and give
each Optionee the right to exercise his or her option as to all or any part of
the optioned stock, including shares as to which the Option would not otherwise
be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding option may be assumed or an equivalent option may be
substituted by the successor corporation or a parent or subsidiary of the
successor corporation. The Administrator may, in lieu of such assumption,
provide for the Optionee to have the right to exercise the option as to all or a
portion of the optioned stock, including shares as to which it would not
otherwise be exercisable. If the Administrator makes an option exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Administrator shall notify the Optionee that the option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the option will terminate upon the expiration of such period. For the purposes
of this paragraph, the option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive,
for each share of optioned stock subject to the option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares); provided,
however, that if such consideration received in the merger or sale of assets was
not solely common stock of the successor corporation or its parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the option, for each share
of optioned stock subject to the option, to be solely common stock of the
successor corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger of sale of
assets.
Amendments, Suspensions and Termination of the 1997 Plan
The Board may amend, suspend or terminate the 1997 Plan at any time;
provided, however, that stockholder approval is required for any amendment to
the extent necessary to comply with Section 422 of the Code, or any similar rule
or statute. Stockholder approval is also required for any amendment to the 1997
Plan or action take by the Board or Administrator which allows the Board to
reduce the exercise price of any Option to the then current fair market value if
the fair market value of the Common Stock covered by such Option shall have
declined since the date the Option was granted without approval of a majority of
stockholders. In any event, the 1997 Plan will terminate automatically in 2006.
Federal Tax Information for 1997 Plan
The following is a summary of the effect of federal income taxation upon
the Optionee and the Company with respect to the grant and exercise of options
under the 1997 Plan. Options granted under the 1997 Plan may be either
"Incentive Stock Options," as defined in Section 422 of the Code, or
nonstatutory stock options.
An Optionee who is granted an Incentive Stock Option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the Optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the Optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the Optionee is also an officer,
director, or 10% stockholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the Optionee.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain or loss, depending on the holding period.
All other options which do not qualify as Incentive Stock Options are
referred to as nonstatutory stock options. An Optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
However, upon its exercise, the Optionee generally will recognize taxable income
generally measured as the excess of the then fair market value of the shares
purchased over the purchase price. Any taxable income recognized in connection
with an option exercise by an Optionee who is also an employee of the Company
may be subject to tax withholding by the Company. Upon resale of such shares by
the Optionee, any difference between the sales price and the Optionee's purchase
price, to the extent not recognized as taxable income as described above, will
be treated as long-term or short-term capital gain or loss, depending on the
holding period. The Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the Optionee with respect to shares
acquired upon exercise of a nonstatutory stock option.
The foregoing does not purport to be a complete summary of the effect of
federal income taxation upon holders of options or upon the Company. It also
does not reflect provisions of the income tax laws of any municipality, state or
foreign country in which an Optionee may reside.
Plan Benefits
The Company cannot now determine the exact number of options to be granted
in the future under the 1997 Plan to the executive officers named under
"EXECUTIVE OFFICER COMPENSATION Summary Compensation Table," all current
executive officers as a group or all employees (including executive officers) as
a group. See "EXECUTIVE OFFICER COMPENSATION Stock Option Grants and Exercises"
for the number of stock options granted to the executive officers named in the
Summary Compensation Table in the fiscal year ended October 30, 1999.
Required Vote
The affirmative vote of the majority of the Votes Cast will be required
under Delaware law to approve the amendment to the 1997 Plan. For this purpose,
the term "Votes Cast" is defined under Delaware law to be the shares of the
Company's Common Stock present in person or represented by proxy at the Annual
Meeting and "entitled to vote on the subject matter." Votes that are cast
against the proposal will be counted for purposes of determining (i) the
presence or absence of a quorum for the transaction of business and (ii) the
total number of Votes Cast with respect to the proposal. While there is no
definitive statutory or case law authority in Delaware as to the proper
treatment of abstentions in the counting of votes with respect to a proposal
such as the amendment to the 1997 Plan, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to the proposal. In the absence of controlling precedent to
the contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal. In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware
Supreme Court held that, while broker nonvotes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker nonvotes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, broker nonvotes with respect to this proposal
will not be counted as Votes Cast.
PROPOSAL NO. 3
APPROVAL OF
AMENDMENT TO 1991 EMPLOYEE
STOCK PURCHASE PLAN
The 1991 Employee Stock Purchase Plan (the "Purchase Plan") provides
employees of the Company and its designated subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions.
