SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MACROVISION CORPORATION.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Macrovision Corporation.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
[_] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Macrovision Corporation, a Delaware corporation (the "Company"), will be held at
The Four Points Sheraton Hotel, 1108 N. Mathilda Avenue, Sunnyvale, California
at 10:00 a.m. on Monday, May 18, 1998, for the following purposes:
Proposal 1. To elect six (6) directors of the Company for terms
expiring at the 1999 Annual Meeting;
Proposal 2. To ratify the selection of KPMG Peat Marwick LLP as
auditors of the Company's financial statements for the fiscal year ending
December 31, 1998;
Proposal 3. To consider and act upon a proposal to approve an increase
in the number of shares which may be granted under the Company's 1996 Equity
Incentive Plan by 400,000 additional shares;
and to transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The close of business on April 15, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. To assure your representation at the Annual Meeting, however, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if such
stockholder has returned a proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY MAIL YOUR PROXY IN THE ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING AND, IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John O. Ryan
---------------------------
John O. Ryan, Secretary
Dated: April 20, 1998
<PAGE>
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
PROXY STATEMENT
------------------------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Macrovision Corporation (the "Company")
for use at the Annual Meeting of Stockholders to be held on May 18, 1998, or at
any adjournments thereof (the "Annual Meeting"), for the purposes set forth
herein and in the foregoing Notice. This Proxy Statement and the accompanying
Proxy are being mailed to the Company's stockholders on or about April 20, 1998.
At the close of business on April 15, 1998, the record date fixed by
the Board of Directors of the Company for determining those stockholders
entitled to vote at the Annual Meeting (the "Record Date"), the outstanding
shares of the Company entitled to vote consisted of 7,274,640 shares of Common
Stock. Each stockholder of record at the close of business on the Record Date is
entitled to one vote for each share then held on each matter submitted to a vote
of the stockholders.
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Stockholders have an
unconditional right to revoke their proxies at any time prior to the exercise
thereof, either in person at the Annual Meeting or by filing with the Company's
Secretary at the Company's headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be effective until
written notice of the revocation is received by the Company at or prior to the
Annual Meeting.
The attendance, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Directors will be elected (Proposal 1) by a
plurality of the votes cast by the shares of Common Stock represented in person
or by proxy at the Annual Meeting. Each stockholder of record at the close of
business on the Record Date is entitled to one vote for each share then held on
each matter submitted to a vote of the stockholders. If any stockholder gives
notice at the Annual Meeting prior to the commencement of voting that the
stockholder intends to cumulate votes in the election of directors, each
stockholder may cumulate votes, giving any candidate whose name was placed in
nomination prior to the commencement of voting a number of votes equal to the
number of directors to be elected multiplied by the number of shares the
stockholder is entitled to vote, or distributing such votes as the stockholder
sees fit on the same principle among such candidates. The persons named in the
accompanying Proxy will have the authority to cumulate votes at their
discretion. Under applicable Delaware state law, if a quorum exists, action on a
matter other than the election of directors is approved if a majority of shares
voting at the Annual Meeting in person or proxy favor the proposed action. If
less than a majority of outstanding shares entitled to vote are represented at
the Annual Meeting, a majority of the shares so represented may adjourn the
Annual Meeting to another date, time or place, and notice need not be given of
the new date, time or place if the new date, time or place is announced at the
meeting before an adjournment is taken.
Abstentions and "broker non-votes" are counted as shares eligible to
vote at the Annual Meeting in determining whether a quorum is present, but do
not represent votes cast with respect to any Proposal. "Broker non-votes" are
shares held by a broker or nominee as to which instructions have not been
received from the beneficial owners or persons entitled to vote and the broker
or nominee does not have discretionary voting power.
A form of proxy is enclosed for use at the Annual Meeting. The proxy
may be revoked by a stockholder at any time prior to the exercise thereof, and
any stockholder present at the Annual Meeting may revoke his or her proxy
thereat and vote in person if he or she so desires. When such proxy is properly
executed and returned, the shares it represents will be voted at the Annual
Meeting in accordance with any instructions noted thereon. If no direction is
indicated, all shares represented by valid proxies received pursuant to this
solicitation (and not revoked prior to exercise) will be voted for the election
of the nominees for director named herein (unless authority to vote is withheld)
and in favor of all other proposals stated in the Notice of Annual Meeting and
described in this Proxy Statement.
Officers or directors of the Company have a substantial interest in two
of the matters to be acted upon at the Annual Meeting. Each of the nominees for
director is currently a director of the Company and has been nominated for
re-election for a period of one (1) year as set forth in Proposal One. Every
officer and director has an interest in the approval and ratification of the
amendment to the Company's 1996 Equity Incentive Plan that is the subject of
Proposal Three to the extent that such persons are or will be eligible to
participate in such plan.
The Company's Annual Report for the fiscal year ended December 31, 1997
is enclosed with this Proxy Statement.
PROPOSAL 1:
ELECTION OF DIRECTORS
Nominees
Six (6) directors are being nominated by the Board of Directors for
election at the Annual Meeting, each to hold office until the next Annual
Meeting and until his or her successor is elected and qualified. The nominees
for election as directors are the following six (6) persons: John O. Ryan,
William A. Krepick, Richard S. Matuszak, Donna S. Birks, William Stirlen, and
Thomas Wertheimer. In the election of directors, the proxy holders intend,
unless directed otherwise, to vote for the election of the nominees named above,
all of whom are now members of the Board of Directors.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Directors and Executive Officers
The following table and biographical summaries give certain information
as to each person nominated for election as a director and the Company's
executive officers:
<TABLE>
Name Age Director Since Positions
<S> <C> <C> <C>
John O. Ryan 52 1987 Chairman of the Board of Directors, Chief Executive
Officer, and Secretary
William A. Krepick 52 1995 President, Chief Operating Officer and Director
Victor A. Viegas 41 ------ Vice President, Finance and Administration and Chief
Financial Officer
Richard S. Matuszak 54 1992 Vice President, Special Interest Copy Protection and
Director
Mark S. Belinsky 41 ------ Sr. Vice President, Worldwide Theatrical and
Pay-Per-View Copy Protection
Patrice J. Capitant 49 ------ Vice President, Engineering
Brian R. Dunn 40 ------ Vice President, Business Development
Whit T. Jackson 36 ------ Vice President, Video Encryption Technologies
Carl Jorgensen 42 ------ Vice President of Operations
Donna S. Birks 42 1997 Director
William Stirlen 59 1997 Director
Thomas Wertheimer 59 1997 Director
</TABLE>
MR. RYAN is a co-founder of the Company and an inventor of its core
copy protection and video scrambling technologies. He has served as Chairman of
the Board of Directors and Secretary of the Company since June 1991 and Chief
Executive Officer of the Company since 1995. He has been a director of the
Company since June 1987 and served as Vice-Chairman of the Board of Directors
from 1987 until June 1991. He also served as General Partner of the partnership
predecessor of the Company from 1985 to 1987 and as President and Secretary of
the corporate predecessor of the Company from 1983 to 1985. Prior to founding
Macrovision, Mr. Ryan was Director of Research and Development of Ampex
Corporation's broadcast camera group. Mr. Ryan holds more than 30 patents and
has 17 patent applications pending in the fields of video copy protection, video
scrambling and television camera technology. Mr. Ryan took undergraduate courses
in Physics and Math at the University of Galway in Ireland and received a Full
Technological Certificate in Telecommunications from the City and Guilds
Institute of London.
