<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CenterSpan Communications Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LETTERHEAD]
TO THE SHAREHOLDERS OF CENTERSPAN COMMUNICATIONS CORPORATION:
NOTICE IS HEREBY GIVEN THAT THE ANNUAL MEETING OF SHAREHOLDERS OF
CENTERSPAN COMMUNICATIONS CORPORATION, AN OREGON CORPORATION (THE "COMPANY"),
WILL BE HELD AT THE RIVERPLACE HOTEL, LOCATED AT 1510 SOUTHWEST HARBOR WAY,
PORTLAND, OREGON, ON DECEMBER 15, 1999, AT 2:00 P.M. LOCAL TIME FOR THE
FOLLOWING PURPOSES:
1. TO ELECT DIRECTORS OF THE COMPANY:
2. TO RATIFY THE SELECTION OF KPMG LLP AS INDEPENDENT ACCOUNTANTS; AND
3. TO TRANSACT ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON OCTOBER 29, 1999 WILL
BE ENTITLED TO NOTICE OF AND TO VOTE AT THE MEETING, AND ANY ADJOURNMENTS
THEREOF.
INFORMATION CONCERNING THE COMPANY'S ACTIVITIES AND OPERATING
PERFORMANCE DURING THE YEAR ENDED DECEMBER 31, 1998 IS CONTAINED IN THE
COMPANY'S ANNUAL REPORT WHICH IS ENCLOSED.
YOUR VOTE IS VERY IMPORTANT. ALL SHAREHOLDERS ARE INVITED TO ATTEND THE
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. IF
YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH EVEN IF YOU HAVE
RETURNED YOUR PROXY.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ MARK CONAN
--------------
MARK B. CONAN
SECRETARY
HILLSBORO, OREGON
NOVEMBER 22, 1999
<PAGE>
[LETTERHEAD]
PROXY STATEMENT FOR 1999 ANNUAL MEETING OF
SHAREHOLDERS
GENERAL
This proxy statement and the enclosed form of proxy are being mailed
on or about November 22, 1999, to shareholders of CenterSpan Communications
Corporation, an Oregon corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at
the annual meeting of shareholders to be held on December 15, 1999, at 2:00
p.m. local time, at the RiverPlace Hotel, located at 1510 Southwest Harbor
Way, Portland, Oregon, and any adjournment thereof (the "Annual Meeting").
REVOCABILITY OF PROXIES
A shareholder giving a proxy has the power to revoke that proxy at
any time before it is exercised by filing with the Secretary of the Company
an instrument of revocation, or a duly executed proxy bearing a later date,
or by personally attending and voting at the Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record at the close of business on October 29,
1999 (the "Record Date") will be entitled to vote at the meeting. At the
close of business on the Record Date, there were 5,350,226 shares of the
Company's common stock ("Common Stock") outstanding.
QUORUM AND VOTING
Each share of Common Stock entitles the holder thereof to one vote.
Under Oregon law, action may be taken on a matter submitted to shareholders
only if a quorum exists with respect to such matter. A majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting,
present in person or represented by proxy, will constitute a quorum.
If a quorum is present, a nominee for election to the Board of
Directors will be elected by a plurality of the votes cast by shares entitled
to vote at the Annual Meeting. For all other matters, action will be approved
if the votes cast in favor of the action exceed the votes cast opposing the
action.
Shares represented by a properly executed proxy will be voted in
accordance with the shareholder's instructions if given. If no instructions
are given, shares will be voted "FOR" (i) the election of the nominees for
directors named herein, (ii) the ratification of the selection
<PAGE>
of KPMG LLP as independent accountants and (iii) in accordance with the
recommendations of management on any other matters properly brought before
the Annual Meeting. The Board of Directors knows of no other matters to be
presented for action at the meeting.
Proxies that expressly indicate an abstention as to a particular
proposal and broker non-votes will be counted for purposes of determining
whether a quorum exists at the Annual Meeting, but will not be counted for
any purposes in determining whether a proposal is approved and have no effect
on the determination of whether a plurality exists with respect to a given
nominee. Proxies will be received and tabulated by ChaseMellon Shareholder
Services, the Company's transfer agent.
SOLICITATION OF PROXIES
This solicitation is being made on behalf of and the cost of
soliciting proxies will be borne by the Company. In addition to solicitation
by mail, certain of the Company's directors, officers, and regular employees
may solicit proxies personally or by telephone or other means without
additional compensation. Brokers, nominees and fiduciaries will be reimbursed
in accordance with customary practice for expenses incurred in obtaining
proxies or authorizations from the beneficial shareholders. Your cooperation
in promptly completing, signing, dating and returning the enclosed proxy card
will help avoid additional expense.
PROPOSAL 1: ELECTION OF DIRECTORS
At the 1997 Annual Meeting of shareholders the Board of Directors
was divided into three classes. The terms of the directors in each class
expire at the annual meeting of shareholders in the years listed on the chart
below. Under the Company's articles of incorporation and bylaws, Class A
Directors were elected at the 1998 annual meeting of shareholders. Frank G.
Hausmann was appointed as a Class B Director in October 1998 to fill a
vacancy created by the resignation of Stephen A. Aanderud. In October 1999,
the Board of Directors appointed Jerome J. Meyer as a Class A Director to
fill the vacancy created by Milton R. Smith's resignation. In November 1999,
the Board of Directors appointed David Billstrom as a Class A Director to
fill the vacancy created by Robert L. Carter's resignation.
<TABLE>
<CAPTION>
Class B Directors Class C Directors Class A Directors
----------------------------------------------------------------------------------------------
2002 2000 2001
<S> <C> <C>
Gen. Merrill A. McPeak Graham E. Dorland David Billstrom
C. Norman Winningstad Frederick M. Stevens G. Gerald Pratt
Frank G. Hausmann Jerome J. Meyer
</TABLE>
2
<PAGE>
The Board of Directors has nominated Messrs. McPeak, Winningstad and
Hausmann for re-election as directors in Class B, to serve for three-year
terms and until their successors are elected and qualified, unless they shall
earlier resign, become disqualified or disabled or shall otherwise be
removed. The Board of Directors has nominated Mr. Meyer and Mr. Billstrom for
re-election as Class A directors to serve two year terms and until their
successors are elected and qualified, unless they shall earlier resign,
become disqualified or disabled or shall otherwise be removed.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE ELECTION OF ALL NOMINEES.