Proposed Amendment
At the Annual Meeting, the stockholders are being asked to approve an
increase in the number of shares reserved for issuance under the Purchase Plan
from 900,000 shares to 1,025,000 shares. This increase was approved by the Board
of Directors, subject to stockholder approval, on December 6, 1999. Including
the proposed 125,000 share increase, a total of 230,196 shares remained
available for issuance under the plan on February 3, 2000.
Recommendation
The Board of Directors has unanimously approved the proposed amendment to
the Purchase Plan and recommends that stockholders vote FOR such amendment.
Description of Purchase Plan
The essential features of the Purchase Plan are outlined below. Such
outline is qualified in its entirety by the provisions of the Purchase Plan, a
copy of which has been filed by the Company with the Securities and Exchange
Commission, and is incorporated herein by reference. Copies of the Purchase Plan
are available upon written request to the Company at 91 East Tasman Drive, San
Jose, California 95134, Attn: Chief Financial Officer.
Purpose
The purpose of the Purchase Plan is to provide employees (including
officers) of the Company with an opportunity to purchase Common Stock of the
Company through payroll deductions. The Purchase Plan is intended to qualify
under Sections 421 and 423 of the Code as an "employee stock purchase plan."
Administration
The Purchase Plan is administered by the Board of Directors or a Committee
of the Board (the "Administrator").
Eligibility
Only employees employed by the Company or its subsidiaries on the first day
of an offering period may participate in the Purchase Plan. For this purpose, an
"employee" is any person who is regularly employed at least twenty hours per
week and at least five months per calendar year by the Company or any of its
subsidiaries. No employee shall be granted an option under the Purchase Plan if
immediately after the grant of the option, the employee (or any other person
whose stock would be attributed to the employee pursuant to Section 424(d) of
the Code) would own five percent (5%) or more of the total combined voting power
or value of the stock of the Company or any of its subsidiaries. Subject to
these eligibility criteria, the Purchase Plan permits eligible employees to
purchase Common Stock through payroll deductions subject to certain limitations
described below.
Offering Period
Each offering of Common Stock under the Purchase Plan ("Offering") is for a
period of six months ("Offering Period"), unless the participant withdraws or
terminates employment earlier. The Administrator may change the timing and
duration of the Offering Periods without stockholder approval if such change is
announced at least fifteen (15) days prior to the beginning of the first
Offering Period to be affected. The initial Offering Period under the Purchase
Plan began on November 2, 1991. To participate in the Purchase Plan, each
eligible employee must authorize payroll deductions pursuant to the Purchase
Plan. Such payroll deductions may not exceed 10% of a participant's eligible
compensation. Once an employee becomes a participant in the Purchase Plan, the
employee will automatically participate in each successive Offering Period until
such time as the employee withdraws from the Purchase Plan or the employee's
employment terminates. Eligible employees may participate in only one Offering
at a time.
Grant and Exercise of Option
At the beginning of each Offering Period, each participant is automatically
granted an option to purchase shares of the Company's Common Stock. The option
may be exercised at the end of an Offering Period to the extent of the payroll
deductions accumulated during such Offering Period. In the event the option is
not exercised, the option expires at the end of the Offering Period or upon
termination of employment, whichever is earlier. The number of shares subject to
the option will not exceed a number determined by dividing $12,500 by the fair
market value of the Common Stock on the first day of the Offering Period.
Participants may not purchase shares having a fair market value exceeding
$25,000 in any calendar year. The Company may make a pro rata reduction in the
number of shares subject to options if the total number of shares which would
otherwise be subject to options granted at the beginning of an offering period
exceeds the number of shares remaining available for issuance under the Purchase
Plan. Unless an employee withdraws his or her participation in the Purchase Plan
by giving written notice to the Company of his or her election to withdraw all
accumulated payroll deductions prior to the end of a purchase period, the
employee's option for the purchase of shares will be exercised automatically at
the end of the purchase period, and the maximum number of full shares subject to
option which are purchasable with the accumulated payroll deductions in his or
her account will be purchased at the applicable purchase price determined as
provided below.
Purchase Price
The purchase price per share at which shares are sold to participating
employees is 85% of the lower of the fair market value per share of the Common
Stock on (i) the first day of the Offering Period or (ii) the last day of the
Offering Period. The fair market value of the Common Stock on a given date is
determined by reference to the last reported sales price on the National Market
System.