MR. KREPICK has served as a director of the Company since November 1995
and as President and Chief Operating Officer of the Company since July 1995. He
has been with the Company since November 1988, and served as Vice President,
Sales and Marketing of the Company until June 1992 and Senior Vice President,
Theatrical Copy Protection from July 1992 to June 1995. Prior to joining
Macrovision, Mr. Krepick held several executive marketing management positions
over a ten-year period with ROLM Corporation, a telecommunications equipment
manufacturing company. He holds a B.S. degree in Mechanical Engineering from
Rensselear Polytechnic Institute and an M.B.A. from Stanford University.
MR. VIEGAS has served as Vice President, Finance and Administration and
Chief Financial Officer of the Company since June 1996. From October 1986 to
June 1996, he served as Vice President of Finance and Chief Financial Officer at
Balco Incorporated, a manufacturer of advanced automotive service equipment,
and, since May 1991, a subsidiary or division of Snap-On Tools. He holds a B.S.
degree in Accounting and an M.B.A. from Santa Clara University. Mr. Viegas is
also a certified public accountant.
MR. BELINSKY has served as Senior Vice President, Worldwide Theatrical
and Pay-Per-View Copy Protection of the Company since October 1997 and Vice
President, Theatrical and Pay-Per-View Copy Protection from October 1995 to
October 1997. Between June and September 1995, he was Chief Operating Officer of
the McKinley Group, Inc., an Internet directory services company. From May 1993
to June 1995, Mr. Belinsky was Vice President and General Manager of the
Electronic Marketplace Systems Division of International Data Group, a developer
of online shopping malls for personal computer and software products. He was an
independent consultant between February and May 1993, and, from October 1988 to
January 1993, he was Vice President and General Manager of the Interop Company,
a division of Ziff-Davis Publishing Company. He holds a B.A. degree in Business
Administration from Wayne State University and an M.B.A. from Harvard Business
School.
DR. CAPITANT has served as Vice President, Engineering of the Company
since October 1996. He joined the Company in October 1995 as Director of
Engineering. He served as Manager of Video Engineering at Radius, Inc., a
computer equipment manufacturer, from December 1994 to September 1995. Dr.
Capitant held engineering positions at Compression Labs, Inc., a
telecommunications equipment manufacturer, from September 1993 to December 1994
and Sony Corporation of America, Advanced Video Technology Center, from
September 1989 to September 1993. He completed his undergraduate and
post-graduate work in engineering and automatic control at Institut Industrial
du Nord, Lille, France and University of Lille. He holds a Ph.D. degree in
Electrical Engineering from Stanford University.
MR. DUNN has served as Vice President, Business Development of the
Company since January 1995. From January 1989 to December 1994, he served as
Vice President, Operations, Corporate Counsel and Chief Financial Officer of
Phase 2 Automation, a factory automation company. Mr. Dunn holds a B.A. degree
in Accounting from the University of Notre Dame and a J.D. degree from Santa
Clara University School of Law. He is a certified public accountant and a member
of the California bar.
MR. JACKSON has served as Vice President, Video Encryption Technologies
of the Company since September 1992. He joined the Company in August 1990 as
Sales Manager for the Company's line of encryption products. From January 1989
to August 1990, Mr. Jackson managed the satellite service business for the
Galaxy/Westar satellite fleet of Hughes Communications, Inc., a satellite
communications company. He holds a B.A. degree in International Relations from
Northwestern University and an M.B.A. from the J.L. Kellogg Graduate School of
Management at Northwestern University.
MR. MATUSZAK has served as Vice President, Special Interest Copy
Protection of the Company since June 1992, and as a director of the Company
since May 1992. He joined the Company in August 1985 and held various sales and
marketing positions from August 1985 to June 1992. From June 1984 to August
1985, Mr. Matuszak was a Sales Manager for the Broadcast Products Division of
Hitachi Corporation. He holds an Associate degree in Applied Technologies and
Electronics from DeVry Institute of Technology.
MR. JORGENSEN joined Macrovision in July 1990 to head up the newly
created Manufacturing Department. He currently serves as Vice President of
Operations. Mr. Jorgensen has over 19 years experience in the commercial and
consumer electronics industry. Immediately prior to joining Macrovision, he was
the Manufacturing/Engineering Manager at Digital F/X, Inc. He has held various
management positions in the manufacturing/engineering field at companies such as
Gould Electronics, Inc., Atlas Electronics (where he set up their facility in
Malaysia), Ampex Corporation and Underwriters Laboratories. Mr. Jorgensen
received a B.S. degree with honors in Electronics from San Jose State University
in 1979 and has taken numerous post graduate courses in computer electronics.
MR. STIRLEN has served as a director of the Company since May 1997. His
career has focused on planning, financing and building growth companies. As an
investment banker at Montgomery Securities, he arranged the financing and public
offerings of various companies, notably Conner Peripherals and Exabyte Corp. In
addition, Mr. Stirlen was a founding investor in Amdahl Corp. during his tenure
at Heizer Corp., a Chicago venture capital firm. He has also held senior
management positions at Computer Consoles Inc., Trimble Navigation Ltd.,
Supercuts Inc., and currently serves as Executive Vice President of Corporate
Development for Open Text Corp. in Waterloo, Ontario. Mr. Stirlen holds a B.A.
degree from Yale University and an M.B.A. in Finance from Northwestern
University in Evanston, Illinois.
MS. BIRKS has served as a director of the Company since May 1997. She
has specialized in high technology, international financial and general
management positions and has expertise in mergers and acquisitions,
international business development and licensing. She has held senior management
positions at GTE Spacenet, Macrovision Corporation, Contel ASC, ComStream and
most recently at California Microwave. Ms. Birks holds a B.A. degree in Business
Administration from George Mason University in Fairfax, Virginia and an M.S.
degree in Finance from American University in Washington, D.C. She is a
certified public accountant.