Although the Board of Directors anticipates that all nominees will
be available to serve as directors of the Company, if any of them do not
accept the nomination, or otherwise are unwilling or unable to serve, the
proxies will be voted for the election of a substitute nominee or nominees
designated by the Board of Directors.
BOARD AND NOMINEE BIOGRAPHICAL INFORMATION
Set forth below are the ages, as of the Record Date, and certain
biographical information for each director and nominee.
GENERAL MERRILL A. MCPEAK, 63, became a member of the Board of
Directors in March 1996. He has been the President of McPeak and Associates,
an international aerospace consulting firm, since January 1995. General
McPeak spent 37 years in the United States Air Force, and was Chief of Staff
from October 1990 to October 1994, when he retired. He also is a member of
the Boards of Directors of Tektronix, Inc., Praegitzer Industries, Inc., TWA,
Inc. and ECC International Corp., where he serves as Chairman of the Board.
He holds a B.A. degree in economics from San Diego State University and a
M.S. degree in international relations from George Washington University.
C. NORMAN WINNINGSTAD, 73, has served as Chairman of the Board since
February 1994. He has served as a director of the Company since its
inception. From 1970 to October 1991, Mr. Winningstad held at various times
the positions of Chairman of the Board, Vice-Chairman, President and Chief
Executive Officer of Floating Point Systems, Inc., a manufacturer of
scientific computers. Mr. Winningstad has a B.S. degree in Electrical
Engineering from the University of California at Berkeley, an M.B.A. degree
from Portland State University, and an Honorary Doctorate of Law degree from
Pacific University.
FRANK G. HAUSMANN, 42, became a member of the Board of Directors in
October 1998. He has been employed by the Company since July 1998, serving as
President and Chief Executive Officer since October 1998 and Vice President,
Finance and Administration and Chief Financial Officer prior to that time.
From August 1997 to May 1998, Mr. Hausmann was Vice President, Finance and
Chief Financial Officer of Atlas Telecom, Inc., a developer of enhanced
facsimile and voice-mail solutions which as organized in 1985. Mr. Hausmann
was recruited by Atlas in an attempt to raise $50 million necessary to effect
the
3
<PAGE>
turn around of the company. From September 1995 to July 1997, he served as
Vice President, Corporate Development and General Counsel of Diamond
Multimedia Systems, Inc., a designer and marketer of computer peripherals
such as modems and graphics and sound cards. From June 1993 to September
1995, Mr. Hausmann was Executive Vice President and Chief Financial Officer
for Supra Corporation, a designer and marketer of modems that was acquired by
Diamond Multimedia Systems, Inc. in September 1995. Mr. Hausmann received
B.S. degrees in economics and political science from Willamette University
and a J.D. degree from the University of Oregon. He is a member of the Oregon
State Bar.
GRAHAM E. DORLAND, 57, became a member of the Board of Directors in
November 1993. Mr. Dorland is President of Dorland and Associates, a
consulting group, and President and Chief Executive Officer of Nautamatic
Marine Systems, Inc., a manufacturer of marine autopilots located in Newport,
Oregon. From June 1993 to January 1995, he was Managing Partner of Snobird
Aircraft Partners, a developer of experimental aircraft. From May 1982 to
December 1992, Mr. Dorland was Chairman and President of ABX Air Inc., the
wholly-owned airline subsidiary of Airborne Freight Corporation, doing
business as Airborne Express.
FREDERICK M. STEVENS, 62, became a member of the Board of Directors
in December 1993. From April 1988 until his retirement in January 1991, Mr.
Stevens was the Chairman of the Board and Chief Executive Officer of Fred
Meyer, Inc.
DAVID BILLSTROM, 38, became a member of the Board of Directors in
November 1999. Mr. Billstrom is a private investor and a consultant to
entrepreneurial companies. From January to August 1999 he was Vice President
of Content Services of Infoseek/Go Network, which is now owned by Disney. In
1996, Mr. Billstrom co-founded Quando, Inc. and served as Chief Executive
Officer, President and Chairman until the company was acquired by Infoseek in
January 1999. Quando built and operated targeted search engines and custom
directories for ecommerce, events, venues, and audio clips for such clients
as AOL, IBM, Qualcomm and Infoseek. In 1993, Mr. Billstrom co-founded Media
Mosaic, a CD-ROM publisher, which was restructured as Quando in January 1996.
Prior to 1993, Mr. Billstrom spent 7 years at Intel Corporation as a
sales/marketing executive. Mr. Billstrom is a member of the board of
directors of Metatree, SouthernPlant.com, and WeSync.com.
G. GERALD PRATT, 71, has been a director of the Company since its
inception. Since 1980, Mr. Pratt has been a private venture capitalist. Mr.
Pratt has been a trustee of the Meyer Memorial Trust, a charitable trust,
since 1978.
JEROME J. MEYER, 61, became a member of the Board of Directors in
October 1999. Mr. Meyer is Chairman of the Board of Directors, Chief
Executive Officer and President of Tektronix, a manufacturer and distributor
of electronic products. He has been a director of Tektronix since 1990, and
became President and Chief Executive Officer in November 1990. Mr. Meyer was
Corporate Vice President of Honeywell Inc., an electronics manufacturer from
August 1986 until April 1987, and President and Chief Executive Officer of
Honeywell Bull
4
<PAGE>
Inc., now known as Bull Information Systems, Inc., from April 1987 until July
1988. He returned to Honeywell, Inc. and served as President of their
industrial business until joining Tektronix in November 1990. Mr. Meyer is a
director of Standard Insurance Company and Enron Corporation. He also serves
on the board of trustees of Oregon Public Broadcasting and is a member and
past chairman of the Oregon Business Council.