Payroll Deductions
The purchase price of the shares acquired is accumulated by payroll
deductions over the six-month Offering Period. The deductions may not exceed 10%
of a participant's aggregate eligible compensation. Eligible compensation shall
include all base straight time gross earnings, payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses, commissions and
other compensation. A participant may reduce the rate of payroll deductions at
any time during the Offering Period. Any participant may discontinue his or her
participation in the Purchase Plan at any time. The rate of participation may be
increased only for a new plan period. Upon the withdrawal of a participant from
the Purchase Plan, the Company returns to the participant all funds credited to
a participant's payroll deduction account, without interest.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for in excess of 20 hours per week and 5 months
per year during the applicable Offering Period, cancels his or her option and
his or her participation in the Purchase Plan immediately. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of death, to the person or persons entitled thereto as
provided in the Purchase Plan.
Capital Changes
In the event any change is made in the Company's capitalization in the
middle of an Offering Period, such as a stock split or stock dividend, which
results in an increase or decrease in the number of shares of Common Stock
outstanding without receipt of consideration by the Company, appropriate
adjustment shall be made in the purchase price and in the number of shares
subject to options under the Purchase Plan.
Amendment and Termination of the Plan
The Board of Directors may at any time amend, alter or terminate the
Purchase Plan. No amendment may be made to the Purchase Plan without approval of
the stockholders of the Company if such amendment would increase the number of
shares reserved under the Purchase Plan, change the standards of eligibility for
participation in the Purchase Plan or materially increase the benefits accruing
to participants in the Purchase Plan. In the event the Purchase Plan is
terminated, the Board may elect to terminate all outstanding options either
immediately or upon completion of the purchase of shares on the next purchase
date, or may elect to permit options to expire in accordance with their terms
(and participation to continue through such expiration dates).
Federal Income Tax Information
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of the shares. Upon disposition
of the shares, the participant will generally be subject to tax. If the shares
have been held by the participant for more than two years after the date of
option grant and more than one year after the purchase date of the shares, the
lesser of (a) the excess of the fair market value of the shares at the time of
such disposition over the purchase price of the shares subject to the option, or
(b) 15% of the fair market value of the shares on the first day of the offering
period will be treated as ordinary income, and any further gain upon such
disposition will be treated as long-term capital gain. If the shares are
disposed of before the expiration of the holding periods described above, the
excess of the fair market value of the shares on the exercise date over the
option price will be treated as ordinary income, and further gain or loss on
such disposition will be capital gain or loss. However, if the shares are
disposed of for less than the exercise price there is no ordinary income and the
participant recognizes a capital loss measured by the difference between the
exercise price and the sales price. Different rules may apply with respect to
participants subject to Section 16(b) of the Exchange Act. The Company is not
entitled to a deduction for amounts taxable to a participant except to the
extent of ordinary income taxable to a participant upon disposition of shares
prior to the expiration of the holding periods described above.
The foregoing is only a summary of the federal income tax consequences of
the Purchase plan to participants and the Company. In addition, the summary does
not discuss the tax consequences of a participant's death or the income tax laws
of any state or foreign country in which the participant may reside.
Plan Benefits
The Company cannot now determine the exact number of shares to be issued in
the future under the Purchase Plan to the executive officers named under
"EXECUTIVE OFFICER COMPENSATION - Summary Compensation Table," all current
executive officers as a group or all employees (including executive officers) as
a group. In the fiscal year ended October 30, 1999, an aggregate of 6,632 shares
of Common Stock of the Company were issued to all executive officers as a group
and an aggregate of 84,701 shares of Common Stock of the Company were issued to
all employees (including executive officers) under the Purchase Plan.
Required Vote
The affirmative vote of the majority of the Votes Cast will be required
under Delaware law to approve the amendment to the Purchase Plan. For this
purpose, the term "Votes Cast" is defined under Delaware law to be the shares of
the Company's Common Stock present in person or represented by proxy at the
Annual Meeting and "entitled to vote on the subject matter." Votes that are cast
against the proposal will be counted for purposes of determining (i) the
presence or absence of a quorum for the transaction of business and (ii) the
total number of Votes Cast with respect to the proposal. While there is no
definitive statutory or case law authority in Delaware as to the proper
treatment of abstentions in the counting of votes with respect to a proposal
such as the amendments of the Purchase Plan, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business and (ii) the total number
of Votes Cast with respect to the proposal. In the absence of controlling
precedent to the contrary, the Company intends to treat abstentions in this
manner. Accordingly, abstentions will have the same effect as a vote against the
proposal. In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware
Supreme Court held that, while broker nonvotes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker nonvotes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, broker nonvotes with respect to this proposal
will not be counted as Votes Cast.