MR. WERTHEIMER has served as a director of the Company since July 1997.
He served as Executive Vice President and Chairman of the Home Video and
Television Groups of MCA, Inc. from 1992 to 1996. From 1996 to the present, Mr.
Wertheimer has served as a consultant to Universal Studios. He is a board member
of 4MC Corp. and of the Columbia Law School Board of Visitors. He also serves as
President of the KCRW Foundation. Mr. Wertheimer holds a B.A. degree from
Princeton University and an L.L.B. from Columbia University School of Law.
Board Committees and Meetings
During the fiscal year ended December 31, 1997, there were 6 meetings
of the Company's Board of Directors. Each Board member attended 100% of the
meetings of the Board of Directors that were held during the time he or she
served as a member of the Board and 100% of all meetings of the Committees of
the Board of Directors on which he or she served.
The Compensation Committee was established on April 23, 1997. The
members of the Compensation Committee are Donna Birks, William Stirlen and
Thomas Wertheimer, none of whom are employees of the Company. The Compensation
Committee makes recommendations with respect to compensation of senior officers
and granting of stock options and stock awards. The Compensation Committee met
on July 24, 1997 and October 23, 1997.
The members of the Audit Committee are Donna Birks, William Stirlen and
Thomas Wertheimer. The Audit Committee met on July 24, 1997 and October 23,
1997.
There is no Nominating Committee of the Board of Directors.
Director Compensation
Mr. Matuszak receives a fee of $1,000 for each Board meeting he
attends. Each of the non-employee directors receives a fee of $1,000 for each
Board meeting and $750 for each Compensation and Audit Committee meeting he or
she attends. No other member of the Company's Board of Directors currently
receives a fee for attending Board or Committee meetings. The following
non-employee directors also were granted options to purchase the Company's
Common Stock pursuant to the 1996 Directors Stock Option Plan during the fiscal
year ended December 31, 1997:
Name Number of Shares Exercise Price
Donna Birks 5,000 $8.88
William Stirlen 5,000 $8.88
Thomas Wertheimer 5,000 $14.125
PROPOSAL 2:
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998, and
has further directed that management submit the selection of auditors for
ratification by the stockholders at the Annual Meeting. KPMG Peat Marwick LLP
was first appointed independent auditors of the Company in November 1995.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire,
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG Peat Marwick LLP as
the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of KPMG Peat Marwick
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Board will reconsider
whether to retain that firm. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines that such a change would be
in the best interests of the Company and its stockholders.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3:
APPROVE AMENDMENT OF THE COMPANY'S
1996 EQUITY INCENTIVE PLAN INCREASING
BY AN ADDITIONAL 400,000 SHARES
THE NUMBER OF SHARES AUTHORIZED
TO BE ISSUED UNDER THE PLAN
In December 1996, in order to attract and retain personnel who possess
a high degree of competence, experience and motivation, the Company's Board of
Directors adopted and in February 1997, the stockholders of the Company
approved, the Company's 1996 Equity Incentive Plan (the "Equity Incentive
Plan"). At present, the Equity Incentive Plan, as approved by the Board of
Directors of the Company, authorizes the Company to grant both incentive and
nonstatutory stock options to purchase 300,000 shares of the Company's Common
Stock plus that number of shares authorized for issuance under the Company's
prior Stock Option Plan that were not subject to options outstanding on March
12, 1997 or that were subject to such options but subsequently expired or became
unexercisable. On April 2, 1998, the Board of Directors approved an increase of
400,000 in the number of shares authorized to be issued under the Equity
Incentive Plan, and the Company is seeking ratification and authorization from
the stockholders for such increase. As of February 28, 1998, the Company had
issued and outstanding options to purchase 825,929 shares under the Equity
Incentive Plan and the Company's prior Stock Option Plan. Accordingly, in order
to continue to issue stock options and other forms of stock-based incentive
compensation under the Equity Incentive Plan, the Compensation Committee and the
Board have deemed it advisable to amend the Equity Incentive Plan to increase
the number of shares authorized to be issued under the Equity Incentive Plan by
400,000 shares. In the opinion of the Board, the authorization to issue
additional shares would provide the necessary flexibility to attract new
employees to the Company and to motivate and reward existing employees of the
Company in a manner that would improve the Company's financial performance. As
of February 28, 1998, there were 130,131 shares available for grant under the
Equity Incentive Plan. The affirmative vote of the holders of a majority of the
shares voting at the Annual Meeting is necessary to approve the amendment to the
Equity Incentive Plan.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
Description of Equity Incentive Plan
The Company's 1996 Equity Incentive Plan was adopted by the Company's
Board of Directors in December 1996 and approved by the stockholders in February
1997. The Company has reserved 300,000 shares of the Company's Common Stock for
issuance under the Equity Incentive Plan. In addition, any shares of the
Company's Common Stock authorized for issuance under the Company's prior Stock
Option Plan that were not subject to options outstanding on March 12, 1997, or
that were subject to such options that thereafter expired or became
unexercisable for any reason without having been exercised in full, are
available for grant under the Equity Incentive Plan. The Equity Incentive Plan
provides for the grant of stock options, stock appreciation rights and
restricted stock awards by the Company to its employees, directors, consultants
and other individuals providing services to the Company. No person will be
eligible to receive stock options or stock appreciation rights with respect to
more than 150,000 shares of Common Stock under the Equity Incentive Plan in any
calendar year. Shares that are subject to an award granted under the Equity
Incentive Plan, but are forfeited, canceled, reacquired by the Company,
satisfied without the issuance of shares of Common Stock or otherwise terminated
other than by exercise, will again be available for grant or issuance under the
Equity Incentive Plan. The Equity Incentive Plan is administered by the
Compensation Committee of the Board (the "Committee"). The Equity Incentive Plan
permits the Committee to grant options that are either incentive stock options
(as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code")) or nonstatutory stock options, on terms (including vesting schedules)
determined by the Committee, subject to certain statutory and other limitations
in the Equity Incentive Plan. The exercise price of options granted under the
Equity Incentive Plan will be determined by the Committee, subject to the
requirements that the exercise price of incentive stock options must not be less
than the fair market value of the Common Stock on the date the option is granted
and the exercise price of nonqualified options granted under the Equity
Incentive Plan must not be less than 85% of such fair market value. Options
granted under the Equity Incentive Plan must be exercised within three months
after termination of the optionee's status as an employee, director or
consultant of the Company (or such later date, not to exceed 60 months, as
specified by the Committee) or within 12 months after the optionee's termination
by death, disability or retirement, except that options held by any optionee
whose employment or other business relationship with the Company is terminated
for cause will terminate immediately upon termination of the optionee's status
(or such later date, not to exceed 30 days, as determined by the Committee).