BOARD MEETINGS AND COMMITTEES
During 1998, there were 7 meetings of the Board of Directors. Each
director during 1998 attended more than 75% of the aggregate number of Board
of Directors' meetings and meetings of Board committees of which he was a
member.
The Board of Directors has a standing Audit Committee, currently
consisting of Messrs. Dorland, Pratt, and Meyer, that meets with the
Company's Chief Executive Officer, Chief Financial Officer and the Company's
independent public accountants to review the scope and findings of the annual
audit. The Audit Committee held 2 meetings during 1998.
The Board of Directors has a standing Compensation Committee
currently consisting of Messrs. Stevens, Winningstad and General McPeak. The
Committee considers and acts upon management's recommendations to the Board
of Directors regarding salaries, bonuses, stock options, and other forms of
compensation for the Company's executive officers. The Compensation Committee
makes recommendations to the Board of Directors. Executive officers who are
also directors of the Company do not participate in decisions affecting their
own compensation. The Compensation Committee held 3 meetings during 1998.
The Board of Directors does not have a Nominating Committee or any
other committee that performs a similar function.
COMPENSATION OF DIRECTORS
During 1998, each nonemployee director received an annual fee of
$5,000 and $1,000 for each Board and committee meeting attended (unless the
committee meeting was held on the same day as a Board meeting) and $500 for
each Board and committee meeting attended via telephone. Prior to 1999, each
new nonemployee director received options to purchase 16,480 shares of Common
Stock under the Directors' Nonqualified Stock Option Plan of the Company. In
1998, each nonemployee director who had been a director for more than one
year received options to purchase 5,000 shares of Common Stock at a price
equal to the fair market value on the date of grant. No employee director
receives additional compensation for his or her service as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1998 were Messrs.
Carter, Stevens, Winningstad and General McPeak. Mr. Carter is a former
Chairman, President and Chief Executive Officer of the Company. No executive
officer of the Company serves as a
5
<PAGE>
member of the Compensation Committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors.
FAMILY RELATIONSHIPS
There are no family relationships between any director, executive
officer or person nominated or chosen to be a director or executive officer,
and any other director, executive officer or person nominated or chosen to
become a director or executive officer of the Company.
EXECUTIVE OFFICERS
Set forth below are the ages, as of the November 17, 1999, and
certain biographical information for the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Frank G. Hausmann (1) 42 President, Chief Executive Officer
Mark B. Conan 38 Vice President of Finance, Administration
and Chief Financial Officer
Robert B. Smart 33 Vice President, Business Development
David A. McFeeters-Krone 31 Vice President, Strategic Planning
</TABLE>
- -------------------------
(1) For information regarding Mr. Hausmann, see "Board and Nominee
Biographical Information."
MARK B. CONAN has been employed by the Company since November 1999
as Vice President of Finance, Administration and Chief Financial Officer.
Prior to joining the Company, he served as Vice President of Finance,
Controller and Treasurer and Tax Director and Assistant Treasurer for Crown
Pacific from 1993 to November 1999. Mr. Conan spent 10 years with Price
Waterhouse prior to joining Crown Pacific. He earned a Bachelor of Science
degree in Business Administration / Accounting from Oregon State University
and is a C.P.A.
ROBERT B. SMART has been employed by the Company since January 1999
as Vice President, Business Development. Prior to joining the Company, he
served as a Corporate Business Development Manager for Intel Corporation from
July 1997 to January 1999. From June 1996 to July 1997 Mr. Smart was Senior
Strategic Marketing Manager for Merix Corporation, a manufacturer of circuit
boards. He has also held senior strategic and product marketing positions at
Altera Corporation from December 1990 to November 1995. He earned a B.S.
degree in Psychology from Arizona State University and an M.B.A. degree from
the University of Washington.
DAVID A. MCFEETERS-KRONE has been employed by the Company since June
1999 as
6
<PAGE>
Vice President, Strategic Planning. He served as a Marketing Manager for the
Intel Architecture labs from July 1997 until joining the Company. From July
1994 until July 1997, he was director of technology commercialization at the
Mid-Atlantic Technology Applications Center, a NASA regional technology
applications center. From 1992 until 1994, he was a licensing associate in
the Massachusetts Institute of Technology technology licensing office. He
earned a B.S. degree in physics from the University of Michigan and a M.B.A.
degree from the University of Pittsburgh.
The Company has entered into agreements with Mr. Hausmann and Mr.
Conan providing for a severance payment equal to six months base salary if
they are terminated without cause. The Company has also entered into change
of control agreements with all of the named executive officers providing for
a severance payment equal to 12 months (18 months in the case of Mr.
Hausmann) base salary in the event of termination as the result of a change
of control of the Company.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
1998 to the Company's Chief Executive Officer and the other four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2) (3)
- -------------------------------- ------ ------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Frank G. Hausmann (4) 1998 $82,150 $25,000 190,000(5) --
PRESIDENT AND CEO
Stephen A. Aanderud (6) 1998 135,958 -- 88,700(7) 64,362(8)
FORMER PRESIDENT AND, 1997 155,000 69,168 45,450 3,304
CHIEF EXECUTIVE OFFICER 1996 135,000 65,299 25,750 2,250
Ronald J. Resnick (9) 1998 142,000 -- 23,500(7) 2,130
FORMER VICE PRESIDENT, 1997 130,000 42,088 9,270 1,073
MARKETING 1996 78,692 28,172 41,020 --
David K. Bergeson (10) 1998 142,000 -- 23,500(7) 1,509
FORMER VICE PRESIDENT, 1997 87,823 33,593 40,000 --
SALES
G. Edward Brightman 1998 125,000 -- 23,500(7) 1,016
FORMER VICE PRESIDENT, 1997 110,000 35,228 9,270 968
OPERATIONS 1996 90,000 32,445 18,540 988
Frank Bouton 1998 110,000 -- 13,500 1,031
FORMER VICE PRESIDENT, 1997 100,000 38,460 9,270 989
NEW TECHNOLOGIES 1996 85,000 36,770 16,480 970
</TABLE>
- -----------------------------------
(1) Cash bonuses are paid to executive officers of the Company based upon their
individual contributions to the Company and the Company's overall
performance. Bonuses for a given year are paid in the first quarter of the
following year.