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent auditors to audit the books, records and accounts of the Company for
the current fiscal year ending October 28, 2000. Such appointment is being
presented to the stockholders for ratification at the Annual Meeting.
Representatives of Ernst & Young LLP will be present at the Annual Meeting, will
have the opportunity to make a statement if they desire to do so, and will be
available to respond to appropriate questions from stockholders.
The Board of Directors recommends voting FOR the ratification of its
appointment of Ernst & Young LLP as the Company's independent auditors.
<PAGE>
MANAGEMENT
The executive and other officers of the Company, and their ages as of
January 1, 2000 are as follows:
Name Age Position
- -------------------- ----- -----------------------------------------------------
Robert L. Puette .. 57 President and Chief Executive Officer and Director
Thomas E. Brunton . 52 Senior Vice President, Finance and Chief Financial
Officer
Robert M. Krueger . 52 Senior Vice President, Product Development
Janine Roth ....... 44 Senior Vice President, Marketing and Business
Development
Chusak Siripocanont 46 Senior Vice President, Operations
David P. McLoughlin 40 Vice President, Human Resources and Facilities
Thomas H. Rappath . 57 Vice President, Asia Pacific Sales and Service
Mr. Puette was elected to the Centigram Board in September 1997, at which
time he became President and Chief Executive Officer of the Company. Before
joining Centigram, Mr. Puette served as President, CEO and Chairman of the Board
at NetFRAME Systems, a high-availability computer server company, from January
1995 to September 1997. Prior to that, Mr. Puette was President and Chief
Executive Officer of Puette Consulting, a marketing and sales consulting firm,
from November 1993 to December 1994. Mr. Puette held the position of President
of Apple USA from June 1990 to October 1993, and was a Group General Manager at
the Hewlett-Packard Company prior to that time.
Mr. Brunton joined the Company in March 1991 as Controller and became Vice
President and Controller in July 1995, Treasurer in August 1997, and Senior Vice
President-Finance, Chief Financial Officer in March 1998. Mr. Brunton also
serves as director of several subsidiaries of the Company: Centigram Asia
Limited, Centigram Australasia Pty Limited, Centigram Communications (Barbados),
Inc., Centigram Europe B.V., and Centigram UK Limited. He earlier held
accounting management positions with 3Com Corporation and Sun Microsystems,
Inc., and he was employed for eight years by Coopers & Lybrand LLP in various
auditing positions.
Mr. Krueger joined the Company as Senior Vice President, Product
Development in December 1997. Prior to joining the Company, Mr. Krueger was the
Vice President and General Manager of the Network Products Division at Advanced
Micro Devices, Inc. from 1990 to November 1997. From 1968 to 1990, Mr. Krueger
held various management positions in product development at Digital Equipment
Corporation, Datapoint Corporation and Texas Instruments Incorporated. Mr.
Krueger is a member of the Board of InfoInterActive, Inc.
Ms. Roth joined the Company in April 1998 as Vice President, Business
Development. In July 1999, she became Senior Vice President, Marketing and
Business Development. From June 1995 to March 1998 she served as Senior Director
of Strategic Product Planning at Bell South International and from May 1989 to
May 1995 she held various management positions at BellSouth. Prior to BellSouth,
Ms. Roth held positions at Touche Ross and Company, Digital Equipment
Corporation and AT&T Bell Laboratories.
Mr. Siripocanont joined the Company as Vice President, Manufacturing in
October 1993 and became Senior Vice President, Operations in May 1998. From 1991
to 1993 he was Vice President, Manufacturing of E-Mu Systems, Inc., a
manufacturer of digital audio systems which became a subsidiary of Creative
Technology, Inc. in 1993. From 1988 to 1991 he served as Director of Corporate
Quality and Manufacturing Management for Octel Communications Corporation. From
1980 to 1988, he held various manufacturing management positions at IBM/Rolm.
<PAGE>
Mr. McLoughlin joined the Company in October 1998 as Vice President, Human
Resources and Facilities. From June to October 1998, he was Director, North
American Human Resources for Micro Focus, Inc. From September 1995 to May 1998,
Mr. McLoughlin held several worldwide human resources management positions with
NetFRAME Systems and MICRON Electronics, Inc. From 1989 to September 1995 he
held several human resource positions with Mervyn's, a retail sales company.