In addition to, or in tandem with, awards of stock options, the
Committee may grant participants stock appreciation rights with an exercise
price of no less than the fair market value of the Company's Common Stock on the
date the stock appreciation right is granted or, in the case of stock
appreciation rights granted in tandem with stock options, with an exercise price
no less than the option exercise price per share. The Committee may grant
participants restricted stock awards under the Equity Incentive Plan to purchase
an aggregate of up to 125,000 shares of the Company's Common Stock at such
purchase price as determined by the Committee (but no less than 85% of the fair
market value of the Company's Common Stock on the date of the award) and upon
such terms, including vesting schedule, as the Committee may determine. Under
the Equity Incentive Plan, restricted stock awards may be awarded for the
satisfaction of performance goals established in advance.
In the event of a merger, consolidation, reverse merger or similar
corporate transaction, any or all outstanding awards under the Equity Incentive
Plan may be assumed, converted, replaced or substituted by the successor
corporation (if any), which assumption, conversion, replacement or substitution
will be binding on all participants in the Equity Incentive Plan. In the event
such successor corporation (if any) does not assume or substitute awards, such
awards will expire in connection with such transaction at such time and on such
conditions as determined by the Board. The Equity Incentive Plan has no
termination date, except that no incentive stock options will be granted under
the Equity Incentive Plan after December 2006. The Equity Incentive Plan may be
terminated at any time by the Board or otherwise in accordance with the
provisions of the Equity Incentive Plan.
Additional Benefit Plans
The following is a brief summary of additional employee benefit plans
in effect during the fiscal year ended December 31, 1997, under which officers
and employees of the Company received benefits.
1996 Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board in December 1996 and approved by the stockholders in
February 1997. A total of 140,000 shares of the Company's Common Stock is
reserved for issuance under the Purchase Plan. The Purchase Plan permits
eligible employees to acquire shares of the Company's Common Stock through
payroll deductions. The Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Code. Eligible employees may
select a rate of payroll deduction between 1% and 20% of their compensation, up
to an aggregate payroll deduction not to exceed $21,250 in any calendar year.
Each offering under the Purchase Plan is for a period of 24 months (the
"Offering Period") commencing, except for the first Offering Period, on the
first day of February and August of each year. Each Offering Period consists of
four six-month purchase periods (each a "Purchase Period"). The Board has the
power to change the duration of Offering Periods or Purchase Periods without
stockholder approval, provided that the change is announced at least 15 days
prior to the scheduled beginning of the first Offering Period or Purchase Period
to be affected. The first Offering Period will end on January 31, 1999. The
purchase price for the Company's Common Stock purchased under the Purchase Plan
is 85% of the lesser of the fair market value of the Company's Common Stock on
the first day of the applicable Offering Period or the last day of the
respective Purchase Period. The Purchase Plan will terminate on the earlier of
termination by the Board, issuance of all the shares reserved under the Purchase
Plan or ten years from the date the Purchase Plan was adopted by the Board.
The following table sets forth as to the executive officers named in
the table under "Executive Compensation," who purchased shares pursuant to the
Purchase Plan, all current executive officers as a group and all other employees
as a group (i) the number of shares of the Company's common stock purchased
under the Purchase Plan, (ii) the aggregate purchase price thereof, and (iii)
the fair value of stock purchased through December 31, 1997 under the Purchase
Plan:
<TABLE>
1996 Employee Stock Purchase Plan Summary Table
- -----------------------------------------------------------------------------------------------
Number of Purchase Fair Market Value
Name and Principal Position Shares Purchased Price per of Stock per share
on purchase date
<S> <C> <C> <C>
William A. Krepick 980 $7.65 $12.875
Victor A. Viegas 677 7.65 12.875
Mark S. Belinsky 328 7.65 12.875
All Executive Officers as a group 2,867 7.65 12.875
All Employees as a group 11,646 7.65 12.875
</TABLE>
401(k) Plan
The Company's 401(k) Plan (the "401(k) Plan") is a defined contribution
401(k) profit sharing plan intended to qualify under Section 401 of the Code.
Employees of the Company are eligible to participate in the 401(k) Plan on the
first day of the month coinciding with or immediately following completion of
three months of employment. A participating employee, by electing to defer a
portion of his or her compensation, may make pre-tax contributions to the 401(k)
Plan, subject to limitations under the Code, of a percentage of his or her total
compensation. Employee contributions and the investment earnings thereon are
fully vested at all times. The Company is not required to contribute to the
401(k) Plan, but has made discretionary matching contributions to the 401(k)
Plan in 1996 and 1997 equal to 20% of each participating employee's
contribution, up to a maximum annual matching contribution of $1,900. Matching
contributions aggregated $53,639 for 1997 and are fully vested after three years
of service.
Executive Incentive Plan
The Company's Executive Incentive Plan ("EIP") provides for payment of
annual bonuses to key employees of the Company based on the Company's overall
financial performance and the participant's achievement of individual financial,
strategic and tactical goals. The fundamental philosophy behind the EIP is to
reward participants relative to their individual performance, as well as their
contribution to the achievement by the Company of its operating income goals.
For 1997, the EIP covered 11 officers and key employees. For bonuses to be
granted, the EIP required that the Company's 1997 operating income from
continuing operations exceed a predetermined target amount. Each participant's
individual performance was rated between 0% and 200% based upon the achievement
of or the failure to achieve individual performance goals established at the
beginning of the year. A participant with an individual performance rating of
100% (satisfactory completion of all individual goals) for 1997 would have
received a bonus of approximately 22% of annual base salary.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best of the
Company's knowledge, regarding the beneficial ownership of the Company's Common
Stock as of February 28, 1998 (i) by each person who is known to the Company to
be the owner of more than five percent (5%) of the Company's Common Stock, (ii)
by each of the Company's directors, (iii) by each of the Company's executive
officers, and (iv) by all directors and executive officers of the Company as a
group. As of February 28, 1998, there were issued and outstanding 7,255,078
shares of Common Stock of the Company.