(2) The number of shares reflects a 3% stock dividend declared by the Board of
Directors on January 21, 1997.
(3) Other than for Mr. Aanderud, consists of the Company's matching
contributions under its 401(k) plan.
(4) Mr. Hausmann joined the Company in July 1998 as Vice President, Finance and
Administration and Chief Financial Officer. He was appointed President and
Chief Executive Officer in October 1998.
(5) Includes 80,000 replacement options granted upon surrender of options
previously granted. Surrendered options had an exercise price of $7.00 per
share.
8
<PAGE>
(6) Mr. Aanderud served as the Company's President and Chief Executive Officer
until October 1998.
(7) Represents replacement options granted upon surrender of options previously
granted. The surrendered options had exercise prices ranging from $11.50 to
$12.375 per share.
(8) Consists of $2,745 of the Company's matching contributions under its 401(k)
plan and $61,617 in severance and accrued vacation time payments.
(9) Mr. Resnick joined the Company in May 1996.
(10) Mr. Bergeson joined the Company in May 1997.
9
<PAGE>
OPTION GRANTS
The following table sets forth information with respect to grants of
stock options to the Named Executive Officers during 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED ANNUAL
SHARES TOTAL EXERCISE RATES OF STOCK PRICE
UNDERLYING OPTIONS PRICE PER APPRECIATION FOR OPTION
OPTIONS GRANTED TO SHARE TERM (3)
GRANTED EMPLOYEES EXPIRATION ------------------------
NAME (1) IN YEAR (2) DATE 5% 10%
- ----------------------------- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Hausmann 80,000(4) 9.7% $3.50 10/01/08 $176,000 $446,248
110,000 13.4 2.75 10/12/08 190,241 482,107
Stephen A. Aanderud (5) 88,700 10.8 3.50 10/09/99 195,240 494,777
Ronald J. Resnick 13,500(4) 1.6 3.50 10/01/08 29,715 75,304
10,000 1.2 3.00 12/01/08 18,857 47,612
David K. Bergeson 13,500(4) 1.6 3.50 10/01/08 29,715 75,304
10,000 1.2 3.00 12/01/08 18,857 47,612
G. Edward Brightman 13,500(4) 1.6 3.50 10/01/08 29,715 75,304
10,000 1.2 3.00 12/01/08 18,857 47,612
Frank M. Bouton 9,450 1.2 12.375 02/02/08 73,545 186,378
4,050 0.5 11.5 05/21/08 29,291 74,229
</TABLE>
- -----------------------------
(1) Options may terminate before their expiration dates if the optionee's
status as an employee or director is terminated. One-fourth of the
shares of Common Stock covered by each such option vests and becomes
exercisable on each of the first four anniversaries of the grant date.
(2) Based on the closing prices of the Common Stock as reported on The
Nasdaq National Market on the respective grant dates.
(3) This column shows the hypothetical gains or option spreads of the
options granted based on assumed annual compound stock appreciation
rates of 5% and 10% over the full 10-year term of the options. The
assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Common Stock prices.
(4) Represents replacement options granted upon surrender of options
previously granted. The surrendered options had exercise prices ranging
from $7.00 to $12.375 per share.
(5) Upon termination of Mr. Aanderud's employment with the Company, all of
his options vested and were exercisable through October 9, 1999.
10
<PAGE>
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding exercises
of stock options during 1998 by the Named Executive Officers and the year-end
value of options held by such individuals.
AGGREGATE OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED --------------------------- -------------------------
ON VALUE UNEXER- UNEXER-
NAME EXERCISE REALIZED EXERCISABLE CISABLE EXERCISABLE CISABLE
- --------------------------- -------- -------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Hausmann -- -- -- 190,000 -- 2,457,500
Stephen A. Aanderud 169,180 $894,760 3,400 -- 42,500 --
Ronald J. Resnick -- -- 22,917 51,053 241,708 574,687
David K. Bergeson -- -- 10,000 53,500 72,500 516,250
G. Edward Brightman -- -- 64,267 39,723 940,548 452,032
Frank M. Bouton -- -- 10,557 28,693 106,823 193,534
</TABLE>
- ---------------------------
(1) Calculated based on the difference between the option exercise price and
the closing price of the Common Stock on December 31, 1998 ($16.00 per
share). The potential values have not been, and may never be, realized.
The underlying options have not been, and may never be, exercised. Actual
gains, if any, on exercise will depend on the value of the Common Stock
on the date of exercise.
OPTION REPRICING
On October 1, 1998, the Board of Directors approved a program to allow
optionholders to reprice their options to current market values, $3.50 per
share. Officers and Directors who elected to reprice options were required to
restart the four-year vesting of the options. Employees who elected to reprice
options could not exercise the repriced options unless they were employed by the
Company on the one year anniversery of the repricing. The reduction of exercise
price affected options to purchase 388,198 shares of common stock with an
average exercise price of $9.97 per share.