Mr. Rappath joined the Company in November 1998 as Vice President, Asia
Pacific Sales and Service. He was Vice President for the Asia Pacific sector at
Digital Microwave Corporation from September 1995 to November 1998. Mr. Rappath
was President of the Rappath Group, a marketing and sales consulting firm, from
January 1995 to September 1995. From September 1993 to January 1995, he was Vice
President, World Wide Sales for Interlink Computer Sciences Inc. He has also
held various management and sales positions with Aristacom International, Inc.,
Rational Software Corporation, and the Hewlett-Packard Company.
CERTAIN TRANSACTIONS
The Company has entered into indemnification agreements with each of its
directors and executive officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by law.
OTHER INFORMATION
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Exchange Act requires certain of the Company's
executive officers, as well as its directors and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons, the Company
believes that during the last fiscal year all executive officers and directors
complied with their filing requirements under Section 16(a) for all reportable
transactions during the year, except that the Form-5s for Mr. Puette and Mr.
Brunton for fiscal 1999 were filed late.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 1, 2000 information relating
to the beneficial ownership of the Company's Common Stock by each person known
by the Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock, by each director and nominee for director,
by each of the executive officers named in the Summary Compensation Table, and
by all directors and executive officers as a group. As of January 1, 2000,
6,027,729 shares of the Company's Common Stock were outstanding. Unless
otherwise indicated, all persons named as beneficial owners of Common Stock have
sole voting power and sole investment power with respect to the shares indicated
as beneficially owned.
No. of Approximate
Name Shares Owned Percentage Owned
- -------------------------------------------- -------------- -----------------
Kopp Investment Advisors (1) .............. 1,515,748 25.1%
7701 France Avenue South, Suite 500
Edina MN 55435
Dimensional Fund Advisers, Inc. (2)......... 626,000 6.9%
1299 Ocean Avenue .
11th Floor
Santa Monica, CA 90401
EQSF Advisors, Inc. (3) ................... 326,900 5.4%
767 Third Avenue, 5th Floor
New York, NY 10017
Robert L. Puette (4) ...................... 189,133 3.1%
Thomas E. Brunton (4) (5) ................. 72,097 1.2%
Robert M. Krueger (4) ..................... 81,250 1.3%
Janine Roth (4) ........................... 20,474 *
Chusak Siripocanont (4) ................... 68,481 1.1%
James H. Boyle (4) ........................ 35,375 *
Doug Chance (4) ........................... 21,986 *
David S. Lee (4) .......................... 38,958 *
Dean O. Morton (4) (6) .................... 53,208 *
All directors and executive officers
as a group (9 persons) (4) .......... 580,962 9.6%
-------------------------------
* Less than one percent (1%).
(1) Based on information provided by Kopp Investment Advisors on January 12,
2000, and Form-13D/A dated December 7, 1999.
(2) Based on information provided by Dimensional Fund Advisors, Inc. on January
12, 2000.
(3) Based on information provided by EQSF Advisors, Inc. on January 20, 2000.
(4) Includes shares issuable upon exercise of stock options presently
exercisable within 60 days of January 1, 2000 as follows:
Mr. Puette, 185,833; Mr. Brunton, 54,157 shares; Mr. Krueger, 81,250
shares; Ms. Roth, 17,083 shares; Mr. Siripocanont, 61,157 shares; Mr.
Boyle, 34,375; Mr. Chance, 17,986 shares; Mr. Lee, 38,958 shares; Mr.
Morton, 50,208 shares; and all directors and executive officers as a group,
541,007 shares.
(5) Includes 100 shares held by Mr. Brunton's son as to which Mr. Brunton
disclaims beneficial ownership.
(6) Includes 3,000 shares issued in the name of the Dean O. and Laura Morton
Trust UTA DTD 9/20/78.
<PAGE>
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
The following table shows, as to each Chief Executive Officer during the
last fiscal year, each of the four other most highly compensated executive
officers whose salary plus bonus exceeded $100,000 and up to two former
executive officers who would have been included if they had been executive
officers at the end of the last fiscal year (the "Named Executive Officers"),
information concerning compensation paid for services to the Company in all
capacities during the last fiscal year, as well as the total compensation paid
to each such individual for the Company's previous two fiscal years (if such
person was the Chief Executive Officer or an executive officer, as the case may
be, during any part of the last fiscal year).