<TABLE>
Number of
Shares of
Common Stock Percent of
Name and Address Beneficially Beneficial
or Identity of Group Owned Ownership
<S> <C> <C>
Victor Company of Japan, Limited (1) 2,005,488 27.6%
12, 3-chome, Moriya-cho, Karagawa-ku
Yokohama 221, Japan
John O. Ryan (2) 698,006 9.6%
1341 Orleans Drive
Sunnyvale, CA 94089
TCW Group (3) 637,900 8.8%
865 South Figueroa Street
Los Angeles, CA 90017
Carol A. Farrow-Draxton (4) 372,722 5.1%
P.O. Box 789
Geyserville, CA
William A. Krepick (5) 137,833 1.9%
1341 Orleans Drive
Sunnyvale, CA 94089
Richard S. Matuszak (6) 70,932 *
1341 Orleans Drive
Sunnyvale, CA 94089
Victor A. Viegas (7) 64,657 *
1341 Orleans Drive
Sunnyvale, CA 94089
Whit T. Jackson (8) 37,499 *
1341 Orleans Drive
Sunnyvale, CA 94089
Carl S. Jorgensen (9) 23,777 *
1341 Orleans Drive
Sunnyvale, CA 94089
Brian R. Dunn (10) 18,610 *
1341 Orleans Drive
Sunnyvale, CA 94089
Patrice J. Capitant (11) 8,120 *
1341 Orleans Drive
Sunnyvale, CA 94089
Donna S. Birks (12) 3,144 *
1143 Borregas Avenue
Sunnyvale, CA 94089
William Stirlen (13) 3,403 *
301 West 42nd Avenue
San Mateo, CA 94403
Thomas Wertheimer (14) 833 *
100 Universal City Plaza
Universal City, CA 91608
Mark S. Belinsky 475 *
1341 Orleans Drive
Sunnyvale, CA 94089
All Officers and Directors
as a Group (12 persons) (15) 1,024,144 14.1%
- -----------------
</TABLE>
* Represents less than 1%.
(1) These shares are held of record by Pacific Media, an indirect, wholly
owned subsidiary of JVC.
(2) Includes 555,555 shares held of record by a trust of which Mr. Ryan and
his wife are the trustees, 103,289 shares held of record by Mr. Ryan,
16,330 shares held of record by Mr. Ryan as custodian for various
family members, 11,166 shares held of record by one of his daughters
and 11,666 shares held of record by his son.
(3) According to a Schedule 13G filed with the SEC on February 12, 1998,
these shares are held of record by The TCW Group Inc., a Nevada
corporation and by an individual, Robert Day, who may be deemed to
control The TCW Group Inc. and other holders of the Company's common
stock.
(4) Includes 322,722 shares held of record by Ms. Farrow as Trustee of the
Farrow Trust U/T/D December 18, 1990.
(5) Includes 2,777 shares held of record by Mr. Krepick's son. Also
includes 90,750 shares subject to options exercisable as of February
28, 1998 or within 60 days thereafter.
(6) Includes 34,331 shares subject to stock options exercisable as of
February 28, 1998 or within 60 days thereafter.
(7) Includes 3,704 shares subject to stock options exercisable as of
February 28, 1998 or within 60 days thereafter.
(8) Represents shares subject to stock options exercisable as of February
28, 1998 or within 60 days thereafter.
(9) Includes 19,444 shares subject to stock options exercisable as of
February 28, 1998 or within 60 days thereafter.
(10) Represents shares subject to stock options exercisable as of February
28, 1998 or within 60 days thereafter.
(11) Includes 6,018 shares subject to stock options exercisable as of
February 28, 1998 or within 60 days thereafter.
(12) Includes 1,145 shares subject to stock options exercisable as of
February 28, 1998 or within 60 days thereafter.
(13) Includes 2,404 shares subject to stock options exercisable as of
February 28, 1998 or within 60 days thereafter.
(14) Represents shares subject to stock options exercisable as of February
28, 1998 or within 60 days thereafter.
(15) Includes the shares referenced in footnotes (2) and (5) through (14).
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent (10%) stockholders are required by Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent (10%) beneficial owners were complied with in a timely
manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the Company
was or is to be a party in which the amount involved exceeds $60,000 and in
which any director, executive officer or holder of more than 5% of the Common
Stock of the Company had or will have a direct or indirect material interest
other than (i) compensation agreements, which are described, where required,
elsewhere in this Proxy Statement, and (ii) the transactions described below.
Transactions with Pacific Media Development, Inc. and Victor Company of Japan,
Limited, and Matsushita Electric Industrial Co., Ltd.
The following transactions involve Victor Company of Japan, Limited
("JVC") and entities that are owned by JVC and Matsushita Electric Industrial
Co., Ltd. ("Matsushita") which owns approximately 52% of JVC. Through a
wholly-owned subsidiary, JVC owns 100% of Pacific Media Development, Inc.
("Pacific Media"). JVC is a beneficial owner of the shares of the Company's
Common Stock that are held of record by Pacific Media and represent more than 5%
of the Company's Common Stock.
In May 1991, the Company and one of its stockholders entered into a
Stock and Convertible Note Purchase Agreement (the "Purchase Agreement") with a
trustee for Pacific Media pursuant to which Pacific Media acquired beneficial
ownership of shares of the Company's Common Stock and Series A Preferred Stock
and a promissory note in the principal amount of approximately $3.0 million (the
"Convertible Note"), which was convertible into Series A Preferred Stock. In
July 1996, Pacific Media, acting through the trustee, acquired 543,099 shares of
the Company's Series A Preferred Stock upon the conversion of the Convertible
Note. Pursuant to the Purchase Agreement, Pacific Media has a right to purchase
a pro rata portion (proportionate to its ownership interest in the Company) of
any equity securities offered by the Company, excluding: (i) shares issued
pursuant to certain equity compensation arrangements; and (ii) provided that
Pacific Media's interest in the Company would not thereby be reduced below 25%,
shares issued by Macrovision in connection with any acquisition by it of another
company. Pursuant to the Purchase Agreement, the Company may not divide or
assign any rights to its patents that were existing or pending in June 1991,
without the prior written consent of Pacific Media, which consent may not be
unreasonably withheld.
The Company and JVC are parties to a Technology Application Agreement
dated November 29, 1988 (the "Application Agreement"), a Duplicator Agreement
dated June 1, 1988 (the "Duplicator Agreement") and an Agreement dated July 15,
1994 (the "Video Agreement"). Pursuant to the Application Agreement, JVC has
applied the Company's copy protection process to prerecorded videocassettes
manufactured and distributed in Japan by JVC. Pursuant to the Duplicator
Agreement, JVC has applied the Company's copy protection process to prerecorded
videocassettes manufactured and distributed in Japan by certain of the Company's
licensees. Pursuant to the Video Agreement, JVC developed a prototype of
equipment to apply a copy protection process to prerecorded videocassettes, and
granted the Company exclusive rights to purchase such equipment from JVC for
resale and to sublicense the copy protection technology for use with the
equipment. For the years ended December 31, 1997 and 1996, the Company recorded
revenue from JVC of approximately $234,000 and $78,000, respectively, and
recorded expenses payable to JVC of approximately $22,000 and $12,000,
respectively, under these agreements.