As set forth in the 1998 Stock Option Plan, stock options are intended
to provide incentives to the Company's officers and employees. The Board of
Directors believes that such equity incentives are a significant factor in the
Company's ability to attract, retain and motivate key employees who are critical
to the Company's long-term success. The Board of Directors believed that, at the
original exercise prices, the disparity between the exercise price of these
options and market prices for the Company's Common Stock did not provide
meaningful incentives to the employees holding these options. The Board of
Directors
11
<PAGE>
approved the repricing of these options as a means of ensuring that optionees
would continue to have meaningful equity incentives to work toward the
success of the Company. The Board of Directors deemed the adjustment to be in
the best interest of the Company and its shareholders.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Number of Length of
Securities Market Price Exercise Original Option
Underlying of Stock at Price at Term Remaining
Options Time of Time of New at Date of
Repriced or Repricing or Repricing or Exercise Repricing or
NAME DATE Amended Amendment Amendment Price Amendment
- ------------------------- -------- ----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Hausmann 10/01/98 80,000 $3.50 $7.000 $3.50 116 months
Stephen A. Aanderud 10/01/98 10,300 $3.50 $4.733 $3.50 88 months
Stephen A. Aanderud 10/01/98 15,450 $3.50 $5.340 $3.50 92 months
Stephen A. Aanderud 10/01/98 15,450 $3.50 $8.617 $3.50 100 months
Stephen A. Aanderud 10/01/98 30,000 $3.50 $15.750 $3.50 109 months
Stephen A. Aanderud 10/01/98 12,250 $3.50 $12.375 $3.50 112 months
Stephen A. Aanderud 10/01/98 5,250 $3.50 $11.500 $3.50 116 months
Ronald J. Resnick 10/01/98 9,450 $3.50 $12.375 $3.50 112 months
Ronald J. Resnick 10/01/98 4,050 $3.50 $11.500 $3.50 116 months
David K. Bergeson 10/01/98 9,450 $3.50 $12.375 $3.50 112 months
David K. Bergeson 10/01/98 4,050 $3.50 $11.500 $3.50 116 months
G. Edward Brightman 10/01/98 9,450 $3.50 $12.375 $3.50 112 months
G. Edward Brightman 10/01/98 4,050 $3.50 $11.500 $3.50 116 months
</TABLE>
- ---------------------------------
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
It is the duty of the Compensation Committee to evaluate the
performance of management, review levels of compensation, and consider related
matters.
The compensation policy of the Company, which is endorsed by the
Compensation Committee, is that a substantial portion of the annual compensation
of executive officers
- --------
* Neither this Report nor the graph set forth below shall be deemed to be
incorporated by reference into any filing by the Company under either the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, except to the extent that the Company specifically incorporates
the same by reference.
12
<PAGE>
should be contingent upon the performance of the Company and the individual
executive officer as well. As a result, a substantial portion of an executive
officer's compensation is "at risk," with annual bonus compensation constituting
a significant portion of total compensation.
The compensation programs of the Company are designed to align the
executive officers' compensation with the strategic goals and performance of the
Company and underlying interests of the Company's shareholders. Accordingly,
executive officers are generally granted options to purchase shares of the
Company's stock under the Company's stock option plans tied to their level of
compensation and contribution.
In order to assure that executive officers' compensation is competitive
and provides the incentives necessary to attract and maintain quality
leadership, the Compensation Committee reviews compensation surveys prepared by
third parties to assist in the performance of its duties. Factors considered by
the Committee, among others, are how the Company's compensation compares to
compensation paid by similar companies as well as the Company's current
performance.
The 1998 base compensation for Frank G. Hausmann, the Company's
President and Chief Executive Officer, was established in July 1998 when he was
employed as Chief Financial Officer. In connection with his election as
President and Chief Executive Officer, the Board of Directors increased his
compensation based upon prevailing market conditions and he was awarded an
option to purchase 110,000 shares of the Company's Common Stock (see "Option
Grants").
C. Norman Winningstad, Chairman
Merrill A. McPeak
Frederick M. Stevens
13
<PAGE>
COMPARISON OF TOTAL CUMULATIVE SHAREHOLDER RETURN
The following graph and table set forth the Company's total
cumulative shareholder return as compared to that of The Nasdaq Stock Market
and of the Nasdaq Electronic Components Stocks for the period from February
24, 1995 (the first trading day of the Common Stock) through December 31,
1998. The total shareholder return assumes that $100 was invested at the
beginning of the period in Common Stock of the Company, The Nasdaq Stock
Market Index, and the Nasdaq Electronic Components Stocks Index, with all
cash dividends reinvested on the date paid. Historical stock price
performance is not necessarily indicative of future stock price performance.
[GRAPH]
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership as of November 17, 1999 of the Company's Common Stock by
(i) each shareholder known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers and (iv) all directors and
executive officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based
on information furnished by such owners, have sole investment and voting
power with respect to such shares.
<TABLE>
<CAPTION>
SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY BENEFICIALLY
OF BENEFICIAL OWNER (1) OWNED (2) OWNED (2)
- --------------------------------------------------- ------------------ --------------
<S> <C> <C>
Sawtooth Capital Management, L.P. (3) 622,975 11.6
C. Norman Winningstad (4) 482,360 8.9
G. Gerald Pratt (5) 409,187 7.6
Milton R. Smith 281,642 5.2
Peter R. Kellogg (6) 273,853 5.1
Frank G. Hausmann (7) 240,000 4.3
Frederick M. Stevens (8) 34,458 *
Graham E. Dorland (9) 32,200 *
General Merrill A. McPeak (10) 25,600 *
Robert B. Smart (11) 5,000 *
David Billstrom (12) 0 *
Mark Conan (13) 0 *
David A. McFeeters-Krone (14) 0 *
Jerome Meyer (15) 0 *
All Executive Officers and
Directors as a group (11 persons) (16) 1,228,805 21.3
</TABLE>
- ---------------------------------------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner
identified is CenterSpan Communications Corporation, 7175 NW Evergreen
Parkway #400, Hillsboro, Oregon 97124.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For purposes of this table, a person
is deemed to be the beneficial owner of securities that (i) can be
acquired by such person within 60 days upon the exercise of options or
warrants and (ii) are held by such person's spouse or other immediate
family member sharing such person's household. Each beneficial owner's
percentage ownership set forth below is determined by assuming that
options and warrants are held by such person (but not those held by any
other person) and that such options and warrants exercisable or
convertible within 60 days after October 29, 1999, have been exercised or
converted.