Annual
Compensation
---------------- Long
Other Term
Annual Compen- All
Compen- sation Other
Name and Principal Bonus sation Options Compen-
Position Year Salary (1) (2) (3) sation
- --------------------------- ---- -------- -------- ------- ------- ---------
Robert L. Puette .......... 1999 $340,018 $103,972 $1,500 80,000 $13,578(5)
President and Chief .... 1998 340,018 170,000 1,475 350,000 12,179(6)
Executive Officer (4) .. 1997 31,386 -- -- 350,000 1,437(7)
Thomas E. Brunton ....... 1999 175,011 54,338 290 21,000 6,714(5)
Senior Vice President .. 1998 165,984 54,000 340 90,000 7,564(6)
and Chief Financial .... 1997 150,048 25,000 275 51,098 6,685(7)
Officer
Robert M. Krueger ....... 1999 210,018 60,669 971 -- 7,038(5)
Senior Vice President, . 1998 182,319 130,000 645 350,000 7,166(6)
Product Development (4)
Janine Roth .............. 1999 165,088 42,189 2,000 20,000 6,257(5)
Senior Vice President, . 1998 85,967 68,202 2,000 30,000 3,595(6)
Marketing and Business
Development(4)
Chusak Siripocanont ...... 1999 175,011 60,638 775 24,000 7,096(5)
Senior Vice President, . 1998 176,946 34,000 495 60,000 4,659(6)
Operations ............. 1997 150,037 25,000 670 50,698 1,023(7)
(1) Bonus amounts are reported for the fiscal year in which earned without
regard to when paid.
(2) The amounts included in this column represent amounts reimbursed by the
Company for tax preparation fees.
(3) Represents number of shares granted under stock options. The Company did
not grant stock appreciation rights or restricted stock awards in fiscal
1999. Included in these grants in fiscal year 1998 were shares granted as a
result of the Company's June 1998 stock option repricing. As part of this
stock option repricing, shares previously granted under the Company's stock
plans were canceled and new grants were issued with the vesting period set
as of the date of the issuance of the new option grant. Stock option grants
issued in fiscal 1998 as part of this repricing program were as follows:
Mr. Puette, 350,000 shares; Mr. Brunton, 50,000 shares; Mr. Krueger,
150,000 shares; Ms. Roth, 30,000 shares; and Mr. Siripocanont, 35,000
shares.
(4) Mr. Puette joined the Company as President and Chief Executive Officer of
the Company in September 1997. Mr. Krueger joined the Company as Senior
Vice President, Product Development in December 1997. Ms. Roth joined the
Company as Vice President, Business Development in April 1998.
(5) The amounts disclosed in the "All Other Compensation" column include:
(a) Payments by the Company in 1999 of premiums for group term life
insurance on behalf of each of Mr. Puette, $4,840; Mr. Brunton,
$1,414; Mr. Krueger, $1,738; Ms. Roth, $ 480, and Mr. Siripocanont,
$868. This benefit is extended to all employees.
(b) Payment by the Company in 1999 of car allowances as follows: Mr.
Puette, $6,000; and $4,800 each for Mr. Brunton, Mr. Krueger, Ms.
Roth, and Mr. Siripocanont.
(c) Payment by the Company of expenses for annual physical examinations in
the amount as follows: Mr. Puette, $173 and Mr. Siripocanont, $322.
(d) Payments by the Company in 1999 for 401(k) match in the amount of $500
each for Mr. Puette, Mr. Brunton, Mr. Krueger, Ms. Roth, and Mr.
Siripocanont. This benefit is extended to all employees.
(e) Payments by the Company in 1999 of travel expenses for the cost of
spouses' attendance at the annual sales recognition trip as follows:
Mr. Puette, $2,065; Ms. Roth, $477; and Mr. Siripocanount, $606.
(6) The amounts disclosed in the "All Other Compensation" column include:
(a) Payments by the Company in 1998 of premiums for group term life
insurance on behalf of each of Mr. Puette, $5,679; Mr. Brunton,
$1,614; Mr. Krueger, $1,866; Ms. Roth, $295; and Mr. Siripocanont,
$927. This benefit is extended to all employees.
(b) Payment by the Company in 1998 of car allowances as follows: Mr.
Puette, $6,000; Mr. Brunton, $4,800; Mr. Krueger, $4,800; Ms. Roth,
$2,800; and Mr. Siripocanont, $2,600.
(c) Payment by the Company of expenses for annual physical examinations in
the amount as follows: Mr. Brunton, $650, Mr. Siripocanont, $632.
(d) Payment by the Company in 1998 for 401(k) match in the amount of $500
each for Mr. Puette, Mr. Brunton, Mr. Krueger, Ms. Roth, and Mr.
Siripocanont. This benefit is extended to all employees.