In connection with a license agreement dated September 26, 1995 between
the Company, Victor Technobrain Co., Ltd. ("Techno"), a wholly owned subsidiary
of JVC, and an unrelated party, the Company has paid Techno a development fee of
$50,000 which has been recorded as an offset to the revenue recognized from the
unrelated party. An additional $50,000 was owed to Techno as of December 31,
1996 and paid in 1997 upon receipt of the final license payment from the
unrelated party. The license granted to Techno is for the development and
manufacture of products using the Company's copy protection and Phase Krypt
technologies.
The Company's Japanese subsidiary ("Macrovision Japan") and Techno are
parties to a Technical Consulting Agreement dated as of July 1, 1996 (the
"Consulting Agreement"), pursuant to which Techno agreed to provide technical
consulting services as assigned by certain officers of the Company or
Macrovision Japan in connection with technical support to licensed duplicators,
rights owners and system operators, set-top decoder manufacturers and
semiconductor companies that provide integrated circuits for set-top decoders in
certain Asian countries. The Consulting Agreement provides for Macrovision Japan
to pay a consulting fee of approximately $85 per hour, subject to a minimum
consulting fee of approximately $1,700 per quarter, and to reimburse Techno for
its expenses in performing services under the Consulting Agreement. During 1996,
the Company paid Techno an initial training fee of approximately $3,300 and a
total of approximately $5,800 in consulting fees. During 1997, the Company paid
Techno an additional $6,800 in consulting fees. (Amounts paid and payable under
the Consulting Agreement are denominated in yen, and the dollar equivalents
stated above are based on then current exchange rates.)
In July 1996, the Company entered into a Copy Protection Technology
License Agreement with Matsushita pursuant to which Matsushita and its
subsidiaries are authorized to include integrated circuits incorporating the
Company's copy protection technology in digital set-top decoders they
manufacture. The terms and conditions of this agreement, pursuant to which
Matsushita has paid the Company an initial fee of $50,000 and is obligated to
pay an additional $0.60 per unit, are not more favorable to Matsushita than the
terms and conditions of the Company's license agreements with 33 other digital
set-top decoder manufacturers at that time. The Company recorded royalty revenue
from Matsushita of approximately $61,000 and $6,000 during the years ended
December 31, 1997 and 1996, respectively.
In June of 1997, the company entered into a Copy Protection Technology
License Agreement with Daiichikosho Co. Ltd. and Matsushita Electric Industrial
Co., Ltd. (MEI), both of Japan, pursuant to which Daiichikosho was authorized to
have MEI build set top decoders incorporating the Company's copy protection
technology. The terms and conditions of this agreement provided for MEI to pay,
on Daiichikosho's behalf, the non-refundable up-front license fee of $50,000,
which sum has been received by the Company. Daiichikosho is obligated to pay the
standard sixty cent ($0.60) per-unit royalty to the Company for each set top
decoder so manufactured.
In November 1996, the Company entered into a Digital Versatile Disc
Player/Digital Video Cassette Recorder License Agreement for Anticopy Technology
with Matsushita, pursuant to which Matsushita is authorized to include
integrated circuits incorporating the Company's copy protection technology in
DVD players and digital VCRs that it manufactures. The terms and conditions of
this agreement, pursuant to which Matsushita must choose between (i) a
royalty-free license for which it must make the VCRs or television sets that it
manufactures compatible with the Company's copy protection technology or (ii)
payment of an up-front fee of $100,000 and an additional $5.00 (or, if greater,
2% of the wholesale price) per unit, are not more favorable to Matsushita than
the terms and conditions of the Company's license agreements with other
manufacturers of DVD players and digital VCRs entered into at that time.
In January 1997, the Company and JVC entered into a Copy Protection
Technology Agreement (the "Technology Agreement"), pursuant to which the Company
agreed to license its copy protection technologies to JVC for use in territories
in which the Company has issued patents, on terms and conditions comparable to
those provided under agreements between the Company and parties situated
similarly to JVC. Additionally, the Company agreed to continue to make its copy
protection technologies generally available for license to third parties on
terms commercially reasonable to the Company in the venues and for the purposes
that the Company currently licenses such technologies. The Technology Agreement
gives JVC the right to sublicense the Company's copy protection technologies to
certain third parties on terms and conditions comparable to those provided in
similar agreements previously entered into by the Company, with 95% of the
royalties from such sublicenses payable to the Company or its successor, in the
event that a party other than JVC acquires a majority interest in the Company or
acquires the Company's copy protection business or patents, and following such
acquisition the Company or its successor refuses to continue to license the
Company's copy protection technologies on a nondiscriminatory basis to its
current customers and similarly situated parties.
In February 1997, the Company and JVC entered into a Digital Versatile
Disc Player / Digital Video Cassette Recorder License Agreement for Anticopy
Technology, pursuant to which JVC and its subsidiaries are authorized to include
the Company's copy protection technology components in disc players and disc
recorders they manufacture. This provides royalty-free, indivisible,
non-exclusive and non-transferable rights and licenses in and to the Licensed
Technology pursuant to terms of the agreement. The terms and conditions of the
agreement are not more favorable to JVC than the terms and conditions of the
Company's license agreements entered into up to and including the date of the
agreement.
In May 1997, the Company entered into a Replicator Agreement with JVC
Disc America Company, a wholly owned subsidiary of JVC America which is wholly
owned by JVC. This agreement gives authority to JVC Disc America to replicate
discs containing titles for which copy protection trigger bits have been
applied. The Company pays JVC Disc America a service fee to defray certain costs
incurred by it under this agreement. For the year ended December 31, 1997, the
Company paid no such service fees.
In June 1997, the Company entered into a Copy Protection Technology
License Agreement with JVC, pursuant to which JVC and its subsidiaries are
authorized to include integrated circuits incorporating the Company's copy
protection technology in digital set-top decoders they manufacture. The terms
and conditions of this agreement, pursuant to which JVC has paid the Company an
initial fee of $50,000 and is obligated to pay an additional $0.60 per unit, are
not more favorable to JVC than the terms and conditions of the Company's license
agreements with 40 other digital set-top decoder manufacturers at that time. The
Company recorded royalty revenue from JVC of approximately $9,000 for the year
ended December 31, 1997.
In December 1997, the Company entered into a Component Supplier
Non-Assertion and Technical Services Agreement with Matsushita, pursuant to
which the Company agrees not to assert against Matsushita the apparatus claims
for the technology whereby Matsushita manufactures and distributes devices
incorporating the apparatus to authorized suppliers of electronic video
products. The terms and conditions of this agreement, pursuant to which
Matsushita has paid the Company an initial fee of $15,000 and is obligated to
pay an additional $5,000 for implementation of the apparatus into each different
device, are not more favorable to Matsushita than the terms and conditions of
the Company's license agreements with 41 other component suppliers at that time.