15
<PAGE>
(3) Includes 489,328 shares owned by with Sawtooth Partners, L..P., 37,997
shares owned by Sawtooth Offshore Limited and 95,650 shares owned by
Polaris Prime Small Cap Value L.P., per a letter dated November 16, 1999,
from Sawtooth Capital Management, Inc. who is a registered investment
advisor whose clients, including Sawtooth Partners, L.P., have the right
to receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, shares of Common Stock. No person, other than
Sawtooth Partners, L.P., holds more than five percent of the shares.
Sawtooth Capital Management, L.P. is the sole general partner of Sawtooth
Partners, L.P. Sawtooth Capital Management, Inc. is the sole general
partner of Sawtooth Capital Management, L.P., and Bartley B. Blout is the
controlling shareholder of Sawtooth Capital Management, Inc. The address
for all of these persons is 100 Wilshire Blvd., 15th Floor, Santa Monica,
CA 90401.
(4) Includes 53,000 shares beneficially owned with spouse and 29,720 shares
subject to options exercisable within 60 days after October 29, 1999.
Excludes 25,000 shares subject to options exercisable more than 60 days
after October 29, 1999.
(5) Includes 29,720 shares subject to options exercisable within 60 days
after October 29, 1999. Excludes 25,000 shares subject to options
exercisable more than 60 days after October 29, 1999.
(6) These shares were issued in connection with a private placement of
Company Common Stock pursuant to an agreement dated August 6, 1999. The
Company has no knowledge as to whether Peter R. Kellogg has purchased any
additional shares in the open market. The address for Mr. Kellogg is
Spear, Leeds and Kellogg, 120 Broadway, 6th Floor, New York, NY 10271.
(7) Includes 240,000 shares subject to options exercisable within 60 days
after October 29, 1999. Excludes 50,000 shares subject to options
exercisable more than 60 days after October 29, 1999.
(8) Includes 4,738 shares beneficially owned with spouse and 29,720 shares
subject to options exercisable within 60 days after October 29, 1999.
Excludes 25,000 shares subject to options exercisable more than 60 days
after October 29, 1999.
(9) Includes 2,480 shares beneficially owned with spouse and 29,720 shares
subject to options exercisable within 60 days after October 29, 1999.
Excludes 25,000 shares subject to options exercisable more than 60 days
after October 29, 1999.
(10) Includes 25,600 shares subject to options exercisable within 60 days
after October 29, 1999. Excludes 25,000 shares subject to options
exercisable more than 60 days after October 29, 1999.
(11) Includes 5,000 shares subject to options exercisable within 60 days after
October 29, 1999. Excludes 85,000 shares subject to options exercisable
more than 60 days after October 29, 1999.
(12) Excludes 50,000 shares subject to options exercisable more than 60 days
after October 29, 1999.
(13) Excludes 100,000 shares subject to options exercisable more than 60 days
after October 29, 1999.
(14) Excludes 90,000 shares subject to options exercisable more than 60 days
after October 29, 1999.
(15) Excludes 50,000 shares subject to options exercisable more than 60 days
after October 29, 1999.
(16) Includes 389,480 shares subject to options exercisable within 60 days
after October 29, 1999. Excludes 550,000 shares subject to options
exercisable more than 60 days after October 29, 1999.
16
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's directors and executive officers
and any persons who beneficially own more than 10 percent of the Company's
Common Stock to report their initial ownership of Common Stock and any
subsequent changes in that ownership to the Securities and Exchange
Commission (the "SEC"). Specific due dates for such reports have been
established. Persons subject to the Section 16(a) reporting requirements are
required to furnish the Company copies of all Section 16(a) reports they file
with the SEC. To the Company's knowledge, based solely on a review of copies
of such reports furnished to the Company and representations that no other
reports are required, all Section 16(a) filing requirements applicable to
such reporting persons have been complied with since the Company became
subject to the Exchange Act provisions in March 1995.
1994 STOCK OPTION PLAN AND DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
Providing incentives for officers and key employees through the
grant of stock options is an integral part of the Company's strategy. In
1994, the shareholders approved the 1994 Stock Option Plan ("1994 Plan") and
the Directors' Nonqualified Stock Option Plan (the "Directors' Plan"). The
purposes of the 1994 Plan were to retain the services of valued key employees
of the Company, to encourage employees to acquire greater proprietary
interest in the Company thereby strengthening their incentive to achieve the
objectives of the shareholders of the Company, and to serve as an aid and
inducement to the hiring of new employees.
The 1994 Plan is administered by the Plan Administrator, which may
be either the Company's Board of Directors or a committee designated by the
Board of Directors. Currently, the Board of Directors is acting as Plan
Administrator. In accordance with the 1994 Plan, the Plan Administrator
determines the employees to whom options are granted, the number of shares
subject to each option, the exercise price and the vesting schedule of each
option. Options generally vest over a four-year period, but may vest over a
different period at the discretion of the Plan Administrator. Under the 1994
Plan, outstanding options vest, unless they are assumed by an acquiring
entity, upon the occurrence of certain transactions, including certain
mergers and other business combinations involving the Company. Options
granted under the 1994 Plan are exercisable for a period of 10 years from the
date of grant, except that incentive stock options granted to persons who own
more than 10% of the Common Stock terminate after five years. Vested options
terminate 90 days after the Optionee's termination of employment with the
Company for any reason other than death or disability, and one year after
termination upon death of disability. Unless otherwise determined by the Plan
Administrator, the exercise price of options granted under the 1994 Plan must
be equal to or greater than the fair market value of the Common Stock on the
date of grant. Under exercise, the aggregate exercise price may be paid to
the Company (i) in cash, or (ii) by complying with any other payment
mechanism approved by the Plan Administrator from time to time.
17
<PAGE>
The Directors' Plan provided that then current non-employee directors
of the Company and persons who became non-employee directors of the Company were
to be granted options to purchase 16,480 shares of Common Stock upon becoming
directors. The exercise price for options granted to a director under the
Directors' Plan is the fair market value on the date of grant. Options granted
under the Director's Plan are exercisable for a period of 10 years from the date
of grant. Options terminate 90 days after a director's termination as a director
of the Company for any reason other than death or disability, and one year after
termination by death or disability.