(7) The amounts disclosed in the "All Other Compensation" column include:
(a) Payments by the Company in 1997 of premiums for group term life
insurance on behalf of each of Mr. Puette, $437; Mr. Brunton, $1,385;
and Mr. Siripocanont, $523. This benefit is extended to all employees.
(b) Payment by the Company in 1997 of car allowances as follows: Mr.
Puette, $500; and Mr. Brunton, $4,800.
(c) Payment by the Company in 1997 for 401(k) match in the amount of $500
each for Mr. Puette, Mr. Brunton, and Mr. Siripocanont. This benefit
is extended to all employees.
Stock Option Grants and Exercises
The following tables set forth information with respect to options granted
to the Named Executive Officers and the options exercised by such named
executive officers during the last fiscal year.
STOCK OPTION GRANTS IN FISCAL YEAR 1999
The Option Grant Table sets forth hypothetical gains or "option spreads"
for the options at the end of their respective five-year terms, as calculated in
accordance with the rules of the Securities and Exchange Commission. Each gain
is based on an arbitrarily assumed annualized rate of compound appreciation of
the market price at the date of grant of five percent (5%) and ten percent (10%)
from the date the option was granted to the end of the option term. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's Common Stock and overall market conditions.
Individual Grants
---------------------------------------
Potential Realizable
Percent of Value of Assumed
Number of Total Annual Rates of
Securities Options Stock Price
Underlying Granted to Exercise Appreciation for
Options Employees or Base Expira- Option Term
Name and Principal Granted in Fiscal Price tion --------------------
Position (1) Year ($/share) Date 5% 10%
- --------------------------------------------------------------------------------
Robert L. Puette . . 80,000 11.58 $7.25 12/4/08 $340,000 $885,000
Thomas E. Brunton . 21,000 3.04 7.25 12/4/08 89,000 232,000
Robert M. Krueger . -- -- -- -- -- --
Janine Roth . . . . 20,000 2.89 7.25 12/4/08 85,000 221,000
Chusak Siripocanont 24,000 3.48 7.25 12/4/08 102,000 265,000
(1) Represents number of shares granted under stock options. The Company did
not grant stock appreciation rights or restricted stock awards in fiscal
1999.
<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1999 AND YEAR-END VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1998 and
unexercised options held as of October 30, 1999.
Total
Unexercised In-the-Money
Options Held at Options Held at
Shares Fiscal Year End Fiscal Year End
Acquired ----------------- ------------------
Name and Principal on Value Exercis- Unexer- Exercis- Unexer-
Position Exercise Realized able cisable able cisable
- ------------------- -------- -------- -------- ------- -------- ---------
Robert L. Puette ... -- -- 116,667 313,333 $ -- $180,000
Thomas E. Brunton . -- -- 47,407 52,291 9,844 37,406
Robert M. Krueger . -- -- 63,826 136,174 -- --
Janine Roth ....... -- -- 13,334 36,666 9,376 35,624
Chusak Siripocanont . -- -- 55,133 44,565 11,250 42,750
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
The Board of Directors on October 24, 1997 approved change-in-control
agreements with all of the Company's outside directors and executive officers,
and certain key employees of the Company. The change-in-control agreements
provide that in the event of a merger, consolidation, tender offer, sale of
assets or similar event resulting in stockholders of Centigram receiving less
than fifty percent (50%) of the outstanding voting stock of the surviving
corporation (a "Change in Control"), the vesting of such person's outstanding
options will be accelerated by two (2) years from the date of the Change in
Control, in the case of executive officers and key employees, and in the case of
outside directors, the options shall become fully vested. In the event an
executive officer or key employee is involuntarily terminated within twelve (12)
months of a Change -in-Control, all of such person's outstanding options will
become fully vested, and such person will receive as severance pay six (6)
months of his or her base salary, in the case of a key employee, or twelve (12)
months of his or her base salary and bonus, in the case of an executive officer.
Involuntary terminations for willful misconduct do not trigger the
change-in-control provisions.
In September 1997, Mr. Puette was hired as the Company's President and
Chief Executive Officer pursuant to an offer letter dated September 24, 1997. In
October 1997, the Company entered into an employment agreement with Mr. Puette
which provides that he will receive an annual base salary of $340,000 and will
participate in the Company's Executive Bonus Program. Mr. Puette also received
an option to purchase 350,000 shares of the Company's Common Stock. The
agreement is terminable at will by either party, but if it is terminated by the
Company for other than cause, Mr. Puette will receive salary and other benefits
for one year after termination. In the event of a Change in Control of the
Company, Mr. Puette shall receive severance equal to 150% of his base and bonus
compensation and other benefits, including the acceleration of stock options
that become exercisable within two years following such Change-In-Control.