Capitalization and Spinoff of Command Audio Corporation ("CAC")
CAC was incorporated in October 1995 as a wholly-owned subsidiary of
the Company. The Company initially acquired 1,000,000 shares of CAC common stock
for technology and other assets with a historical cost of $ 200,000 and 250,000
shares of CAC Series A preferred stock for $500,000 in cash in November 1995.
The Company acquired an additional 250,000 shares of CAC Series A preferred
stock for $500,000 in cash in April 1996.
On July 31, 1996, the Company and CAC entered into a Recapitalization
and Stock Purchase Agreement pursuant to which the Company purchased from CAC
604,000 shares of CAC common stock and 396,000 shares of CAC Series B preferred
stock for the aggregate consideration of $1.0 million paid in August 1996 in
cash and in September 1996 pursuant to a secured promissory note, 194,444 shares
of the Company's Common Stock, subject to the terms and conditions of a
Restricted Stock Acquisition Agreement and the surrender and delivery to CAC of
500,000 shares of CAC Series A preferred stock. Pursuant to the Restricted Stock
Acquisition Agreement, as amended as of November 29, 1996 and January 29, 1997,
the 194,444 shares of the Company's Common Stock owned by CAC were vested and
subsequently sold in the Initial Public Offering. As a result of the
recapitalization and after the dividend described below, the Company held 19.8%
of the voting stock of CAC. CAC also granted to the Company a right of first
refusal to purchase additional CAC stock to maintain its 19.8% ownership if and
when CAC offers additional stock, subject to certain exceptions.
The Company and CAC also entered into a Technology Transfer and Royalty
Agreement dated as of July 31, 1996 and amended as of November 29, 1996,
pursuant to which the Company assigned to CAC all rights in certain technology
and released its reversion rights in technology that the Company had previously
assigned to CAC. In consideration of such assignment and release, CAC agreed to
pay to the Company royalties equal to 2.0% of CAC's gross revenues (as defined
in the agreement) for 12 years, beginning when CAC has operating revenues from
certain sources or, at the election of the Company, at any time prior thereto.
In addition, CAC owes the Company a total of $328,948 for allocated facilities
and services costs and other expenses that the Company incurred on behalf of
CAC. Pursuant to an unsecured promissory note, CAC has agreed to pay this amount
to the Company, plus interest at the rate of 9% per annum, on July 1, 1998.
In August 1996, the Company distributed to its stockholders as a
dividend an aggregate of 1,395,218 shares of common stock of CAC, which
represented approximately 69.8% of the then outstanding voting stock of CAC. All
stockholders on July 12, 1996 participated in such dividend distribution in
proportion to the number of shares of the Company's Common and Series A
Preferred Stock then held. At the same time, the Company also distributed to its
employees as bonuses an aggregate of 208,782 shares of common stock of CAC,
which represented approximately 10.4% of the then outstanding voting stock of
CAC.
During 1997, the Company maintained its 19.8% ownership interest by
investing an additional $1,980,000 in CAC in connection with various rounds of
external third-party financing obtained by CAC. John O. Ryan, Chairman of the
Board and Chief Executive Officer of the Company, is a director of CAC.
Executive Compensation
Summary Compensation. The following table sets forth all compensation for the
fiscal years ended December 31, 1997, December 31, 1996 and December 31, 1995
awarded to, earned by, or paid for services rendered to the Company in all
capacities by the Company's chief executive officer and the Company's four other
executive officers who were most highly compensated during 1997 (together, the
"Named Officers").
<TABLE>
Summary Compensation Table
Name and Principal Position Annual Compensation Long-Term Compensation
Securities Underlying Other
Year Salary (1) Bonus (2) Options (3) Compensation (4)
---- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
John O. Ryan........................... 1995 $197,236 $68,510 _ $2,108
Chairman, Chief Executive 1996 200,000 49,449 _ 4,886
Officer and Secretary 1997 204,801 52,603 _ 5,543
William A. Krepick..................... 1995 170,232 55,263 129,628 1,725
President and Chief Operating Officer 1996 200,000 49,268 _ 6,002
1997 204,801 54,303 33,400 8,372
Victor A. Viegas....................... 1995 _ _ _ _
Vice President, Finance and 1996 70,313 17,321 _ _
Administration and Chief Financial 1997 140,158 38,703 22,222 3,142
Officer
Brian R. Dunn.......................... 1995 125,000 23,168 13,888 284
Vice President, Business Development 1996 131,204 16,605 _ 5,321
1997 137,455 18,503 _ 5,763
Mark S. Belinsky....................... 1995 26,989 _ 27,777 59
Sr. Vice President, Worldwide Theatrical 1996 127,026 31,292 8,333 2,189
and Pay-Per-View Copy Protection 1997 137,507 36,803 18,000 3,382
- -----------
</TABLE>
(1) William A. Krepick was promoted to President and COO in November 1995.
Prior to his promotion, Mr. Krepick served as Sr. Vice President and
Acting President. Victor A. Viegas joined the Company in June 1996 as
Vice President, Finance and Administration and Chief Financial Officer
and Mark S. Belinsky joined the Company in October 1995 as Vice
President, Worldwide ACP Theatrical and ACP Pay-Per-View.
(2) Represents bonuses pursuant to the Executive Incentive Plan earned for
services rendered in each year indicated although paid in a subsequent
year.
(3) Represents number of shares of Common Stock subject to options granted
in each year indicated. Options granted to the Named Officers following
the Company's initial public offering were granted at fair market value
as determined under the terms of the 1996 Equity Incentive Plan.
Options granted to the Named Officers prior to the Company's initial
public offering on March 12, 1997 were granted at fair market value as
determined by the Board of Directors based on all factors available to
them on the grant date. These factors included the history of, and
prospects for, the Company and the industry in which it competes, an
assessment of the Company's past and present operations and financial
performance, the prospects for future earnings of the Company, the
present state of the Company's development, the possibility of an
initial public offering by the Company, and market prices of publicly
traded common stocks of comparable companies in recent periods.
(4) Includes for each Named Officer some or all of the following: (i)
Company contributions to the 401(k) Plan, (ii) taxable compensation for
value of life insurance coverage over $50,000, and (iii) travel
incentives in the form of a reimbursement for one-third of the
difference between business class and coach class air travel up to a
maximum of $1,000 for each business trip traveled in coach class.