A total of 1,600,000 shares were made available for grant under the
1994 Plan. No shares are currently available for grant under the 1994 Plan or
the Director's Plan.
1998 STOCK OPTION PLAN
GENERAL. In 1998, the Company's shareholders approved the 1998 Stock
Option Plan (the "1998 Plan"). The purpose of the 1998 Plan is to enhance the
long-term shareholder value of the Company by offering opportunities to
employees (and persons offered employment), directors, officers, consultants,
agents, advisors and independent contractors of the Company to participate in
the Company's growth and success, and to encourage them to remain in the service
of the Company and its subsidiaries and to acquire and maintain stock ownership
in the Company. The 1998 Plan is administered by the Compensation Committee.
STOCK SUBJECT TO THE 1998 PLAN. Subject to adjustment from time to time
as provided in the 1998 Plan, the maximum number of shares of Common Stock
available for issuance under the 1998 Plan is equal to the sum of: (a) 1,000,000
shares of Common Stock; (b) any shares of Common Stock available for future
awards under (i) the 1994 Plan or (ii) the Directors' Plan, in each case as of
May 21, 1998, the effective date of the 1998 Plan for a total of 1,057,348.
Subject to adjustment from time to time as provided in the 1998 Plan,
no more than 50,000 shares of Common Stock may be subject to aggregate awards
under the 1998 Plan to any participant in any one year, except that the Company
may make additional one-time grants of up to 100,000 shares to newly hired
individuals, such limitation to be applied consistently with the requirements
of, and only to the extent required for compliance with, certain provisions of
Section 162(m) of the Code, which precludes the Company from taking a tax
deduction for compensation payments to executives in excess of $1 million,
unless such payments qualify for the "performance-based" exemption from the $1
million limitation.
Any shares of Common Stock that cease to be subject to an option will
be available for issuance in connection with future grants under the 1998 Plan.
Options also may be granted in replacement of, or as alternatives to, grants or
rights under any other employee or compensation plan or in substitution for, or
by the assumption of, awards issued under plans of an acquired entity.
18
<PAGE>
ELIGIBILITY TO RECEIVE OPTIONS. Options may be granted under the 1998
Plan to those officers, directors and employees of the Company and its
subsidiaries as the plan administrator from time to time selects. Options may
also be granted to consultants, agents, advisors and independent contractors who
provide services to the Company and its subsidiaries.
TERMS AND CONDITIONS OF STOCK OPTION GRANTS. Options granted under the
1998 Plan may be ISOs or NSOs. The per share exercise price for each option
granted under the 1998 Plan will be determined by the plan administrator, but
will be not less than 100% of the fair market value of a share of Common Stock
on the date of grant with respect to ISOs. For purposes of the 1998 Plan, "fair
market value" means the closing price for a share of Common Stock as reported by
the Nasdaq National Market for a single trading day.
The exercise price for shares purchased under options may be paid in
cash or by check or, unless the plan administrator at any time determines
otherwise, a combination of cash, check, shares of Common Stock which have been
held for at least six months, delivery of a properly executed exercise notice
together with certain irrevocable instructions to a broker, or such other
consideration as the plan administrator may permit. The Company may require the
optionee to pay to the Company any applicable withholding taxes that the Company
is required to withhold with respect to the grant or exercise of any award. The
withholding tax may be paid in cash or, subject to applicable law, the plan
administrator may permit the optionee to satisfy such obligations by the
withholding or delivery of shares of Common Stock. The Company may withhold from
any shares of Common Stock issuable pursuant to an option or from any cash
amounts otherwise due from the Company to the recipient of the award an amount
equal to such taxes. The Company may also deduct from any option any other
amounts due from the recipient to the Company or any of its subsidiaries.
The option term is fixed by the plan administrator, and each option is
exercisable pursuant to a vesting schedule determined by the plan administrator.
If the vesting schedule is not set forth in the instrument evidencing the
option, the option will become exercisable in four equal annual installments
beginning one year after the date of grant. The plan administrator also
determines the circumstances under which an option will be exercisable in the
event the optionee ceases to be employed by, or to provide services to, the
Company or one of its subsidiaries. If not so established, options generally
will be exercisable for one year after termination of services as a result of
retirement, early retirement at the Company's request, disability or death and
for three months after all other terminations. An option automatically
terminates if the optionee's services are terminated for cause, as defined in
the 1998 Plan.
TRANSFERABILITY. No option is assignable or otherwise transferable by
the holder other than by will or the laws of descent and distribution and,
during the holder's lifetime, may be exercised only by the holder, unless the
plan administrator determines otherwise in its sole discretion, and except to
the extent permitted by Section 422 of the Code.
19
<PAGE>
CORPORATE TRANSACTION. In the event of certain mergers,
consolidations, sales or transfers of substantially all the assets of the
Company or a liquidation of the Company, each option that is at the time
outstanding will automatically accelerate so that each such option becomes,
immediately prior to such corporate transaction, 100% vested, unless, in the
opinion of the Company's accountants, such acceleration would render
unavailable pooling-of-interests accounting for the corporate transaction,
and except that such option will not so accelerate if and to the extent such
option is, in connection with the corporate transaction, either to be assumed
by the successor corporation or parent thereof or to be replaced with a
comparable award for the purchase of shares of the capital stock of the
successor corporation. Any such options granted to an "executive officer" (as
defined for purposes of Section 16 of the Exchange Act) of the Company that
are assumed or replaced in the corporate transaction and do not otherwise
accelerate at that time shall be accelerated in the event such holder's
employment or services shall subsequently terminate within two years
following such corporate transaction, unless such employment or services are
terminated by the successor corporation or parent thereof for cause or by the
holder voluntarily without good reason.