COMPENSATION COMMITTEE REPORT
The Compensation Committee consists of Dean Morton and David Lee. Each of
such directors at the time of serving on the Compensation Committee was an
independent director of the Company. The Committee is responsible for
administering the Company's compensation and benefits programs. The Committee
sets executive salary levels, establishes the Company's executive bonus plan and
determines target bonuses thereunder, and determines option grants under the
Company's stock option programs.
The Company's executive compensation program has been designed to ensure
that the compensation provided to executive officers is closely aligned with the
Company's financial performance and, ultimately, the creation of stockholder
value, and to ensure that the Company can attract and retain key executives
critical to the Company's long-term success.
The Committee establishes the salary of each executive officer, including
the Chief Executive Officer, by considering (i) the salaries of executive
officers in similar positions with comparably sized companies in the Company's
and related industries, based upon survey data obtained from various sources,
(ii) the experience and contribution levels of the individual executive
officers, (iii) the Company's financial performance during the past year, and
(iv) in the case of executive officers other than the Chief Executive Officer,
the recommendations of the Chief Executive Officer.
Under the Company's executive bonus plan for the last fiscal year,
executive officers were eligible to receive bonuses based upon achievement by
the Company of revenue, profit performance, and individual objectives
established by the Compensation Committee. Based upon the Company's financial
performance in the last fiscal year, the executive officers were awarded bonuses
for performance relative to Company revenue and individual personal objectives
in an amount of up to 35% of base salary. The bonus program for the last fiscal
year provided for a portion of the full-year performance bonus to be paid at
mid-year, based upon achievement of targeted revenue performance for the first
half of the year.
For Fiscal 2000, the executive bonus program provides for the payment of
bonuses based on three independent performance criterion: achievement by the
Company of revenue objectives established by the Committee at the commencement
of the fiscal year; achievement by the Company of profit objectives established
by the Committee at the commencement of the fiscal year; and achievement by each
executive of individual/functional objectives established by the executive and
Chief Executive Officer at the commencement of the fiscal year (in the case of
the Chief Executive Officer as established by the Chief Executive Officer and
the Committee at the commencement of the fiscal year). In the event the Company
achieves revenue or profit performance less than a specified level, or the
executive achieves individual/functional objectives at less than a specified
level, no bonuses will be paid out. If the Company meets its financial
performance goals, and if the executive officers meet their specified
individual/functional objectives, the Chief Executive Officer is entitled to a
performance-based bonus of 65% of base salary and other executive officers are
entitled to a performance-based bonus of 15% to 45% of base pay. Higher
performance-based bonuses can be earned for revenue, profit and individual
objectives achieved above target levels. In addition, each executive can earn an
accelerator based on the improvement level of the Company's Customer
Satisfaction Survey results.
The Committee also grants stock options to executive officers to provide
long-term incentive to the executive officers aligned with the creation of
increased stockholder value over time. The Committee grants options based upon a
number of factors, including each such officer's responsibilities and position
in the Company, any changes in the executive officer's responsibility and
position, and the executive officer's existing equity interest in the Company in
the form of vested and unvested options. All options are granted at the current
market price of the Company's Common Stock on the date of grant. During the last
fiscal year, the Committee granted options to purchase an aggregate of 253,000
shares of Common Stock to executive officers at an exercise price of $7.25 per
share, including 80,000 granted to the CEO.
No member of the Compensation Committee is a former or current executive
officer or employee of the Company.
Compensation Committee
David S. Lee
Dean O. Morton
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return among Centigram Communications Corporation, the S&P
500 Index and the H&Q Technology Index, from October 1, 1994 through October 30,
1999, the end of the last fiscal year.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T).
10/1/94 10/28/95 11/2/96 11/1/97 10/31/98 10/30/99
- -------------------------------------------------------------------------------
Centigram Communications
Corporation 100 129 80 101 40 54
S&P 500 100 129 160 212 259 325
Hambrecht & Quist 100 178 190 256 289 567
Technology
*$100 invested on 10/1/94 in stock or on 9/30/94
in index, including reinvesment of dividends.
<PAGE>
OTHER MATTERS
The Board of Directors does not intend to bring before the meeting any
matters other than those set forth herein, and has no present knowledge that any
other matters will or may be brought before the meeting by others. If, however,
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the proxies in accordance
with their judgment.
Dated: February 18, 2000
BY ORDER OF THE
BOARD OF DIRECTORS