In August 1996, the Company distributed to its employees as bonuses an
aggregate of 208,782 shares of CAC common stock, which represented approximately
10.4% of the then outstanding voting stock of CAC. Of these shares, 50% vested
on December 31, 1996 and the remaining 50% vested on December 31, 1997, subject
to the employee's continuing in the Company's employment through such dates.
Upon termination of employment, the Company had the right to repurchase the
former employee's unvested shares at a price of $0.01 per share. The number of
shares of CAC common stock distributed as a bonus to each Named Officer was as
follows: John O. Ryan 36,000 shares; William A. Krepick 36,000 shares; Victor A.
Viegas, 10,102 shares; Brian R. Dunn 7,200 shares; and Mark S. Belinsky 12,000
shares.
Option Grants in Last Fiscal Year. The following table sets forth further
information regarding option grants pursuant to the Company's Equity Incentive
Plan during 1997 to each of the Named Officers. In accordance with the rules of
the Securities and Exchange Commission, the table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective ten-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.
<TABLE>
Option Grants in Last Fiscal Year
(Individual Grants)
Name Number of Shares Percent of Total Options Exercise Price Expiration Potential Realizable
Underlying Granted to Employees in Per Share Date Value at Assumed Annual
Options 1997 Rates of Stock Price
Granted(1) Appreciation for
Option Term (2)
5% 10%
<S> <C> <C> <C> <C> <C> <C>
John O. Ryan.............. - - - - - -
William A. Krepick........ 13,400 12.1% $ 8.50 03/21/07 $ 71,632 $181,522
2,080 1.9% 14.50 10/23/07 18,968 48,066
17,920 16.1% 14.50 10/23/07 163,413 414,107
Victor A. Viegas.......... 22,222 20.0% $8.62 03/14/07 120,468 305,279
Brian R. Dunn............. - - - - - -
Mark S. Belinsky.......... 15,837 14.2% $14.50 10/23/07 144,418 365,972
2,163 1.9% 14.50 10/23/07 19,725 49,984
</TABLE>
- -----------
(1) Options granted under the Equity Incentive Plan in 1997 were incentive
stock options or nonstatutory stock options that were granted at fair
market value and that vest over a three-year vesting period. Options
expire ten years from the date of grant.
(2) The 5% and 10% assumed annual rates of stock price 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.
Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values. The following table sets forth the number of shares acquired upon
the exercise of stock options during 1997 and the number of shares covered by
both exercisable and unexercisable stock options held by each of the Named
Officers at December 31, 1997. Also reported are values of "in-the-money"
options, which represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Company's
Common Stock as of December 31, 1997 ($15.88).
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at Fiscal Year-End at Fiscal Year-End
Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired on Realized ($)
Name Exercise (#)
<S> <C> <C> <C> <C> <C> <C>
John Ryan _ _ _ _ _ _
William A. Krepick 15,000 $177,000 84,999 51,918 $1,120,287 $ 370,559
Victor A. Viegas _ _ _ 22,222 $ 161,332
Brian R. Dunn 5,000 $31,500 10,277 15,277 $ 135,451 $ 201,351
Mark S. Belinsky 15,278 $205,456 _ 38,832 _ $ 299,406
</TABLE>
Employment Agreement
The Company entered into an employment agreement with Mr. Viegas in
June 1996, in connection with Mr. Viegas' employment as Vice President, Finance
and Administration and Chief Financial Officer of the Company. Under the
employment agreement, Mr. Viegas is to receive an annual salary of $135,000 and
is eligible to participate in the Company's Executive Incentive Plan. The
employment agreement may be terminated by the Company or by Mr. Viegas at any
time for any reason. Pursuant to the employment agreement, the Company sold to
Mr. Viegas 58,333 shares of the Company's Common Stock at a price of $2.70 per
share. Mr. Viegas purchased the shares with a full recourse promissory note
secured by the shares. The largest aggregate amount of indebtedness outstanding
under the note during 1997 was $157,500. Interest is charged at the rate of
6.58% per year. The loan is due on June 7, 2001 or earlier on termination of Mr.
Viegas' employment with the Company. As of February 28, 1998, the outstanding
balance due under the promissory note was $131,251 plus accrued and unpaid
interest of $4,054. The Company has the right to repurchase unvested shares at
the original sale price in the event that Mr. Viegas ceases to be an employee of
the Company. The repurchase right lapsed as to one-sixth of the shares in June
1997, and lapses as to an additional one-third in June 1998 and as to the
balance in June 1999. Immediately following the Company's initial public
offering and pursuant to the terms of the employment agreement, the Company also
granted to Mr. Viegas an option to acquire an additional 22,222 shares of the
Company's Common Stock at the fair market value of such shares on the grant
date. These options will vest and become exercisable over a three-year period.
If the Company terminates Mr. Viegas' employment without cause, all of his
unvested shares and stock options will have the benefit of one additional year
of vesting and Mr. Viegas will be entitled to severance benefits under the
Company's severance pay plan. If the Company terminates Mr. Viegas' employment
without cause or if Mr. Viegas terminates his employment for good reason within
either three months before or twelve months after a change in control of the
Company, all of his unvested shares and stock options will immediately vest.
OTHER MATTERS
Expenses of Solicitation
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, and the entire cost of such solicitation will be borne
by the Company. In addition to the use of the mails, proxies may be solicited by
directors, officers and employees of the Company, by personal interview,
telephone and facsimile. Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
material and annual reports to the beneficial owners of stock held of record by
such persons, and the Company will reimburse them for reasonable out-of-pocket
and clerical expenses incurred by them in connection therewith.
Financial and Other Information
All financial information is incorporated by reference to the
information contained in the Financial Statements included in the Company's
Annual Report to security holders. COPIES OF THE COMPANY'S COMPLETE ANNUAL
REPORT AND FORM 10-KSB ARE AVAILABLE WITHOUT CHARGE UPON REQUEST MADE TO THE
COMPANY'S CORPORATE OFFICES.
Stockholder Proposals
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company no
later than December 31, 1998, in order to be included in the proxy statement and
proxy relating to the 1999 Annual Meeting.
Discretionary Authority
The Annual Meeting is called for the specific purposes set forth in the
Notice of Annual Meeting as discussed above, and also for the purpose of
transacting such other business as may properly come before the Annual Meeting.
At the date of this Proxy Statement the only matters which management intends to
present, or is informed or expects that others will present for action at the
Annual Meeting, are those matters specifically referred to in such Notice. As to
any matters which may come before the Annual Meeting other than those specified
above, the proxy holder will be entitled to exercise discretionary authority.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John O. Ryan
--------------------------
John O. Ryan
Secretary
Dated: April 20, 1998
Sunnyvale, California