FURTHER ADJUSTMENT OF OPTIONS. The plan administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined
by the plan administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to holders, with respect to
options. Such authorized action may include (but is not limited to)
establishing, amending or waiving the type, terms, conditions or duration of,
or restrictions on, options so as to provide for earlier, later, extended or
additional time for exercise or settlement and other modifications, and the
plan administrator may take such actions with respect to all holders, to
certain categories of holders or only to individual holders. The plan
administrator may take such actions before or after granting options to which
the action relates and before or after any public announcement with respect
to such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.
AMENDMENT AND TERMINATION. The 1998 Plan may be suspended or
terminated by the Board of Directors at any time. The Board may amend the
1998 Plan, as it deems advisable, subject to shareholder approval in certain
instances, as set forth in the 1998 Plan. No ISOs may be granted under the
1998 Plan more than ten years after the date the 1998 Plan is adopted by the
Board of Directors.
ACCELERATION OF OPTIONS
Under the terms of the Company's stock option plans, the sale of the
Company's hardware business in October 1999 was an event that led to the
acceleration of all options held by the Company's directors and employees
still employed with the Company on the date the sale was consummated. The
Company adopted an acceleration of options policy that provided that each
employee of the Company that was terminated had a portion of such employee's
unvested options accelerated. As a result of this policy and the Company's
stock option plans, an aggregate of 455,624 options of the Company
accelerated and became fully
20
<PAGE>
vested upon the consummation of the sale. In addition, the company agreed to
pay severance payments to the employees it terminated based on their number
of years of service to the Company.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS
On November 17, 1999, the Board of Directors appointed KPMG LLP to
act as the independent accountants of the Company for the period ending
December 31, 1999, subject to ratification of the appointment by the
shareholders. Representatives of KPMG LLP will be in attendance at the Annual
Meeting and will be given the opportunity to make a statement if they wish to
do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE RATIFICATION OF KPMG LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE
YEAR ENDING DECEMBER 31, 1999.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals to be presented at the 2000 Annual Meeting of
Shareholders must be received at the Company's principal executive offices no
later than April 14, 2000 in order to be included in the Company's proxy
statement and form of proxy relating to that meeting.
THE COMPANY'S 1998 ANNUAL REPORT TO SHAREHOLDERS ACCOMPANIES THESE
MATERIALS. COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998 MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE
UPON WRITTEN REQUEST TO THE COMPANY. REQUESTS SHOULD BE DIRECTED TO THE
SECRETARY, CENTERSPAN COMMUNICATIONS CORPORATION, 7175 N.W. EVERGREEN PARKWAY
#400, HILLSBORO, OREGON 97124.
/s/ Mark B. Conan
---------------------------
Secretary
Portland, Oregon
November 22, 1999
21
<PAGE>
CENTERSPAN COMMUNICATIONS CORPORATION
7175 N.W. Evergreen Parkway #400
Hillsboro, OR 97124-5839
PROXY FOR THE DECEMBER 15, 1999 ANNUAL MEETING OF SHAREHOLDERS
This Proxy is Solicited By The Board of Directors of
CenterSpan Communications Corporation.
The undersigned shareholder(s) of CenterSpan Communications Corporation
(the "Company") hereby appoint Frank Hausmann and Mark Conan and each of them,
as proxies, each with the power of substitution to represent and to vote, as
designated in this proxy, all the shares of Common Stock of the Company held
of record by the undersigned as of October 29, 1999, at the Annual Meeting of
Shareholders to be held at 2:00 p.m., Wednesday, December 15, 1999, and at
any and all adjournments thereof.
- -------------------------------------------------------------------------------
TRIANGLE FOLD AND DETACH HERE TRIANGLE
This proxy represents your shares of CenterSpan Communications
Corporation Common Stock.
You must execute and return this proxy if you wish to vote these shares by
proxy as set forth herein.
PLEASE RETURN ONLY THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE>
- -------------------------------------------------------------------------------
Please mark
your votes as /X/
indicated in
this example
<TABLE>
<CAPTION>
FOR all nominees
listed below (except WITHHOLD AUTHORITY
as marked to the to vote for all
contrary below) nominees listed below
<S> <C> <C>
1. ELECTION OF DIRECTORS / / / /
INSTRUCTION: tO WITHHOLD
AUTHORITY FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME IN THE
LIST BELOW
Class B Nominees (term will expire in 2002):
Gen. Merrill A. McPeak C. Norman Winningstad
Frank G. Hausmann
Class A Nominees (term will expire in 2001):
David Billstrom Jerome J. Meyer
FOR AGAINST ABSTAIN
2. RATIFICATION OF APPOINTMENT OF KPMG LLP as the / / / / / /
Company's independent accountants
3. ANNUAL MEETING R.S.V.P.: I/WE WILL be WILL NOT be
___________ (Enter number of people attending) attending the / / attending the / /
Annual Meeting Annual Meeting
</TABLE>
Shares represented by properly executed proxies will be voted in
accordance with instructions appearing on the proxy and in the discretion of
the proxy holders, based on the recommendations of management, as to any
other matters that may properly come before the Annual Meeting of
Shareholders. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR" ITEMS 1
AND 2 AND IN THE DISCRETION OF THE PROXY HOLDERS, BASED ON THE
RECOMMENDATIONS OF MANAGEMENT, AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE ANNUAL MEETING OF SHAREHOLDERS. Although the Board of Directors
anticipates that all nominees will be available to serve as directors of the
Company, if any of them do not accept the nomination, or otherwise are
unwilling or unable to serve, the proxies will be voted for the election of a
substitute nominee or nominees designated by the Board of Directors.
SIGNATURE(S)_________________________________________________ Dated:______, 1999
Please sign exactly as name(s) appear on your stock certificate and date this
proxy. If a joint account, each joint owner must sign. If signing for a
corporation or partnership or as agent, attorney or fiduciary, indicate the
capacity in which you are signing.
- -------------------------------------------------------------------------------
TRIANGLE FOLD AND DETACH HERE TRIANGLE
CENTERSPAN COMMUNICATIONS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, December 15, 1999
2:00 p.m.
RiverPlace Hotel
1510 Southwest Harbor Way
Portland, Oregon
